Greetings and welcome to the Ligand Pharmaceuticals Fourth Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-answer-session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Erika with Investor Relations. Thank you. You may begin.

Thanks, Jesse. Welcome to Ligand's fourth quarter financial results for 2014 and business update conference call. Speaking today for Ligand are John Higgins, CEO; Matt Foehr, President and COO; and Nishan de Silva, VP of Finance and Strategy 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 DUAVEE 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 its conference call. Additional information concerning risk factors and other matters concerning Ligand can be found on 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 represents the company's best judgment based on information available and reviewed by the company as of today, February 09, 2015, and do not necessarily represent the views of GSK, Pfizer, 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.

Good morning. Thanks for joining us for our fourth quarter 2014 earnings call. Strong quarter and strong year and we feel Ligand’s financial growth accelerating over the next couple of years. So why will growth accelerate, there are three main reasons. One, because Promacta and Kyprolis are doing well and we’re stepping up to higher royalty tiers. Two, our Captisol business is very strong and three, we have the largest and latest stage portfolio of partnered assets in our company’s history. Now likelihood of new approvals for revenue generating assets is better than ever given the portfolio size and stage of development. Plus our current operations and cost structure will support a growing top line. Meaning growth rates and cash flow and net income will far outpace growth in revenues. We have been saying this for the last couple of quarters and have published our view of cash flow and profit margin. Ligand’s adjusted cash flow margin was over 50% in 2014 and we project it will move even higher in 2015. First, I want to talk about our two main royalty assets Promacta and Kyprolis. Promacta, this is a great asset. It’s a successful product pipeline in itself. The drug with platelets as a safe once a day oral pill with many potential uses. It is now approved for three different indications and GSK continues to roll out new markets globally. And the large indications for boosting low platelets associated with cancer such as NDS are still in development with regulatory filings expected within the next year. In the fourth quarter U.S. prescription for Promacta as reported by Bloomberg hit all-time highs and we’re up nicely over Q3. Total fourth quarter revenue for Promacta as reported by GSK was 105 million, up slightly over Q3 even allowing for a…

Thanks John. Now beyond the positive developments relating to Promacta and Kyprolis that John just discussed, our pipeline of assets is progressing incredibly well. Over the past few months we have seen multiple partners discuss and highlight their regulatory and clinical progress and also publicly discuss the significant market potential for some of our most valuable partnered assets. And I would like to highlight a few of those this morning. Merck highlighted the importance and potential medical and economic impact of MK-8931 at this year's JP Morgan Conference. MK-8931 is a novel BACE inhibitor underdevelopment as a potential treatment for Alzheimer's disease and Merck is running a broad and global Phase III program in a range of patients with prodromal mild and moderate disease. Merck CEO, Ken Frazier discussed the program at some length during his presentation at JP Morgan pointing out that Alzheimer's is a critical issue for society and that the cost of Alzheimer's care is expected to exceed $1 trillion in U.S. by the year 2050. He disclosed that they had patients on 8931 for over two years now and that the Data Safety Monitoring Board is responsible for trial oversight have recommended no changes to the study. He also stated that the current trials will be a definitive test of the Animal Board hypothesis to understand that intervention at various stages of the disease can lead to benefits among patients suffering from or at risk of Alzheimer's disease. Also at JP Morgan, TG Therapeutics announced their plans to start clinical development in oncology for the IRAK-4 inhibitor program in the second half of this year. We entered into the deal with with TG for IRAK-4 less than eight months ago with a preclinical asset and our partners in TG are now already positioning to get IRAK-4…

Thanks Matt. 2014 was our second full year of profitability and the business is performing just as we expected from a financial perspective. We continue to see growing total revenues coupled with relatively flat cash operating cost providing tremendous earnings leverage to the P&L. We saw impressive year-over-year growth in royalty revenues from our key commercial SAGE assets, Promacta and Kyprolis and a significant increase in demand for Captisol from our customers. We continue to execute on our strategy of early stage R&D and our licensing at the earliest value inflection point and our partners continue to execute well on late stage R&D and commercialization which is going out by a growing revenue and profitability. To recap a few highlights from our earnings release issued earlier today. Total revenues for the fourth quarter were $23.0 million, up $8.3 million compared to the same quarter last year helped entirely by 90% increase in Kyprolis material sales, 32% increase in royalty revenues with collaborative R&D and other revenues essentially flat. Our cost of goods sold for the quarter was $4.0 million resulting in a gross margin on material sales of 69% and a total gross margin taking into account all revenues of 83%. For the quarter we reported non-GAAP income from continuing operations of $12.5 million or $0.60 per diluted share compared with $7.5 million or $0.35 per diluted share for the same period last year. For the full year we reported revenues of $64.5 million and gross margin including all revenues of 86%. Non-GAAP income from continuing operations was $32.6 million or $1.52 per diluted share which is up from $19.0 million or $0.92 per diluted share for 2013. The increase in non-GAAP income was driven by 27% increase in royalty revenue and a 49% increase in Captisol material sales and…

[Operator Instructions]. Our first question is coming from the line of Greg Fraser with Deutsche Bank. Please proceed with your question.

Good morning guys. Greg Fraser on for Greg Gilbert. Question for Matt or Nishan, are there any important factors to consider that will influence the 1Q revenue such as seasonality you’re expecting differences in customer ordering patterns, etc that is 13 to 13.5, seems a little bit lower than what’s accepted?

Greg, this is Matt. I’ll comment, obviously Nishan can comment on the royalties and how they carry throughout the year, so that’s one element that is certainly we call it investors attention to be aware of. Traditionally Q4, we’ve seen with Captisol has been a larger quarter for Captisol. Now there is generally a lumpiness associated with Captisol orders but just given the way production planning occurs with our partners, we’ve seen this in the last few years where Q4 can be a very large quarter for Captisol. I noted earlier it was actually the largest quarter ever in the history of the technology. We kind of knew that leading into the quarter and expected that based on the dialog we had with our partners. But there is something of a general seasonality I’ll say to Captisol orders at the end of the year. I don’t know Nishan you may want to add more color there.

Yes, thanks Matt. So Greg, thanks for the question. So as you look at Q1, you talk about royalties for example that they are based on a one quarter lag so our Q1 royalties are now based on the Q4 from Promacta and Kyprolis some which are out there. So those are relatively fixed and then there are kind of our biggest components of our royalty line. And then beyond that, I think your question is Q1 and while the 13.0 to 13.5 it is just a matter of timing of when the material sales come in and the various milestones have we seen hitting throughout the year. They remain comfortable with the overall guidance that we gave and maybe 1 million to 83 million and getting there as I mentioned kind of quarter over quarter increases in total revenue. But as you look at the timing of the material sales and milestones, just how that shaped out for Q1.

And Greg, this is John. I’ll just add another comment that as Nishan will say, this actually is very much in line with our expectation and some analyst or investors who followed us, know how first quarter will work out. We saw after we issued 2015 guidance about two months ago. We give full year guidance. It seemed many of the publishing analyst simply took our number and mostly divided by 4, just has kind of a flat kind of average revenue per quarter. Since we had not given any quarterly information we are going to have basis to get out there and start winning more granular information. So I think if there is any consensus evaluation I think that may have been what was going on. Our low 80 million of revenue divided by 4, about 20 million a quarter in revenue. That’s what we saw but in fact what we are guiding for Q1 and obviously you are shaking out, its very much in line with our overall picture.

Great, that’s helpful color. Thank you for that. On material sales, can you say how much of the 13 million was for clinical use versus commercial and just remind us what the differences are price versus or end price and gross margin for sales versus sales for commercial versus clinical use.

Yes, it was a mix Greg between commercial and clinical. I’ll let Nishan talk you through the gross margin. There was a large amount of commercial I will say in the fourth quarter, like the majority there on the commercial side but Nishan you can probably comment on the margins and the structure.

Yes, there is a mix between as you highlight commercial and clinical. On the commercial side our margin is about 50% and on the clinical side it is about 80% so and for the quarter you know as I mentioned in my comments we came in at about 59% so it’s a mix of those two.

Okay then last question on business development, can you just give us some qualitative color on decisive assets you’re looking at or perhaps the most right and just comment on the overall environment, sort of things that you are interested in. Are you seeing more competition for assessing razzmatazz to our evaluations looking some type of color like that, thank you?

Yeah, good Gregg. Well, the company or business model and our key is definitely geared toward a deal making that we have done a number of deals but we want to be disciplined accordingly looking at assets that are really are fit with the business but also disciplined in terms of structure and value. What we want to buy, asset revenue is things like [indiscernible] bottom line, fully funded partnered assets. We value these to have economics back once decided to funded collaborations is a priority for us. And also technology, like we have Captisol or other platform technologies where we can use our checks [ph] of former partners to push out technologies that make drugs possible. So, those are the three things we are looking to buy. The industry has changed a lot. I mean, evaluations are up, properties are a lot more expensive now we are realistic about that. And we are going to be disciplined in that and look to chase high value assets. Having said that we believe there are situations where there are always sellers, private or public companies, and these are either divesting assets or possibly sell a company. There are also companies that may have had negative news or had a compression of values. So we are looking. What we want to do on the deal side is beyond just buying these focused two or three priorities. But look at businesses that have low operating cost or businesses that can be restructured where we can cut cost or divest assets that are non-core within about a 12 month window. So, as an operating company unlike other financial investor private equity or the wealth of funds, we are an operating company able to get in and do the hard work, the restructuring and that we think creates some competitive advantage to being able to move in with a research team and operators to fix or restructure companies. But again we -- the general overview, we talk about our outlook for M&A but we don’t give specific guidance for any targets or timing.

Thank you. We will move on to our next question which is coming from the line of Matt Tiampo with Craig Hallum. Please proceed with your question.

Good morning gentlemen. I was just around Captisol and the seasonality of Captisol and the seasonality of Q1 and Q2 in particular, we would normally look for I think some step down in Captisol in Q1 but it seems like you are guiding towards something maybe more drastic than being on the street by the models, I was just wondering if you had any additional color, was there some pull forward into Q4, something that is kind of accelerated maybe. Of course then there is a question on Q2 this year, any color would be really helpful? Thanks.

Sure Matt. Thanks for the question and I think there is the -- what we are talking about in the fourth quarter was I will say the very positive growth and development of the business that in our opinion is not too much a Q1 issue as much as a Q4 reflection of the large ordering for commercial supply. As Matt indicated, in the middle of 2014 all of our commercial customers and these are Captisol partners who are now launching or currently selling commercial products. All of our customers, middle of 2014 had indicated increased ordering by the end of 2014. And part of this, and again we don’t control this of course but part of this is driven by the calendar, annual budgeting, and planning. Most of our partners are required to give us a rolling forecast of these. So, I think we saw ordering in anticipating of commercial stocking in the fourth quarter. We also saw a number of companies running Phase III trials, large trials that again we are gearing up for trial launch. So that is the business and as we look to 2015, I think the take away as Nishan said as we have got very good information around our royalty revenue. We have got some sense of what the milestone or license revenue will be for first quarter and ordering for Captisol is typically a little lower in the first half of our calendar year. And we have seen that for the last several years. Having said that, we do have orders already on the book, we have got a preview of what 2015 should bring us for Captisol and we feel very good about our outlook right now.

Okay, sure. I mean I guess John what I am trying to get to is it doesn’t appear unless you said royalties are pretty invisible and probably roughly 10 million in Q1 and I think that leaves your guidance range about $3 million between milestones and materials so just a little bit on the light end of where it’s been historically and again my guess is maybe it’s just a fluke of the calendar but anyway can you guys give us a little bit color on how your Glucagon program has progressed recently?

Yes, thanks Matt I’ll take that. As I said your trial is progressing very well. We started the trial in October of last year. Enrollment has gone very well, we have got three sites enrolling and the trial is moving along exactly as we would want it to. We expect to have data in the second quarter and we’re very much on track to be able to present that data and have that data in the second quarter. I want to call, just obviously diabetes is a huge area, an area that is really heating up a lot more interest in it and it’s a global epidemic. There are not very many novel mechanisms in development and specifically for Glucagon Receptor Antagonist there are really only a couple of others and we feel like we’ve got a really best in class compound from a number of perspectives that can really be highly differentiated in a very partnerable asset. There is a big fight on going out there in terms of the players that have diabetes assets in their bags and there are not very many novel mechanisms and we feel like this is going to be a very partnerable asset for us.

Great, thanks Matt. Last question from me, any update on your Captisol enabled program that is I think with the FDA currently through Hospira?

You know Matt, Hospira just an undisclosed program Hospira is very tight lipped about their pipeline for competitive reasons so there is really no further update I can offer at this point unfortunately.

Fair enough, thanks very much.

Thank you our next question is coming from the line of Irina Koffler with Cantor Fitzgerald. Please proceed with your question.

Hi, good morning. Can you hear me?

Yes.

Okay, great. I wanted to dive into the 100 asset partnered portfolio. Is there any way you could give us a little bit more color to the progression of these assets. For example, how many you now have in Phase 2. I noticed for example there is this Rader [ph] Pharma press release this morning that lists a couple of compounds I’ve never heard of on just with edema and asthma so whether you can address those? Thanks.

Sure Irina, thanks for the question. I’ll defer to Matt to give a little more detail later today. I am first going to Bio CEO conference. We have some more information at our Analyst Day in November. We had a chart that show the programs by stage of development so I don’t have that chart in front of me right now but in our published investor materials we do describe staged development by program wise stage of development. Matt you may want to just comment generally how the pipeline has progressed

Yes and first just to clarify Irina we do not have -- Ligand does have a partnership with greater pharmas and private company and we are not associated with their products. But one way to look at this and I think it is a way to kind of step back and look at some maturation of the pipeline. This year in 2015 we estimate our partners are going to suspend over 1.1 billion advancing programs that we are partnered on. Right, and so that’s advancing the 100 programs or so. A whole host of trials, 13 Phase 3 trials, 38 Phase 2, a number of Phase 1, over 50 Phase 1. So a lot of work and those numbers are really, you can really see the evolution and the maturation of the pipeline by looking at those metrics. Now we get a variety of updates and get reports from our partners so we can see it. There for the Captisol partners we obviously are working with them in providing technical support and helping them through development so we get a lot of information there. But I think a good way to look at it is really is that overall investment and the overall progression.

Okay, that is helpful. And then separately just a macro question on the Captisol business. I have been looking at some other companies that also manufacture cyclodextrin for the pharma and industrial market, a couple of companies that grow BadKat [ph] Pharma and Wafra attending. They seem to have pretty big businesses so I am just wondering how Ligand views the competitive landscape and if you could share with us your position within that whole category and where you see opportunities for growth?

Yeah, great question. We really -- one area we feel like we differentiate ourselves once the technology is proven. And cyclodextrin I should say in general have of course been around a very long time. Now Captisol is a specifically engineered and patented circular cyclodextrin that was designed specifically to sell like a broad swath of active ingredients that have pharmaceutical applicability. So obviously our intellectual property portfolio definitely differentiates us as it relates to Captisol. I will also say we are quite proud of the technical support and the reputation that we have built up overtime in terms of providing technical support associated with Captisol and as well as our drug master file. We have got a vast drug master file that our partners I guess you cross referenced when they enter into a license with us. And that is big differentiating factor helped significantly in the FDA interaction as they progress through development and I think a lot of the recent approvals that we have enjoyed and the visibility for some pretty high profile Captisol enabled products certainly helps that as well. And we are seeing that real time with the metrics that we monitored. The inbound interest on Captisol, the sample requests grew significantly again in 2014 over 2013. We were I think in 2013 we are just north of 400 inbound requests for samples of Captisol from new partners. In 2014 that number ballooned to near 600. So, that is a metric that we follow but you get a real good sense of how much the interest in the technology is growing. But I will say I think we differentiate ourselves not only with the intellectual property portfolio that cross referenced ability of the drug master file and then the technical support that we offer. As well as the scale, we work with our partners at Hovione for now at a scale where we can manufacture up to 100 metric tons of Captisol and that means a lot especially to our commercial partners who are growing into partners who are just -- that were just entering into relationships now and want to be sure they have got plenty of capacity to go forward with.

Alright, thank you very much.

Thank you. It appears there are no further questions at this time. I would like to hand the floor back over to Mr. Higgins for any additional concluding comments.

Thank you. Again thanks to everybody for joining our call today. We are pleased with our progress and look forward to executing again here in 2015. Later today I am presenting at the Bio CEO Conference in New York City, that is 11 AM East Coast time. If you can join in person please do. And if not perhaps you can join us by webcast. Thank you.