Good day, everyone. And welcome to the Ligand Pharmaceuticals First Quarter '22 Earnings Call. At this time, all participants are in a listen-only mode . Please note this call maybe recorded. It is now my pleasure to turn today's program over to Simon Latimer, Head of Investor Relations. Please go ahead.

Thanks. Welcome to Ligand's first quarter of 2022 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 the expected timing, completion and effects of our previously announced plans to spin off the OmniAb business to become a standalone public company pursuant to a business combination with Avista Public Acquisition Corp II. 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 measure can be found in our earnings release issued earlier today. I'd now like to turn the call over to John Higgins.

Simon, thank you. Good afternoon, and thanks for joining Ligand's first quarter 2022 financial results conference call. In addition to our strong financial performance, the other main highlight this past quarter is the progress we made towards separating out OmniAb into a public standalone company. We anticipate the split will be completed in the second half of this year. The regulatory process has advanced. OmniAb is staffing up and Ligand continues to recruit new board members. There’s strong interest from people to join both Ligand and OmniAb, which we believe validates the strength, success and outlook for each business. As we move towards the split, we will be enabling investor to focus on Ligand going forward, or what we call the remaining company or RemainCo. Post split, we will focus on Ligand being an efficient company built around R&D tools to drive licensing transactions and partnerships. Ligand will leverage its strong R&D heritage and will have a broad and growing portfolio of partner programs. The focus will be on financial growth, sharing the economics of quality, pharmaceutical products developed and commercialized by others with an overlay of a lean cost structure. We have a good core products including KYPROLIS, EVOMELA and the addition of four new royalty bearing products from our Pelican acquisition about 18 months ago. We have strong core assets today and we see major drivers of growth coming from other products in late stage development. Before I talk more about RemainCo first, I want to make some comments about our work with Gilead and others to support the production of remdesivir for the treatment of COVID-19. We answered the industry's call by stepping up to manufacture Captisol at about 10 times the scale of our typical annual production. We are pleased in terms of our scientific and…

Thanks John. Our remarks today will cover three topics, I'll review our financials. I'll provide an update on the OmniAb separation process, and I'll provide a brief update on some of our major partner programs. Starting first on the financial front, the first quarter of 2022 was a strong start to the year for Ligand. Total revenues for the quarter were $45.7 million. Royalty revenue increased 93% to $13.7 million from $7.1 million a year ago. All of our major products contributed to royalty revenue growth with a significant portion of the total growth driven by program using our Pelican Expression Technology, including Rylaze, Teriparatide and PNEUMOSIL. Rylaze was launched in the middle of 2021 while Teriparatide and PNEUMOSIL had very nice year-over-year growth in their second full years of commercialization. Total Captisol sales were $12.1 million for the quarter, and this compares with $31.3 million a year ago. Beginning this quarter, we're breaking out Captisol sales into two separate lines. One includes Captisol we've sold related to the COVID treatment remdesivir and the other includes our sales of Captisol for all other programs and customers, which we refer to as our core Captisol sales. From these lines, you can see that the decline in Captisol sales was a result of the decrease in COVID related sales versus 2021. Our core Captisol sales increased year-over-year from $1.3 million in Q1 of 2021 to $6.2 million in Q1 of 2022. While this was a strong quarter for core Captisol sales, as investors know from past periods, quarterly sales are lumpy based on the timing of orders by our large customer. We do not anticipate that Q1 2022 core Captisol sales will be a run rate for the rest of the year. And I'll give you more guidance on this in a…

Thanks, Matt. I'm going to focus my comments this afternoon on our OmniAb platform, as we prepare for it to become an independent publicly traded company later this year. The OmniAb discovery platform provides our partners with access to diverse antibody repertoires and cutting edge high throughput screening technologies to enable the discovery of next generation therapeutics. At the heart of the platform is the biological intelligence or what we call BI of our proprietary transgenic animals. These animals have been genetically modified to generate antibodies with human sequences to facilitate the development of human therapeutic candidates. Over 55 partners currently have access to OmniAb derived antibodies and more than 250 programs are being actively developed. We've added a substantial number of new programs over the past 12 months, and our partners have completed or are conducting over 100 clinical trials. These trials include indications that spanned oncology and inflammation, metabolic diseases and immunology. We've recently added multiple new partners and expect to be adding more this year at potentially an even higher rate than in the recent past, given our ongoing business development discussions. We're looking forward to the ASCO annual meeting early next month where multiple OmniAb partners will present new clinical data. Over time our platform has become increasingly validated now with two approved drugs, one under review with the FDA and many others in or preparing to enter the clinic. We believe the OmniAb business is poised for continued growth and believe our growing roster of new partners and programs illustrates the value of our technology. OmniAb is now being used in diverse modalities, including full length IGGs, various formats of biospecifics, antibody drug conjugates and others. We continue to invest in our technology to expand its utility and have developed dozens of different antibody discovery…

We'll take our first question from Larry Solow from CJS Securities.

Sounds like everything's moving ahead on schedule. So glad to hear that. Maybe just a couple of sort of questions on KYPROLIS. I think Amgen put out a pretty good number in Q1. It sounds like -- and they seem pretty optimistic on the full year. So a question around Captisol and more just on the BeiGene recent approval, just trying to get a little bit more color and how big potentially that the opportunity in China could be for KYPROLIS?

I'll jump in there, I thought Matt might. But Larry, thanks for the question. So yes, to break it down, KYPROLIS approved in 2012 early US only now it is sold through Amgen US, Europe. Ono's the Japanese partner and you reference Beijing, they just launched in the first quarter in China, a big market. So the profit is annualizing over $1.2 billion a year and a half ago, sales stalled a little bit. We believe that was largely pandemic related office visits for oncology treatments. But the growth is picking up. The last two quarters, Japan looks strong. Amgen, you're right, reported a good first quarter. We do not know Beijing's quarter yet, it's a partial quarter, and they have not given guidance or broken it out. China, our estimate would be at least $100, million annual, sales it could be $200 million to $400 million. But it's too early to tell and we're looking forward to getting a few quarters run rate before we can…

And I mean kind of like a, John, like a three to five year potential that without holding to the number, but it seems like -- just to get a little like relative size or what this does to the potential TAM is really kind of what I'm looking at?

Yes, I mean a fair question. Again, we're going to get the first quarter and maybe more of a trend line and watch for Beijing signaling. As a public company, they're fairly vocal or out there on their financial performance. So hopefully, they'll have some messaging. But it's so early, it's hard to factor that in. But long way to say, it’s a great asset, it’s a very good royalty and it is definitely still growing. And now we expect it to drive good cash flow for Ligand going forward.

And then just similar question, maybe on sparsentan. And I think you guys have given some numbers just on potential market size. I think, initially, we thought the FSGS indication might be first, but it seems like they may come eventually both be approved together, maybe the IGA and then processes will be first. And I think then probably the market is actually the bigger of the two potential markets. So again, maybe just potential size or what that could eventually be, even at the low end of expectations? Again, a five year plus outlook, not what we're going to do in Q1 of '23, or anything like that?

I'll give a comment and Matt Korenberg, he studies the public company research reports as well. It's a broad range. Several years ago, the partner would describe this, as much as a $0.5 billion to $1 billion US market. And certainly the pricing potential and the patient needs supported that. I say that because we get those questions and that those numbers are out there. Nobody is planning that right now, it's too early. We've seen as low as $200 million. So that's a broad range. But where we are is really at a point now the clinical has gone so well. So far, the regulatory is on or ahead of schedule. Before we jump the gun on commercial, we're really going to listen and watch to see what Travere provides for guidance before we get in front of those numbers. Matt, any other perspective the street might have right now around that asset?

I think John, you can captured it and Larry, you mentioned. But the patient population for IGA nephropathy is approximately 100,000 and the patient population for FSGS is closer to 30,000 or 40,000. So certainly, IGA nephropathy is the bigger opportunity in terms of patients and the launches, as we mentioned, expected, hopefully next year. And then the research, the third-party research that we look to, the consensus numbers that we look to, they are -- there is a wide range, as John mentioned, 200 on the low end and a billion on the high end. But something in the several 100 million range seems like what everyone is expecting at least in terms of potential.

And then just last question, I think John just -- I just want to confirm, you referenced to potential growth in '23. That was for the RemainCo, it's for the mid-teens top-line, I think you said 50% earnings growth. I know that wasn't a guidance, that was just sort of a target, right…

We did and I'm sure, it's clear by the prepared remarks. We're excited about the business, investors now as we move toward the spin, we can't predict the exact date or month of it, but we expect the spin will happen. We're going to have a remaining company and it's a very well positioned company. We'll have more detail in conferences, et cetera. But when we look at the portfolio of inline, currently royalty generating assets and then the calendar of potential approvals the next one to three years, this is everything, you know I've been here 15 years, this is everything that we've worked for in terms of building high quality research business backed by royalty growth. And so we’re, one, trying to give more clarity around the business components. And specifically, we do give some numbers today but it's early days, we're very confident in top and bottom line growth. And as the quarters move on, we'll have more specificity around that.

Next question comes from Matt Hewitt from Craig Hallum Capital.

One of the questions I've been getting a fair amount recently regarding funding, biotech, small and biotech and pharma companies in particular, given the current market dynamics. And I'm curious, I mean, I look at your portfolio of your partners and you've got a pretty wide swath of the market. A lot of large companies, you mentioned Merck, obviously earlier, a number of them that are very well funded. And on the other end, you've got some smaller companies. What are you hearing from your partners regarding funding? And I guess for those that are on the smaller side, does this create opportunities for you from an investment standpoint, if one of these or more of these have platform type opportunities where you could step in, maybe provide some incremental capital, but add to your stable of platforms?

And I guess first off, generally, we certainly see what you're commenting on out there. Markets are difficult for fundraising in the biopharma sector, that's not rocket science right now. And we've seen hundreds of companies that are trading at or below cash levels and/or private companies that are struggling to finance. And a lot of those companies are coming to Ligand looking to partner or looking for financing. And so the opportunity set is certainly -- at this point, the market is certainly providing a wide opportunity set for us. Within our own partner base, most of our partners are well funded through whatever the next key value driving event is, if not just fully large companies that are set for funding. But there are a subset, exactly as you suggested, where we do see opportunities to invest more in a business or a program and in exchange get economics. And that is something that we think is a good opportunity. We know the program's really well. We either created the science or they're using our technology in most cases. And we can use that as a competitive advantage to have some insight onto the program. And so for us, it does provide additional opportunity. And we do think we're excited about that, at least from that standpoint, for the next six to 12 months as the markets sort itself out.

Okay, well, thank you. It sounds like that's the end of our questions. We appreciate people dialing in and listen to the story. It's been a busy year so far, and we'll have some updates. We’re at two conferences later this month. HCW, , we'll have a live presentation and then we'll be at the Craig-Hallum Conference June 1st. Thank you, everyone. We appreciate your time.

This does conclude today's program. Thank you for your participation. You may disconnect at this time. Have a great day.