Earnings Labs

Ligand Pharmaceuticals Incorporated (LGND)

Q2 2024 Earnings Call· Tue, Aug 6, 2024

$231.68

-4.18%

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Transcript

Operator

Operator

Thank you for standing by. My name is Pam and I will be your conference operator today. At this time, I would like to welcome everyone to the Ligand Second Quarter 2024 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]. Thank you. I would now like to turn the call over to Tavo Espinoza, the Chief Financial Officer of Ligand Pharmaceuticals Inc. You may begin.

Tavo Espinoza

Analyst

Good afternoon everyone, and welcome to Ligand's second quarter earnings call. 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, followed by a question-and-answer session. Our earnings release and a link to today's webcast can be found in the Investor Relations section of our website at ligand.com. With me on the call today our CEO, Todd Davis; Senior Vice President of Investments and Business Development, Paul Hadden and Senior Vice President of Investment and Head of Clinical Strategy, Dr. Karen Reeves. This call is being recorded, and the audio portion will be archived in the Investors section of our website. On today's 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 that can be found on Ligand's website at www.ligand.com or on the SEC's website at www.sec.gov. With that, I will now turn the call over to Todd.

Todd Davis

Analyst

Thank you, Tavo. On our last several calls, we have spent a fair amount of time talking about the steps we have taken to transform the company and strengthen and expand our royalty portfolio and team. I'm pleased to report that during the second quarter, we committed $175 million to two new investment opportunities and added several commercial stage products to our portfolio. And we believe that we believe will be a meaningful contributors to our royalty revenue over the next several years. This includes two notable regulatory approvals of products with blockbuster sales potential: Merck's Capvaxive, the first pneumococcal conjugate vaccine specifically for adults that was approved by the FDA on June 17 and Verona Pharma's Ohtuvayre, the first inhaled product with a novel mechanism of action for the treatment of COPD maintenance in over 20 years. That NDA was approved by the FDA on June 26. Our royalty portfolio now includes 12 major commercial stage products, many that are marketed by premier global pharmaceutical companies. This is double the number of key marketed products we had in the portfolio at the beginning of 2023 and underscores the capabilities of our business development team and successful implementation of our OpEx light investment focused corporate strategy. As a reminder, we also have more than 90 additional active pipeline programs in our portfolio that are in various stages of development. Paul and Karen will share additional updates on our pipeline later on the call. During the second quarter, we also added several new team members, which deepened our investment, business development and operational bench. Michael Vigilante joined us in May as Vice President, Investments and Business Development. Michael served in a similar role at a Boston based life sciences investment firm and brings significant transaction and company building experience. We've also…

Paul Hadden

Analyst

Thank you, Todd. I would like to take a moment to reflect on a number of exciting milestones we've achieved over the past 18 months. Today, I'm proud to say we've assembled a strong team of investment professionals. Moreover, we have developed a very robust proactive outbound sourcing capability. On this call, we are showcasing some of the fruits of those efforts such as cross border M&A and venture outreach. Our team with decades of investing experience has a number of structural tools in our toolkits. The proprietary sourcing ability, we're able to pursue a robust number of exciting investment opportunities across multiple therapeutic areas within the global biopharma sector. Turning to Slide 7. We now have an investment office and team that is headquartered in Boston, one of the most prolific life science hubs across the globe. Over the past 18 months, we have committed over $275 million across 12 new investments. I'm very proud of our team and what we've accomplished in such a short time period and I'm even more excited for the future. Now let me highlight several of our key investments over the past few months. Turning to slide 8. On July 8th, we announced the $100 million acquisition of Apeiron Biologics, an investment that had been in the works for months. Apeiron was a privately held Austrian based biotechnology company that receives royalties on Qarziba, an approved monoclonal antibody for one of the most common forms of pediatric cancer, neuroblastoma. The product was approved in Europe in 2017. It is now marketed in over 35 countries worldwide and is well entrenched in pediatric oncology treatment guidelines. Importantly, the royalty rate is a healthy 15% to 20% of net sales. Royalties over the past 12 months were in excess of €20 million and the acquisition…

Karen Reeves

Analyst

Thank you, Paul. Today, we'd like to highlight some key commercial products in our portfolio. Turning to Slide 14. Let's look at Travere Therapeutics, Filspari. We license worldwide rights for Filspari to Travere and are entitled to milestones and a 9% royalty on global net product sales. Over the past 18 months, Filspari has achieved several major milestones, underscoring the significant potential of this product. Filspari is a dual endothelin 1 and angiotensin 2 receptor antagonist. In February 2023, Filspari received accelerated approval from the FDA for primary IgA nephropathy, which affects an estimated 150,000 people in the U.S. IgAN is a progressive kidney disease that leads to hampered kidney filtering, proteinuria, and progressive kidney function loss. The basis of the FDA accelerated approval was Travere's Phase 3 PROTECT study, which met its prespecified interim primary endpoint, mean reduction of proteinuria. Filspari became commercially available in the U.S. in late February 2023. Travere filed a supplemental NDA in March 2024 to convert the accelerated approval to full approval with an expected PDUFA date of September 5th. The sNDA will provide additional efficacy and safety information to regulators to inform the label. Travere indicates that if they receive a broader label, the addressable IgAN patient population could nearly double from the current level. We see it as positive that the FDA has not requested an advisory committee and that the PDUFA date to determine full approval is on track. In Europe, Travere and CSL Vifor announced in April that the European Commission granted Conditional Marketing Authorization for Filspari for the treatment of primary IgAN. Travere has reported Filspari is expected to launch in the first EU markets in the second half of 2024. In addition, the new kidney disease improving global outcome, the KDIGO guidelines are anticipated for IgAN in 2024.…

Tavo Espinoza

Analyst

Thanks, Karen. Let's move to Slide 17, please. First, I want to highlight that I will be discussing non-GAAP results, which excludes certain items including stock based compensation, amortization of intangible assets, amortization and or impairment of financial assets, unrealized gains or losses from short term investments, our share of losses absorbed from accounting for our investment in Primrose Bio under the equity method and expenses incurred to incubate the Pelthos business 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. We believe that the adjusted measures can assist investors in analyzing and assessing our past and future core operating performance. We reported another quarter of strong financial results with total Q2 '24 revenue growing by 58% to $41.5 million and core adjusted EPS growing 121% to $1.40 when compared to the second quarter of 2023. Royalty revenue grew to $23.2 million or 11% over the prior year quarter with Travere's Filspari being a key driver. We ended the quarter with just under $230 million in cash and investments and over $350 million in deployable capital when you include the $125 million available under the credit facility we have with Citibank. Slide 18 frames up our financial results in more detail. Like I mentioned, we reported total second quarter revenue of $41.5 million which is 58% above the $26.4 million we reported in the prior year quarter. The increase in total revenue is due primarily to the milestones we earned from the regulatory approvals of Travere's Filspari, Verona's Ohtuvayre, and Merck's Capvaxive. Royalty revenue increased to $23.2 million from $20,9…

Todd Davis

Analyst

Thank you, Tavo. I want to thank everyone for joining us today. We've made tremendous progress at Ligand in the first half of 2024. Ligand has a scalable business model and an efficient low cost infrastructure. We continue to grow our portfolio of royalty generating assets. We're steadily increasing our major commercial stage products and the pace of our investment activity continues to accelerate. We have set ambitious yet realistic targets for long-term growth and believe we are well positioned to create further value for our shareholders. We will now open up the call for questions.

Operator

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. And your first question comes from the line of Matt Hewitt of Craig-Hallum. Please go ahead.

Tavo Espinoza

Analyst

Are you there, Matt?

Operator

Operator

Mr. Matt Hewitt?

Matt Hewitt

Analyst

Yes, can you hear me?

Todd Davis

Analyst

Got you, yes, now we can.

Matt Hewitt

Analyst

Okay. Well, congratulations on an active quarter. Maybe first up, starting with the Pelthos opportunity, an update on how those partnership discussions are going. And once that asset is kind of spun off, do you anticipate recovering these upfront cost that you've been putting into the business here since you acquired the asset?

Todd Davis

Analyst

Thank you, Matt. Yes, we have several tangible discussions ongoing in parallel, ranging from straight financing options, which will be effectively a spin out similar to what we did with Viking Therapeutics or what we witnessed this quarter with Primrose Bio raising additional capital into that company, but also in a strategic licensing and a potentially strategic merger opportunity. So those are ongoing. And, as you know, we commit to incubating these things and spinning them out as an investment thesis. We believe this is the optimal way to commercialize this asset. And we will not rush it, but we're pretty confident that we'll have success in our efforts to spin this out. And I would say the process and the progress is going very well.

Matt Hewitt

Analyst

Excellent. And then maybe one for me and one more, and then I'll hop back in the queue. But regarding Qarziba, how should we be thinking about the growth of that asset? We don't have -- I don't have a good sense for how fast those revenues are growing and what that would mean for your royalty stream? Thank you.

Paul Hadden

Analyst

Yes. So, great question. This is Paul. I'll take that, head on. So, for Recordati, this is a growth asset. I think if you go to their earnings, the most recent earnings announcement, their oncology franchise put up net revenue of €117 million, which was growing at a rate of 22.7%. And they said that was mainly driven by Qarziba with continued growth of that, another product that we don't have royalty on. But to state the obvious, this is a growth asset. It's been on the market for seven years, but it continues to penetrate new territories and regions. In fact, just last month, they secured an approval in South Korea and we see this growing for the foreseeable future, which is why we were eager to bring it into the Ligand portfolio.

Tavo Espinoza

Analyst

And then, Matt, I would just add if you want to take a look at Slide 5, we do have that layered into our longer-term outlook. If you want to get a sense for our view on that royalty screen.

Matt Hewitt

Analyst

Got it. All right. Thank you very much. Congratulations on the strong quarter.

Tavo Espinoza

Analyst

Thank you.

Operator

Operator

Your next question comes from the line of Douglas Miehm of RBC Capital Markets. Please go ahead.

Douglas Miehm

Analyst

Yes. Good afternoon. A couple of questions. First one, maybe if you could talk about H2 '24 and the outlook and maybe sizing of potential deals that you're contemplating. I believe you like to spend $200 million, maybe $250 million a year for these investments. And I'm just wondering, if we're thinking about things in the range of 25 to 75 through to the end of 2024?

Todd Davis

Analyst

Yes. Sure. I believe this is Todd speaking, but, we have a pretty active pipeline now. When we are making new commitments to investments, we are trying to build a diversified portfolio, of course. And we have been operating at a pace and have built a team to be able to kind of functionally invest about $200 million per year, and that's what we're planning on. There can be some variation around that. And, of course, the more recent investment was a fairly large one at $100 million although it's cash generative immediately, which offsets that significantly. But in general, we're typically looking at diversification by asset size and we're typically not going to make more than a $30 to $40 million commitment per asset. So we might get a couple more deals done this year, would be a good base case. But there could be some variation depending on how the discussions go. But I think that's a good expectation.

Douglas Miehm

Analyst

Okay. That's great. Thank you. And then as you look at the new product Ohtuvayre, and its potential launch, well, I guess shortly, we know pricing now. They've already set up meetings. Obviously, going to be an exciting product for the company. I'm curious that that royalty, the 13.8 million on milestone should come in Q3. Would that be fair?

Todd Davis

Analyst

Yes, Doug. We've got that factored into our forecast -- contract revenue forecast for the year. And the company, Verona has said that they do plan to launch. And if it's not in Q3, probably likely in Q4.

Douglas Miehm

Analyst

Yes. Okay. That makes sense. And then just let me wrap up with -- you have increased the line, although it doesn't look like you need to use it. But under what circumstances would you expect to draw on the line that is available to you? And I'll wrap it up there. Thank you.

Todd Davis

Analyst

Yes. I think, we are going to try to maintain kind of reasonable cash balances. If our pace of investment accelerates significantly, we may start to draw down some of that balance. But we'll generate, Tavo, will give you the estimates, but in the second half of the year, we should be close to $50 million of new cash flow generation over 100 next year. So, I don't feel like it's imminent. And at our current pace with the current pipeline, the activity set we're looking at, I would not expect that to be an imminent activity. We have a plenty of runway from where we are right now.

Tavo Espinoza

Analyst

I can tell you that. But I'm not including any interest expense in our guidance for 2024. And the run rate on cash, the cash operating run rate is above $100 million a year at this point.

Douglas Miehm

Analyst

All right. Thank you.

Operator

Operator

Your next question comes from the line of Joe Pantginis of H.C. Wainwright & Company. Please go ahead.

Unidentified Analyst

Analyst

Hi. This is Josh on for Joe. Thanks for taking our question. So as Captisol continues to provide an important revenue stream for you guys, I was wondering if you guys could describe the research versus the commercial mix and how your BD efforts are currently going both inbound and outbound? Thanks.

Tavo Espinoza

Analyst

Yes. The commercial versus research mix leans very heavily on the commercial side. I would say it's probably 85% commercial, and 15% research use. But then in terms of the actual quantity of customers, I would say it's perhaps maybe the inverse. We have large customers that take in significant amount of commercial product, but then a significantly larger amount of customers that take in lower volumes of Captisol for their research needs.

Unidentified Analyst

Analyst

Thank you.

Tavo Espinoza

Analyst

Was there a second portion of that question that I didn't address?

Unidentified Analyst

Analyst

Just about the BD efforts, first, inbound and outbound?

Todd Davis

Analyst

Yes. So I would say that there's a steady pace of deal flow around the Captisol business. We are conducting a strategic review there and looking at different ways to accelerate that, expand the business, et cetera. So that's part of our -- that we spent the first half of '23 really building out the investment team and the second half commencing the execution through till now. And there's significant operational focus right now in terms of are we really using best practices in terms of new deal generation around our platform technologies, in terms of monetizing existing assets that we have on our platforms. For example, the nitric oxide platform that we purchased, we're very focused on the ZELSUVMI launch. But there are a number of other high potential clinical assets, that came out of that acquisition. So, I do think that we can do a better job on that, and that's a focus of us this year, and right now, in fact, reviewing our management practices. Are we optimizing there and asking ourselves what we can do better? So give us some time, but we hope to have, frankly, greater yield on those activities going forward.

Unidentified Analyst

Analyst

Awesome. Thank you. I appreciate it.

Operator

Operator

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

Unidentified Analyst

Analyst · Barclays. Please go ahead.

Good afternoon. This is Shao [ph] on for Balaji. Thanks for taking our question. The question is about Capvaxive. Based on the chart on Slide 16, seems like you guys are expecting a relatively rapid uptake from 2024 to 2026 with around $500 million annual sales in year 2026. So with that, could you give us a ballpark range on how much of this asset could drive your royalty revenue growth for the next three years? And, would Vaxneuvance a good benchmark to consider? Thanks.

Tavo Espinoza

Analyst · Barclays. Please go ahead.

Yes. I guess, I would want to first say that the chart there that you referenced is those are analyst consensus numbers. And then if you want to get a sense for how we think that how that plays out, in on the top line royalty revenue stream going after 2028, I would just refer you to Slide 5.

Unidentified Analyst

Analyst · Barclays. Please go ahead.

Got it.

Operator

Operator

Your next question comes from the line of Larry Solow with CJS. Please go ahead.

Lawrence Solow

Analyst · CJS. Please go ahead.

Good afternoon. I echo the congrats on an active and good quarter. I guess, first question, just to clarify. So the guidance change, which you did a few weeks back, essentially 10 million of the royalties that's from the Apeiron acquisition, and then there's timing. And I mean not timing. There's the milestone payments for the remainder? Basic essentially, is that…

Todd Davis

Analyst · CJS. Please go ahead.

That's right. You guys are right, Larry. Yep.

Lawrence Solow

Analyst · CJS. Please go ahead.

Okay. Great. And then, I'm just curious just on sourcing. So it looks like you acquired this asset for basically about 5x royalty. And it sounds like it's not there's some -- it's growing and doesn't include the U.S., which could potentially accelerate growth. Just curious on, how this asset came about, sourcing of it, and whatnot. It's without divulging any secret sauce, but just curious if there's anything you could share?

Todd Davis

Analyst · CJS. Please go ahead.

Yes. There's a lot of effort that goes into our origination efforts, but I'll let Paul answer that since he actually originated that deal.

Paul Hadden

Analyst · CJS. Please go ahead.

That's a great question. I guess, in short, it was proprietary opportunity. There were some relationships involved that go back many years. And the reason why we were able to secure it is because we were able to acquire the shares for the selling shareholders. There were significant benefits to them from a tax perspective. And so it really made a lot of sense on both sides of the transaction. And obviously our team's experience and diligence and underwriting these types of complex, cross border transactions came into play. So it just made a lot of sense and there are some future earnouts that were referenced in the press release. And so really we're happy to be the proud owners of Apeiron.

Lawrence Solow

Analyst · CJS. Please go ahead.

Got it. Great. If I could just switch gears and squeeze one more in. Just on the Capvaxive, just another follow-up question on that. Again, not looking at the slot as an exact sign, but it looks like based on what Vaxneuvance is today and my limited knowledge on this market, is this the pneumococcal vaccine, the market in general, right? I guess it's adult and has a pediatric side. Is the adult market today as big or even bigger than the pediatric? I guess is question A. And then B, is this ACIP recommendation a change from what historical or standard of care is today? That's it. Thanks.

Todd Davis

Analyst · CJS. Please go ahead.

Yes, I mean, I can give you my perspective on Vaxneuvance, formerly known as V114. And so that program is trending towards Blockbuster status, with Merck. Capvaxive, we're not quite sure how the dynamics will play out there with the existing product. Pfizer's, PREVNAR clearly the market leader. I think $6 billion to $7 billion market there and so analysts expect Capvaxive to like as we show on the chart there to eclipse the $1 billion mark as well. So, we're excited about that that, that royalty stream coming in future. But, it's still early.

Lawrence Solow

Analyst · CJS. Please go ahead.

Okay. Great. Thank you.

Operator

Operator

[Operator Instructions].

Todd Davis

Analyst

Once there are [ph] no more questions, I'll wrap up. Okay. Thank you everyone for joining today's call. We look forward to updating you on our company progress in the next quarterly call, in November.