Greetings, and welcome to the Ligand Pharmaceuticals' Fourth Quarter 2013 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Erika, who is filling in for Investor Relations. Thank you. Erika, you may now begin.

Welcome to Ligand's fourth quarter financial results for 2013 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, Vice President of Finance and CFO. As a reminder, today's call will contain forward-looking statements within the meaning of federal securities laws. These may include, but are not limited to, statements regarding intent, belief or current expectations of the Company, its internal and partner programs, including Promacta, Kyprolis and Duavive and its management. These statements involve risks and uncertainties and actual events or results may differ materially from the projections described in today's press release and this conference call. Additional information concerning risk factors and other matters concerning Ligand can be found on Ligand's public periodic filings with the Securities and Exchange Commission, which are available at www.sec.gov. The information in this conference call related to projections or other forward-looking statements represents the Company's best judgment based on information available and reviewed by the Company as of today, February 11, 2014, and do not necessarily represent the views of GSK, Pfizer, Onyx, Amgen or any other partners. Ligand undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. At this time, I'll turn the call over to John Higgins.

Erika, thank you. Welcome to our fourth quarter 2013 earnings call. So much is happening here so far in 2014 that it feels long ago that we exited 2013. What a successful year 2013 was. It was our first year of profitability and being cash flow positive. We closed out 2013 with $49 million in revenue and $0.90 of non-GAAP earnings per share. That is well ahead of our original outlook at the start of the year. We raised guidance throughout the year and ultimately closed even better than that. Our lead programs are on or ahead of schedule and Captisol orders for clinical customers came in well above expectations in the fourth quarter. Now, it's obvious that we are in a very robust capital market for biotech stock, and there is good reason for this over the past couple of years. The science is working, the FDA has been much more effective in processing drug reviews and approvals, and there has been a great run of excellent deals between companies helping define for investors the value of drug assets. Increasingly, we are hearing from investors that if you want to own a piece of this lucrative industry, the best way to do it is to own Ligand. The thinking behind that is Ligand has so many partnerships and programs, so many ways to participate in the upside, that investors have a potential for biotech like returns, but at the same time the Company's portfolio diversity and ultra lean cost structure creates an unusually lower risk profile compared to typical biotech. This is what investors and analysts are saying, and frankly we agree with that sentiment. Indeed that is exactly the business we are working to build. We are running the Company for shareholders and we are proud of that…

Thanks John. I'm going to make some comments about our partnered programs and then I'm going to touch on the progress on some of our internal unpartnered pipeline assets that we are investing in to fuel future shots on goal. On the partnering side, GSK reported strong year-over-year growth for Promacta last week, 46% year-over-year growth, and importantly saw double-digit growth in all regions. GSK is in 95 countries with Promacta for the ICP indication and has approval for roughly half that number of markets with the Hepatitis C indication. They are continuing to invest heavily in top-notch clinical work for potential new indications as well. They disclosed in December that they expect to present Phase III data for Promacta in pediatric ICP this year and as a reminder pediatrics account for half of the new diagnoses for ICP each year. GSK is also reporting regional growth specifically attributable to Promacta's indication for low platelets associated with Fc. Now it's clear that the Fc landscape has and is evolving dramatically with the arrival of the new direct acting antivirals. That said, there is still an important place for Promacta in treating the sickest subset of patients that need their platelets boosted as a result of liver damage caused by Fc. And while the virus may be gone with the new treatments, what's left behind is a damaged liver that cannot produce platelets adequately. It's important to keep in mind that if only 0.03% of the global population of Fc patients receive Promacta, the annual Promacta revenue from that could be approximately $1 billion. GSK also announced last week the granting of Breakthrough Therapy Designation for Promacta for treatment of cytopenias in patients with severe aplastic anemia. Aplastic anemia is a rare disorder in which bone marrow fails to make enough…

Thanks Matt. I will cover just a few of the highlights from our earnings release issued this morning and I'll also provide a little more clarity on our expectations for 2014. Starting with the top line, total revenues for the quarter were $14.7 million, up $1.1 million compared to the same quarter last year, driven primarily by a 48% increase in royalty revenues with Promacta contributing $5.1 million of revenue, Kyprolis $1 million, and Avinza, Nexterone and Conbriza providing a combined $1 million. In addition, our G&A and R&D expenses were virtually flat compared to the same quarter last year at $6.8 million. Our cost of goods sold for the quarter was $1.3 million resulting in a gross margin on materials sales of just over 80% which is better than expected due to higher materials sales for use in clinical trials. For the quarter, we reported non-GAAP income from continuing operations of $7.4 million or $0.35 per diluted share compared to $6.4 million or $0.32 per diluted share for the same period last year. On the cash side, we ended the year with $17.3 million of cash, short-term investments and restricted cash which was ahead of our plan and higher than last year while paying off nearly $20 million of debt during the year. This leaves us with a small debt balance that is scheduled to be paid off over the next six months. For the full year, we reported non-GAAP income from continuing operations of $18.6 million or $0.90 per diluted share compared to $3 million or $0.15 per diluted share for 2012. The increase in non-GAAP income was driven by a 68% increase in royalty revenues, a doubling of Captisol material sales and improvement in gross margins from 62% to 70% and a slight decrease in combined R&D…

(Operator Instructions) Our first question is coming from the line of Steven Crowley with Craig-Hallum. Please go ahead with your question.

Congratulations on a great 2013 and looking forward to 2014. In terms of some color on the success you just had in fourth quarter, the significant amount of Captisol material sales into the clinical trials, I mean can you give us some complexion for whether or not that was across a relatively broad group of partners or whether it was concentrated in a few kind of high velocity programs?

Great question. It was actually a mix of both. We are doing more sampling, more licensing deals for Captisol, so we've got more customers. We're finding a number of our customers are ahead of schedule, they are planning to trail starts, et cetera, and perhaps the trial size, is ahead of schedule, and there also was one or two large orders really driven by some what we believe to be some promising regulatory events with these customers. So it really was a combination. As you know our Captisol business quarterly sales are lumpy, it's not a straight line and it really comes down to annual calendar planning but the fourth quarter for really both those factors was considerably larger than we had initially expected.

And then in terms of our challenge of forecasting that category, not having near the visibility you do inside, last year in the first quarter there was a pretty substantial drop-off, I think it was to the tune of maybe dropped off 65% to 70% sequentially in the first quarter, I don't get the sense that there is that big a drop but we should not look at the second half of last year certainly as a run rate for material sales, should we think about something kind of half that as a starting point for material sales, maybe you could help us a little bit on that variable?

I'll say, Steve, as we always say, material sales is lumpy but as more customers are converting to commercial, we're seeing more – we get more visibility on those commercial shipments, we've got rolling forecasts in general with purchased commitments. So that obviously contributes to a baseline as well. I think that's an important point to note. Also to John's earlier comments, one of the things we're seeing also are a number of partners who are pursuing either additional indications for products that are in development or additional territory clinical trials, so we're seeing that as well.

And then in terms of efforts with your internal development programs, it's encouraging to see what's you're doing on your own to drive the value of the glucagon receptor antagonist program but the other sponsor out there with the candidate in the arena, one of the intriguing aspects of your model is to effectively ride the coattails of successes and interest created by other sponsors and I'm wondering if you have any visibility or information on what really is stirring up with their candidate?

They've highlighted their program at a couple of events, some of their investor events as well as their R&D Day. They've completed large Phase II trials for it and said they were doing some work preparing for larger pivotal trials. So that's where they've been. Obviously we are pushing our program aggressively forward and are very excited about the data that we're generating.

And then just one more for me along the same thing, your SARM program, you mentioned that there was another sponsor in the same neighborhood hopefully helping to drive value for success stories in that neighborhood. Who is that other sponsor, can you share that with us and perhaps…?

Yes, that's GTx, so GTx also has a compound that they've pursued, they ran some trials in the U.S. and Europe and just very recently provided their regulatory path update for Europe.

I'll hop back in the queue with some additional questions.

The next question is from the line of Joe Pantginis with ROTH Capital. Please proceed with your question.

Congratulations on the progress and also John Sharp, good luck with your new endeavor. I know you were certainly instrumental in turning around the Company under John Higgins, so definitely good luck with what you're going to be doing. Couple of quick questions. I know the historical landscape for Duavive was a bit volatile and a lot of scepticism in this space, some people were sceptical whether the drug was going to get approved, so let's just look to present day and the opportunity for Duavive, maybe Matt or someone, can you share with us some of the characteristics that might differentiate the product with other products so it might garner some meaningful market share?

Yes, absolutely, Joe, a great topic. Pfizer obviously hasn't stated projections but I'll make a few general comments on the landscape to give you some good general context. As I said in my earlier remarks, there are 33 million women in the U.S. of menopausal age. It's rare to have a disease or a condition where all of the population that could get the disease does get the disease. A large proportion of those have not seek treatment for their – the manifestation of menopause – sorry, I'm struggling with words there – so a real large untapped market. Now pre the Women's Health Initiative, this area was a huge area, one of the largest drug areas and post Women's Health Initiative there was a fear about hormone replacement treatment, et cetera, and that market essentially dried up, it shrunk significantly. Now, with the large body of data that Pfizer has generated both from a safety and efficacy perspective really creates the opportunity to create a new paradigm in this space. There's certainly an educational element that will be critical to that but a huge opportunity given the data that was generated. I think that the experience of the Women's Health Initiative I think led to some of the scepticism that you were getting at, Joe, that perhaps the drug might not be approved, et cetera, we heard that, I think Pfizer probably heard that as well leading up to it, but it's very clear I think that this drug meets a critical need and that the clinical package that was generated clearly showed that it's well-positioned to meet that need.

Great and maybe just a follow-up on that, maybe any sort of potential differentiating factor for the drug compared to other drugs in the States, even in the arena?

I sort of was getting at that. With the trials that were done were really the largest trials done to date in this category for a drug in development and with that brings with it a significant amount of safety data as well as efficacy data and I think that's a real important element for this.

And Joe, you're asking great questions. It is Pfizer's drug so it's there purview to talk about it from a marketing perspective. Generally for investors to put it in perspective, this is a combination drug. It is a combo of two drugs, Premarin, and our SERM. Premarin at one point, this is a fact, it was the world's largest selling medicine, so we could think about Lipitor or other top-selling drugs now, [indiscernible], et cetera. Premarin was the largest selling drug. It was different market environment. It is one of the components, it's a low dose Premarin and it's a low dose SERM. We think that that SERM is researched and now with this combination is a powerful combination. And I think, to double up on Matt's point, this is a very serious medical health issue, this is not a lifestyle drug or lifestyle medical category and the market in the U.S. at peak was $4 billion to $5 billion. It's smaller now but the patients and we're hearing from thought leaders really are looking for new state-of-the-art medicines and we think this is the classic right drug at the right time. So, we're excited about it, it's just one of another many programs, but it's great to see the data, the recent approval and now the launch.

That's really helpful thank you. And then if I could just switch real quickly to Promacta, and the last question will also be what is the clinical status for the IRAK4 program because obviously that holds a lot of promise especially with all the new therapies that are out there and with the BTKs and look even for BTKs in the inflammatory space as well, so that's the last question, but for Promacta, how could you sort of characterize Glaxo's I guess priorities in the oncology setting? Obviously Promacta could be used mainly in the supportive care area like chemotherapy induced thrombocytopenia but obviously they have a lot of studies going on and what sort of emphasis are they placing start to-date even though these studies are early-stage on the disease modifying characteristics of the drug?

So as far as Promacta, I'll comment on that first. I think GSK from the beginning have placed Promacta as a brand in their oncology unit and that's a real high-profile unit within GSK, they've been making significant investments in the brand all along, but I think realized by that that placement of Promacta in the oncology, that there is significant opportunity for the brand in things like chemotherapy induced thrombocytopenia and the sAML, et cetera. Now a lot of data that has come out over the last year, at EHA, ASH and ASCO not only on the platelet effects in those diseases but also on potential disease modifying elements of the drug which we're obviously excited to see as is GSK, but I think the important point to take home is that from the beginning, this drug has been residing within the oncology unit. So there's clear visibility that that is an important element of the drug's future. They are seeing double-digit growth in all geographies, a lot of investment in the global clinical programs and it's becoming a higher and higher profile drug. So we're excited about that. Switching gears to IRAK4, that's really an exciting target for us. It's a program we've published a little bit on. We presented it at a meeting about 14 months ago, some of our data there and have continued to invest in a targeted way. It really fits very well within our business model. This year we're investing in some molecule optimization, so it's still at that stage of development in terms of identifying final molecules, but the data we see is very encouraging, we feel like we've got a leading position in that field from a science perspective and see it as a very partnerable asset.

Our next question is from the line of Greg [indiscernible] with MLV. Please go ahead with your question.

Let me also add my congratulations on a fantastic quarter. A couple of questions if I may. First, I know in terms of the guidance for 2014 I know you are only providing first quarter guidance but in the context of Captisol being lumpy but in terms of the quarterly flow for the balance of the year, is there anything that we should be thinking about in terms of the evolution of how the quarters will be, whether it's on a revenue line or on an OpEx line, I mean I know your OpEx is relatively steady but any comments there would be helpful?

So generally the quarters sort of flow, Q1 is our biggest royalty quarter because we're in the higher – we're dealing with the fourth quarter sales from the previous year, and so we typically see the big Q1 royalty dropping down in Q2 and then ramping back up through the end of the year. As well I'll say material sales are very lumpy. I will say the first quarter we're looking at about a third of our revenue being from material sales in the first quarter. Typically, although we don't think we're a seasonal business, we tend to get bigger orders towards the end of the year, so fourth quarter tends to be a pretty big quarter for material sales. License and milestones are extremely hard to predict. We do have some late stage events that we think are probably geared towards the second half of the year. And so with that said, again it's usually the first three quarters shorter in line and the fourth quarter tends to be a bigger quarter.

Great, thank you. And then just from a big picture perspective as well, I know that the business development is very important to the Company, as you see the overall business starting to grow, is there anything as it relates to 2014 in terms of a strategy and how you think about business development activity, has anything changed relative to perhaps years past whether it's the size of the deal that you're thinking about or the types of things that you want to do?

Greg, it's a good question. It really is I'll say the core of the business model as much as we are a biotech company and are very proud of our research heritage, much of what we're doing is different than our peers. This is a very strategically BD oriented Board and management team, and obviously our productivity and acquisitions creative deal-making licensing, the last three, four years, I think really defines that. So you are asking a good question because frankly this is a very vibrant biotech environment, the capital markets are obviously doing very well across the board. We're participating in the space in a lot of different ways. Our appetite for acquisitions is still very strong and we get the question all the time, we realistically understand the valuations have gone up and companies have more access, more options for accessing capital, but our list of prospects is frankly as long or maybe longer than it's ever been. However, we are disciplined, we're having selective, we're trying to find things that are good fit for us in terms of unpartnered assets, unpartnered research projects, partnered programs cost structure and the like. So that is still a part of it but the earliest that we are also spending a lot of time on is looking at expanding more Captisol related deals. We've got the traditional flow, we are doing one or two licensing deals a quarter, the last year or so, we're looking at potential non-pharmaceutical uses of Captisol and this is a promising area. We've got the IP, this is something we've been looking at the last year, but that is one area. In terms of our portfolio of unpartnered assets, we believe that we are moving towards potential series of deals, new traditional licenses. However it's also worth pointing out that in this marketplace there is a lot of interest for private and some public companies to acquire or to bolt-on unpartnered assets. We are getting overtures from parties to give them our assets so to speak in spin-out type structures. So this is a new development that really in the last year or so has come more into focus. We have explored spin-outs consistently the last several years, we have talked to investment banks and the likes but this is a potential another opportunity we have in 2014 to create partnerships with existing private companies to take them public or to possibly push some of our assets into a platform that could become a spin-out company. So those are maybe three areas we are looking at, traditional M&A like we've done in the past, Captisol licensing but with a non-pharma focus and exploring spin-out structures really with the focus of leveraging the assets to improve the return and the value for our existing shareholders.

Our next question is from the line of Carol Werther of Summer Street Research. Please proceed with your question.

So congratulations on a really spectacular 2013 and then with all that you were talking about, John, your different options, I was just wondering how you were planning on financing some of those because [indiscernible] that's great and some fabulous management of your cash assets so you can pay off the debt, could you just talk a little bit about that, whether you would raise money or whether it would be more debt oriented?

Sure, good question. The question, do we need cash, the answer is, no, at least we don't need capital to run the operation. Often we get questions with our expected growing cash flows, what are we planning to do with it. So yes, you're right, we focused on these sort of questions. Right now as a business while we came out of 2013 slightly ahead on our year-end cash balances, what's notable is that we paid off nearly $20 million in debt and we acquired a large portfolio of assets from Selexis. So there are a number of non-operating balance sheet uses of cash. So 2014 by our projections is clearly projected to be much stronger to generate even more cash flows. So allowing for our look on expenses, we do not need capital to run the business and we are very conservative with the use of equity to fund our operations. We are proud of our lean equity structure. Having said that, as we look at acquisitions, we believe given our cash flows and growing cash flows and royalties, we have a significant borrowing capacity, we have a small cash balance today, we are not concerned about that at all, we believe that within a short amount of time there are a number of lenders who could lend us significant amounts of money if we needed capital to acquire assets. So we have capital flexibility, we believe debt might be the lowest cost of capital for us but I think every transaction is different, so we'll obviously reserve judgment on how we structure future deals. But the focus for investors should be on what we have been doing the last several years, running a very efficient business trying to be as transparent as we can on the operations and if and when we see good opportunities, obviously we'll talk about those as the time arises.

And then I just wanted to ask a little bit more about the unpartnered programs, so how many do you expect to partner this year and how many INDs?

Carol, so the program in terms of INDs I'll say the way we look at R&D investment in general is what questions, what targeted questions should we be focused on to answer, and those questions can be scientific events, they can be data, specific experiments, they can be regulatory events, for instance to find a regulatory path, et cetera, what specific questions should we get answers to that will greatly increase the partnerability of an asset or a project. And so that answer is different for different programs depending on what they are and where they are in development. For [glucagon] (ph) for instance, we felt it was critical to have a Phase I to have an IND open out of Phase I data which is what we are pursuing. For some of the other programs, it's not as simple as let's file an IND and then get a partner. Sometimes the investment can be upstream or downstream of an IND. So it's a matter of just answering a couple of key questions, prove during some proof of concept work either in an animal model or in vitro and then going out and pursuing partnering. So the answer is that it's a mix depending on the program. We've talked a little bit about our IRAK4, we are doing some molecule optimization there, at G-CSF, we have already shown proof of concept, that's a program that might take a more traditional IND type path over time, and then for [glucagon] (ph) for instance we're generating clinical data. So it's a bit of a mix, it's not as if we just look at each program and say we're going to submit an IND and that will be the value creation event. Sometimes the value creation event can be prior to an IND.

And then my last question, if you would help remind me what the key differentiator factors for 6972 is from [indiscernible]?

So really as we embarked on this program a couple of years ago and really started pushing it forward, so we had some early data that showed that we were likely more potent and may have better pharmacologic activity in general and we still believe that, in fact even stronger today that we've got an improved molecule.

The next question is coming from the line of Christopher James of Brinson Patrick. Please go ahead with your question.

Congrats again on a great quarter. My first question is a follow-up to the last question regarding the glucagon receptor antagonist. I know we're expecting data sometime early this year, what sort of data should we expect? Is this a safety data, should we expect some efficacy data and do you think this would potentially help to drive a partnership and could you help us understand – could you sort of review your licensing strategy for the compound?

So as far as the data goes, the data that we'll have mid-year and really what sort of assuming and targeting around the ADA Scientific Sessions Meeting that's in June, would be a single ascending dose data in both healthy volunteers as well as patients with Type II diabetes. So we'll obviously have some PK as well as PD parameters, we'll get some – I'll say looks at efficacy based on the fact that we have diabetics in the trial and then of course a number of safety markers as well. So we should – we'll have that data and as we said we are targeting around the time of the ADA meeting in June. And then as far as the partnering landscape goes, obviously diabetes is a very hot area, huge unmet medical need with a large market. There is definitely a need for a novel mechanism treatment and as you look at, as we call it kind of the dance card of players that are in the diabetes space, the big global players that are in the diabetes space and those that are pursuing multiple mechanisms, that list of players becomes pretty clear of those that could benefit significantly by having a glucagon receptor antagonist in their bag. So those are the – kind of in general those are the sorts of players we are looking at out of the big global players with an established presence in diabetes.

Great, thank you. Okay, a couple of questions on Promacta, again congrats on the breakthrough therapy and aplastic anemia, could you remind us what the patient numbers are in aplastic anemia and what additional data do you think would need to be generated before submitting a supplemental NDA? Have you had a chance to meet with GSK to discuss their filing strategy?

Yes, and GSK hasn't disclosed details of their filing strategy other than to say that they are pursuing a filing. So they've said that on a couple of occasions. Aplastic anemia is obviously a rare disease, it's a complex disease, any number of – patient numbers you see out there about 10,000 or so patients, but the need is huge and really GSK is very focused on areas where they can meet significant unmet medical needs with their drug, and at this point as they said, they haven't disclosed precise timing of filing strategy other than to say that they are committed to the filing.

The next question is coming from the line of Howard [indiscernible] of [indiscernible]. Please go ahead with your question.

Just a quick simple question. I noticed looking at the financials, the share count has gone up a fair amount, over 1 million shares, in the last 12 months or so. Is that just normal option exercises or something else that I'm missing?

It's really driven by the converted – the fully diluted converted share count assuming the higher stock price. We have options and restricted stock. There have not been financings the last year. As the stock price goes up, the in-the-money option increases and so when we report out on a fully diluted basis the number of underlying units is increasing.

And the base has gone up too. I'm assuming that's just option exercise then, they both went up.

Yes, we did have – yes, we had option exercises during the year as well. We had 300,000 of shares issued under our stock plan.

Right. And as a follow up question to that is, obviously there's been a lot of talk about M&A and you guys were frankly brilliant in the early days which is why I kind of tripled down on my stake buying a lot of companies really on the cheap with a lot of upside which is being kind of realized now, but obviously the world changed dramatically from the time you did the Pharmacopeia deals and things like that, and I know you briefly commented on this but would now – and you mentioned your view on debt but given the value of your currency has appreciated dramatically with the value of everything else, would you consider using more stock per stock type deals, what's [indiscernible] using in the past, I mean in the past you did a lot of stock deals because your stock was not worth very much but it is hard cash, and the other person's stock wasn't worth very much, now it's kind of almost you're essentially [for lot] (ph) and the other guys are worth more, so where does that leave you?

So I appreciate the way you kind of phrased the question and your generally describing kind of the ratio, the moving ratio of our value versus the target value. In the past in fact we have done six deals in the last five years and one deal was all stock. It was a small $7 million to $8 million acquisition. The other deals were cash or in one case it was a cash and stock deal. So actually our history is that we have done mostly cash deals and this is just good M&A. I mean you have a former investment banker, me, running the Company, our CFO Nishan, is stepping in here has been over 10 years on Wall Street, we've got some very bright Wall Street minds on the Board, you've got some really I think credible, experienced M&A thinkers and part of it is the selection of the target. We have to believe in the quality of the assets and our ability to integrate it. All of our decisions start with that, it's quality, our confidence in the quality and our ability to integrate it. And then secondly, if we like it, obviously it's a matter of price and how best to structure it. So I simply can't say, would we do equity or debt. Some targets may require an equity deal. They may know they are sitting on a gold mine for an expression, it would love to participate and get a big chunk of our equity. In that scenario, there could be a good basis for a merger and equity exchange but we could then backstop that with a simultaneous share repurchase, so we're net equity neutral. So this is just a general overview that we are very, very protective of our share base, and some of that may want our large financings so they can get a bigger piece of the company, the reality is we are focusing on generally maximizing cash flow per share, that is the ultimate task, the ultimate measure of value creation. So we want to acquire and through the process. Again, we are going to focus first on quality and integration and then optimizing the capital structure.

The next question is from the line of Irina Rivkind of Cantor Fitzgerald. Please go ahead with your question.

I just want to revisit guidance and also on a separate question, Duavive, so when you guys are coming up with your 2014 guidance, can you just help us understand how you are using consensus estimates for products like Kyprolis and Promacta in formulating guidance or do you more rely on your own internal forecast for the guidance? And then I guess tied in with that, just wondering if Duavive royalties from Pfizer represent a substantial portion of your expected royalties for the year and whether or not Pfizer has discussed their launch plans with you and what you know about launch activities? Thank you.

I'll take the first question with respect to how we build our guidance, and so the answer is we use both. So we start with the guidance that the analysts for GSK and for Amgen have for Kyprolis and for Promacta, but as we've always talked about, we have great relationships with our partners, sometimes we have a little bit more insight, and so we fine-tune those numbers, especially for the current year. The out years is we have less visibility and so our long-range guidance is more in line with just what their analysts are saying. We don't expect a lot from Duavive this year, it's just launching now and so there is minimal royalties that we're expecting for 2014 and I'll let Matt speak to the rest.

I'll say that the relationship with Pfizer is a deep and long-standing one. We touch Pfizer in a number of places given the number of programs we had partnerships on over the years and Duavive obviously has a long history between the two organizations. So they give us a good visibility, I'll say appropriate levels of visibility. Obviously they are the ones that are best to comment on specifics around the launch and there's elements of that that from a competition perspective are important events, so we always want to respect that with our partners. But we'll say we see a real clear commitment from them, they are very committed to the brand and obviously are very capable partner.

And for investors generally, this may be well known but it's worth reiterating, where companies give public guidance, obviously that is what we will use for our royalty assumptions. In this case, these lead brands, these companies are not giving guidance not only not publicly, they are not furnishing numbers to us. So Irina, back to your point, we obviously look at trend lines, we book on a one quarter lag so there is some natural run rate that goes into this, but much of our outlook is informed by what the third party independent analysts think about the brand.

The next question is from Steven Crowley of Craig-Hallum. Please go ahead with your question.

I'll just ask one since you've gone a while here, but back to your analyst event late last year, you sprinkled some interesting stuff on us around the new platform technology called HepDirect and I'm wondering if there's anything you might be able to update us on there related to that development?

Thanks for the question. The program that's very important to us we think it's a promising and partnerable platform, it's one we picked up through the Metabasis acquisition a few years ago and our chemists have been very focused on pairing that technology with new classes of molecules that could potentially benefit from better liver targeting. It's a pro-drug technology that essentially activates the drug once it gets to the target site which in this case is the liver, and there are a number of classes of drugs that we feel can benefit from that. So we continue to do investment in the chemistry of that. We've obviously got a fairly broad IP portfolio associated with it and see it as a partnerable platform. So we are planning on getting more data out, publishing more data on that this year, so you'll hear more about it as the year progresses.

Our next question is from Robert Fields of Cardinal Capital. Please go ahead with your question.

I was wondering if you guys could give on what event or events drive the lion's share of your estimated 2014 milestone revenue.

Bob, good question. The quick answer is, no, we can't comment. The milestone contribution is larger this year, it's growing for two basic reasons. One, we have more late-stage programs advancing down the pipe, and secondly, by virtue of being later stage events, some of these milestones are tied to higher payments. So that's the general background. These in most cases are confidential and undisclosed numbers just by way of the requirements of our partners. However, as a general practice, and we talked about this, we have over $0.75 billion of scheduled milestone payments, a very, very significant amount of milestone payment, and every year there is high probability payments and smaller dollar amounts and some larger probability. At Ligand, we obviously are using our best judgment hopefully to conservatively project what the milestone revenue is. There are perhaps some events that might happen where milestone revenue could be even higher in 2014, there is a chance of a delay or otherwise with the revenue might coming in a bit lower, but overall we by practice try to be conservative and only account for our projections, things that we have good visibility on and that we believe are high probability events.

At this time, I'll turn the floor back to John Higgins for closing comments.

Thank you. I appreciate the questions, really a lot of very good topics and questions, great turnout in the call. I want to acknowledge once again John Sharp's contribution to the business. I know he's going to a private company. I'm sure he will not miss waking up at 4 in the morning to get ready for the quarterly calls, but we do wish him well. It's been a pleasure working with you, John, and I know we'll be crossing paths here in San Diego. Just to conclude, this is an exceptional period for Ligand, that is obvious by our public reports and these sort of calls, but given what we are looking at, given what we know about the business, given what we have assembled, and our outlook, frankly we have never been more excited about our prospects than we are right now. We are proud of the Company, we are off to the races, and we look forward to updating you more as the year progresses. Thank you.

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