It is now my pleasure to turn today's program over to Patrick O'Brien, Supervisor of Investor Relations. Sir, the floor is yours.

Thank you, Joella and welcome to Ligand's fourth quarter and full year 2019 financial results and business update conference call. Speaking today for Ligand are John Higgins, CEO; Matt Foehr, COO; and Matt Korenberg, CFO. We will be using slides to guide our discussion today that are located on our website under the IR Calendar section of the website. I know it's not easy to find, we're working on fixing that, but for today, that's where you'll be able to get to them. We will also be using non-GAAP financial measures and some of our statements will be forward-looking. Additional information concerning risk factors and other matters concerning Ligand can be found in our Ligand's earnings press release, the slides associated with today's call, and our periodic filings with the SEC. Ligand undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. I will now turn the call over to John Higgins.

Patrick, thank you and welcome everybody joining us for this call. We're very pleased with how 2019 finished up. We had outstanding financial performance and closed some transactions and licensing deals. In the second half of the year, we saw some new product launches. Now, in the beginning of 2020, it's an excellent time to be speaking with investors. We look forward to framing our results, but then also talking about 2020 and the business going forward. On Slide 4, a very high level chart that plainly lays out the three things that we think Ligand investors should be focusing on when they evaluate the company. Of course, we know we're a biotech company. We are first focused on financial growth -- financial performance. As we talk through the slides, we'll talk about the contributors to revenue. We're very pleased with how we can leverage our business efficiently with a flat cost structure and as we'll talk about, we now have a much lower share count in light of the recent share repurchases. Financial growth is important for investors and we are focused as a management team on delivering superior returns for both cash flow and profitability this year and the years going forward. A second factor are our technologies. We're proud of our technologies. They've come to us through early investment with the early years that we were founded 30 years ago, but we have very substantially augmented our technologies through smart acquisitions. We're going to talk about Captisol and OmniAb, but these technologies help drive enablement and discovery of important drugs in the industry. And finally, investors should focus on our portfolio. Again, people who know Ligand, they know our portfolio and the value of it, but the quality and the quantity of our portfolio is really key…

Thanks, John. As you can see on Slide 10, 2019 was another solid year for Ligand with strong financial performance and execution of our business model. The business continued to generate significant cash with 2019 resulting in our seventh consecutive year of strong earnings and positive cash generation. For the year, total revenues were $120.3 million and as I'll cover on the next slide, our business was strong across each of our revenue lines. As an example, royalties were up 20% year-over-year in Q4 2019 versus Q4 2018 excluding Promacta. Our adjusted EPS was $3.09 and in addition, we generated over $700 million in after-tax cash proceeds from the $827 million sale of our Promacta assets with the core business excluding Promacta generating another $70 million. Revenue and cash flow generation exceeded our expectations and guidance that we gave at the beginning of the year. In addition to the strong operational success in 2019, we returned approximately $450 million to shareholders through our share repurchase campaign. In Q4, we spent $82 million on share repurchases and since the end of the year, we've repurchased an additional 380,000 shares of our common stock for $34 million. As we'll disclose in the 10-K when we file, we have about 16.5 million basic shares outstanding and at today's stock prices about 17 million fully diluted shares. We began actively repurchasing shares in November of 2018 and over the past 15 months, we've repurchased about 5 million shares or 24% of our outstanding shares. We currently have a $500 million share repurchase authorization in place and have utilized about $205 million of that amount to date. Even after returning a total of $550 million to shareholders over the last 18 months, we've finished the year with over $1 billion of cash. In addition to…

Thanks, Matt. I'll start off by reviewing the performance of a couple of our technologies starting with OmniAb and referencing Slide number 16 in the deck. 2019 was OmniAb's most productive year in terms of new OmniAb partnerships with nine new deals. We also note the nice diversity of partners from start-ups with interesting novel biology to established global players like Takeda and Sanofi with deep R&D infrastructure and a history of success with antibody drugs. We view OmniAb as a best-in-class technology and we invest significantly in the platform to continue innovating and keep it on the cutting edge of antibody discovery technologies. Last year, we launched our newest transgenic chicken platform known as OmniClic which is designed to facilitate the development of bispecific antibodies. OmniClic received substantial attention from existing OmniAb partners and is already being utilized in several new partnered programs. Our scientists are also progressing well in the development of a Heavy Chain only chicken, which we expect will be yet another novel offering and expansion of the OmniAb platform. The Heavy Chain chicken is being funded via a collaboration with Johnson & Johnson and our plan will be that it is made available to all of our OmniAb platform partners when it's developed. The acquisition of Ab Initio in the second half of 2019 also added to our technology capabilities adjacent to the OmniAb platform by combining important antigen generation technology to our antibody discovery technologies and expertise. Generating quality antigens is a key precursor step to antibody discovery and both existing and prospective OmniAb partners see the value of this new capability and are seeking to leverage it for programs involving involving challenging biological targets. We nearly tripled the number of partners accessing OmniAb and as our roster of OmniAb partners expands, we are…

Yeah. Thank you. On Slide 22, just to wrap up. We want to just again frame the business for investors. Ligand, we are devoted to creating and driving shareholder value and again our business model, we're focusing on three things, financial growth, we've talked about. We're very pleased with our revenue performance and our outlook. If we can keep driving revenue along the three key segments, keep expenses flat, which is our expectation and now with the new lower share count the last year or so, we believe we have a significant potential to deliver superior cash flow and profitability per share returns. The technology is best-in-class. We like our technologies, they are valuable for our partners. We're looking to augment those not only building new IP around what we own, but also expanding by acquiring or bolting on other adjacent technologies and the portfolio. That is the future of Ligand. We're very proud of the quantity and the quality of our portfolio. Investors should know what our focus this year and next year, the next few years, deploying capital. We think we are very good stewards of capital. We understand financial management, financial stewardship. We have a very robust balance sheet. We've smartly deployed capital the last five years to 10 years, we expect to continue doing that and Matt Korenberg outlined the four key areas of focus: customer service, we know it's not just about securing a license, it's about serving that customer. We have a growing segment of service-related revenue, it's lucrative, there's good margin in it, but more importantly, we know by providing expert service and answers, we can help accelerate the potential for success or timing for when certain milestones might be achieved. That's a priority for us and operational excellence, continuing to do what…

All right, Joella can tee up by the first question please. Thank you.

Thank you and at this time, we would like to take questions. [Operator Instructions].

I'm sorry, operator, I'm seeing four people queued up to ask questions, how are we not kicking over to them?

Okay. All right. Could the audio operator -- could you give us our first question. The line of Matt Hewitt is now open, you may ask your question.

Good afternoon, gentlemen. Thank you very much for the update and the outlook for 2020. I guess my first question given the success that you've been having with OmniAb and the nine new partnered programs or nine new deals that were signed in 2019, how should we be thinking about that for 2020? I mean I would assume that you've got a pipeline building, but do you expect a similar number of partners to be signed in 2020?

Yeah, Matt, good question, it's John. Last year was a fantastic year not only in the quantity, but notably there were two high value, high marquee deals with Sanofi and Takeda. Generally, we've been targeting about five a year and that's our outlook for this year. We update along the way as we meet with investors throughout the year, but that is our target and it feels about right for the 2020 outlook as well.

Okay, thank you. And then maybe if you could help me a little bit or help us a little bit with the royalty number, it's a little bit below what I was expecting, and I didn't have Promacta in my estimate, obviously for '20, but maybe if you could kind of breakdown, if you're comfortable doing that breakdown where Kyprolis and EVOMELA in particular, how those should trend over the course of the year?

Thanks, Matt, just to be clear here, you're talking about the 2020 projected royalty number?

That's correct.

Yes, so with Kyprolis, given the Q4 number that was solid, we are essentially looking at that number rolling forward and comparing that with the consensus that we see out there. The consensus we see out there is about $1.2 billion of Kyprolis revenue and so that's the number we're working from and we'll have those slides I'm sure over the course of the year. On EVOMELA, the next biggest number obviously, we have not seen on the Kazia Q4 report this year, but obviously the first quarter from Kazia was a good quarter in Q3 and we look forward to good growth out of EVOMELA next year and that's probably the two biggest components that will get you to the royalty number.

And one just a comment, ZULRESSO, it's a product approved middle of last year. Obviously, we're pleased with our partnership with Sage and the work they've done. It's an important medicine in a vitally high value need medical target. We are taking a very conservative outlook this year. Sage has not reported Q4, we don't have a trend line. Ligand is taking a very, very conservative view of that ramp. Sage has described need to get authorization and reimbursement in line and the like. So that may be one factor but we approach this year for projections to be conservative. So there is no, I'll say, downside disappointment or surprise around that product line until we get more trend line information.

That's very helpful. Thank you. And then maybe one last one from me and I might have missed this earlier, but regarding Iohexol, you are going to plan or you are planning to go ahead with Phase 2 trial on your own versus partnering now?

Thanks, Matt. This is Matt Foehr. We ran the successful Phase 1 trial last year. We ran that trial in Canada. It got positive Phase 1 results. We're really pleased with that and so the next step for the program internally is the filing of an IND, which we expect here in the U.S., we expect to do in the second half of this year, the next study conducted under that IND will be a Phase 2 proof of concept study in patients with renal function undergoing invasive coronary angiography and the main purpose of it will be to determine equivalents of image quality of CE-Iohexol to GE's OMNIPAQUE and then compare the renal safety of the agents as well. So that trial will have about 140 patients in it. It's one that we know we can run internally and we're ramping that up and at the same time as we always do, we're assessing the partnering landscape and partnering potential.

That's great, thank you very much.

Next question comes from the line of Joe Pantginis. Joe, your line is now open.

Hey guys, good afternoon. Thanks for taking the questions. Three things I want to focus on for us. If you go to your prior press release around coronavirus, obviously the Gilead opportunity is clear and you mentioned the potential around the OmniAb platform, but I wanted to ask the question more broadly, obviously, we're not sure which way coronavirus is going yet. Is it going to burn out like it did SARS or is it going to get worse, but I guess since OmniAb is currently or the majority of your assets are focused on oncology, are you getting increased interest overall for infectious diseases?

Yeah Joe, this is Matt Foehr. Yeah, we've fielded inbound interest specific to coronavirus, specifically to leverage our OmniChicken platform as well as on the OmniRat and there is well established literature out there that antibody approaches can be used for infectious diseases. So that's one element. And then as you referenced and we announced earlier this week we are obviously focused on supporting our partners at Gilead as they ramp up production substantially of remdesivir which uses Captisol in its formulation.

Got it. No, that's helpful and then just switching back to Iohexol for a second, glad to hear the plans for it moving forward, I guess, can you just spend a second and of course you've done this around the data, when you look at the commercial profile of the drug. Obviously it's around safety, but what do you consider the potential rate limiting steps with regard to potential physician uptake of the asset as an imaging agent. Thanks.

Yeah, Joe. So we've, from the start of initiating the program have -- it's been very well established that renal safety is an important consideration when people are going in for elective or non-elective contrast using or therapies and tests and that's continued -- the literature around that has continued to grow. There was a New England Journal of Medicine publication that highlighted this and as we talk to experts, it's very clear to us that there is a substantial need out there for patients who undergo scans that need to be -- the physicians' need to ensure that the renal elements are not compromised. So we do see a real need there and expect that the market would eventually see that as well should the trials be successful, of course.

No, that's great. And my last one, if you don't mind, obviously Novan just put out an update about their plans going forward in Molluscum, but obviously the data were a little gray and they're looking to get some very important guidance from the FDA, if you will. So I was just curious what your views are on moving that program forward or the potential of it moving forward and what your goal would be to see from the FDA?

Yeah, Joe, it's Matt Korenberg. Yeah, so the Novan folks are definitely planning to meet with the FDA to, as they said on their initial call or initial press release, try and determine how much of the data that they've generated already is usable essentially and what the clinical plan looks like going forward. We're obviously getting our information from them and we don't know anything that's really not public, but from our perspective, it looked like the drug did work and that it really was a trial design or trial execution issue and so our hope is that they will find a way to continue to move that program forward and rerun the trial eventually get to the finish line in a successful way.

That's perfect. Appreciate it guys. Thanks.

[Operator Instructions] And next question comes from the line of Larry Solow. Larry, your line is now open.

Hey, good afternoon guys. Just a quick update -- excuse me, a quick follow-up on the Novan. Did they get any more funding. I know that you did some funding obviously from you guys when you did that partnership. Are they going to need more funding to continue to do work on this. So I'd actually didn't see their release.

Hey, Larry. They said initially when they put out their press release that the funding they had on hand was really sufficient to get through Q1 of this year. They didn't say explicitly that, that was as far as it would go, but my sense is they definitely need to raise some money to go ahead and run that trial.

Got it. Okay, got you, Okay, just a couple of questions, mostly follow-ups. On the Kyprolis and the EVOMELA expectations. So just to review the Q4 number, are you essentially just sort of taking that run rate number or it was a little bit of growth in '20, is that sort of how you are looking at it?

Yeah, I mean, as we always do, we look at the consensus and my point about the Q4 was just that with as you just said with the Q4 number and a little bit of growth, you can get to the consensus number pretty easily of $1.2 billion.

And just a little more color. As investors saw out of Amgen and Ono's reports, Amgen had real nice growth in the U.S. Rest of world for their number looked down a bit. We believe that part of that is FX, currency exchange related. We've seen this with other pharma companies who've announced. So that's a factor. Japan, the Ono numbers were fantastic, highest growth ever by a nice margin. So we put that together, we do see growth, but as Matt mentioned, we're using Street estimates to help guide us, we're looking at about $1.2 billion revenue figure for Kyprolis for our assumptions for this year. [Multiple Speakers]

I'll add as well. This is Matt Foehr. Obviously, we have and continue to be -- Amgen has and continues to be a great partner and very committed, very active in clinical activities. Kyprolis, so multiple Phase 3 studies ongoing now, the IKEMA study, which is in combo with Sanofi's isatuximab. The A.R.R.O.W.2 trial, which is comparing a once-weekly and twice-weekly Phase 3 trial and then the Phase 3 [Kober] study also and they continue a lot of Phase 2 work as well. So we continue to be very pleased with the work they're doing around the asset.

And the supplementary NDA that's, is that just for a combination with DARZALEX, is that's what you expect in the filing this year?

That's correct. There is also obviously to work. There is also filings in new markets like China via the Beijing collaboration that Amgen announced last year.

And the start, as you mentioned, is one of these studies. I know they're doing a study or more than one I assume in front line, is that something that we might see within the next 12 months or is that beyond that.

Yeah, they haven't given precise timing on that, but they've got multiple studies in what's called newly diagnosed multiple myeloma combining Kyprolis with DARZALEX and REVLIMID. So yeah those trials are ongoing as well.

And then just switching gears on to the EVOMELA, you mentioned Kazia, you haven't seen their report Q4, which obviously is their sort of first full quarter out of the gate for sales in China. I know they've had some pretty optimistic views that this market and China could be equivalent to the size of the U.S. maybe not on volume, but with price making that up. Can you just, obviously not initially in the first 12 months, but are you assuming some contributions and growth overall -- contribution to China and growth overall in EVOMELA which was sort of flat in the U.S. in the last year.

Yeah. Hey, Larry. I think that's exactly right. We basically view it as relatively stable in the US and ramping from a launch to about the same size of the US over a few year period.

Yeah, Larry, on the market, it's Matt, on the market there, keep in mind that EVOMELA is the only approved melphalan in China unlike the U.S. where there are oral forms and IV forms. It is the only approved form.

Right, so that should afford them the ability to price it at a branded price, not a -- there'll be no generic competition I guess right so this should get better pricing [Multiple Speakers]. Right and then just switching gears to the OMT, you've obviously given some good scoreboard updates on the -- as we continue to see, you acquired it 3.5 years ago, whatever that was, four years ago on both the partnerships and the programs. Can you maybe just give us a little color. Obviously, I know a lot of the revenue is back end loaded, but I think some investors missed a key that a lot of your milestones are driven by events long before approval and you mentioned sort of the base of $20 million in that $40 million to $60 million range that sorts of reoccurring. Is the majority of that from OMT. Could you maybe give us a little color on how that's grown and where you expect it to grow over the next couple of years?

Yeah, so on the recurring side, there's really a few different things that contribute to that, its work with our VDP platform and work with the OmniAb platform principally on the chicken side and then the annual license fees that come with the OmniAb business. So in total, those three buckets are in excess of $20 million and has been growing pretty significantly since -- over the last several years, particularly as a result of the OmniAb acquisition.

Okay, just comments if any, any updates on Baxdela. Is that product just dead now or what's going on? Melinta is sort of on life support. Are they trying to raise funds or anything going on there that maybe that product could be sold or something?

Yeah, Larry, Melinta obviously I'll say changed hands right, Baxdela, clearly there is a need for novel antibiotics. You go to any infectious disease conference and you realize very quickly how important it is that new antibiotics are being developed and pursued. So no real detailed update on its commercial status at this point, but obviously there are medical needs out there for new antibiotics and we continue to watch that space.

Okay and then just last question on the use of capital. Obviously, acquisitions seem to be your primary and you've already bought back a significant amount of shares, it looks like you bought back about another one million back since -- during the quarter, is that right or since you reported last. Any thoughts about -- can you -- are you restricted or can you actually buy back the convert, which I believe trades at a pretty significant discount?

Yeah, thanks, Larry. So just generally on share repurchase and capital return more broadly. As I went through in my prepared remarks, we've spent over $0.5 billion returning capital to shareholders, which was really a big part of the plan when we sold the Promacta asset if the story played out sort of the way we expected it to play out. We've done that now and our share repurchase going forward, we expect to be relatively minimal in the near-term as we explore kind of where the markets and stock price goes over time. We obviously continue to think the stock price is significantly undervalued, but we had a defined plan to return a significant amount of capital to shareholders and we've gotten through that portion of the plan. We could buy back the converts. They trade at a discount to the par is and where we can have to pay them back in a few years. We continually evaluate that as well, but really at the moment, we're focused on M&A and the strategic agenda. And I think the bulk of the capital we spend over the balance of this year will be on the strategic agenda based on what we expect now. Just to illustrate that, our guidance that we gave for this year does not assume any further share repurchase during the year.

Got it. And do you see without getting into details -- I don't want to ask you how the M&A queue looks, but I will go ahead and ask that. Do you see just sort of the color on the Q or some of these acquisitions or companies that you may be targeting, do you see some larger opportunities, you know, an ability to without forcing anything, spend a lump sum of money in one place?

Yeah, we continue to evaluate everything from the smallest deals to things that are upwards of $500 million to $1 billion and more. As I typically will say the higher value assets are harder to make happen for lots of different reasons and the lower ones tend to be more transactionable. And so we'll see what plays out but we are evaluating the whole landscape.

We still have time for one more question. [Operator Instructions] Our next question comes from the line of Balaji Prasad. Balaji, your line is now open.

Hi, thank you and good afternoon everyone. So I'll just restrict myself to a couple of questions. Firstly, thank you for giving the update on all the partner programs, but I want to bring the focus back to your technology itself and understand your partnership approach better. So can you help me understand why the economics of the Sanofi deal was different compared to other partnerships and probably an extension to that question is, is that something that you find desirable or would want more of that you want to see more partnerships with larger upfronts or rather in a more steady payout stream?

Yeah, thanks Balaji. This is Matt Foehr. Obviously, when you have a technology like the OmniAb platform, right, that has multiple species with fully human immune systems, we've got adjacent technologies around it like our antigen technology and as partners when they enter into a license with us, they also get access to our future innovations like our OmniClic that we launched last year and the Heavy Chain chicken that I talked about earlier. We obviously have a range of partners who have interest in leveraging the platform from small players that have novel biology all the way up to the Sanofis of the world, right, who also have novel biology, but also have substantial capabilities and there are generally three different economic levers in any deal upfront element, milestones that are paid along the way and then the royalty on the back-end and various touch points with partners or areas of sensitivity can be different partner to partner. If you're a small start-up company, they maybe more sensitive to upfronts and less so on milestones or royalties and with someone like Sanofi, they approach us, obviously, they've had a rich history in past collaborations of using other transgenic animal platforms namely in the mice space and so those that follow the space well realize that Sanofi recognizing the importance of OmniAb to their discovery capabilities and their discovery needs is of course a continued validation of the importance of the technology, but in terms of the deal structure, as you know from our portfolio, we've got over 200 fully funded partnerships over 120 different partners. One thing I can say with some assurances, no two partnerships are exactly alike economically and we pride ourselves on that in terms of finding ways to get deals done and that no different with the OmniAb technology.

All right, thanks. My second question is on the coronavirus development. I mean you called it couple of times now -- called it out. So there's recent news flow on Wuhan Institute wanting to patent remdesivir for corona. So if they are successful, what does this mean for you? Do you have any kind of -- would they need to use Captisol too or do you have a way to getting to a partnership with them or doesn't mean that the Gilead portion of problem not materialize in terms of revenues for you?

Yeah, thanks, Balaji for the question. Obviously, the coronavirus space is a fast developing space. We saw the news yesterday as well on a patent filing in China. I think I saw a statement from Gilead. They've obviously already filed, they had already filed patents in China and they are obviously a partner of ours and we continue to supply them and make sure we're positioned to meet their supply needs, but as Gilead essentially said -- there's public narrative on this that they don't plan to get into a patent dispute, that their key focus on making the product available. Now if someone else were to create a molecule very similar to that, it's highly likely that, that molecule would also have solubility issues and that's -- it generally comes out of the design of the molecule and the structure of the molecule and things that have solubility problems, which remdesivir had very early in its development need a technology to dissolve it and solubilize it, which Captisol does effectively.

Just to add, our partnerships on Captisol are typically compound specific, not necessarily disease specific. So to the extent there was a different approach to treating coronavirus, there is a possibility for us to supply both parties.

Okay, all right. My third and last question is a follow-up on your Iohexol program. So you're starting Phase 2a. What kind of investments do you envisage for this year and for next year?

Yeah, so the amounts around the Phase 2a are in our budget numbers, they are in our projections. As I said, we'll plan to file the IND in the second half of this year and initiate the trial in the second half of this year. It's a 140-patient study. So very manageable study in which we're going to be treating patients with impaired renal function undergoing invasive coronary angiography and then we'll be looking at a number of safety measures and quality of image measures.

Thank you. Did you mention any number on the capital investments required?

Yeah, I mean it's a typical cost for a trial that's about that size, a few million dollars over the course of the length of the trial.

Okay, thank you.

Thanks, Balaji.

And there are no further questions at this time. Presenters, you may continue.

Thank you. Appreciate people's attention and time here on the call. We have a few conferences coming up, a quick headline. Barclays has sponsored a Conference in Miami. We'll be presenting there on March 10th. Roth is having a conference, their annual event in Laguna Niguel, we'll be presenting March 17th and then H.C. Wainwright is having a conference in London, April 19 to 21, we'll be participating in that as well. Thank you for your time and interest and we look forward to updating you as the year goes on. Goodbye.