Ligand Pharmaceuticals Inc (LGND) 2011 Q2 法說會逐字稿

Greeting, and welcome to the Ligand second quarter 2011 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.

Thanks, Robin.

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

Speaking today for Ligand are John Higgins, President and CEO, Matt Foehr, Executive Vice President and COO, 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 risk 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 w.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, August 8, 2011.

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.

No doubt today was a very difficult day in the financial markets and I want to thank everybody who is joining us on the call today and for those who might be listening to the replay.

I'm pleased to be here.

We've got a good report, and I believe we'll be able to make this time worth your while.

Ligand is hitting its stride in a big way.

Recent developments with Promacta are positive and the future for that program, by all accounts, looks bright.

Financially, Q2 for Ligand was a very solid quarter and we're on a path to turning cash flow positive.

In terms of recent deal making, we entered new deals with Merck and The Medicines Company this past quarter, which we'll highlight, and valuable new assets have moved into the spotlight for Ligand, following our acquisition of CyDex earlier this year, notably with carfilzomib, Nexterone and Melphalan.

First, I want to talk about Promacta.

For four years, I've been telling investors, if you need one singular reason to make an investment in Ligand, it is Promacta.

It's a very important drug with true blockbuster potential.

We discovered it, along with GSK, in the late 1990s.

The product was launched just three years ago, just under three years ago for ITP, and GSK is doing a superb job developing it and advancing it toward the market for major indications.

Why it matters for Ligand is that we enjoy healthy royalties, product sales are beginning to take off, and the patents run a long time, through 2025.

Now the reason why investors should care more about this program now than in the past is due to a positive report from GSK just two weeks ago.

For starters, GSK announced their first major pivotal trial with the drug in Hep C was positive.

The second trial is scheduled to be completed this month.

Of particular note are the bullish comments by the CEO of GSK on their July 26 earnings call.

On the call he said, and I quote, "the reason we had said something about Promacta today, even though we had one trial, it was so positive that we felt it would have been just completely wrong to delay sharing the information with you guys." GSK's CEO went on to say, "there's no question Promacta in hepatitis C, by allowing people to use interferon for longer, that is going to be an effective product." And further, he said "the first trial was extraordinarily positive.

Hopefully the second will be the same, but based on the first, we would be very surprised not to see that." Again, these are reports out just two weeks ago.

At Ligand, we're very encouraged by these remarks and while we, like investors, are eager to learn more details about the clinical results, it is easy to conclude that those remarks come from a place of high confidence and excitement for the program.

The other positive report from GSK two weeks ago were their sales for Q2.

They spiked significantly, up 47% over the prior quarter, Q1 2011.

This is by far the largest in dollars quarter-over-quarter jump ever and it's clear evidence that sales growth has rapidly accelerated the past few quarters, based upon the recent worldwide market expansion.

For Ligand, it is great to see the sales growth and as sales grow, the royalty rate to Ligand also increases.

Moving on, as for the second quarter results John will provide some more color, but let me just say we're very pleased to see the revenues nearly double to $7.5 million this quarter, versus $3.9 million in the first quarter of 2011.

With that our loss in operations were down considerably, and we remain in line with our plan to turn cash flow positive and profitable on an operating basis by the end of this year.

In terms of the business, I'm very proud of what we are building at Ligand.

We have talked about our vision and a dream for what we want to achieve.

Performance is what matters, and I believe we're making that dream and vision a reality.

This is a very unique company, in terms of our view about the industry, how we operate and the decisions we make.

We are devoted to fierce financial management, we believe in assembling a vast array of assets to de-risk the business and create upside for the investors, and to leverage through partnerships our R&D programs.

Through our shrewd acquisitions, continued success with licensing, and good execution on internal programs, Ligand has never been positioned for growth.

I squarely believe Ligand is becoming a very important company in the biotech universe.

Now I would like to turn it over to Matt Foehr, our Chief Operating Officer, to talk to the strength of our Captisol business, new deals we entered last quarter, and growing prominence and value of our carfilzomib, Nexterone and Melphalan assets.

Matt?

Thanks, John.

I would like to start with a few comments related to Captisol.

We continue to be very pleased with the overall strength and diversity of the Captisol business, and we're seeing more evidence of the importance of the Captisol -enabling technology in solving major industry challenges in drug development.

This quarter, we closed two extremely important deals.

We're now partnered with The Medicines Company for our Captisol -enabled IV formulation of clopidogrel, which is the active ingredient in the world's leading anti platelet medicine.

That deal brought up front payments and will yield future milestones, royalties and, of course, Captisol material sales, as well.

We're really pleased with the partnership thus far, and the attention and the resource that The Medicines Company is putting behind the program right out of the gate.

In Q2, we also entered into a significant Captisol supply agreement with Merck for an undisclosed program in which we will supply clinical and commercial supplies, and we expect to deliver multi-metric tons of Captisol annually, if the product is commercialized.

While we can't disclose the program, we are seeing clear evidence of Merck's focus and dedication to the effort, and are very pleased to have another partnership with an organization like Merck.

These two deals are continued validation of the importance of the Captisol -enabling technology, and we're working on the development of a number of additional partnerships right now.

Separately, I would like to note that the integration of Captisol into Ligand's pool of assets has gone very well, and operationally we see opportunities to further grow the business and gain efficiency through Ligand's business model, and in turn drive many more shots on goal.

And in addition to new Captisol partners, our established ones are also making very good progress.

Onyx is focused on submitting a high quality NDA for carfilzomib.

The clinical data has been published previously for carfilzomib and is indicative of an important medicine for multiple myeloma.

And the market certainly seems very excited about this drug.

We're pleased with being able to participate in carfilzomib, as Onyx progresses to its NDA submission.

Baxter is continuing to put its launch muscle behind Nexterone.

We were impressed with the size of the acquisition of the asset, and to us that really speaks to the value that Captisol can bring to an existing drug.

In this case, we enjoy royalties as well as material sales, of course, and Baxter has recently pegged the market opportunity for Nexterone at $150 million to $200 million globally.

While all this is ongoing, we're simultaneously building value on our internal programs.

We've put added internal resource behind our propylene glycol Melphalan asset, and in Q2 we announced the interim data from our Phase IIa study at the ASCO meeting, and remain on track to announce our full data from that Phase IIa study in the fourth quarter.

Following those results, we're positioning ourselves to move swiftly into a pivotal clinical trial, and we see the Melphalan asset as one that we have the ability to take to NDA approval ourselves.

And lastly, I want to comment that with are very proud that we continue to maintain Ligand's stature and heritage as a true leader in innovation.

We learned this quarter that Ligand ranked 26th on the Patent Board's list of top 50 pharmaceutical companies, as determined by an assessment of overall quality of each company's portfolio.

This assessment includes things like scientific strength, technology strength, industry impact of our technologies, cycle time and other measures.

This is a nice validation of the work we're doing and the efforts that we put behind our intellectual property portfolio.

So with that, I will turn it over to John Sharp, who will talk more about the Q2 financials in detail.

John?

Thank you, Matt.

As John mentioned earlier, we had a very strong financial quarter here at Ligand.

First, our revenues for the quarter were $7.5 million, up from $5.8 million last year, and as John mentioned, also up nicely from our first quarter revenues of $3.9 million.

The increase compared to last year was driven by increased Promacta royalties and sales of Captisol.

In addition, during the second quarter of 2011, we recorded $1.2 million of non-cash deferred revenue related to the previous sale of royalty rights for [Favolin].

In the past quarter, Pfizer returned the product right for [Favolin] to Ligand.

In doing so, the rights for Pfizer to use past credits as payment for a portion of these royalties expired, so we can now recognize that revenue.

Cost of goods sold for the quarter were $1.6 million.

Currently, our cost margin is trading a little higher than anticipated, as we have seen a concentration of commercial shipments during the first half of the year, which have a higher cost margin for us.

We do expect to ship more clinical material in the second half, which would reduce our margins.

Our other operating expenses were $7.1 million for the quarter, compared to $9.9 million last year.

R&D expenses were $3.4 million lower, as we shut down our New Jersey facility, which was used primarily to service our collaboration agreements.

And G&A expenses were up slightly, at $0.6 million, due to increases in non-cash stock-based compensation as well as legal expenses.

As far as below the line, we recorded $37,000 of other income this quarter, but going forward we could see significant fluctuations in expenses or income in this area, as each quarter we revalue our liability for contingent value rights related to our acquisitions.

Finally, as you have heard repeatedly on this call, the business is doing great, and for our financial outlook, we expect our royalty revenues to continue to increase on a quarterly basis; however, the timing of material shipments, as well as license and milestone payments, will fluctuate significantly from quarter to quarter.

Specifically, for 2011, we continue to expect total revenues to be between $22 million and $24 million.

On the expense side, we now estimate 2011 operating expenses to be between $23 million and $24 million, mainly due to an increase in non-cash stock-based compensation.

In total, our annual expense estimate includes over $6 million of non-cash depreciation and amortization and stock-based compensation.

And as I mentioned at our analyst day back in June, we now expect our average gross margins to be 60%, and we still expect to be profitable on a quarterly basis and cash flow positive by the end of 2011.

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

Thank you.

That concludes our prepared remarks.

We would like to open up the line for any questions investors might have.

Thank you.

(Operator Instructions)

Our first question comes from the line of Christopher James with the MLV Group.

You may proceed with your question.

Thanks, and congrats on an excellent quarter.

My first question is about the ENABLE data.

What is Ligand's plan for disseminating these data to shareholders?

Do you think we're going to wait for GSK, or do you have a plan to announce these data separately?

Chris, thanks for the question.

Appreciate your interest.

What we know really is limited to what GSK has stated so far, although it's, by our measure, a very bullish set of remarks.

It's only a top line report that ENABLE-1 was positive.

Per clintrials.gov, ENABLE-2, the second pivotal trial, is to complete this month, here in August.

And as far as timing, it is our expectation that GSK would have the data available by year-end, likely at a major medical conference.

Liver is the first week in November, the hematology conference is the first week of December.

When and where they announce, we don't know.

And we're at a point where our disclosure is going to follow anything that they say publicly.

So we're as eager as investors are to hear what the data set looks like.

Thanks, John, that's really helpful.

And then, could you remind us a bit on the pricing for Promacta and remind us what you have for the annual average cost in ITP, and what do you think -- just help us sort of -- guide us to potential price for HCV.

How should we look at that?

Chris, great questions.

I'll just make a brief remark, but really would direct you to GSK, as we aren't current on their pricing and really have no impact or direction over their reimbursement environment.

When the product launched a couple of years ago for ITP, we understood the annual list cost for a full year treatment would be about $46,000.

However, we know that -- for ITP, the drug may not be used full year.

There are a variety of factors that may be reducing their average per patient value of treatment.

So, that's a general comment.

Aside from that, we have no visibility on the current pricing, or frankly, what they expect to price the HCV market at.

I will add, though, just to double back to my remarks on the comment -- or, on my prepared comments.

We're very excited about this drug.

It's one that we discovered in collaboration with GSK in the late 90s.

The efficacy data published so far, and obviously reported by actual use, has been very, very encouraging.

The drug has a profound impact on boosting platelets.

It's been well adopted and received by patients.

The uptick by quarterly sales performance is excellent.

This was a very, very robust growth in quarterly sales.

And it's our view, by evidence of their clinical investment, they're running as many as 17 or 18 studies for a variety of major new indications, that this is a very important drug that is really in the sunrise of its potential.

GSK seems to be putting a very significant investment behind it.

And as their partner, we could not be more excited about the progress that we've witnessed and the reports that they've made very recently.

Thanks, John.

That's helpful.

I agree, I think that such bullish remarks are not only positive for efficacy, but says a lot for potential safety, as well.

And then finally, I would end on a question about the BD strategy.

Can you give us an update on what's going on with the SARM program, the diabetes portfolio, or the [JAC-3] program, in terms of potential partnerships there?

Good question.

As you know, a part of our business is continuing to expand what we call our shots on goal, our portfolio of partnered assets.

And we've done back through our acquisitions and we continue to do it through internal licensing.

Matt identified two deals we did the past quarter, with Merck and The Medicines Company.

You've highlighted three programs that we're actively talking to partners with right now.

We've finished a Phase-1 study for SARM.

It's a program for muscle wasting, for those who are listening.

It's an important category, and we are still in discussions with companies and expect to be advancing those dialogs later this summer and into the fall.

The diabetes program, we've got three or four programs or earlier stage.

We're evaluating one-off licenses, as well as possibly a basket for diabetes assets that might be appealing.

You mentioned [JAC-3].

We have retained the topical rights, select rights for topical application of our legacy [JAC-3] program with Wyatt, and there is interest.

We've been in discussions with companies who are looking at more topical and opthalmic applications.

In the mix, I'll mention our [RAC-4].

This is another early stage discovery program, but this is another asset as well.

I'm giving you a general prospective.

It's important to us that we keep advancing programs for licensing.

But as our policy, we don't give specific guidelines in terms of timing of deals.

Our objective is to run a broad portfolio and continue doing deals.

And like this last quarter, we were pleased to be able to announce the two deals with Merck and The Medicines Company.

So, stay tuned.

Great.

Thanks, John.

Just one quick follow-up to the Promacta sales.

It looks like $28 million total, US $13 million.

Do you have an idea of what is driving growth rest of world?

Or which countries, rather, are driving growth?

I don't have the per country breakout.

I would be happy to share those, presuming we've got those and those are publicly reported.

What I can say is that, while the product has been on the market about two and a half years, the first six quarters, maybe eight quarters, it was predominantly US only.

And it's our sense that it was for ITP, specifically that indication.

It had a lot of competition with Inplate, which is Amgen's drug.

GSK's got a lot of experience.

Obviously, it's still making progress in the US.

But in the last several quarters, it's expanded throughout Europe, it launched in Japan just about two quarters ago and it's also getting exposure in South American countries.

The beauty of this is it is truly a worldwide brand.

It's a good drug, it's used worldwide.

It's priced.

It's being marketed worldwide.

And this first indication is just a niche indication.

The next market, hepatitis C, some cancer indications, if GSK moves back into chronic liver disease, these are the biggest markets.

And GSK, if they're successful, will be able to enter those territories with an established sales and marketing platform, which we think could help accelerate and really turbo charge their commercial efforts.

Thanks.

I'll jump back in the queue.

Congrats on a great quarter.

Chris, thanks.

Appreciate your support.

Our next question comes from the line of Jeffrey Cohen with Ladenburg Thalmann and Company.

You may proceed with your question.

Thanks for taking my questions.

Just a couple on the breakout on the income statement.

Is the $2.9 million in material sales just Captisol alone or what else may it include?

No, that's just Captisol.

Just Captisol.

And cost of goods, is that just Captisol or Captisol and Nexterone?

Everything is just Captisol.

Just Captisol.

Okay.

And on the expense side, so six month operating cost of expenses were $15.2 million, so you're saying $8 million to $9 million for the back half of the year, ballpark to get you --

Jeff, you've got to remember that the COGS is separate.

So in the $15.2 million, that $2 million of cost of goods sold is included in there, so it's more like $13 million of the R&D and G&A.

And so to do the math to get to $23 million to $24 million, you add $10 million to $11 million in the second half -- of R&D and G&A.

R&D and G&A.

Okay.

And on the revenue side, you expect the back half of the year it looks like somewhat in line with the front half.

$11.3 million for the front?

Total --

Yes.

That's correct.

That trending may be a little bit higher, yes.

Okay.

That does it for me.

Thanks a lot.

Jeff, thank you.

And I know you're just a week or two on the job at Ladenburg, so congrats on the transition.

Thanks.

Our next question comes from the line of Chris Richard with Merlin Nexus.

You may proceed with your question.

Thank you, gentlemen, and congratulations on the quarter.

Most of my questions were asked.

I just had one, in terms of Captisol.

There must be a markup to your partners.

I just was wondering if you could give a range and what that could be.

And the reason is, carfilzomib could be as big, if not bigger, piece of the Ligand story as Promacta, going forward.

Would love to get a sense of, outside of royalties, how much more could that be for us?

Sure.

I'll give some general comments, Chris, I appreciate the question.

Just to frame it, Captisol is this enabling technology that came via our acquisition of CyDex.

I'm saying this for those on the call who may want a little more background.

It's a great platform technology.

With the acquisition of the company, we inherited about 20-plus existing partnerships.

And we keep leveraging our relationships and our platform to drive for more deals.

Specifically the carfilzomib, Captisol has helped Onyx reformulate their drug.

This is now a legacy element of their program, but our relationship with them is to supply Captisol.

It's now a necessary ingredient in their formulation, and we not only enjoy the sale of the Captisol, but also we will enjoy royalties on their product sales.

So that's the background.

Now, put it into prospective, we have heard -- or read, obviously -- research reports about the promise of carfilzomib.

And these are not our numbers, but clearly the market seems very excited about the efficacy data, the safety profile and believe that this could be an absolutely blockbuster multi-- potentially $1 billion to $2 billion drug for multiple myeloma.

We're excited about that and clearly we're cheering Onyx on.

We do get a sale of Captisol, material sales, in a royalty.

We have not disclosed the royalty rates, but in fairness the royalty rates are lower for carfilzomib than they are for Promacta.

The Promacta royalties start at 5% and go up to 10%.

As far as Promacta, I don't think we're at the point where we're going to be comparing the sales potential of carfilzomib to Promacta, but to give a general prospective, I think the potential for Promacta is very, very large.

It is early days.

The big indications aren't approved yet.

We don't know pricing.

I don't want to get ahead of ourselves.

But in this business, in the hematopoietic growth factor business, there are two existing analogs that we think are very relevant.

The first is the anemia category, which targets deficient red blood cells.

This market, served principally by Epogen in the early days, is still about $8 billion.

At peak, it was well over $10 billion annually.

The second market is the neutropenia market, which is the market characterized by deficient white blood cells.

This today, is about a $5 billion market and growing, and it's only served by a handful of products.

The thrombocytopenia market, the low platelet count market is the third leg on the stool.

And up until Inplate and Promacta, these two drugs by Amgen and GSK, essentially it was not served by drugs that boosted platelets.

So this market is entering a period of transformation.

There are two good drugs out there.

We're very proud to be tied to GSK, with their once a day oral medicine.

And by virtue of patents through 2025 and the commercial and clinical platform, we think the promise, the sales promise of this program is very exciting.

Perhaps among one of the higher quality commercial assets that's in late stage development in big pharma right now.

So, Chris, that's the back drop.

We are very excited for Onyx and carfilzomib.

That's an important new asset and it's going to be, I think, a very solid contributor to Ligand's future financial growth, Promacta is really a step above, in terms of the revenue potential directly due to Ligand.

Okay.

But, John, for the Captisol, the materials you sell, can you speak about what kind of markup we can expect on the materials you sell to your partners?

Can you give a range?

I know you can't say specifically, but --

Chris, no, we haven't.

I mean those are confidential terms and every deal is different.

But what I can say is that this is an enabling technology.

It's not just an excipient.

It's not an off-the-shelf, you can buy it anywhere.

It's a very special, well validated, enabling technology that really changes the solubility and stability of drugs.

And it's proven by multiple drugs that are proved in launch, and by a whole bevy of other products that are in late stage development.

The reason why we don't get into how we price it is simply because different customers have different economic priorities.

Some are looking at lower supply costs but are willing to pay royalties, and others are looking for lower royalties but are willing to pay much more in terms of material supply cost.

There's a total economic equation that we're looking for with our partners, but there's no specific answer.

And due to the nature of our business, we aren't inclined to disclose those.

Got you.

Okay, John, thank you.

Our next question comes from the line of Nick Farwell with the Arbor Group.

Thank you.

You may proceed with your question.

Good afternoon.

John, I'm sorry I missed the comment.

I came in right when you were talking about deferred revenues and I think the impact on the second quarter.

Could you repeat that and indicate -- I'm assuming that's a one-time item -- and if not, may be you can comment on whether that assumption is accurate or not?

Nick, it is.

It's a one-time item.

It was related to the return of rights to [Favolin].

It's been sitting on our book for a number of years.

And so you're right, it's just a one-time non-cash item.

Okay.

So you ran that through the income statement, again I'm assuming, under your collaborative research, et cetera?

That is correct.

Okay.

So sequentially then it was 0.9 going to 1.1, taking out the 1.2.

That is correct, yes.

Okay.

And then the second question, just to make sure I understood what you were saying earlier is, the cash burn in the quarter was -- looks like about $3.1 million, and I believe what you're saying is that you will achieve break even by year-end, which really means year-end, not necessarily fourth quarter?

It means not for the full year, but likely in the fourth quarter.

Okay.

So the cash burn for the second half of the year will be close to break even or something of that nature?

Largely led by the fourth quarter, not the third?

That is correct.

Okay.

Thank you.

Thanks, Nick.

Well thank you, everybody, for dialing in.

It looks like our question queue is dry.

We really appreciate the interest and the follow-up questions by everybody.

We will be on the road a bit this fall.

We've been invited so far to two conferences, the Stifel Nicolaus conference September 9 in Boston, and then the Oppenheimer conference in New York the second week of December.

In addition to those events, we anticipate news flow from GSK for Promacta, Onyx for carfilzomib and possible updates for a number of other important pipeline programs as well.

Again, thank you for your time today, particularly given the market tumult.

We really appreciate your attention and support for Ligand.

Thank you.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.