Ligand Pharmaceuticals Incorporated (LGND) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Ligand Pharmaceuticals conference call. [Operator Instructions] Thank you. I would now like to turn the call over to our host, John Higgins. You may begin.

Thank you. I appreciate the introduction, and Balaji and Barclays, want to acknowledge the participation in the conference. We appreciate the flexibility for people to dial in. We have a presentation. Matt Foehr and I are going to walk through our slides we posted to our website today. The way the mechanics work, we'll call out the slide number to help guide the listener, then we'll go to Q&A. Balaji has some questions, we'll do in a fireside chat. Matt Korenberg, our CFO, is also with us. So I'm going to go through our presentation. Again, it is on our website. We also issued a press release this morning, acknowledging this conference a bit today. The presentation, we're going to be talking about our business. As we see it now, we'll be making forward-looking statements. We would like to direct you to our 10-K and other SEC filed documents for a full review of the risks and details facing our company. When we opened up the business, we have a slide that says, follow us on Twitter, it's a simple comment. If you're on Twitter and are listening to this call, you really should follow us. A lot of our content, we share information via Twitter, partner updates and otherwise that investors find interesting. So it's a way to stay in touch with our business, given the broad portfolio we have. On Slide 4, we talk about a general overview of the business. We have 115 employees across 5 sites, 4 are U.S. based and 1 is in England. We are a financial growth business. We're a biotech company that's focused on financial growth. We license our technologies that help enable drugs, and we are managing a very large partnered portfolio. Those are the 3 main themes we're going to talk about today. On Slide 5, we are driving value, of course, by leveraging our technology and our inventions. Our focus is on deploying capital. We have a large balance sheet. We do invest in acquiring technologies and companies. M&A is a big part of our business. We are devoted to excellent customer service across our broad swath of partners. We do drive good customer service, which brings us more and more business, and finally operational excellence and innovation. On Slide 6, as we get into some highlights pertaining to our financial growth prospects, we want to ground investors in a quick review of our 2019 performance for revenue. We booked $120 million of revenue. There are 3 main components of revenue, and this is how investors should be following the business in terms of the growth prospects in each of these 3 channels: One is royalties. As we invent drugs or license our technologies, if drugs are eventually approved, in most cases, we get a royalty on commercial sales; second segment are contract payments. These are license fees, milestones, annual maintenance fees, we do some service work, so a large segment of contract revenue; and finally, material sales. This is selling Captisol, an ingredient used to formulate drugs. So there are 3 main pillars of our revenue base. Each one of these is divided by a substantial base of payments from a wide variety of partners. So it is a diverse business. When we look at Slide 7, this is now looking into 2020. We've enjoyed good revenue growth across all 3 of these segments of revenue. And in 2020, we are pleased with our outlook. We do see growth in royalties, material sales. Last year was our highest year ever for Captisol sales, this year even higher. And as Matt will discuss, we've had some recent orders to remdesivir related to clinical partners that has driven our outlook for sales even higher. And finally, contract payments, we see growth over last year as well. On Slide 8, it's just a dashboard of how the business breaks down. Again, this is a financial growth business. Total revenue, we see up $133 million of revenue over last year. Gross margins, what's interesting about our business is that it's a very efficient business. We do forecast 90% or higher gross margins over the entire business. And our cash flow or EBITDA margins around 50%, significant cash flow driven through the business. Notably, we have a low share count. We've repurchased about $0.5 billion of stock in the last year or so, reducing our share count by 25%. This is -- had a direct impact of improving the cash flow and the earnings per share. As you see, our adjusted EPS for this year, our outlook is $3.62. When you back out Promacta, we had a couple of months of Promacta sales in 2019, we divested that asset, the EPS last year was in the mid $2.50 range. So we are up more than $1 higher in earnings per share 2020 our outlook versus what we booked last year, excluding the Promacta revenue. When we look at Slide 9, we are a technology company. We invent our own technology platforms, and we also have acquired companies that are built around technology inventions. There are 2 main ones we're going to talk about: OmniAb, which is an antibody discovery platform; and Captisol, which is an excipient that helps make drugs possible. It helps stabilize drugs or it helps solubilize drugs. Matt Foehr is going to go into detail on both of those. On Slide 10, again, it's a bit of a dashboard, but our portfolio is substantial. And for investors who know us, they like to monitor portfolio programs, partner news. But we have 200 fully-funded programs, over 120 different partners. And again, it's based on these technologies that we're driving or the novel drug programs that we are working on internally. On Slide 11, this is a new chart. It's the first time that we're showing it today. It's maybe a traditional bull's eye diagram, but it's formatted to represent our portfolio. We talk about the therapeutic areas we're in. We talk about the different technologies. But this simple chart has a lot of content in it. Again, over 200 fully-funded programs. There are, indeed, over 200 dots. We don't count every single program, but it's a large number, we do have over 200 dots here. But what's interesting is the distribution of our technology. We have a nice balance across 5 or 6 different segments of the business. OmniAb, to be clear, it is our most valuable platform of all the assets. We've got individual programs, but the OmniAb, the antibody program, which we bought into 4 years ago, we made subsequent investments and invested significantly to expand them. It is the largest platform in our portfolio. We're very excited. This is driven by substantial partner news. What is interesting is that the dots, if you look at the outer ring, that's the preclinical ring, all right? As we move towards the bull's eye, the center point, it's showing how programs are matriculated, they're advancing through development. When we acquired our business 4 years ago for antibodies, none of these programs were in the clinic. They were all discovery or preclinical stage. And now you can see a scattershot of programs moving to Phase I, Phase II, Phase III. We even now have programs NDA stage. We're very pleased to see that progression. Another thing to point out is the VDP segment. That is an example of a business we acquired 18 months ago, not that long ago, it's a very efficient transaction. We bought technology, partnered assets, some unpartnered programs, but we have a nice array of assets across a range of development that, again, is now adding meaningfully to our total portfolio. Of note, we have a program that we acquired through this acquisition with Verona. They just announced some positive Phase II data for a COPD drug and now we're advancing to pivotal trials. It's a nice royalty for a very substantial market with data that we are quite impressed with. So that's just another illustration of how we're assembling our portfolio. I'm going to talk briefly about our Icagen asset acquisition. This is a pending transaction, but it's a window into quality deals that we are doing that are helping to further drive our business. On Slide 13, this is a simple road map slide that describes 4 different silos of focus for us: We're looking at buying technologies, like we've done with Captisol, like we've done with OmniAb; we're looking to buy shots on goal. These are our programs already partnered, the deals are done, the economics, the contracts are resident in a target company. When we buy the company, we get to acquire those shots on goal or those contracts; we're looking to buy revenue and earnings. We've got substantial cash. We're looking to do this in a disciplined way. We aren't a spec pharma company. We aren't looking to buy drugs that we would have to market ourselves, launch and brand and manufacture and commercialize. But we're looking to find businesses that do have revenues and resident profitability or cash flow within the business; and finally, we're doing product financings. This is where we're writing a check to close the gap to finish a Phase III trial. This is a smart area to use our capital. We've got a team of scientists that are expert at diligencing late-stage assets. And we found some novel ways to deploy our capital. The time line shows the progression of deals over the last 10 years or so, again, with the Icagen deal pending. On Slide 14, I'm just going to go quickly through a couple of slides that talk about this deal. Icagen, it's a biotechnology company located in North Carolina. They have 2 key partnered programs with Roche and Cystic Fibrosis Foundation, and their core technology is focused on ion channel screening and assays. It's a known area of research, but the way we approach it or the way Icagen approaches it is in a customized manner where we could actually add invention value and then secure license contracts that have milestones and royalties. On Slide 15, it was a $15 million deal, cash at close. The deal should close in the next few weeks. There are some earnout economics, a small portion of milestones and royalties, it's capped at a max of $25 million. And again, the acquired assets is the new technology platform. This will nest in nicely with our Vernalis, the structure-based drug design technology and our antibody discovery technologies. Again, we are buying these contracts, lucrative contracts, good royalties and milestones. There are unpartnered assets. In most of our cases, we're acquiring companies that have unpartnered assets. They have patents, they've got preclinical, clinical data, manufacturing supply. We're able to package those up and then find new partners. And finally, a scientific team, we'll bring on about 25 new colleagues, mostly all scientists who will keep driving the work forward. On Slide 16, I've already mentioned this -- a few of these points. But it is a proven business model, they've been around, well established. The team and the technology was founded from research coming out of Pfizer. The team has been around for a while. And again, they do have success driving patents, inventions and securing licensing deals. We see this as a business that will be immediately accretive to revenue and earnings. We've given guidance that should add $7 million of revenue and at least $0.05 of earnings per share this year, and significant growth in revenue and earnings contribution projected for 2021. It's a very good strategic fit. We know how to onboard these technology companies that have partnerships. We have some of the same partnerships that we're inheriting or contract relationships, and it's a very good fit, strengthening our dealmaking model as we leverage the Vernalis and the OmniAb businesses. With that, I'm just going to go to Slide 19 very quickly and highlight the Roche and the CFF deals. Again, deals that are fairly recent, struck just in the last 18 months or so, substantial contract commitments for committed research funding, very meaningful basket of milestones, over $300 million of total potential milestones and nice -- while they aren't disclosed, at some point, we hope to be able to announce what the royalty tiers are, but some nice royalties on both of these programs. Slide 20, again, I mentioned there are unpartnered assets. This is the list in particular, but a few of these, we believe, are attractive assets with good data. Our objective will be to bring these into Ligand, and then to look at some out-licensing opportunities the next 6 to 18 months or so. Now with that, I'm going to turn it over to Matt, who will wrap up our presentation and talk about a little bit more our pipeline of technologies.

Great. So I'm going to jump to Slide 22, which is a more traditional partnered pipeline snapshot, calling out that our pipeline continues to expand and progress. And you see the diversity of therapy areas as well. John highlighted with the bull's eye earlier the diversity of underlying technology, but also diversity of therapy areas. Slide 23 shows some major potential pipeline events that are coming in the next 18 months or so. You see filings in the U.S. and ex U.S. You see pivotal and Phase III data events, Phase II data events in major areas with major unmet medical need, and really you've seen is the most substantial calendar of events for a 12-month outlook that we've had in Ligand's history. Slide 24 just highlights, almost exactly 12 months ago, March of 2019, we held an Analyst Day, we had 4 of our partners present. Their experience with the partnered programs that are part of our portfolio or that leverage our technologies, Genmab, Viking, Palvella and Verona, and all 4 of these partners have reported significant progress in the last 12 months, and all are poised now for upcoming events. I'll jump to Slide 25. Genmab reported the high access rates at our Analyst Day that they have with our OmniRat platform against 38 targets. They continue to expand their use of the platform substantially and since then have started a Phase I/II trial of a DuoBody of PD-L1, and the first patient was dosed last May and they now expect data in 2021. And importantly, this is one of their key priority programs for 2020. Verona, John mentioned earlier, ensifentrine is a partnership we acquired through the acquisition of Vernalis. Back at JPMorgan, they reported statistically significant improvements in lung function and health related quality of life in a trial in COPD, and are now in discussions towards Phase III trials to potentially start in the third quarter. Viking Therapeutics, highly active and visible program in the NAFLD and NASH space, and have continued to report positive data. Since Analyst Day, they reported new data, demonstrating 100% of patients at a 5-milligram dose showed the liver fat reductions of greater than 30% at 12 weeks, which is the most reported for an oral agent, that was back in April. And since then ever, started a Phase IIb VOYAGE study in NASH with results that are expected in the first half of 2021. And on Slide 28, I'll highlight Palvella briefly. They presented at our Analyst Day and since then commenced the Phase III pivotal portion of the VALO study, which is studying PTX-022 and pachyonychia congenita, which is a rare disease with no treatments at this point. Their Phase III enrollment was just announced last week to be completed and they expect data in November of this year. Now touching briefly on Slide 29 to our Captisol technology. This is a modified, patented cyclodextrin technology that's used to solubilize and stabilize active ingredients. It's enabled some very important drugs and is a technology with a lot of momentum around it. As John mentioned, 2019 was our most significant year, our largest year in material sales. We expect 2020 to be even higher and updated guidance recently to $40 million. We continue to invest substantially in the expansion of the Drug Master Files, which describe the technology in the U.S., Canada, Japan and China as well as into manufacturing and distribution efficiencies. And also, as highlighted, Captisol is also being used for the investigational evaluation of remdesivir, which is being actively assessed in a Phase II trial and multiple Phase III trials both here in the U.S. as well as in China to potentially treat the COVID-19 virus. Just briefly on antibodies. Obviously, antibody research is one of the largest areas of research in the pharmaceutical area, largely because the success rates are higher, as is highlighted on Slide 31. The likelihood of approval at Phase I is roughly double that of what you see with small molecules. And on Slide 32 you see that increased investment has continued to translate into new antibody target approvals. It's expected that these numbers will continue to grow, given the investment of the industry. Slide 33 shows number of antibodies in clinical development, those numbers continue to go up. And as expected, the amount of sales dedicated to biologics-based therapeutics is also expected to grow and approach $400 billion by 2024. Slide 34 shows the top 10 antibodies, all of which had revenue greater than $5 billion. And a real key in this area is discovery of novel antibodies. And our OmniAb technology, highlighted on Slide 35, is really seen as a best-in-class technology. We've got multiple species: OmniRat, OmniMouse, OmniFlic, which is a rat that helps discovery of bispecific antibodies; and OmniChicken, which gives a broader repertoire and helps partners discover rare antibodies. We continue to invest in this technology and have continued to grow the number of partnerships, as is highlighted on Slide 36. When we acquired the technology, there are roughly 15, 16 partners. That number has now ballooned to over 45 partners. And you see in the blue line, on Slide 36, the number of programs also continues to grow as partners have success with the platform and continue to expand their use of the platform to discover novel antibodies. And then lastly, I'll just say on Slide 37, some expected events currently, in spring expected investor events at this point.

Operator, can I jump in?

Yes, Balaji, we can hear you.

All right, great. Matt and John, we have just a few minutes left, and I definitely cannot match the speed with which you covered all the slides, I'm impressed. So I'll want to use the next few minutes to just focus particularly on one topic, coronavirus, where I've received the most amount of calls from investors on your company and dig a bit deeper into this. So can you give a bit more color around the guidance raise recently, the $5 million. What exactly does the $5 million translate to in terms of clinical trials you're supporting? Whether this is just limited to only the Gilead trials or are you supporting any other trials?

Yes, yes, thanks, Balaji. This is Matt. Clearly, obviously, we raised guidance up to $40 million, and highlighted that it was linked to shipments to partners for support of remdesivir. Just as a little bit of history and this is all public information per 8-K filings in the 2015 time frame. This was a drug that Gilead was obviously originally developing for the Ebola virus, utilizes Captisol in its formulation. Captisol is generally used by partners to solve solubility and/or stability challenges in the formulation that cyclodextrin can sterically interact with molecules in order to keep them solubilized or stable, and that's generally the case with all of our partners. With the emergence of the coronavirus, obviously, there was interest by partners to use our Captisol technology to support clinical trials, and that's what led to us, those -- that's what led to us to update our guidance recently.

Thanks, Matt. So can you just help me understand this better into how should I translate the material sales that you raised on a per patient per dose basis? And also the economics of your payment that you received from remdesivir? So what does this correspond to? Is linked to the -- is it linked to just 1,000 patients who were involved in the trial or is this for a larger order?

Yes, yes, thanks, Balaji. The details of the agreement are not disclosed. But one element that is disclosed is that the economics associated with the agreement are all linked to material sales. That's -- so that's one element that was disclosed at the time that the deal was announced. In general, I'll just speak generally about Captisol ratios with products, and you see this with a number of the commercial products, it's generally a ratio of Captisol to active ingredient of somewhere on a gram basis of about 20 to 30 to 1. That's usually where most of the products that are on the market fallout. But again, I can't disclose any final details or fine details around formulations.

And Balaji, good questions. We want to be as informational as possible. But I think that to frame this for investors what we know and, obviously, our outlook of the business, these are still investigational trials. We look for the first round of data to come out next month, and I think that's really important. We, Ligand, are in a watch-and-wait mode, as many people are, to see if this is going to be a viable treatment going forward. We do have visibility on these orders, we've talked about it, they were unexpected at the start of the year. So it is new business. Typically, we do not break out by line item, the quantity of sales per customer, but this is a very unique circumstance. As I think many people know, Gilead is exploring both the liquid and a dry powder form. There are different durations of IV treatment, 5 and 10 days. There are a myriad of trials going on, U.S., Chinese, Gilead-based trials. So I think across all of those factors, it's impossible to know right now exactly how the $5 million will be allocated against a per patient usage. But it's important for investors to understand that we are a participant in the supply chain. We have an expert team and a very solid supply chain that can plug right into these customers, and we will stand ready if the need continues to supply these categories and markets.

Thanks, John. That's helpful. Maybe just a step higher up question then. Would supply be at any point of time a constraint if remdesivir was to reach commercial stage, supply of Captisol?

Yes. We've invested substantially, Balaji, over the last couple of years in the Captisol supply chain and continue to. We have 2 manufacturing plants that manufacture at very large scale. We've got 3 distribution facilities. We maintain safety stock material. So we are -- as John said, we stand ready.

Great. Maybe lastly, could you also just explain to me how your other technology platforms, including OmniAb, are leveraged in these programs? And also, have you been approached by any other firms, who are pursuing their own remdesivir programs?

Yes. Just kind of stepping back, you're asking about the technologies, obviously, our OmniAb technology in antibodies, in general, had been used to target infectious diseases and viruses specifically. We've highlighted that. I'll call out one of our partners, ImmunoPrecise, recently announced that they've got an active COVID-19 program, and highlighted their access and use of the Omni platform as well. And then we've also fielded others who are looking to leverage our technologies targeting other elements or therapeutic approaches to COVID-19 as well.

All right. Thank you, Matt. I know we're out of time. So I just want to thank you, again, for taking the time to go through this and supporting the virtual format of the conference. I wish you more productive session and good meetings, though, for the rest of the day.

Thank you, Balaji.

Thank you.

This does conclude today's conference call. Thank you for your participation. You may now disconnect.