Ligand Pharmaceuticals Inc (LGND) 2010 Q1 法說會逐字稿

Greetings, and welcome to the Ligand first quarter earnings conference call.

At this time, all participants are in a listen-only mode.

A brief question-and-answer session will follow the formal presentation.

(Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms.

Erika Luib, Investor Relations for Ligand.

Thank you, Ms.

Luib.

You may begin.

Great, thanks, Scott.

Welcome to Ligand's first quarter financial results and business update conference call.

Speaking today for Ligand are John Higgins, President and CEO, and John Sharp, Vice President of Finance and CFO.

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 partner programs, and its management.

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

Additional information concerning risk factors and other matters concerning Ligand can be found in Ligand's public periodic filing 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 represents the company's best judgment as of today, May 5, 2010.

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'll turn the conference call over to John Higgins.

John?

Erika, thank you.

And thank you for joining us.

We're pleased to have all of you on our call.

We've got a good turnout this afternoon.

Ligand is off to a great start in 2010.

We closed an acquisition that has already produced meaningful dividends for the company.

We've had substantive updates and milestones on partner programs over the last couple of months.

And have made progress with our internal pipeline.

For those who know Ligand and those who do not, I want to reiterate we are running a lean business, but a highly productive business.

And our financial performance is right in line with our plan.

If our strategy is correct and our partners are successful, Ligand has the potential to generate significant financial returns for our investors over the long term.

Now, we've had an impressive list of achievements and developments over the past quarter.

I'd like to highlight a few.

And only a few, because, frankly, it is a long list.

But I'm going to hit some high points and also refer you to our press release where we fill out a few more bullets, as well.

First I want to start with PROMACTA, a very exciting and valuable asset that Ligand has in partnership with GlaxoSmithKline.

The momentum for value creation with this asset clearly continues to build.

GSK just reported first quarter sales of $9 million.

This is for the ITP indication and US market only.

Now frankly, while the dollar sales are low, there has been a very solid and steady growth with the brand over the five successive quarters since it's launched.

Plus, GSK has just launched a product in Europe this past month.

It's in several markets, and we believe more markets are rolling out going forward.

So we should see expanding royalties with these new markets.

And most importantly, we believe the big indication of hepatitis C is now very far along in development.

Both Phase III studies are fully enrolled with large patient numbers, and we estimate those trials will be finished next year.

I will also highlight and we continue to be very impressed with GSK's commitment to this program commercially and clinically.

We just learned as of last week, GSK has started another Phase I-II trial for AML.

This is in addition to numerous ongoing ITP studies, an MDS study, the hepatitis trials, and so on.

So a very impressive clinical roster of ongoing studies.

I just want to focus our investors and listeners.

We believe PROMACTA could be a significant commercial product.

We could receive average royalties approaching 10% based on sales levels, and the patent life is long, going beyond 2020.

Moving on, another development recently is a large milestone we earned relating to a partnership with Roche for a hepatitis drug.

What's interesting is we assumed this collaboration just three months ago along with our acquisition of Metabasis.

It is a program we are very proud of.

The Metabasis deal is a fantastic acquisition for Ligand.

We think it was a creative and a brilliant structure for our shareholders and a company that is bringing us some very high-quality assets.

To be able to get an answer on a partnership within just a couple of months of closing is significant and not only validates the quality of the deals we have done, but also really reinforces the quality of the programs we have in partnership.

Now, as a result of Roche initiating this Phase I trial we earned $6.5 million.

Under the terms of the Metabasis acquisition we'll keep one-third of the milestone and pay the other amount to Metabasis CBR shareholders.

This is a great deal.

The program targets a very large and important market with hepatitis.

And notably it's being pursued by one of the foremost companies in hepatitis research.

We're proud of Roche and the work they're doing.

In addition, the deal calls for $200 million in potential license and milestone payments, plus a meaningful royalty on potential sales.

And again, I just want to reiterate, this is just one of the many valuable assets we assumed with the recent acquisitions.

Now on other fronts, Pfizer closed their acquisition of Wyeth last fall.

And just recently, Pfizer has opened up with more information about their commercial and regulatory plans for their SERM drugs to treat osteoporosis.

In particular we believe they will launch Conbriza in Europe in the second half of 2010 and seek a US FDA panel meeting for the same drug in the US that's called Viviant in the second half of 2010, as well.

This is significant because if they do get a panel meeting, it could be the impetus for advancing the drug for final review and potential approval by the FDA.

In addition, Pfizer recently announced they plan to file an NDA for Aprela in the second half of 2010.

Aprela, as a reminder, is a combination drug combining a SERM with a PREMARIN.

This looks like a very potential exciting product.

And it's worth noting that years ago PREMARIN as a single-agent drug was a multibillion dollar drug itself.

So this new combination drug Aprela could be a very large commercial brand if approved.

All in all, these are important developments from one of the world's largest drug companies.

And it's significant because we have not heard much about the programs for quite a while.

Most likely because their merger was pending with Wyeth last year.

And it indicates that Ligand may soon start earning royalties off of yet another new product launch.

And we have the potential to see the osteoporosis franchise expand nicely under Pfizer if they can execute on their regulatory plans, as well.

We are proud of the business we're building.

These are just a few highlights, but we are excited about the recent developments.

We have a full calendar of events projected for the rest of 2010.

And a considerable amount of information available about our partners and pipeline assets.

Now to help facilitate analysts and investors doing research on the company, we are completely overhauling our website with a lot of important new content.

And this should be available sometime in June.

In addition, we're excited to be planning an analyst event in New York City.

We've announced that today -- we've given some details -- we'll have more information in the next couple of weeks.

But this is targeted for the last week of June in New York City.

With that I'll turn it over to John Sharp for our financial review.

Thanks, John.

I'd like to start with a recap of our financial results as they were just released about a half-hour ago.

And also provide an update on our financial guidance for the rest of 2010.

Total revenues for the first quarter of 2010 were $6 million, compared with $9.5 million for the same period last year.

The $3.5 million decrease is due to $1.7 million of lower milestones revenue, $1 million of lower collaboration revenue due to the termination of the Schering-Plough and BMS collaboration agreements, and $700,000 of lower royalty revenues as the first quarter of 2009 included one month of royalties on AVINZA at 15% royalty rate compared to our current rate of 5%.

R&D expenses in the first quarter were $7.4 million, compared with $10.5 million for the same quarter last year.

The $3.1 million decrease is primarily due to lower clinical trial costs as we incurred costs to complete our LGD-4665 and DARA trials in the first quarter of 2009.

G&A expenses in the first quarter were $3 million compared to $6.8 million in the same quarter last year.

The decrease of $3.8 million is primarily due to reduced legal costs as several ongoing legal disputes were resolved in 2009, reduced facilities costs as a result of our lease buyout in August of 2009, and lower headcount-related costs as a result of staff reductions.

The total net loss in the first quarter was $2.8 million, or $0.02 per share, compared with a net loss of $5.1 million, or $0.05 per share, in the first quarter of 2009.

The loss from continuing operations in the first quarter was $3 million, or $0.02 per share, compared with the loss from continuing operations of $7.5 million or $0.07 per share, in the first quarter of 2009.

And income from discontinued operations in the first quarter of 2010 was $200,000 or $0.00 per share, compared with $2.4 million, or $0.02 per share, in the first quarter of 2009.

At the end of the quarter, we had cash, short-term investments, and restricted investments of $40.4 million.

Now during the first quarter of 2010, we had expected nonrecurring cash outflows totaling approximately $8 million, and these related to the acquisitions of Neurogen and Metabasis, legal settlement payments, and the termination payment related to the BMS collaboration.

Finally, our business is currently running in line with our plan, and for the remainder of the year we expect revenues to increase and expenses to decrease quarter-over-quarter.

As a result, we continue to expect 2010 total revenue of approximately $30 million, consisting of approximately $6 million of noncash deferred revenue, royalty payments from sales of AVINZA and PROMACTA, revenue from collaboration agreements, and potential milestone payments from existing corporate partners.

For the remaining three quarters of 2010, we anticipate total operating costs will be approximately $25 million, including noncash expenses of approximately $4 million.

And with that, I will turn the call back to John Higgins.

Thank you, John.

Just some final comments.

I mentioned our plan to revamp the webpage and have an analyst event late June in New York City.

We're also participating in several conferences.

Notably we'll be in San Francisco next week at the [NBB] conference.

That is May 11 at 10:30.

We'll be webcasting that.

We'll be at the Jefferies Conference in June.

That's the second week of June.

And at the BMO conference -- we've been invited to that as well, and that is in August.

So we're excited to be on the road and interacting with investors.

With that, we'll turn it over to the operator with questions.

Thank you.

Ladies and gentlemen, we will now be conducting a question-and-answer session.

(Operator Instructions) One moment, please, while we poll for questions.

Our first question is coming from the line of Mr.

Chris James with McNicoll, Lewis, and Vlak.

Your line is now open.

You may proceed with your question.

Hi, guys.

Good afternoon and congratulations on the great quarter, significant progress, particularly the closing of the Metabasis deal, and thanks for taking my questions.

I guess let's start with PROMACTA.

As you know, Amgen reported sales of Nplate, your competitor, in the first quarter of close to $50 million.

I guess, you know, with respect to the worldwide ITP market trending toward $1 billion, can you help us understand your internal projections for ITP in 2010 particularly in light of your revenue guidance of $30 million?

Sure.

Chris, appreciate the question.

I'll share with you some perspectives on the ITP market overall and then maybe PROMACTA more broadly.

And they're related to our projections.

What I would like to do is actually start with that as it relates to 2010.

Our outlook right now, we did about $6 million in revenues for the first quarter.

Our outlook is still about $30 million for the full year.

There are several components, milestone payments, royalties, contract.

We have several partnerships who are paying contract research payments.

So there's -- there's a good mix and diversity of revenue contribution that gets us to that $30 million target.

So the royalty contribution is actually just a small proportion of it, and even less so in terms of the actual contribution by PROMACTA.

So that's just a little perspective overall.

As to the ITP market, you're correct.

Amgen reported, frankly, we think, a very impressive quarter of sales, $49 million.

We are encouraged by that because it goes to show the potential, and I'll say the need, the medical need for thrombocytopenia drugs.

Amgen has a good product.

We think they benefit in the US by a much more favorable reimbursement environment.

We think that is one factor why they are getting more proportional sales in the US versus GSK.

And, frankly, they have been targeting these doctors for the last two decades.

So they've got a very good relationship.

There are a couple of commercial factors.

That said, when you break down their sales, about $28 million are US.

$21 million -- not quite half, but close to half -- are for Europe.

That's very exciting.

I mean, to us, it's early days, and it's not our drug.

But we're excited to what GSK can do with this product in Europe.

The European sales in just a few quarters for Amgen have been quite impressive.

And we think this reimbursement dynamic that favors Amgen's drug in the US may not be the same in Europe and Japan.

So if anything the take-away is that thrombocytopenia is a big market, it's an important market, and these drugs are being used.

The other thing I'll say is that GSK today still has about 12 years' remaining patent life and are conducting what we think to be very important studies for potentially the largest markets targeting thrombocytopenia, and notably that is hepatitis.

So that's just a little bit of color and perspective.

It is still very early in the commercial life.

We do not control the marketing or the commercial plans.

Obviously we've got a lot of respect for GSK and what they're doing.

But I think the evidence of their clinical investment and their launch activities really suggests that they are very seriously committed to the brand.

The last thing I'll say just to address a question about revenue potential, we do not give projections for PROMACTA, and we do not believe that GSK does.

However, analysts can analyze the market and put sales, drug price against market potential, or market penetration rather, and derive sales projections.

That's pretty obvious.

But of note, there are six analysts that cover GSK.

And if you look at the average of those analysts -- this is Morgan Stanley, Bank of America, Credit Suisse, JPMorgan, some prominent analysts -- The average of those analysts' forecasts for PROMACTA out in about five years is over $1 billion.

The average consensus revenues is about $1.1 billion.

And that's in 2015.

There's still seven years remaining patent life after that.

So, again, this is another data point.

It doesn't mean it's correct.

But this is a consensus from independent analysts that have received no guidance or input from Ligand.

It's their view of what the potential product sales could be for the brand.

So we're excited about the medical prospect of the drug and are very excited about the commercial prospects, as well.

Thanks, John.

That's really helpful.

I guess both trials fully enrolled -- the hep C, just sort of moving on to hep C -- 1,500 patients.

What sort of visibility should we expect, and what should we expect in terms of news flow over the next three quarters?

Right.

So the -- over the next three quarters for these studies, we expect -- sorry, these Phase III studies -- we expect little news flow.

I think where you're going to the news flow is as I just mentioned, the initiation of studies.

We were pleased to see this AML trial just posted in the Phase I-II study.

They're obviously in sick patients.

That was just posted last week.

There is a chronic liver disease study ongoing in Japan.

Some other Phase II trials.

So exactly when those studies roll off, we don't know.

Specific to the hepatitis trials, this is only our estimate.

GSK -- for respectable regulatory reasons, they are not being specific as to when they expect to announce data or even file the NDA.

However, by our analysis, these studies finished over the last four months or so, and they are roughly 15 month-treatment endpoints.

So the studies should be finished first half of 2011.

But it takes a while to close out the studies and scrub the data.

We don't know exactly when and how that data will come out.

But that is our outlook.

The studies should be finished next year, and we're optimistic that we will see data, as well, next year.

That's helpful.

Thank you.

Just quickly moving on to the SARM program.

I know you're doing a lot of the work with the program.

And I expect to see additional data points at the analysts' meeting next month.

But when do you think we'll see clinical proof of concept?

Meaning in -- data in patients with cachexia and sarcopenia, and then just one more with respect to the Alzheimer's product.

Yes, so our program, it's a Phase I study, single and multi-ascending dose.

These aren't healthy volunteers.

However, we have built in some biomarkers looking at muscle-enzyme changes and so on.

So there is a potential, and we believe we've got a great molecule, and stimulating the androgen receptor is -- we think it's well proven, it's a well established area of research.

So we -- we're excited about this study.

We have already announced the Phase Ia data, the Phase II -- I'm sorry, the Phase Ib portion is well underway.

It should finish over the next several months.

There is a chance that we will have evidence of activity, a true drug effect, out of this study.

That's not a requirement.

It's just a Phase I safety study, but there's a chance for that.

Nonetheless, we will have more data at investor events this year as well as at medical conferences coming out of this program.

And then the question for us is whether we start a Phase IIa trial ourselves, which we are equipped and able to do, or if we have entered a partnership before that trial starts.

So that's something that we're going to answer probably over the next six to nine months.

But that's the timeframe right now.

All right.

And that's helpful, thanks.

When do you think you'll start the Phase II for the Alzheimer's product?

And I'll end there.

Yes.

So this is a program partnered with Schering-Plough originally and now of course it's under Merck through their merger.

What we have been working off of -- this is an exciting program, it's a beta-secretase program targeting Alzheimer's.

Late last year Merck announced we believe very impressive data coming out of their Phase I study showing delivery of the drug through the blood-brain barrier.

It was early data but important for the understanding of how this drug might work.

We believe that Merck could be in a position to start a Phase II trial over the next two to three months or so.

We don't have specific confirmation, but this is what was being worked on several months ago.

And that timeline, to our knowledge, has not changed.

Great.

Thanks for taking my questions.

I look forward to the analysts' day next month.

Right on.

Chris, thank you.

Thanks, John.

Thank you.

Our next question comes from the line of Mr.

Robert [Utsey], a private investor.

Your line is now open.

You may proceed with your question.

Hi, thank you for taking my call.

I have a question on the DARA program.

Could you give us an update on that.

The DARA program?

Yes.

Yes.

Sure.

Just a little background.

You may be familiar, but for others listening, DARA is a dual-acting angiotensin endothelin receptor agonist that we assumed in our acquisition with Pharmacopeia at the end of 2008.

It was a two-part drug that was in Phase IIa studies.

Some impressive medical data at the time targeting hypertension.

The drug, as encouraging as it is, frankly, from a medical perspective, it has, we believed at the time of the acquisition and still do, some limitations in terms of the commercial viability.

And principally relating to the patent life of the drug, the remaining patent life, and the need to develop it for indications beyond hypertension.

Namely diabetic nephropathy.

So having said that, in our acquisition of Pharmacopeia, while we thought it was an attractive asset, at the time we put very low probability on doing a deal.

Last year throughout much of 2009, we actually -- I think did some very good work to improve the package.

We finished the study.

Expanded our patent filings.

Reduced the cost of manufacturing.

So we made a real honest effort at improving some of the features in the package and talked to several prominent companies who would be very good partners.

Frankly, we have not secured a partnership, and our outlook right now is that the probability of doing so for this asset is very, very low.

We're spending little time on it right now, and at this stage of development, it's not a priority for Ligand going forward.

Okay.

Thank you for that update.

One more question which is more of a general business model question.

Right now the business model is based on partnering drugs fairly early on in development, Phase I or Phase II.

My question is would it be better to create a business model where this is not advertised.

In other words, if you go into a negotiation with a potential partner, if they know that you have to or you want to partner a drug early on, then the offer that they give would be different than if you -- if there is the option for you, meaning Ligand, to hold on to that drug and develop it on your own.

And I'm thinking of this in the context of robustly or probably robust increased revenues going forward into next year, couple of years.

So it seems like you would have the resources to potentially develop a drug on your own.

Would it make sense to change the business model or the way the business model is presented to the industry?

Well, a fair question.

I understand what you're asking.

A couple of perspectives.

First of all, obviously investors should know the company and the strategy that they're investing in.

And I believe that we should be transparent and not have a partitioned message.

One for investors and then perhaps a different one for our prospective partners.

So we are transparent.

However, our willingness to talk openly about our strategy really is underscored by our confidence in the quality of our research and that we've got assets that big pharma will be interested in partnering with us on.

The reality of the existing research-licensing environment is -- for biotech -- it's very promising.

There's no guarantee that we'll do new licensing deals, but the reality is today big pharma is looking for high-quality assets, and they're paying good economics even if they're early stage programs.

And, you know, I think any objective third-party analysis would show that license, milestones, and royalty rates, what is being paid out by big pharma today, are considerably higher than what big pharma was paying 10 or 15 years ago.

So partly we're excited about our programs, and believe that we are not compromising our ability to negotiate.

In some cases, we are the only game in town.

Either because the patents we hold or the discovery platform we have.

And there are fewer large drug companies by way of mergers and acquisitions today than there were 10 years ago.

So the market may be smaller and more competitive, and we may have the only set of assets in certain areas that are available.

So we think that we've got a good basis for partnering.

Having said that, we will drive the best deal we can.

And if that means that we incubate a program longer or hold off on a deal or run another Phase I or II trial, we'll do that.

So we've got that flexibility.

We'll drive the best deal we can.

And the other thing -- just a final remark -- is that we've got great diversity.

If we only had one or two programs and nothing else, it -- it may compromise our investment story, so to speak, in the short term.

However, beyond just licensing our programs at early inflection points, another part of our strategy is collecting royalties.

We're doing that off of two drugs right now, possibly a third by the end of this year.

And also investing in new research targets.

So we've got a very broad and exciting business that goes well beyond simply licensing and early inflection points.

Thank you for answering the question.

And congratulations on the great progress that you have made so far.

And I look forward to updates in the coming quarters.

Thank you again.

Robert, count on it.

Thank you.

Thank you.

Our next question comes from the line of [Tom Versene], a private investor.

Your line is now open.

You may proceed with your question.

Hello?

Hello, Sandra.

Yes.

I have two questions.

Wondering do you expect any milestone payments after completing Phase I of clinical studies from Roche?

From Roche?

Yes.

Just -- I'll repeat the question.

The line's a little garbled.

You're asking do we expect any more milestone payments from Roche?

After completing the Phase I study?

Yes.

We do expect more milestones, not for completing Phase I, due to confidentiality we cannot describe all the levels of milestones, but I will reiterate the total deal has $203 million of license and milestones.

Now, there's a $10 million up-front payment and about $10 million that has been paid in milestones, $6.5 million, we just got -- earned a couple of weeks ago.

Having said that, the vast majority, about $185 million, remains to be paid, and while I can't disclose at what level, there are meaningful amounts that are due to us over the next couple of years.

There are a couple of events that are not necessarily success-based, but are more in the realm of starting activities, et cetera, that would earn us more milestones, and that would generate obviously additional cash flow.

So this is a quality deal.

It's a good molecule, an excellent partner.

And although it's early, it's a very lucrative partnership.

It's really a high-quality partnership.

Also, do you got any milestones once the (inaudible) on the shelves?

Do you get milestones also on that?

There are milestones.

Again, the milestones are more traditional clinical and regulatory based.

There are some commercial milestones and also royalties.

Unannounced but meaningful royalties on sales, as well.

That's great.

Other question is could you please address any progress you made on Metabasis projects such as glucagon and cholesterol lowering?

Well, just briefly.

We'll surely have more to talk about at our analyst day.

Again, the deal just closed.

We inherited a couple of programs -- glucagon for diabetes, a thyroid receptor beta, a TR beta, targeting hyperlipidemia.

That's the market if you think of Lipitor as a reference product.

These are exciting programs, they're early stage.

But they have good data.

There's some IP, some clinical data, some drug supply.

We know there was interest by some prospective partners a year ago before Metabasis started to pursue a sale of the company.

And what we are doing right now is really integrating the program, building a team around them to advance the development, and at the right time we'll disclose what our strategy and timelines are and any prospect for potential partnering, as well.

This is great.

Thank you for your questions.

Thank you.

Thank you.

Ladies and gentlemen, as a reminder, if you would like to ask a question, (Operator Instructions).

It appears that at this time there are no further questions.

I would like to turn the floor back over to Mr.

Higgins for any closing comments.

Okay, thank you.

Again, appreciate your time and interest in the call.

We feel very good about the business.

I've been here a little over three years.

Early on in my tenure, we worked hard to rebuild and restructure the business.

We did that.

Fortunately it happened before the economic tsunami hit in late 2008.

We had a measure of corporate fitness that gave us a position to acquire other companies that we think were structured creatively and gave us some good assets.

And now into early 2010 we feel we're executing well on our internal investments given what we're hearing out of our partnerships.

And the way our business may potentially build with expanding markets and products being launched that will earn us royalties.

We're excited about the business and appreciate your interest and support.

Thank you.

Ladies and gentlemen, this concludes today's teleconference.

You may disconnect your lines at this time.

Thank you very much for your participation.

Have a wonderful afternoon.