Thank you for standing by. My name is Kyla Baker and I will be your conference operator today. At this time, I would like to welcome everyone to the Ligand’s First Quarter 2023 Earnings Webcast. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question and answer session. [Operator Instructions] I would now like to turn the call over to Head of Investor Relations Simon Latimer.

Thanks, Kyla. Welcome to Ligand’s first quarter 2023 financial results and business update conference call. Please note that there are slides accompanying today’s call. These can be accessed by going to the Investors section of our corporate website, where you can find the link to the webcast on the IR calendar page. Today, when discussing our financial results, 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. Please review our disclosures about forward-looking statements here on Slide 2. Additional information concerning risk factors and other matters concerning Ligand can also 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 on our earnings release issued earlier today. Speaking today for Ligand will be Todd Davis, CEO; Tavo Espinoza, CFO; and Matt Korenberg, President and COO. I would now like to turn the call over to Todd Davis.

Thank you, Simon, and good afternoon everyone. Thanks for joining our first quarter 2023 earnings call. I’m delighted to have the opportunity to address you all today and share some of my thoughts on the Company’s performance and our future prospects. I have been in the CEO role for about five months now and as I have immersed myself in the running of the business, I’m more excited than ever about the prospect of advancing Ligand to the next stage of growth. Our focus is and has been to create a diversified portfolio of high margin royalties, producing superior risk adjusted returns. Ligand has consummated 19 deals over the last 15-years, with a significant and positive track record of achieving this objective. As you can see in Slide 3, those deals have created our current strong balance sheet and a large portfolio of biopharmaceutical assets, including the seven commercial stage products that are delivering our current growing financial performance. It also includes multiple key late stage assets that will soon feed into the commercial stage asset base to further drive growth. Beyond that, a farm team of 80 earlier stage assets will contribute to our later stage pipeline. Things like FILSPARI and our Viking NASH programs came from this group. This bolsters our long-term growth. Matt will cover some of these more specifically during our portfolio update. Also, our current platform technologies, Captisol and Pelican continue to contribute to our business by adding new license deals with new partners. And finally, our current focus on organizational changes and scaling of deal execution is intended to further accelerate the growth of our late stage pipeline. This is a proven strategy that requires differentiated thinking and a premier investment tape. Turning now to Slide 4. We have had excellent portfolio developments and…

Thanks, Todd. As Todd mentioned, we have kicked off 2023 with a strong first quarter with continued impressive year-over-year royalty revenue growth, and major positive news flow from our partners. Total revenues for the quarter were $44 million, which represents a 21% increase over the prior year quarter, and a 44% increase when excluding contributions from the COVID Captisol sales in the prior year period. Royalty revenue increased 28% to $17.2 million from $13.4 million a year-ago. This growth was driven by strength in Amgen’s KYPROLIS, which once again reported record quarterly net sales as well as contributions from Merck’s VAXNEUVANCE and Jazz Pharmaceuticals’ Rylaze, as both products continue successful launches. Captisol sales were $10.6 million this quarter versus core Captisol sales of $6.2 million in the same quarter of last year with the difference due to the timing of customer orders. Total Captisol sales in the first quarter last year were $12.1 million with $5.9 million of that related to COVID-19. We did not have any COVID-19 related Captisol sales this quarter. Contract revenue in Q1 2023 was $16.2 million versus $10.9 million last year. The increase is driven primarily by the $15.3 million milestone earned upon the FDA’s accelerated approval of Travere’s FILSPARI. As Todd mentioned, we are focused on maintaining a lean operating structure and managing costs to maximize our operating margins. In Q1, aggregate G&A and R&D operating expenses decreased by 17%, when compared to the prior year quarter. G&A expenses in the first quarter of 2023 were $10.9 million versus $11.9 million in the first quarter of 2022. The decrease is primarily due to a decrease in headcount related expenses as well as lower legal and accounting costs post the OmniAb spin out. R&D expenses in the first quarter of 2023 were $6.7 million versus…

Thanks, Tavo. Today I’m going to review some of the highlights of our current key revenue drivers that led to the impressive first quarter results, and also provide more details for investors on the way we are viewing the exciting long-term growth prospects for Ligand. Over the course of the last 15-years, Ligand has aggregated a portfolio of over a hundred partnered programs, some of which are approved in commercialized, while others are in various stages of development or regulatory review. On slide 11, we list 11 products that are currently approved or in Phase 3 development in a traditional pipeline format. We have focused a lot of the dialogue with investors over the past 12 to 18-months on these programs. Today, I will frame the way we are thinking about the total portfolio and how it will drive long-term growth for Ligand. Slide 12 is a way to look at the important categories of growth drivers that Todd outlined in his comments. We see these as the principle ways that Ligand will drive shareholder value. Our current commercial portfolio is over 25 programs, but seven of those are significant enough that investors should focus on them in the near-term. There are seven key pipeline programs that we see as potential drivers of growth over the medium term, one of which is an expansion of an already approved program and six of which are new approvals. The farm team is a remainder of our existing portfolio and it is comprised of over 80 programs that will continue to advance as partners move them ahead. We plan to highlight specific programs from this portfolio as they become near-term or more prominent for Ligand. Our platform technologies will continue to add new programs to the early stage portion of the portfolio as…

Thank you. [Operator Instructions] Our first question comes from the line of Larry Solow with CJS Securities. Your line is open.

Hi, good afternoon. It is actually [Liji Godo] (Ph) for Larry this evening. Just starting with the Viking stock that you sold during the quarter, can you talk to the rationale behind the timing of those sales and then how we should think about your intentions for the rest of your holdings there?

Sure. A little hard to hear, but I think this was regarding the sale of Viking stock. I would just start off by saying that, this is Todd, sorry. But we are big believers in Viking and we retain a significant shareholding. For us, equity is an important investment, but it is also an investment tool that enables us to support partners, and enable deals like we did with the original creation of Viking. The key and strategic economics for us are contained within the license agreement in the form of royalties and milestones, which we view as longer-term assets. So therefore, equity for us is a source of cash, and we will sell it from time-to-time when we own it. This enables our key reinvestment strategy to further drive growth. And this is pretty consistent with what we have done historically. And we continue to hold on to the royalties in key programs like NASH.

That is very helpful. One more just on capital requirements in general. I think you had mentioned, once you pay down the convert, you will have about $200 million of net cash. And you have also spoken a lot about the various ways to deploy that capital including M&A. What other liquidity is available got to you all after eliminating the convert and do you foresee needing additional financing beyond the $200 million of cash and whatever you are going to generate to fund all of your goals here?

I think we have significant access to the debt market still, if we need it. But the $200 million plus capital that we have to invest should I think be more than adequate for our strategy over the next 12 to 18-months, at which point will reassess. We believe we have very good access to the capital markets, even in this environment, given our strong relative financial position.

Okay, great. I will hop back in and let others ask some questions.

And our next question comes from the line of Scott Henry with ROTH Capital.

Thank you, good afternoon. I will start out with a big picture question for Todd, then get into a couple specifics. Todd, you have now been CEO going on 150-days, somewhere around there. I know one of your main drivers is to scale up deal making, and you have laid out, how you want to do that. Can you talk about any other kind of near-term to midterm initiatives you have, ways that you want to put your stamp on the business? I know you are on the board before, but any processes that you are looking at differently?

Yes. I think, that the company historically had an M&A orientation. They have done very well with that and created significant returns. And so, the scaling up of the business development team is really, you are talking about a handful of new hires that are very capable. We have done most of that at the senior ranks, and we have a handful of business analytic, science and clean rig evaluation folks that we are, have open positions on. And in the medium term, I think we are expanding. Although, we have done almost all of these formats historically, we have not done them consistently. And I think what we want to do is scale the business development and investment side of this so that we can consistently originate novel deals on high value clinical products with a very capable clinical development partners. That is really the objective that takes networks, execution, senior relationships, and capital. And that is what that team is going to be focused on. We are already executing on that strategy. We have about 700 million in asset opportunities on late-stage pipeline that we are looking at assessing, et cetera. And it is working its way through our pipeline. So that is where we are. We have a ways to go on the organization, but a lot of it is been achieved and we are executing on the deal front now, looking at several deals that are kind of at the mid stage of the deal process.

Okay. Great. Thank you for that color. Just a couple specific questions. First, the royalty guidance went up about, I think 4 million. Could you talk about what came in a little better than expected?

Yes. The key driver there was the Amgen’s KYPROLIS, again reported record sales, and that is the key driver as we look at how that extrapolates over the year.

Okay. And I know it is not your product, Sparsentan, you are the partner, but you guys are pretty smart guys. So I would be curious to hear what you think of the FSGS data and how that impacts, I mean, really three things. The way I think of it is, one, how does it impact the approval of that second indication? Two, how does it impact if it is not approved off-label prescribing? And three, does it have any impact on the [Indiscernible] indication, I recognize it is not your specialty, but I would be curious what your bullet points are on the topic if you would like to share them.

Thanks, Scott. I, I appreciate you giving me some credibility for being able to have a view on this, but we will give it our best, but just remind everybody that really what we are doing is facing all of our comments I’m about to make on public information. We don’t have any information from Travere that is not confidential or that is confidential. We only, we only get the public information. So, with that said, we do have views on all that based on listening to their earnings call - call disclosing the data and then reading their press releases, et cetera and just talking with our own scientists. I’m not sure I will answer these in the order that you asked them, but I guess first off, the opportunity, as I mentioned in my prepared comments for IG nephropathy is more than a billion on its own without FSGS, I mean, roughly 30 to 50,000 patients at approximately a $100,000 a little bit less. But that is kind of a $3.5 billion to $5 billion opportunity where they fully penetrate that market, even as currently approved. Obviously, no one expects them to fully penetrate that market, but I think people still see that as a billion dollar opportunity on its own. In terms of FSGS as a potential approval downstream, and Travere was pretty clear when they announced it, but they’re still planning to discuss a path forward with both the U.S. and European regulators. Given the significant unmet medical need and the positive trends even in the EGFR data, but also in the other top line data and in the strong signals of efficacy that they saw in, in other in other data points all to us means that we’d expect that hopefully there is a path…

Okay, that was great. I appreciate that color on that topic. Final question, and it is a quick one with regards to the Viking gain. First, congratulations, it is nice when it works out that way. The question is if I want to pull that out of the quarter, I have to assume a tax rate. How should I think about it if I want to get a kind of a comparable number going forward and looking backward?

Yes. The tax rate on the Viking gains is going to be a little bit higher than the non-GAAP rate we have been applying to operating income. You can apply 22% to that, Scott.

Okay, great. Thank you for taking the questions.

And our next question comes from the line of Matt Hewitt with Craig Hallum. Your line is open.

Good afternoon. Thank you for taking the questions and congratulations to the strong start to the year. Maybe first one, kept us all hang. Very strong quarter. If I’m hearing you correctly, it sounds like there was maybe some orders that came in a little earlier than you had anticipated for the year. Is that the case and that is why you have elected to leave the $21 million number for the year. And then I guess the follow-up to that is, how should we be thinking about cadence for the a remainder of the year for the other call it $10 million, $10.5 million?

Yes. Hey, Matt. Thanks for the question. Yes, exactly right. The first quarter was quite strong compared to the guidance for the year. And you hit the nail on the head. One of our larger customers ordered a significant amount of their expected orders for the year in the first quarter. As we always say on almost every quarter, these orders are lumpy. Customers frequently will move their order pattern around like this. We do think there is potential for some strengths later in the year, but for the same reason that some folks accelerated orders this quarter. We don’t want to raise the guidance before we are pretty certain that folks are going to finish off with stronger demand than expected for the rest of the year. So there may be some strength, but for now, we think it is most appropriate to leave it at the current guidance.

Got it. And then as far as the deal pipeline is concerned, you gave us a couple data points or ways to look at that. Given the environment that we are seeing right now, particularly with small pharma and biotech company funding essentially drying up. Is that creating a lot of opportunities and given the size of your team, how are you finding or structuring projects to dig into those opportunities and how should we be about the cadence of you signing some of these new agreements over the next couple of quarters? Not only in signing the agreements, but then will you be looking at the opportunities themselves as far as, okay, well this one is going to have a Phase 3 trial this year, this one will have a Phase through trial next year. So you are kind of staggering the goalposts, if you will, on the other side?

Yes. That is a good question, Matt. This is Todd. And I think in terms of the pipeline, I would just emphasize this is a strategy that works in a strong capital market environment. But you are right. In a challenging capital market environment, where you have the issues with SVB, people having - that have debt having to refinance it at significantly higher rates and then there is the normal need for access capital in biopharmaceutical industry with fewer debt and equity alternatives available. It is an especially robust and opportune time for us, and there is a pretty big void that we can fill right now. So I like the position that we are in as a result of that. I can tell you that, although we are still building the team, as mentioned, we have several capable people here, and it is a bit of a fire hose right now. So the key is to be very selective on what you work on, which means, high quality screen upfront. So we are really looking at assets with very high clinical value, things that are within about at least four-years of approval that is typically Phase 2-ish or beyond. And that have significant evidence of safety and efficacy, where we think we can obviously price these not only above our own cost of capital, but where we can price them in excess of the risk we are buying so that there is significant alpha that we are creating on a product to product basis. So this is a great environment for this, the cadence is I wouldn’t want to commit to anything, because when you are investing, you want to do it right, not fast, but there is a lot on our plates right now, and in inevitably some of this will start to come to fruition over the next several months. The volume pretty high in terms of what we are looking at, and there is a lot of very good assets out there. But importantly, you need a really good team on the other side. We are not in the clinical development business, so when we partner with somebody, we are also assessing the team, their ability to execute, et cetera. That is really important.

That is really helpful. Maybe minor one, and then I will hop back into queue. As far as the Riley’s opportunity, does the EMA approval, would that trigger another milestone later this year?

I don’t think we have disclosed specifically whether there is a milestone or not on the EMA around that contract. But there is typically very low milestones for this program outside the U.S. that may be triggered around that.

Alright, thank you.

And our next question comes from the line of Balaji Prasad with Barclays. Your line is open.

This is [Michelle] (Ph) on for Balaji. Thanks for taking our question. Just a quick one on KYPROLIS, and you have in the street currently, modelled annual revenue of around like 1.3 billion to 1.4 billion for 2023, which will translate to around 40 million royalty revenue for Ligand. Do you think this is range within the ballpark of your estimate? Thank you.

Yes. Thanks for the question. This is Matt. I agree that is the contained consensus we see for the KYPROLIS revenues in that 13 to 14 level. Just a reminder, I mentioned in my prepared comments as well, but folks should aggregate both the Amgen sales, the Ono sales, and then Beijing sales in China. So all three contribute, and we get paid the, a royalty on the aggregate sales across that. And in terms of the math, I don’t know the exact number, but it is exact royalties are disclosed in the Ks and Qs we present. So it is 1.5% on the 250 million, and then it is 2% for the next 250, 2.5 next 250, and then 3% for everything over 750 million. Your math sounds about right, but and there are a few adjustments from what they report to what we actually get paid on through currency changes and things like that. But for estimation purposes, it sounds like your math is pretty close.

Got it. That is helpful. Thank you so much.

Thank you.

And our next question comes from the line of Joe Pantginis with HC Wayne Wright. Your line is open.

Hey guys good afternoon. Thanks for taking the question Todd, I wanted to ask about the evolution of your thinking around strategy here especially since you took over, but of course you have been with the company for a while. Your initial comments had some nice breakout of how you are thinking about things and the Q&A has touched upon it, but I guess I want to approach it from this way. Login obviously has a long history, so curious based on all the different kinds of deals that you have done previously what do you think some of the best performing deals have been with regard to structure, the fundamentals, the science, or what have you and how are you looking to apply those learnings to the new deals going forward?

The company historically has executed on almost every deal format I have mentioned royalty acquisition, project finance, M&A, and platform acquisition. But it has been predominantly M&A that they have executed on. So M&A has created the majority of our returns. The Company’s very good at this. But I would just say that even in the M&A deals, really the lens that we look through is it is the products that drive value. So you are really selecting the right products in these situations. We are very product and team focused. We look at platforms opportunistically, of course, but structure is a tool. And so M&A is one approach and really one structural approach as is project finance, as is royalty acquisition, et cetera. And the more tools you have, the more opportunities you will have to get to high quality teams and high quality assets, which means you will get more high quality deals done and have greater growth. So that is the way we are looking at it and approaching it.

I appreciate it. Thanks a lot.

Thank you.

And there are no further questions at this time. Todd Davis, I will turn the call back to you.

Thank you. I want to thank everyone for joining our first quarter earnings conference call. What we are offering investors is high growth in the biopharmaceutical segment, but with a broad portfolio that mitigates the typical volatility and binary risk nature of drug development that is inherent in narrower portfolios. Instead, we are making these product by product investment decisions with the benefit of confidential information shared from our drug development partners. This gives us a significant information advantage in the aggregation of a broad portfolio of royalty cash flows where no single asset determines our fate. And with that, I will turn it back to the operator and thank everybody for joining us today. Thank you.

And this concludes today’s conference call. You may now disconnect.