Ligand Pharmaceuticals Inc (LGND) 2019 Q4 法說會逐字稿

Welcome to Ligand's Fourth Quarter and Full Year 2019 Financial Results and Business Update Conference Call.

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

We will be using slides to guide our discussion today that are located on our website under the IR calendar section of the website, I know it's not easy to find, we're working on fixing that, but for today, that's where you'll be able to get to them.

We will also be using non-GAAP financial measures and some of our statements will be forward-looking.

Additional information concerning risk factors and other matters concerning Ligand can be found in our Ligand's earnings press release, the slides associated with today's call and our periodic filings with the SEC.

Ligand undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

I will now turn the call over to John Higgins.

Patrick, thank you, and welcome, everybody, joining us for this call.

We're very pleased with how 2019 finished up.

We had outstanding financial performance and closed some transactions and licensing deals in the second half of the year.

We saw some new product launches now in the beginning of 2020.

It's an excellent time to be speaking with investors.

We look forward to framing our results, but then also talking about 2020 and the business going forward.

On Slide 4, a very high level chart that plainly lays out the 3 things that we think Ligand investors should be focusing on when they evaluate the company.

Of course, we know we're a biotech company.

We are first focused on financial growth, financial performance.

As we talk through the slides, we'll talk about the contributors to revenue.

We're very pleased with how we can leverage our business efficiently with a flat cost structure.

And as we'll talk about, we now have a much lower share count in light of the recent share repurchases.

Financial growth is important for investors, and we are focused as a management team on delivering superior returns on -- for both cash flow and profitability this year and the years going forward.

Our second factor are our technologies.

We're proud of our technologies.

They've come to us through investment with -- the early years that we were founded 30 years ago, but we have very substantially augmented our technologies through smart acquisitions.

We're going to talk about Captisol and OmniAb, but these technologies help drive enablement and discovery of important drugs in the industry.

And finally, investors should focus on our portfolio.

Again, people who know Ligand, they know our portfolio and the value of it, but the quality and the quantity of our portfolio is really key and integral to driving our future success.

What I'm going to do is now take a slide and talk about those 3 themes, and then we'll turn it over to Matt and Matt to talk about the results and our operations.

On Slide 5, this is a simple visual aid.

Investors know, we divested Promacta last year, fantastic asset.

We discovered that drug.

We chose to divest it in what we think was a very good time for the company, securing an outstanding sale price.

When we look at the business, again, this is a financial growth story.

When we look at the business the last few years and then now our guidance for 2020 in all 3 of our revenue segments, we're seeing very attractive double-digit growth.

We're proud of this.

Royalty.

This is a royalty model.

We start with that with the blue bars, material sales.

This is one element of our technologies.

We sell an agreement to formulate products.

We're very pleased with the recent performance of that and in contract payments.

Contract payments are substantial, they are growing, and we're very pleased with those trends as well.

When we look at Slide 6, this is another cut of our financial performance for last year.

Now Matt Korenberg is going to go deeper into some analytics, but this is a simple chart that shows you the balance of our business.

3 main sources of revenue.

In the case of royalties, we have 2 leading products, Kyprolis and EVOMELA that is really driving a lot of that royalty line for right now currently, but we have 11 other products.

A couple of them launched brand-new approvals last year or were approved in new territories.

So we're very pleased with that royalty segment.

Material sales.

Again, this is a segment of Captisol.

We have over 100 distinct customers.

This is important.

It's not one or two that's driving the bulk of this.

Over 100 distinct customers that are buying for clinical use and commercial use.

And finally, contract payments.

This is an important segment of our revenue.

Part of it is tied to service revenue, servicing our relationships, but also it's the license fees we get for securing new contracts and for hitting milestones for achieving success along the way, 70 distinct payments.

Again, outstanding performance and highly diversified revenue source.

On Slide 7, I just want to take one slide and talk about our technologies.

Again, this is a second hallmark, a pillar of our story.

There are 2 -- we actually have 4 technologies underlying the story, but there are 2 that are particularly prominent.

These are best-in-class, in the case of OmniAb, this is an antibody discovery platform built upon multiple species of genetically modified animals to help our partners identify and advance potential antibodies for therapeutic treatment.

We built this business around the acquisition of OMT 4 years ago, that was 2016.

And along the way, we've tucked in a couple of other small adjacent technologies to help fortify that business.

We are way ahead of plan, well ahead of plan for our expectations in terms of revenue contribution, in terms of new licensing and our ability to secure IP and inventions that our partners want.

In the last 4 years, we've collected $114 million in revenue payments.

And notably, our -- we're finding that the royalties that are potentially going to launch, they're projected to come online sooner than we were anticipating 3 years ago.

This is due to the quality of data that is coming out of the clinical programs, and the aggressive investment.

We are getting information from partners in confidential meetings about substantial investments and what they're doing to advance the programming.

The new deal flow remains strong.

We did 9 deals last year, and we're very pleased with this.

Now with Captisol, it's been around our business a little longer.

We've got more history with it.

We're very pleased with this business.

Not only are we hitting record revenues out of Kyprolis royalties.

We're seeing product launch in China.

We saw ZULRESSO launch this year for a new indication.

This is a technology that is driving tremendous opportunity for the company.

Notably, about 9 years ago, we spent $35 million around the time of acquisition to acquire the technology.

To date, we've secured over $350 million in revenue for the Captisol-based business.

Finally, on Slide 8, I just want to comment with some update around our partner portfolio.

Again, investors who know us, they know the quality and the depth of our portfolio, but we have over 200 fully funded partnerships across 120 different partners.

We have Big Pharma.

We have Big Biotech.

We have Specialty Pharma.

We have generic companies, private or small cap biotech.

It really represents the industry.

Companies are coming to us.

They want what we have.

They are securing licenses.

They pay a license fee, sign up for milestones and if things are successful commercially, ultimately, we'll get a royalty.

This year, we have over 40 clinical and regulatory events, and there's a potential for as many as 8 new products that could be approved out of this portfolio over the next 3 years, again, further driving that growth in our business.

With that, we'll turn it over to Matt Korenberg to go a little deeper into the financial performance.

Thanks, John.

As you can see on Slide 10, 2019 was another solid year for Ligand with strong financial performance and execution of our business model.

The business continued to generate significant cash, with 2019 resulting in our seventh consecutive year of strong earnings and positive cash generation.

For the year, total revenues were $120.3 million, and as I'll cover on the next slide, our business was strong across each of our revenue lines.

As an example, royalties were up 20% year-over-year in Q4 2019 versus Q4 2018, excluding Promacta.

Our adjusted EPS was $3.09.

And in addition, we generated over $700 million in after-tax cash proceeds from the $827 million sale of our Promacta assets with the core business, excluding Promacta, generating another $70 million.

Our revenue and cash flow generation exceeded our expectations and guidance that we gave at the beginning of the year.

In addition to the strong operational success in 2019, we returned approximately $450 million to shareholders through our share repurchase campaign.

In Q4, we spent $82 million on share repurchases and since the end of the year, we've repurchased an additional 380,000 shares of our common stock for $34 million.

As we'll disclose in the 10-K when we file, we have about 16.5 million basic shares outstanding.

And at today's stock prices about 17 million fully diluted shares.

We began actively repurchasing shares in November of 2018.

And over the past 15 months, we've repurchased about 5 million shares or 24% of our outstanding shares.

We currently have a $500 million share repurchase authorization in place and have utilized about $205 million of that amount to date.

Even after returning a total of $550 million to shareholders, we -- over the last 18 months, we've finished the year with over $1 billion of cash.

In addition to the capital return, we remain focused on identifying acquisitions across several types of targeted companies that I'll talk about in a few slides.

Turning now to Slide 11.

You can see that 2019 performance on revenue, total revenues for the -- the total revenue for the fourth quarter of 2019 were $27 million and included $11 million of royalty revenue, $7.1 million of material sales and $8.8 million of milestone and license fee revenue.

With respect to royalties, Kyprolis and EVOMELA, along with some launches and growth across a number of smaller products in the portfolio, drove 20% year-over-year growth, as I mentioned.

Material sales continued their strong performance this year and finished with a record year, and the milestone and license fee line finished the year with a solid quarter, supported by our recurring service revenue and annual license fee revenue as well as the normal course milestones.

We also are showing here the 2019 revenue numbers adjusted to remove the 2-month of Promacta royalty we collected in Q1 2019.

This will provide a better benchmark as I discuss guidance shortly.

I want to turn now for just a minute to dig a bit deeper on our contract revenue line.

First, it's made up generally 4 types of payments.

One bucket is our upfront fees and license fees that are paid upon new deal -- any new deal thereby granting access to our technologies or assets.

Another bucket is what many traditionally think of as milestones.

A partner advances a product successfully or pays us on -- and then pays us on success.

This can include things like payments upon business progress, events like financings or sublicensing of an asset.

A third category includes our annual license fees that partners pay us for access to the technology.

And then we differentiate this bucket from the first bucket because a deal is already in place, and we know going into the year that we're going to get those license fees.

The last group is -- principally includes payments that our partners made to us for work that we're doing on their behalf related to our OmniAb and Vernalis VDP platforms.

We typically tell investors that we forecast $40 million to $60 million a year from our contract payment line.

As we consider those numbers, it's important to realize that we never include payments from that first bucket I mentioned, new deals.

So deals like our $47 million payment for WuXi a few years ago or a $20 million payment related to our diabetes asset license would not be included typically in our forecast over that $40 million to $60 million number.

Also, the final 2 buckets I mentioned, our annual license fees, service and collaboration revenue, are items for which we have a very good line of sight from year-to-year and are generally recurring in nature.

In 2019, those items totaled over $20 million of revenue and provide a significant base for our 2020 estimates.

Turning now on Slide 12 to revenue guidance.

As detailed in today's press release, we're introducing our full year 2020 guidance along with some detailed full year financial information.

We expect growth across all 3 revenue lines.

First, we expect continued solid royalty revenue growth of our continuing royalties for 2020.

For the year, we expect $38 million of royalty revenue, which is up 16% from the $32.8 million for 2019, which -- excluding Promacta.

For material sales, we expect another record year with approximately $35 million of Captisol sales, which is up 11% from the $31.5 million in 2019.

And lastly, for milestones and license fees, we expect $48 million for 2020, which is up 15% from the $41.8 million in 2019.

Slide 13 covers more detailed financial guidance.

The revenue components that I just went through total translate to $120 million of total revenue for 2020.

And then on the expense side, we expect the overall corporate gross margin to exceed 90%.

For R&D, we expect $48 million to $50 million of R&D expenses for the year, excluding stock comp and other cash charges, we expect that the R&D expense will be $26 million to $28 million.

For G&A, we expect the total expense to be $38 million to $40 million, and excluding the noncash charges and stock comp, we expect G&A to be approximately $22 million to $24 million.

Together, we expect cash operating expenses for 2020 to be $49 million to $51 million.

Related to interest income and other income, we continue to maintain our cash in highly liquid short-term investments.

In 2019, we realized over 250 basis points of interest income on our cash.

In today's interest rate environment, we expect that number to be below 200 basis points for 2020.

Given the lower expected yield environment, we expect a net decrease in the other cash income line from about $23 million in 2019 to $17 million to $19 million in 2020.

These revenue and expense components all translate to a full year 2020 adjusted earnings per diluted share of approximately $3.40, which is up 30%-- 35% from the 2019 number of $2.52 if you adjust for the Promacta sale.

Lastly, just a quick comment on quarterly pacing.

We expect royalty revenue to increase each quarter, with Q1 being the lowest royalty quarter for the year, just based on the tiering of our royalty structures.

And as of now, our Q1 royalty estimate is approximately $6 million.

Beyond that, the pacing of milestones and material sales is always uncertain for both Captisol material sales and milestones.

In contract payments this year, we do expect the revenue to be more heavily weighted in the second half of the year.

Finally, on Slide 14, to talk a little bit about capital deployment.

We'll continue to evaluate opportunities to augment our great financial results by evaluating capital return on alternatives and strategic transactions.

We've used about $350 million of cash and stock to acquire companies over the last 9 years, and it's played a significant part in creating the value that has driven our market cap from below $200 million to about $1.6 billion today.

We remain focused on identifying acquisitions across several types of target companies.

We look for companies that will complement our existing OmniAb, Captisol and VDP technology platforms.

We look for new technology platforms that will provide near-term revenue contribution and engines for additional licensing in the future, and we look for companies that have collections of partnered programs or assets of interest in the biopharma industry.

In addition, we continue to look for opportunities to fund promising late-stage clinical trials in the form of product -- our product investment effort.

We spend a significant amount of time evaluating these types of capital deployment opportunities and regularly have 15 to 20 ideas running at any given time.

Obviously, most of these investments don't come to fruition due to a wide variety of reasons, but we feel confident that there's significant potential deal flow to deploy our capital at a value-enhancing way.

We believe that we have about $500 million to $750 million of cash to spend on acquisitions without requiring any refinancing of our convertible bond, and we're diligently focused on smartly deploying our cash resources that can lead to significant revenue generation for Ligand.

Finally, I'd just like to direct listeners to review our Q4 earnings release issued earlier today, and available on our website for a reconciliation of our adjusted financials to our GAAP reported items.

With that, I'll turn the call over to Matt Foehr for some comments on our portfolio and pipeline.

Thanks, Matt.

I'll start off by reviewing the performance of a couple of our technologies, starting with OmniAb and referencing Slide #16 in the deck.

2019 was OmniAb's most productive year in terms of new OmniAb partnerships with 9 new deals.

We also note the nice diversity of partners from startups with interesting novel biology to establish global players like Takeda and Sanofi with deep R&D infrastructure and history of success with antibody drugs.

We view OmniAb as a best-in-class technology, and we invest significantly in the platform to continue innovating and keep it on the cutting-edge of antibody discovery technologies.

Last year, we launched our newest transgenic chicken platform, known as Omniclic, which is designed to facilitate the development of bispecific antibodies.

Omniclic received substantial attention from existing OmniAb partners and is already being utilized in several new partnered programs.

Our scientists are also progressing well in the development of a heavy chain, OmniChicken, which we expect will be yet another novel offering and expansion of the OmniAb platform.

The heavy chain chicken is being funded via collaboration with Johnson & Johnson and our plan will be that it's made available to all of our OmniAb platform partners when it's developed.

The acquisition of a Ab Initio in the second half of 2019 also added to our technology capabilities adjacent to the OmniAb platform by combining important antigen generation technology to our antibody discovery technologies and expertise.

Generating quality antigens is a key precursor step to antibody discovery, and both existing and prospective OmniAb partners see the value of this new capability and are seeking to leverage it for programs involving challenging biological targets.

We nearly tripled the number of partners accessing OmniAb and as our roster of OmniAb partners expands, we are also seeing an even quicker expansion of the number of OmniAb programs in our portfolio, as reflected on the right-hand side of the slide.

There are now 38 clinical trials either recently completed or running with OmniAb derived antibodies.

The number of trials continues to grow as partners continue to evaluate expanded indications, especially in the oncology field.

The most advanced of the OmniAb programs is C-Stone CS1001, which is a monoclonal antibody directed against PDL1 that was discovered using our OmniRat.

CS1001 is being investigated in a number of ongoing trials, including a Phase I bridging study here in the U.S., a multi-arm Phase Ib study, 2 pivotal Phase II studies and 4 Phase III studies in several tumor types.

2020 promises to be an important year, with more than a dozen OmniAb related clinical trials scheduled to be completed.

Our partners clearly are continuing to invest significantly in their OmniAb programs.

I'm going to switch now to our Captisol technology in Slide #17.

2019 was our biggest year-to-date for Captisol and the technology continues to provide value to our partners as we expand our active Captisol drug master files in the U.S., Canada, Japan and China.

In addition to the DMF, the global footprint, our reliability of supply out of our 2 manufacturing plants and multiple distribution facilities as well as an established and consistent quality profile are also significant value drivers for our partners.

Captisol has a rich history of enabling groundbreaking medicines in cancer, CNS diseases like postpartum depression, infectious diseases and others.

And I note that it was recently disclosed that our partners at Gilead Sciences scientists are making remdesivir available for the emerging coronavirus threat.

Remdesivir uses Captisol in its formulation.

Now Slide 18 highlights a view of our portfolio of partnerships and gives a sense of its depth and diversity.

I want to note that these are not all of Ligand's partnered programs listed as reflected in the development stage level details of the slide.

Ligand's portfolio of partnerships has never been larger or more diverse than it is today with over 200 programs and more than 120 different partners pursuing research in 19 different therapy areas.

Portfolio strength is driven by partners with scientific expertise and focus in key therapeutic areas, along with diversity and the quality of our technologies that support and enable their work.

The next slide shows a selection of potential pipeline events, and I'll also briefly highlight selected partner programs and mention a few of them here that we think investors should be watching.

BMS' progress on Captisol enabled BMS-986231 for cardiovascular disease.

They've highlighted cardiovascular disease as a key franchise within BMS, and we look forward to their further progress with this Captisol enabled program.

Takeda has indicated plans towards a potential accelerated U.S. filing for Captisol enabled pevonedistat in myelodysplastic syndrome, or MDS, and they're also conducting a Phase III study in AML.

And our partners at Palvella Therapeutics announced that they now commenced the Phase III portion of a Phase II/III pivotal study of PTX-022 in pachyonychia Congenita.

This is a fast track designated program that aims to be the first targeted therapy addressing the root cause of what is a chronically debilitating and rare genetic disease.

Patients in the Phase II portion have met the prespecified clinical response criteria and have advanced into the Phase III portion.

Palvella also decided to implement an open-label extension study, and we see both of these as generally positive developments for the program.

And note that the pivotal top line study results are expected to be available in Q4 of this year.

Verona recently announced positive top line Phase IIb data in COPD for ensifentrine, when given on top of tirotropin therapy and plans to progress to Phase III.

The primary endpoint was met at all doses tested and ensifentrine produced clinically and statistically significant improvements in lung function following just 4 weeks of treatment.

This asset came to us from our acquisition of Vernalis and what we now term our VDP platform, which has been contributing nicely to the business.

Retrophin Sparsentan is in 2 Phase III trials now for rare kidney diseases.

And lastly, I'll mention Viking, which is now in a Phase IIb study called the VOYAGE study for VK2809 in biopsy-confirmed NASH.

On the next slide, while discussing the pipeline, I also like to mention that I'd encourage investors to follow Ligand on Twitter.

We found that Twitter is a great way for us to communicate developments on our partnered pipeline on publications and on other events that are relevant to our stakeholders.

And I'll wrap up briefly with a discussion of some internal R&D, we announced positive top line results from our Phase I clinical trial of Captisol-enabled Iohexol last year, and our team is now working towards the goal of filing a U.S. IND and start a Phase IIa trial in the second half of this year.

We also continue to make very good progress on our selected internal antibody programs that leverage our Omnichicken technology, and we'll update investors as we present data and consider partnerships for those programs.

And with that, I'll pass the call back over to John.

Yes, thank you.

On Slide 22, just to wrap up, we want to just, again, frame the business for investors.

Ligand, we are devoted to creating and driving shareholder value.

And again, our business model, we're focusing on 3 things, financial growth.

We've talked about we're very pleased with our revenue performance and our outlook.

If we can keep driving revenue along the 3 key segments, keep expenses flat, which is our expectation, and now with the new lower share count the last year or so, we believe we have a significant potential to deliver superior cash flow and profitability per share returns.

The technology is best-in-class.

We like our technologies.

They're valuable for our partners.

We're looking to augment those, not only building new IP around what we own, but also expanding by acquiring or bolting on other adjacent technologies and in the portfolio.

That is the future of Ligand.

We're very proud of the quantity and the quality of our portfolio.

Investors should know what our focus is.

This year and next year, the next few years, deploying capital.

We think we are very good stewards of capital.

We understand financial management, financial stewardship.

We have a very robust balance sheet.

We've smartly deployed capital over the last 5 to 10 years.

We expect to continue doing that, and Matt Kornberg outlined the 4 key areas of focus.

Customer service.

We know it's not just about securing a license.

It's about serving that customer.

We have a growing segment of service-related revenue.

It's lucrative.

There's good margin in it, but more importantly, we know by providing expert service and answers, we can help accelerate the potential for success or timing for when certain milestones might be achieved.

That's a priority for us.

And operational excellence.

Continuing to do what we do to drive our science and decision-making internally.

Finally, just a little insight on our team.

We're very proud of our culture.

We welcome investors to come and visit us at the company.

We've got a fantastic team.

It's a culture of yes.

We're hard-working people and it's based upon great science and great scientists.

I do want to comment on our Board of Directors.

We've got a very diverse Board of Directors in experience and gender, highly experienced across the industry, investments, pharmaceutical management, business development and notably, just this past few months, two of our directors, 2 members of our board, Nancy Gray and Sarah Boyce, were named in Women's Inc.

Magazine as 2019 Most Influential Corporate Directors.

Obviously, we're pleased with that.

And finally, we want investors to know that we are focused on ESG and corporate governance.

We are working on adopting and implementing policies and practices aimed at improving our environmental sustainability, positively impacting our involvement in the social community and maintaining and cultivating good corporate governance.

Now by focusing on these environmental, social and governance, the ESG policies and practices, Ligand believes that we can affect a meaningful and positive change in our community and maintain an open and collaborative corporate culture.

We are pleased with our performance.

We're pleased to report these results.

And with that, we'll turn it over to the operator for Q&A.

All right.

Well, Joelle can tee up the first question, please.

(Operator Instructions)

I'm sorry, operator.

I'm seeing 4 people queued up to ask questions, how are we not kicking over to them?

Okay.

All right.

Could the audio operator -- could you give us our first question?

The line of Matt Hewitt is now open.

Thank you very much for the update and the outlook for 2020.

I guess my first question, given the success that you've been having with OmniAb and the 9 new partnered programs or 9 new deals that were signed in 2019, how should we be thinking about that for 2020?

I mean I would assume that you've got a pipeline building, but do you expect a similar number of partners to be signed in 2020?

Yes, Matt, good question.

It's John.

Last year was a fantastic year, not only in the quantity, but notably, there are 2 high-value, high marquee deals with Sanofi and Takeda.

Generally, we've been targeting about 5 a year.

And that's our outlook for this year.

We update along the way as we meet with investors throughout the year, but that is our target, and it feels about right for the 2020 outlook as well.

Okay.

And then maybe if you could help me a little bit or help us a little bit with the royalty number.

It's a little bit below what I was expecting, and I didn't have Promacta in my estimate, obviously for '20, but maybe if you could kind of break down, if you're comfortable doing that breakdown where are the -- where Kyprolis and EVOMELA in particular, how those should trend over the course of the year?

Thanks, Matt.

Just to be clear, you're talking about the 2020 projected royalty number?

That's correct.

Yes.

So with Kyprolis, given the Q4 number that was solid, we are essentially looking at that number rolling forward and comparing that with the consensus that we see out there.

The consensus we see out there is about $1.2 billion of Kyprolis revenue.

And so that's the number we're working from, and we'll have those slides I'm sure over the course of the year.

On EVOMELA, the next biggest number, obviously, we have not seen the CASI Q4 report this year.

But obviously, the first quarter from CASI was a good quarter in Q3.

And we look forward to good growth out of EVOMELA next year.

And that's probably the 2 biggest components that will get you to the royalty number.

And one, just a comment.

ZULRESSO, it's a product approved middle of last year.

Obviously, we're pleased with our partnership with Sage and the work they've done.

It's an important medicine in a vitally high-value need medical target.

We are taking a very conservative outlook this year.

What Sage has not reported Q4, we don't have a trend line.

Ligand is taking a very, very conservative view of that ramp.

They just described a need to get authorization and reimbursement in line and the like.

So that may be one factor.

But we approach this year for projections to be conservative.

So there's no, I'll say, downside disappointment or surprise around that product line until we get more trend line information.

That's very helpful.

And then maybe one last one for me, and I might have missed this earlier, but regarding Iohexol, you are going to plan or you are planning to go ahead with Phase II trial on your own versus partnering now?

Thanks, Matt.

This is Matt Foehr.

We ran the successful Phase I trial last year, we ran that trial in Canada, it got positive Phase I results.

We're really pleased with that.

And so the next step for the program internally is the filing of an IND, which we expect here in the U.S. We expect to do in the second half of this year.

The next study conducted under that IND will be a Phase II proof-of-concept study in patients with renal function, undergoing invasive coronary angiography.

And the main purpose of it will be to determine equivalence of image quality of CE-Iohexol to GE's Omnipaque and then compare the renal safety of the agents as well.

So that trial will have about 140 patients in it.

It's one that we know we can run internally, and we're ramping that up.

And at the same time, as we always do, we're assessing the partnering landscape and partnering potential.

Next question comes from the line of Joe Pantginis.

Three things I want to focus on.

First, if you go to your prior press release around coronavirus.

Obviously, the Gilead opportunity is clear.

And you mentioned the potential around the OmniAb platform.

But I wanted to ask the question more broadly.

Obviously, we're not sure which way coronavirus is going yet.

Is it going to burn out like it did SARS?

Or is it going to get worse?

But I guess, since OmniAb is currently where the majority of your assets are focused on oncology, are you getting increased interest overall for infectious diseases?

Yes.

Yes, Joe.

This is Matthew Foehr.

Yes, we've fielded inbound interest specific to Coronavirus specifically to leverage for OmniChicken platform as well as OmniRat.

So -- and there's well-established literature out there that antibody approaches can be used for infectious diseases.

So that's one element.

And then as you referenced, and we announced earlier this week.

We are obviously focused on supporting our partners at Gilead as they ramp up production substantially of remdesivir, which uses Captisol in its formulation.

Got it.

No, that's helpful.

And then just switching back to Iohexol for a second.

I'm glad to hear the plans for it moving forward.

I guess can you just spend a second, and of course, you've done this around the data.

When you look at the commercial profile of the drug, obviously, it's around safety.

But what do you consider the potential rate-limiting steps with regard to potential physician uptake of the asset as an imaging agent?

Yes, Joe.

So we've -- from the start of initiating the program, have -- it's been very well-established that renal safety is an important consideration when people are going in for elective or non-elective contrast using therapies and tests and that's continued.

The literature around that has continued to grow.

There was a New England Journal of Medicine publication that highlighted this, and as we talk to experts, it's very clear to us that there is a substantial need out there for patients who undergo scans that need to be -- the physicians need to ensure that the renal elements are not compromised.

So we do see a real need there and expect that the market would eventually see that as well should the trials be successful, of course.

No, that's great.

And my last one, if you don't mind.

Obviously, Novan just put out an update about their plans going forward in molluscum.

Obviously, the data were a little gray.

And they're looking to get some very important guidance from the FDA, if you will.

So I was just curious what your views are on moving that program forward or the potential of it moving forward and what your goal would be to see from the FDA?

Yes, Joe, it's Matt Korenberg.

Yes.

So the Novan folks are definitely planning to meet with the FDA to, as they said on their initial call, initial press release, trying to determine how much of the data that they've generated already is usable essentially and how -- what the clinical plan looks like going forward.

We're obviously getting our information from them, and we don't know anything, it's really not public.

But from our perspective, it looks like the drug did work.

And that it really was a trial design or trial execution issues.

And so our hope is that they'll find a way to continue to move that program forward and rerun the trial, eventually get to the finish line in a successful way.

(Operator Instructions) And next question comes from the line of Larry Solow.

Just a quick -- a quick follow-up on the Novan.

Are they going to need more funding?

I know that you had some funding, obviously, from you guys when they did that partnership?

Are they going to need more funding to continue to do work on this?

So I actually didn't see their release.

Yes.

Dave said initially when they put out their press release that their funding they had on hand was really sufficient to get through Q1 of this year.

They didn't say explicitly that, that was as far as it would go, but my sense is they definitely need to raise some money to go ahead and run that trial.

Got it.

Okay, got you.

Okay.

Just a couple of questions, mostly follow-ups.

On the Kyprolis and the EVOMELA expectations.

So just to review the Q4 number, are you essentially just sort of taking that run rate number?

Is that -- or with a little bit of growth in '20.

Is that sort of how you're looking at it?

Yes.

I mean as we always do, we look at the consensus.

And my point about the Q4 was just that -- as you just said, with the Q4 number and a little bit of growth, you can get to the consensus number pretty easily of $1 billion.

Just a little more color.

We -- as investors saw out of Amgen and Ono's reports, Amgen had real nice growth in the U.S. Rest of world for their number look down a bit.

We believe that part of that is FX, currency exchange related.

We've seen this with other pharma companies who have announced.

So that's a factor.

Japan, the Ono's numbers were fantastic.

The highest growth ever by a nice margin.

So we put that together, we do see growth.

But as Matt mentioned, we're using Street estimates to help guidance.

We're looking at about a $1.2 billion revenue figure for polls for our assumptions for this year.

Larry, I'll just -- Yes, I'll add as well.

This is Matthew Foehr.

Obviously, we have and continue to be -- Amgen has and continues to be a great partner and very committed, very active in clinical activities, in Kyprolis.

So multiple Phase III studies ongoing now, the IKEMA study, which is in combo with Sanofi isatuximab, the A.R.R.

O.W.2 trial, which is comparing a once-weekly and twice-weekly Phase III trial and then the Phase III cover study also.

So -- and they continue a lot of Phase II work as well.

So we're -- continue to be very pleased with the work they're doing around the asset.

And the supplementary NDA that's -- is that just for a combination with DARZALEX?

That's what you're expecting the filing this year?

Yes, that's correct.

There's also, obviously, the work -- there's also filings in new markets like China via the Beijing collaboration that Amgen announced last year.

And the studies you mentioned, is one of these studies?

I know they're doing a study or where they want to assume in front line?

Is that something that we might see and within the next 12 months?

Or is that beyond that?

Yes.

They haven't given precise timing on that, but they've got multiple studies in what's called Newly Diagnosed Multiple Myeloma combining Kyprolis with DARZALEX and REVLIMID.

So yes, those trials are ongoing as well.

And on -- then just switching gears onto the EVOMELA.

You mentioned CASI, you haven't seen them report Q4, which obviously is their sort of first full quarter out of the gate for sales in China.

I know there they've had some pretty optimistic views that this market in China could be equivalent to the size of the U.S., maybe not in volume, but with price making that up.

Can you just -- obviously, not initially in the first 12 months, but are you assuming some contributions and growth overall, contribution to China and growth overall in EVOMELA, which was sort of flat in the U.S. in the last year?

Yes.

Larry, I think that's exactly right.

We basically view it as relatively stable in the U.S. and ramping from a launch to about the same size of the U.S. over a few year period.

Yes, Larry, on the market -- Matt, on the market there.

Keep in mind that EVOMELA is the only approved melphalan in China.

Unlike the U.S. where there are oral forms and NIV forms, it is the only approved form.

Right.

So that should afford them the ability to price it at a branded price not a -- there will be no generic competition, I guess, right?

So this should get better pricing.

And then just switching gears to OMT.

You've obviously given us some good school board updates on the -- as we continue to see through -- acquired it 3.5 years ago, whatever that it was 4 years ago on both the partnerships and the programs.

Can you maybe just give us a little color, obviously, I know a lot of the revenue is back-end loaded, but I think some investors missed the key that a lot of your milestones are driven by events long before approval, and you mentioned sort of this base of $20 million in that [40 to 60] range that's sort of reoccurring.

Is the majority of that from OMT?

Can you maybe give us a little color on how that's grown?

And where you expect it to grow over the next couple of years?

Yes.

So on the recurring side, there's really a few different things that contribute to that.

It's work with our VDP platform and work with the OmniAb platform, principally on the chicken side, and then the annual license fees that come with the OmniAb business.

So in total, those 3 buckets are in excess of $20 million and has been growing pretty significantly.

Since -- over the last several years, particularly as a result of the OmniAb acquisition.

Okay.

Just any updates on BAXDELA.

Is that -- is that product just dead now or what's going on there?

It appeared to me that product could be sold or something?

Larry, Melinta, obviously has, I'll say changed hands, right?

BAXDELA.

Clearly, there's a need for novel antibody infectious disease conference, and you realize very quickly how important it is that new antibiotics are being developed and pursued.

So no real detailed update on its commercial status at this point.

But obviously, there are medical needs out there for new antibiotics, and we continue to watch that space.

Okay.

And then just last question on the use of capital.

Obviously, acquisitions seem to be your primary, and you've already bought back a significant amount of shares.

I think it looks like you brought about another 1 million back since during the quarter.

Is that right?

Or since you reported last.

Any thoughts about -- can you -- are you restricted?

Or can you actually buyback the convert, which I believe trades at a pretty significant discount?

Yes.

Thanks, Larry.

So just generally on share repurchase and capital return more broadly.

As I went through in my prepared remarks, we've spent over $0.5 billion returning capital to shareholders, which was really a big part of the plan when we sold the Promacta asset, if the story played out sort of the way we expected it to play out.

We've done that now.

And our share repurchase going forward, we expect to be relatively minimal in the near term as we explore kind of where the markets and stock price goes over time.

We obviously continue to think the stock price is significantly undervalued, but we had a defined plan to return a significant amount of capital to shareholders, and we've gotten through that portion of the plan.

We could buyback the converts.

They trade at a discount to where the par is and where we could have to pay them back in a few years.

We continually evaluate that as well.

But really, at the moment, we're focused on M&A and the strategic agenda.

And I think the bulk of the capital we spend over the balance of this year will be on the strategic agenda based on what we expect now.

Just to illustrate that our guidance that we gave for this year does not assume any further share repurchase during the year.

Got it.

And do you see -- not that getting into details, and I don't want to ask you how the M&A queue looks, but I will go ahead and ask that.

Do you see just sort of the color on the queue?

Are some of these acquisitions or companies that you may be targeting?

Do you see some larger opportunities on ability to without forcing anything, spend lump sum of money in one place?

Yes.

We continue to evaluate everything from the smallest deals to things that are upwards of $500 million to $1 billion and more.

As I typically will say the higher value assets are harder to make happen for a bunch of different reasons.

And the lower ones tend to be more transactionable, and so we'll see what plays out, but we're evaluating the whole landscape.

(Operator Instructions) The next question comes from Balaji Prasad.

So I'll just restrict myself to a couple of questions.

Firstly, thank you for giving the update on all the partner programs, but I want to bring the focus back to your technology itself and understand your partnership approach better.

So can you help me understand why the economics of the Sanofi deal was different compared to other partnerships?

And probably an extension to that question is, is that something that you find desirable or would want more of that you want to see more partnerships with larger upfronts rather than a more straight bolt stream?

Yes.

Thanks, Balaji.

This is Matt Foehr.

Obviously, when you have a technology like the OmniAb platform, right?

That has multiple species with fully human immune systems.

We've got adjacent technologies around it, like our antigen technology.

And as partners, when they enter into a license with us, they also get access to our future innovations, like our Omniclic that we launched last year and the heavy-chain chicken that I talked about earlier.

We obviously have a range of partners who have interest in leveraging the platform from small players that have novel biology, all the way up to the Sanofis of the world, right?

Who also have novel biology, but also have substantial capabilities.

And there are generally 3 different economic levers in any deal upfront elements, milestones that are paid along the way and then the royalty on the back end.

And various touch points with partners or areas of sensitivity can be different partner to partner.

If you're a small startup company, they may be more sensitive to upfronts and less so on milestones or royalties.

And with someone like Sanofi, they approach us.

Obviously, they've had a rich history in past collaborations of using other transgenic animal platforms, namely in the mice space.

And so those that follow this -- of the technology but in terms of the deal structure.

As you know from our portfolio, we've got over 200 fully funded partnerships over 120 different partners.

One thing I can say with some assurances, no two partnerships are exactly alike economically, and we pride ourselves on that in terms of finding ways to get deals done and no different with the OmniAb technology.

All right.

My second question is on the coronavirus development, I mean, you called it a couple of times now, called it out.

So there's a recent news flow on Wuhan Institute wanting to patent remdesivir for corona.

So if they are successful, what does this mean for you?

Do you have any kind of -- would they need to use Captisol, too?

Or do you have a way to get into a partnership with them?

Or does it mean that Gilead portion of it probably not materialize in terms of revenues for you?

Yes.

Thanks, Balaji, for the question.

Obviously, the coronavirus space is a fast-developing space.

We saw the news yesterday as well on a patent filing in China.

I think I saw a statement from Gilead, they've obviously already filed, they had already filed patents in China.

And they're obviously a partner of ours, and we continue to supply them and make sure we're positioned to meet their supply needs, but as Gilead essentially said its public narrative on this that they don't plan to get into a patent dispute that their key is focused on making the product available.

Now if someone else were to create a molecule very similar to that, it's highly likely that, that molecule would also have solubility issues.

And that's, it generally comes out of the design of the molecule and the structure of the molecule and things that have solubility problems, which remdesivir had very early in its development, need a technology to dissolve it and solubilize it, which Captisol does effectively.

And just to add, though.

Our partnerships on Captisol are typically compound specific, not necessarily disease specific.

So to the extent there was a different approach to treating coronavirus, there's a possibility for us to supply both parties.

Okay.

All right.

My third and last question is a follow-up on your Iohexol program.

So you're starting Phase IIa, what kind of investments do you envisage for it for this year and for next year?

Yes.

So the amounts around the Phase IIa or in our budget numbers are in our projections.

Well, as I said, we'll plan to file the IND in the second half of this year and initiate the trial in the second half of this year.

It's a 140-patient study, so a very manageable study in which we're going to be treating patients with impaired renal function undergoing invasive coronary angiography and then we'll be looking at a number of safety measures and quality of image measures.

Did you mention any number on the capital investments required?

Yes, I mean, it's a typical cost for a trial that's about that size, a few million dollars over the course of the length of the trial.

And there are no further questions at this time.

Presenters, you may continue.

Thank you.

Appreciate people's attention and time here on the call.

We have a few conferences coming up, a quick headline, Barclays sponsored conference in Miami, we'll be presenting there on March 10.

Roth is having a conference or annual event in Laguna Niguel, we'll be presenting March 17.

And then H.C. Wainwright is having a conference in London, April 19 to 21, we'll be participating in that as well.

Thank you for your time and interest, and we look forward to updating you as the year goes on.

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