Ladies and gentlemen, thank you for standing by and welcome to the Ligand Pharmaceuticals Q2 2020 Earnings Conference Call. At this time all participants’ lines are in a listen-only mode. After the speakers presentation there will be a question-and-answer session. [Operator Instructions]. I would now like to hand the conference over to Patrick O'Brien, SVP of Investor Relations. Sir, the floor is yours.

Thank you, Carmen and welcome to Ligand's second quarter of 2020 financial results and business update conference call. Consistent with recommendations for social distancing, all of our speakers for today's call are in separate locations. Speaking today for Ligand will be John Higgins, CEO; Matt Foehr, COO; and Matt Korenberg, CFO. We will be using slides to guide our discussion today. We will also use 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, slides 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 would now like to turn the call over to John Higgins.

Patrick, thank you and good morning, everyone. Welcome. Thank you for joining our second quarter earnings call. I'm going to start with Slide 4. Some of you may be dialing in new to the Ligand story. Just a quick overview. Our company delivers innovation to the pharmaceutical and biotech industry to drive value for shareholders. Our business is focused on technologies, technologies that help discover drugs and make drugs possible. We've got a broad portfolio over 200 partnered programs, partner with over 120 companies in the industry. And ultimately, we're looking at driving financial growth, running an efficient business, funding quality projects, pursuing quality partnerships and driving growth. The focus – the way we drive our success is first on customer service. Our partners lead the way. They choose the targets, they go after markets and medical programs that they believe are important and we serve them. We've got an amazing team. We're devoted to operational excellence. We have an amazing roster of partners and we want to match them in our quality and reputation. And ultimately our focus is all on deploying capital, identifying projects and companies to invest in to help build our business. Finally, we can't do this without our team. We've got a strong company culture. We have a diverse highly experienced Board of Directors, very active with management. And we're focused on corporate governance, looking at environmental, social and governance factors that will help make our company better and help make our communities better as well. Before I go further, I do want to say thanks to our team. We're operating in a very difficult business environment, obviously with the pandemic but this team is doing outstanding work. And I just want to acknowledge our scientists, our business leaders and our team members. Our success…

Thanks, John. Before I go into the discussion of the numbers for the quarter, I wanted to provide investors with a quick update on the impact we see from COVID-19 on our business and the industry. As we look across our four business lines, we see positive signs across the business. For commercial products in particular those that generate our royalties, partners are reporting that patient visits to health care providers were significantly lower in Q2, but that the pace of visits is increasing again. Our partners working on our programs are now reporting resumed enrollment in most of the clinical studies that may have been paused early on as a result of COVID-19. And our service work for various platforms has been uninterrupted with the implementation of social distancing in our labs. And our partners that are using OmniAb at their facilities report the same experience. Our production of Captisol continued uninterrupted throughout including with our significantly increased output. And while there remains uncertainty with the ongoing impact of COVID-19, we see positive trends across the business for the remainder of 2020. Turning now to slide 14. As John mentioned, the second quarter of 2020 was an exciting period for Ligand, driven by our Captisol material sales combined with strong financial results across the business. I'm pleased to be able to deliver a very positive second quarter financial report and an increased outlook for 2020 and beyond. For the quarter, total revenues were $41.4 million with continued growth in royalties and another sizable increase in Captisol sales. Our revenue is up 66% over Q2 2019. Adjusted diluted EPS was $1 per share or 47% higher than Q2 of 2019. In addition, we generated over $24 million in cash flow from operations in Q2 2020 and our revenue, cash flow…

Thanks, Matt. Our technologies and license associated with them really formed the foundation of the portfolio at Ligand. And I'll review some recent licensing activities and provide updates on the performance of our OmniAb and Captisol technologies. And I'll also discuss our updated plan for our internal Captisol-enabled iohexol program. The recent months have been very productive in terms of licensing activity, referring now to slide 20 of the deck, which shows a summary of recent licensing deals related to our Vernalis design platform, or VDP, the Icagen ion channel technologies, as well as OmniAb and Captisol, which I'll discuss in more detail. The recent new deals have added upfront payments, future R&D service revenue and potential milestones of over $600 million and future royalties should products be commercialized. Moving now to slide 21. We believe OmniAb continues to be the best-in-class of cutting-edge antibody discovery tools. Antibody-based therapeutics are one of the most important, valuable and growing areas of the pharmaceutical industry. And as of the second quarter of 2020, there are now more than 80 OmniAb-related programs in our partnered portfolio, representing 40% of the pipeline. OmniAb partners have now filed or have been issued more than 35 U.S. and international patents or applications, claiming OmniAb-derived antibodies as the primary invention, with partners such as J&J, Genmab, Merck KGaA and others. The number of active or recently completed clinical trials that include an OmniAb-derived antibody reached 47 in Q2 as John reviewed, with a number of new clinical trial starts in the first half of the year. Multiple OmniAb programs are now in late-stage development. Also at ASCO, at the annual meeting in June, clinical data from OmniAb programs were highlighted by Genentech, by Janssen and by Gloria. Additionally, three Ligand partners are currently pursuing development of therapeutic…

[Operator Instructions] Your first question will come from the line of Matt Hewitt with Craig-Hallum Capital. Please go ahead.

Good morning, gentlemen and congratulations on the fantastic quarter.

Thank you, Matt.

Couple of questions first on Captisol. Obviously phenomenal quarter. Should we assume or can we assume that the $25 million increase in guidance is related to the partners that Gilead has signed up? And maybe if you could provide an update on how many of those nine you have contracted with? I think last update it was four or five. We know that they've added more since then.

Yes. Matt, this is Matt Foehr. I can comment there. Yes, we obviously our supply in Captisol for remdesivir, we are supplying a number. We're actively supplying did in Q2 and expect and will supply more in Q3 to members of the manufacturing consortium. We've entered into contracts with a number of them. We've supplied I'll say R&D-grade quantities to most all of them and are in discussions with all of them. So as you would expect different companies move at different paces. They have different approaches to manufacturing etcetera, but we're in discussions with all of them.

Okay. That's helpful. And then as far as -- and I think you alluded to this, but I'm wondering if we could dig in a little bit more. Gilead has publicly commented that they expect to have 2 million treatment courses by the end of this year. Obviously you've got their consortium on top of that. How should we be thinking -- I know you said over 90 million. But how should we be thinking about the split for next year? If Gilead's seeing multiples and I don't know how to interpret what multiples of 2 million is. Maybe you could help us with what you're thinking? And then how should we think about the other 9 parties on top of that from a contribution standpoint?

Yes Matt. Gilead has said publicly with regard to 2021, they expect several million more treatment courses in 2021. As far as the consortium goes, there really haven't been many public statements around number of treatment courses at this point. Obviously the treatment paradigm is centered around, a 5-day treatment course. But there are two different forms of the vial lyophilized powder and an injection solution the lyophilized powder uses Captisol at a ratio of 30:1, 30 parts Captisol to 1 part active ingredient, remdesivir. And the injection solution uses Captisol at a ratio of 60 parts to one part, so 60 parts Captisol to 1 part remdesivir as is described in the label. But there really haven't been specific comments from the consortium on that.

Yes. And Matt, I would add just that we did say on the last call that the first 1.5 million treatment courses that Gilead had been talking about was roughly equivalent to the first increase we made. Obviously as Matt just went through, there's a lot of variables in which treatment course and dose they're going to use and all those sorts of things. They also then up their production numbers for this year to two million. And then I think you can maybe draw from that that a portion of the orders that they're going to be delivered at the end of this year would obviously be used to produce remdesivir for next year. But certainly not anywhere near enough in that 90 million to cover what they're talking about for next year.

All right, thank you. And then I guess a couple of questions regarding iohexol and then I'll hop off. When do you anticipate that trial starting? And I'm sorry, if I missed that and cost and how quickly can you enroll and wrap that trial up? Thank you.

Yes. Thanks Matt. So yes, we expect to start the study near the end of this year right near the end of the year, it's a proposed label-enabling adaptive design study. The goal will be to demonstrate a reduction in the incidence of contrast-induced acute kidney injury and the equivalence -- is the equivalence of image quality, comparing iohexol our CE-iohexol compared to GE's Omnipaque. It will be an adaptive design, randomized double-blind parallel group with patients -- and it will be performed in patients with impaired renal function who are undergoing invasive coronary angiographies. So we expect to recruit about 500-or-so patients. We also expect there will be a pre-specified interim analysis of the rate of contrast-induced kidney injury that will perform after about 60% accrual of the data. So again it will start near the end of this year. It take about 24 months or so to get to full completion. But again, it will be an adaptive design where we'll have an interim analysis after about 60% accrual of the patients.

Understood. Thank you very much.

Thank you. And your next question comes from the line of Joe Pantginis with H.C. Wainwright. Please go ahead.

Hey guys. Good morning. Thanks for taking the question. Hope you and your families are doing well. Matt Foehr I'd love to start also with iohexol here. I guess my first question is, is this asset still up for business development? I guess, I'm looking forward to the potential commercial profile here. It's obviously an important decision that you guys made to bring it to pivotal studies here for this relatively large study. So I guess, I'm looking towards the next steps, if you can get a label for it? Would you look to take it forward yourself, or is it still up for a potential partnering? And then the second part of that question is, just to allay any potential investor fears just based on your history to-date is this just that your decision process is that you've really had the resources to do this and you want to take full advantage of the economics that you can – and it wasn't having to do with say not being able to partner it at this point?

Yeah. Thanks, Joe. Yeah, key part of our business obviously is partnering. We take programs – look where we can answer a few questions and de-risk them in such a way that we can drive better downstream economics. And that's really, what we're doing here. So this is a trial that, we have the resources and the expertise on. Similar to what, I said [Technical Difficulty]

Matt Foehr, I might jump in here, because here we – there's a bit of echo on your line?

Yeah.

Perhaps, you're having some technical difficulty there. I was hoping to head that off. Operator, is there still echo in the line?

Just a little bit.

Yeah. Okay. Well, Joe, I'll take a crack at answering the question didn't mean to talk over to Matt Foehr. But Joe, if you're on a speaker perhaps you can mute. The – we're very excited about this program. And we are looking at the investment as a way to really expand the commercial potential for Ligand. We have interest in the program some participants in the existing market recognize the potential for a product like this. We were going to an advanced smaller formulation equivalent trial. And we realized that given the profile Captisol has right now, our expanding cash flow we really believe we are in a much stronger position to advance the program ourselves. Ultimately, I expect we will still license this out. But we are also going to take the next 12 months to 18 months to evaluate what it might look like for us to be more active in the commercial market as well. We don't plan to become a commercial entity. But again, we have the financial strength and the operational resources to advance this. And ultimately, we think it is – while any clinical program is not without risk, we think this is a good investment to potentially increase the potential for this asset.

That's really helpful, John. Thanks. I appreciate that. And then maybe a question for Matt Korenberg, with regard to the ongoing demand for remdesivir, obviously, all the points have been highlighted already in the new formulations and increasing the dosages et cetera. I guess, I'm looking towards the potential volatility and how long this demand can continue, when you say factor in things like government contracts along those lines as well even though there's obviously demand that would continue.

Yeah. Thanks, Joe. Our expectation really is for significant demand next year and over the couple of years, following really based on the fact that even if – even with vaccines there may not be 100% effectiveness with other treatments there maybe combination therapies and other things where remdesivir ends up being part of the treatment regimen across the landscape. So based on those dynamics and just generally, our interactions with all of our partners we see significant volume demand for the near-term as the world kind of stocks up on remdesivir. And then beyond that, we see an ongoing permanent place for the foreseeable future until we're done with coronavirus entirely, where we'll see ongoing demand for remdesivir.

That's really helpful. Thanks. And then, if you don't mind, just one quick question for Matt Foehr, again. Matt, you laid out a lot of different factors with regard to expanding your Captisol manufacturing investments a lot of factors there. So I'm just curious, what you consider to be the top rate-limiting steps for all the different factors you mentioned?

Yes, Joe. We've been -- obviously, there's a very detailed plan that the team has worked up in collaboration with our manufacturing partners. And it's really progressed extremely well. I'd say, we're positioned very well. We obviously scaled up our process already in Q2 and delivered material from a scaled-up process. Earlier I would have said it was equipment fabrication, but that's gone very well and all the equipment is fabricated and ready to be installed this month. So we're very well-positioned for the expansion.

Great. Thanks a lot guys and so great to see the continued progress.

And your next question is from the line of Balaji Prasad with Barclays.

Hi. Good morning, everyone. And thanks for taking the question. A couple of questions from me. Following up on the -- on your comments on the sales to the generic companies or Gilead's partners. Can you give us more clarity on what's the nature of your contracts with them? Do you have any royalties factored into the generic contracts? And secondly do you have visibility into how the composition of sales from the partners versus Gilead itself will be over the coming years?

Yes. Thanks, Balaji. This is Matt Foehr. The agreements with the partners in the manufacturing consortium are structured generally very similar to the deal and I'm speaking in generalities here, but to the deal we put in place with Gilead back in 2015 for remdesivir when the drug was originally being used for Ebola. So at that time the economics were built entirely into the material portion, right? So there's not a royalty with it, but the economics are built in the material portion. And that's generally the structure we've been entering into and are pursuing with the members of the consortium as well. In terms of your question on the mix really too early to say exactly. But as I mentioned earlier, we have already obviously shipped amounts to the partners in the consortium and have orders for continued shipments as well.

Thanks, Matt. Just one more follow-up on me. I think in your comment you mentioned that you are working with Gilead with the alternate forms of remdesivir. Did I hear that correctly that Captisol will be a part of inhalation on subcu forms?

Yes. Thanks, Balaji. So the -- as Gilead has announced they launched new trials with an inhaled solution form and they also disclosed that they're looking at a subcu route. Obviously, our drug master files have a significant amount of data associated with those forms of delivery and given what's known and what's been published about Captisol's role with remdesivir for both solubility so dissolving the active ingredient as well as chemical stability yes, it is expected these forms will use Captisol as well.

Thank you. Last one from me and I'll jump back in the queue. Can you just take me through what the acquisition of the new ion channel discovery unit means for the business itself?

Yes. So yes, great question. And we obviously, announced the acquisition of Icagen deal closed very beginning of Q2 so on April 1, and with the acquisition of Icagen picked up in ion channel technology that really fits well within our VDP platform and picked up some great partnerships. Ion channels are frequently a focus of partners both on the VDP side with Vernalis as well as with OmniAb. They've got deep biological expertise focused around both ion channels and transporters, which are usually seen as high-value targets also picked up partnerships with Roche and the CF Foundation as part of that. And notably in the quarter as was summarized briefly in the slides expanded the relationship with Roche with Icagen in Q2. So we're real pleased about that.

Thank you.

Thank you. Your next question is from the line of Larry Solow with CJS Securities. Please go ahead.

Great. Good morning, guys and thanks for taking the questions and congrats on a great quarter. Just a couple of follow-ups. Most of my questions have been answered. Just on the -- just to summarize so the increased guidance, obviously, all reflects higher Captisol. It sounds like your royalty revenues and expectations of sort of a reramp in product sales and along with sort of a reramp in clinical trial work for your partners is essentially pacing in line with where you thought it was going to be at the end of Q1, or when you last updated us on your Q1 call is that fair to say?

Yes. Thanks Larry. That's right. Across those three buckets, there may be a little bit of shifting from bucket-to-bucket. But in aggregate we think the three buckets are still in line with where we are -- sorry, where we guided on Q1. I'd expect that by the end of the year or certainly on the next quarter call we probably will be able to give a little more precision on what each of the buckets look like. But for now it's -- in aggregate it's all the same.

And the 25 million increase on Captisol, is that -- you're enabled -- you're able to do that just, because you've got -- you're getting a little bit of capacity expansion over the next couple of quarters? Obviously, I know you're going from 60 million to 500 million tons, I think by the end of -- I think it was Q2 of middle of 2021. So maybe you can just sort of discuss sort of the pace of the capacity expansion, is that actually somewhat of a limiting factor? And maybe you would have actually done even more than the 90 million in Captisol this year if you had more capacity on hand already?

Yes. Good question. I think it's a fair way to characterize it that to get to the upper ends of where we've guided to and to exceed it we will have had to have successfully expanded our capacity for the year. By the end of the year we'll have sold more than our 60-metric tons capacity that we had talked about prior to any expansion. So part of the reason for us needing to wait until now to talk about the full extent of 2020 or to the extent we have so far is really related to monitoring the ongoing ramp-up of production and then also ramp-up of capacity.

Okay. Great. And then shifting gears a little bit. Could you just remind us on Captisol-enabled iohexol, I guess, two questions. I want to follow-up. I think Matt might have asked the question but did you -- I didn't hear the answer. Did you give sort of an approximate cost of this Phase 3 trial? I guess, it would be over a two-plus year period? And then the second question is just if you can remind us relatively speaking how much Captisol there's a ratio there? I believe Captisol -- there's a lot of Captisol used or will be used in the iohexol?

Yes, Larry. This is Matt Foehr. The trial itself as I mentioned is expected to take about 24 months. Overall, cost all-in for the trial is about $20 million spread over that period. So fits within our general R&D spend well within our -- we've got obviously the technical expertise to run the trial. We've not disclosed the fine details of the formulation itself beyond to say that this is a high Captisol user product. It's expected it will be in many tens of metric tons really once a potential commercialized product is available. And as I said, we're excited about the trial. We're well positioned to run it. And I think it answer -- will answer some key questions and really position it extremely well for partnering as John was describing.

Okay. Great. And then just last question on some -- I know you have several upcoming milestones or at least as we get towards the latter portion of the year, can you just remind us on the Palvella the -- on the PC for the rare skin disease sort of the market sizes there? I know you gave the royalty rate in your slides sort of the potential market size and obviously the opportunity for you guys?

Yes. Thanks Larry. It's about -- the population in the U.S. is about 9,000, 10,000 patients in the U.S. And so it's an extremely rare disease. As Matt has detailed in the past, it's extremely debilitating disease for the patients that suffer from it. They end up unable to walk frequently by the end of the day each day or permanently in wheelchairs and really have a quality of life struggle that the drug will solve for them if successful. And so you can determine what you think the pricing might be. But given the impact on quality of life, we think it could be a pretty substantial market several hundred million dollars upwards of $500 million plus.

Got it. Okay. If I could just squeeze one more in. Just on capital allocation. Clearly, a little bit of windfall of remdesivir hopefully that lasts for a while. So a little bit -- certainly better cash flow this year. And you mentioned obviously you're putting some of that into the pivotal trial that you're going to do yourself a little more money obviously into the Captisol expansion. How about just outside of those couple of things share repurchases? Any thoughts of that? Is that sort of cooled off for the time being? And then on the acquisition front? Has -- the COVID-19 is that creating more opportunities for you, less opportunities? Is it too early to tell? Any thoughts on that? Thanks.

Yes. All good questions, Larry. The capital allocation discussion inside Ligand is always ongoing and we continue always to evaluate everything from share repurchase, debt repurchase consider dividends occasionally and M&A across the spectrum. First on the balance sheet side, we obviously did not do any share repurchase or bond repurchase in Q2. And while we continue to think that the stock is undervalued and the bonds are undervalued. We typically will keep an eye on the relative moves of our stock and bonds to the market. In Q1, it was really dislocated. And coming into the year, we didn't really have specific plans to do large share repurchase or large bond repurchase. But both the stock and the bonds were quite dislocated from what we thought was proper value relative to the markets at the time. And so we made significant buys there. Our stock is held in reasonably well over the markets over the last quarter. So we've monitored it, but we did not buy any stock in Q2. Going forward, we'll continue to evaluate all these things to the extent the bonds continue to trade at discounts where we'll think about buying the bonds similar to the stock, if it does not move in the ways we think it should we'll buy stock. Largely though, the focus has been M&A for the year. And with the pandemic environment, it was certainly a pause, if not a slowdown for a little bit, but discussions have certainly gotten back close to normal, although all virtual at this point largely. We're continuing to look at a number of things and I think we have some good stuff in the hopper. So we're looking forward to active dialogue and hopefully some transactions in the coming year.

Great. Thanks. Appreciate the color.

[Operator Instructions] Your next question comes from the line of Scott Henry with Roth Capital.

Thank you, and good morning. Just a couple of questions. I don't know if you mentioned it yet, but did you give any color on how we should think about the trajectory over the second half with regards to revenue and timing?

Yes, Scott. Obviously royalties -- because of the tiering and because of the fact that the products are all growing, Q3 and Q4 should be sequentially larger than Q2 and Q1 respectively. So with -- we think the recovery in patient visits and patient access, we should see a return to growth for Kyprolis in Q1 -- Q3 over Q2, certainly in the U.S. and developed world outside of Japan, which grew significantly in Q2 already. So royalties as per normal should continue to grow sequentially from here. Captisol, we mentioned that the balance second half of the year is about $44 million based on our guidance. We see about 35% of that in Q3 and 65% in Q4. And then milestones and service revenue generally speaking are always kind of bouncing around, but no reason to see it as anything other than kind of evenly weighted for the next couple of quarters.

Okay. That's very helpful. And then, just a question on Captisol and remdesivir. I mean has remdesivir the attention that it's gotten has that led to perhaps a boost in other people looking at Captisol? I'm just trying to get a sense of what's the organic growth there if we strip out remdesivir? And will it over time be deleveraged from remdesivir, or is that just the bulk of it regardless?

Yes Scott, good question. As the business is evolving, remdesivir no doubt has captivated the world's attention in terms of the potential and the need for treatments for COVID-19 that the drug requires Captisol is very important. And so, clearly it's impacting our business right now specific to that drug. But your observation about -- is there a follow-on effect in terms of stimulating other interests? And the answer is yes, there is. The world has evolved where many good drugs need to be solubilized or stabilized. Captisol has a great platform and reputation, but given what's going on now, there is tremendous awareness about Captisol not just what it does technically, but just how strong the platform is in terms of the drug purity, the depth of the drug master file. Now the high-volume quality manufacturing and so this is spurring interest. Existing customers of course new contracting and also frankly it feeds into our decision to go after CE-iohexol for a pivotal trial where this could have been a much smaller bioequivalence and frankly smaller commercial outlay with a different label. This is a substantial market. If we can show drug safety in this large market, that is significant. And it's really evidence of I'll say the evolution of the awareness and recognition of Captisol is important. So it's an evolving field. I think the best data point we have to speak to more financially the momentum. 2019 was an outstanding year for Captisol. Of course all of that was pre-remdesivir. We came in with a beginning of the year forecast that was the highest ever for the franchise. We exceeded that. We raised guidance. We exceeded that last year. And it has a really nice momentum already forecasting higher volumes into 2020. And that has continued across the board. So, we're very pleased with how the franchise is doing.

Okay. Great. Thank you for that color. Final question. In the presentation, I really liked slides eight through 12. There's a lot going on and it allows you to get your sense of what to focus on next. The question is, is the order of these programs, the six that you list is that based on when the timing of when these events should occur or perhaps the magnitude of revenues? Just trying to get a sense of really how I should think of that order -- and even more so what's the next event that I should focus on given you've got a lot going on?

Yes. I'll give a general comment and Matt Foehr can identify the next event. But generally, it is somewhat in order only five months left and the five months are going to go really quickly. But the C-Stone one combines two events, Phase III data plus regulatory filing. Both those could happen. Of course the data would come first. But generally in order they aren't ranked by importance or value of the program. But these six events in the next five months plus three next year, this is the largest most substantial late-stage calendar new events we've ever had. Investors who have followed us know that we have had different ways of presenting our calendar of news events coming up. Frankly, it's been a much longer list, a lot more details. But now the portfolio is so large and substantial that we're really trying to focus on, on the largest items. Matt Foehr, do you want to comment on the next one or two most likely near-term events?

Yeah. Yeah. And John I think as you characterized it that's exactly right. They are somewhat in order Scott, right? So I'd say the Palvella pivotal data is probably the nearest term of those. And just creating bookends on that group there this year, Kyprolis' sNDA date is November 15. So I'd put that as kind of the other book end. But the nearest I'd say, is the Palvella. But as John characterized it they are what we call somewhat in order, but that gives you kind of a range.

Okay. Great, thank you for taking the question.

Thank you, Scott. Well good. We appreciate, people's attendance and turn out. Good questions. Obviously very busy time for Ligand, I kind of want to acknowledge the team's work outstanding execution through very busy period. But we appreciate the interest. We are going to be on the road virtually. A number of conferences this fall will be at the HCW conference, in September. We have a few other conference invites that we're finalizing now. And as we indicated, we anticipate we'll be hosting a virtual Analyst Day in the next few months to give a fuller update on our business and outlook. Thank you for your time. And we will stay in touch.

Thank you again, for joining today's conference call. This does conclude the call. You may now disconnect.