Greetings, and welcome to the Ligand Second Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Erika of Investor Relations. Thank you, miss, you may begin.

Thanks, Dan. Welcome to Ligand's Second Quarter Financial Results and Business Update Conference Call. Speaking today for Ligand are John Higgins, President and CEO; Matt Foehr, Executive Vice President and COO; and John Sharp, 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 and partner programs, including Promacta and Kyprolis 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 which are available at www.sec.gov. The information in this conference call related to projections or other forward-looking statements represent the company's best judgment based on information available and reviewed by it, as of today, August 8, 2012, and do not necessarily represent the views of GSK, Onyx or any of our other partners or licensees. Ligand undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. At this time, I'll turn the call over to John.

Erika, thank you. Thank you for joining us. Welcome to our call. Last quarter, Ligand saw a major drug approval, 2 new NDA filings, numerous positive partner and clinical events and solid financial performance. We feel great about the recent developments in the company we have built and are even more excited for what the future holds. If you're on this call, you know the significance the Kyprolis approval holds for Ligand. Kyprolis is Onyx's drug for multiple myeloma, and given the excellent data and the well-managed development work by Onyx, we had confidence the drug would eventually be approved and had optimism it might be approved this year. To actually see that come to fruition is a major event for Ligand, as it will significantly accelerate our royalty revenue growth by 1 to 2 years. Now, Kyprolis depends on Captisol for its formulation. And now with the product approved and launched, Ligand will earn tiered royalty between 1.5% and 3% on annual sales. For illustration, on $1 billion in annual sales, Ligand will earn a 2.25% royalty. Some analysts believe Kyprolis could achieve $3 billion in peak annual sales. At that level, we will earn an average royalty of 2.75%. In addition to the royalty, we will also enjoy revenue from the sale of Captisol, for any Captisol that we supply to Onyx for clinical and commercial use. Now following the Kyprolis approval, some investors asked if we will raise guidance for 2012, since the approval came early. We have not changed guidance, however, we feel great about the business. First, we have revenue and expenses are in line with plan, and the second half revenue outlook is strong as we have indicated in our press release. John Sharp will also elaborate more on our second half outlook. As…

Thanks, John. First, I wanted to expand on a couple of elements, specifically as they relate to Kyprolis and Captisol. Kyprolis is the sixth FDA approved Captisol-enabled product in the market. And that's important to note, the product was approved and launched just 5 years after we did the initial licensing deal, so a fairly short period of time. Importantly, Captisol continues to feed the future of the Ligand asset portfolio and we see it becoming the platform for growth that we thought it would when we purchased CyDex last year. In Q2, we entered into over 30 early-stage research and preclinical Captisol use agreements. So these are early agreements, and I mention them because we see these as a continued validation of an important technology that's meeting a critical industry need and we are pleased that our partner base remains balanced in size, ranging from small startups all the way to well-established big pharma players and in therapeutic area of focus. In addition to these early-stage research and preclinical use agreements, I just mentioned, that we don't reflect in our shots on goal, we also entered into a new clinical stage license agreement with Vertex Pharmaceuticals in Q2. The target for that is undisclosed but it's in a promising field of research and we look forward to talking more about this newest shot on goal in the future. In relation to Promacta, I would like to expand a bit on John's comments and share a bit more color on other areas of growth potential beyond ITP and HCV. As GSK continues to invest heavily in the future of Promacta with a focus on Hem/Oncology-related thrombocytopenia, or HORT, or what we call, Hort. They are currently running Phase II trials in NBS and AML, and recently presented data at ASCO…

Thanks, Matt. As you have heard from both John and Matt, we have had several very exciting news events recently that we believe will drive significant revenue growth beginning next year. And while these events may only have a minimal impact this year, 2012 is shaping up to be a solid year and the business continues to perform in line with our expectations. Now for some highlights from the second quarter. First, as John Higgins mentioned, we are pleased to see that Promacta sales continue to show consistent strong growth on a quarter-over-quarter basis. And as a result, our second quarter 2012 overall royalty revenue was $3 million compared to $2.2 million for the same quarter last year. Revenue from material sales is lower than the same period a year ago, but that is simply due to the timing of orders. We have a large Captisol customer base and, as you have heard many times from me in the past, Captisol shipments can be very lumpy, with large orders coming in time with clinical developments or product launches. And as you will see with our full-year guidance, we expect to have a strong second half for Captisol shipments. Finally, in terms of license and milestone revenues, this quarter we recorded $1.1 million, down slightly compared to last year's $2.3 million. However, 2011 revenues included $1.3 million of non-cash deferred revenues. So on a cash basis, these revenues are slightly up. Now taking a look at our operating expenses. Our combined R&D and G&A expenses for the quarter were $6.8 million, down slightly from $7.1 million for the same quarter last year, and in line with our overall goal of running the business with annual combined R&D and G&A expenses of approximately $25 million, as we do expect to see expenses…

John, thank you. Operator, if there are any questions, we can field some questions now.

[Operator Instructions] Our first question comes from Van Brady of Presidio Management.

I did have a question about the royalty schedule for Kyprolis, I wasn't able to copy it down fast enough. There was 1 point, for some volume, there was 1.5 to what?

It's 1.5% to 3%. And Van, in our Q that will be filed by 2:30 today, there will be an exact schedule of the royalty in there.

And Van, just to give a little more color, certainly, thanks for the question and I appreciate your remark about the recent developments, we're also very excited about the last couple of months. The royalty, it starts at 1.5% on the first $250 million in annual sales. And then it goes to 2% on the next $250 million. So from $250 million to $500 million. And then to 2.5% on the next $250 million. And then, it caps off at a 3% rate on sales north of $750 million annually. So it's a simple royalty tier that escalates essentially at every quarter of a billion dollar revenue mark.

So as Rachel McMann's [ph] estimate of Kyprolis sales next year, I think it was about $250 million, that would be at 1.5% royalty, is that correct?

That's correct. That first royalty tier starts at 1.5%.

If a per asset, Kyprolis sales is correct, what would the accompanying Captisol sales be at for that size of drug product?

You know, Van, roughly a couple of a million dollars, we don't break out what the exact Captisol revenue would be on a per product basis, partly because it does relate to pricing and we have different pricing schemes with our various contracts. But at that level, we've enjoyed a nice slug of royalties and have a -- potentially a couple of million dollars of material sales that would be related with that level of sales volume.

Our next question comes from Joe Pantginis of Roth Capital Partners.

A couple of quick questions if you don't mind. First, since you really have such broad programs for Captisol and you keep signing more and more, maybe you could just touch upon as to the level of extent you can, regarding your manufacturing capacity and your ability to provide enough Captisol for all of these collaborations that you've been signing, as well as for the approved products --

Joe, this is Matt. We have a 50-metric ton capacity for Captisol, so we've got plenty of capacity. We work very closely with our supplier Hovione and have multiple sites that we are working with within the Hovione network to make sure we have some level of redundancy built-in and safety stock built-in to the system, but we've got plenty of capacity, so we're pleased with that.

And to put in perspective, that 50 metric tons, currently, we are producing. What we are supplying right now is a small proportion, maybe 20%, 25%.

Yes, A little less than 20%, correct.

Of that target. So again, just a way to say, there is a lot of headroom and we have a great manufacturing relationship with Hovione, also while they are a "sole supplier," the fact is, we're operating out of multiple sites, which is a real benefit for us as well.

And then maybe just with regarding to the broad aspects of Promacta. You did mention a couple indications, just any further color or body language from Glaxo about what they're also really excited about bringing to pivotal studies. And then also sort of the same question for you guys internally. Obviously, you're putting some resources behind the pivotal melphalan program, you mentioned the 6972 program, also I wanted to get a sense of what also are you really excited about throwing some resources behind?

Joe, I'll make quick remark about Promacta and then invite Matt to add some more color, too. Promacta it is -- it's a tremendous asset. And obviously investors are warming up to it more and more, given the financial success and the regulatory filings and the new data that's coming out. But I want to be clear for the investors listening to this call or those who might read the transcript, Promacta is an A+ program. It is absolute top-quality, top flight, and any investor involved in biotech or the pharmaceuticals space should seriously spend time learning more about this medicine and its potential. GSK is doing a brilliant job, in our opinion, advancing it. And obviously, it's tremendous investment, it's a lot of work, a huge staff but they have a great molecule with tremendous promise. Obviously, we know what it's done in ITP, we're monitoring the sales, the potential to enable Hepatitis C patients to treat -- to seek treatment, we think is revolutionary for the sickest of the sickest HepC patients, but beyond that, again, the investment and the opportunity, it's not only a great commercial asset, it is a fascinating medical asset. So with that set up, I just would like Matt to add a little more color on other areas that GSK is working in.

Yes. Obviously, I think everyone's well familiar with the commercial success in ITP and, obviously, the HepC is obviously a big indication GSK has done a lot of great work and we applaud them for that. Following the literature and also just following where GSK has been spending time, developmentally, MDS and AML represent really interesting new fields. Also there have been some publications in leukemia, I mentioned the New England Journal of Medicine publication in aplastic anemia, very interesting that raised some fundamental biology, I guess, observations around Promacta as it compares to endplate and basically, I think, at a basic level, endplate binds to a receptor-like endogenous TPO does, whereas, Promacta binds in a transmembrane domain, that's a -- it's kind of a lot of biology there but it can be -- it's starting to become an important sub-story as to why Promacta may have an advantage and maybe applicable in a number of other diseases. So we're certainly following it closely and are very excited about it, and see it having a lot of potential in the future. And then on top of that, there are other indications like thrombopoiesis or areas where Promacta is an obvious fit and could expand into as well.

Okay. And then just a related question regarding internal programs beyond what you mentioned, what are you most excited about, looking to throw some of your resources behind?

Joe, as I said in the prepared remarks, obviously, 6972 is an exciting program. We've disclosed some data this past quarter. We're continuing a thoughtful investment there to ready it for an IND next year. That area, the glucagon receptor antagonist area is one that we really feel like the science is ripening in and we've got -- we feel like we got a better molecule that can be differentiated, so we are excited about that. And we continue to be excited about Captisol-enabled melphalan, we're just gearing up now to start the pivotal trial, it's a 60-patient focused trial, a really good development path that was defined, really in the CyDex days originally, but we obviously completed the Phase IIA last year and announced that data. But it's a very focused development path, 505(b)(2) route also with an orphan drug designation. So a very rare combination and meeting a key need in the stem cell conditioning areas. So we're excited about that program. We're looking forward to getting the clinical trial started in the second half of the year.

Our next question comes from Carol Werther of Summer Street.

So the first is, how many shares do you have outstanding following the ATM?

It's just under 20 million, 19.9 million.

Okay. And then on the melphalan program, how long do you think it will take to run the pivotal trial and receive the results?

Carol, we estimate -- obviously, there's a -- once we get the trial running, we get multiple sites up and running, we estimate about a year.

Okay, that's helpful. And then can you give us any update on where The Medicines Company is with their programs?

Yes. And for those who may not know, we, last year, licensed in IV clopidogrel, or IV Plavix, the active ingredient Plavix to The Medicines Company, they're progressing that product through development now. They announced most recently in their earnings call that they're planning to get a clinical trial started in the second half of the year. So they continue to be a great partner and we're cheering them on and think they've got a great global platform for the product.

Okay. And then when I look at -- maybe you could help me with some of the other milestones that we might see this year like, I think, we were expecting to see some data from HepDirect, are we still expecting to see that?

Yes. Carol, we are still doing some R&D work in HepDirect, it's a technology we acquired through the Metabasis acquisition a couple of years ago, and we're looking forward to presenting some additional preclinical data on HepDirect at scientific meetings in the second half of this year. So yes, you will start to see some data in the second half of the year.

So perhaps AASLD?

Yes. Yes.

Okay, that's helpful. And I think we were all -- I thought Pfizer had a separate program than the one mentioned in the press release. It was work going on but I might be wrong about that, I get a little confused with how many programs you have.

Look, so Pfizer, there are 2 drugs. There's a single agent synthetic estrogen, or a SERM, selective estrogen receptor modulator, Conbriza, which they are marketing in Europe and Japan, so that's approved, and we enjoy a small royalty off of that. This other drug, Aprela, now is filed in Europe and accepted, and we still anticipate that the U.S. filing will also go in this year as well. That, as Matt indicated, is a combination drug with both the SERM, bazedoxifene and Premarin.

And this is non-Captisol, correct?

Correct.

Okay. And can you talk about which product Vertex is developing?

Not at this point, we're not at liberty to share the target just yet. But we hope to, sometime in the future.

Our next question comes from Keith Markey of Griffin Securities.

First of all, I just wondered if you could reiterate what number of more advanced Captisol products are under development? I didn't quite get that.

Right. Keith, in my remarks, I commented that there are over 30. As you know, in our investor presentation, we cite that we have over 60 fully funded partnered programs, which is the case, and the number in fact has gone up a bit recently. But in the Captisol business, and I was tying the remark to the Kyprolis commentary, in the Captisol business, we have over 30 partnered licensees and, in the breakdown on the stage is, 6 programs are in or entering Phase III and we're excited. I mean, as exciting as Kyprolis is, clearly, we've got a very high-quality late stage roster of other Captisol programs that are moving nicely through development. And then we have another 10 that are in Phase II and over 15 are in Phase I.

Great. And then I was wondering, do you have a sense as to whether Promacta sales are benefiting much yet from the Hepatitis C indication?

Keith, our sense is they are not. And this is very anecdotal. But we have -- we're into in how much of the revenue growth, or levels, is it all driven by hepatitis. We don't have a direct handle on the commercialization of the product. But anecdotally, the sense that we're getting from anybody in the market place we've been able to talk to is that, this really, to date, really is used for the labeled indication of ITP.

Is there any kind of reimbursement limitation that might be holding it back? Because I would think that some of the patients might be, or end physicians would want to be able to have access to the drug for that particular purpose already?

Yes, a fair point. I think that's a very logical conclusion. I'm not aware of anything in particular, obviously, physicians are permitted to prescribe off-label when they deem appropriate. But I think, circumstantially, it may be partly a timing issue. I mean, the data, it's fairly new but also it may be a policy issue. I think that GSK and those who follow the company know their recent history. I think they are very conservative on promotion of products. And frankly, it's responsible. I think they really do care about the regulatory status and making sure that they get a labeled approval before they put any resource behind it. So I think it's largely circumstantial. We don't read into that at all. Our own view of the data is that it is a very, very robust and compelling data set. I mean, these patients are the sickest of the sick. As excited as the whole pharma space is about the new HCV drugs, the reality is those drugs are targeting mild to moderate patients, important patients but they ostensibly are not sick right now. Promacta is targeting the sickest patients who have severely damaged liver. They run the course of dying or contracting liver cancer within just a few years. So given the nature of the medicine, how it works and what it means for these patients, personally, myself, and I know all my colleagues here at Ligand and our Board are very excited about what GSK is doing with this program.

Right. It would seem then that we should expect a nice pick up in revenue from Promacta next year.

That is our outlook as well. I mean, we obviously need to see an approval, the label, we need to understand better, the timing of launch. But what's dynamite about the Ligand business is that we're right on track with our research investment, I think we're getting quality results out of our investment, we're managing a very tight ship, financially and, at the same time, in the last 2, 3 months, we have seen some absolute blockbuster news developments with our portfolio. These are very high quality assets that now are pending approval or launching that have the potential to generate significant revenue growth in the very near term. So we're excited for what we've seen, but candidly, we're even more excited about what the next several quarters hold for Ligand.

Right, sure. And just one more question, if I could. Can you tell us if there are any more approvals that might be coming in 2013 aside from the Hepatitis C indication for Promacta and approval of Aprela?

Sure. Well, actually, you mentioned APRELA, so I think that's one that Pfizer is talking about with the filings this -- by calendar. And I think their expectation, they are hopeful that we're looking at a 2013 approval. Matt, can comment on...

Yes. We spoke a little bit briefly about The Medicines Company and the IV clopidogrel, and their intent is to file next year. So we should see another filing from that. We also have some other late stage Captisol programs that are undisclosed currently, that are in that timeframe. The other one that has a Phase III reading out late this year, or early next year, is Lundbeck for an IV carbamazepine for seizure. So a number of programs, and some of which we've talked about in detail and ones that we'll see filings coming out in the next year.

Our next question comes from Ed Arce of MLV & Co. Ed Arce - McNicoll, Lewis & Vlak LLC, Research Division: I guess, I wanted to start with Promacta, with ITP continuing decline in sales for that indication and likely approval by the end of this year. In HCV, I know that you've started to look along with GSK towards some of the later stage follow-on indications, and I was curious if you could help us understand a little bit more about HORT and others that GSK is considering?

Yes, and I'm happy to take that and -- the HORT is an acronym for heme and oncology related thrombocytopenia, and there are multiple legs to that, one is thrombocytopenia, as a result, created as a result of chemotherapy treatment. Also diseases themselves, MBS and AML, for which GSK is running trials right now, and so that is progressing and we're certainly seeing evidence of commitment there. I mentioned a little bit earlier that some of the data that's coming out in the high-profile journals, specifically the aplastic anemia publication, the New England Journal of Medicine, I think opens up some interesting doors, potentially for Promacta and other indications. And then, of course, there are things like thrombopoiesis, or platelet infusions, where you could see Promacta playing an important role as well. So where we continue to be very pleased with GSK's commitment to the asset and investment, they've got a very capable team spending a significant amount of time and effort in looking at ways to expand the indications for Promacta. So we are obviously cheering them on and are pleased with their progress. Ed Arce - McNicoll, Lewis & Vlak LLC, Research Division: Okay. I believe the acronym that was used previously to describe this program was ORT, so does that mean that hematological cancers are something that has recently been added as a potential in this program?

Well, there are certainly a lot of ripening biology out there. I've mentioned some of the publications, earlier stage publications in anemia and other fields. But there's a lot of subgroups to the HORT area, and but no, yes, so you obviously know the [indiscernible] term, what's out there so. Ed Arce - McNicoll, Lewis & Vlak LLC, Research Division: Great. Okay. And then going over the milestones left in the year, I think you may have mentioned this already, just briefly, but just wondering what do you know, the latest with the Lundbeck program for carbamazepine.

Yes. So the latest -- obviously, they have updates and have [indiscernible] disclosures. But the latest we see is a potential readout at the end of this year. Ed Arce - McNicoll, Lewis & Vlak LLC, Research Division: Okay. So that remains on track then?

From what we know, yes. Ed Arce - McNicoll, Lewis & Vlak LLC, Research Division: Great. And then one last question. You mentioned the $3.5 million milestone payment to the former CyDex shareholders, would there be any other milestone payments to those former shareholders with potential future approvals, and which programs might those be?

Yes. Ed, that was the last milestone payment. What is still left on the table is our revenue-sharing payments that are possible. And that's anything over $15 million, we pay 20% to these former CyDex shareholders, and then there's another, over $30 million.

And just to clarify, those sale threshold, it's Captisol revenue only and it's through 2016. The milestone, the $3.5 million was specifically tied to the Kyprolis approval and that's the last milestone. Ed Arce - McNicoll, Lewis & Vlak LLC, Research Division: Right. Okay. So then just to be clear, these thresholds and the 20% and 30%, these are for Captisol material sales, so these are relatively small amounts?

Well, it's Captisol-related revenue so it could include licenses as well. But it is of note, it does reset every year as well.

[Operator Instructions]

Okay, well, thank you. It looks like we don't have any other questions. So I appreciate the attendance and turnout today. That concludes the earnings call. I've already said this, but I am personally excited about the story, on behalf of the team and our board. I believe we are running a good business with an exciting future. I want to acknowledge the new sell siders who've initiated coverage, certainly appreciate the support. We've had more coverage and interest the last several months than we've had in quite a while. We're going to be active on the road this fall and it is a great time to be looking at Ligand. So we hope to meet with you or speak with you if you have interest. Thank you.

This concludes today's teleconference. You may now disconnect your lines at this time, and thank you for your participation.