Ligand Pharmaceuticals Inc (LGND) 2012 Q3 法說會逐字稿

Greetings and welcome to the Ligand third-quarter earnings conference call.

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

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

(Operator Instructions)

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Jennifer of Investor Relations for Ligand.

Thank you, you may begin.

Thank you and welcome to Ligand's 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.

As a reminder, 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 intent, belief or current expectations of the Company, it's internal and partnered programs, including Promacta and Kyprolis and it's Management.

These statements involve risks and uncertainties and actual events or results may differ materially from the projections described in today's preliminary third-quarter 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 us it of today, November 5, 2012 and do not necessarily represent the views of GSK, Onyx 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'll turn the conference call over to John Higgins.

John?

Jennifer, thank you.

Welcome to our third-quarter call, we're pleased to have everyone join us this afternoon.

Ligand is doing great and we're excited to be rounding out a strong finish to 2012.

Over the past several months, we enjoyed numerous major events that we believe will set us up for significant financial growth over the coming years and more late stage pipeline developments as well.

I'd like to hit a few of these high points.

Notably, as I'm sure many of you are aware, Kyprolis, Onyx's drug for relapsed and refractory multiple myeloma was approved and launched in the third quarter.

The product did $18.6 million in its first partial quarter of sales, in just about eight weeks time, and the revenue far exceeded the analysts' initial expectations.

Ligand received royalties on Kyprolis and we will book them as with our other royalties on a one quarter lag basis.

To put in perspective, this initial quarterly sales level will yield Q4 Kyprolis royalties to Ligand of about $279,000.

It has 100% gross margin, and that will generate in excess of $0.01 in earnings per share in the fourth quarter 2012 alone.

In addition to royalties, we anticipate we will continue to enjoy revenue from the sale of Captisol for the product for commercial and clinical use, and of note, Onyx has three Kyprolis global Phase 3 trials ongoing at this time.

On the earnings call last week, Onyx said they are beginning to, quote, unlock the significant potential for Kyprolis.

We certainly agree and commend them for their commitment and excellent management of the program so far to serve the significant unmet need in multiple myeloma.

To switch topics, Promacta, another major asset of ours, continue to advance very nicely commercially and clinically.

GSK just reported Q3 sales of $55 million.

That's up a sharp 59% over the same period last year on sales of $34 million in the third quarter of 2011.

Plus GSK remains on track to receive word from the FDA regarding the approval status of Promacta for the treatment of thrombocytopenia in HCV by the end of November.

We're about three weeks away from that PDUFA date for this important indication.

If that indication is approved, we expect continued expansion of the product revenue and our underlying royalty.

Merck has commenced a late stage trial for Dinaciclib for the treatment of various cancers, we announced this a couple weeks ago, the milestone earned us a $2 million payment which we just received.

Obviously we're very pleased with Merck's continued progress with this late stage cancer program.

Other Ligand partners have advanced their programs as well, Curis started clinical trials for a cancer program, and Meridian announced they are advancing a Ligand partnered program toward the clinic as well very recently.

Also this past quarter, Rib-X presented positive data on their Delafloxacin program.

We entered a new Captisol license with MEI Pharma as well an option agreement for an early stage diabetes program.

Overall, I'll say the Ligand business has never been stronger with our revenue growth prospects of high-quality royalty assets coming sharply into focus at this time.

Promacta is generating significant revenue and growth for Ligand and Kyprolis is just entering our financial outlook with royalties right now about 18 to 24 months sooner than some analysts expected just earlier this year.

These are both potential major financial assets and they are overlaid onto a Company with a lean cost structure, a vast portfolio of other fully funded partner asset and a substantial base of tax assets.

We have built this Company to generate meaningful profits and cash flow per share and the Management and Board believe we are well on our way to achieving that.

As we announced last week, we are hosting an Analyst Day in New York City on December 4, at that meeting we will showcase our business model, financial assets and dig deeper into our pipeline and assets.

I truly hope that you can make it in person or join us live on the webcast.

With that I'll turn it over to John Sharp, our CFO.

Thanks, John.

As you heard from John, it is a very exciting time at Ligand as we see our business model working as designed with recent and near-term events for Kyprolis and Promacta.

We look forward to the few quarters when these assets begin to really drive our top line revenue growth.

Now for some highlights from the third quarter.

We continue to see solid growth in our royalty revenue on the strength of Promacta sales.

Promacta royalties for the third quarter were $2.2 million out of a total Q3 royalties of $3.2 million.

This compares to Promacta royalties of $1.4 million for the third quarter last year out of a total royalties of $2.4 million.

Revenue from material sales were up slightly to $1.8 million from $1.7 million last year.

And as we mentioned last quarter, we continue to expect a strong second half for Captisol shipments, and as you will hear from our financial guidance in a minute, we now expect those shipments to take place in the fourth quarter driven partly by new Captisol supply orders for Kyprolis.

Finally, our license and milestone revenues were $1.3 million for the quarter.

Of note, we announced shortly after the third quarter end, we have now received a $2 million milestone payment from Merck for Dinaciclib.

Looking at our operating expenses, our combined research and development and general administrative expenses for the quarter were $7 million, up slightly from $6.4 million last year.

Our expenses are generally in line with our plan so will run slightly higher through year end than originally expected due to various cost related to our R&D projects, business development activities and costs associated with tax planning in anticipation of the Company turning profitable.

On the cash side, we finished the quarter with $8.4 million of cash, cash equivalents and restricted investments.

As we disclosed in our press releases today, we will be filing restated financials for recent periods.

During our quarter close process, while reviewing the potential impact of future milestones, we discovered errors in the original calculation of the contingent liability for the CyDex acquisition in January of 2011.

Specifically the restatements relate to errors in the accounting for contingent liabilities that stem from our license agreement with The Medicines Company and the associated payments we might owe to Prism and the CyDex CVR holders.

Essentially we estimate the initial value of the liability was overstated by $1.6 million.

By reducing that liability, there are related impacts to goodwill and other intangible assets, other income and expenses, and our deferred tax assets and tax benefit.

I want to point out that the initial valuation and subsequent mark-to-market adjustments are non-cash accounting estimates based on the probability of various future conditions being met.

The restatement does not impact our revenue, operating cost, or the outlook on the potential of our partnered programs.

We have made good progress on finalizing the restatement work and are striving to get the restated documents and our third quarter 10-Q in as soon as possible.

To wrap things up, we are expecting a very strong fourth quarter, with the fourth quarter revenues approximately double the revenue we just reported for the third quarter.

And as a result, we are now expecting full-year revenues of approximately $30 million to $31 million compared to our previous guidance of $30 million.

And as I previously mentioned, we are expecting expenses to be a little higher than originally estimated and now expect combined R&D and G&A expenses of approximately $26 million compared to our previous guidance of $25 million, including approximately $6 million of non-cash expenses.

And we continue to expect our cost of goods sold for the full year to be approximately 35% of material sales.

With this outlook, we project the continuing operating business will be profitable and cash flow positive for the full year and to finish 2012 with a higher cash balance than we ended with the third quarter.

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

John, thank you.

Just in summary, again we're very pleased with the revenue performance, with our operating performance and execution and are delighted with the recent developments and positive news flow from our partners.

We'll be on the road a bit the next several weeks including at the Brean Murray Conference, we'll be participating in on Wednesday in New York City.

And again, we look forward to our Analyst Day in about a month in New York City.

Hopefully you make it in person or dial-in to the webcast.

With that, I'll turn it over to the Operator for any questions.

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

(Operator Instructions)

Joe Pantginis with Roth Capital Partners.

Hi, guys, good afternoon and thanks for taking the question.

Couple quick questions, if you don't mind.

John, obviously you have a big catalyst coming up with Glaxo and Promacta for HCV, it's a very large market.

If we can hopefully expect some positive news, and I don't want you to speak for Glaxo necessarily, but what do you believe Glaxo is most interested in since they have so many other studies ongoing for Promacta following HCV?

Joe, appreciate the question.

Clearly, a label expansion for any product, any company, is going to be the highest priority if it's the near-term opportunity.

And HCV again we're about three weeks away from getting an update on the status of that.

So that is clearly our sense, GSK's primary focus.

And since the product is labeled, it 's priced, it's on the market, we believe that GSK, upon approval, will be efficient at rolling out that expanded label if indeed it is approved.

The oncology-related thrombocytopenia, the other markets, are very compelling.

There's over 20 studies ongoing right now, a variety of indications.

And like the anemia related drugs for Epogen and other drugs to treat anemia, there's not one specific cancer but several cancers, there's leukemias, MDS, chemotherapy induced thrombocytopenia, a range of oncology-related thrombocytopenias that still will take a few years to develop and advance to the market.

But given the size of the commercial potential and the investment by GSK, we see that as a very exciting opportunity as well for the product.

That's helpful, thank you and maybe one quick follow up.

Obviously the Kyprolis launch was stronger than expected.

I know you have been asked this question, a similar question in the past, but I just want to get the latest.

Since you have such a strong launch with Kyprolis, for Captisol and so many other Captisol deals in place, I just wanted to make sure you guys are well equipped to supply as much Captisol as anyone could need.

Yes Joe, we are certainly, and I'll invite Matt for, our Chief Operating Officer to comment.

But we're definitely prepared and certainly look forward to meeting even higher volumes if it arises.

Matt?

Yes absolutely, Joe, we've got a lot of capacity beyond what we're using right now and so we feel very good about our capacity.

Great, thanks a lot, guys.

Thank you, Joe.

Irina Revkind of Cantor Fitzgerald.

Hello, good afternoon.

I just wanted to see if you can give us an update on the status of the Captisol-enabled Melphalan trial and where it's still on track to start in 4Q?

You bet, Irina.

Matt, you want to comment on that?

Yes, great, Irina thanks for the question.

We plan to start the trial for Captisol-enabled Melphalan within the next coming weeks.

Right now we're in the final stages of institutional approval at our two lead sites, so we're looking forward to enrolling patients very soon.

For those that don't know, this is a product-- it's a conditioning treatment for high-dose Melphalan and plays a central role in stem cell transplant conditioning for multiple myeloma.

We're excited about getting the trial started and as I said, we're in the final stages of institutional approval right now.

And then I had a question about gross margin.

It looks like it took a little slight dip this quarter, is there any particular reason and is this the gross margin that we should look to going forward?

Yes, John?

Irina, it really fluctuates depending on what type of material, i.e.

the commercial versus clinical and the range is in the 30% to 35%, actually if you look at year to date, it's closer to 30%, but we do expect more commercial in the fourth quarter.

So we think that's going to be up near the full year about 35%.

Okay and then I just have one last one and this relates to your SARM program.

I saw on the news that GTx who has a similar molecule in development, they had a data safety monitoring board that gave the green light to their program, and just wondering if you guys are keeping an eye on this and how you're thinking about your own molecule with regard to potential negotiations with partners in light of this information?

Irina, thanks.

A good question and for the last year or so, that's been relatively below the radar for investors, but it's a program we remain very excited about and proud of our achievement so far.

You are right, the SARM field -- our program is similar to what GTx has.

GTx is further along in development.

As a point of reference, we believe our molecule is certainly different, it's a next-generation if not a best-in-class for a variety of features by what we can tell.

But we are monitoring it.

The frailty and the muscle wasting space is a very important therapeutic category.

I think for regulatory reasons, it has been a challenging field to get partners to focus on doing licensing deals for it.

But no doubt, if GTx can break the ground and show excellent clinical data and a regulatory path forward, we think the commercial medical markets are definitely there.

And our outlook is to a 2013 review of their data and we think that could help catalyze interest for them and us and others who might be active in the field as well, which could be dynamite for this significant medical need.

Thanks very much.

Yes, Irina, thank you.

Carol Werther with Summer Street Research.

Thanks for taking my question.

I'm just trying to get an idea of when do you think you might have more results with Promacta on some of these cancer indications?

Yes, Carol, thanks.

Matt, I know you're close to the clinical status, why don't you provide a little color on that?

Yes Carol, and I'll just comment quickly.

Obviously a few upcoming conferences I think are important and GSK obviously has continued to report out new data as it becomes available for Promacta.

But there are a number of posters and a couple of oral presentations -- abstracts just went live today for ASH in December.

So I think that would be the next point at which we start seeing more data specifically around MDS and AML, as well as in some of the oncology indications.

Okay.

And are you still thinking about possibly licensing the Melphalan product?

Carol, we are.

We aren't fully committed to that strategy.

When we acquired CyDex 1.5 years ago, as you know we acquired principally partnered assets, programs that were already partnered and the supply chain for Captisol.

This was a development stage asset that, given the niche focus in stem cell transplant and multiple myeloma, what we believe to be a relatively small and lower cost commercial investment and a very high margin and important category, we believe as a specialty product this is a product that Ligand could advance to the market itself.

However, the execution of the clinical work, getting the trial started, completed, we think is fairly straightforward, it's fairly low cost.

We believe that in the interim to be talking with oncology specialty companies is important.

And whether we go it alone or whether we do it with the partner, our objective is to one, be successful in driving it to the clinic and also maximize the return to Ligand.

But this is a product what we're excited about exactly the path forward commercially or whether we partner it, we haven't fully committed to but we are seriously evaluating a partnership option as well.

Thank you and congratulations on a good quarter.

Carol, thank you.

Keith Markey with Griffin Securities.

Hi, John thank you for taking my call.

Couple of questions.

First I was wondering if you could give us a sense as to the tax impact that was referenced because you're going to be turning profitable impact on the fourth quarter and perhaps if you could give us some guidance on 2013?

Sure Keith, appreciate the question.

The guidance for next year, we're going to hold off on for now.

We obviously are at the early stage of launches of Kyprolis and are eagerly awaiting word on the HCV label expansion.

A couple of developments that we want to process before we get out on 2013 guidance.

I'll defer to John Sharp though to comment about the tax impact potentially for turning profitable here in the fourth quarter.

Yes Keith, in general the way it works, since Ligand does have a full valuation allowance against it's deferred tax assets, while that remains and until we show consistent profitability, you will see a very low effective rate really just for AMT which is less than 2%.

At some point when we do show that consistent profitability we will-- we anticipate releasing that valuation allowance and so in that year, you would see a very large tax benefit go through the income statement.

And then after that, it would be -- effective rate would rally rear-- or would look like the stated rates in the 40% range.

Okay, thank you.

Then I was wondering if you might remind us of the clinical trials that are ongoing regarding Kyprolis?

Yes, Matt, you want to comment on that or what's publicly available?

Yes, thanks, Keith.

There are three ongoing Phase 3 trials as well and there's also been discussion around additional Phase 3 trials, but there are three global trials running currently.

And then a number of smaller ones that are reported out as well.

As I mentioned earlier, the ASH abstracts went live today and there are a number of Kyprolis related abstracts and presentations, posters, et cetera there.

Okay I'll take a look at them.

Thank you very much.

Keith, thank you.

Ed Arce with MLV & Company.

HI, guys, thanks for taking my question.

Most of the questions I had have been answered, but I did have one.

And I apologize, I joined a bit late so I don't know if this has been answered already.

But you are still expecting the PDUFA date for the sMDA to be towards the end of this month?

That is correct.

We-- what we know, this is for Promacta and the treatment of thrombocytopenia in HCV.

As you know, GSK submitted the NDA earlier this year in May.

Later in the summer, they received accelerated review designation which qualified them for a six-month review.

And while GSK has not published the actual PDUFA date, our estimate is that it's the end of November, we picked Monday the 27th.

Again, that is only our estimate, but essentially the last week in November is when we believe the PDUFA date will be for that drug.

And we don't have any other information in terms of status of it but given the fact the drug it's obviously doing well commercially, but it's enjoyed some changes to safety disclosure and there's been supplements to the long-term safety data and the like.

Internally at Ligand, we're optimistic that this drug-- or the drug will enjoy a label expansion here soon.

Okay great, thanks John, appreciate it.

You bet Ed, thank you.

Okay well it sounds like that's the last of our questions, so again we appreciate everyone's attendance and questions and interest.

We have worked hard to build the business not only assembling the portfolio of assets but also running a business with a lean cost structure and really doing our part to help facilitate our partners success in the development of their programs.

From a biotech model perspective, we're very excited about the research in the underlying programs that our partners are advancing and are equally excited about our financial outlook.

We're building an exciting Company and look forward to updating investors in the ensuing quarters.

Thank you very much.

Ladies and gentlemen, this concludes today's teleconference.

You may disconnect your lines at this time, and thank you for your participation.