Ligand Pharmaceuticals Inc (LGND) 2019 Q2 法說會逐字稿

Hello and welcome to the Ligand Pharmaceuticals Second Quarter 2019 Earnings Call.

(Operator Instructions).

And today's call is being recorded.

(Operator Instructions).

It is now my pleasure to turn today's program over to Todd Pettingill, Senior Director, Corporate Development and Investor Relations.

Sir, you may begin.

Welcome to Ligand's second quarter of 2019 financial results and business update conference call.

Speaking today for Ligand are John Higgins, CEO; Matt Foehr, COO; and Matt Korenberg, CFO.

As a reminder, today's call will contain forward-looking statements within the meaning of federal securities laws.

These may include, but are not limited to, statements regarding intent, belief or current expectations of the company and its management regarding its internal and partnered program.

These statements involve risks and uncertainties, and actual events or results may differ materially from the projections described in today's press release in this conference call.

Additional information concerning risk factors and other matters concerning Ligand can be found in Ligand's earnings press release and 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, July 30, 2019, and do not necessarily represent the views of any other party.

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.

Todd, thank you, and welcome to our call.

The past few months were defined by progress across many fronts.

We signed 9 more licensing deals.

We closed an acquisition.

Partners reported several late-stage positive updates.

Sage launched ZULRESSO is the latest commercially approved Captisol-enabled drug.

We posted positive Phase I top line results for our iohexol program.

And today, we're reporting solid financial performance for Q2.

The business is doing well, and we're pleased with our momentum.

Our financial outlook and the calendar of portfolio events coming up.

Ligand's primary current operating business is supporting partners using our antibody discovery technology.

I'm going to talk a little bit more about OmniAb.

OmniAb is our antibody discovery platform that we built through acquisition and internal investment.

3 acquisitions that have cost us about $220 million over the past 3.5 years have resulted in what we believe today to be a leading, best-in-class technology to discover antibodies.

OmniAb is a collection of genetically modified animals, namely rats, mice and chicken and an antigen sourcing technology that has helped Ligand assemble a very large portfolio of partnerships with companies of all types, private, public, small and large, to help them do their research.

Now antibody research is one of the largest areas of R&D investment dollars in the pharma and biotech industries today.

Antibodies are proving to be an attractive category through research outcomes and commercial success.

The data suggests biologic and antibody drugs receive on average higher rates of marketing approval from the FDA than small molecule or chemical-based medicines after a successful Phase I trial.

Ligand decided in late 2015, we wanted to stake a claim in the burgeoning antibody field.

We made our first move by acquiring OMT, followed by Crystal Bioscience and more recently, now Ab Initio.

Like any good business operators, we set goals for what we believe the business could produce for Ligand and its shareholders.

And we are very pleased with where we are today, and how the business is evolving to serve the industry.

Generally, investors and analysts are well-tuned into the potential of the OmniAb platform, but not all of them are.

This reminds us of 2011 when we acquired Captisol.

Some investors did not understand that business, its potential, or how it fit into Ligand.

For a few years following that acquisition, investors needed time to learn more about it and see R&D and commercial success.

Some wondered where the value was and poked at the business, like when we're questioned for doing a license agreement with a newly formed Sage Therapeutics.

One investor called and said, they did a Google search to find Sage was a wellness spa.

The search was misguided, but so is the premise that Sage would not amount to anything.

Today, less than 10 years later, Sage has a market cap of $8 billion and launched its first approved drug last month for a very important PPD market, and that drug is based on its initial license with Ligand.

No doubt Captisol's highly successful platform acquisition for Ligand.

It's an unqualified success.

We paid $31 million upfront and about that much more in additional earn-outs over several years to acquire the underlying business.

To date, we have generated over $300 million in revenue from the business, and we expect sales will continue for another 10 years or more with some of the biggest royalty years still ahead of us.

The Captisol deal illustrates a strength of our company.

How Ligand identified a category moved in on a not so obvious acquisition and then made it a big winner.

So today, our OmniAb platform is our most valuable long-term platform and is defined by great science, strong and expected long-lived IP with a broad portfolio of partners and promising financial potential.

We believe OmniAb could be manyfold higher than what Captisol has delivered and that investors should take note.

Much has been achieved with our OmniAb business since we got into the antibody space about 3.5 years ago.

At the time of the initial acquisition, we had 16 companies who have signed license agreements.

We forecast that we would sign another 3 to 5 new deals per year going forward.

We gave financial guidance in 2016 that we would do $18 million in the first 2 years with OmniAb.

We did much better, locking in $32 million of revenue for the business for those 2 years, 2016 and 2017.

Then in 2018, we did $57 million in revenue for the business.

We expect by the end of this year, OmniAb will have generated over $114 million of cumulative revenue to the business.

Today, there are more than 40 companies, who have entered into contracts to access OmniAb antibodies.

Not all of them have succeeded or advanced, but most have, and we have over 35 active partnerships today.

We provided an outlook when we got into the antibody business in 2016 that we received the first Phase I clinical trial start in 2017.

That target was easily met with many more programs in the clinic than initially expected at this time.

Early in our ownership, we looked at the number of animals that have been ordered annually, and the number of antibody research campaigns that had been or were projected to be conducted, then try to extrapolate over time how the business would grow, with the goal to try to estimate how many antibodies could be on the market in 2030.

It's a classic exercise of using any data a company can gather to try to assess the business and help investors make their own conclusions about the potential.

The business analytics aren't perfect, but the general trend and use of the platform are clearly positive and going in the right direction and they portend the business that is building substantial value.

The trend for animal use for our OmniAb and OmniChicken is up meaningfully.

OmniMouse is used less frequently, which is not a surprise as that species is a crowded field.

We work to assess the number of research campaigns.

We estimate our 35-plus partners are currently running over a 170 discovery campaigns with OmniAb-derived antibodies, a significant number, but the quantity of campaigns may not matter as much as the quality of campaigns.

Ultimately, we are focused on clinical and regulatory success, a drug approval, followed by commercial launch.

Our business is built around sharing in the success of our partners in the form of our royalties on their net sales.

This is a lucrative and successful model that has driven a substantial value, increase in Ligand share price from the time of acquisition of Captisol several years ago.

Given everything we know today about our technology, our IP and partners' investment, we see OmniAb generating substantial annual royalty for Ligand.

We strike OmniAb deals with a mix of upfront and annual payments, success-based milestones and royalties.

We have today over $900 million of total OmniAb potential milestones under contract.

And then, of course, there are the royalties.

Most of our contracts have tiered royalties based on sales with a general range we describe as 2% to 6%.

A handful of companies have a right to buy down or buy out the royalty for a large one-time payment, but that is not typical, and most of that structure is a legacy of deals done prior to the Ligand acquisition of OMT.

Besides the addressable market and other factors in the deal negotiations ultimately determine how we settle out on final royalties.

As investors build their models around OmniAb, we believe the fundamental long-term drivers should be royalty revenue performance.

At our Analyst Day in March, a few months ago, we laid out the basic formula for potential annual royalty revenue.

The number of our approved drugs is the average sales level per antibody and the average royalty rate.

Those 3 factors.

In March, we outlined a potential for the estimated number of drugs to be in the market in 2030 as being in the range of potentially 25 to 35.

In coming to that estimate, we are factoring in the efficiency and development we are seeing with our partners advancing their programs such as C-Stone and Genmab, and we are factoring in what appears to be above average success rates given data received from partners so far.

But we do not have a crystal ball, and we know the inherent uncertainties in drug development.

The number of approved antibodies based on Ligand technology could be lower than that in 2030, but we see this as a place to start the dialogue with investors.

As for revenue per drug, we offered $750 million for average annual revenue.

The largest drugs in the market today are antibodies, with the top drug selling $5 billion to $10 billion annually.

And the biggest drug, Humira, peaked at annual sales of about $20 billion.

Most of them are smaller drugs with a more limited sales and targeting smaller markets.

So it's a broad range that could evolve in the future with more antibodies in development.

But the one that consider around average revenue expectation for products just like any industry.

We are not dictating what the revenue will be, but laying out the facts and information we have about the market to provide a framework for a dialogue with our investors as we assess the revenue potential for our portfolio over the next decade.

Peak revenue per product will vary by year and time of launch, and our information on that will evolve over time.

The other key factor of the modeling is average royalty rate, and that is a function of sales and the applicable royalty tiers, we have negotiated.

But from a high level, we think an average rate in the 3% to 3.5% range is reasonable.

To investors, we can say we are very pleased and proud of the OmniAb business.

It is performing better than we expected.

I made analogies to capsule earlier as this feels very similar to those early years with the value and revenue potential Captisol was not clear to investors.

But internally, we felt strongly we are on to something very big with that acquisition.

And we get our best to frame it for investors, so they could track it over time.

How well we assess the business going forward.

We will keep focusing on the annual revenue, new deals signed and attrition and clinical progress.

Again, the trends generally are very positive.

As mentioned, not all contracts we have signed are still active.

We've seen attrition with some contracts terminated or essentially inactive right now.

The #1 factor driving terminations or inactive development is M&A.

For example, we had deals with Stemcentrx and ARMO, both have been acquired, one by Abbvie, the other Lilly.

And in the process, the OmniAb contract was not renewed.

Celgene is inactive now.

And with the recent BMS acquisition, we anticipate that contract will not be renewed either.

Other customers have simply moved on due to funding research constraints or change in direction like a cage in a net star.

But it's a small proportion of our total book of partners and we have been able to keep signing up new partners at a very good clip.

Bear in mind, when we report partner numbers, those figures are net of attrition.

Over the last 6 months, there is an important evolution in our dashboard given the advancement of our portfolio.

Now there are substantial new data points, where we are setting new clinical trial starts, number of patients treated in studies, trial data and considering the time for first products to launch.

And the data across all those metrics is promising.

There are 29 trials recently completed or ongoing, including 11 Phase II or Phase III trials.

We estimate over 3,500 patients will be enrolled in this current roster of trials, about 12 trials will read out by mid-2020 in just over 1 year.

We believe the first Ligand OmniAb antibody could be on the market by the end of 2021 or 2022.

Needless to say, these are exciting signs, and we'll continue to provide the metrics and information we can to assist you in your own analysis.

All in all, we're pleased with the state of the business.

We're confident in our business model and are very pleased with the progress and value we are establishing with our antibody business and other assets of the company.

Now I'll turn it over to Matt Korenberg to do a review of our Q2 financial performance.

Thanks, John.

I'll begin today with a review of the financials contained in our earnings release issued earlier this morning.

Total revenues for the second quarter of 2019 were $25 million and included $6.6 million of royalty revenue, $8.5 million of material sales and $9.8 million of milestone and license fee revenue.

It was a strong quarter overall and exemplifies the diversity in our revenue base.

With respect to royalties, Kyprolis is the source of our largest current royalty, and given that Amgen, the marketer of Kyprolis, has not yet reported their sales for Q2.

We took the Kyprolis royalty as flat to Q1.

Any difference between the actual royalty and the royalty we booked will be captured in Q3 -- in the Q3 revenue number consistent with the new revenue recognition rules that we adopted last year.

On the milestone license fee line, we saw more than double the revenue we recorded a year ago from the normal course contracted milestones.

And material sales also had a strong quarter with nice double-digit growth over the prior year period.

Total revenue for Q2 of 2018 was $90 million and included $31.4 million of royalty revenue, $7.6 million of material sales and $51 million of milestone and license fee revenue.

Q2 of 2018 included a full quarter of royalty revenue from Promacta, which we sold to Royalty Pharma as of March 6 this year for $827 million.

Ligand did not receive any Promacta royalties in the second quarter of 2019 and will not receive any Promacta royalties going forward.

Milestone and license fee revenue for Q2 2018 included a $47 million payment from WuXi Biologics to amend its OmniAb platform license agreement.

Regarding gross margin, our Q2 gross margin for Captisol sales was lower versus the prior year.

Our mix of commercial and clinical material sales shifts from quarter-to-quarter and from year-to-year resulting in changes in gross margin.

Our material sales cost translated to an overall corporate gross margin of 90% for Q2 of 2019.

On the expense side, R&D in Q2 was $12.2 million.

Excluding stock comp and other noncash charges, R&D was $6.3 million.

For G&A, our Q2 total was $11 million, and excluding stock comp and other noncash charges, G&A was $6.8 million.

Taken together, total cash operating expenses for the quarter were $13.1 million, which was in line with our expectations.

GAAP net loss for Q2 2019 was $14.4 million or $0.74 per share.

In this quarter, the performance of Viking's share price and the amortization of the purchase price from our Palvella and Novan investments contributed to the loss.

The unrealized loss related to the movement in Viking's stock price was $12.4 million.

With respect to Palvella and Novan, any future product investment transactions -- with respect to Palvella and Novan and any future product investment transactions we conduct, we're required to expense the upfront cash investment over the period in which the funds are spent by our partners.

These acquisitions are product economics, therefore, result in ongoing noncash R&D expense during the life of the trials that we're funding.

In Q2 of 2019, these deals contributed $3.2 million of noncash R&D expense.

For the quarter, we reported adjusted net income of $13.9 million or $0.68 per diluted share compared with adjusted net income of $60.6 million or $2.59 per diluted share for the same period last year.

Again, last year's Q2 numbers were higher due to the inclusion of Promacta royalties and the large payment from WuXi Biologics to amend their platform license agreement.

In Q2 of 2019, we used $61.1 million in operating cash, which was largely driven by a $69.7 million tax payment, which is principally related to the Promacta sale and $12 million paid for the Novan transaction.

Net of these amounts, our operating cash flow for the quarter was $20.6 million.

With respect to taxes, a reminder that we now have utilized all of our federal NOLs and tax assets as a result of the sale of Promacta.

Our earnings and adjusted earnings are already reported as if they were fully taxed and will continue to do so.

We estimate our tax rate going forward will be 21% to 23%.

On the balance sheet, we finished the quarter with $1.3 billion of cash, cash equivalents and short-term investments after having spent approximately $105 million on share repurchase and taxes, again, principally associated with the taxes related to the $827 million sale of Promacta.

As we've discussed in the past, we intend to use the cash on the balance sheet and the future cash flow from operations for a combination of executing our strategic agenda and returning cash to shareholders.

On the strategic front, we're focused on product investments for economic rights and company acquisitions.

On the return of capital side, we focus primarily on share repurchase -- repurchases in the past and generally plan to continue that policy into the future.

However, we're also continually evaluating other uses of capital, such as dividends, convertible bond retirement and more.

Our strategic M&A agenda remains focused on identifying acquisitions across areas of interest, including platform technology, acquisitions.

Acquisitions that bring us portfolios of partnered biotech assets and acquisitions of economic rights to development and commercial stage assets.

Matt Foehr will provide some updates on our acquisitions of economic rights from our Palvella and Novan transactions.

Our acquisition of Ab Initio last week is an example of a smaller technology bolt-on that we expect will further augment licensing interest in our OmniAb technologies.

With respect to share repurchases, we've been actively buying back stock under our $350 million share repurchase authorization.

As of today, we've spent $273 million under the plan to acquire 2.1 million shares.

We began actively purchasing shares in November of 2018.

And in the past 9 months, we've repurchased over 10% of our outstanding shares.

We continue to believe our stock is undervalued at current prices and plan to continue our repurchases.

Turning now to financial guidance.

We're reiterating our full year 2019 guidance.

For the year, we expect total revenues of approximately $118 million and at $118 million of revenue, we expect adjusted EPS -- adjusted diluted EPS of $3.20.

In reaffirming our full year guidance, we're implying about $49 million of revenue for the second half of 2019.

We expect that in Q3 we'll realize about 40% to 45% of the remaining revenue and earnings based on our current outlook for milestone, timing and Captisol sales.

Finally, just a reminder that our adjusted diluted EPS guidance excludes stock-based compensation expense, noncash debt-related costs, changes in contingent liabilities, including our CVRs, transaction-related amortization expenses and onetime costs, unrealized gains or losses related to our holdings and public company's common stock, mark-to-market adjustments for amounts owed to licensors, the excess convert shares covered by the bond hedge and certain other onetime nonrecurring fees.

With that, I'll turn the call over to Matt Foehr, who'll provide some updates on our major commercial and development stage programs.

Matt?

Thanks, Matt.

I'll start off with our OmniAb technology platform.

We've noted the increase in clinical investment by our partners who are pursuing development stage OmniAb-derived antibody.

As John described, there are now 29 clinical trials evaluating an OmniAb-derived antibody that either have been recently completed or in progress.

For active trials, there are a total of 16 Phase Is, 8 Phase IIs and 3 Phase IIIs.

10 novel antibodies are being used in active studies, some of which are being pursued by multiple partners in different therapeutic formats or for different indications or geographies.

We see this growth in a number of trials as a representation of the commitment of the partners.

As a point of reference, on our last earnings call, we referenced about 15 clinical trials related to OmniAb.

So this has been a pretty recent increase in clinical work by our partners.

Looking at the targeted patient enrollment numbers for the trials that are posted to ClinicalTrials.gov can also give an idea of the scope of clinical investment by our OmniAb partners.

Adding up the targeted enrollment figures, you get a number in excess of 3,500 subjects, with more than 1,800 subjects estimated for enrollment in Phase I trials, more than 500 estimated in Phase IIs and more than 1,500 estimated in Phase III.

The Phase III trials are all related to C-Stone's CS1001 program, which according to C-Stone could be China's first fully human and full-length anti PD-L1 monoclonal antibody.

The vast majority of the trials underway are in oncology.

And it's worth mentioning, again, that at the time we closed the OMT acquisition, there were no clinical trials of an OmniAb-derived antibody in progress.

We continue to invest in the OmniAb platform to keep it on the cutting-edge of antibody discovery technologies and to expand our offering for current and future potential partners.

At the PEGS meeting in April, our scientists launched our newest transgenic chicken platform, known as OmniClic, which is designed to facilitate the development of biospecific antibodies.

OmniClic received substantial attention at PEGS and is already being used in some new partnered programs.

Last week's announcement of the Ab Initio acquisition also adds to the technology capabilities adjacent to the OmniAb platform, adding important antigen generation technology to our expertise.

We're transferring the Ab Initio operations from South San Francisco to our Emeryville site next month.

Generating quality antigens is a key precursor step to antibody discovery.

And we expect that OmniAb partners will see the value of our newly acquired technology and potentially expand existing partnerships or create new ones based on this capability.

And with Ab Initio, we picked up an existing agreement with Pfizer that brings over $100 million in potential milestones and tiered mid-single-digit royalties on potential sales.

Overall, with OmniAb, we continue to add new partners and expand existing relationships.

The number of partners with access to OmniAb technology or pursuing an OmniAb-derived antibody has increased substantially since the OMT acquisition 3.5 years ago.

Switching now to a few pipeline programs.

As we discussed on our last earnings call, Metavant has been working with FDA to determine a path forward for the glucagon receptor antagonist or GRA program now known as RVT-1502 in diabetes.

Ligand believes that continued development of RVT-1502 for diabetes in the U.S. is highly unlikely based on preclinical and clinical trials now required by FDA for any drug in the GRA class intended for long-term use.

Metavant may choose to explore certain other indications or geographies for RVT-1502 and expects to make a decision later this year.

As Matt Korenberg briefly mentioned, in May, we announced a transaction with Novan through which we acquired milestone and royalty rights to SB206, which is a topical antiviral gel for the treatment of skin infections.

And it's now well into a Phase III trial for molluscum contagiosum.

Molluscum is a common contagious skin infection affecting about 6 million people a year in the U.S. with the greatest incidence in children.

There are no FDA-approved therapies for molluscum, and there is significant unmet need for treatments.

Ligand has a tiered royalty of 7% to 10% on the SB206 asset as well as up to $20 million in regulatory and commercial milestones.

We've been pleased with Novan's focus and progress on the Phase III trial and note that earlier this month, they reported that more than half of the patients are enrolled in the Phase III, and Novan has indicated that top line results from the Phase III are expected no later than early in the first quarter of 2020.

Our partner, Palvella's work on the VALO Phase II/III study of PTX-022 remains on track with enrollment ongoing at 6 leading sites in the U.S. PTX-022 is addressing an orphan disease called pachyonychia congenita or PC.

PC is a rare chronically debilitating and lifelong monogenic disease in which mutations of genes responsible for keratin production lead to dis-regulate -- dis-regulated keratinocyte proliferation, increased skin fragility, and impaired skin barrier function on the bottoms of the feet.

As a result, affected individuals experience difficulty with walking, which frequently necessitates the use of either ambulatory aids or alternative forms of mobility such as crawling.

We're pleased to see Palvella's focus and progress on the trial.

Palvella reports to us that full enrollment of 60 patients remains on track to be achieved later this year.

And we note based on ClinicalTrials.gov disclosures that primary results from the study are now expected in Q2 of 2020.

Turning now to internal R&D.

Earlier this month, we announced positive top line results from our Phase I clinical trial of Captisol-enabled iohexol.

Our R&D team here did an excellent job running the trial for this contrast imaging agent on budget and ahead of schedule.

We're confident that the data support further development, and we will explore potential commercial partnerships for the program as we prepare for the next phase of clinical development in 2020.

We expect to present CE-iohexol data in detail at medical meetings later this year.

And with that, I'll pass the call back over to the operator for questions.

Operator?

(Operator Instructions) And your first question comes from the line of Joe Pantginis with H.C. Wainwright.

Thanks for the added details today.

First, if you don't mind, I want to get a little extra clarity for the GRA program or RVT-1502.

So like the nuance I'm getting is that Metavant is trying to see it bringing it forward or they're looking to bring it forward.

But you're saying, okay, maybe we're not going to see development in the U.S. So just want to get some clarity as to where you think it might or might not be going?

Yes.

Joe, thanks.

This is Matt Foehr.

Yes, there -- Metavant is working with the FDA now on a path forward, generally, when you have dialogue with the FDA like this.

You try to get meetings, try to discuss it with the FDA.

We've obviously said our view in the U.S., we see it as highly unlikely based on the preclinical and clinical trials that they're going down, that we see it as chronic uses is out for the drug.

And they've told us they expect to make a decision later this year.

Okay.

I understand.

And then 2 more questions if you don't mind, maybe one for the other, Matt.

Seeing a boost in R&D, obviously, and I want to know if this should be considered a baseline going forward, obviously, because of your acquisitions and integrating different businesses at this point?

Yes, thanks, Joe.

We continue to see our cash expenses for the year around that $50 million to $52 million range that we provided earlier this year.

You will see some added non-cash R&D expenses running through as we amortize the upfront prices, purchase prices of the investments we made in the Palvella program and Novan program.

As I mentioned, this quarter they added about $3 million to the GAAP numbers.

So that will be a bit inflated, but otherwise, R&D budget and cash expenses are still on track.

Great.

And then a couple of other little ones and one forward-looking.

If you don't mind, and thanks for indulging me.

So I want to talk about maybe a little forward-looking with regard to the Captisol franchise and its longevity.

And I'll give a specific example, and we've actually been getting some questions on this.

So recently, I guess, several months ago, the Paragraph 4 filings have started with for Kyprolis ANDAs, and obviously with regard to litigation, we'd expect it will take a few years, unless you disagree with that, to maybe get some clarity on any potential generics coming forward.

But with regard to the longevity of Kyprolis, is it safe to assume that a -- whoever were to file a potential generic for Kyprolis would still need Captisol.

And you have precedent thus far to show something along those lines.

Yes.

Joe, I can comment on that.

Generally, we've seen -- it's not new to see a generic challenger to one of our Captisol partners.

We saw this with the Merck drug a few years ago.

And we obviously -- in that instance, Merck was negotiating.

There was apparently a settlement.

Subsequent to that settlement, we received permission from the partner to enter into a Captisol supply contract with the other party that Merck had settled with.

Again, we don't comment on specific litigation, but we feel we've got, obviously, a great intellectual property portfolio.

Partners really do see the value in our drug master file.

There's been a lot of investment, millions and millions of dollars over many years, a lot of patient data, a lot of tox data within our Drug Master File and patients -- our partners see a lot of value in that.

And we continue to enter into new Captisol deals.

As disclosed in our announcement this morning, new deals with Millennium, Takeda, Bexson Biomedical, Valanbio, a couple of other small players.

So we continue to add on new Captisol partnerships.

Yes.

And Joe, I'll just add.

With the business, I think what you're getting at is as products naturally and expectedly come off patent, if there is a generic field, will those other generic entrants require Captisol?

We can't say across the board every generic will use Captisol perhaps they get sourced from elsewhere.

But today, we are seeing that we are the best-in-class beta-cyclodextrin.

The quantity we can supply, the quality we can supply and the consistency for pharmaceutical-grade products is a requirement.

And we are unfortunately the best in the world in meeting that customer need.

This analogy that Matt referenced, Merck's product NOXAFIL.

When a generic entered, they entered a supply agreement with us.

We're selling not only Captisol, but also are getting a royalty on sales to a generic participant.

So it's an illustration that what Matt said is correct to find new customers, new IP, new products, there are a myriad of ways, new Captisol-based products can be patent-protected, well beyond the IP of Captisol.

But beyond that, we are seeing as markets become genericize over the next 5 to 10 years, there is a model that suggests that generic participants will also be customers of Ligand as well.

That's very helpful, John.

And my last one, if you don't mind, since you've talked about the iohexol program, and congrats on the recent data.

What is the mix right now that you can share with us?

Because, Matt, you said, you're exploring partnerships for the potential next phase in 2020.

But again, similar to the GRA program, you have the financial leverage to hold on to it a little longer to maybe garner better economics.

So I was just curious how you're looking to strike that balance?

Yes.

Yes, Joe, you're correct.

We do.

Our team is working towards what the next clinical steps would be in 2020, likely a trial that would start in the second half of 2020.

But this is a program that that's getting attention.

People know about it.

We expect we'll present data in the last part of this year.

At upcoming medical meetings, we'll present the Phase I data.

So as we did with, what was the melphalan program that became EVOMELA, with the GRA program and with other programs where we've done targeted investments, fosphenytoin and others, we'll continue to make those targeted investments while we assess partnering -- the partnering landscape.

And that's what we're doing here.

Your next question is from the line of Matt Hewitt with Craig-Hallum Capital.

First one, given the launch of ZULRESSO in the quarter and did you factor any revenues or contribution from that in the quarter?

And how should we be thinking about that ramping in the second half of the year?

Yes.

Thanks, Matt.

It actually launched in the last couple of days of the quarter.

So there was almost 0 revenue that we would have been owed.

So very, very little was what in this quarter.

And as far as how should we be thinking about that for the back half of the year?

Is there a kind of a range that you'd recommend we incorporate into our models?

Yes.

So we obviously had -- we typically look to the consensus research reports from analysts.

There's a bit of a range, but the consensus that we see is in the low double digits, $10 million to $20 million or so for the year, and that's kind of what we're factoring in.

Okay, great.

And then what are the items that, I guess, you didn't touch on here, but you did at the analyst event CO-6 internal OmniChicken programs that you've worked on.

Is it still your expectation to out-license those yet this year?

And maybe how are those early discussions going so far?

Yes.

Thanks, Matt.

This is Matt Foehr.

Yes, those programs have been progressing well.

And we have binders and packages that are forming for all of them.

We have had initial discussions, and we'll continue those in the second half of this year and into next year.

Okay, great.

And then the last one is Captisol, and I know there was a lot of focus on OmniAb, and I really appreciate some of the detail there.

Captisol seems to have taken another, they are shifted into maybe the next gear.

Given the number of partnerships that you announced here recently, the ramp that we're seeing in the Captisol's material sales.

As you look at some of these new partners, are any of those working on drugs that you would consider more high-volume type situations?

Or as you look down the road, is there opportunity for another iohexol, for example, where it's expected to be a very high utilization type drug?

Are any of those in the mix with some of these new partnerships?

Yes.

Matt, thanks.

Yes, you're correct.

We definitely continue to see partner interest in Captisol.

As we always say, with material sales for Captisol, they can be lumpy, right?

And that's driven by a number of factors.

Some partners may have a very large Captisol buy to support a Phase III trial.

And then that partner may not need material for a year or so.

Others have annual cycles for their commercial buys that are linked to their budget planning or linked to perhaps volume tiers that exist within our contract.

So there's always an element of lumpiness to Captisol.

That said, what we are seeing new uses for Captisol among our partners.

We have a few that are going down in oral routes, that are in fairly advanced trials, and those are fairly heavy users.

We have some using in the gel caps, and some in eye drops, other things.

Again, a range of uses.

But as we see the portfolio advance to later stage, generally, you'll start to see more use.

But again, not all partnerships are created equal, as you look at amount of material used.

But in general, yes, we're seeing good interest in the platform.

That's great.

Maybe one last one, and then I'll hop back into queue.

As we think about -- you talked about this a little bit at your analyst event, and then I think you mentioned it briefly in the prepared remarks, but as we start to look out in a couple of years, 2021 through 2023, even given some of the puts and takes mentioned on today's call.

But how should we be thinking about that time period from kind of an eye-opener or growth perspective.

I mean, as I look at some of the upcoming catalyst with Phase III trial readouts and potential launches that kind of stuff.

I mean, do you still believe?

Or is it still your expectation that you should see a really healthy step-up or a big step-up in the revenues and obviously, the flow through to earnings during that time period.

Has anything changed in your mind?

Yes.

Matt, it's John.

The business today as investors who follow this story, it looks different today compared to, let's say, 4, 5 months ago, when we still own Promacta.

Again, just a little back story.

We divest that asset as we described in March, very substantial amount of money.

It was our largest asset, a major contributor to royalty revenue and had driven our growth the last few years.

What investors -- I think question you're getting at, what investors need to look at is, how the business has been reset financially.

The P&L today, the revenues roughly, very roughly about half of what they were a few months ago, projected for this year and earnings as well as a function of taking out Promacta.

So the revenue -- earnings is lower, the growth outlook for the rest of the business is unchanged.

And this is important because there's a very robust calendar of OmniAb-related activities, of course, Captisol.

We have a Viking assets with TR-beta.

We have fosphenytoin.

We've acquired, again, the Novan and the Palvella synthetic royalties.

These are Phase III stage drugs that will read out, and we believe could launch as early as 2021 or 2022.

This is a way to say that the business today is very well positioned.

There's nothing new in terms of what assets we have and the general outlook for the calendar.

But the outlook for financial growth is substantially different, substantially higher than it was a few months ago when we still had Promacta.

Again, we're sitting around $3.20 earnings growth.

Our view is that revenues will continue to grow in 2020, 2021.

We believe we can maintain the same cost structure.

We don't have to build manufacturing and run Phase III trials or build marketing.

Those are the high-cost endeavors.

We are not doing that.

So if revenues keep growing on very high margins.

We've quoted today 90% gross margins, we expect gross margins to increase over the next 2 to 6 quarters.

Our operating margins have been about 50% the last quarter, do we expect those to go up to 60% to 70%, and if we have a similar cost structure with the share repurchase that we described, the earnings and cash flow per share, we believe, will be significant.

So that's the financial growth outlook.

We frame this a bit at the Analyst Day in March following the Promacta divestiture, but we still are very much committed to that outlook, given what we're looking at right now.

The second part of this, though, is the calendar of events.

We have more shots on goal, more partnered assets in development than ever before.

And the quality of programs, the quality of partners in the late-stage is the most attractive portfolio we've ever had in the history of the company.

We do believe, over the next 1 to 3 years, we're going to have some major data readouts that could drive significant new product launches, not in the next year or 2, but they can launch in 2 or 3 years and bring a new class of royalty drivers in the early to mid-2020, right about the time that we see OmniAb beginning to hit its stride in terms of commercial -- the calendar commercial launches.

So it's a business that we're excited about.

It's right in line with our outlook and expectations.

And of course, today, it's buttressed by a very substantial balance sheet, $1.3 billion of cash.

(Operator Instructions) Your next question is from the line of Larry Solow with CJS Securities.

Most of my questions have been answered.

Just a couple of follow-ups.

On the OmniAb, you mentioned, I think there are 27 active trials, is -- and I know all the Phase III are with C-Stone, is it still 12 compounds that are or are there more than 12 that are actually making up those?

Yes, yes.

Larry.

Thanks for that.

Thanks for the question.

It's Matt Foehr.

Yes, there are 29 trials that have either been very recently completed or active.

For those 29, it depends on exactly how you define it, 10 novel antibodies, but used in multiple formats, right?

So multiple -- so we have situations where the same discovered antibody is now used in multiple formats or dosages for different geographies.

And that brings the number up to 13 to 15, depending on how you count those different programs.

But that's -- I think that summarizes for you.

Okay.

Yes, that's helpful.

And then just -- it looks like just on share repurchases this quarter.

It looks like if I do the math from, I guess, from your last conference call, it looks like you spend about $40 million.

Is that right?

Yes.

I think it is between $35 million and $40 million, that's right.

Okay, okay.

Any -- and your guidance hasn't changed, has the composition, any change on the sales, between royalties, milestones, any change there?

It sounds like Captisol material sales were just timing.

I know you have a little bit more of sort of a potential on the license of milestones.

Is there any update there?

And then on the royalties, do you still sort of expect the -- has anything changed there?

Yes.

So if you -- for the year, we still see the mix roughly the same as we had seen before, but we didn't provide a precise breakdown because we may see some shift over the back half of the year between some of the buckets.

The total is still definitely there at $118 million, but if it is any shift, it will be $1 million or $2 million going from one bucket to the other for the year.

But right now, it all still looks generally in line.

Obviously, no change to the outlook longer term for any one of the 3 buckets.

Okay.

And then just quickly on EVOMELA, the opportunity in China.

Is that the one -- is that supposed to be commercialized next year?

When is the time line -- tough time line?

Yes.

Larry, thanks.

Matt Foehr.

So they got approval at the end of last year, and as standard process in China, they get their designation in barcode and they've indicated they will be launching EVOMELA in China this year.

And it will be the, as we understand from CASI, the only approved melphalan product in China.

So we're obviously looking forward to that.

So that will come in the back half of this year, it sounds like?

Yes.

Yes.

And then just lastly, Kyprolis, additional trial data, I know you had spoken about that at the Analyst Day, is that an early 2020 thing?

Or when do we expect something from that?

Yes.

Larry, generally, obviously, we'll direct folks to Amgen on updates on exactly when they expect their trials to readout, but generally, ASH meeting at the end of the year.

We've generally seen Kyprolis data at major medical meetings, and we generally expect to see that this year as well.

And there are no further questions at this time.

Gentlemen, do you have any closing remarks.

Thank you.

We appreciate people's turnout today.

And we'll be on the road, we've got some conference invitations this fall.

We'll keep posted as the business evolves.

Thank you.

Thank you again for participating in today's conference call.

This concludes the conference.

You may now disconnect.