Good day and thank you for standing by. Welcome to the Ligand Pharmaceuticals Third Quarter Earnings Call. At this time all participants are in a listen-only mode. After the speaker's presentation there will be a question and answer session. I'd now like to hand the conference over to your first speaker for today, Mr. Simon Latimer, Head of Investor Relations. Please go ahead sir.

Thanks Eli. Welcome to Ligand's third quarter of 2021 financial results and business update conference call. 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 use non-GAAP financial measures and some of our statements will be forward-looking, including those related to our financial condition, results of operations, financial guidance, the impact of the COVID-19 pandemic and plans for OmniAb to become a standalone public company. Additional information concerning risk factors and other matters concerning Ligand can be found in our earning press release and our periodic filings with the SEC. We undertake no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. A reconciliation between the non-GAAP financial measures we discuss and the closest GAAP financial measure can be found in our earnings release issued today. I would now like to turn the call over to John Higgins.

Simon, thank you. Good afternoon, and thanks for joining our third quarter 2021 earnings call. Today we have an outstanding quarterly report for our shareholders, we have the highest ever royalties for our largest partner products, we've had a string of partner successes with several approvals in recent months, and launches are now underway that we expect will fuel growth and royalty revenue for years to come. In addition, there's been tremendous progress by our partner, especially around our OmniAb platform. Today on our call, we also provide more information about our work to split Ligand into two separate companies. First, some remarks about our Q3 financial and operating performance. Royalties are the main revenue driver for our company and after a solid second quarter for our lead products, we are very pleased to see our partners post higher revenue than we expected for KYPROLIS and for EVOMELA here in the third quarter. This is the highest quarter ever for royalties on both products and we see the momentum continuing into the fourth quarter and next year. For KYPROLIS both Amgen and Ono posted great Q3 results. And we are looking forward to the launch of the product in China by Beijing, which we believe will drive further growth. EVOMELA continues to perform well with both our US and Chinese marketing partners with a 20% royalty. This product is beginning to be a major contributor to our bottom line. Just since June, we've seen Jazz receive approval for Rylaze in the US, KYPROLIS get approval in China, Merck announced US approval for VAXNEUVANCE and Gloria report approval of zimberelimab in China, which is the first approval for an OmniAb derived antibody. This all follows the Serum Institute of India's launch of Numa cell, which also occurred earlier this year. We'll…

Thanks, John. The third quarter of 2021 was a very good quarter for Ligand, both operationally and financially. In addition to the strong financial results that I'll cover today during the quarter we saw approvals for Rylaze, VAXNEUVANCE and zimberelimab, all drugs that we believe will help fuel the growth and royalty revenue for years to come. Turning to the financials, total revenues for the quarter were $64.8 million up 55% from $41.8 million a year ago. Royalty revenue increased 74% to $15.6 million from $9 million a year ago. Royalty revenues comprised principally of KYPROLIS and EVOMELA royalties. Our growth in royalty revenue reflect strong sales growth for both these products in addition to contributions from several programs backed by our Pelican expression technology, including Rylaze from Jazz, PNEUMOSIL from the Serum Institute of India and Teriparatide from Alvogen. Captisol sales we're $35.1 million in the quarter and this is up 50% from $23.4 million a year ago. Our Q3 Captisol revenue exceeded our internal expectations. Contract revenue in Q3 2021 was $14.1 million compared with $9.5 million a year ago. The 2021 quarter included significant contributions from Pelican with $7 million of approval and launch milestones received for Rylaze and VAXNEUVANCE combined. Our GAAP EPS for the quarter was $0.80 and our adjusted diluted EPS for Q3 2021 was a $1.58 compared with $1.04 last year or an increase of 52%. We exited the quarter with approximately $323 million cash, cash equivalence and short term investments. Turning to financial guidance, we're reaffirming our guidance for 2021 revenue and adjusted diluted EPS. We expect full year 2021 total revenues to be between $265 million and $275 million and adjusted earnings per diluted share to be between $5.80 and $6.05. With respect to Q4, our year to date results combined…

Thanks, Matt. As John mentioned, Q3 was a very productive quarter with a number of significant developments for late stage partnered programs. Given the large number of events that occurred, I'm going to review the more recent ones in two categories today, first recent approvals or launches for royalty bearing assets and then significant data readouts or regulatory progress updates. So I'll start now with approvals and launches. Beijing announced the approval of KYPROLIS in combination with dexamethasone in China for the treatment of relapse and refractory multiple myeloma. When Amgen announced its relationship with Beijing, a couple of years back, they highlighted that the alliance would significantly accelerate plans to expand Amgen's oncology presence in China, which is the world's second largest pharmaceutical market. Beijing is a global research-based oncology focused company with headquarters in Beijing with an established and highly experienced team in China that includes a 700 person commercial organization. So we were very pleased to see news of the approval of KYPROLIS in that market. Our partners at Merck announced FDA approval of VAXNEUVANCE, which is a pneumococcal 15 Valent conjugate vaccine for the prevention of invasive pneumococcal disease in adults 18 years and older. This approval was followed by CDCs ACIP unanimously voting to provisionally recommend VAXNEUVANCE in a series with Pneumovax 23 as an option for pneumococcal vaccination in appropriate adults. And very recently, Merck also disclosed further regulatory progress with VAXNEUVANCE in the pediatric setting, indicating that they have now submitted a supplemental BLA application to the FDA for use in children. It's important to recognize that pneumococcal disease continues to cause serious illness and death worldwide in children under the age of five, despite the positive impact of pneumococcal conjugate vaccine, case numbers and vaccination rates. Certain pneumococcal serotypes put children at…

Thank you, Matt. And for your first question, we have from the line of Larry Solow from CJS Securities. Your line is now open.

Great guys. Thanks so much for taking the questions and good evening. I guess the first question I have is just on the announcement I guess, somewhat a surprise, but I know you guys have been sort of exploring options for a while and John, you touched on sort of why now, but is it sort, it seems like it's sort of the culmination of these things, both the market has certainly had several sort of public companies out there with somewhat similar technology, but also company specific guys have built a lot of add on and whatnot. So I'm just trying to assess, is it, was there some inflection point that OmniAb specific that brought you to this timing this decision or a little more color on that would be great and any way to what you think of in terms of valuation? I know you guys have thrown out a number a couple years back, and I don't know if those, if you can discuss that, but, it was probably more higher value than what your whole company's value today. So just trying to assess those thoughts.

Larry, thank you. I'll answer your first question then Matt Korenberg can comment on process evaluation. So the business, people who know Ligand know this leadership team. I believe we're creative. We look at opportunities. Obviously we focus on excellent science and excellent partner relations. That is our craft, our core business, but when it comes to optimizing value, we're looking at M&A ways we can acquire and build. This is a very unique transaction in my experience at Ligand obviously we've never split the company but we're doing it as we've said in our have remarks with a sense of confidence and that this is the right decision at the right time. What's driving it is the success of the business and also a real belief that we have an opportunity here. The success we've described across, the whole business we're doing well, but specifically as we look at the diversity and royalty, the royalty momentum, the new approvals, some recent acquisitions that is further supporting the royalty business, it's a great business. We are licensing technology, we're driving products and that business, the last three, four, five quarter has really emerged as a great growth position right now. The OmniAb business, it's not a surprise as in the last month or two what we have, but no doubt our decisions, our acquisitions to fortify that platform the partner success, the last, several quarters last year or so through the pandemic, especially we have emerged with confidence that we have got a very, very strong technology leading platform. So it's out of success that we see this. We've got a board we've got management team. We have the resources to run two companies. The other part is if you have opportunity we believe by having focus teams that look at R&D investment, that look at capital allocation that can position focus compelling investor profiles for investors, we think the opportunity will better serve our investors to create and grow value out of two companies versus one combined. So that's where we are. We have been planning, there are different ways to do this, but with, I think a lot of thoughtful work and decision making, we feel very good about this circumstance. Matt, I'll let you comment on valuation.

Yeah, thanks, John. And Larry that the valuation point we really can't comment on valuation, but I will just reiterate from what John said that I think in addition to all the good reasons that John gave, I think there's an opportunity for the new business to invest more significantly and in driving the long term value of that business, that might not be as overlapping with the short term EPS goals of the combined business. And so that's just another reason that we think the longer term value will be more significant as two separate companies. So I'll leave it there.

Yeah, no, fair enough. I think that would be a challenging question to answer, we put out there just on a follow up just Matt on the, just on the legacy business, existing business, and maybe just a global question, lot of good things happening in the quarter. You think KYPROLIS, EVOMELA obviously Remdesivir sales a lot higher than expected. Gilead increased guidance, but I think 50% for the year. I know that that is still tailing off and we actually don't have any numbers in there for 2022. But just in terms of Q4, how come seem like guidance would've been increased? Is there any particular reason why it wasn't?

Yeah. Good question Larry that the overall business is doing great. The royalty reports came in for KYPROLIS and EVOMELA quite well, but also I mentioned on my prepared remarks that both Teriparatide and Rylaze were quite strong and several of their smaller products that we don't of talk about a lot were quite strong as well. And so I think you'll start to see us breaking out some of the bigger products in addition in our quarterly filings so that you can start to track some of the other individual products beyond just KYPROLIS and EVOMELA and that's really something that we're excited about. So those products become top of the royalty chart contributors for us. But on the overall business, I'd say our core business is performing extremely well. All three lines of business royalties, contract payments and the Captisol sales from a core standpoint and the core legacy customer base are all performing quite well and we see really nice growth in the next year in the Q4 and into next year. We didn't change guidance for this quarter largely because the Captisol related to Remdesivir is still unknown to us generally speaking, in terms of where exactly it'll land this quarter versus next quarter. We're shipping significant amounts still. So some of that may, may spill into next year may be in this year. But generally speaking each of the parts of the business that we sort of have a better handle on a more control over all performing ahead of expectations.

Okay. Fair enough. Thanks. I appreciate that call.

Your next question is from Matt Hewitt - Craig-Hallum Capital Group. Your line is now open.

Good afternoon, gentlemen. Congratulations on the strong quarter. First one, regarding that the COVID 19 pill that you recently out licensed. Do you have any sense how quickly that could move into the clinic and how you're thinking about that potential opportunity?

Yeah. Thanks Matt. We announced a collaboration with Chinese resources Double Crane around our vPro technology, which is a proprietary pro drug technology. It's based around a COVID 19 antiviral treatment and oral treatment. Difficult to say exactly when it may enter the clinic. It's great we've got a very dedicated partner who's highly focused on it, but obviously it's a preclinical program at this stage.

Okay, great. Thank you. And then kind of sticking along those tracks, I'm looking ahead to next year, is there the potential for any additional drugs that use that vPro technology to be outlicensed?

We're always cautious not to promise licensing deals. We will direct you. There are more datasets related to vPro and related technologies coming out at the ASLD conference. So would generally direct you there. But yeah, there's definitely applicability of the platform across other active ingredients as well.

Okay. And then one last one for me, and then I'll hop back in the queue, early on with the success of Remdesivir Veklury, you commented and I can't remember which quarter it was, but you commented on the record number of sample requests that you had received and as time has gone on, I'm just curious if you have seen, I guess, either follow on orders, if you've seen some of those projects or customers maybe blossom into the next stage of potential development, all because of what happened with Remdesivir in the early days. Thank you.

Yeah, Matt it's John, good question. We've had inbound inquiries more licensing and research sampling but we're focusing on the major value drivers right now for investors. So we aren't spending time tracking those on earnings calls at this time.

Understood. All right. Thank you.

Next we have Jacob Jacob Johnson from Stephens. Your line is now open.

Hey thanks. Good afternoon. Congrats on a nice quarter, just on the OmniAb news. Can you just talk about the timeline for potentially deciding to IPO OmniAb, maybe just any kind of brackets for how we should think about the timeline for that. And then I don't know if you can, but can you just maybe discuss what other options are on the table, because I think you alluded to maybe there being other options out there as well.

Sure. yeah. Thanks Jacob. So generally speaking we've talked with investors over the last couple years about ways to monetize value around the OmniAb business concepts like selling 10% of the business for economics just the economics of the business to some investors or minority investments in the business or collaborative -- strategic collaborations or things we've all talked about, and John already went through sort of the list of factors why we came to the conclusion that now is the right time to be more aggressive about separating the companies. So with that, I think, we have been and will be open to sort of all potential path forward. Probably one that's -- it's on investors' minds are the spec market. There are certainly some potential spec transactions that have happened that could be very analogous to what we're trying to do here with OmniAb. And that's something that we have and will continue to explore, but based on everything we've seen so far the path to the best path we think right now to two independent public traded companies is the traditional IPO path followed by a separation through a spinoff of the remaining interest. And so I think that's generally the path that we expect to proceed down. Obviously if circumstances change we are open and nothing's been definitively decided yet, but that's generally the path we're on. In terms of timing, look, we are not committed to specific timing. We'll continue to pursue the path as sort of expeditiously as prudent. I think we're hoping to file an S1 sometime in the coming months, if not in the near future. And then look to for next year to consummate a transaction sometime next year. So it's not something that's years out, but it's not something that's going to happen, certainly not happen in calendar 2021.

Got it. Thanks for that, Matt. And then just maybe sticking on OmniAb, I think the last couple quarters you talked about kind of a number of investments in that business. I think it includes things like maybe providing more customized services to partners. Can you just talk about some of the efforts at OmniAb recently where you've been kind of spending OpEx there?

Yeah. this is Matt Foehr, clearly we've built the OmniAb business through, not only I'll say focused and strode acquisitions of adjacent technologies, but also through internal investment. And we see growing trends in the industry around partners coming to us and needing more technology. They certainly understand the value, not only of the depth of engineering behind our transgenic animals, but also through our screening technologies, our are really bespoke capabilities around ion channels, which are commonly seen as very high value targets. But we've continued to invest not only in keeping our technology on cutting edge, but also continuing to invest in the integration of the technology within the different pieces of our stack. And all of those things are things that drive partner use. Our partners, we see more and more partners using our technology broadly. We just had another one start a clinical trial yesterday, which brought our number of clinical OmniAb antibodies up to 20 which is always good to see, and we see growth in the number of patents that our partners are filing for OmniAb derived antibodies being the primary invention, of course, and that creates a very long royalty tail long term. So a lot of efficiency in the business itself, but also we see a lot of opportunity as we continue to invest in keeping it on the cutting edge.

Got it. Super helpful. I'll leave it there.

Next we have Scott Henry of ROTH Capital. Your line is now open.

Thank you. Good afternoon. You guys have certainly been very busy. A couple questions, I guess, first on Captisol, we're now into November. I know expectations have been low as far as a COVID take into 2022. Given where we are now, three months later than the last quarter, what are your thoughts on there perhaps being a little larger tail for Captisol going into 2022 than perhaps expected prior? Thank you,

Scott. Our outlook is unchanged. Obviously our guidance for this year is unchanged. The Captisol had been a big driver of revenue this year. No surprise of course, with our major contributions but our outlook really is unchanged or three months further along. You're right about that. As expected some other oral antiviral, some treatments have come along good data now approvals. The vaccines are still holding up very well. There's abundant supply and vaccine rates are going up. Obviously we're watching case rates US and internationally in the major commercial markets, case rates are coming down, hospitalizations and death rates are coming down. And there is growing narrative from Scott Gottlieb and other thought leaders that the pandemic really is moving along. We're hopeful for human high help that's the case specific to our partnership with Gilead. We will be there, we will continue to supply, but our outlook is really the focus on our core business. The 60 or 70 customers that are buying Captisol for other products for their clinical use, we're going to get back to really focusing on our core Captisol revenue and if there's a chance to supply Gilead in the consortium for remdesivir, we will but we do expect it's going to subside and be a smaller, smaller contributor going forward.

Okay. Thank you. Shifting gears, the royalty line even, we can kind of put in KYPROLIS numbers. We don't have Ono, but we can kind of assess that. And then adding a very strong evomela number there's still a pretty big delta to getting to total royalties. Were there any, stocking orders for some of the new products, just trying to get a sense of, where some of that significant upside is coming from in the third quarter?

Yeah. good, good question, Scott. Like you said, the math is pretty easy on KYPROLIS and EVOMELA and the previous sort of other bucket used to be, pretty steady, growing nicely every quarter, but pretty predictable. The new products from the Pelican acquisition are quite performing quite well. So I think like I mentioned in earlier in the call, we won't break it out in this queue, but probably in either the next queue or starting next year as we start to have comparable numbers for these different royalty lines, I think you'll see that the biggest contributor this quarter was Teriparatide from Alvogen. And then both the Serum Institute and the Jazz Riley's program both were meaningful contributors to the quarter as well. So those three programs probably account for all the difference that you can't back into from published and no numbers.

Okay, great. Thank you. That helpful. Final question, just on Teriparatide should we still be thinking about that PE rating coming in 2022? Does that still look like a likely occurrence?

Yeah. Scott, this is Matt Foehr. We don't -- as we said in the last quarter, we don't see PE happening this year. So that's obviously been discussed and disclosed. Alvogen as a partner, I'll say has a real strong and committed team managing the work towards TE and they've been in dialogue with the FDA and based on their discussions with the FDA they're performing some additional tests that they've coordinated with the FDA on. So they're doing that work. We expect they'll submit that work sometime in the near future. And there's not a typical PDUFA timeline for this sort of thing, but we do -- we are continuing to monitor it and I'll say we've got a very committed partner who's highly focused on getting TE as soon as they can. We don't see that happening this year, but they're very committed to it.

Okay, great. I thank you for the color and thank you for taking the questions.

And there are no further questions at this time. That concludes the Q&A session. I will now turn the call back to John Higgins for closing remarks.

Yeah. Thank you. Yeah, just a quick remark. Appreciate the turnout and the call today. Good questions. We're very pleased with the business. It's truly an exciting time to be at Ligand. We've grown significant in laboratory operation, in headcount and staff. I want to acknowledge our team. It is A Plus. We're doing great science and research. We're answering some major world health questions and challenges and really, I think providing outstanding service to our partners, all with the focus of bring a great company for investors. So want to acknowledge that the support of our board. They've been highly engaged, obviously substantial, strategic planning and work underway. We are confident in our decision making. We have clarity on our path forward and feel very good about the team in place and our future. So thank you, appreciate the time and we will keep you posted as our business evolves.

And this concludes today's conference call. Thank you all for your participation. Stay safe and you may now disconnect.