Ligand Pharmaceuticals Inc (LGND) 2013 Q4 法說會逐字稿

Greetings, and welcome to Ligand Pharmaceuticals' fourth-quarter 2013 earnings call.

(Operator Instructions)

As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Erica, who is filling in for Investor Relations.

Thank you.

Erica, you may now begin.

Welcome to Ligand's fourth-quarter financial results for 2013 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, Kyprolis, and Duavee, 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, February 11, 2014.

And do not necessarily represent the views of GSK, Pfizer, Onyx, Amgen or any other partner.

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.

Erica, thank you.

Welcome to our fourth-quarter 2013 earnings call.

So much is happening here so far in 2014 that it feels long ago that we exited 2013.

And what a year -- what a successful year 2013 was.

It was our first year of profitability and being cash flow positive.

We closed out 2013 with $49 million in revenue and $0.90 of non-GAAP earnings per share.

That is well-ahead of our original outlook at the start of the year.

We raised guidance throughout the year, and ultimately closed even better than that.

Our lead programs are on or ahead of schedule, and Captisol orders for clinical customers came in well-above expectations in the fourth quarter.

Now, it's obvious that we are in a very robust capital markets for biotech stocks.

There is good reason for this over the past couple years.

The scientists working, the FDA has been much more effective in processing drug reviews and approvals.

And there has been a great run of excellent deals between companies helping to find for investors the value of drug assets.

Increasingly we are hearing from investors that if you want to own a piece of this lucrative industry, the best way to do it is to own Ligand.

The thinking behind that is, Ligand has so many partnerships and programs, so many ways to participate in the upside, that investors have a potential for biotech-like returns.

But at the same time, the Company's portfolio diversity and ultra-lean cost structure creates an unusually lower risk profile compared to typical biotechs.

This is what investors and analysts are saying.

And frankly, we agree with that sentiment.

Indeed, that is exactly the business we are working to build.

We are running the Company for shareholders, and we are proud of that vote of confidence for our business model.

So 2013 was a breakout year for Ligand.

And now Ligand is transforming into a high-growth financial Company with economic rights to some of the world's most important medicines.

As we continue to build this Company and capitalize on our momentum, let me tell you five reasons why we are excited about the business as we move into 2014.

First, financial clarity.

The power of the financial model has never been clearer.

Revenue contribution is strong for all channels of our business: royalties, material sales and license fees.

In terms of royalties, today most of the revenue is coming from young brands with long patent lives and blockbuster potential.

We are very efficient with expenses.

Our annual costs are low and they have been consistently low for years.

We have a lean share count and enormous tax assets.

Ultimately, we believe we have strong growth prospects for the top line and profit margins, and a path toward generating substantial cash flow per share in the years to come.

Second, largest portfolio ever.

Today over 90 shots on goal.

These are fully funded programs that we own economic rights to.

In 2014, more money than ever will be spent and more trials will be conducted this year than ever before for our partnered programs.

We estimate over $800 million invested in Ligand partnered programs, and over 80 trials, by our last count, to be conducted this year.

The size and potential of the portfolio is unlike any other peer Company.

Three, extraordinary late-stage calendar of events.

The number of late-stage events has never been larger or stacked with more significant events.

We are talking about Phase 3 data events, NDA filings, product approvals and launches.

Just last week, Pfizer launched a major drug that we will get royalties on.

That makes six for us.

And three more could be approved and launched later this year.

As we discussed in our recent investor events, the calendar shows a potential steady stream of product launches and possibly over 20 products paying us royalties by the end of this decade.

Four, balance in the business.

The business has never been more balanced between three things: A, high-quality current revenue drivers.

B, high-quality, fully funded mid-stage partnerships.

And C, high-quality and valuable unpartnered pipeline programs.

These three components drive financial performance, news flows and new deal making.

The business is in harmony and is very solid.

And five, finally, focus on the long term.

We believe the next few years have the potential to generate significant revenues and cash flow from the existing -- the existing -- fully funded partnerships we have.

We are focused more than ever on building growth and a financial runway for the business through new deals, intellectual property and potential acquisitions past 5, 10, even 15 years -- indeed, beyond 2030.

Our success in the assets we have assembled give the opportunity to have a long-term focus.

Five very compelling factors.

Again: financial clarity, the largest portfolio ever, an extraordinary late-stage calendar of events, balance in the business and focus on the long term.

So yes, we agree.

If you want to own the industry, it makes sense to take a strong look at Ligand.

Now, a final comment before I turn it over to Matt, who is going to go into more detail on our programs.

I'd just like to remark that today we announced John Sharp is moving on to a new opportunity at the end of this month.

I hired John seven years ago, when we were in the darkest, toughest days of our restructuring.

He has worked tirelessly side-by-side with us and, frankly, with a good sense of humor, through an amazing period of rebirth, growth and acquisitions.

He's been a loyal and hard-working member of the team, and can take part of the credit for getting us where we are today.

It's been a pleasure working with him, and we really do wish him well.

Now, John's departure creates a good opportunity to have Nishan step into that position.

Most of you know Nishan.

He joined us two years ago and has been leading our corporate development and alliance management efforts.

He has a great background in finance and medicine.

He has over 10 years of Wall Street experience working in venture capital and private equity.

At Ligand, he has intimate knowledge of our financials, contracts and core assets.

He is a thoughtful person and a steady hand in business.

And frankly, we are fortunate to have this sort of bench strength to move into this role and help take Ligand to the next level.

I know he is eager to work all of our analysts and investors going forward.

With that, we will turn it over to Matt to get deeper into some of our programming.

All right, thanks, John.

I'm going to make some comments about our partnered programs.

And then I'm going to touch on the progress on some of our internal unpartnered pipeline assets that we are investing in to fuel future shots on goal.

On the partnering side, GSK reported strong year-over-year growth for Promacta last week, 46% year-over-year growth.

And importantly, saw double-digit growth in all regions.

GSK is in 95 countries with Promacta for the ITP indication, and has approval for roughly half that number of markets with the hepatitis C indication.

They are continuing to invest heavily in top-notch clinical work for potential new indications as well.

They disclosed in December that they expect to present Phase 3 data for Promacta pediatric ITP this year.

And as a reminder, pediatrics account for half of the new diagnosis for ITP each year.

GSK is also reporting regional growth specifically attributable to Promacta's indication for low platelets associated with hep C. Now, it's clear that hep C landscape has and is evolving dramatically with the arrival of the new direct-acting antiviral.

That said, there's still important place for Promacta in treating the sickest subset of patients that need their platelets boosted as a result of liver damage caused by hep C.

And while the virus may be gone with the new treatments, what is left behind is a damaged liver that cannot produce platelets adequately.

It is important to keep in mind that if only 0.03% of the global population of hep C patients receive Promacta, the annual Promacta revenue from that could be approximately $1 billion.

GSK announced last week the granting of Breakthrough Therapy designation for Promacta for treatment of cytopenias in patients with severe aplastic anemia.

Aplastic anemia is a rare disorder in which bone marrow fails to make enough new blood cells.

There are no approved therapies available for patients who are unresponsive to immunosuppressive therapy.

And approximately 40% of those patients then die from infection or bleeding within just five years of diagnosis.

GSK continues to pursue a label for this indication.

And we see this as the latest example of Promacta being the basis for groundbreaking and promising science in an important area with significant unmet medical needs.

GSK also continues to actively pursue potential new indications in the oncology space, with data presented at ASH, EHA and ASCO.

Yesterday we announced a $1 million milestone that was earned as a result of Kyprolis exceeding $0.25 billion in sales in 2013 -- certainly an impressive milestone for a young brand.

Amgen is progressing multiple Phase 3s for the drug.

And like them, we look forward to new clinical data later this year.

Merck reported in November that IV Noxafil, which uses our patented Captisol technology, was accepted for priority review by the FDA.

At that time, Merck also confirmed that the marketing application for the EU has been filed, and that they also plan to seek approval in other countries around the world.

Captisol enabled the formulation of an IV form of this existing global drug of Merck's.

The IV form is designed for treatment of invasive fungal infections in hospital settings.

And now there's an important limitation to note with oral forms currently available, as patients may be unable to absorb enough to achieve the needed drug exposures that are necessary in a critical care setting.

So the IV form that was enabled by Captisol is playing a very important role in this new area for a global drug.

In December, Merck announced progression of development of its BACE inhibitor, MK-8931, for mild to moderate Alzheimer's disease.

That announcement followed a safety evaluation that recommended continuation of the Phase 2/3 ethics study.

And Merck also announced plans for an additional Phase 3 looking at MK-8931 in patients with mild cognitive impairment due to Alzheimer's, also known as prodromal Alzheimer's disease.

That Phase 3 is called the APECS trial.

Alzheimer's is obviously an area with huge unmet medical need, and Merck is in a leading position in the field.

Now, we are very realistic that Alzheimer's is an area -- as an area in general, is one that brings technical risk with it.

But it is important to note that Merck has the most advanced candidate in the most promising field of BACE inhibition.

Other big pharma players are recognizing the potential in this space and are initiating trials pursuing a similar mechanism.

We are pleased that Merck has a leading position.

And I will note that 24 months ago, this was an asset that no one was really talking about or following.

But as a result of Merck's commitment to the area and additional data, its progress is now visible.

And this, in many ways, really speaks to the shots on goal business model.

Over at Pfizer, Duavee received FDA approval in Q4 and is now available.

I'll call your attention to the Duavee website for more information as Pfizer progresses it's launch.

And as background, Duavee is the first and only treatment to pair conjugated estrogens with a selected estrogen receptor modulator, or SERM.

Now, Ligand has had a rich heritage of discovery and research in SERMs.

And Duavee has indicated for women with a uterus for treatment of moderate to severe hot flashes in prevention of postmenopausal osteoporosis.

There are 33 million women just in the US between the ages of 45 and 59, and all of them will go through menopause.

70% of women are not treated at all for their menopause symptoms, and over 60% have not even discussed their symptoms with their doctor.

So we see Duavee as presenting an opportunity to create a new paradigm in treatment.

Our partners at Retrophin have initiated enrollment in a potentially pivotal trial with sparsentan for the treatment of focal segmental glomerulosclerosis, or FSGS, which is a rare disease that attacks the kidney's filtering system.

Sparcentan was originally known as DARA.

It was an NTE that we obtained from the Pharmacopeia deal in 2008.

We incubated the asset for 3.5 years.

We made focused investments, and then turned that into a promising shot on goal that brought to us an up-front payment, some equity, over $75 million in milestones, and a 9% royalty on what could be a $1 billion drug.

A real testament to the efficiency and productivity of our business model.

Less than one year ago, we signed a global license agreement with Spectrum Pharmaceuticals for Captisol-enabled melphalan.

At the time we licensed the asset to Spectrum, the pivotal trial had just initiated, and we quickly transferred it to Spectrum.

We've been very pleased with the actively engaged and highly experienced team assembled at Spectrum who are managing the progress of the asset.

The pivotal trial has completed enrollment, and Spectrum expects filing mid-year.

Also less than a year ago, we announced the Selexis deal.

And we have now received the multiple milestone payments associated with the asset rights that we obtained as part of that transaction.

We are pleased with the progress of the assets.

And I'll also call attention to the clinical updates reported by Merrimack for MM-121 and MM-302 that were mentioned briefly in our release this morning.

As I mentioned, the R&D team here at Ligand has also been making exceptional progress recently in our internal programs.

Our goal here at Ligand is to make focused R&D investment, and then translate that investment into new, fully funded partnerships downstream.

The team here has been very successful at that, and we plan to continue to contribute to the growth of the partnership portfolio in that way.

I'm going to start with LGD-6972, which is our potent, orally available, small-molecule glucagon receptor antagonist for type 2 diabetes.

Glucagon receptor antagonists are a clinically validated new class of molecules for diabetes.

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

We initiated our first advanced Phase 1 study -- that includes both healthy volunteers and patients with type 2 diabetes -- in November.

And I'm pleased to report this morning that the trial is progressing very well, and we expect to have initial results available from the trial in the middle of this year.

We see 6972 as one of our most promising unpartnered assets in a very large therapeutic area with significant unmet medical needs.

And we plan to assess the partnering landscape after the Phase 1 work.

We feel we have a more potent molecule with improved properties, as compared to what's in development.

There are a limited number of molecules with novel mechanisms in development for diabetes.

And this program has a chance to be a major, novel player in the diabetes space.

We also presented data at the ASH meeting in December for our oral G-CSF program, LGD-7455, our granulocyte colony stimulating factor receptor agonist.

We presented data showing that LGD-7455 activates the receptor in a manner distinct from native G-CSF.

And also showed that our compound significantly increases peripheral blood neutrophils, demonstrating the first reported proof-of-concept for a small-molecule G-CSF in a primate model.

We also see this as a promising and potentially partnerable asset, and we are continuing investment in this program.

I'd also like to mention our SARM asset for muscle wasting, LGD-4033.

It's a non-steroidal selective androgen receptor modulator, which is expected to produce the therapeutic benefits of testosterone with improved safety, tolerability and patient acceptance.

Due to the tissue-selective mechanism of action in the oral route of administration.

Safety of testosterone treatments is obviously an area that is getting increased visibility as of late.

And we feel our SARM program is an improved, next-generation molecule, compared to what's currently in development.

There's another sponsor in late-stage clinical development who is pursuing a regulatory filing in Europe.

And we feel that serves to ripen the partnering landscape with data or events that should be coming throughout 2014.

This year, we are investing in our IRAK-4 program.

It is an extremely interesting discovery program where we feel we have a leading scientific position.

IRAK-4, or interleukin-1 receptor-associated kinase 4, plays an important role in the innate immune system, and may also be important for cross-talk between the innate and adaptive immune systems.

IRAK-4 is a signaling component downstream of both Toll-like receptors and interleukin-1 receptor, suggesting that it may have therapeutic value for a range of autoimmune and inflammatory conditions.

Inhibition of IRAK-4 activity has been implicated in multiple diseases, including rheumatoid arthritis, lupus, gout, inflammatory bowel disease, asthma and allergic rhinitis.

Inhibitors of IRAK-4 may also be useful for the treatment of certain leukemias and lymphomas.

We have identified orally available small-molecule inhibitors of IRAK-4, and are pushing them towards targets in cancer and autoimmune disease to position them for future partnering.

With that, I will turn the call over to John Sharp, who will review the financials.

Thanks, Matt.

I will cover just a few of the highlights from our earnings release issued this morning.

And I will also provide a little more clarity on our expectations for 2014.

Starting with the top line, total revenues for the quarter were $14.7 million, up $1.1 million compared to the same quarter last year.

Driven primarily by a 48% increase in royalty revenues, with Promacta contributing $5.1 million of revenue; Kyprolis, $1 million; and Avinza, Nexterone and Conbriza providing a combined $1 million.

In addition, our G&A and R&D expenses were virtually flat compared to the same quarter last year, at $6.8 million.

Our cost of goods sold for the quarter was $1.3 million, resulting in gross margin on material sales of just over 80%.

Which is better than expected, due to higher material sales for use in clinical trials.

For the quarter, we reported non-GAAP income from continuing operations of $7.4 million or $0.35 per diluted share.

Compared to $6.4 million or $0.32 per diluted share for the same period last year.

On the cash side, we ended the year with $17.3 million of cash, short-term investments and restricted cash.

Which was ahead of our plan, and higher than last year, while paying off nearly $20 million of debt during the year.

This leaves us with a small debt balance that is scheduled to be paid off over the next six months.

For the full year, we reported non-GAAP income from continuing operations of $18.6 million or $0.90 per diluted share.

Compared to $3 million or $0.15 per diluted share for 2012.

The increase in non-GAAP income was driven by a 68% increase in royalty revenues, a doubling of Captisol material sales, an improvement in gross margins from 62% to 70%, and a slight decrease in combined R&D and G&A expenses after backing out stock-based compensation.

Now, looking forward to 2014.

We reaffirm our previous guidance of total revenues between $62 million and $64 million.

And non-GAAP earnings per diluted share between $1.40 and $1.45.

For the first quarter, we are expecting total revenues to be between $13 million and $14 million.

And non-GAAP earnings to be between $0.22 and $0.25 per share.

As a reminder, our non-GAAP earnings per share guidance for both the full year and the first quarter do not include the effects of stock-based compensation expense or any increase or decrease in contingent liabilities.

Taking a little deeper look at our revenue forecast, revenue can be broken down as follows: one-half relates to royalty revenues with 100% gross margins.

About 30% of our revenue relates to Captisol material sales, where we expect gross margins of approximately 60%.

Which is where we expected the margins for 2013 to be as well.

But as I mentioned earlier, we saw better-than-expected margins in the fourth quarter, due to strong clinical material sales.

The remaining 20% of revenue, or roughly $12 million, relates to license and milestone revenue, also with 100% gross margins.

This is quite a bit higher than 2013, and is based on our current outlook for several significant late-stage events.

Finally, on the expense side, we continue to run the Ligand business with just under $20 million of cash expenses.

Which is broken down as roughly one-third R&D and two-thirds G&A.

In addition to the cash expenses, during 2014, we expect to incur approximately $8 million of stock-based compensation expense, and $3 million of depreciation and amortization.

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

Thank you.

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

(Operator Instructions)

Steven Crowley, Craig-Hallum.

Congratulations on a great 2013, and looking forward to 2014.

Steve, thanks.

In terms of some color on the success you just had in fourth quarter, the significant amount of Captisol material sales into the clinical trial domain.

Can you give us some complexion for whether or not that was across a relatively broad group of partners?

Or whether it was concentrated in a few high-velocity programs?

Yes, Steve, great question.

It was actually a mix of both.

We are doing more sampling, more licensing deals for Captisol.

So we've got more customers.

We are finding a number of our customers are ahead of schedule.

They are planning their trial starts, et cetera.

And perhaps the trial size is ahead of schedule.

And there also was one or two large orders really driven by some -- what we believe to be some promising regulatory events with these customers.

So it really was a combination.

As you know, our Captisol business quarterly sales are lumpy.

It is not a straight line.

And it really comes down to annual calendar planning.

But the fourth quarter for really both of those factors was considerably larger than we had initially expected.

And then in terms of our challenge of forecasting that category, not having near the visibility you do inside.

Last year in the first quarter there was a pretty substantial drop-off.

I think it was to the tune of -- it maybe dropped off 65%, 70% sequentially in the first quarter.

I do not get the sense there is that big of drop, but we should not look at the second half of last year certainly as a run rate for material sales?

Should we think about something half that as a starting point for material sales?

Maybe you could help us a little bit on that variable.

Yes, I'll say, Steve -- as we always say, material sales is lumpy.

But as we -- as more customers are converting to commercial, we are seeing more -- we get more visibility on those commercial shipments we've got rolling forecast in general with purchase commitments.

So that obviously contributes to a baseline as well.

I think that is an important point to note.

I'll also add to John's earlier comments.

One of the things we are seeing also are a number of partners who are pursuing either additional indications for our products that are in development, or additional territory clinical trials.

So we are seeing that as well.

And then in terms of efforts with your internal development programs.

It's encouraging to see what you're doing on your own to drive the value of the glucagon receptor antagonist program.

But the other sponsor out there with the candidate in the arena.

One of the intriguing aspects of your model is to effectively ride the coattails of successes and interest created by other sponsors.

And I am wondering if you have any visibility or information on what Lilly is stirring up with their candidate?

Yes, they have highlighted their program at a couple of events, some of their investor events, as well as their R&D Day.

They have completed large Phase 2 trials for it, and said they were doing some work preparing for larger pivotal trials.

So that is where they have been.

Obviously we are pushing our program aggressively forward, and are very excited about the data that we are generating.

And then just one more for me, along the same vein.

Your SARM program -- you mentioned that there was another sponsor in the same neighborhood, hopefully helping to drive value for success stories in that neighborhood.

Who is that other sponsor?

Can you share that with us?

And -- (multiple speakers)

Yes, Steve, that is GTX.

So GTX also has a compound that they have pursued.

They ran some trials in the US and Europe.

And just very recently provided their regulatory path update for Europe.

Okay.

I'll hop back in the queue with some additional questions.

Thanks.

Steve, thanks.

Appreciate your questions.

Joe Pantginis, Roth Capital.

Congratulations on the progress.

And also John Sharp, good luck with your new endeavors.

I know you were certainly instrumental in turning around the Company under John Higgins.

So definitely good luck with what you are going to be doing.

Couple of quick questions.

I know the historical landscape for Duavee was a bit volatile, and a lot of skepticism in this space.

Some people were skeptical whether the drug was going to get approved.

So let's just look to present day and the opportunity for Duavee.

Maybe matter someone.

Can you share with us some of the characteristics that might differentiate the product with other products, so it might garner some meaningful market share?

Yes, absolutely, Joe.

A great topic.

Pfizer obviously hasn't stated projections.

But I'll make a few general comments on the landscape, give you some general context.

As I said in my earlier remarks, there are 33 million women in the US of menopausal age.

It's rare to have a disease or condition where all of the population that could get the disease does get the disease.

A large proportion of those do not -- have not seeked treatment for their -- the manifestations of menopause.

Sorry -- struggling with words there.

So a real large untapped market.

Now, pre-the women's health initiative, this area was a huge area, one of the largest drug areas.

And post-the women's health initiative, there was a fear about hormone replacement treatment, et cetera.

And that market essentially dried up.

It shrunk significantly.

Now with the large body of data that Pfizer has generated -- both from a safety and efficacy perspective -- really creates the opportunity to create a new paradigm in this space.

There's certainly an educational element that will be critical to that.

But a huge opportunity, given the data that was generated.

I think the experience of the women's health initiative led to some of the skepticism that you were getting at, Joe, that perhaps the drug might not be approved, et cetera.

We heard that.

I think Pfizer probably heard that as well leading up to it.

But it is very clear, I think, that this drug meets a critical need.

And that the clinical package that was generated clearly shows that it is well-positioned to meet that need.

Great.

And just a follow-up on that.

Any potential differentiating factors of the drug compared to other drugs in this space, even in the safety arena?

Yes, and I was getting at that.

Their trials that were done were really the largest trials done to date in this category for a drug in development.

And with that, brings with it a significant amount of safety data, as well as efficacy data.

And I think that's a real important element for this.

Yes, and Joe, you are asking great questions.

Obviously this is Pfizer's drug, so it is their purview to talk about from a market perspective.

Generally, for investors -- to put it in perspective, this is a combination drug.

It is a combo of two drugs: premarin and our SERM.

Premarin at one point -- this is a fact -- it was the world's largest selling medicine.

So we can think about Lipitor or other top-selling drugs now -- Januvia, et cetera.

Premarin was the largest selling drug.

It is a different market environment.

It is one of the components.

It's a low-dose premarin, and it's a low-dose SERM.

It is, we think, the best SERM in research, and now it's this combination.

It's a powerful combination.

And I think -- to double up on Matt's point -- this is a very serious medical health issue.

This is not a lifestyle drug or a lifestyle medical category.

And the market in the US at peak was $4 billion to $5 billion.

It's smaller now.

But the patients -- and we are hearing from thought leaders -- really are looking for new state-of-the-art medicines.

And we think this is the classic right drug at the right time.

So we are excited about it.

It's just one of another many programs, but it is great to see the data, the recent approval, and now, the launch.

That is really helpful, thank you.

And then, if I could switch real quickly to Promacta.

And the last question will also be -- what is the clinical status for the IRAK-4 program?

Because obviously that holds a lot of promise, especially with all the new therapies that are out there.

And with BTKs -- and look even for BTKs in the inflammatory space as well.

So that's the last question.

But for Promacta, how could you characterize Glaxo's priorities in the oncology setting?

Obviously Promacta could be used mainly in the supportive care area, like chemotherapy and duso thrombocytopenia.

But obviously they have a lot of studies going on.

And what emphasis are they placing to date, even though the studies are early-stage on the disease-modifying characteristics of the drug?

Thanks a lot.

Thanks, Joe.

As far as Promacta, I will comment on that first.

I think GSK from the beginning has placed Promacta as a brand in their oncology unit, right?

And that is a real high-profile unit within GSK.

They have been making significant investment in the brand all along.

But I think, realized by that placement of Promacta in oncology, that there is significant opportunity for the brand in things like chemotherapy, induced thrombocytopenia MBS, AML, et cetera.

Now, a lot of data that has come out over the last year at EHA, ASH and ASCO.

Not only on the platelet effects in those diseases, but also on potential disease-modifying elements of the drug, which we're obviously excited to see, as is GSK.

But I think the important point to take home is that from the beginning, this drug has been residing within the oncology unit.

So there is clear visibility that, that is an important element of the drug's future.

They're seeing double-digit growth in all geographies, a lot of investment in the global clinical programs.

And it is becoming a higher and higher profile drug.

So we are excited about that.

So switching gears to IRAK-4, yes, that is a really exciting target for us.

It's a program we have published a little bit on.

We presented at a meetings about 14 months ago, some of our data there.

And have continued to invest in a targeted way.

It really fits very well within our business model.

This year, we are investing in some molecule optimization.

So it is still at that stage of development, in terms of identifying final molecules.

But the data that we see is very encouraging.

We feel like we've got a leading position in that field from a science perspective, and see it as a very partnerable asset.

Great.

Thanks a lot, guys.

Thank you, Joe.

Graig Suvannavejh with MLV.

Let me also add my congratulations on the fantastic quarter.

A couple of questions, if I may.

First, I know in terms of guidance for 2014 -- I know you're only providing first-quarter guidance.

But in the context of Captisol being lumpy -- in terms of the quarterly flow for the balance of the year, is there anything that we should be thinking about in terms of the evolution of how the quarters will be?

Whether it's on a revenue line or on a OpEx line?

I know your OpEx is relatively steady.

But any comments there would be helpful.

Thank you.

Yes, thanks for the question.

So generally the quarters flow -- Q1 is our biggest royalty quarter, because we are in the higher tiers, we are dealing with the fourth-quarter sales from the previous year.

And so we typically see the big Q1 royalty dropping down in Q2, and then ramping back up through the end of the year.

As well, we say material sales are very lumpy.

I will say the first quarter we are looking at about one-third of the revenue being for material sales, in the first quarter.

Typically -- although we do not think we are a seasonal business -- we tend to get bigger orders towards the end of the year.

So fourth quarter tends to be a pretty big quarter for material sales.

License and milestones are extremely hard to predict.

We do have some late-stage events that we think are probably geared towards the second half of the year.

And so with that said, it's -- again, it's usually the first three quarters are shorter in line, and the fourth quarter tends to be a bigger quarter.

Okay, thank you.

And then just from a big pictures perspective as well, I know that the business's development is very important to the Company.

As you see the overall business starting to grow, is there anything, as it relates to 2014, in terms of strategy and how you think about business development activity -- has anything changed, relative to years past?

Whether it's the size of the deals that you are thinking about, or the types of things that you want to do?

Graig, it's a good question.

It really is, I will say, the core of the business model.

As much as we are a biotech Company and are very proud of our research heritage, much of what we are doing is different than our peers.

This is a very strategically BD-oriented Board and management team.

And obviously our productivity on acquisitions create a deal-making licensing.

The last three of four years, I think, really defines that.

So you are asking a good question because, frankly, this is a very vibrant biotech environment.

The capital markets are obviously doing very well across the board.

We are participating in this space in a lot of different ways.

Our appetite for acquisitions is still very strong.

We get the question all of the time.

We are realistic.

We understand that valuations have gone up and companies have more access -- more options for accessing capital.

But our list of prospects is, frankly, as long or maybe longer than it has ever been.

However, we are disciplined, we are highly selective, we are trying to find things that are a good fit for us in terms of unpartnered assets, unpartnered research projects, partnered programs, cost structure and the like.

So that is still a part of it.

But the areas that we are also spending a lot of time on is looking at expanding more Captisol-related deals.

We've got the traditional flow.

We are doing one to two licensing deals a quarter, the last year or so.

We are looking at potential non-pharmaceutical uses of Captisol.

And this is a promising area.

We've got the IP.

This is something we have been looking at the last year.

But that is one area.

In terms of our portfolio of unpartnered assets, we believe that we are moving toward a potential series of deals, new traditional licenses.

However, it is also worth pointing out that in this marketplace, there is a lot of interest for private and some public companies to acquire or to bolt-on unpartnered assets.

We are getting overtures from parties to give them our assets, so to speak, in spin out-type structures.

So this is a new development that really in the last year or so has come more into focus.

We have explored spin-outs consistently the last several years.

We've talked about some banks and the like.

But this is another potential opportunity we have in 2014 to create partnerships with existing private companies, to take them public.

Or to possibly push some of our assets into a platform that could become a spin-out company.

So those are three areas we are looking at in traditional M&A, like we have done in the past; Captisol licensing but with a non-pharma focus.

And exploring spin-out structures really with the focus of leveraging the assets to improve the return and the value for our existing shareholders.

Great, thank you very much.

Carol Werther, Summer Street Research.

Congratulations on a really spectacular 2013.

And then, with all -- what you have been talking about, John, your different options.

I was just wondering how you were planning on financing some of this.

Because your stock is actually great, and you've done fabulous management of your cash assets.

You're going to pay off the debt.

Could you just talk a little bit about that?

Whether you would raise money, or would it be more debt-oriented?

If you wouldn't mind.

Yes, sure.

Carol, good question.

We get the question; do we need cash?

The answer is no -- at least, we don't need capital to run the operation.

Often we get questions with our expected growing cash flows, what we plan to do with it.

So investors are rightly focused on these sort of questions.

Right now, the business -- while we came out of 2013 slightly ahead on our year in cash balances, what's notable is that we paid off nearly $20 million in debt.

And we acquired a large portfolio of assets from Selexis.

So there are a number of nonoperating balance-sheet uses of cash.

2014, by our projections, is clearly projected to be much stronger to generate even more cash flows.

So allowing for our outlook on expenses, we do not need capital to run the business.

And we are very conservative with the use of equity to fund our operations.

We're proud of our lean equity structure.

Having said that, as we look at acquisitions, we believe, given our cash flows and growing cash flows and royalties, we have significant borrowing capacity.

We have a small cash balance today.

We are not concerned about that at all.

We believe that within a short amount of time there are a number of lenders who could lend us significant amounts of money if we needed capital to acquire assets.

So we have capital flexibility.

We believe debt might be the lowest cost of capital for us.

But I think every transaction is different.

So we will obviously reserve judgment on how we structure future deals.

But the focus for investors should be on what we have been doing the last several years; running a very efficient business, trying to be as transparent as we can on the operations.

And if and when we see good opportunities, obviously we'll talk about those as the time arises.

And then, I just wanted to ask a little bit more about the unpartnered program.

So how many do you expect to partner this year?

And how many INDs?

Yes, Carol.

So the program -- in terms of INDs, I say the way we look at R&D investment in general is: what targeted questions should we be focused on to answer?

And those questions can be scientific events, they can be data, specific experiments.

They can be regulatory events, for instance -- defining a regulatory path, et cetera.

What specific questions should we get answers to that will greatly increase the partner ability of an asset or a project?

So that answer is different for different programs, depending on what they are and where they are in development.

For glucagon, for instance, we felt it is critical to have a Phase 1 -- have an ID open of Phase 1 data, which is what we are pursuing.

For some of the other programs, it's not as simple as let's -- quote-- file an IND and then get a partner.

Sometimes the investment can be upstream or downstream of an IND, right?

So it's a matter of just answering a couple of key questions, doing some proof-of-concept work, either in an animal model or in vitro.

And then going out and pursuing partnering.

So the answer is that it is a mix, depending on the program.

As we talked about a little bit about IRAK-4, we are doing some molecule optimization there.

At G-CSF we have already shown proof of concept.

That's a program that might take a more traditional IND-type path over time.

And then for glucagon, for instance, we are generating clinical data.

So it is a bit of a mix.

It's not as if we just look at each program and say we're going to submit an IND, and that will be the value-creation event.

Sometimes the value-creation event can be prior to an IND.

And then my last question: can you remind me what the key differentiating factors for 6972 is, from Lilly?

So really as we embarked on this program a couple of years ago and really starting pushing it forward, felt we had some early data that showed that we were likely more potent, and may have better pharmacologic activity in general.

And we still believe that.

We're, in fact, even stronger today that we've got an improved molecule.

Okay, thanks very much.

Christopher James, Brinson Patrick.

Congrats again on a great quarter.

My first question is a follow-up to the last question regarding the glucagon receptor antagonist.

I know we are expecting data sometime early this year.

What sort of data should we expect?

Is this a -- is it safety data?

Should we expect some efficacy data?

And do you think this would potentially help to drive a partnership?

And could you help us -- could you review your licensing strategy for the compound?

Yes, thanks, Chris.

As far as the data goes, the data that we will have mid-year -- and really, we're zooming in and targeting around the ADA Scientific Sessions meeting that's in June -- would be a single ascending dose data in both healthy volunteers, as well as patients with type 2 diabetes.

So we will obviously have some PK, as well as PD parameters.

We will get some -- I will say -- looks at efficacy, based on the fact that we have diabetics in the trial.

And then of course a number of safety markers as well.

So we will have that data.

And as I said, we're targeting around the time of the ADA meeting in June.

And then as far as the partnering landscape goes, obviously this -- diabetes is a very hot area, huge unmet medical need with a large market.

There is definitely a need for novel mechanism treatment.

And as you look at -- as we will call it -- the dance card of players that are in the diabetes space, the big global players that are in the diabetes space and those that are pursuing multiple mechanisms.

That list of players becomes pretty clear of those that could benefit significantly by having a glucagon receptor antagonist in their bag.

So in general, those are the sorts of players we are looking at, are the big global players with an established presence in diabetes.

Great, thank you.

Okay, a couple questions on Promacta.

Again, congrats on the upgrade through therapy and aplastic anemia.

Could you remind us what the patient numbers are in aplastic anemia?

And what additional data do you think would need to be generated before submitting a supplemental NDA?

Have you had a chance to meet with the GSK to discuss their filing strategy?

Yes.

And GSK has not closed details of their filing strategy other than to say that they are pursuing a filing.

So they've said that on a couple of occasions.

Aplastic anemia is obviously a rare disease.

It's a complex disease.

There are any number of patient numbers you see out there -- about 10,000 or so patients.

So it is -- but the need is huge.

And really, GSK is very focused on areas where they can meet significant unmet medical needs with their drug.

And at this point, as I said, they have not disclosed precise timing or filing strategy, other than to say that they are committed to the filing.

So that is that.

Great.

Thanks for taking my questions.

Thank you, Chris.

Robert Fields, Cardinal Capital.

Mr. Fields, your line is open for questions.

Howard [Henning, Asuri Doc].

Just a quick, simple question, I noticed the -- looking at the financials, the share count has gone up a fair amount, over one million shares in the last 12 months or so.

Is that just normal option exercise, or is there something else that I am missing?

It is really driven by the converted to -- the fully diluted converted share count assuming the higher stock price.

We have options and restricted stock.

There have not been financings the last year.

As the stock price goes up, the in-the-money option increases.

And so when we report out on a fully diluted basis, the number of underlying units is increasing.

And the base has gone up too.

I'm assuming that's just option to exercise them?

They both went up.

Yes, we had option exercises during the year as well.

Right.

And --

We had about 300,000 of shares issued under our stock plan.

Right.

And as a follow-up question to that is, obviously there has been talk about M&A.

And you guys were frankly brilliant in the early days, which is why I tripled down on my stake, buying a lot of companies really on the cheap with a lot of upside.

Which is being realized now.

But obviously, the world has changed dramatically from the time you did the former Copia deals, and things like that.

And I know you briefly commented on this.

But would now -- and you mentioned doing these on debt.

But given the value of your currency has appreciated dramatically with the value of everything else, would you consider using more stock or stock-type deals, even more so than you did in the past?

I mean, in the past, you did a lot of stock deals because your stock was not worth very much.

But you didn't have cash.

And the other person's stock wasn't worth very much.

Now it's almost -- your stock is worth a lot and the other guys are worth more.

So where does that leave you?

Well, I appreciate the way that you phrase the question.

You are generally describing the ratio -- the moving ratio of our value versus the target's value.

In the past -- in fact, we have done six deals the last five years.

And one deal was all stock.

It was a small $7 million to $8 million acquisition.

The other deals were cash, or in one case, it was a cash and stock deal.

So actually, our history is that we've done mostly cash deals.

And this is just good M&A.

You have a former investment banker -- me -- running the Company.

Our CFO, Nishan, who's stepping in here, has been over 10 years on Wall Street.

We've got some very bright Wall Street minds on the Board.

You've got some really, I think, credible, experienced M&A thinkers.

And part of it is the selection of the target.

We have to believe in the quality of the asset and our ability to integrate it.

All of our decisions start with that, is quality, our confidence in the quality and our ability to integrate it.

And then secondly, if we like it, obviously it is a matter price and how best to structure it.

So I simply cannot say, would we do equity or debt?

Some targets may require an equity deal.

They may know they are sitting on a gold mine -- for an expression.

(multiple speakers) They would love to participate and get a big chunk of our equity.

Well, in that scenario, there could be a good basis for a merger, an equity exchange.

But we could then back-stop that with a simultaneous share repurchase, so we are net-equity neutral.

This is just a general overview that we are very protective of our share base.

And some investors may want a large financing so they can get a bigger piece of the Company.

The reality is, we are focusing on maximizing cash flow per share.

That is the ultimate test, the ultimate measure of value creation.

So we want to acquire and through the process -- again, we are going to focus first on quality and integration, and then optimizing the capital structure.

Okay, thank you.

Thank you, Howard.

Irina Rivkind, Cantor Fitzgerald.

I just want to revisit guidance, and also on a separate question, Duavee.

So when you guys are coming up with your 2014 guidance, can you just help us understand how you are using consensus estimates for products like Kyprolis and Promacta in formulating guidance?

Or do you more rely on your own internal forecast for the guidance?

And then tied in with that, just wondering if Duavee royalties from Pfizer represent a substantial portion of your expected royalties for the year?

And whether or not Pfizer has discussed their launch plans with you, and what you know about launch activities?

Thank you.

Thank you, Irina.

I will take the first question, with respect to how we build our guidance.

And so the answer is, we use both.

So we start with the guidance that the analysts for GSK and for Amgen have for Kyprolis and for Promacta.

But as we have always talked about, we have great relationships with our partners.

Sometimes we have a little bit more insight.

And so we fine-tune those numbers, especially for the current year.

Out-years, there's -- we have less visibility.

And so our long-range guidance is more in line with just what their analysts are saying.

We don't expect a lot from Duavee this year.

It is just launching now, and so there's minimal royalties that we are expecting for 2014.

And I will let Matt speak to the rest.

Yes, Irina, thanks for the question.

I will say that the relationship with Pfizer is a deep and long-standing one.

We touch Pfizer in a number of places, given the number of programs that we have had partnerships on over the years.

And then Duavee obviously has a long history between the two organizations.

So they give us good visibility -- I'll say appropriate levels of visibility.

Obviously, they're the ones that are best to comment on specifics around the launch.

And there's elements of that, from a competition perspective, are important to them.

So we always want to respect that with our partners.

But we will say we see a real clear commitment from them.

They are very committed to the brand, and are obviously a very capable partner.

And for investors generally -- this may be well known, but it is worth reiterating.

Where companies give public guidance, obviously that is what we will use for our royalty assumptions.

In this case, these lead brands -- these companies are not giving guidance, not only not publicly, they are not furnishing numbers to us.

So Irina, back to your point.

We obviously look at trend lines.

We book on a one-quarter lag, so there's some natural run rate that goes into this.

But much of our outlook is informed by what the third-party independent analysts think about the brand.

All right, thank you.

Thank you, Irina.

Steven Crowley, Craig-Hallum.

I will just ask one, since you have gone a while here.

But back at your analyst event late last year, you sprinkled some interesting stuff on us around the new platform technology [politicals] have direct.

And I'm wondering if there is anything you might be able to update us on there, related to that development.

Yes, Steve, thanks for the question.

Yes, it's a program that is very important to us.

We think it's a promising and partnerable platform.

It's one we picked up through the Metabasis acquisition a few years ago.

And our chemists have been focused on pairing that technology with new classes of molecules that could potentially benefit from better liver targeting.

It is a pro-drug technology that essentially activates the drug once it gets to the target site, which in this case is the liver.

And there are a number of classes of drugs that we feel can benefit from that.

So we continue to do investment in the chemistry of that.

We have obviously got a fairly broad IP portfolio associated with it, and see it as a partnerable platform.

So we are planning on getting more data out, publishing more data on that this year.

So you will hear more about it as the year progresses.

Excellent.

Thanks again.

Robert Fields, Cardinal Capital.

I'll try this again here.

Any granularity you guys could give on what event or events drive the lion's share of your estimated 2014 milestone revenue?

Bob, it's a good question.

The quick answer is, no, we cannot comment.

The milestone contribution is larger this year.

It is growing for two basic reasons.

One, we have more late-stage programs advancing down the pike.

And secondly, by virtue of being later-stage events, some of these milestones are tied to higher payment.

So that is the general background.

These, in most cases, are confidential and undisclosed numbers, just by way of the requirements of our partners.

However, as a general practice -- and we have talked about this -- we have over $0.75 billion of scheduled milestone payments -- a very significant amount of milestone payments.

And every year there is high-probability payments and smaller dollar amounts and some larger probabilities.

At Ligand, we obviously are using our best judgment, hopefully to conservatively project what the milestone revenue is.

There are perhaps some events that might happen where milestone revenue could be even higher in 2014.

There's a chance of a delay or otherwise, where the revenue might come in a bit lower.

But overall, we -- by practice -- try to be conservative and only count for projections things that we have good visibility on, and that we believe are high-probability events.

Okay, thank you.

Thank you.

At this time, I will turn the floor back over to John Higgins for closing comments.

Thank you.

Appreciate the questions, really a lot of very good topics and questions.

Great turnout on the call.

I want to the knowledge, once again, John Sharp's contributions to the business.

I know he is going to a private company.

I'm sure he will not miss waking up at 4 in the morning to get ready these quarterly calls.

But we do wish him well.

It's been a pleasure to work with you, John.

And I know we will be crossing paths here in San Diego.

Just to conclude, this is an exceptional period for Ligand that is obvious by our public reports and these sort of calls.

But given what we are looking at, given what we know about the business, given what we have assembled and our outlook, frankly, we have never been more excited about our prospects than we are right now.

We are proud of the Company, we are off to the races, and we look forward to updating you more as the year progresses.

Thank you.

Thank you.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.