Greetings, and welcome to the Ligand's Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Erika Luib, Investor Relations for Ligand. Thank you, you may now begin.

Thanks, Shey. Welcome to Ligand's Fourth Quarter and Full Year Financial Results and Business Update Conference Call. Speaking today for Ligand are John Higgins, President and CEO; Matt Foehr, Executive VP and COO; and John Sharp, VP of Finance and CFO. Just a reminder to everyone that 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 intents, beliefs or current expectations of the company, its internal partner programs, including Promacta and its management. These statements involve risks and uncertainties and actual events or results may differ materially from the projections described in the press release and this conference call. Additional information concerning risk factors and other matters concerning Ligand can be found in Ligand's public periodic filings with the 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 it, as of today, February 7, 2012, and do not necessarily represent the views of GSK or any of our other partners. Ligand undertakes no obligation to revise or update any statement to reflect events or circumstances after the date of this conference call. At this time, I'll turn the conference call over to John.

Erika, thank you, and welcome everybody to our Fourth Quarter 2011 Conference Call. We had a great 2011. Ligand is on a winning track and I'm pleased to tell you about it. At the highest levels last year, our goals were focused on 3 main areas: Successfully integrating CyDex and expanding the Captisol franchise. Second, reentering new deals to expand, what we call, our shots on goal portfolio and driving our internal pipeline. And finally, to generate profits and cash flow from operations. This was our clear and consistent messaging throughout the year and we did all of that and candidly, much more. The fourth quarter was particularly strong with revenue and deal making, far exceeding our expectations. What I want to do is give a high-level overview of our business model. Ligand has a great business model and it's remarkably simple and uncomplicated. We are assembling a portfolio of pharmaceutical assets that are diverse, broad and possess big upside. Our ambition is to drive value by one, acquiring assets with potential for significant upside and two, doing it at the same time, while working to reduce the risks in the business by out-licensing to partners and keeping expenses low. Now Matt and John are going to go into some more details about the business and recent 2011 highlights. As we move into 2012 and beyond, I want to focus investors on 3 main things. First of all, our portfolio. Secondly, our revenue growth potential. And thirdly, our leverage on expenses and investments. First, in terms of our portfolio, we call the assets we possess our shots on goal. It's a deep and rich portfolio with every program having the potential to convert into real, tangible value for shareholders. We have over 50 fully funded partner programs, some already generating…

Thanks, John. As John mentioned, our business is becoming stronger and is being fueled by a broad and diverse set of assets. Our efficient R&D team here at Ligand is adding value in a very focused way through our Internal and Partner Programs. And our stable of partners continues to make very good progress on many of our most important partner-funded programs. Specifically, in Q4, our partner GlaxoSmithKline announced full data for the highly anticipated Promacta ENABLE-1 study and shared an early look at preliminary data for the ENABLE-2 study at the AASLD or Liver Conference in San Francisco. At that meeting, we hosted an expert panel that included 2 of the pre-eminent thought leaders in the hepatitis C space, Dr. Nezam Afdhal and Dr. Edoardo Giannini. The full transcript from that panel meeting can be found on ligand.com, but highlights from the dialogue included the experts' impressions of the data amassed to date, including comments relating to the remarkable efficacy success, safety observations in this treatment setting and the pharmacoeconomic benefits that Promacta will potentially provide in the hepatitis C space. We were pleased to see this long anticipated ENABLE data last year, and generally, expect GSK to provide more pivotal data and information relating to Promacta at the EASL's International Liver Conference in Barcelona, upcoming in April. Importantly, GSK announced this morning that they are progressing to file an NDA for Promacta and hepatitis C. We never doubted that they would progress the file. As we see the data as positive and indicative of a medicine that will bring clear benefit to patients in need. GSK also announced that they are still evaluating Promacta's potential use in chronic liver disease or CLD and that they are awaiting additional analysis of the hepatitis C data before deciding on next…

Thanks, Matt. As you've heard from both Matt's and John's remarks, the business is currently performing at a very high level. And in particular, as John mentioned, the financial results for both the fourth quarter and the full year have well exceeded our expectations. First of all, our revenues for the fourth quarter were $12.9 million, which is just over 3x our fourth quarter 2010 revenues. Equally as exciting, the increase came from every revenue line with material sales contributing $6.5 million as a result of a few very large Captisol orders that were shipped in December. And we also saw a 34% increase in royalty revenues. Cost of goods sold through the quarter was $2.1 million or about 32% of material sales for the quarter. Our combined research and developments and general and administrative expenses were $6.3 million compared to $6.6 million last year. R&D expenses were $600,000 lower due to costs associated with internal programs and G&A expenses were up by about $200,000 due to increased noncash compensation costs. During the quarter, we recorded $300,000 of other income driven mostly by a decrease in our CVR liability and proceeds from equipment sold, offset by interest expense. During the same quarter last year, we recorded $4.4 million of other income, primarily made up of $2.4 million decrease in our CVR liability and $2 million from a Qualifying Therapeutic Discovery Project Grant from the U.S. government. Total net income for the fourth quarter of this year was $4.8 million or $0.24 per share compared to $4.5 million or $0.23 per share for the same quarter last year. For the full year, we reported $30 million in revenues compared to $23.5 million last year. Cost of goods sold for the year was $4.9 million or 40% of material sales. Total combined…

Thanks, John and Matt, for those highlights. Let's turn it to the operator and see if there are any questions out there.

[Operator Instructions] Our first question comes from Ed Arce from MLV & Company.

I was quite pleased with the forecast or the guidance for next year. My first question is the royalty in particular looks like it's going to grow really over 50% from 2011 to this year and I was just curious, with all the many products that you now have coming online with recurring revenue streams, if it would be possible to give any more specificity with which of those do you believe will be driving that revenue growth?

Sure. Ed, your general analysis, it's correct in terms of the growth in royalties. This year, in 2012, the 2 largest royalty contributors are Promacta and Avinza. Avinza is a pain product that's partnered with Pfizer. So those are the 2 largest royalty lines this year with PROMACTA being the most significant and growing very nicely over 2011. Having said that, the real growth in royalty revenue is going to come over the next couple of years, particularly if Promacta HCV is approved. We think that could significantly expand Promacta revenue in 2013 and beyond. And also, we're eager to see the FDA action on carfilzomib later this year. The market sentiment is that a high probability that drug gets approved, it's a question of timing. So in terms of significant revenue drivers, Promacta and carfilzomib longer-term will be the bigger factors. But this year, it's principally Promacta and Avinza.

Sure. One other question, your proprietary melphalan program, I know that you just reported some solid results in your Phase II program just recently and have guided to a pivotal trial later this year. And I'm just wondering, have you -- have you laid out any sort of timelines with regards to an eventual NDA filing? And also, have you had discussions in particular with the design of that pivotal trial with the FDA?

Yes, Ed, we have. There's been and actually, when we acquired the CyDex business in January of last year, this was one of the assets that came out of that and as we dug more deeply into the work that had been done by the CyDex team and their broader regulatory team, we're really very pleased with what we found. And a lot of interaction with the FDA, not only on clinical trial design, but also around the orphaned designation for this use. Melphalan is obviously used fairly -- is used a lot in autologous stem cell transplantation. However, there is no indicated product for that use. And so, the FDA obviously granted us an orphaned designation for that use for our product. And in the course of not only those dialogues, but also the dialogue around the design of the Phase II and the pivotal, we really felt like we've got a nice plan moving forward with this one remaining pivotal trial. Right now, we're positioned to start the pivotal trial in the middle of this year and rough numbers, the trial will take approximately 12 to 14 months to run. And then we'd be positioned to file an NDA shortly thereafter.

Okay. Great. And one last quick question, I realized that your material sales numbers are quite lumpy and clearly, this was a higher than usual one for the fourth quarter. Could you just tell me what was driving that for this quarter?

Ed, not by the specific account, but generally, there were a couple of customers that were placing orders in anticipation of starting large studies. And so, in preparation for those trials, we saw a few orders come in.

Sure. Yes. I would imagine that you -- that ties in with some of the more recent license and supply agreements that you've had as well.

Some of the orders were tied to those particular deals, yes.

Your next question comes from Keith Markey from Griffin Securities.

Just a couple of questions, I was wondering if you might be able to tell us if GSK has given any guidance for Promacta sales for this year?

Keith, not to our knowledge. They didn't on the call today. And they haven't in the past as a matter of practice. So I don't believe there's anything public out there from GSK.

Too bad. And then I was wondering if you could tell us a little bit about how you're going to decide whether to partner or to retain melphalan for -- as a product that you would sell yourselves?

Yes, that's a great question. And candidly, we see both paths as an option for us. Clearly, our business is built around licensing and partnering. We believe strongly that we should stick to what we're good at and that's the discovery in the early development side and out-licensing. In the area of oncology and multiple myeloma, there are really quite a good list of very attractive potential partners. So partnering that program now or at the time we're filing the NDA makes a lot of sense and something that we would seriously consider. Having said that, melphalan is a very, very exciting asset and unique. It's different, frankly, from any other program we have in that the reference drug is already approved. It is a very important medicine and it's used at fewer than 200 transplant centers in the United States. What this means is that the path forward, and this is a bioequivalent setting, the path forward is straightforward, we think it's low-cost. We think the development of regulatory risk is relatively low. And in ultimately from a commercial perspective, we believe that you can tap into this market with a very efficient commercial team. So it's an opportunity as we continue to grow and become successful. This might be a way for us to step back into the realm of commercial activities. But candidly today, that's not the decision and we are open-minded to pursuing that path or to partnering it if we believe we can get comparable economics out of a backloaded deal with a cancer partner.

And if I could ask one last question, can you give us a little of an update or plans on your GPSS drugs that you've recently discussed?

Yes, thanks for asking.

Yes. We're, obviously, we have a heritage in programs similar to GTSF we disclosed some data earlier this year. And that's another program where we continue to invest in what I'll call very focused ways in which we answer key questions that will then increase probability of partnering. And that's, so that's a perfect example of some of the work we have planned. They -- or a perfect way to describe some of the work we have planned in 2012 with the intent of finding a partner for it. So that's another one that's actively being worked on in a very focused manner by our team internally and we continue to prepare for a partnership.

Our next question comes from Nick Farwell from the Arbor Group.

Gentlemen, just a couple of follow-ons if I may. John, I see the accounts receivable jumped a fair amount. I'm assuming that has to do with John Higgins' comments about December shipments. Are there other factors there that might affect that increase of $4.4 million?

No. It was entirely due to the Captisol shipments in December.

So is that largely been paid down in accounts receivable were back in whatever line you think is appropriate?

Yes. I mean, it's their standing shipping terms. So if it's -- often it's like net 30, so the payments would be a month later. So a lot of those AR payments hit in January.

Okay. So with that cash flow plus the $7.5 million loan, maybe you could through at least fourth quarter cash flow, John? The $3.8 million of positive cash flow, the source? It would seem to me that you would have generated a fair amount of cash in January and February given the pay down in accounts receivable plus the $7.5 million you borrowed from Oxford, net of course of the pay down?

Yes, I recall that we also had a $4.3 million contractual payment due to the CyDex shareholders in January.

That's what I missed. Okay. I missed that. Okay. So where is your cash now at the end of, say, January for just a rough amount?

That, Nick, a fair question. We actually don't get into -- enter a quarterly revenue and cash balance assessment. I think the big picture is we finished the year with, frankly, fantastic financial performance. We gave what we thought were our best estimates and guidance for fourth quarter and full year. We far exceeded that. And we are very pleased, the deals, we closed more deals than expected and it was just a very, very solid quarter. And frankly, the year-end cash was quite a bit higher than we forecasted as well. So I think the takeaway is that the business financially is doing better than expected. Cash flows are higher than expected and, as John alluded to, our ability to borrow at these very attractive rates is really a reflection of the strength of our business. So I think you've got a sense of where we are in terms of cash, cash flows in the business right now as of year-end and then you've got an outlook on our 2012 guidance.

Right. So just to make it simplistic then the pay down in accounts receivable, just simplistically may have been offset by the CyDex payment in January, roughly?

That's a simple way to look at it.

Okay. The next question, I just want to make sure I understood John Sharp's guidance for '12, if I recall correctly, he said roughly, approximately, whatever the right expression is, half of the $30 million in revenues would be materials and then the balance of licensing, royalties and collaborative would be split 25% correspondingly. Is that accurate?

No. Nick, the half was royalties and then the other quarters where the material sales was one quarter and license, milestone was the other quarter.

Our next question comes from Steve Flacks from Flacks Investment.

Just have a couple of questions. What were the Promacta sales for the fourth quarter?

Steve, what we saw reported this morning, GBP 24 million. With the dollar conversion, we read was $39 million. And this is just as a reference and I'm giving both numbers the way the -- or the revenues converted to dollars is variable, but the dollar reported revenues for Q3 were $33.5 million. So that's the actual dollar converted revenues for Q3 and what we read this morning is the dollar converted revenue for Q4 is $39 million.

So it was up about $6 million. So I assume that you assume that Promacta sales will be higher in 2012, but you're actually, you're forecasting the same revenue, $30 million that you had in 2011? I just was wondering in light of the fact that one must assume that Promacta sales will be moving up, why the revenue is basically flat with this past year?

So you are correct. We certainly, internally, are forecasting Promacta revenues to be higher. But the other thing to point out is that as sales go up, for instance, we broke this year, the $100 million revenue mark, our royalty goes up on higher sales. So for all of those reasons, the contribution of revenue from Promacta, we expect will definitely be higher in 2012. In fact, it may be double, what we received in 2011. Having said that, as John Sharp alluded to, the mix of revenue is different. It's a higher proportion going to royalty and our outlook today shows a lower proportion coming from Captisol orders, the material sales. And I want to comment that, that doesn't mean that there's a weakness in the business. We're really, perhaps we're being conservative, but we're really looking at just the timing of orders and so on and so it is a transition of the business going more toward the growing, recurring revenue based on royalties.

Our next question comes from Van Brady from Presidio Management.

I had a couple of questions, if I may. One was -- had to do with the -- you had mentioned in, earlier in your presentation, John, that there were 3 undisclosed Captisol programs with Merck, Lilly and I missed the other drug company.

Yes, the third was Hospira.

Hospira. Okay. And with regard to the breakdown of your forecast, breakdown of revenues for this year, you have half of it in royalties which would be about $15 million. If you just take the trend line from Avinza and Nexterone that would've been -- you're expecting about $6 million from them so this would mean the rest of it's from Promacta and carfilzomib. Are the outlooks that you can see solid enough to make a projection like that? Could you just give us a little color on that?

Sure. Van, the general concept of royalty contributions makes sense that the mix is slightly different. I think the potential for Promacta contribution is a bit higher than $9 million. It may be $10 million, possibly $11 million. Again, we aren't being product specific in our guidance. But the total royalty could be $15 million based on the trends we're looking at. About $10 million out of Promacta and the other $5 million mostly Avinza with some contribution from Nexterone and a few other products. Carfilzomib, we're very excited and eagerly waiting the FDA decision this summer. Right now, we're taking a conservative view on carfilzomib in terms of any meaningful revenue contribution from a royalty perspective until we see the approval actually come in, if at all, this summer.

Our last question is coming from Chris Richard from Merlin Nexus.

My accounts receivable questions have already been asked but just a follow-up on guidance for this year. I guess that Promacta number that you have in your guidance does not take into account an approval this year for the HCV indication. Is that a fair assessment or...

Yes, it is. And just a couple of things to elaborate on, it does not take into account approval for HCV, which in theory, could happen. We don't know the timing of filing, but if they get a 6-month review, that could happen. The other thing to keep in mind is that we book royalty revenue on a one quarter lag basis. So I'm sure everybody is now feverishly backing in -- back ending our royalty number into what the revenues might be. But bear in mind that we book on a one quarter lag, which means that effectively, this fourth quarter of royalty revenue in 2011 was actually based on third quarter Promacta sales. And thereby, you always have a slightly lower revenue based on that sort of a model versus actual reported calendar sales. Operator, it looks like that's our last question. So we appreciate people's attention and focus. We talked to a lot of themes today. Some general business themes as well as some details. I'm very proud of this team. It's a small team. We're some 22 employees. We work hard. We care about the work we do and we're focused on one thing: Driving value for shareholders. So anybody who owns our stock know you've got a dynamite team who cares about you, that's trying to create value for you. Secondly, we've got a great Board of Directors, highly engaged, very collaborative and they're bringing tremendous contribution and ideas throughout the business. So the state of your company is strong. I'm very pleased to be running this business and driving it and we look forward to updating you as the months progress. I will conclude by saying, we've been invited to 5 conferences so far in the first half of the year. We'll be at BIO CEO in New York next week. The Citi Global Healthcare in late February and at the Roth Conference at Dana Point mid-March and then we'll be a Bank of America Merrill Lynch and Jefferies later on in May and June. So it's a tremendous roster of conferences. We have more sponsorship from Wall Street and research analysts, and the interaction with investors in the last few months has been dynamite. We really appreciate your support and look forward to staying in touch. Goodbye.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.