Ligand Pharmaceuticals Inc (LGND) 2008 Q4 法說會逐字稿

Good afternoon.

At this time, I would like to welcome everyone to the Ligand fourth quarter and year-end results conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions).

It's now my pleasure to turn today's call over to Ms.

Erika Luib, Investor Relations.

Go ahead, ma'am.

Thanks, Andrew.

Welcome, everyone, to Ligand's fourth quarter results and business update conference call.

Joining me today are John Higgins, President and CEO of Ligand Pharmaceuticals; John Sharp, Vice President of finance and CFO; and Dr.

Martin Meglasson, Vice President of Discovery Research.

Before we begin the call, just a reminder to everyone that today's call will contain forward-looking statements within the meaning of Federal securities laws.

These may include but are not limited to statements regarding intent, belief, or current expectations of the Company, its internal and partner programs, regulations affecting the Company's business and its management.

These statements involve risks and uncertainties, and actual events or results may differ materially from the projections described in today's press release and this conference call.

Additional information concerning risk factors and other matters concerning Ligand can be found in Ligand's public periodic filings with the Securities and Exchange Commission, which are available at www.sec.gov.

The information in this conference call related to projections or other forward-looking statements represent the Company's best judgment as of today, February 12th, 2009.

Ligand undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

At this time, I will turn the conference call over to John Higgins.

John?

Erika, thank you.

Thank you everybody for joining us this afternoon.

This is our first call of 2009, and it comes at a time when just recently over the last few months we have had several significant and positive events that are transforming our Company.

The equity markets are in rough shape, no doubt, but Ligand is doing well.

In addition to updating you on our financials, it's a great time to talk about the business.

After my remarks, John Sharp will provide information on our financials, and then Martin will provide some highlights from some of our partnered and internal research programs.

As investors and analysts evaluate Ligand, I want to focus people on what excites us about the business.

First, we have a dynamite royalty asset in partnership with GSK for PROMACTA other TPO molecules.

PROMACTA was just approved.

We think it's targeting a big potential market, And GSK has done an excellent job advancing the program.

Second, we have a long list of fully-funded drug development collaborations with big pharma.

Now, when I say "fully funded," I mean the partners are paying all the development costs and commercial costs for drugs that are at various stages of development.

Without any further investment or use of our cash, we will enjoy the benefit of potential future revenues from milestone payments and royalties.

Third, we have a great discovery platform that has a very strong and credible track record.

Not only have we shown we can discover drugs, but in many cases our drug discoveries have made it all the way to product approval or to late-stage development.

This can be the engine for new deal-making.

And finally, we believe we have the right thinking about how to run a biotech company.

Stick to what you are good at, keep costs low, protect your cash on the balance sheet, and transfer the development costs and risks through partnerships.

Now moving on, I want to share some thoughts on our acquisition of Pharmacopeia.

It's early days, but I truly feel for investors in both companies this is a sensational deal.

When we announced it, we said the two companies were a perfect fit.

Having recently closed the acquisition, we still see it the same way and, in fact, we are perhaps even more excited about the opportunities we'll have by adding on the Pharmacopeia business than we were when we first announced the deal last September.

The integration has gone smoothly, and we have been able to move quickly to cut costs, refocus the business, and integrate it into Ligand's already lean operations.

Since the time we closed the deal just seven weeks ago, we have received positive results on the DARA Phase IIb trial, we were able to enter a new drug screening deal that would generate new revenue for us over the next two years, and we earned a $1 million payment from Schering-Plough for their Alzheimer's drug.

On a combined basis, we have nine corporate partners developing over 20 molecules for a range of indications, including COPD, asthma, rheumatoid arthritis, chronic liver disease and osteoporosis.

The partnerships have the potential to generate over $500 million in R&D and milestone payments, as well as have a chance to generate a string of royalties that could extend well past the next 10 to 15 years.

Now, I mentioned the recent approval of PROMACTA.

This is a major development for Ligand, as it adds a second royalty to our revenue stream, and because we enjoy a healthy royalty rate for a long period of time.

The initial indication the drug is approved for is the chronic treatment of ITP in the United States.

We look forward to the filings and approvals for this indication in other markets around the world, as well as the potential for other indications to be added to the label, as GSK is pursuing an ambitious late-stage development plan for other indications as well.

Also, we entered an additional license agreement with GSK in December of last year for LGD-4665, and our other proprietary TPO drugs.

This further expands GSK's TPO franchise, and Ligand's potential to earn even more royalties on TPO drugs.

On a somewhat related topic, today we issued a separate release announcing that we've settled the ongoing litigation with Rockefeller, related to claims of their economic interest in PROMACTA and other drug candidates.

Overall, this is a good outcome for both parties.

Under the original contract with Rockefeller, in general, they were claiming we owed them 25%, one-quarter, of all payments we have already received or will receive from GSK for PROMACTA, as well as other potential molecules.

Now under the settlement agreement, we have agreed to pay $5 million cash up front, $1 million each on the first and second anniversary of the deal being signed, so that will be February 2010 and February 2011.

We will also pay a share of royalty we receive on PROMACTA, otherwise known as eltrombopag.

The level of sharing will be 5.88% on royalties we actually receive for annual sales below $1.5 billion by GSK, and then a 7% sharing on royalties we actually receive on sales above $1.5 billion in sales generated by GSK.

Now, to be clear, those percentages are not a percent of GSK sales, they are a percentage sharing of what we actually receive from GSK.

Now we also agreed to pay a 1.5% worldwide net sales on LGD-4665, and we will pay this out of the 16% royalty that is due to us from GSK for that drug.

Finally, we agreed to sharing half of any future milestones with Rockefeller for other molecules that extend from our deal with Glaxo in the early 1990s.

Aside from a backup to eltrombopag, we are not aware of other molecules being developed at this time, and we believe that milestones, if any, from that agreement going forward will be minimal.

And again, to be clear, there will be no milestone sharing for LGD-4665 under the agreement we just signed with GSK in December.

Now, given the significant legal costs that we were incurring, the recent approval of PROMACTA, our deal with GSK for LGD-4665, now is a good time to get this matter resolved.

We can afford to do the deal, and it's a good outcome for Ligand to get this overhang and distraction behind us.

With that, I would like to turn it over to John to walk through our financials.

Thank you, John.

Jumping right into the numbers, our total revenues for the fourth quarter of 2008 were $12.4 million, compared with $5.8 million for the fourth quarter of 2007.

Fourth quarter 2008 revenues consist of $5.4 million of royalty income from AVINZA sales, a $5 million license payment from GSK for LGD-4665, and a $2 million milestone payment from GSK related to the approval of PROMACTA.

Fourth quarter 2007 revenues consisted of AVINZA royalties, as well as a $1 million milestone from GSK.

Research and development expenses in the fourth quarter of 2008 were $11.1 million, compared with $10.4 million in the fourth quarter of 2007.

Fourth quarter 2008 expenses include $6 million related to the settlement agreement with Rockefeller University that was just announced.

Excluding this settlement expense, the decrease in R&D expenses is primarily due to head count-related expenses as a result of our restructuring back in the fourth quarter of 2007, as well as lower outside research costs related to our internal programs.

General and administrative expenses in the fourth quarter were $3.2 million, compared with $3.9 million in the fourth quarter of 2007.

The decrease in expenses is, again, primarily due to lower head count-related costs.

As a result of our acquisition of Pharmacopeia in December, we also expect to record a writeoff of acquired end process research and development of approximately $72 million.

This amount is management's best estimate based on available information and is subject to change.

The final amount will be recorded in our 2008 annual report on Form 10-K.

The remaining allocatable purchase price of approximately $6 million for any adjustments to acquired in-process research and development will be recorded on our balance sheet as an intangible asset, to either be amortized over a period or reviewed for impairment on an annual basis.

Including the writeoff of in-process research and development, the loss from continuing operations for the fourth quarter of 2008 was $73.7 million or $0.76 per share, compared to a loss of $5.3 million or $0.06 per share for the fourth quarter of 2007.

During the fourth quarter of 2008, we also reported income from discontinued operations of $4.1 million or $0.04 per share, compared with income of $11.3 million or $0.12 per share in the fourth quarter of 2007.

Our total net loss for the fourth quarter of 2008 was $69.6 million or $0.72 per share, compared with total net income of $5.9 million or $0.06 per share in the fourth quarter of 2007.

As of December 31st, 2008, cash, cash equivalents, short-term investments and restricted investments totaled $82 million.

In addition, approximately $10.2 million of cash is held in a trust account to support potential indemnifiable claims on behalf of certain current and former members of Ligand's Board of Directors.

Also at December 31st, we have approximately 113 million shares outstanding of common stock, and $350 million to $400 million of federal net operating loss carry forwards.

Now looking forward to 2009, on the revenue side, we expect our total revenue to be between $30 million and $34 million, including approximately $9 million of noncash deferred revenue from collaboration agreements.

Our revenues will be consistently split from four sources.

First, royalties from AVINZA and PROMACTA payments; second, payments for research performed on behalf of collaborators; third, expected milestone payments; and finally, the noncash deferred collaboration revenue I just mentioned.

We expect our operating expenses from our continuing business to be between $50 million and $54 million, including $2 million of gain on sale lease back, and approximately $8.5 million of noncash depreciation, amortization and stock-based compensation.

On the cash side, for our continuing business we expect to burn approximately $20 million in cash during 2009.

In addition, in January, we paid off approximately $3.5 million of debt from Pharmacopeia.

We will also make payments of $8.5 million related to our settlement agreements with Rockefeller and the Salk Institute, and we expect to pay out approximately $4 million for fees and expenses related to the acquisition of Pharmacopeia.

I would now like to turn the call over to Martin Meglasson.

Thanks, John.

I would like to provide some background on the three Phase II clinical development programs that were added to our pipeline in the Pharmacopeia transaction, and an update on our SARM program.

Schering-Plough is developing a CXCR2 chemokine receptor antagonist, Sch527123, that was co-invented by Pharmacopeia and Schering-Plough.

The CXCR2 receptor plays an important role in respiratory diseases involving neutrophilic inflammation and mucous overproduction.

Schering-Plough has recently completed data collection in a 12-week double blind placebo controlled Phase II study of Sch527123 in smokers with COPD.

Schering-Plough is currently conducting two Phase II clinical trials in asthma patients that are estimated to be completed in the first half of 2009.

In another collaboration, Bristol-Myers Squibb is developing a p38 MAP kinase inhibitor, BMS-582949, that was discovered in a research collaboration between BMS and Pharmacopeia.

P38 kinase is a convergence point for multiple signaling pathways involved in inflammation.

Because of p38 kinase's central role, inhibitors of the enzyme have long been sought as potential drugs for a variety of inflammatory diseases.

Early attempts by other companies to develop p38 kinase inhibitors have floundered in Phase I due to liver function abnormalities.

At the 2008 American College of Rheumatology Annual Meeting, BMS scientists reported results from three Phase I clinical trials in healthy men at up to 600 milligrams of BMS-582949, once daily for 28 days.

The compound was well tolerated, with no serious adverse events observed.

The most common adverse events were dizziness, rash and headache.

Most adverse events were mild to moderate in intensity, not dose-related, also observed in placebo subjects, and resolved by study discharge; most laboratory abnormalities for Grade 1 or 2, and were comparable between BMS-582949 and placebo groups.

BMS has completed a positive Phase I exploratory medicine study of this compound in patients with stable rheumatoid arthritis, concurrently receiving Methotrexate.

BMS has three Phase II clinical trials ongoing with the compound.

These are in rheumatoid arthritis patients receiving Methotrexate, in atherosclerosis patients receiving low to moderate doses of Atorvastatin, and in plaque psoriasis patients.

We recently finished a Phase IIb clinical trial with PS-433540, our dual acting angiotensin-1, an endothelin-A receptor antagonist, in hypertensive patients.

A press release and our webcasted CEO BIO presentation covered the positive preliminary results from this study.

In a nutshell, the concept that a dual receptor blockade would produce a larger reduction in blood pressure than angiotensin receptor blockade alone was reconfirmed in this study.

This suggests that better therapeutic outcomes might be achieved in hypertension-related disorders such as diabetic neuropathy, with PS-433540 than current drugs.

We will present the final results from this study at an appropriate scientific meeting in the near future.

We have now completed nine clinical trials with PS-433540.

We do not intend to conduct additional clinical trials with the compound, but based on our extensive clinical and preclinical databases, we will be holding discussions with prospective partners for licensing the DARA program in the near future.

Moving on to selective androgen receptor modulators, or SARMs, these are novel drugs for the treatment of frailty, cachexia and osteoporosis.

Two events have occurred in our SARM program since our last update.

An IND was filed on LGD-4033, our second-generation SARM compound, which is highly tissue-selective for muscle and bone, and spares the prostate and uterus.

We also acquired PS178990, a highly-potent oral SARM in the Pharmacopeia transaction.

A Phase I single ascending dose clinical trial has been completed with this latter compound.

We are excited about the SARM category.

The combination of multiple SARMs in our portfolio provides us a variety of development options.

We are putting together our plans for how best to drive forward this interesting new therapeutic category for partnering purposes.

Now over to you, John.

Martin, thank you.

That ends our prepared remarks.

We would like to turn it over to the operator for questions.

(Operator Instructions).

Your first question comes from Joe [Patton] from [Mariam Curry and Ford].

Go ahead, please.

Go ahead.

Hi, good afternoon, fellas.

Thanks for hosting the call, and thanks for taking my question.

Congratulations on the progress.

Can you hear me okay?

Yes, you bet, Joe, thank you.

Okay, great.

Two quick questions, one on DARA and then one on Pfizer/Wyeth.

Now that's you've come out with the data, I know you're focusing on partnering DARA.

I'm just curious if you could give any visibility on the type of partnership you'd be looking for now that you have this Phase IIb data in hand?

Yes, you bet, Joe.

Thanks for the question.

We have the data.

We are encouraged by the data.

We really do believe this appears to be a good medical treatment.

Obviously, since we acquired Pharmacopeia, we are really going back, looking at the conversations they had prior to the acquisition.

They had reached out to dozens of companies, and many of the parties were interested in the program, but were keen to see the final Phase IIb data.

So we are going back and we are reviewing the key contacts, where the dialogue was left off.

Our objective -- as Martin indicated, we finished the study.

We are preparing a full abstract.

We'll have some medical publications later this Spring, maybe May or June.

In the meantime, we will prepare our package and really reach out and reinitiate the dialogue.

As far as what sort of partnership, I think it's too early to really talk structure or expectations.

One thing we are clear of, though, we think we have got a very robust and compelling data package.

We don't plan to do any more development ourselves.

We want to get out there, see if we can partner this, find a good home for it, and transfer the cost and the future development to a third party.

Great.

And if I could just follow up real quick on Pfizer/Wyeth.

Obviously, I'm not asking you to put yourself in the minds of Pfizer and Wyeth, but post-merger of those two companies, they could have potentially two drugs on the market for osteoporosis and potentially -- you know, how do you see that maying out with regard to royalties toward -- toward Ligand, because obviously, you know, one could potentially compete against the other?

Yes, sure.

So -- maybe two questions there.

One is the prospect, just from a regulatory perspective, approvals, et cetera.

Obviously, we can't predict the relative -- regulatory timeline to approvals.

We are encouraged by the data, what we have seen, what has been published.

There appears to be very good efficacy, attractive safety profile, and it is our sense that the medical community is looking for more SARMs or other osteoporosis treatments.

They want more options.

Having said that, we know both drugs have had a very difficult regulatory path.

So we really can't make a call as to whether one or both will be approved in any certain timeframe.

As far as the merger, presuming it does go through, we do think these will be competitive drugs.

We are waiting for clarity, whether one will be required to be divested.

We don't know if that will be the case.

We are trying to get that information.

And just as soon as we do, we will give -- we will translate that to investors.

Thank you.

Joe, thank you.

Appreciate your support.

(Operator Instructions).

Your next question comes from the line of Christopher James from Rodman & Renshaw.

Go ahead, sir.

Thank you for taking my question and congratulations on an excellent fourth quarter.

Can you help us understand the size of the chronic ITP market a little bit better in the U.S.?

I mean, is this a $200 million or $500 million opportunity split between you, GSK and Amgen, and maybe potential sort of size of the other indications?

Sure, Chris.

Thanks for the question.

The market, the way we look at it, is there are roughly as many as 100,000 to 200,000 patients characterized as having ITP, but I think the more severe patients who would be qualified to go on these medicines is probably more in the 50,000 to 60,000 patient level.

So that -- that's the target market.

Now, with any market, you aren't going to get full penetration, and I will really defer to the analysts to think through whether it's a fourth or a half of that market of patients that actually go on therapy.

So we're talking, you know, somewhere in, you know, the -- you know, somewhere below the 50,000 and 60,000 numbers of patients within the U.S.

Drug pricing is another factor.

As we understand, having looked at the weekly treatment costs, the cost for PROMACTA could range in the $40,000 to $60,000 year.

That's a full year of treatment.

That's significantly below Nplate.

We think not only the dosing convenience, the efficacy, but also the pricing advantage creates a nice profile for PROMACTA.

But I think when we are talking about dollar size, you know, we would look at patients probably total market below 50,000 patients shared with Amgen.

Treatment that is probably on average, well the full year is $40,000 to $60,000, the full year per patient cost.

Since this could be treated intermittently, it will be less than that.

I think when you roll it up for this market alone, in the U.S., we think it could be several hundreds of millions of dollars.

That's the target market.

We are eager to see how the landscape plays out the next several quarters, knowing that there are now two competitive products approved for the same indication.

But we do think it's an important initial market.

We believe that there are comparably-sized markets elsewhere in the world and, again, this is what we hope will be just the first indication of many that the drug can be approved for.

Great.

Thanks.

I guess could you give us a little bit of insight into what we should expect from PROMACTA sales in 2009?

It looks like Nplate is doing pretty well.

It looks like it could easily get up to $100 million, 2009 alone?

Well, yes.

We -- we've talked with analysts, and obviously are eagerly getting input from any third-party source possible.

Generally, we -- we aren't going comment on our expectations for PROMACTA sales.

We -- we really want to look at what GSK does in the first quarter or two.

They are our partner.

They are running all the commercial plans.

I think we really want to look to see what guidance they give, or a direction they help investors with.

Our perspective, realistically, is that this is an important medicine.

It will be used.

I think early on the sales will probably be low.

But the potential for the drug we really do believe is significant.

So I think from a guidance perspective, we have given our revenue range.

We are comfortable with that.

It's comprised of several factors.

You know, I think we don't want to get ahead of ourselves in terms of PROMACTA royalty guidance, at least into the short term.

We really need more information before we start getting a sense of what the trend lines are going to be.

Great.

Thanks, John.

Thanks for taking my question.

You bet, Chris.

Thank you.

(Operator Instructions).

Your next question comes from the line of Kevin Degeeter from Oppenheimer.

Go ahead, sir.

Good afternoon, guys.

Kevin, I'm glad to hear you made it on the call.

Made it out of the woods.

No, I appreciate the help all around.

Yes.

So I apologize if you covered some of this earlier but, John, could you just give us what you know today on Pfizer and Wyeth, and just the antitrust dynamic with regard to their concerns?

I mean, when might we have a little bit more clarity whether both of those will survive the merger into one entity, or what may ultimately need to be divested?

Right.

Yes, there was a question earlier, but I know you had some trouble getting on the call.

So -- the simple answer, we don't have a lot of information.

What we are hearing from various, you know, public sources, is that people believe the merger will happen.

It will probably happen in the third quarter, so we are looking out six to eight months or so.

These are two clearly directly competitive drugs that are at the exact same stage of regulatory review.

You know, I think that's one part of this, will both drugs be approved, and we're realistic to know that they have had a difficult path so far.

But we are encouraged by the product profiles.

We are reaching out to these two companies, and any other source we can, to try to get clarity.

Is there a divestment plan, or will there be an SEC requirement to divest?

We just don't know right now.

Just as soon as we hear something, we will make sure that we communicate that to investors.

Okay.

Terrific.

And, you know, I guess sort of on, you know, a related point here, how do we think about the -- the kind of more quarterly flow through of the integration for Pharmacopeia here?

I mean, in terms of the expense aspect?

I mean, I apologize if you covered this, but I mean how do I think this expense guidance you provided for the year on a more quarterly basis?

I mean, is it sort of meaningfully higher in the first quarter here?

Are you going to take some costs out, or was a lot of that done prior to close?

Yes, right.

That hasn't been covered.

John, do you want to give more detail on that?

Yes, I think for the most part, you can expect the expenses to be fairly consistent throughout the quarters.

Most of the transition costs were up front.

You may see a little bit higher in the first quarter, but nothing to speak of.

Okay.

And just lastly on my side, and I appreciate all of your help on this.

Can -- just give us a sense of how you think about the M&A landscape out there, now.

I mean, what type of assets are most interesting to you, and have buyers in your view, you know, really -- or excuse me, sellers really come around to the appreciation of, you know, kind of the reevaluation of assets here in kind of small cap biotech, or is it still, you know, difficult to find willing sellers out there?

Yess, right.

Well, generally, you know, and we've got a reference point with Pharmacopeia, we are finding it's a -- it's an abysmal equity environment.

We all realize that.

Many companies are out of options, and they otherwise have good assets, development programs or partnerships, but they just don't have access to capital.

And that's something, at least in my career, I really can't -- can't say I have ever seen before.

And so out of necessity, we are seeing more and more companies, and it's become very acute the last four or five months, really facing the realities that they just don't have funding or liquidity options.

As -- and that is creating more opportunities.

But also, I do believe that there is a -- a perceptible change in the way people are thinking about the realities of small cap biotech.

Frankly, the costs are high.

The regulatory timelines have been pushed out.

We are finding that big pharma, you can strike very attractive deals on earlier-stage programs, so the realities are changing.

So, you know, I think as much as investors make a bet and they know their reason for why they want to own something, it is tough to do deals.

It's tough to get people to come around, but I think that we are seeing more companies interested in deal making and also more realistic about the realities of their responsibility to drive value for shareholders.

So it's a fascinating market.

As to Ligand, we like our business and our platform.

I think we are looking to drive a business that is financially well-managed, very prudent spending discipline, and a business where if we were to acquire other assets, they really have an eye toward potential positive cash flows, and not businesses or assets that would be ultimately a cash drain on the combined business.

I appreciate that so much.

That's very insightful.

Thank you.

Thank you, Kevin.

(Operator instructions).

And you have a follow-up question from Christopher James from Rodman & Renshaw.

Go ahead.

A follow-up.

Can you give us a little bit more color on the revenue guidance?

I guess, can you tell us what you're looking for in terms of, you know, milestones versus royalties?

Yes, John, he gave some general remarks -- maybe John, if you want to elaborate, but we have in this mix really four buckets, and this is the way we see it going forward.

I think the buckets will change, but royalty revenue from both AVINZA and PROMACTA, that's one bucket.

The second bucket are contract R&D payments.

We have a couple of companies who every quarter are paying us money for research we are helping them with.

And then a third bucket, you know, takes into account potential milestones we might get from existing collaborations, and then this third bucket -- or, I'm sorry, the fourth bucket is noncash deferred revenue.

When we did some license -- licensed deals in the past, we hung up the revenue on our balance sheet, and we spread it out by accounting rules over time.

So those are the four buckets, and that -- I think as the business evolves, those will remain in our picture.

As it turns out with the revenue guidance, each one of those buckets is roughly about the same amount, about a fourth of that total number.

Great, that's helpful.

Okay.

Well, thank you.

We appreciate everybody's time on the call.

I know it happened to be a very busy day for earnings calls for some reason, but I just want to conclude by saying that management and the Board is very excited about our business.

We have worked hard to get here.

We had ambitious goals for '08.

We thought last year was a successful year for us.

We have great assets, a great track record, and particularly given this tough economic environment, we believe we have the right mix of prudent spending discipline, and clarity on our business and strategy, to drive value for shareholders.

So we appreciate your support from investors and analysts, and look forward to giving you updates throughout the year.

Thank you.

This concludes today's presentation.

You may now disconnect your lines.