Ligand Pharmaceuticals Inc (LGND) 2011 Q3 法說會逐字稿

Greetings and welcome to the Ligand third 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, Erica Luib, Investor Relations for Ligand.

Thank you, Ms.

Luib, you may begin.

Thanks, Roya.

Welcome to Ligand's third 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 and partnered programs, including Promacta and its management.

These statements involve risks and uncertainties, and actual event 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 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 based on information available and reviewed by the Company as of today, November 8, 2011, and do not necessarily represent the views of GSK or any of our other partners.

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 call over to John Higgins.

John.

Erica, thank you.

Welcome to our third quarter call.

This is an excellent time to update investors and analysts on our progress.

We are having a strong year in 2011 as we build value for shareholders.

We continue to close deals, diversifying and increasing our asset base.

Our partners are advancing their programs with recent data announcements and NDA submissions, and we continue to the business on a very lean infrastructure.

Today we saw turmoil in our trading due to the recent preliminary data announced by GSK on their Promacta trials for hep-C.

We were pleased to participate in the AASLD conference in San Francisco yesterday and hear firsthand from principal investigators on the top-line data and the role of Promacta in those hep-C trials.

I'm going to provide some more remarks and color on that in a bit.

But first I would like to talk about Ligand and give a general overview of the business.

I'm very pleased with where we are right now in our prospects for the future.

At Ligand, we are a team of 22 people.

The 22 people with a singular focus on one main principle, to create value for shareholders.

Those of you who know Ligand, it is a simple mission.

We believe the best way to do that is to assemble a large and diverse portfolio of quality, fully funded assets and to do it on as lean of an infrastructure as possible.

That's the objective.

I can simply state that we have the best portfolio ever in terms of diversity, in terms of quality and the number of assets, and as a matter of fact, we are operating the business on the leanest structure ever in our history.

In terms of building the portfolio, a couple of recent highlights.

We continue to execute well.

The past few months, we added to our portfolio by outlicensing Fablyn.

This may launch within the next year or two, earning us a new royalty.

We entered a platform deal for Captisol in the CNS space, and we received a notice of clinical progress, and a milestone for an unannounced big pharma partner for a Captisol program.

This is important, because when I say in unannounced, this was here to for unknown to the public markets.

These events are bringing in cash.

They're creating other potential near-term revenue opportunities and they are increasing our portfolio.

Now, in terms of financial performance, our revenue this quarter is diverse, with over 10 partners paying us royalties and license and milestone payments.

Alright, that's this quarter, in the third quarter, over 10 partners paying us royalties and license payments and over 100 customers purchasing Captisol in the third quarter.

In addition to the diversity, and that is a rich and diverse revenue base, adding to the strings of the Ligand model, we see the quality of revenue improving as well with multiple sources of revenue, notably royalties and Captisol material sales having the potential to grow meaningfully over the next several years.

We had a goal this year in 2011 to turn profitable and cash flow positive on an operating basis by year end.

We fully expect to do that, and John will walk you through our outlook.

Beyond revenue growth, the strength of the Ligand model is further defined by how cost efficient we are.

This year we will spend only about $20 million on actual cash expenses.

Any way you look at it, we believe that is an incredibly attractive cost structure, given the significant size and the potential of our portfolio of assets.

Before I turn it over to Matt to elaborate on some of the operating achievements the last several months, I would like to make some remarks on Promacta.

For starters, since this is our earnings call, let me begin with some comments on Promacta's financial performance.

This is a product that we are in partnership with GSK.

We don't play a role in sales and marketing.

That's fully the purview of GSK, but we do enjoy a royalty on sales.

I want to plainly state that we are very impressed with the sales performance of the product over the past few quarters.

After a significant increase in Q2 sales, and those who have followed Ligand, Q2, there's a significant, nearly 50% increase quarter over quarter.

After that increase, we saw another strong quarterly increase in Q3 sales coming in at about $35 million.

Now, if you look at the quarterly revenue ramp of Promacta, over the past three-quarters, sales have increased over 130% in just the last three-quarters versus growth of around 60% for the three-quarters before that.

So not only is there good quarterly growth, but there is accelerating revenue growth.

As I said, we don't play a role in commercialization, but we would attribute the growth to increased product adoption for ITP and to the expansion into new markets worldwide.

At this run rate, GSK is poised to do over $100 million in 2011 for Promacta sales.

As sales eclipsed that milestone, the royalty on Promacta sales adjust from 5% to 7%.

So not only is this a nice revenue trend and our we exceeding that $100 million sales threshold, our royalty rate starts to adjust at that point.

The other factor that we find impressive, and this is really important for investors and analysts to follow.

The other factor that we find impressive with the commercial progress with Promacta for ITP is that when you combine Promacta sales with Nplate sales, that's Amgen's product for ITP.

GSK is beginning to command a larger share of total sales.

Now as history, Nplate launched before Promacta, so they had a first-mover advantage, but in the early days, Promacta accounted for less than 20% of combined sales.

Now, as we look at the last few quarters, Promacta now accounts for over 30% of combined sales.

So real nice growth in terms of market share increases.

Now, moving beyond the financial commentary, I'd like to make some comments about the data that GSK has recently announced and the activities around the AASLD conference.

There was a lot of substantive information that GSK has provided.

Yesterday, the lead principal investigator for ENABLE-1, one of the two pivotal trials Dr.

Afdhal.

He gave about a 15-minute top-line data presentation on both ENABLE 1 and ENABLE 2.

We were pleased, and frankly, a bit surprised that the ENABLE 2 data was included because the original abstract was only for ENABLE 1.

The data and oral presentation was given at a late-breaker plenary session, and I would estimate there were a few thousand people there.

Later in the day, Ligand hosted a panel discussion with Dr.

Afdhal and Dr.

Giannini, both principal investigators of these studies and hepatology thought leaders.

It is important to note that GSK and the investigator presenters point out that the data are preliminary and are still being evaluated.

And to be crystal clear, Ligand does not have any role in product development, and we do not speak for GSK.

That said, there are some important points to make about what we have seen and heard so far in the public domain.

In terms of efficacy, both trials successfully met their primary endpoint of sustained viral response.

These are two pivotal trials, well controlled.

In our opinion, they seem to be very well run.

They both successfully met their primary endpoint of SVR.

These are very sick patients that not only have severe hepatitis, but also thrombocytopenia.

The studies were designed such that patients were not eligible to start anti-viral treatment unless their platelets were elevated to successful levels.

Promacta does not treat hepatitis.

And this is important.

The patients were not eligible to start any viral treatment unless their platelet levels were elevated to acceptable levels.

Now, when you look at the two studies, 19% and 23% of patients had successful SVR.

That's roughly one out of five.

We find this data point very meaningful as Dr.

Afdhal remarked how sick these patients are, saying that left untreated, many may die within three years or contract liver cancer.

Now, in terms of safety findings, in ENABLE 1, the adverse event profile between the two arms is comparable, and GSK has noted that in their public statements.

In ENABLE 2 the data suggest there is a difference in safety profile, with more adverse events on the active arm.

Now, when asked to comment on these findings, the thought leaders stressed the data are preliminary and still being finalized and analyzed.

They further remarked that by virtue of the study design, the patients on Promacta were on anti-viral treatment for longer and at higher cumulative doses.

Now, while that was the intent of the study with the objective to treat hepatitis C, the suggestion was that the ramification of this is that one might expect to see higher adverse events with higher cumulative antiviral treatment.

Our team found the panel discussion very enlightening, and the transcript will be available on our website tomorrow.

With that, I would like my team, Matt and John, to continue with some updates on other parts of our business.

Matt?

Great, thanks, John.

This quarter we continued to successfully expand and diversify the Captisol business, and also made significant progress on some of our internal and currently unpartnered R&D programs.

As John mentioned, our most significant development this quarter in the Captisol portion of the business was the finalization of a platform technology license agreement with Sage Therapeutics for the development and commercialization of Captisol-enabled drugs for a broad range of CNS conditions.

As part of this deal, we received an upfront payment along with R&D support payments, and we will potentially receive milestones and royalties in the future for multiple products.

We see this deal as a very important expansion of our portfolio of partnered assets, or shots on goal.

And the Sage deal also represents a key example of how Ligand's business development and partnering prowess are being leveraged to expand the Captisol business in new and creative ways.

In addition to gaining new Captisol partners this quarter, some of our existing ones are also progressing their programs quite nicely.

Onyx Pharmaceuticals completed submission of their NDA for carfilzomib.

And we are also very pleased with the efforts that the medicine company is putting into the Captisol-enabled IV [Chlopitigril] project, now referred to by our good partners as MDCO-157.

In Q3, we also earned a $500,000 in milestone payments from a big pharma partner for an undisclosed Captisol-enabled clinical program.

And separately, we've also continued to make very good research and development progress on some of our most valued unpartnered assets.

We recently announced successful completion of our phase two study for Captisol-enabled propylene glycol-free Melphalan.

The phase two trial, which was conducted at the University of Kansas Cancer Center successfully met all of its end points.

And the next step for this program is to conduct a pivotal trial to advance toward an NDA submission.

While we see the Melphalan asset as a late-stage asset that we clearly have the ability and the expertise to take the NDA approval ourselves, we are now also actively evaluating our partnering options, while we simultaneously position ourselves to initiate the pivotal trial in 2012.

Our R&D team has also made great progress on our cutting-edge Interleuken 1 Receptor Associated Kinase 4, IRAK-4, program.

This past weekend, we gave an oral presentation at the American College of Rheumatology meeting in Chicago, and had the opportunity to highlight our novel IRAK-4 inhibitors and their potential use in inflammatory disease.

We see IRAK-4 as a potential next frontier of small molecule research, and we're very proud that our scientists here at Ligand continue to be at the forefront in this area.

Our team has discovered compounds that bind to the IRAK-4, and potentially -- bind to IRAK-4 and potentially inhibit IRAK-4 kinase activity in cell-based assays.

And they've also illustrated pathway selectivity, which is extremely critical.

Most importantly, oral administration of one of our novel IRAK-4 inhibitors halted disease progression in a mouse model of rheumatoid arthritis.

It's also important to note that IRAK-4, in addition, may be a therapeutic strategy for multiple inflammatory conditions in addition to rheumatoid arthritis, including things like gout, asthma, allergic rhinitis, and inflammatory bowel disease, as well as some others.

IRAK-4 is yet another program in our broad portfolio that is well suited for a collaborative research partnership with a company that has clinical development expertise and commercial infrastructure in a number of therapy areas.

With that, I will now turn it over to John Sharp to talk through the Q3 financials in more detail.

Thanks, Matt.

On the financial side, we are pleased to report another solid quarter.

The business is performing not only in line with our plan, but we are now projecting full-year revenues to be higher than our earlier estimates.

Looking at the third quarter, our revenues were $5.7 million, where we saw higher Promacta royalties over last year and new revenue from the sale of Captisol.

Overall revenues compared to the same quarter last year were down a bit due to lower one-time collaboration and milestone revenues.

Cost of goods sold was $700,000, or about 40% of material sales for the quarter.

Our combined research & development and G&A expenses were $6.6 million for the quarter, compared to $8 million for last year.

R&D expenses were $2.5 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 by $1 million due to increased non cash compensation, as well as costs associated with the acquisition of CyDex.

Additionally, during the third quarter of 2011, we recorded $2.3 million of a write-off of in-process research and development, as a result of our partners discontinuing the development programs for two early-stage assets.

During the third quarter last year, we recorded $15.9 million of lease, exit, and termination costs as a result of the shut down of our New Jersey facility.

During the current quarter, we recorded $0.5 million of other expense, driven mostly by interest expense, compared to $4.2 million of other income for the same quarter last year, primarily made up of $2.5 million of a decrease in liability for contingent value rights, and $1.5 million of realized gain on investments.

For the full year, we now expect total revenues to be approximately $26 million, compared to our previous guidance of between $22 million and $24 million.

On the expense side, we now estimate our 2011 combined expenses for R&D and G&A to be between $25 million and $26 million.

This is compared to our previous guidance of between $23 million and $24 million.

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

And our revenues include $1.3 million of non cash revenue.

And as John mentioned, our estimate for cash expenses to run the business this year will be about $20 million.

Specifically for the fourth quarter, we are expecting revenues of approximately $9 million, cost of goods sold of approximately $1.5 million, and combined R&D and G&A expenses of between $5 million and $6 million.

Based on this, we do expect our operation to be profitable and cash flow positive for the fourth quarter.

As a result, as we move through the final quarter of 2011, we expect to add to our third-quarter cash balance, and end the year with over $15 million of cash, cash equivalents and short-term and restricted investments.

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

Thank you.

Those conclude our prepared remarks.

We'd like to open it up for questions.

Thank you.

We will now be conducting a question-and-answer session.

(Operator Instructions).

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

Please proceed with your question.

Hi, thank you.

Good afternoon, and thanks for taking my questions.

I wanted to say congrats on a successful ENABLE-1 and 2 studies and the progress made on multiple fronts, particularly in a very sick patient population that has very few alternatives, [ceratics] and patients with advanced liver disease.

I also would like to thank you for hosting the event last night.

I think it was well attended, considering we were competing with Virtech.

I'm going to focus for the most part on Promacta, given the sell-off and what I think is an overreaction to some of the preliminary data.

Can we talk a little bit about two things?

The imbalance in thromboembolic events.

I believe Dr.

Afdhal said 50% of those resolved, and then another 50% responded well to anticoagulation.

What's your view now on the risk-benefit profile of the drug in this patient population?

Chris, thanks for your remarks.

And for those who are listening, Chris actually hosted the panel discussion last night, or moderated the panel discussion.

So he's got a first-hand experience with what the doctors were saying.

Chris, let me try to address your question generally.

I look forward to the transcript becoming public so all of us can read it.

We do not control the studies and don't have the data, so Ligand is not going to be providing technical analysis of the safety findings.

And that's just important that we convey that.

The data are preliminary.

What we heard yesterday from the investigators, generally, was that they believe that the safety findings for the drug-treated arm were in line with what to be expected for patients who are this ill, and for patients who are on this course of anti-virals.

We heard that several times throughout their prepared remarks, that they felt that the safety findings were in line with what could be expected.

So that's one important thing that we heard.

They provided some color in terms of how intensive their evaluation was of the thromboembolic events.

Some of this discussion was a bit technical, but I think what they were trying to convey is how careful and thorough they were throughout the study.

And that was impressive, not so much for the actual data, but for the rigor that GSK and the investigators were taking with evaluating this data.

The doctors had some commentary explaining why there could be such adverse safety events.

But one theme that we heard was that given the cumulative exposure to the anti-viral treatment, and they had data that they showed in the plenary session, that if you don't sustain your platelet count level, or if you don't have a anti-viral effect, then they would start to reduce the anti-viral dosing.

So in the placebo arm where you did not see that platelet effect, anti-viral dosing would start to come down.

They saw much higher cumulative dosing of antiviral treatments on the Promacta arms, which was the purpose of the study, to treat the disease.

But as I said in my prepared remarks, there was a suggestion one of the ramifications of this could be that the anti-viral treatment effect is also resulting in some adverse events.

So that was the a general perspective that the investigators shared with us last evening.

Great.

And I know it's hard to -- I appreciate the color.

I know it's hard to, and it may be impossible to speak for GSK at this point, but even as of last week when I went through the transcript and looked at the press release, Promacta is pretty high on their -- it's pretty high in their pipeline, and a priority level.

Do you feel that anything has changed over there with respect to their timing of the filing?

And two, do you think that we could even see data earlier, as early as ASH on ENABLE-2 to see the full data set?

For starters, in terms of regulatory timing, GSK has made no comment about this, and we'll leave it at that.

It is our impression that GSK continues to put a tremendous amount of resource into this program.

It's our impression as a developer of the drug they care a lot about these patients, and even the investigators yesterday were incredibly complimentary about the commitment and the continued investment that GSK is making in these very ill patients.

So that is unquestioned.

I will also add, some investors were asking is there a role for this drug in other indications?

Yes, BLB, in particular.

Correct.

And the doctors were quick to point out, absolutely.

That is their opinion.

They definitely believe that this drug, while it's used and is approved for ITP, and that is the sole indication it is approved for right now, the evidence of additional studies that GSK is conducting, plus the comments by the investigators suggests that there's obviously continued commitment.

As far as more information coming out, we don't know the schedule, but the reality is that there's a number of important events coming up where we expect we'll have more data coming out.

ASH is the first week of December, just a month away.

Just yesterday we saw about a dozen abstracts published related to Promacta for ASH.

And then the European Liver Meeting is in April, so that's just several months away.

And that clearly would be a high quality platform for additional data to come out, not to mention we'll have a couple more quarterly conference calls and the like.

So I think there will be plenty of opportunity the next few months for more data to come out.

Sure, okay, great.

I need to hop off, I'm actually in a cab.

Couple quick ones.

The plans for Fablyn, I know there's additional work that needs to be done on the manufacturing scale upside, and it's approved in Europe.

What are your -- have you heard anything additional on getting Fablyn out in either Europe or China?

So we closed the deal just a couple months ago.

Our partner, Chiva, is doing a tremendous amount of work transferring the regulatory dossier.

There's no specific schedule for launching in either Europe or China.

Our expectation is that Europe could come first.

It's already approved in Europe.

We hope within the next few months to be able to get more clarity on that.

Some development work will commence in China, but China could follow after European launch.

And then one final one before I jump back in the queue.

Do you have any additional leverage on your R&D line?

It's pretty light right now.

Do you think you have any additional leverage, such that you won't compromise any of your internal programs?

Well, the quick answer is, it is a pretty efficient investment in terms of R&D projects.

Where we get, quote, leverage is that we fund programs that are typically fairly short-term in nature, whether it's discovery efforts or animal work, a lot of these have a nine to 12-month cycle.

What we invest in a set of projects during a given year, often we get our answers and can move on and fund other stuff the following year.

So that's where we get turnover and leverage.

Having said that, we're funding principally three programs at a time, given unpartnered assets in our research, we think that still creates a good stable of partnering opportunities.

Great.

Thanks.

I'll jump back in the queue, and congrats again on excellent progress.

Thank you.

Thank you.

(Operator Instructions).

Our next question comes from the line of Van Brady with Presidio Management.

Please proceed with your question.

There are some very positive comments by GSK in August, I believe it was, when they put out a press release on Promacta.

Could you clarify what has happened since then in terms of more specific data being released, particularly for the benefit of those of us who aren't biotech analysts?

And the presentation last night, there was something about adverse events.

There were only two in ENABLE-1 and a suggestion, and then there were six.

Was that for ENABLE-2, or was that -- He talked about -- put up slides on, about two adverse events versus some other situation that resulted in six adverse events.

Sure.

Van, thanks for the question.

Again, as I said, we aren't going to analyze or start to dissect quantitative safety data, but I appreciate the spirit of your question, and let me give you my perspective.

GSK, these two studies were finished at different times.

The first study, ENABLE-1, preliminary data came out in August, and GSK, by their own public remarks, was positive, and by our impression, very excited about that data set.

And in our opinion, that was a very reasonable response.

These are sick patients.

There was a not only successful achievement of meeting the primary endpoint, but the safety of the adverse events between drug -- the active and the placebo arm were very similar.

My perspective with the current situation right now is such that ENABLE-2 is finished.

They have started to analyze the data.

They had a major medical conference and an opportunity to make comment about it.

They have top-line efficacy data, but the fact is they do not have the full data around safety.

And it's my impression that GSK, they're doing what they ought to be doing as a responsible, major pharmaceutical company.

They have a drug that's approved, it's already on the market for ITP, and they want to be very prudent and thoughtful and precautious about how any investigators, any doctors or medical practitioners use this data as it relates to hepatitis.

So I think that what we're looking at is a process that is going to unfold.

We're going to learn a lot more about the data, and we will surely hear GSK's direct opinions about their plans.

But given the fact the drug is already approved for ITP, I think they want to be very mindful as they speak to the medical community.

Again this liver conference yesterday was to thousands of hepatologists.

They want to make sure it's fair and balanced and that they give the appropriate setup as they talk about the data.

Well, I guess, Afdhal made a comment during the meeting that any estimates would be premature at this point.

What do you foresee going forward, or a quiet period in terms of news?

Wondering if there are any -- are projections realistic?

Well, so, what I would say is the -- GSK and the investigators, I'm sure it's not quiet at all.

I'm sure they're very busy.

These were large international studies, some 1,500 patients, so there's a tremendous amount of work.

Having said that, I'm sure teams are very busy, and as I said already, there are several scheduled medical conferences where data, we think, will logically be coming out over the next several months.

So between the American Society of Hematology, the European Liver Conference, so really end of this year, into the first half of next year, again we'll have opportunities.

And again, I would expect that that would be the time frame.

As for Ligand, I think the big picture, no doubt, Promacta is an important drug for our business.

But the success of Promacta, the financial performance, that's ITP- based.

It's only approved for ITP.

The reality is our outlook for next year is not driven by hepatitis.

Obviously, we're eager to learn timing of an NDA submission, and if and when it might be approved and launched.

Those are details we care about, but as we look at Ligand, this is a very diverse business with a lot of tremendously exciting assets.

Another one we've talked about is Onyx's drug carfilzomib.

They've submitted the NDA.

They believe by the end of this year it'll be accepted for filing, and it could be approved next year.

We're already supplying them Captisol, but if that product launches, we will start to earn a royalty on that.

So Ligand is doing well.

We're diversified.

We're very focused on Promacta and trying to learn, as the public is, more about this drug.

But over the next several months, it's not a situation where we're only waiting to get information on this one program.

Thank you, Van.

Really appreciate those questions.

We'll take our next question.

Thank you.

Our next question comes from the line of Ed Arsee with MLV & Co.

Please proceed with your question.

Hi, guys.

Thanks for taking my question.

I just -- I guess I want to focus a little bit on the operations itself apart from the questions and the results, the preliminary results from Promacta.

My first question is, on the recent -- on the guidance that you just released, this $1.3 million of non-cash revenue, what exactly is that?

That was some deferred revenue that we actually recognized back in the second quarter, Ed, and it related to an old agreement, some deferred revenue had been sitting on the books.

It actually related to Fablyn, and when the rights were returned to us, we recognized that revenue.

I see.

Okay.

And I assume that that is the primary driver for raising the overall revenue target for the quarter and the year?

No, not that $1.3 million.

As you've seen from the guidance, specifically for the fourth quarter, we're expecting a big fourth quarter of $9 million in revenue, obviously compared to -- it will be our biggest quarter this year.

Right.

And it does not -- again the $1.3 million was already recognized back in the second quarter.

And roughly, Ed, the prior revenue guidance was $22 million to $24 million.

So take the midpoint, $23 million.

Here in the fourth quarter, we're raising guidance to $26 million.

So as John said, the $1.3 million had already been accounted for.

This is a 10%, 15% increase in revenue outlook.

It's driven by higher royalty revenues and a couple of other recent licensing deals.

It's just a continued progression and success of the operating business.

Okay, great.

Ed, thank you very much.

Appreciate your questions.

Thank you.

Our next question comes from the line of Keith Markey with Griffin Securities.

Please proceed with your question.

Thanks for taking my question.

Couple of catch-up things.

I was just wondering, you gave the breakdown between -- or at least you gave market penetration rates for Promacta versus Amgen's drug.

I was wondering, was that on a worldwide basis?

I wanted to be sure.

Yes, a worldwide basis.

Several quarters ago, GSK, if you look at both drugs combined, they had approximately 17% of total dollar sales.

And as we look at the third quarter, and if you add up both drugs on a worldwide basis, GSK is over 30%.

Very good.

I would assume, based upon the acceleration and the volume that they've been getting that we're going to see that market share shift again in 2012.

Would you agree?

That would be my expectation, and clearly they've had real success.

The US, the reimbursement environment may be a little more competitive, given the Medicare and Medicaid reimbursement for biologics.

But having said that, they've had very impressive growth, not only in the US the last one or two quarters, but also, candidly, outside, rest of world, Europe, et cetera.

So they are marketing in almost all the major markets around the country.

There's not only a market expansion but presumably, increased adoption within the ITP space.

So if those trends continue, the total market should grow.

The total ITP category, in terms of dollar volume, should grow, and obviously, we're very pleased with the increasing market share that GSK is enjoying the last couple quarters.

Great, thanks.

And then one other question, pertaining to the Promacta data.

If we assume that the data that was released last August were to be used as a guide for what would be expected from the information that was given out last night, would it be reasonable to assume that the adverse events that we're talking about that are in the latest trial really pertain to the anti-viral therapy and not really so much to Promacta?

Keith, I understand the question.

Maybe there are two parts.

We're trying to compare.

I'm sorry, maybe I should be a little clearer.

What I was wondering is, if we assume that Promacta has a very good safety profile, which so far it has shown very continuously to have, then the fact that you've got additional adverse events in the treated arm would be an indication that they're actually getting treated, that those, the adverse events are related to the anti-viral therapy.

And as a result of that, or because the adverse events are going up, we should expect that to happen because they are being treated effectively by Promacta.

Right.

That was a point that the investigators were discussing last evening.

One observation that, I believe it was Dr.

Afdhal made, in ENABLE-1, and there's much more comprehensive data review so far, but he remarked that while there were thromboembolic events reported, if I'm correct, Matt, none of the thromboembolic events occurred during the initial four-week open-label phase, which was Promacta only.

There's no interfere on treatment.

Yes, that was discussed clearly.

So again, this is only ENABLE-1, but the doctors aren't commenting on what is directly associated with the adverse events.

But while there are thromboembolic events in ENABLE-1, and they weren't a surprise or may have been expected, one observation that we heard yesterday was that none of those events were observed during the open-label Promacta-only treatment phase.

A second remark that was discussed yesterday was what you're getting at.

And that is, unless patients have a suitably high platelet level, they are not eligible to stay on anti-virals.

Well, their experience in the study suggested that if you are on Promacta, platelet levels, on average, stayed at or above those levels, which enabled them to remain on the antivirals.

Not only were they at higher dosing, but they are on anti-virals for a longer time period, as much as 12 months.

In the case of the non-placebo arms, they show some data that suggested after three, four, five weeks, they started to lose the platelet level count, and hence, had to have reduction in their anti-viral dosing.

And so the experience of these two patient groups is different.

It's not just Promacta versus not Promacta.

It's different in terms of the anti-viral course, not only the type of drug they're getting, but the duration.

So complicated studies in very sick patients.

But the investigators shared some remarks that I believe the group found enlightening yesterday.

And my colleague Rob would like to add another remark.

Yes, Keith another thing that was said that is probably even a simpler explanation that I think everybody should be clear about is that it's not just that the studies are different, the analysis that we have of the two studies at this point is different.

So when we talk about preliminary data, I don't think people really understand what that means.

There is a board convened of clinicians and thought leaders that review every one of these AEs, and they determine what is the relationship to the drug.

That has been performed with ENABLE-1 study results.

It has not been performed yet with ENABLE-2.

I think there's a reason to believe that the data that we see from ENABLE-1 looks the way it does because people have been able to thoroughly look at the events and classify them appropriately as related or not to Promacta.

That has yet to happen with ENABLE-2.

That's exactly what they're going to be doing over the coming months.

So it's reasonable to think as time goes by and the data is fully examined, things may change.

So when we talk about preliminary, it's very important that we remember that.

Yes, thanks.

Thank you for that additional explanation.

That really was what I was trying to get at.

Okay, great, thank you.

Keith, thank you.

Appreciate your question.

Thank you.

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

Please proceed with your question.

May I just follow up on a couple of questions with respect to the outlook?

Matt, you commented, or at least it was noted that in the third quarter Captisol, our revenues were $1.7 million.

If I recall at the beginning of the year when the acquisition was made, the targeted revenues were something like $10 million to $11 million, if I recall correctly.

Yes, that's correct.

Using the $1.5 million guidance that John provided us for gross profit, and assuming a 40% cost of goods, that would suggest fourth quarter volume would be $3.7 million, or something to that effect, maybe $4 million, which would suggest volume at 9.5% roughly, which falls slightly short of your objectives.

Can you comment on whether it's just timing, some slippage of programs, or what that might entail?

I'll take the first part of that with respect to the cost of goods sold.

What we've talked about all year long, we do expect to improve on those margins.

So your math is in line, but maybe a little low, but you're right.

If you do the quick back of the envelope calculation, you do still get to about around $10 million in material sales.

I will add to that we are seeing increased diversity in the ordering.

That said, there's obviously a lumpiness, if you will, to when orders come and go, but we do see a nice trend of increasing diversity and increases in volume from a number of customers.

Is there seasonality associated with the business, such that that accounts for some of if not all of the declines sequentially from $3 million to $1.7 million?

I don't think I'd refer to it as seasonality.

We've got such a diverse portfolio of partners, a broad number of assets, different points in development, so they all reach milestones at various times, and those generally trigger purchase events, so we see those firing at different times.

I wouldn't call it a traditional seasonality effect, though.

Yes.

It's not -- it's lumpy, for sure, and it's a fair point.

I think there's such a large diverse array of revenue customers that where the total number is up, one bucket may be down, the other is up a little bit.

This is not a trend, though, to be clear.

In terms of the quality partners advancing the late-stage studies or possible market approval, while we aren't giving guidance, the reality is we've got important large customers that need Captisol.

So, as much as we're looking at specific numbers, there's really no trend to infer by these quarterly sales.

May I follow up, John, a little bit with your guidance on the fourth quarter.

If I have it, if I understand it correctly, you guided roughly $9 million in revenue, $1.5 in cogs, which gives you $7.5 million in gross profit.

And in R&D, $5 million or $6 million, just to pick that as a target area.

With that $5 million to $6 million, if you assume lease-back at $0.5 million and non-op at $0.5, that would suggest that you might have, my estimates, not yours, something like a $500,000 operating profit.

Is my arithmetic -- did I miss anything with respect to your guidance?

I would say the only thing that you would need to factor in is our non-cash expenses, which if you take our full-year guidance of $6 million, you can assume $1.5 million a quarter.

Correct.

I was taking that out because I really am looking at the cash flow projections.

When you talk about cash at $15 million, are you including the restricted cash in your third quarter so that the total cash would be $13.6 million, going to $15 million?

Or just your short-term cash of $12.3 million going to $15 million?

It's both numbers of $13.6 million and the $15 million included the restricted cash.

So but the delta in operating cash flow would be roughly $1.5 million.

Yes.

From $13.6 million to $15 million, as a projection.

I'm not asking for the exact number.

I'm just making sure I understand.

That would be the math, yes.

Which would be modestly below the cash flow number that you generate from operations in the quarter, suggesting some money is being spent on CapEx or something else.

That is correct.

Okay.

Thank you.

Thank you.

Appreciate your questions, Nick.

Thank you.

Our next question comes from the line of Christopher James of MLV & Co.

Please proceed with your question.

Hi, thanks for the follow-up.

I just have two really quick ones.

I've asked this in the past, John, but now since we're coming from AASLD where we're actually seeing a tremendous amount of new data with the direct acting anti-virals, and we're achieving higher and higher SVR rates.

And it looks like we're going -- the future is going to be interferon-bearing, in at least healthy patients.

My question is where do you see Promacta fitting in hep-C?

Will it be essential a drug that is for a sicker population, and not in combination with direct-acting anti-virals in combination with a PEG interferon and Ribaviron?

Again, let's not get ahead of ourselves in terms of talking about this drug specifically for the hep-C market.

And we'll really defer to GSK and their communications around that.

But to pick up on some of your themes, again, I will relate some of the remarks we heard yesterday by the investigators.

As it pertains to efficacy, one is the sense that the new drugs, as successful as they are, we know these obviously new drugs were not used in these studies.

There was an observation by one of the investigators yesterday that he believes that if some of these new drugs like Telaprevir or [Vacepavere] ere used, you would see even higher efficacy response rates.

He referred to a triple-therapy, interferon, Ribavirin, and for instance, Telaprevir.

So that's one observation.

The suggestion was that we shouldn't just assume that this is the best we're going to get with efficacy, because the world has changed and there are new drugs.

There was also a remark that these new drugs impact platelets, perhaps more aggressively than the current interferons.

And so that is another important theme, that this may be a growing market.

There are not only more patients, there's suggestion there are more patients being treated, but the risk of thrombocytopenia in triple combination therapy treated patients is also significant.

So that, we found to be a very enlightening set of remarks.

The other comment I will make about efficacy just to pass on what we heard, was the placebo response.

And I believe somebody in the audience was interested in understanding why would there be a placebo response at such and such a level.

And the investigators replied saying, it's not really a placebo response.

The fact is these patients would not have been eligible to go on anti-viral treatment if they had not first had four-week induction period with Promacta.

And there's a lot more technical analysis, and there's one or two slideshow to talk through this and some other comments made about this.

But just some very compelling remarks about the role Promacta played in this disease and the various studies.

I agree, I think the placebo response is actually zero.

It's not a true placebo arm.

But it's another debate we could talk about.

And then finally, the Elevate study, GSK stopped the Elevate study when the efficacy was tremendous, very early on, but there was an imbalance in thromboembolic events.

What do you suppose happened, and what was the difference in ENABLE-1 and ENABLE-2, where the DSMB took multiple looks and allowed the studies to continue?

Do you think it's just -- do you have any thoughts on that?

I don't understand why you saw six versus two, and GSK had an extraordinarily low threshold to stop the study.

But in ENABLE, I'm assuming that the thromboembolic events just weren't severe enough, maybe they just aren't truly adjudicated.

I don't know, do you have any thoughts on the differences there?

Well, I will invite Rob to make remarks, too.

Again, I do want a caveat, we have no role in the clinical management or the regulatory affairs, and really we don't believe it's our purview to be analyzing and dissecting their safety data.

But to the extent we have exposure to public domain remarks, we'll relate those.

Rob, you may want to add a little color.

I think what we heard last night was that there was a feeling during the ELEVATE study, when they did that interim look, that these AEs were related to thromemboletic events, and in the drug arm, there was some idea that these may have been related to Promacta, and therefore they made the decision to stop the study.

I think you hinted at this, that you heard last night as well.

It's a bit of a different scenario here.

They're looking very exhaustively for all thrombotic events in the ENABLE studies, and I don't think there was a feeling that any of these were of the variety that would enable to you stop a study, or that they were clearly related to drug.

So I just -- we heard that last night, that there really was two different situations of concern.

Great.

Thanks so much for the follow-up.

Chris, thank you.

Thank you.

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

Please proceed with your question.

The stock I think was a reflection of the fact that a number of people are afraid that GSK, based on the ENABLE-2 safety data, is not going to apply for an NDA for hepatitis C.

So leaving that aside for a second, I don't understand actually -- if it was just ENABLE-1, I don't think there would have been a problem, because ENABLE-1 was obviously the safety data was superior.

I don't understand, what was the difference?

Why was there an ENABLE-2?

What was the difference starting out for ENABLE-2 off the ENABLE-1?

I'm lost on that.

Well, Steve, this is Rob.

Clearly that answer is really simple, that the two studies -- there are two different interferon treatments, Pegasus and Peg-Intron.

And those were the basis of the two studies.

They are mere studies and nearly identical in every regard, except they used each of those in each individual study.

So a different interferon.

More to your point, I think everybody needs to remember, as John alluded to earlier, GSK is handling this exactly as you would expect an experienced pharma partner who has a program on the market to be handling this.

That they are very concerned about promoting off-label use, and you had to look at what was happening here, that they had an abstract for ENABLE-1 only, and that data is very positive all around.

That if they had gone up there yesterday and simply presented ENABLE-1, and then held the ENABLE- 2 study until the next open liver conference, which could be the Easel meeting in April, I think people could have walked away and simply said, the data is so positive from ENABLE-1 we can go forward and start prescribing this.

I think it was very clear that they wanted to be transparent and show all the data they had.

Even if it was preliminary, they want to make sure everybody has every bit of information, the clinicians especially.

So I think while there's some concern raised that this data may look negative, and therefore, they may not be going forward, I really think it's the opposite.

They handled this the way they would if they were intending to go forward.

This is how you do it.

So the reaction today, it really is due to really partial information.

Is it possible that just on the ENABLE-1 they could move ahead with an NDA versus the ENABLE-1, or does it have to be that ENABLE-2 -- that it's possible they wouldn't move ahead with the NDA if the safety profile in ENABLE-2 is not good?

Yes, Steve, a fair question, and different ways to analyze it.

Plainly speaking, we do not know their thinking on the regulatory, and frankly they may not know, because they don't have all the data.

It is our opinion, though, and I respect that we can all evaluate the data and have different conclusions.

It's our sense right now that to infer that GSK would not proceed with regulatory submission, that is not our perspective at all, that they are second-guessing whether or not to proceed.

They are in the throes of concluding pivotal trials.

I want to reiterate for the factual record, both studies met the primary endpoint in very sick patients.

And we've got a near complete data set for ENABLE-1, and we're waiting for more safety on ENABLE-2.

We have been impressed with how GSK has managed their clinical regulatory affairs in the past.

We think they get credit for having done a very successful job here to for with the various activities.

We are eager to see how this rolls out.

Thanks, John.

Steve, thank you.

Mr.

Higgins, there are no further questions at this time.

I would like to turn the floor back over to you for closing comments.

Thank you.

I appreciate that.

So good questions and interaction there.

As I opened in my starting remarks, this has been a very big year for us.

We're finishing strong.

It has been momentous in the way we're operating the Company, very efficiently in the deals we've closed in our migration towards turning profitable and cash flow positive.

This is a diverse business.

We've talked a lot about Promacta on this call.

There's the old saying, a one-trick pony.

Ligand is not that.

In fact, we're the exact opposite.

For those who know us, we have a shots on goal model.

We have a can of understanding that there's a lot of challenges and risks in this business, but if you associate yourself with quality programs and quality partners, a variety of assets can hit and create tremendous upside.

That's the business we're running, and I am very pleased with our achievements and success so far.

We're going to be on the road a bit the next couple months.

We'll be at the Missoulo conference in New York next week, then at the Oppenheimer Conference in early December in New York City as well.

So we appreciate your time and interest, and we look forward to staying in touch with all of you.

Thank you.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.