Ligand Pharmaceuticals Inc (LGND) 2010 Q3 法說會逐字稿

Greetings and welcome to the Ligand third quarter 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, Erika Luib of Investor Relations.

Thank you, Ms.

Liub, you may begin.

Thanks, Lisa.

Welcome to Ligand's third 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 everyone that today's call will contain forward-looking statements within the meaning of Federal Securities law.

These may include but are not limited to statements regarding attempts, beliefs or current expectations of the Company, internal and partner programs and management.

These statements involve risks and uncertainties and actual events or results may differ materially from the projections described in the 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 SEC 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, November 9, 2010.

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

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

Erika, thank you.

Welcome to everybody joining us for the call.

The last reporting day in this cycle at the very full day.

I saw the calendar this morning and there is quite a list of companies reporting, so thank you for giving us your time.

We just came through an eventful past few months and a great quarter of positive developments.

I encourage to you review our press release, as we had a very impressive string of achievements.

I will hit first some of the highlights, but the core of my message today is that Ligand's business model, that is assembling and managing a robust portfolio of fully funded assets is really beginning to hit its stride.

Partners are announcing product approvals and new market launches, new data has been announced for development stage assets.

We have announced new licensing transactions, and the Company continues to proudly and consistently march towards major value drivers and inflection points in our business.

Specific to the past couple of months, in the last few months PROMACTA was approved in Japan.

We're excited about this.

This is an important market, and notably it is the first TPO based therapy to be approved in Japan.

We remain very excited about this drug given the new markets it is launched in this year.

The significant clinical investment GSK is making to advance it for other indications, and the long remaining patent life and royalty period for Ligand.

Onto another topic, now after about 15 years of development at Wyeth and Pfizer, we're very pleased to see that VIVANT and Conbriza, the same drug with different names, was finally approved and launched in a couple of markets, notably Japan and Spain over the last few months.

We are pleased with the persistence of Wyeth through the years and are impressed with their data in context to the other SERM on the market.

We're excited about this development.

It is not only a commercial event for the Company, but significantly it further reinforces our credentials as a discovery company that has done good partnerships.

In terms of other news, the development programs we have with Roche, Merck, AstraZeneca, Pfizer, GSK among others continue to advance.

Notably, just this past week Bristol-Myers Squibb announced Phase II data on their p38 MAP kinase program.

BMS had a good presence at the past ACR conference this past week and announced their plan to start the next clinical trial with that program next year.

We're very encouraged by that development.

There hasn't been much visibility around this program publicly, but we're very pleased to see that out the data out for the study and BMS statement of their plans going forward.

Onto other topics, this quarter, we entered a new license agreement and divested our comment to [herral] chemistry business providing cash, a chance to reduce costs, as well as an opportunity for potential future down stream payments as well.

In addition to these developments, we were also awarded $2 million from the government under the qualifying therapeutic discovery project.

We're very pleased with this.

This amount is among the highest awards we have seen so far out of the thousands of applicants and the magnitude of the award is driven partly by the breadth of our research and partly by the three acquisitions we have done in the past couple of years.

Again, further underscoring the value of those transactions.

As noted in our press release earlier today, we announced the one-for-six-reverse stock split.

We're pleased to be finalizing this matter now.

The vote went on throughout the summer and we're pleased to make the decisions and announce this.

We had a very large turnout voting by the shareholders in nearly three out of four shares voted in favor of the reverse split.

Finally before I turn it over to John, I am pleased to acknowledge that Sanil Patel joined our Board of Directors.

Sanil has tremendous business and operating experience in the small and midcap Biotech industry.

He has worked at a very impressive array of successful Biotech companies and has fantastic business development and transactional experience.

Sanil is a very good fit for Ligand given our business model and our poured and management looks forward to working with him.

With that I will turn it over to John.

Thank you, John.

Thank you to everyone joining the call today.

Let me start by saying that we are very pleased with how the business is doing financially.

Today in addition to covering our financial highlights, I will also address a few of the one-time event that is took place this quarter.

Starting with the top line, revenues for the quarter were about the same as they were last year.

We view the mix of revenue as stronger as a higher proportion was royalty revenues.

Going forward, our revenue mix will change slightly as we have fulfilled our requirements for research activities under our collaboration agreements.

We expect our revenues in the near term will consist of royalties from current and future products, milestones from our collaboration agreements and licenses from new deals.

As a result of contracts that have run their course or terminated and cost cutting measures implemented by us, such as our lease buyout and the shutdown of our New Jersey facility, our overall operating expenses have continued to come down meaningfully over the past few years and we expect will continue to go down going forward.

R&D expenses for the quarter were $5 million lower than compared to last year mainly due to costs associated with servicing our collaboration agreements.

G&A expenses were up slightly by $700,000 for the quarter compared to last year, primarily due to residual costs associated with the Neurogen and Metabasis acquisitions and various costs for legal and accounting matters.

These were offset by savings we're seeing in facilities related costs as a result of our lease termination last year.

In June of this year, we announced our plan to shutdown our New Jersey facility.

As of the end of the quarter, we ceased use of the facility and therefore recorded lease exit and termination costs of $15.9 million.

This is made up of $9.7 million of lease costs which is calculated as our remaining lease obligation which runs through August of 2016, less estimated sublease rentals and discounted back to present value.

We also wrote off about $5.4 million of property and equipment and incurred about $800,000 of severance costs.

Today you saw we announce that had our Board of Directors had approved a one-for-six reverse split of our common stock.

After the split, we estimate our outstanding shares will be approximately 19.6 million excluding 1.1 million shares held in Treasury as well as any outstanding and unexercised stock options and warrants and also subject to investment for fractional shares.

As we indicated in the press release, expect the reverse split to take effect by the end of November.

Taking a look at our forecast for the remainder of the year, we continue to expect total revenues for 2010 to be approximately $25 million.

On the expense side, excluding the nearly $16 million of lease exits and termination costs related to the shutdown of our New Jersey facility, we expect total operating expenses to be approximately $32 million.

This is up slightly from our previous guidance of $30 million.

For cash, we ended the quarter roughly $25 million.

Through the end of the year we expect cash to build nicely to about $30 million.

As background to support that outlook, we have already received the cash for the sale of our [combecam] assets and expect to receive $2 million from the government for the therapeutic discovery project as John mentioned, as well as cash from royalties and potential milestone payments in the fourth quarter.

Finally, for our preliminary look at 2011, we are still forecasting operating expenses to be substantially lower than 2010 levels and in the $15 million to $18 million range.

With that, I will turn the call back to John.

Thank you.

Before we open it up for questions, again, I just want to say we're excited about our recent developments.

The business model is being validated, but we are now focused on the future both short and long-term.

We're driving our pipeline forward leading notably with our Phase I SARM program.

We're making good progress advancing that program, and we look to have the study completed in early 2011.

We have an ever expanding calendar of clinical and pipeline events coming from our partners over the next several quarters, including the completion of the Phase III hepatitis PROMACTA trial, which we anticipate in the second half of next year, and in addition the trial completions and trial initiations from a range of other programs funded fully by our partners.

We continue to mine our wholly owned programs for new licenses and partnering opportunities as well.

In conclusion, we have a strong balance sheet.

We have good sources of revenue, great partnerships, with a long list of what we call shots on goal to drive value for our shareholders.

Again, appreciate your joining us for the call and with that, we'll turn it over to the operator for questions.

Thank you ,we will now be conducting a question and answer session.

(Operator Instructions) Our first question is coming from Christopher James of McNicoll, Lewis and Vlak.

Congrats on the progress made this quarter and thanks for taking my questions.

John, could you give us an update on the reimbursement situation for eltrombopag in Europe and I have a few more follow-ups.

Sure.

I will share with you what we know.

It is available in several countries as you know, European approval is granted from a regulatory perspective, but before you launch you have to get pricing authorization, so GSK in those markets worked out its pricing.

One particular detail we saw several quarters ago, GSK was seeking to launch the product in the United Kingdom.

They did not receive pricing.

While that certainly was discouraging for us, what we understand is that that was not a surprise for GSK given the regulatory requirements.

You have to compare your drug against other standards of care, which GSK did not do and for understandable reasons given the nature of those medicines.

Having said that, neither GSK's drug or the other TPO based medicines are approved or have authorized pricing.

It is still available for private payers, but that's a small portion of the market, so that's the general landscape.

It is not available throughout all of Europe right now, but it is launched and we've got pricing in those countries.

Okay.

Great.

That's helpful.

Still on eltrombopag congrats on the approval in Japan.

Can you discuss the timing of the launch and what can you tell us about pricing reimbursement and the overall market size and of the ITP market in Japan?

Yes.

Chris, fair set of questions.

As far as launch, specifically we can't comment.

I mean, for obvious reasons.

We are driving the commercial agenda, so those questions will best deferred to GSK.

As just an observation of fact, though, in both US and in Europe, when those approvals came in, GSK was very, very quick at turning around the commercial launch, so we're hopeful that they do it in the near term, but we do not know when.

As far as the market potential, obviously on a population basis, Japan is very large, well over 100 million citizens, and it is a well structured medical market, so I think from a market size and medical commercial potential, it is significant.

I think that our key view of the asset, though, is that GSK clearly seems very committed to the product from a both a regulatory and a clinical perspective.

They are winning these approvals.

They are launching the product, and they are making a continued very significant investment in a range of other studies, other clinical indications with the leading one being this large Phase III hepatitis trial as well as a battery of other long-term safety studies.

This product has a patent life through 2022 in the US.

That's twelve years remaining patent life.

For us, it is a very meaningful royalty, and while it is still early in its launch phase, in these small markets or in these markets for admittedly a smaller indication in ITP, we believe the potential of the product is very meaningful for Ligand, and we're excited to see how things develop.

Great.

Thank you.

And then finally before I jump back in the queue, the recent meeting, the ASLD meeting there was a lot of excitement, and this sort of relates to eltrombopag and PROMACTA and the upcoming hepatitis C trial.

A lot of excitement about replacing interferon therapy as a backbone of HCV management, and obviously interferon is driving the thrombo thrombocytopenia.

What are your experts telling you about the future medical need for treating thrombocytopenia?

Obviously it is very large now, but what do you view going forward if interferon therapy goes away at some point?

We're looking at this carefully, and talking to investigators and getting feedback from the medical community.

Generally, you're asking a good question.

It is complicated and clearly there are going to be commercial battle lines drawn.

The general feedback that we are hearing is that the new medicines are exciting for certain, and there is some very encouraging data out there and hope for this patient population.

However, the reality is that this is a complex viral disease, and there is a real growing, looming, understanding that this market could be very, very large, and I don't believe anybody is anticipating there is going to be a magic bullet, one or even a class of medicines that are going to be suitably targeting this, and totally replacing or eliminating current therapies, so just accept that for what it is.

It is uncertain.

It is going to be very competitive space, but one that is going to be large and require a whole spectrum of medical treatments.

What is out there, they're good therapies today, but at least for thrombocytopenic patients they really are not options for the most severe patients, and that's why we're excited about PROMACTA in this category.

It is not for every hepatitis patient, for those who have very high viral loads and ineligible to go on current therapy because of low platelet count.

It is a unique paradigm to really alter the way we manage the treatment of the disease for this segment of the population.

That's helpful.

Thanks, John.

Congrats on the quarter.

Chris, thank you.

Thank you.

Our next question is coming from the line of Jeffrey Cohen of CK Cooper.

Hi.

Thanks for taking my questions.

Just a few short ones.

I see your queue already hit.

Can you talk about so the I guess the question for John Sharp, the $15.9 million, that's from the 99,700 square feet in Cranberry?

That's correct.

The $9.7 [million] part of it is the complete lease cost through 2016?

It is the remaining lease obligations, but we then have to put into assumption for sublease rentals, and then we discount that back to present value.

So what's the assumption for sublease?

That it is leased out at some percentage of the lease amount?

I forget the exact numbers, but, yes, we don't assume the full buildings are rented out, I think probably half of the buildings at some point are rented for the remaining lease obligation.

It could be on the order that could include on the order of say 20% or 30% of that back in lease payments through 2016?

That would not be unreasonable.

And the property and equipment was sold, is it gone?

A little bit of both.

A lot of it had to do related to tentative improvements which were obviously not sold.

They were written off.

If it wasn't tied down, we sold it.

Got it.

Okay.

So operating expenses then for this year 32 plus the lease, so from 30 up to 32 plus other lease termination charges?

Correct.

Okay.

And head count now is what?

We're at 42.

Okay.

So do you expect the G&A costs to go back down the order of call it $2 million or $2.25 million per quarter after this quarter, Q4 next year?

Yes.

What I would expect is Q4 to be much lower than Q3.

The costs for New Jersey, which included some G&A, mostly on the R&D side, but some G&A were in Q3, so you see that the full Brunt of that in Q3, so that drops off entirely in Q4.

So $2.5 [million] would be not again not unreasonable.

Okay.

And I guess last question, so was that Glaxo's statement or your statement that the PROMACTA data is slated to come out by second half of 2011, previously I had heard quote, unquote "by summer"?

Well, Jeff, obviously on this call it is our statement just to be clear when we look at clinical trials.gov and look at any public disclosure from GSK, by our estimation looking at enrollment timelines and the stage of clinical treatment for the protocol, the study we expect will be completed in the second half of next year.

We can't pinpoint exactly when.

Obviously the second half starts in the summertime, but again I think realistically what we're excited about is the fact we're now finishing up 2010 and we do think that this important clinical event for Ligand and certainly for GSK, too, should come around the corner next year.

Which is significant because many of us have had our eyes on this event for the past couple of years, so we're getting closer to it which is exciting.

Got it.

Okay.

So lastly, timing on the stock price showing a six-for-one, reflecting it?

It can't be real precise because there is an administrative process, forms to file with the NASDAQ, et cetera.

However, we would estimate that the stock price would be adjusted and reflected in public reports as early as the end of next week or the beginning of the following week.

Okay.

I think that wraps it up for me.

Wonderful.

Thanks a lot.

You bet.

Thank you, Jeff.

Thank you.

Our next question is coming from the line of Steve Flax with Flax Investments.

Hi, John.

Hello, Steve.

Hi.

How will you doing?

I got a couple of questions.

I know that you are aware that over the last couple of months has been a very large seller in Ligand and at this point I assume you know who it is.

Here is my question.

Some time ago when you were talking about doing the reverse split, you said that Ligand would be buying in the market a couple of million dollars of its own stock in the open market.

Why not at this point, as far as I know you haven't bought any back.

Why not at this point help to get rid of this extremely large seller?

Steve, thanks for the question.

I appreciate there is some maybe commentary in there as well, but just a couple of thoughts.

First of all as far as a seller, we're not aware of any large seller, and that's correct.

For every seller there is a buyer.

Trading volume has been relatively flat if not down, over the last several quarters.

I can't comment on what's going on in terms of trading dynamics, but I just want to acknowledge that, that we're not aware of any specific seller.

We receive market reports as the public does, and don't have any further information.

As far as the share repurchases, just to clarify, we announced a repurchase program, up to $10 million over two years in June, and so for the record, I don't believe we have ever stated that we would be buying millions of dollars of stock over any period of time.

But the repurchase is authorized, the board, not only are we significant shareholder, the board owns about 10% of this company out right, but also fundamentally is very, very excited about our business plan and obviously was confident enough to authorize the repurchase.

Having said that, we report on a historical basis.

In this period we obviously do not report any repurchases, but that does not mean that we won't be making repurchases in the future.

Very candidly, as I share with any investor that asks about this, we believe in our stock, but we're at the point where we're threading the needle in terms of very carefully managing our cash, ensuring that we don't have to do equity financings to fund the business.

We feel great about the balance sheet.

At the same time we want to give that support to the stock as opportunities permit, so that's just a general perspective.

Just want to make sure you and other investors hear those message points.

Quick question on you had said previously that you expect to be profitable next year.

In your commentary earlier, that you did say that expenses would be well down.

You didn't mention that you still expect to be profitable for next year.

Are you still thinking that way?

We are still thinking that way.

Again, the last few months I believe in June, we started to give preliminary outlook for 2011.

It was early.

This was around our analyst day in June, and to be clear the outlook isn't to be revenue or earnings specific in terms of guidance, but more qualitatively.

It is important for all investors to understand where is the business going, and we feel very good about the increasing royalty assets.

We have more markets and more drugs on the market paying us royalties now than we did a few quarters ago.

We have got full roster of partnered assets, a chance to do other deals, et cetera, and the general outlook for next year we're very bullish about in terms of our financial evolution.

We have been a loss corporation from a cash flow perspective at very high levels.

Just a couple of years ago we brought this down to loss by operations will be fairly low this year versus a year ago.

And our outlook for next year is that expenses will be half, if not less, than what they are this year, and so our guidance was along the lines of with expenses coming down, with costs cuts, and sublease agreements and all the good work we have done there, given that progress and the fact we have quality revenue assets, we do see or have an outlook to turn profitable and cash flow positive on an operating basis next year.

So that is our outlook, and it is unchanged, and again it is driven not by specific revenue guidance, but more by the fact we feel very good about our outlook on the business, but also our cost cutting.

Last quick thing.

You said you have cash at the end of September of about $25 million and then you are projecting at the end of the year $30 million in cash.

Are you saying that you're going to generate about a $5 million profit in the fourth quarter?

I will let John answer that.

John already walked us through how the cash builds in the next quarter, but let's have John kind of review those for you, Steve.

Thank you.

Yes.

Steve, in short there is a number of things we already know have happened.

We sold our combecam assets and we have been -- we received at least the notification on the government grant for the Therapeutic Credit Discovery.

That $3 million in itself plus the royalties and there is some I will say unknown.

There is a yet to be determined or signed agreement that will get us to that $5 million.

Don't know if it is going to be in line with respect to the grant, so that may end up below the line, but, yes, we would expect to be 5 million higher in cash at the end of the year.

Even whether it is an extraordinary item or not an extraordinary item, you still would have to show approximately a $5 million profit for the fourth quarter?

Well, you have to remember that in our expenses are non-cash items, so it may not be a P&L profit.

Thank you.

Thank you.

Thank you.

Our next question is coming from the line of Kendra Sing.

Your line is now live.

Thank you, operator, maybe we'll move to the next question.

Thank you.

Our next question is coming from the line of Nick Farwell of Arbor Group.

If I can just follow-up on some of the discussions already asked, John, and that is, can you clarify a little bit more what the primary reason are for the $2 million increase and your guidance for OpEx and how much of that, if any, has already occurred in the third quarter if any?

Nick, thanks for the question.

I can add color, but I will let John comment.

Really the increase is due to a variety of factors, some of it related to research costs outside projects, that just came in higher than we expected, and there was a couple of, I will say legal and accounting matters, and most importantly the what should we disclose, the IRS audit taking place, things of that nature that are just coming in higher.

You will see a little bit of that in Q3, but then some of that stuff is ongoing, so you see a little bit going forward into Q4 as well.

There is also small additional costs related to some of our past acquisitions.

Neurogen and Metabasis in particular that we completed the acquisitions at the end of last year and beginning of this year, and as you may be familiar with, some of these things continue to drag on a little things that come up here and there just continuing to shut down those businesses.

So if I understand correctly, sounds like the preponderance of the $2 million is coming in the fourth quarter in both line items, G&A and R&D?

If you look at the just -- if you just do the math, we've ended the three quarters with if you just add G&A and R&D at $28 million.

Correct.

And so to get to $32 million mathematically we add back this accretion for deferred gain so basically what that says is the fourth quarter will be about $5 million in expenses.

And, Nick, just as a point of reference, earlier this year, we-- our outlook was about $35 million and to be clear with investors, we try to be very transparent and but don't intend to be this precise, but through the year given the direction of the programs and cost cuts, we felt very comfortable that our $35 million expense outlook would actually be closer to $30 million.

That was our look in June, and not for lack of diligence or good planning, but just as the business turns, a number of small items have aggregated to a bit higher than that $30 million target we're looking at, so nothing of consequence and although, we can obviously itemize it as we're doing to a certain extent.

There is really no major driver of those costs.

Well actually, it would seem to me, one could interpret as rather encouraging if your R&D is being lifted for obvious reasons as opposed to ongoing expenses says being run through the P&L under G&A.

Those are expenses you ultimately have to pay, and presumably I am just looking at it frankly as a run rate into next year.

That's all.

Right.

I would conclude or agree with that analysis, yes.

And then how much of the write off that you announced with respect to the New Jersey facility is actual cash that will be paid year versus obviously expense now and paid over time?

So really the only remaining cash piece is the rent which is about $2 million a year, and which, so you won't see the expense on the if through the P&L any more.

We will continue to pay that cash.

Now, that is the gross rent.

We do if again assume some sublease rentals to offset that.

Then in addition to that, we have even though there is no personnel left back there, there are some very minor costs to maintain the facilities.

Okay.

So in essence, the cash costs from this point on are no more than really what they were before, and that is your actual cash rental payments?

Correct.

You have not gone to the owner of the property and try to buy down the lease, for example?

No.

Were there any other accelerated charges that you paid in the third quarter, for whatever series of reasons, either you sold some equipment and had to accelerate the depreciation once it was sold or anything else that was notable?

Yes.

That would be included in that $5.4 million of property and equipment write off.

Yes.

That would be included in there, and so you won't see the depreciation for that going forward.

Right.

I was wondering how much of that was cash.

None of that was cash.

The only other cash we paid in advance was the severance costs which was just under $1 million dollars.

That's what I was wondering about.

Okay.

So, the fact that your cash burn was roughly flat sequentially, if I remember the numbers correctly, I think 6.8, 6.9 or something to that effect are really a million dollars of that you could ascribe during the third quarter as payments, severance payments?

Correct, in advance, yes.

So your cash burn was down roughly a million dollars from the prior quarter?

As of --

If you look at it including the severance payments.

Right.

Okay.

I appreciate it.

Thank you.

Thank you.

Appreciate your questions.

With that it looks like we are -- that's the queue of questions, so we appreciate again your attendance and your questions and we think the press release in many ways speaks for itself, but we wanted to provide some additional information with this commentary.

The year is quickly coming to a close, and we look forward to future reports on the business.

Thank you for calling in.

Thank you.

This does conclude today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.