Ligand Pharmaceuticals Inc (LGND) 2013 Q2 法說會逐字稿

Greetings and welcome to the Ligand Second 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 Capuzelo, Investor Relations for Ligand.

Thank you, Miss.

You may begin.

Thank you and 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.

As a reminder, today's conference 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 Kyprolis, and its management.

These statements involve risks and uncertainties, and actual events or results may differ materially from the projections described in today's 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, August 1, 2013, 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 call over to John Higgins.

Welcome to our earnings call and thanks for joining us.

I'm very pleased to report Ligand is doing well and we had a strong first half to 2013.

Revenues were up nearly 90% for the first half of 2013 compared to a year ago, while expenses were essentially flat.

We are now generating recurring profits and cash flow.

We increased our cash and investment reserves over the prior quarter, even while paying down debt and paying cash to acquire new assets.

And we've continued to execute well over the past few months with a string of new deals and acquisitions, further increasing the size of our asset portfolio.

In many ways, we believe the potential of the Ligand model is just beginning to be realized.

The past few months have seen a significant amount of news flow and events that are transforming the company.

These spanned a full range of activities with our partners from pre-clinical, clinical, regulatory and business development.

We'll cover some of these points in this call.

But first, I'd like to share some of our views for what has changed at Ligand recently.

The first change to highlight is our strong financial performance.

Now, more than any time over the past few years, there is tangible evidence of our financial performance.

As I mentioned, revenues are up sharply, we are now profitable generating regular quarterly earnings, shareholders' equity has more than doubled over a year ago, and we are generating positive cash flow.

The second highlight is that we now have two potentially highly lucrative long-term royalty assets generating revenue for Ligand -- Promacta and Kyprolis.

Promacta and Kyprolis are very important medicines marketed by GSK and Onyx, and both drugs have enjoyed early success commercially.

With Promacta, the drug is now approved in 95 countries worldwide for ITP, and the global rollout of the new Hep C indication is in the very early days.

On a revenue basis, the product came in at $70 million for Q2.

That's up 49% this quarter over a year ago and up 13% over the first quarter of 2013.

The use of Promacta in the US for Hep C, as reported by GSK, is going well.

GSK noted in its Q2 earnings release last week that growth in US sales reflects the benefits of the new Hep C indication.

Additional countries will potentially be coming online in HCV, given the recent positive CHMP ruling.

And the product has future potential in other new oncology-related indications, given the ongoing clinical development by GSK and the impressive new data released at EHA last month.

Analysts project Promacta is now on a run rate for 2013 to do upwards of $300 million in revenue.

We enjoy increasing royalty tiers, and at that level, we will be well into the 8% gross royalty rate for revenue coming in later in 2013.

In regard to Kyprolis, it's a new medicine from Onyx approved in the US for advanced multiple myeloma.

In our view, Onyx has done a superb job managing the product clinically and commercially.

Given the product's use of our Captisol technology, we enjoy a royalty on product sales and sell Captisol material to Onyx for clinical and commercial uses.

Now a third change to highlight for Ligand over the past several quarters is the significant advancement in the portfolio, in both the size and the quality of assets.

We're operating now with the largest portfolio of fully-funded programs in the company's history.

There's clear evidence our model is working.

Not only are we continuing to add to our shots on goal, but our partners are successfully advancing development-stage assets from the clinic to the market.

As we often say, we are realistic in acknowledging that not all programs will work.

Even with attrition and loss of some programs through terminated deals, we have added more new programs through acquisitions and licensing.

Just in the past few months, we acquired a broad portfolio of royalty rights from Selexis and closed new licensing deals with Azure and Ethicor for lasofoxifene, a novel SERM program.

To put our portfolio expansion into perspective, in 2007 we had 9 fully-funded programs, and today we have over 85.

And significantly, in 2007 we had 1 product paying us a royalty, and today we have 5 recurring royalty-generating assets.

As we've discussed in our investor presentations, the potential number of royalty-bearing assets could double for Ligand in the next few years.

Quantity of programs is important, and quality is also very important.

We believe we are at a unique time where both our main royalty assets are in the early days of commercial potential, and we also have a robust calendar of late-stage events coming up in the next few quarters.

These events include a potential new product approval, expanded label approvals, multiple NDA submissions and Phase III data announcements.

These late-stage events are for programs ranging from infectious disease, osteoporosis, seizures and cancer agents.

Plus, the quality of the pipeline is defined by other license agreements we have for programs tied to Alzheimers and rare kidney disease, among others.

Finally, another fairly recent change to highlight is the substantially increased visibility and awareness of the business.

There is no doubt more investors and analysts are looking at Ligand now than in any time in recent history.

Our sense is that investors increasingly understand the value and leverage of our royalty assets, as well as the quality and depth of our portfolio.

Now before I turn it over to Matt, I will add that what has not changed at Ligand over the last several years is our business model and vision for how to build a high-growth company in the biotech industry.

Our business is focused on amassing a large portfolio of fully-funded pharmaceutical assets while minimizing the traditional risk that small biotech companies face.

The premise of our model is identifying good research targets and technology, good deal-making through acquisitions and licensing, operating with a lean cost structure, and broad portfolio diversity.

We are proud of what we are building and committed to driving the business.

Thanks.

Matt?

Thanks, John.

There has been a significant amount to report recently, both on our fully-funded partnered programs as well as our internal unpartnered R&D programs.

So I'll begin with comments on some of our partnered programs and I'll start with Promacta.

The global team at GSK continues to put significant effort behind the asset and they're making great progress.

They're publishing key data related to the dozens of clinical trials that are running around the world and are also reporting on continued commercial momentum, as John mentioned.

We were very pleased to see clinical data presented in MDS/AML, as well as aplastic anemia in the oral sessions at the European Hematology Association meeting in June.

In MDS/AML, the data presented provided further evidence supporting Promacta development in these important indications and also noted trends toward improved overall survival.

We view this as a meaningful development and look forward to future data.

As John mentioned, GSK announced last week that they received a positive CHMP recommendation for Revolade, which is Promacta's name in some ex-US markets.

The positive recommendation was for the use -- for the treatment of low platelet count in adult patients with chronic Hepatitis C where the degree of thrombocytopenia is the main factor preventing the initiation or limiting the ability to maintain optimal interferon-based therapy.

We are very pleased with this news out of Europe, as we view Promacta as an important medicine in this indication, even as the clinical landscape evolves with new potential Hep C therapies on the horizon.

The CHMP recommendation was based on Promacta's safety and efficacy data, including two global Phase III studies of more than 15,000 Hep C patients.

A positive CHMP opinion is generally seen as one of the final steps before marketing authorization is granted in the EU, and typically, that process takes about 70 days from the time of a positive opinion.

I'll switch gears now and talk about our partners at Pfizer who recently presented additional clinical data for the Bazedoxifene-conjugated estrogens program at the Endocrine Society's annual meeting.

This asset was formally referred to as Aprella in the US and is referred to as Duavive in Europe.

The drug was highlighted at a very well-attended SERM menopause symposium at the Endo meeting, where the large body of data relating to the efficacy and safety profile of the drug was reviewed.

Pfizer has a PDUFA date coming on October 3, so we're expecting to see regulatory action on this asset only 9 weeks from now.

Our partners at Spectrum Pharmaceuticals have continued to execute on the Captisol-enabled melphalan program for stem cell conditioning after assuming the management of that pivotal trial from us in late Q1.

This continues to be an exciting late-stage partnered asset for us, and it's clear that Captisol-enabled melphalan is in the hands of a capable and extremely dedicated partner.

As mentioned in our press release today, we've received the rights back from The Medicines Company for MDCO-157, which is the Captisol-enabled IV clopidogrel.

Medco recently ran a pharmacokinetic and pharmacodynamic study of multiple doses of IV clopidogrel versus oral clopidogrel in healthy volunteers.

That study generally indicated that there appeared to be potential differences in the metabolism between oral and IV routes of administration for that specific active.

The results changed the timing and the outlook of the program for Medco and, as a result, it no longer fit within their pipeline and the rights have returned to Ligand.

The Medicines Company has indicated to us that it is not an issue with Captisol but is specifically related to the metabolism for this particular active ingredient, which is a pro-drug that goes through a multi-step activation process once in the body.

This is not the first time we've had the rights to an asset returned to us from a partner, and we are now beginning to look at what effort we may consider focusing internally on the asset, and we will also assess the repartnering landscape for it, as we have with other programs in the past.

In May, we announced that our partners at Rib-X Pharmaceuticals initiated a 660-patient multi-centered Phase III trial of Captisol-enabled IV delafoxacin for first-line treatment of bacterial skin infections.

For that trial start, we earned a $500,000 milestone payment in Q2.

The FDA has designated this product as a qualified infectious disease product, enabling our partners at Rib-X to benefit from a number of incentives, including an additional 5 years of market exclusivity, priority review and eligibility for fast-track status.

I'll now touch on three different programs that we have partnered with Merck.

First, we mentioned in our release today some more specifics related to the Captisol license and supply relationship relating to Merck's IV program for posaconazole, known by the brand name Noxafil.

Posaconazole is currently only available in an oral suspension, and Captisol has enabled the development of an IV form of this established drug.

We've been very pleased with Merck's progress on this and are happy that we can now provide investors with a little more color on the active ingredient and the therapy area for this previously-partnered Captisol program.

The second Merck program is dinaciclib.

Following an internal assessment of the program, Merck's team very recently made the strategic decision to discontinue a valuation of the drug in patients with chronic lymphacytic leukemia, or CLL.

And the last Merck partnership I'd like to mention is BACE.

On our website, we just posted some summary slides related to the BACE program, which is called MK-8931.

It's in development for mild to moderate Alzheimers disease, and with some of Merck's recent updates and presentations on the program, we thought that a simple consolidation of some of the publicly available information on this partnered asset might be useful to Ligand investors.

And we posted to slides to the Investors section of Ligand.com.

Just as a bit of history, this is a partnered program that we obtained through the acquisition of Pharmacopeia in 2008, and for those that may not be following MK-8931, it is the first BACE inhibitor that has been demonstrated to lower beta amyloid levels in cerebral spinal fluid of patients with Alzheimers.

Merck presented these findings from a clinical study in patients with mild to moderate Alzheimers at a conference about two weeks ago, and importantly, Merck's got the leading position in the BACE inhibition field.

Merck's Phase II/III trial, the EPOCH study, is ongoing now in patients with mild to moderate Alzheimers.

And Merck has called 8931 a potentially transformative candidate in their pipeline and earlier this week referred to it as a candidate that has "the potential to alter the course of medicine." We agree with them and we're very excited about this as well, given that Ligand is entitled to royalties on the program.

Alzheimers is obviously global market by any measure with major unmet medical needs, and it's great to have a partner like Merck putting such significant resource behind this high-profile program.

They've said that they expect an interim safety analysis from EPOCH by the end of this year, so that's within 5 months from now.

And while our partners continue to invest significantly to advance our partnered programs, we continue here at Ligand to make very good progress on our internal currently unpartnered programs.

As we announced last week, the FDA has granted orphan designation to our Captisol-enabled topiramate program for the treatment of partial onset or primary generalized tonic clonic seizures in hospitalized epilepsy patients who are unable to take oral topiramate.

This is an important step in a value-creating event for the program.

I want to recognize the team that was involved in working with the FDA on this, as it's a great outcome for the project.

As a reminder, this program was also the subject of two clinical publications that were published simultaneously about 12 weeks ago in the journal Epilepsia.

Our goal here is to find a committed partner to further advance the clinical development of Captisol-enabled topiramate and then add it to our portfolio of fully-funded programs.

I'd also like to make mention of our diabetes asset, LGD-6971, which is our potent orally bioavailable small molecule glucagons receptor antagonist for the treatment of type 2 diabetes.

Glucagon receptor antagonists are a clinically-validated new class of molecules for diabetes, and our team knows the chemistry and biology in this space quite well.

We feel we have an improved next-generation molecule compared to what's currently in development.

And in June, at the ADA meeting, we also presented preclinical data demonstrating potential efficacy and applicability in type 1 diabetes.

Lilly also has a program in the glucagon space and have helped to ripen the landscape with clinical data that was also presented at the recent ADA meeting.

Our IND for 6972 is coming together very nicely.

It is on track, as we previously stated, to be submitted this year.

We've completed the needed IND enabling studies, have manufactured clinical material and expect to submit our electronic IND shortly.

We see 6972 as one of our most promising unpartnered assets.

And with that, I'll turn the call over to John Sharp who will review the financials.

Thanks, Matt.

I will recap just a few highlights from our earnings release today and also provide updates on a few other items.

As you heard from both John and Matt, the business is stronger than ever.

Revenues are up and expenses are essentially flat.

That is the core message of the Ligand business model.

This quarter, we reported net income of $6.1 million, or $0.30 per diluted share, and non-GAAP income from continuing operations, which is what we guide to and how we monitor the business, of $1.4 million, or $0.07 per share.

We strive to be transparent with our disclosures, and as a reminder, we furnish non-GAAP numbers to exclude non-cash changes in our contingent liabilities -- and this quarter our write-down of in-process R&D -- because we believe these amounts do not speak to the underlying operations of our business.

Touching on a few other items.

During the quarter, we recorded a $500,0000 write-off of in-process research and development that related to The Medicines Company returning the rights to clopidogrel to us, as Matt had discussed.

We also recorded $2.4 million of income from discontinued operations resulting from the release of certain contingent liabilities related to the sale of Avinza back in 2007, which now leaves just over $1 million of contingent liabilities on our books related to discontinued operations.

And finally, I wanted to point out that our GAAP income for the quarter includes $2.7 million of income related to decrease in our contingent liabilities as our CyDex CVR liability decreased due to changes in assumptions for the clopidogrel asset, partially offset by an in increase in our Metabasis CVR liability, as the trading price of our glucagon CVR increased during the quarter.

On the cash side, we generated nearly $7 million of cash from operations this quarter, which we used to repay $3.2 million of debt and $3.6 million for our Selexis transaction.

And, as John mentioned, we have seen our stockholders' equity more than double from a year ago as we increased $21.8 million, up to $39.3 million from $17.5 million at this time last year.

On the tax side, I want to reiterate what we have been saying for the past 6 to 9 months.

We have done a comprehensive review of our tax assets which has allowed us to continually talk about our $750 million in tax assets.

And with these assets, we expect to pay very little in cash taxes over the next 6 to 8 years -- roughly 2%.

But as I've always talked about, book expense is a little different, and on a book basis for this year, we project an effective tax rate of approximately 5%.

Looking forward, we continue to expect total revenues for the full year to be between $43 million and $46 million, with third-quarter revenues between $10 million and $11 million.

And we continue to expect non-GAAP earnings per diluted share for the year to be between $0.47 and $0.51, and for the third quarter between $0.04 and $0.06 per diluted share.

Additionally, we continue to expect combined R&D and G&A expenses for the year to not exceed $27 million.

As a reminder, our earnings per share guidance for both the full year and the third quarter do not include the effects of any increase or decrease in contingent liabilities.

Now I'd like to go into a little bit more detail about our cost of goods sold.

As a number of our customers are progressing towards commercialization, we expect our Captisol product mix in the second half of the year to trend significantly towards the commercial side.

Specifically, we expect cost of goods sold to be approximately $2.5 million in the third quarter, with our top-line material sales at a similar proportion to total revenues, as we just reported for the second quarter.

Due to this product mix, we expect cost of goods sold for the second half of the year to average about 50% of material sales, up from about 34% in the first half.

With this, we still project our full-year cost of goods sold to be in line with our expected range of 40% to 45% of material sales.

And with that, I will turn the call back to the operator and open it up for questions.

Thank you.

(OPERATOR INSTRUCTIONS.) Our first question today is coming from Steven Crowley of Craig-Hallum.

Please proceed with your question.

Good morning, folks, and congratulations on the good quarter.

Steve, thank you.

I almost was going to congratulate you on the start of your fiscal year because of the lag time phenomenon with royalties and such, but there should be a pretty nice build from here, if we understand how your model works.

Steve, that's right.

The revenues are building.

We've seen that obviously with the main underlying assets, but with our products -- most of our royalty contracts are tiered.

As revenues go up, we enjoyed a higher royalty.

And we book royalties on a one-quarter lag, which really gives us good transparency obviously within the current quarter in terms of what the revenues will be.

But also, as we move through the year, the proportion of revenue the last couple of years has increased, obviously, as we're hitting these higher royalty tiers.

So we're very pleased with the momentum of the products, what we're seeing from the market reports, and our overall revenues are growing nicely.

Great.

Now in terms of some follow-up questions on the pipeline updates you gave us and partner updates, there seems to be a little bit of a model developing here with your efforts within your program and the use of Captisol in terms of Captisol enabling some of the candidates in your portfolio, attaining orphan drug status, and then partnering.

We saw that with melphalan.

You seem to be executing the same play with topiramate.

Is there a model developing that you think you can run that play a bunch of times successfully or is it just a flattering period to see a couple of similar moves?

Well, Steve, I'll say -- we obviously look at all of our -- we've got a number of pipeline opportunities, many of which are Captisol-enabled opportunities.

Others we've -- are perhaps not related to Captisol that we have from other -- either our original Ligand core business or other acquisitions that we've done.

But you're right -- that Captisol creates a great opportunity to create differentiated products.

And when we think about our R&D investment, we look carefully at ways in which we can create value creating events through focused development efforts.

And I think the -- achieving the orphan designation for topiramate is a perfect example of that.

A great outcome for the asset.

I think increases its value and, as I said, we're looking for a partner to progress it.

We've got other assets that also can benefit from Captisol as well and other IP in that arena focused on certain actives.

So you're right.

Captisol can continue to enable more products.

And perhaps to expand on that.

As Steve -- certainly as you know -- but for investors new to this story, we acquired the Captisol business now about two and a half years ago and it's been a very active period post-acquisition.

Obviously we were excited about the technology when we acquired it.

But it's a perfect fit into our business for two reasons.

One, the market environment -- the research needs seemingly are going up for stability and solubility needs, and also, given our rolodex of partner contacts and our licensing team here, we think that we've got a good way to tap into deals.

Now there are three main ways that we deploy Captisol.

One is with partners for novel molecules or program.

And Onyx's program, Kyprolis, is an example of that.

If companies need Captisol, we're finding that there's a fairly regular outreach to Ligand.

Second is to facilitate customers in reformulating existing drugs.

And Matt highlighted Merck's program, posaconazole.

It's the first time that we're talking about that program by name.

But that's also another exciting channel.

And there's many drugs already on the market that may have life cycle needs that's creating a second channel.

And then thirdly, of course, is what you're pointing to -- the new uses.

Finding the melphalans, the topiramates.

And those require a little more time, a little more investment, but we're going to continue to try to identify those opportunities.

In terms of the opportunity for Captisol to generate more and more opportunities with partners, I'm wondering if there's some feedback you can offer us -- even if it's qualitative -- on how some of the platform deals you've done with Captisol -- like with Lilly and, I think, Sage -- seem to be gathering momentum or expanding your opportunity set.

Yes.

Steve, I'll say that's -- as John said, we acquired Captisol through the CyDex acquisition a couple years ago.

That's a strategic shift that we made -- was looking at this platform deal concept, where we develop pre-defined royalties and milestones, receive an upfront payment.

In the instance of Lilly, we received $1 million up front.

That allows Lilly to add on an unlimited number of Captisol-enabled programs from their proprietary NCE bank, if you will.

It's a great way to continue to add on deals.

We've seen those deals bear fruit in terms of continuing to add on new assets.

It also facilitates a much more streamlined business relationship.

So both of those relationships are going well.

We've been real pleased with Lilly's continued addition of -- and continued analysis of more ingredients with Captisol.

So it's on their formulators' shelves and they're using it frequently.

Yes, and anecdotally, there's obviously a whole roster of partners.

There's a lot of stuff that we don't talk about.

Either it's just partner confidential or it just doesn't rise to the level of disclosure.

But periodically, we get partners who are working on actively named program, but they come back saying, "You know what?

We think we've got a real promising lead in another area.

We'd like to order some research grade and start testing it here.

Can we take a look at that?

Perhaps amending the contract or adding some other areas of research on?" So that is -- as much as we are perpetually trying to seek new deals ourselves, there's also a -- kind of a self-fulfilling filling of the bucket, if you will, of other ideas that our partners are generating themselves.

Great.

That's very helpful.

One more question from me and I'll get out of the way.

In light of getting IV Plavix back, a candidate I think you got back from another partner a while ago -- lasofoxifine -- you've kind of reconstituted -- maybe not physically, but the opportunity set for that product.

And maybe you could talk us through how that scenario worked when you got something back and now have a couple new opportunities around it.

And maybe it's analogous to Plavix, maybe not.

But I think it might be useful for us to understand that equation.

Yes.

No, absolutely.

And it really speaks to the heart of our view of the industry.

One, a very honest understanding that most things fail in biotech.

This is a tough industry.

But also, a very strong belief that if you have human data -- if there's evidence of activity, safety or efficacy -- if you have human data, there is always a potential for finding a path forward.

In the case of lasofoxifene, this actually was one of our very earliest research programs at Ligand with Pfizer.

It's a program that had 15 years of development history and in the mid-2000s had some regulatory challenges.

The FDA perpetually wanted more data, longer safety trials, etc.

Pfizer, when they acquired Wyeth, they now had two SERMs.

Both, in fact, came from Ligand, and they chose to stop investing or advancing lasofoxifene.

They tried to find a partner -- a licensing partner.

They tried to find somebody to divest or rather acquire the assets.

They were not successful.

All the programs rights reverted to Ligand.

And now, again, with a very robust package of data, we were able to secure two new deals.

In the case of IV Plavix, it's important to note the -- some programs fail -- there's clear safety signals or clear lack of efficacy that kill a program.

In this case, we believe that for Medco, it's a different regulatory path.

They ran some studies, they got some data, they perhaps had an expectation for how long it would take and how much money, and given the clinical outcomes, they are looking at a different plan.

So they have talked with us.

They terminated the program.

Rights are coming back to us.

As Matt alluded to, it's not because of Captisol.

There's no technical failure at that level.

But there are now several years of data and human development that we are going to evaluate and look at possibly repartnering.

So it's obviously a change in the status of this program.

We wanted to give an update as this is obviously a recent development.

But we have a very good history of new deal-making and also relicensing assets as they come back to Ligand.

Great.

Thanks for taking the questions.

Thank you, Steve.

Thank you.

Our next question is coming from Gene Mack of Brean Capital.

Please proceed with your question.

Hi.

Good morning, everyone.

This is actually Sean McIntee in for Gene Mack.

I had a question about Promacta.

I was wondering what the progress was for treating MDS and what -- how it's doing.

Yes.

Great.

Thanks for the question.

I'll say we've been very pleased.

GSK continues to invest heavily in the Promacta asset.

Dozens of trials running globally.

They're presenting data very quickly once they have it, which is great.

At the EHA meeting in June, they presented data in MDS.

In patients with advanced MDS or AML, there was a 98-patient trial that was presented in an oral session at EHA.

The primary endpoints of the trial were looking at safety and change in (inaudible) counts, but there were also some really interesting secondary endpoints in platelet response and overall survival.

That study obviously supported further development of Promacta in those indications, and GSK is pushing aggressively on that, which is great.

And we were also encouraged to see the effects on overall survival.

As I said, that wasn't the primary endpoint of the study.

It was a -- primarily a safety study looking at general safety and change in (inaudible) counts.

But that's the latest data and GSK is continuing to push forward with it.

That's great.

Thank you.

I just have one more question.

And just if I could add on that.

What's interesting about Promacta is the revenue performance.

Obviously we saw $70 million reported by GSK last week.

But the -- there is clearly growing interesting in this program.

There's been a prolific amount of clinical data that GSK has been announcing, still about 25 -- perhaps over 25 ongoing clinical trials.

And the analysts who cover GSK -- the number of analysts who break out Promacta has doubled the last few years, and the outlook for revenue for the product has gone up significantly.

We've seen some numbers that now show peak revenues over $900 million a year out in several years.

So we're excited about this.

Obviously that helps fill in the financial picture for Ligand, but it also really underscores what we believe to be a growing understanding that this is an important franchise medicine.

It's approved.

It's well-established commercially in 95 markets globally.

But the first indication was ITP.

The other markets -- hepatitis C and these oncology-related indications, aplastic anemia -- are very exciting new potential markets.

Great.

Thank you.

I just have one other question.

When can we expect an update on the identity of the Hospira program?

We obviously aim to get as much details out with -- on all of our programs.

We feel strongly investors should know what they own and so we like to get all the details out we can.

Hospira kind of -- part of parcel with their business -- confidentiality of their pipeline is a real key part of their business.

And so at this point, we can't give any further details.

We continue to work with all of our partners to provide more but don't really have a clear timeline on when we'll be able to give you an exact identity at this point.

Okay.

Well, thanks for taking my questions.

Thank you, Sean.

Thank you.

Our next question is coming from Joe Pantginis of Roth Capital Partners.

Please proceed with your question.

Hi, guys.

Good morning.

Congratulations on the quarter.

A few follow-up questions, if you don't mind.

First, on GSK, obviously you've been discussing a lot of their oncology initiatives.

With regard to how advanced some of these programs are, what do you anticipate the next potential SMDA for Promacta might be?

Yes.

Joe, obviously the Hep C indications are -- is already approved in the US and under review in a number of markets.

Following that, they've announced they're pursuing labels in aplastic anemia and MDS/AML.

They haven't given the fine timing on that, but presented more data on aplastic anemia at the EHA meeting about a month ago and also published some data in the New England Journal of Medicine last summer.

So they haven't given precise guidance on what the timing is there.

I'd say aplastic anemia may be next -- MDS/AML shortly behind that.

Okay.

And then with regard to the HCV indication, I know this has the potential to be a much longer discussion.

But maybe you could just talk briefly as to the -- I guess the selling dynamic of the drug.

Obviously you're going to potentially look at some competition in the US with the direct antivirals, but maybe talk more to the ex-US dynamic for the potential of the drug since a lot of ex-US hepatitis C is obviously not genotype 1. They're more genotype 2, 3, etc.

Right.

Right.

So -- you're right.

This is -- it's an interesting topic and can involve a longer discussion.

But in summary, I'll frame it by saying that the drug Promacta -- it boost platelets.

And with people with severe hepatitis -- acute, chronic hepatitis -- the sickest patients -- their liver is so diseased that functionally they have essentially stopped producing platelets.

There is a number of new research projects ongoing in advanced stages that are suggesting that the standard of care will change -- will move to what's called an all-oral regimen which will eliminate interferon from the treatment regimen.

Interferon has been the standard of care, but interferon -- not only does it go after the virus, but it also goes after platelets.

So if you have low platelets to start with, going on a drug that chews up platelets is obviously a problem.

Joe, our view of the environment is such that the market potential for HCV is still very meaningful, even if these new drugs are approved.

We fully understand the landscape will change.

There will be less use of interferon.

But our view is that the sickest patients -- until they have recovery of their liver function -- the sickest patients are still cirrhotic.

They will still have low platelet counts and may benefit by using Promacta.

But beyond that discussion -- which is a fair debate about how things will evolve -- outside the US, as you point out, there are two dynamics.

The first is there are 6 broad genotypes of hepatitis.

In the US, genotype 1 and 2 -- and in other western markets, I'll add -- are most common.

That is principally where these new drugs are being studied.

Outside the US, in lesser-developed countries, the genotypes 3, 4, 5 and 6 are far more prevalent, and we have not seen the evidence of activity as strong in those genotypes.

So that's one very significant point.

The largest hepatitis markets from a population basis are in lesser-developed countries and involve genotypes that are different than in western countries.

The second fact to keep in mind is that alpha interferon, which has been a standard of care -- it comes off patent soon.

It, we believe, will be a low-cost medicine that will still be used as a common staple of treatment in these lesser-developed countries, and as long as that is the case, we think commercially there will be a very good rationale for using a platelet adjuvant like Promacta.

So that's hopefully a summary view.

It's a new indication.

It's just approved in the US and a couple of other markets.

We think the CHMP ruling is very significant.

We think that could be a watershed event if it translates to an approval in Europe for other countries around the world.

And we're eager to see how the next several quarters play out with that indication.

No.

That's very helpful.

Thanks, John.

And maybe just moving quickly over to the discussion on the clopidogrel.

Obviously, the setting you were looking at with Medicines Company was more on the acute setting in the hospital.

So with that said, what potential indications -- I know you might look to out-license the drug again, but what potential indications do you think might be applicable at this point since the PK data -- at least that Medicines Company saw -- might not necessarily be applicable, unless I'm reading it wrong.

Yes, Joe.

We're obviously just in the process of getting that -- the asset back now.

I'd say in general, the target would be still the acute MI patient setting, but perhaps either a slightly modified regulatory pathway or some other experiments we'd want to do along the way.

So -- but it still would be focused in that acute MI setting.

Okay.

And then just moving quickly again to the pipeline -- one specific and one more general.

Wanted to see if you had any updates on where the SARM program stands.

And then secondly, obviously you talked about a lot of the programs here.

What are you most excited about in your programs that you didn't talk about today?

Yes.

So I'll give you some color on SARM.

We didn't talk about that today.

It's obviously an exciting time and interest for that field.

We have our SARM -- LGD-4033.

It's a nonsteroidal selective androgen receptor modulator, which is expected to produce the therapeutic benefits of testosterone with better safety, tolerability and patient acceptance due to the tissue-selective mechanism and nature of the compound.

The area of palliative care in oncology continues to gain a lot of interest and credibility.

Last year, ASCO published an opinion stressing the importance of palliative care in cancer.

There's another molecule out there that's being progressed by GTX.

We're obviously watching GTX's progress with their SARM molecule.

They've said recently they expect to report top-line data from a Phase III study they've been running very soon.

We feel our molecule may be more potent.

We've actually published efficacy trends that show a fairly short duration to efficacy of only 21 days.

So with our molecule, LGD-3044, we feel like we have an unpartnered Phase II-ready compound that we think is better, and we've continued to invest in a very focused way to further differentiate our molecule in non-clinical studies.

So again, we feel like that's a very partnerable molecule and one that we're excited about.

One other one I didn't touch on from a pipeline perspective -- a partnered pipeline perspective -- is our partnership with Retrophin for RE21.

Retrophin is going after a rare kidney disease called focal segmental glomerulosclerosis.

It's defined by diminished glomerular filtration in the kidneys which leads to progressive scarring and increased levels of proteinuria.

The standard of care in FSGS -- it's a rare disease -- an orphan disease.

But the standard of care is to take steroids.

20% to 30% or so of the patients go into remission, but others are put on angiotensin receptor blockers, and then the progression to dialysis and transplant is often rapid.

And as we understand it, there's currently no FDA-approval treatment for FSGS.

And interestingly, recent studies with similar nephropathies have shown that lowering proteinuria levels leads to reduced morbidity of disease.

So RE21 was actually originally developed to treat hypertension, and this is another interesting example of us acquiring an asset and then partnering it in a creative and different way.

But those original studies in hypertension were done by Pharmacopeia.

They did a lot of work.

As I said, we bought Pharmacopeia in 2008.

They did 7 Phase I studies and a couple of Phase II studies, showed the drug was safe and very potent and well-tolerated.

Retrophin licensed it from us and they're now progressing towards a potential pivotal Phase II trial.

They call it the FONT-3 trial.

They're planning on starting that this year -- in the second half of this year -- so here in the next 5 months or so.

So as we understand, they've disclosed the FONT-3 trial will be a 12-week, 72-patient randomized study.

The endpoint will be reduced proteinuria.

So real credit to our partners at Retrophin.

They're progressing that well.

We've got a 9% royalty on the program, some healthy milestones.

So we're very excited about that one.

And then the other two I'll mention would be the -- I already talked about the partnership with Spectrum for Captisol-enabled melphalan.

They've done a great job taking over the trial and are progressing that well.

They've shown they're very dedicated to it.

They've got a great team who know that space well.

They know the stem cell transplant space well.

And then our partners at Lundbeck who are progressing the IV carbamazepine.

Earlier this year, they said they plan to file the NDA for that program in the second half of the year.

So we're keeping an eye out for that and obviously working with them as they progress.

No.

That's perfect.

And I have to congratulate you for the FSGS pronunciation on the first try.

So -- the -- but thanks a lot, guys.

And again, just switching to the financials, congratulations on your financial growth.

That's all I have.

Thanks a lot.

Yes.

Joe, thanks.

And I want to just pick up as a comment that Matt has highlighted a number of programs, and even by your question, he went deeper into another level of updates.

And what I hope is not lost on investors is what is happening at Ligand.

We have a massive portfolio of fully-funded programs and they're advancing nicely.

We're enjoying a number of updates and seeing the potential for product approvals, label expansions, NDA filings and the like, and we're reporting out on all of this.

We enjoy economic rights on all these programs, but we're reporting out on all of this essentially with no additional increase in our investments -- in our cost.

And that's what really is at the heart of this business.

And I just wanted to take a moment to reiterate that message because we're excited about how we're able to monitor the landscape and report out on all these developments, and we're doing it, as you will see the last 6 months and the last year or two, on essentially flat cost.

And that, I think, really underscores the strength of our potential earnings leverage.

Thank you.

Our next question is coming from Irina Rivkind of Cantor Fitzgerald.

Please proceed with your question.

Hi, guys.

I just wanted to pick up on the pipeline progress.

So I just wanted to make sure I understood exactly what's going on with the -- some of the Merck programs.

For Noxafil, you had previously disclosed in your prior presentations a Merck 505(b)(2) Captisol program.

Is that the Noxafil program?

-- is the first question.

Yes.

Thanks, Irina.

So yes, it is.

And just to -- a little more color.

This is a global brand Merck is investing in.

They're very committed to infectious diseases.

They've said that publicly a number of times.

Currently, Noxafil's only available as an oral suspension.

And last fall, they presented some pharmacokinetic and safety data on both the IV Noxafil program, as well as the tablet form, at ICAC.

So that was last September.

And at that time, they announced the then-ongoing Phase III trial for the IV formulation.

So -- and I know a number of you watch -- a number of folks watch clintrials.gov closely, and some have already mentioned that there's a global 288-patient, 48-center clinical trial listed as complete for posaconazole IV on clintrials.

That's obviously the formulation we're talking about.

But we can't give any further details on Merck's precise development status, other than what's out there in the public domain.

But yes, that's the program.

Okay.

It looks like -- I just ran the data and it looks like it's an $80-million-a-year product in the US, so I was just wondering what additional expectations you have from the IV form.

And then also, to follow up on the dinaciclib -- so the late-stage trials for that were primarily in CLL on clintrials.gov.

Should we view this program as terminated pretty much for Ligand, or how should we think about that?

Yes.

In terms of your follow-up on Noxafil, yes, it did -- globally, for Merck, it did a little more than $250 million last year on a global basis.

Obviously, this would be an IV form.

It'll go after a slightly different market, as we understand, than the oral.

So they're obviously developing it globally and it's a big -- it's an important brand for them.

As far as dinaciclib, really not too much to add there.

Merck just let us know they've discontinued clinical development for dinaciclib in CLL.

Basically they did an internal assessment of the program and made the strategic decision to discontinue its evaluation in that indication.

That -- those are the most advanced trials.

We obviously see on clintrials there are a number of other rials running for the drug, but they obviously still have the asset and there's still clinical work ongoing on it.

Okay.

And then would you be able to provide more detail on the breakout of royalties for Promacta and Kyprolis in the quarter?

For this quarter?

Yes.

Yes.

So you can -- based on what they have presented, both Onyx and GSK reported, so for this quarter, Promacta royalties were about $2.9 million and Kyprolis was just under $1 million.

Okay.

And then finally, I just have a quick question on the BACE inhibitor.

So you guys put out a nice presentation today giving us more data on that, and then there was mention in there that there is other companies like ACI and Roche and (inaudible) Janssen working on other versions of this product or these types of molecules.

Could you just help us understand where these compounds are in development relative to Merck and how they're progressing or how they're different from the Merck program?

Thanks.

Yes.

I'll say, from a progress perspective, Irina, Merck is in the leading position in this area.

They've got the most advanced compound.

They're obviously in a Phase II/III trial right now.

They'll -- they've said multiple times they'll get a safety read before the end of this year.

It's an adaptive design trial so it's designed to then roll over to the efficacy portion.

So Merck's in the leadership position.

As I said, we're real excited about it.

We're cheering them on.

They're obviously very committed to the program and very focused on it.

And then from that BACE program, like you said, there's not going to be really any efficacy read at the end of the year -- just to rule out any safety problems, and then they'll roll it over?

Correct?

At this point, yes, Merck has said they expect to get a safety read and that's all they've said.

Okay.

Those are all my questions.

Thanks very much.

Irina, thank you.

Thank you.

Our next question is coming from Ed Arce of MLV & Company.

Please proceed with your question.

Hi, guys.

Thanks for taking the questions and congrats on a good quarter.

Ed, thanks.

So a lot of the questions I had have already been answered, but I have a couple more.

Just further on the BACE, I just wanted to be sure I was getting your comments correctly.

The EPOCH data is what you're referring to as the safety read that we should expect by the end of the year?

Is that right?

Yes.

Correct, Ed.

Yes.

They've said they expect a safety read from their Phase II/III trial, the EPOCH study, by the end of this year.

Okay.

Great.

And then on Promacta, just as you follow the scripts, I don't know to what degree you feel that they track closely with underlying sales trends, but clearly there was a noticeable jump after -- around the beginning of 2Q to 600 to 700 scripts per week.

And clearly, that's, to some degree, the impact of initial sales into the HCV market.

I'm wondering if, from your perspective, given that we're only maybe a couple months out from approval in Europe, that there could be -- we could expect some sort of a similar lag of a month or -- a quarter or so before we start to really see an impact in the underlying trends.

It's hard to know exactly, obviously, how a launch is going to translate to uptick in prescriptions, but one thing that we know for certain -- GSK is highly committed and they're already in 95 countries commercially.

So as they roll out the new (inaudible), although they may be targeting different patients and doctor groups, the reimbursement system, the pricing -- a lot of the apparatus, so to speak, commercially is already in place.

So that's one positive.

And there's just more and more data available.

So we are pleased to see these prescription trends.

We aren't surprised by them, obviously.

We think there's real medical need.

What we have seen is US only, so when we look at a global brand, it's hard to extrapolate US data to global uptick.

But the trends are positive, and what we're encouraged by is that this product is, we believe, very early in its commercial life.

It has many, many years left remaining on its patent and although it's approved for some indications, in some ways the bulk of the development is still underway for other indications.

So we're excited what GSK is doing.

We're proud of all of their successes to date and obviously look forward to the next several quarters.

Yes.

No, I agree with that perspective.

I would just note that with year-over-year growth in the last quarter, it's still above 50% on an annualized basis, and you've got a run rate now of about $280 million annually for Promacta.

And with that growth rate further territories adding on, it clearly will continue to grow quickly.

Just one last question.

I guess this is probably for John Sharp.

I wanted to go over again the issue with the CVR liabilities and which programs are involved and how they kind of play off of each other.

So Ed, there's really 5 CVRs.

One is related to Cy-Dex in total.

And so there's -- it is the Cy-Dex business.

As you know, there's a revenue-sharing component to that liability, as well as some specific milestones with specific programs.

That's one.

The other 4 are related to Metabasis.

So the Cy-Dex CVR is based on internal projections that we update every quarter.

The Metabasis CVRs -- there's 4 of them.

There's a Roche, there's a glucagons, there's a TR beta and there's a general CVR.

Those are actually publicly-traded CVRs that we simply go and at the end of quarter and look at the price and that -- our liability is based on that.

We had released some data on glucagon during the second quarter and so we saw an uptick in that glucagons CVR trading.

Okay.

Thanks.

And then just one, I guess, bigger, broader question on the business overall, John, is as I think about the puts and takes in this rather larger portfolio you've got -- the news out of clopidogrel and dinaciclib.

But given the strong financing and M&A environment that we are currently in for pharma and biotech, I just wanted to get your sense as it relates to, at least qualitatively, how you -- how ongoing partnering discussions are evolving with -- in terms of the size and the number and the quality of them.

Well -- so there are two types of deals, so to speak, that we can pursue to further increase our portfolio.

One are traditional licensing deals and the other is acquisition.

The licensing avenues continue to remain promising for us, partly through Captisol -- again, a technology that can support a whole range of opportunities -- and also through our internal research, and Matt has identified some of our more exciting programs.

So that's one way that we can organically, through our internal efforts, keep driving new partnerships.

And that is and will continue to be our top priority.

Acquisitions -- for us, it's always been opportunistic.

It's finding quality assets at a good value.

The market environment has changed.

You're right.

Obviously, values for biotech-related assets has gone up.

So in some ways, realistically, the values are higher.

Properties are more expensive.

However, this is a tough industry and the timelines are long, costs are high and, in our experience, there's always some proportion of the industry that has financial needs.

And so that creates an opportunity either to acquire potentially outright companies or to acquire a subset of assets like we did in the Selexis transaction.

So the opportunities are there.

We're realistic about the environment changing.

As far as deal size, we don't comment about deal size or really what our focus is for targeted acquisitions.

But no doubt, given our increased revenues and cash flows and financial prominence, we believe that we've got an ability to do larger deals if they fit for Ligand.

I think you're going to find that we're going to continue to be very disciplined in deal-making, but our opportunity for acquisitions has expanded as well with our financial growth.

Okay.

Great.

Thanks, John.

Ed, thank you.

Well, that concludes our call.

Really appreciate the questions.

Terrific turnout today.

Very thorough and deep questions.

We are again pleased with the business.

I believe we're executing well.

We do our best to be as transparent as possible with the business and share with investors the company we're running, the plan as well as the asset we have.

So thank you for the interchange and for listening to us.

We have a busy second half of the year.

And really, just to conclude, I want to reiterate that we believe that we are at a unique time in our company history, both where our main royalty assets are in the early days of their commercial potential, and also, we're at a time where we have a robust calendar of late-stage events.

And we'll report out on these, but we're looking at a potential new product approval, expanded labels, NDA filings and Phase III data announcements.

So thanks for joining us and we'll be on the road this fall.

We look forward to staying in touch with all of you.

Ladies and gentlemen, thank you for your participation.

This does conclude today's teleconference.

You may disconnect your lines at this time and have a wonderful day.