Thank you for standing by. My name is Benjamin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ligand First Quarter 2024 Earnings Webcast. [Operator Instructions] I would now like to turn the call over to Michael Zhang, Investor Relations. Please go ahead.

Hello, everyone, and welcome to our earnings call for the first quarter of 2024. During the call today, we will review the financial results we released after today's market close and offer commentary on our partnered pipeline and business development activities, after which we will host a question-and-answer session. . Our earnings release and link to the webcast of today's call can be found in the Investor Relations section of our website at ligand.com. Participating on the call today will be our CEO, Todd Davis, our COO, Matt Korenberg; our CFO, Octavio Espinoza, our Senior VP, Investments and Business Development, Paul Hadden and our Senior VP of Clinical Strategy Investment, Dr. Karen Reeves. This call is being recorded, and the audio portion will be archived in the Investors section of our website. Today on our call, we will make forward-looking statements regarding our financial results and other matters related to the company's business. Please refer to this safe harbor statement related to these forward-looking statements, which are subject to risks and uncertainties. We remind you that actual events or results may differ materially from those projected or discussed and that all forward-looking statements are based upon current available information. Ligand serves no obligation to update these statements. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Ligand filed with the Securities and Exchange Commission, including our most recent Forms 10-Q and 10-K. With that, I will now turn the call over to Todd.

Thank you, Michael, and welcome, everyone, to our First Quarter 2024 Earnings Call. I'm pleased to report a strong start to 2024. We continue to deliver on our strategy of enabling the clinical development of high-value medicines by entering well-structured financial and licensing partnerships. I'm happy to say that over the last year, we have executed on this strategy, which we expect will propel Ligand into the next stage of growth. I'm excited about our prospects. Slide 3 summarizes our financial and portfolio highlights for 2024, some of which have already come to fruition in the first quarter. To recap, here's how we have supported our growth strategy so far this year and the outlook that we see for the remainder of 2024. First, we entered the second quarter with a strong balance sheet and a rich funnel of investment opportunities. As of March 31, we had $311 million of cash and investments, including our holdings in Viking Therapeutics stock. We are pleased with this balance sheet and expect to generate an additional $60 million in cash from operations in the remainder of the year. Adding this to our $75 million revolving credit facility capacity, we are in a strong financial position and able to continue execution on our strategy. In addition, we are reiterating our 2024 financial guidance as well as our longer-term outlook. Over the next 5 years, we see a royalty revenue CAGR of over 20% and an adjusted EPS CAGR exceeding 25%. This growth projection is driven by 3 asset groups. Our current commercial assets, our existing portfolio of development-stage assets and the new assets that we add into our portfolio through technology licensing and our investment activities. With the announcement of [ Janice ] investment this morning, who have added more than 10 assets into…

Thank you, Todd, and good afternoon, everyone. Turning to Slide 6. We are excited about the Agenus investment, which IgAN will deploy $75 million upfront with an option to invest an additional $25 million. This investment is unique and that combines our team's strong ability to value partnered clinical-stage royalty assets while also supporting promising clinical stage programs using royalty structures. This nondilutive capital infusion is exactly the type of partnership, we hope to bring to other forward-thinking and creative biopharma companies like Agenus, who have high-value clinical assets and strong operational teams. The Agenus investment significantly increases Ligand's portfolio exposure to the next generation of immuno-oncology or IO for short. Our $75 million investment will provide us access to economics on 7 IO programs. IO as a category, seeks to bring life-saving therapies to patients with terminal cancer. The IO category includes multibillion dollar blockbusters such as Yervoy, Opdivo and Keytruda. Agenus; BOT/BAL is a compelling next-generation I-O combination therapy, utilizing the same mechanistic pathways as those blockbuster drugs, namely CTLA-4 and PD-1, seeking to offer significant improvements in both efficacy and safety. Dr. Karen Reese will profile BOT/BAL in more detail, but suffice it to say, our diligence team was impressed by BOT/BAL's clinical program in highly refractory colorectal cancer patients as well as other solid tumors. The other 6 IO programs are partnered with primarily large biopharma companies, who have deep oncology experience and franchises. These 6 partner programs offer Ligand, future potential royalties in the low single digits as well as over $400 million in potential milestones. Our investment team, which has significant health care domain and royalty investing experience, spent a considerable amount of time with the Agenus team during our confidential due diligence process, including manufacturing site visits to Agenus' Emeryville facility. Our team's…

Thanks, Paul, and thank you, Todd, for the earlier introduction. As Todd mentioned, I'll be touching on a few of our pipeline programs, namely Zelsuvmi, Filspari, ensifentrine and V116. But first, I'd like to just make a few comments on today's Agenus announcement. . Regarding Agenus' BOT/BAL, this is an exciting program, and in my view, the potential impact on colorectal cancer is very promising. Approximately 900 patients have been treated with BOT/BAL in clinical trials across 9 different difficult-to-treat solid tumor cancers. The novel therapeutic regimen has demonstrated the potential to be combined with chemotherapy and other standard of care therapies and as an immunotherapy only combo in colon rectal cancer, one of the most prevalent solid tumors globally. In April 2023, Agenus was granted Fast Track Designation from the FDA, for the investigation of the BOT/BAL combination in patients with metastatic relapsed/refractory microsatellite stable, CRC with non-liver metastases. Botensilimab is an investigational, multifunctional, anti-CTLA-4 immune activator designed to boost both innate and adaptive antitumor immune responses. Its novel design potentially leverages mechanisms of action to extend immunotherapy benefits to cold tumors, which generally respond poorly to standard of care or are refractory to conventional PD-1 CTLA-4 therapies and other investigational therapies. Botensilimab potentially augments immune responses across a wide range of tumor types by priming and activating T-cells, down-regulating intratumor regulatory T-cells, activating myeloid cells and inducing long-term memory responses. Okay. Let me move on to the next slide and focus now on Zelsuvmi. Zelsuvmi approved by the FDA, January 5, 2024, and is a first-in-class nitric oxide releasing product for the treatment of molluscum contagiosum, a highly contagious viral skin infection, predominantly affecting children with no other approved at-home treatment. Molluscum is a poxvirus causing chronic dome-shaped skin papules with a central indentation and can appear multiple…

Thanks, Karen. Today, I'll provide some additional comments on a few of the other significant updates from the first quarter across our portfolio in both commercial and development stage programs. . A reminder for investors that Ligand's portfolio includes more than 85 partnered programs that drive our royalty revenue, our Captisol material sales and our license milestone and contract revenue. Slide 14 shows our key commercial programs that drive the significant majority of our royalty revenue. Our current commercial portfolio includes over 25 different royalty streams and 30 commercial drivers overall. But these 8 programs are expected to contribute over 95% of our royalty revenue in 2024. Starting with Rylaze, it's marketed by our partner, Jazz Pharmaceuticals and is a component of a multi-agent chemotherapeutic regimen for the treatment of children and adults with ALL or LDL. This product continues to do extremely well in a market that was previously constrained by supply issues. Last week, Jazz reported its Q1 earnings, including $103 million in Rylaze sales and Jazz continued to highlight Rylaze as one of its potential growth drivers. Having received approval for Rylaze in Europe in September 2023, Jazz confirm the ongoing rolling European country-by-country launch. Next, on Vaxneuvance . It's a pneumococcal vaccine utilizing Ligand's CRM197 vaccine carrier-protein produced using our former Pelican Expression Technology platform. Merck is now marketing Vaxneuvance, in both the adult population and the pediatric population. Merck announced $219 million in Vaxneuvance sales in Q1 2024. Ligand earns a low single-digit royalty on Vaxneuvance sales. For Tzield, Ligand purchased a royalty on Sanofi's Tzield in November of 2023 from an inventor. We're very happy with Sanofi's continued investment in Tzield and its commitment to the first-ever launch of a disease-modifying therapeutic for Type 1 diabetes. It is still early in the launch and…

Thanks, Matt. First, I want to highlight that I will be discussing non-GAAP results, which excludes certain items, including stock-based compensation, amortization of intangible and financial assets, unrealized gains from short-term investments, our share of losses absorbed from accounting for our investment in Primrose Bio under the equity method, expenses incurred to incubate Pelthos, amongst others. . In addition, to further focus our investors on the core business results, we adjust for realized gains from the sale of Viking Therapeutics stock. I encourage you to review the GAAP reconciliation of these non-GAAP measures, which can be found in today's release available on our website. Also, I'd like to point out that starting with this quarter, we are updating how we report royalty revenue to provide increased transparency and better align with our evolving business model. We will now show 2 lines with one labeled as revenue from intangible royalty assets and the other labeled as income from financial royalty assets. Historically, most of our royalty revenue has been earned from programs where we have rights to the underlying intellectual property. We will now refer to this royalty stream as revenue from intangible royalty assets. And starting with this quarter and for prior periods presented, we will also report royalties generated from programs where we do not have rights to the underlying IP as income from financial royalty assets. The amounts recorded to this line item were previously captured in contract revenue and have been relatively small, but we expect it will become a larger portion of our royalty asset portfolio in the future. For additional details, please refer to Footnote 1 in our Form 10-Q that we expect to file with the SEC tomorrow. We kicked off the year with strong results in the first quarter of 2024 with both…

Thank you, Tavo. We are very pleased at our strong start to 2024, I'm enthusiastic about the progress we've made to take Ligand to the next stage of growth. We've entered the second quarter with a strong balance sheet and continue to generate more cash, which provides us the power to invest in high-margin royalty assets, like Agenus investment announced earlier today. I'm excited about the potential significant catalysts in the coming months with Pelthos's Zelsuvmi, Verona's ensifentrine. Merck's V116 and Takeda's Soticlestat. As our 2024 guidance and longer-term outlook imply, we look towards significant long-term revenue and EPS growth. Thank you. And with that, we will open it up to questions.

[Operator Instructions] The first question comes from the line of Matthew Hewitt with Craig-Hallum Capital Group.

Congratulations on the strong start to the year. Maybe first up on the Agenus partnership. Congratulations on making that deal. I guess a couple of things. One, walk us through the process on how you kind of got engaged with them and where you see the most excitement within those 6 different properties or programs? And then secondly, what will be the deciding factor in the follow-on $25 million investment? And how long do you have to make that decision?

Yes. Paul, why don't you go ahead and take that?

Yes. So great. Process-wise, we've been in direct discussions with the company for several months, and we had reached out to them given where they were in the space in biopharma, recognizing they've got a number of different royalty assets. And obviously, we're developing BOT/BAL themselves. So that covers the process question you asked. In terms of what's exciting, obviously, Karen alluded to our excitement about BOT/BAL, and I touched on it. And that's obviously an important asset in the mix. But the [ basket ] also is quite interesting as well in terms of the partners that are involved there, the different mechanisms and the fact that it's multiple products in the bag in terms of the overall portfolio. So we kind of view it as a very broad basket in that respect. And so that's, I think, the attractive aspect of it. And then to your third question, I think there is a time limit, I have to go back to the 8-K in terms of what's been disclosed about the option to invest further. But obviously, it's at our option and potentially future events, future clinical events, data would be influenced our decision as to whether or not we should invest more capital.

Yes. Got it. And then maybe a separate question regarding the Pelthos opportunity, I guess, is the way to call it. Are you still having discussions with potential partners on that or at this stage of the game are you looking to just kind of run that and see how it goes for a while?

Yes. We are exploring all options to optimize the value of the asset for our shareholders, Matt. That includes strategic discussions as well as the spinout pathway, which you've seen us execute on historically with Viking Therapeutics and things like Primrose Bio. So both of those worked very well. And we have built this as a stand-alone company, so that we have as much optionality around the asset as possible. So that whole process is underway at Pelthos. And I would just add on to Paul's answer, Matt, from before. Most of these deals, just to remind the investors here are not marketed deals where there's a large process around them. We have to proactively identify assets that we're interested in and go meet with the company. So these deals are created. And we're looking -- we have a very tight screen. We're looking for high clinical value on late-stage assets that are well-characterized with data in terms of safety and efficacy. That allows us to get into our analysis and kind of the handicapping process as well as the deal discussions with the counterparties. So it's a very outbound-oriented proactive process that we execute on.

Your next question comes from the line of Balaji Prasad with Barclays.

This is [indiscernible] on for Balaji. So regarding your Agenus deal announced this morning, for the low single-digit royalties on the BOT/BAL combo, given that the combo -- where the combo stands on the regulatory process now, how much of it should we factor into the $230 million royalties revenue goal you have 2028?

Yes. We -- first of all, thanks for the question. We don't expect these deals to contribute anything here in 2024. And then we haven't -- we haven't disclosed how much of this will contribute in the outer years. But we'll come back at a later date and provide that level of granularity.

Yes. And I think, Tavo, I would just add that on that 5-year chart that we've shown, was in today's slides, there's a slice of that, that is intended to capture all the capital we deploy and the new deals that we'll invest in it and this deal would be one of those, right? So we've got a bar in there that's intended to capture kind of the potential for these future deals. And we'll continue to add to that bucket with all the capital we deploy. And if it's appropriate at a time in the future, we'll update that chart to reflect the amount of deals that we've done and the potential for that future. But for now, we're are maintaining our sort of 2028 outlook, as Tavo described in his comments.

Your next question comes from the line of Larry Solow with CJS Securities.

This is Justin on for Larry. First question on Kyprolis. You mentioned growth slowed to 5% as reported by Amgen in Q1. Was this consistent with your expectations? And then can you update us on the 2- to 3-year outlook as this will go off-patent in 2027?

Yes. On Kyprolis, the sales figures came in line with consensus and also pretty much in line with what we were expecting in our internal models. And we have been messaging, consistent with what Amgen has been saying about Kyprolis that we expect in late 2027, for the generic competition to come in and take share.

Okay. That's helpful. And then on Filspari, can you remind us what you sized the opportunity in the U.S. market? Is that still around $3 billion? And then pending the second half '24 launch in Europe, what's the opportunity there?

Yes. Thanks for the question, Justin. A reminder to investors that Filspari is approved for IgA nephropathy in the U.S. and now in the EU. And -- the patient population in the U.S. is about 140,000, of which Filspari has said publicly that about 30,000 to 50,000 are applicable for treatment with Filspari. They haven't given the same corresponding numbers in Europe in terms of the applicability, but the patient population is in the same neighborhood. From a market-sizing standpoint, based on the pricing that Filspari is there. Certainly, the potential, if they got every single patient would be in that neighborhood of $3 billion that you described, so that's more of a TAM, if you will, for the current approved indication and applicable patient population. If you look at the research consensus estimates, that are out there for the Filspari covering analysts. They talk about more in the $500 million to $750 million range for potential sales. And I think Tavo has said on our Analyst Day back in December that our 5-year model incorporates those $500 million to $700 million type estimates.

Your next question comes from the line of Joe Pantginis with H.C. Wainwright.

So also, I want to add my congratulations for the Agenus deal today. And I think I want to ask my question. Hopefully, it's a self-fulfilling prophecy. You had very important cash deployment today that you announced, and I guess the obvious question to me is, to your earlier strategy changes that you've made that you're choosing opportunities, but it's agnostic with regard to the level of investment that you make. Is that correct now? It just seems to be so.

Yes. Thanks for the question, Joe. We're not really agnostic to the level of investment. I mean, we view ourselves as a portfolio. We're trying to build a very risk-mitigated, predictable growth portfolio for investors. So like any portfolio manager, we're managing our exposure, the same way a portfolio manager would. So we essentially try to stay in the neighborhood of about $40 million per product of exposure, is something significantly less risky, we'll upsize on it. And conversely, if it's a high upside, a little more risky, we'll downsize on it. And in the case of the Agenus deal, of course, it's -- with the number of shots on goal, the $75 million of exposure here, we think, is quite appropriate for us with the type of kind of portfolio exposure we're trying to build. If that -- does that answer your question?

It absolutely does. And then I have 2 logistical questions. So first on Pelthos. I just wanted to check on the future impact on the P&L. Will this -- will this be analogous to your Viking investment, where your investment is directly on the P&L aspect or any other impacts to consider?

Yes. So we are -- thanks for the question, Joe. In terms of how we account for the investment in the incubation of Pelthos. It is consistent with the adjustments that we booked for Viking and that we take out the gains on Viking Therapeutics stock gains. We're also removing the operating expenses associated with incubating Pelthos, and you'll see that in our GAAP to non-GAAP reconciliation. And the run rate that you saw in Q4 is pretty much what we're seeing here this quarter.

Great. And then the other housekeeping question is with regard to how you're viewing the current Captisol mix with regard to research use and commercial use? And how do you view the current inbounds with regard to -- inquiries with regard to the asset?

Yes. Thanks, Joe. The Captisol business continues to be very strong. I'll address your second part first. The inbounds on licensing and interest in the platform continue to be as strong as ever. We obviously saw a significant increase in those inbounds during the COVID pandemic, but we've kind of returned to the normal pace of those where we've tended to do 5 or 6 different new partnerships every year on average over the life of the time we've had the technology. We're still continuing to see that level of interest and hope to do that many deals this year if we continue out the rest of the year. In terms of the mix between commercial and clinical use, it continues to be about where it has been the last couple of quarters. There's no -- nothing material one way or the other. Obviously, our larger commercial partners, Kyprolis and some of the others continue to grow. And so the commercial use is growing. The clinical use is somewhat dependent on the timing and pacing of the clinical work and some of the larger Phase III trials that have gone on over time.

We have no further questions at this time. This concludes today's conference. Thank you for participating. You may now disconnect.