Good day and thank you for standing by and welcome to the Ligand Pharmaceuticals Q4 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. Please be advised that this call is being recorded. I would now like to hand the conference over to your host today, Simon Latimer, Head of Investor Relations. You may begin.

Thank you, Justin. Welcome to Ligand's fourth 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 and 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 earnings 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 measures can be found in our earnings release issued earlier today. With that, I'd like to now turn over the call to John Higgins.

Simon, thank you and good afternoon. Thanks for joining our fourth quarter 2021 earnings call. 2021 finished strong financially and operationally. We are very pleased with our report to shareholders today and our progress and momentum in all areas of the business reinforces our plans to split Ligand into two separate public companies. First, as for our financial performance, 2021 was our best year ever in terms of top line performance. Revenues of $277 million were driven by robust Captisol sales, along with strong growth in both royalties and contract payments. Record revenues produced significant earnings and cash flow per share and we are pleased to see a substantial number of late-stage and commercial events highlighting the progress by our partners. The business today is at a special inflection point. We have more partners, more programs under development and more diversity to our business than ever before, as well as tremendous financial momentum. It is from this position of strength and knowing the needs of the business and how to keep driving success that motivates us to split the company into two businesses. As I said on our call in November when we introduced the topic of splitting the company, given our success to growth and the evolution of the business, it has become increasingly clear that Ligand would be better positioned to drive value for partners and our shareholders by operating as two separate independent companies. Our core business model at Ligand is built around technology licensing, coupled with a sharing in the success of our partners through royalties. We are now at the point where we anticipate significant top line growth by existing and new royalty streams that should fuel superior bottom line results and cash flow, as we manage a lean operating structure. At the same time,…

Thanks, John. Fourth quarter of 2021 was a very strong finish to a successful 2021 year for Ligand. Financially, we reported record annual revenues with meaningful contributions from across the business. Operationally, we fully integrated our acquisition of Phoenix in what's now branded as the Pelican Expression Technology. We saw good pipeline progress by partners with product advancements across multiple programs and approvals for Rylaze VAXNEUVANCE, zimberelimab and sugemalimab. And we made significant progress with our plans to separate Ligand into two separate publicly traded companies. The goal of the separation is to unlock value and allow the two distinct management teams to create value through focus on the OmniAb antibody platform and the remaining core Ligand businesses respectively. We look forward to completing the separation in 2022. Turning first to our quarterly financials. Total revenues for the quarter were $72.5 million, up from $70 million a year ago. Royalty revenue increased 59% to $17.6 million from $11 million a year ago. Royalty revenue is comprised of many products and we are now seeing noteworthy contributions from five principal programs: KYPROLIS, EVOMELA, Teriparatide, PNEUMOSIL and Rylaze. Our growth in royalty revenue reflects strong sales for these products with increasing contributions from the three programs backed by our Pelican Expression Technology, which is Rylaze from Jazz, Pneumosil from the Serum Institute of India and Teriparatide from Alvogen. Captisol sales were $35.4 million for the quarter as compared to $41 million a year ago, with the reduction primarily reflecting a lower sales of Captisol for manufacturing treatments for COVID-19. Contract revenue in Q4 2021 was $19.5 million compared with $18 million a year ago. Our GAAP EPS for the quarter was a loss of $0.30 and adjusted diluted EPS for Q4 2021 was $1.80 and this compares with $1.62 in Q4 of…

Thanks, Matt. I'm going to focus my comments today on our OmniAb platform and business overall including our strategic goals. The OmniAb technology platform continues to demonstrate its value proposition to our partners around the globe by providing access to diverse antibody repertoires and screening technologies to enable the efficient discovery of next-generation therapeutics. Partners place high value on the fact that our team and technology can connect flexibly into a variety of workflows, to meet their and each of their program scientific needs. That flexibility allows us to efficiently grow our portfolio programs while maintaining and investing in, what we see as a best-in-class technology platform. At the heart of the OmniAb platform, is the biological intelligence or what we call BI of our proprietary transgenic animals, which have been genetically modified to generate antibodies with human sequences. Over 55 partners now have access to OmniAb-derived antibodies and more than 250 programs are being actively developed or commercialized. Today, the number of active clinical or commercial stage OmniAb-derived antibodies has increased by over 50% from roughly a year ago going from 16 to now 25. That's a substantial increase and illustrates the momentum of the platform and that momentum that's been built up especially in the later-stage programs. And there are now over 100 clinical trials that are currently being run or have been run by our partners who are pursuing the development of OmniAb-derived antibodies. Our business development team continues to secure new license agreements and partners are using our platform more than ever in a new and in scientifically interesting ways. We're now in the process of expanding our BD team, given increasing demand for our platform and our growing partner base and given that we are managing more inbound interest in the platform. Two OmniAb-derived antibodies…

Thank you. And our first question comes from Joe Pantginis with H.C. Wainwright. Your line is now open.

Hey guys. Good afternoon. Thanks for taking the question and very nice progress. And it's nice to get the final answer on the OmniAb plan, so great for that. And Matt good luck with your new endeavor there in running the company. So, first maybe just two questions on the OmniAb spinout. I guess first do you have any preliminary view on what the capital structure might look like? And secondly I guess more importantly when you look at the underlying business and I really appreciate the five points that you just outlined Matt. Over the one -- or one to three years, are you looking to keep sort of the business model the same with regard to partners? Do you envision in the five to 10-year timeframe that there might be some internally derived products that you would keep as long as you could or even keep altogether?

Yes. Thanks Joe. Yes I'll comment on the strategy elements and Matthew Korenberg may want to comment on other elements of process and other things. But on the strategy piece, as I mapped out, we really see what we kind of have coined internally as intelligent expansion of the platform. We see a lot of opportunities to not only remain on the cutting edge but also continue to invest in innovative elements of each piece of our technology that we've assembled around OmniAb to really continue to grow and expand the reach of the platform. Now, clearly antibody discovery is one of the largest greenfield in the pharmaceutical industry as I think everyone knows in 2020 over $180 billion in revenue attributed to antibodies that's expected to grow to well over $235 billion just in the next few years. So what that's doing is really causing our partners and the industry to quantifying cutting-edge tools. So, that's going to be our primary focus is expanding our existing partnerships expanding the number of partnerships. That intelligent expansion of the technology itself that also creates other opportunities for investment which is one of the foundational elements that's informed why we're doing the split. And so as we continue to embark on expanding our technology we'll look at other opportunities for investment as well in kind of the next chapter of the technology.

And Joe on the capital structure, the spin company or OmniAb will be capitalized with the $70 million of cash that Ligand is contributing. And then it will have no debt. So is it cash and debt-free business, cash positive, debt-free business and the remaining convertible notes and cash will stay at Ligand. So that's generally the split we're expecting.

Got it. Got it. And then just, I guess, briefly switching gears a little bit, when you look at the Kyprolis franchise obviously you guys put a lot of effort into building your manufacturing capacity especially based on the remdesivir needs. So I guess my question is a little mixed. So you have Kyprolis that has expanding indications with the combination with DARZALEX. So we're looking to see increases there. We're expecting to see maybe remdesivir not drop off as dramatically as people might have thought, because we're looking at non-hospitalized -- hospitalized patients, et cetera. So I guess just sort of checking in on you're manufacturing currently to be able to address all the needs. And then in this particular day and age, supply chain issues are a big problem still. And I'm just curious how you've looked to sort of had any potential problems off at the pass on that front.

Yes, Joe, I can comment as well, and I know Matt Korenberg may want to add some color as well. We have a very flexibly built supply chain for Captisol, we added in additional drying sites in the last couple of years. And that gives us a lot of flexibility and a lot of, I'll say, intelligent redundancy spread through the supply chain. That's something we are investing in well in advance of the pandemic and had done over the course of many years. So I think that builds a supply chain that's got a lot of flexibility and efficiency built into it. And that's really something that I think our partners have valued for Captisol over time, right? When you're developing an important IV medicine and your -- and Captisol is what enables that medicine to be developed is something our partners really have valued over time the care and the investment we've made in the overall supply chain. Matt Korenberg may want to make some other comments as well.

Yes, no, thanks Matt. Joe I think maybe part of the question is, how are we able to flexibly meet the potential demands of VEKLURY and others? And the answer is yes. We are able to dial things up and down as needed on the production front and anticipate whichever way the pandemic goes we'll be fine. So I think that's -- combined with what Matt said that's probably helpful in answering what you're thinking.

Yes. Certainly, yes. Thanks a lot guys.

And thank you. And our next question comes from Larry Solow from CJS Securities. Your line is now open.

Great. Thank you and good afternoon guys. Just a follow-up on the spin. Just from a high level I think we kind of get the $40 million about in revenues. Can you tell me just will that be on the spin itself? Will it be dilutive or accretive to Ligand -- core Ligand?

Yes. Thanks Larry. We're still working through exactly what the expense profile will look like of both businesses. Generally speaking though within Ligand the business ran close to breakeven. So it won't be materially one direction or the other in terms of impact to the historical financials when we get those breakouts reported into the Form 10 and otherwise.

Got it. That's very helpful. So it's probably a minimal move one way or the other. So core Ligand earnings or bottom line should stay about the same. Great. And then just on the fourth quarter numbers. So as you mentioned in the release of remdesivir or VEKLURY material sales were a little -- I think a little bit less than expected and were -- originally expected and that's because of the reduction in COVID hospitalizations or serious hospitalizations. Is there any -- I thought for 2022, I'm just trying to figure out how much -- it looks like you are still keeping some material sales guidance for remdesivir in your numbers a little bit, right?

Yes. Thanks Larry. I think as we've talked about on a number of calls, the demand for the remdesivir and Captisol as it relates to that has been pretty variable over the course of the pandemic. And no one really knows where we're headed. But given that Gilead has given guidance on their quarterly call a week ago or so, where they said that they would expect about $2 billion of end user sales for Veklury this year but the majority of that in Q1 of this year. Anything that you're selling in Q1 this year we sold them Captisol long, long ago. And so that just generally, I think lines up and is reflective of what you'd expect for the guidance we gave for some Veklury-related Captisol sales in our numbers, but not a significant amount at least as we see it at the moment.

Okay. So it sounds like, it's a modest number and it's front-end loaded essentially for you guys even to even – it sounds like most of the Q1, will be satisfied with the stock on hand but maybe there's some residual sales and that would be front-end loaded in your material sales number?

Yes. We'll give more color on that as we go.

And the royalty number was a little bit – looks like it was a pretty decent number at least compared to my expectation. You mentioned it sounds like the Phoenix products Rylaze and then the other two contributed $3 million to that. Just I'm trying to get a better picture. Just on Kyprolis, I guess, that number for you guys because I know after the last quarter they were sort of running a little bit ahead of expectations relative to what you have built into guidance than I think they reported after the quarter. So it looks like they haven't reported yet again this time. So I'm just trying to – do you have a sense of – you're just building in an expectation of a sequentially flat quarter, or how do you kind of view that?

Yeah. Thanks, Larry. Agreed. Yes last quarter was a real strong quarter from Kyprolis and this quarter was fine. But it wasn't a huge step up from where they had been. One of the things I think people should keep in mind though is we are booking to our expectations but not to actuals when we book these quarters. And I mentioned that specifically, because we don't have any information on what Kyprolis has done in China for this last quarter. So we've not included anything for China. And that's one of the areas that we do think is going to be a significant area of growth for Kyprolis is BeiGene and their team they're launching Kyprolis in China. They report in another week or so and we should get some more information there, which will carry over to the rest of the year.

Okay. And just sticking on the Phoenix side, I think you mentioned Rylaze inevitable target of $200 million. I believe that, they've already been no longer selling the prior products. So I guess that $200 million number that target should come sooner than later perhaps potentially in I don't know 2022, but a pretty near-term type target? Is that a fair statement?

Yeah. Good question. Jazz has not reported their numbers yet. So we can't comment publicly on exactly, what we book to. And we're looking at script trends though, and we see nice progress in Q4 compared to Q3 of last year. And just reading through the script trends and some of the comments that you were just referring to where, they're now fully replaced their prior predecessor product with this new product with Rylaze, which did almost $200 million on its own last year the previous product. But one could expect that they should be trending towards that even for just this year. But yeah, between that product and the other two teriparatide and Pneumosil all three were nice contributors this quarter to the royalty one.

And just a quick update on the teriparatide I guess the bioequivalency target now is – I know that's been pushed out and it's pretty still doing okay it sounds like just on its own without the bioequivalency. So it's being marketed okay there. But is there a target for that, or I guess maybe hasn't – maybe hasn't been filed yet, or when you guys expect potential bioequivalence early?

Yeah, that's correct. Our partner Alvogen is dealing with the FDA directly on that and – they continue to work with the FDA. They've actually recently submitted additional data that was requested by the agency. And they did that, I think earlier this month and they're just waiting for the FDA's decision. Just a reminder to folks, there's no mandated time line for their response, but the last one was relatively efficient. So we're hopeful that we hear something in the next few months.

Great. Thanks. Appreciate all the color. Appreciate. Thanks.

And thank you. And our next question comes from Matt Hewitt from Craig-Hallum. Your line is now open.

Good afternoon. Thank you for taking the questions. Maybe one but it's actually a two-pronged question. Commentary over the last couple of weeks has been that because of the weakness in health care and pharma and biotech stocks specifically that it could create -- or that they are seeing some softness in funding for smaller pharma and biotech. And I guess two-pronged question here. Number one what type of exposure do you have on that front? And are you seeing any impact from that? And more importantly I guess for me anyway is does that create some opportunities for you from an investment standpoint where you could step in with some funding to obtain ownership positions in some really attractive assets? Thank you.

Go ahead John.

Thank you Matt. It's a thoughtful question. Certainly as to our business just to address the impact or what we might be seeing. Overall the majority of our assets are partnered with very, very secure well-capitalized company. And so it's probably just a numbers but also the most important assets from a financial contribution today are backed by again well-capitalized companies. So I think the quick answer obviously we're looking at the financial markets but we are not concerned about any pullback or change in the capital markets environment as it relates to our business model or our outlook. The second question about does this create an opportunity? Often when we meet with investors, we explain our model where we're a technology company. We provide the tools and the technology to our partners. And we really believe that in any economic cycle our business is really positioned well to thrive. And over the last five years the markets have been tremendous. They've been abundant a lot of capital a lot of new company formation and we've done very, very well with licensing. We don't see a particular change but realistically if there are fewer companies or less funding that may slow down a bit. However, in this market maybe what you're alluding to is that when there is capital retrenchment maybe a pullback, companies are looking for other more creative sources for capital or which Ligand can participate in. We can fund we can buy royalties. We can participate in research stage projects or as we purchased private and public companies that really have been financially distressed otherwise very good companies backed by great science but in a more financially distressed market environment we've been able to come in acquire and integrate those companies into ours. So we really have seen this. I've been at Ligand now over 15 years and we've seen a few cycles. And in every cycle we've been able to create opportunities and advance our business. We're very pleased with how we're positioned right now.

That’s very helpful. Thank you.

And thank you. And our next question comes from Jacob Johnson from Stephens. Your line is now open.

Hey thanks. Maybe John following-up on your last answer to Matt's question. You talked -- Matt Foehr talked a little bit about the investment plan for OmniAb post spin. But maybe for legacy Ligand, can you talk about your interest in adding technologies to the platform and adding another leg to the stool at some point after the spin occurs?

Yes. Our -- what we call remain color, the remaining Ligand business post-spin, the business model will be fundamentally unchanged. It's unlikely we're going to focus on antibody investments, out of respect for our colleagues and new company. We expect that would be their domain focus. But what we've seen in the last decade, 10 acquisitions a whole range of sizes and we really are looking for the tools technology the industry needs to meet their objectives for drug discovery. We've got a lot of insights for what the industry needs. We have over 140 partners and we have a sense of where they want to invest, where they need to invest. So that gives us a bit of a treasure map for where we want to look for other acquisitions. And we do see the market environment creating opportunities, both public and private acquisitions. So, we will recapitalize the business. Certainly as we spin out OmniAb, we can focus on our remaining assets, but then we're going to redirect our M&A and other targets. We had a large acquisition as investors know in October of 2020. So, about 15 months ago that was the Phoenix, we call now Pelican business, largest in our company's history in people and in assets and in the magnitude of the purchase price. But now that is well integrated 15 months later and we've got the capacity and the interest to find other assets and platforms to bolt on.

Got it. Thanks, John. And then a question for Matt Korenberg. I certainly understand there's moving pieces around expenses and so you're not guiding to it, but that means I'll still ask a question about it. Just in terms of the product gross margin line any kind of directional indication about how we should think about that in '22 versus 2021 given the kind of vacay probably mix shift of those revenues?

Yes. It's good question Jacob. And the answer is the margins will continue to be somewhat below where they had been historically just as a result of the larger volumes that we continue to manufacture as well as the flow-through of some of the costs that we've spent in the past that go forward. Some of those are -- the costs on there are noncash versions of costs. So you'll see cash flow should be better than the margins would indicate on those sales. But I think, last year is probably a good proxy for where those margins might be.

Got it. That's helpful. And if I could just sneak in one more for Matt Foehr. Just a lot of talk about OmniAb being spun out, but Icogen is part of that. Can you just remind me the kind of synergies between the OmniAb discovery assets and Icogen?

Yes. No great question Jacob. And it's really the capabilities that have been built up over many years at Icogen, the biological capabilities really centered around ion channels and transporters which are big areas not only in the small molecule space, but in the antibody-drug conjugate space as well as a number -- an increasing number of partners pursuing antibody approaches for ion channel targets. And ion channels are really key components of a wide variety of biological processes that generally involve rapid changes in cells. So common in cardiac and smooth muscle tissue they're important in nutrient transport T cell activation. And so, real broad therapeutic applicability across cancer or metabolic disease, pain, neurological diseases infectious diseases and the team at Icogen built up those capabilities over many years. So they fit very nicely and also are a big value driver, right? I mean, we continue to do new deals centered only around those in channel capabilities, but also see a lot of value in combining what are the best-in-class biological intelligence elements of our transgenic animals and screening technologies that have been acquired and invested in, but also pairing that with these best-in-class biological capabilities around ion channel. So a real exciting area. I think the science teams are very excited about it and I see a lot of potential for that going forward.

Awesome. Thanks for taking the questions.

Thank you. And our next question comes from Scott Henry from ROTH Capital. Your line is now open.

Thank you and good afternoon and first of all congratulations to Matt. I think you're going to do a great job. From there, most of my questions have been answered, but I did want to look back at the Phoenix acquisition now that we're kind of over a year past, you've got these big three products. And it seems like it started a little slow, but it's really picked up. When you look back at the time of acquisition, I was just curious, of those big three, what's kind of tracking ahead of your expectations or in line or maybe slower? It certainly seems like Riley seems to have been the strongest but I just wanted to get your thoughts.

Yes, Scott maybe I'll answer that one. I think all of the products out of the Pelican transaction are actually performing incredibly well for us. So we spoke about three of them in terms of their contributions to royalty this quarter. I think the first quarter launch from Rylaze was fantastic and we look forward to the actual earnings report from them in a couple of weeks for the Q4. The teriparatide asset at Alvogen would be for the TE approval, the TE approval may be delayed from where we expected or hoped at the time. But we were never counting on that at the time we bought the deal. That's why we bought the company. That's why we had a contingent value right or earnout payment tied to that happening during the year. And so we feel like it's performing on or ahead of expectations for not having achieved the TE rating which is great. And same for PNEUMOSIL from the Serum Institute of India, they're making great progress on their product in their region. VAXNEUVANCE has not launched yet but the approvals came on or ahead of schedule and we look forward to them ramping up as well. So across the board I think all four products are doing well.

Okay. Great. Thank you for that color. And when we think about the launch curves I mean obviously Rylaze is a pretty steep launch curve with the switch there. How should we think about PNEUMOSIL as far as the launch curve? I know vaccines tend to be pretty rapid but outside the US may be a little bit different. Just wanted to get your expectations?

Yes. That one is a little more difficult to predict. It is a lot of government contracts and other group purchasing contracts that they're putting in place. The good news is that the Serum Institute tends to announce when they add these contracts, which tend to be for annual repeating annual contracts of dosage. And so – so far they've done well. And you'll see as the 10-K gets filed next week the numbers that we're reporting here this quarter for Q4 for them look quite strong and we look forward to 2022 that continues along those trends.

Okay. Great. Thank you for taking the questions.

Thanks, Scott.

Everyone, thank you. And I am showing no further questions. I would now like to turn the call back over to John Higgins, CEO for closing remarks.

Yes, thank you. I appreciate the people's time and attention today the questions. And we look forward to staying in touch with everyone. The next two, three months is going to be a busy period for us trying to be as transparent as possible with our spinout plans but we feel very good about the feedback we're getting about the business planning that's going into now separating and running the two individual companies. And really on behalf of all of the management and the Board, I just want to say that we are excited to present our investors to public companies. We're confident they'll be both well run, good business plans and assets and really an exciting investment opportunity. So we're pleased with that. We're pleased with our year-end performance at the end of 2021. The numbers speak for themselves. But it really, really was an extraordinary fourth quarter for the business operationally and financially and we're pleased to be able to share this time with you. Thanks. And we will be in touch on our next earnings call, if not see you or talk with you before then. Goodbye.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.