Q3 2019 Earnings Call

Hello, and welcome to the webcast ligand Pharmaceuticals third quarter 2019 earnings call.

Operator: Hello and welcome to today's webcast, Ligand Pharmaceuticals' 3rd Quarter 2019 Earnings Call. My name is Leray, and I'll be your event specialist today. Please note that all lines have been placed on mute to prevent any background noise and that today's webcast is being recorded. We will be taking questions over the phone, and instructions on how to do so will be given at that time. It is now my pleasure to turn today's program over to your SVP of Investment Relations, Patrick O'Brien. The floor is yours.

My name is the way and I'll be your event specialists today.

All lines have been please on mute to prevent any background noise and that today's webcast is being recorded.

We will be taking questions over the phone instructions on how to deal will be given at that time.

And it's now my pleasure, Sir todays program overview as VP of Investor Relations that you go Brian the floor is yours.

Patrick O'brien: Thank you and welcome everybody to Ligand's third quarter 2019 financial results and business update conference call. Speaking today for Ligand are John Higgins, CEO, Matt Fore, COO, and Matt Kornberg, CFO. As a reminder, today's call will contain forward-looking statements within the meaning of the federal securities laws. These may include but are not limited to statements regarding the intent, belief, or current expectations of the company and its management regarding its internal and partner programs. These statements involve risks and uncertainties, and actual events or results may differ materially from the projections described in today's press release and in this conference call. Additional information concerning risk factors and other matters concerning Ligand can be found in our earnings press release and the public periodic filings with the SEC.

Thank you and welcome everybody to like <unk> third quarter 2019 financial results in business update conference call speaking today for why Gander, John Higgins CEO , Matt for C. O M. Matt Korenberg CFO as a reminder, today's call will contain forward looking statements within the meaning of the.

<unk> Securities laws. These may include but are not limited to statements regarding intent belief or current expectations of the company and its management regarding its internal unpartnered programs.

These statements involve risks and uncertainties and actually events or results may differ materially from the projections described in today's press release in this conference call.

Additional information concerning risk factors and other matters concerning what I can can be found in our logins earnings press release in the public periodic filings with the FCC.

Patrick O'brien: The information in this conference call related to projections or other forward-looking statements represents the company's best judgment based on information available and reviewed by the company as of today, November 5, 2019, and does not necessarily represent the views of any other party. Ligand undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. At this time, I'd like to turn it over to John Higgins.

The information on this conference call related to projections or other forward looking statements represents the company's best judgment based on information available and reviewed by the company as of today November <unk> 2019, and do not necessarily results represent the views of any other party.

Well again undertakes no obligations to revise or update any statements to reflect events or circumstances. After the data. This conference call at this time I'd like to turn it over to John Hakan.

John Higgins: Welcome to our call, and I'd like to welcome you to Ligand and introduce Patrick O'Brien. Patrick just joined Ligand yesterday as our Senior Vice President of Investor Relations. Pat, welcome. Thank you, John. It's a pleasure to be here.

Welcome to our call and I'd like to welcome to why again and introduced to all of you Patrick O'brien, Patrick just joined like and yesterday as our senior Vice President of Investor Relations at welcome. Thank each and it's a pleasure to be here in a nice to work with you again, yeah, Yeah, absolutely what you know since you're on or coal Pat how about you sure.

Unknown Speaker: Unknown Speaker Yeah, yeah, absolutely. Well, you know, since you're on our call, Pat,

Patrick O'brien: background. Well,

A little bit about your background, well really focusing on a post investment banking in the late 19 nineties started in Investor relations at El again in 2001 in a really the bulk of my experience came from my tenure. It Gil you had which rose from 2007 to 2016 yeah.

Patrick O'brien: Focusing on post investment banking in the late 1990s, I started in Investor Relations at Allergan in 2001. And really, the bulk of my experience came from my tenure at Gilead, which was from 2007 to 2007.

John Higgins: Yeah, fantastic. Well, it's great having Patrick on board. His first day was yesterday, and if you saw the earnings release, his name is now posted in the upper left corner. The business is growing and doing well, and as we work with investors, a top priority is quality, proactive communications with investors. And so we're thrilled to have someone with Patrick's experience running IR for Ligand. Additionally, I want to acknowledge the outstanding work that Todd Pettengill has done in IR over the last few years. I know most of you on the call today have worked closely with Todd, and Todd will keep working with Matt Korenberg, focusing now entirely on corporate development. Todd is in the room here. We're going to give him a little pat on the back. Hey, Todd, I like that back.

Yes, well, it's great having Patrick on board. His first day was yesterday and if you saw the earnings release. His name is now posted in the upper left corner.

The business is growing and doing well and as we work with investors a top priority is quality proactive communications with investors and so we're thrilled to have someone would patrick's experience running IR for like yet.

What I acknowledge the outstanding worked at toward that goal has done a in IR. The last two years I know most of you on the call today have worked closely with Todd and Todd will keep working with Matt Korenberg, focusing now entirely on corporate development.

In the room here, we're going to give a little pass it back down.

John Higgins: Thank you. I really appreciate your excellent work. Now, speaking of new additions, we just added Sarah Boyce to our board of directors. Sarah, she's a great new addition, bringing extensive biopharma management experience from companies such as Novartis, MedImmune, and Axia, which is a spin-out from Ionis. Ionis has a business model that is similar to Ligand's. She is now CEO of Avidity, a drug discovery company based in San Diego.

Thank you are really appreciate your excellent work now speaking of new additions, we just added Sarah Boyce to our board of directors, Sarah She's a great. New addition, bring extensive biopharma management experience from companies, such as Novartis, Medimmune, and Akcea, which of the spin out from Ioannis.

I want US has a business model that is similar to lie again, how she has now CEO of ability a drug discovery company based in San Diego, Oh, Steris, great experience and business development strategic planning commercialization and communications I, we're very pleased to expand our board to include hurt.

John Higgins: Sarah has great experience in business development, strategic planning, commercialization, and communications. We're very pleased to expand our board to include her. Now on the board topic, we've had strong interest from people to join the Ligand board, with many names coming forward as potential candidates. Our focus at Ligand is to have top-tier directors on our board managing the oversight, governance, and strategic planning. Our board is composed of very talented, highly experienced professionals. We have former heads of research from Merck and Pfizer, former research analysts, large fund investors, and business operators. Diversity in the boardroom is also very important, and we are pleased to have expanded the number of women directors on our board.

Now on the board topic, we've had strong interest from people to join the like in board with many names coming forward and potential candidates. Our focus that why again is to have top tier directors honor board managing the oversight governance and strategic planning our board is composed of very talented highly experienced.

Professionals, we are former head of research from Merck and Pfizer past research analyst large fund investors and business operators.

Diversity in the boardroom is also very important and we're pleased to expand the number of women directors on our board and to have a board with diverse ethnicity.

John Higgins: We plan to have a board with diverse ethnicity. We have a team of outstanding leaders that are highly engaged and working hard for investment. Sarah will fit in well.

We have a team about standing leaders that are highly engaged and working hard for investors Sarah will fit in well.

John Higgins: Now in terms of some business highlights, Ligand is doing great here in 2019. It's a very balanced business with great execution, strong deal making, good data events driving the portfolio, and a robust business calendar that is building for some major events in 2020 and 2021. I want to give just a quick couple of highlight comments on Coprolis.

No. It turns out some business highlights why again is doing great here in 2019, a it's a very balanced business with great execution strong deal, making good data events driving the portfolio and a robust business calendar that is building for some major advance in 2020 and 2021.

I want to give just a quick couple of highlight comments on Corrpro us a this is today, our largest royalty assets cupolas post at $280 million combined a worldwide sales for third quarter, that's the highest quarterly sales ever equal to last quarter importantly, we enjoy a higher royalty tier as revenue income.

John Higgins: This is today our largest royalty asset. Coprolis posted $280 million combined worldwide sales for the third quarter. That's the highest quarterly sales ever, equal to last quarter. Importantly, we enjoy a higher royalty tier as revenue increases through the year for Coprolis, so our revenue is even higher this quarter than last. Last year, total sales were just over $1 billion for the product, and this year, four-year sales are on track to exceed that by a good margin. We don't market the drug, Amgen and Onodu, but we get a royalty on worldwide sales. Now, as we study sales trends over the past few years, Q3 sales are somewhat flat compared to Q2. In some cases, they're actually down.

This is through the year for could pull us. So our revenue is even higher this quarter than last.

Last year total sales were just over 1 billion for the product and this year for your sales are on track to exceed that by a good margin.

We don't marketed or the drug Amgen and Ono do but we booked a royalty on worldwide sales now as we study sales trends over the past few years Q3 sales are somewhat flat compared to Q2 in some cases they are actually down.

John Higgins: In Q4, what we've looked at, what we've noticed, Q4 has shown a nice bump as the year closes out. That trend, we hope, continues here in the fourth quarter of 2019. There have been two important developments for Coprolis in the past six weeks that we believe set the product up for continued growth in the years ahead. The first was Amgen's announcement of positive top-line Phase III data for its CANDOR trial testing Coprolis in combination with Darzalex, very encouraging efficacy data that could potentially support expanded use of the drug in the future. And just last week, Amgen announced a commercial partnership with Beijing for commercialization in China. Now, our assessment is that China has not been a major focus for commercial forecasting by analysts.

But Q4, what we've looked at what we've noticed Q4 is showing a nice bump as the year closes out that trend. We hope continues here in the fourth quarter 2019.

There have been two important developments for controls the past six weeks that we believe set the product up for continued growth in the years ahead. The first was amgen's announcement, a positive topline phase three data for its candor trial testing cupolas in combination with Darzalex.

Very encouraging EFSC efficacy data that could potentially support expanded use of the drug in the future.

And just last week, Amgen announced a commercial partnership with Beijing for commercialization in China now our assessment as China has not been a major focus for commercial forecasting for analyst. So this deal could provide a nice expansion into worldwide revenue long term once that market is opened up.

John Higgins: So this deal could provide a nice expansion to worldwide revenue in the long term once that market is opened up. Now I want to turn to Omniab. This is our largest, most valuable platform, and we've been posting significant positive financial and licensing updates from that platform over the past couple of years. We highlighted this, of course, at our Analyst Day, and we've been on the road with investors. Matt and I, Matt Foer and I, we get out, and we've had really some good meetings with a lot of focused questions about that business. But Matt, maybe you want to give a couple of highlights, some developments in the last few months around the Omniab platform.

No I wouldn't turn to Omniab.

This is our largest most valuable platform and we've been posting significant positive financial and licensing updates from that platform over the past couple of years.

We've highlighted this of course at our analyst day, and we've been out the wrong with investors.

Matt I met for and I, and we get out a and we've had really some some good business with a lot of focused questions about that business, but Matt maybe you want to give a couple of highlights some developments. The last few months around the Omniab platform. Yeah, often will get asked a question how is omniab doing it in a word I'll say omniab and doing fantastic we're seeing.

Matt Foer: Yeah, often we'll get asked the question, "How is Omniab doing?" And in a word, I'll say it's been doing fantastic.

Matt Foer: We're seeing that partners are increasingly turning to the Omniab platform for their novel antibody discovery needs. And we're confident in our view that Omniab truly is a best-in-class technology, and our partners are continuing to help illustrate that with the progress they're making. Three things I'll point out, new deals, the recent Ab Initio acquisition, and program clinical progression and new program starts, specifically around OmniChicken. On the new deals, we've entered into five new Omniab partnerships recently with Takeda, GigaGen, Talum Therapeutics, Kira Pharma, and AbVivo. And our signing of new partners continues to be very strong.

It partners are increasingly turning to the Omniab platform for their novel antibody discovery needs.

And we're confident in our view that Omniab I truly is a best in class technology and our partners are continuing to help illustrate that with the progress there, making three things I'll point out a new deals or the recent AB initio acquisition and program clinical progression and new programs start specifically around on each.

Again.

On the new deals we've entered into five new Omniab partnerships recently with Takeda Giga Gen Talon therapeutics, a cure a pharma and at vivo and are signing on of New partners continues to be very strong and we have a number of other potential new omniab licenses that are in various stages. The finalization that we hope to execute.

Matt Foer: And we have a number of other potential new Omniab licenses that are in various stages of finalization that we hope to execute in the coming months. And on the ab initio antigen technology acquisition, while it was a small deal, it's really a game changer from a technical perspective, and we're already seeing the benefits of it. Antigens generate specific immune responses in animals, and partners have been and are attracted to the OmniAb platform, both by the quality and the performance of our multiple species of animals. And now, with the ab initio antigen piece, once a program is underway, its chance of technical success can be greatly improved if driven initially by a high-quality antigen. And then on the general progression of OMNIAB programs, the number of clinical trials evaluating OMNIAB-derived antibodies continues to increase in breadth and number, and patient numbers and the volume of clinical trials are continuing to grow.

In coming months.

On the AB initio antigen technology acquisition, while it was a small deal it's really a game changer from a technical perspective, and we're already seeing the benefits of it antigens generate specific immune responses in animals and partners have been in are attracted to the omniab platform, both by the quality and the <unk>.

Formats of or multiple species of animals and now with the advent nishio antigen piece once the programs underway. It's chance of technical success can be greatly improved if driven initially by a high quality antigen.

And then on the general progression of Omniab programs. The number of clinical trials evaluating omniab derived antibodies continues to increase in Brett the number.

And the patient numbers and the volume of clinical trials are continuing to grow we're looking forward to data read outs for omniab derived antibodies a this year and next from Sea Stone from you know Vance from JNJ since Virgin and others and so that's on the clinical side and on the discovery side I'm in for.

Matt Foer: We're looking forward to data readouts for OMNIAB-derived antibodies this year and next from Seastone, from Immunovant, from J&J, Symfogen, and others, so that's on the clinical side. And on the discovery side, and for OmniChicken in particular, we work very closely with our partners performing some of the earliest stages of work. We see them leveraging OmniChicken for drug targets that are generally considered difficult targets. And in the last few months, we've had the most new OmniChicken program starts for partners that we've had in any period in our history. And we actually see that accelerating significantly in the coming months based on current planning dialogue with our existing partners.

On the chicken in particular, we worked very closely with our partners performing some of the earliest stages of work, we see a them leveraging omni chicken for drug targets that are generally considered difficult targets and in the last few months. We've had the most new omni chicken program starts for partners that we've had in any period in our history and we add.

Actually see that accelerating significantly in the coming months based on current planning dialogue with our existing partners right. Yeah. One node on a big portfolio you know, Matt a lot of news flow out of Omniab as the years winding down.

John Higgins: Yeah, no doubt a big portfolio. You know, Matt, a lot of news flow out of Omniab. As the year's winding down, we're getting questions about what are some leading partnered assets that investors should be focusing on. And I know we've had a couple of big news events and some calendar events are coming up next year. So maybe I can highlight a couple of key programs for investors.

We're getting questions about what are some leading partnered assets that investors should be focusing on and I know we've had a couple of big news events and some calendar events are coming up next year. So maybe highlight a couple of key programs.

For for investors Yeah. There are two in particular that I'd call out Retrophin Sparsentan and then also Vikings TR beta programs regarding Sparsentan last week Retrophin confirmed that enrollment is on track and pivotal phase three trials to support registration of Sparsentan for patients with Fs, yes.

Matt Foer: Yeah, there are two in particular that I'd call out, Ritrofen Sparcentan and then also Vikings TR-Beta programs. Regarding Sparcentan, last week, Ritrofen confirmed that enrollment is on track in pivotal phase 3 trials to support registration of Sparcentan for patients with FSGS and IGA nephropathy. They have what's called the duplex study running in FSGS and the PROTECT study running in IGA nephropathy. Top-line data are expected in the first half of 2021 for duplex and the first half of 2022 for PROTECT.

And I appreciate and frothy and they have what's called the duplex study running NFS. She asked him to protect steady running in Nigeria frothy topline data are expected in the first half of 2021 for duplex and the first half of 2022 for protect and importantly, rich open also mentioned last week that there will be presenting new data.

Matt Foer: And importantly, Ritrofen also mentioned last week that they'll be presenting new data on Sparcentan at the American Society of Nephrology's Kidney Week meeting that's happening this week in Washington, DC. They've got new data from the phase 2 duet study examining the important impact of Sparcentan on quality of life in patients with FSGS and have pre-clinical data, new pre-clinical data, exploring the potential effect So this is new news for the program and is another new potential indication for Sparcentan. Alport syndrome, as a background, is a genetic condition characterized by kidney disease, hearing loss, and eye abnormalities, and people with Alport syndrome experience progressive loss of kidney function.

Sparsentan at the American Society of Nephrology kidney week meeting that's happening this week in Washington D.C.

They've gotten new data from the phase two duet study a examining the important impact of Sparsentan on quality of life in patients with emphasis yes, and have a preclinical data new preclinical data exploring the potential effect of Sparsentan on Alport syndrome. So.

So this is a new news for the program a in is another new potential indication for Sparsentan Alport syndrome, I, just as background a genetic condition characterized by kidney disease hearing loss in I abnormalities and people with Alport syndrome experienced progressive loss of kidney function.

Matt Foer: And then for Viking, they announced just this morning that they're quickly approaching the start of VK2809's phase 2b trial for NASH, so that's one that we're watching closely. NASH is obviously seen as a large market with a high unmet need, and Viking announced positive phase 2 data last year for the program, achieving key primary and secondary endpoints and showing potent reductions in liver fat content and plasma lipids. In addition, they also announced this morning that clinical development of VK-0214 for XALD is expected to begin in the first half of next year.

And then for Viking a enough just this morning that they are quickly approaching the start of VK tomato nines phase Twob trial in biopsy can for Nash. So that's one that we're watching closely Nash is obviously seen has a large market with a high unmet need.

And Viking announced positive phase two data last year for the program, achieving key primary and secondary endpoints and showing potent reductions in liver fat content and plasma limits.

Separately. They also announced this morning that clinical development of VK owed to one for for X. AOL D is expected to begin in the first half of next year. So that was new news as of this morning as well yeah. It was great to see that dot and their market reaction today, clearly investors seem to be focused on that.

John Higgins: So that was new news as of this morning as well. Yeah, it was great to see that in their market reaction today. Clearly, investors seem to be focused on that. The stock looks like it was up almost 20% on very high volume.

Stock looks like it was up almost 20% I'm very high volume what what's interesting about those two programs you call out both those came via acquisitions. We did boy seven eight years ago Pharma Cobia, and then a base as as far Santen was recently the Dart program out of pharma Cobia and then tier.

John Higgins: What's interesting about those two programs you call out, both of those came via acquisitions. We did, boy, seven, eight years ago, Pharmacopeia and Metabasis, as far as Stanton was concerned, originally the DAR program out of Pharmacopeia, and then TR-Beta came from the Metabasis acquisition, so some great marquee assets. More recently, we've done a couple of other deals, a little bit different type of deal. We're still doing M&A, corporate M&A, but we're also looking at what we call project finance, where we are investing some of our cash to acquire royalty rights in late stage assets, and ideally, we're targeting phase three stage assets, and there are two deals we did earlier this year. I know investors have been following this, but Matt, both Pavela and Novan have made very good progress. Maybe you want to give some updates on those two programs.

And it came from the met a basis acquisition, so some great marquee assets.

More recently, we've done a couple of other deals a little bit different type of deals were still doing M&A corporate M&A, but also we're looking at what we called project Finance, where we are investing some of our cash to acquire royalty rights in late stage assets and ideally we are targeting phase.

Restage assets in there are two deals we did early this year I know investors had been following this but Matt both to Bella and no bad have has very good progress made you want to give some update on those two programs, yes, So Pat Villa <unk>, a private company they've now started the phase three pivotal portion of the phase two three.

Matt Foer: Yeah, so Palvella, a private company, they've now started the Phase 3 pivotal portion of the Phase 2-3 VALO study of PTX-022 and Pachyonikia congenita, which is a significant milestone for the development program with the first subjects now randomized to the Phase 3 double-blind placebo-controlled portion just this past quarter. And our interactions and technical dialogue with Palvella are very close, and they report that patient enrollment efforts continue to be strong, with full study enrollment projected to be achieved in Q1. The Phase 2 portion of the clinical study will be complete in Q2 of next year, with the full Phase 3 study readout expected to happen in the second half of 2020. Palvella recently made the decision to implement an open-label extension study for patients who participate in the VALO trial, and the primary purpose of the open-label extension study will be to generate additional safety data around long-term treatment with PTX-022.

Veilleux study of P. T X O two two and pack, India, congenital which is a a significant milestone for the development program with the first subjects now randomized into phase III double blind placebo controlled portion just this past quarter in our interactions and technical dialogue with palmetto or very close.

And they report that patient enrollment efforts continue to be strong with full study enrollment projected to be achieved in Q1. The phase two portion of the clinical study will be complete in Q2 of next year with the full phase three study readout expected to happen in the second half of 2020.

Hello recently made the decision to implement an open label extension study for patients who participate in the Veilleux trial.

And the primary purpose of the open label extension study will be to to generate additional safety data around long term treatment with P.T. ekso too too.

Matt Foer: They also have identified and will be pursuing a second high-potential rare genetic indication called Gorlin syndrome. Gorlin syndrome is a genetically driven disease in which patients can develop hundreds to thousands of malignant skin cancers in the form of basal cell carcinomas over a lifetime. And recent scientific work from leading cancer researchers has confirmed that the mTOR pathway has a key role in BCC tumorigenesis in Gorlin syndrome. Therefore, an estimated 10,000 patients are affected by Gorlin in the US. There are no FDA-approved therapies indicated for Gorlin, and Palvella has said that they will commence a phase two study in Gorlin syndrome in 2020. Similarly, Novant has been making great progress as well. They completed patient recruitment in the B-simple phase three pivotal trials with SB-206 for the treatment of molescum contagiosum.

They also have identified in will be pursuing a second high potential rare genetic indication called Gorlin syndrome. Gorlin syndrome is genetically is a genetically driven disease in which patients can develop hundreds to thousands of malignant skin cancers in the form of basal cell carcinoma is over.

Over a lifetime and recent scientific work from leading cancer researchers has confirmed that the M. tour pathway has a key role in BCC tumor Genesis in Berlin syndrome. So an estimated 10000 patients are affected by growing in the U.S. There are no FDA approved therapies indicated for Garland and.

Well has said that they will commence a phase two study in Berlin syndrome. In 2020. Similarly, Noveon has been making great progress as well they completed patient recruitment in the be simple phase three pivotal trials with SB to zero six for the treatment of unless can contagious.

Matt Foer: Novant affirmed that top-line data from these trials is expected in the first quarter of 2020. And again, as you mentioned, both of these programs are new additions to the Ligand pipeline, and both are now positioned for late-stage data readouts next year. I'll just make a comment more generally on the pipeline. I'll also mention that we look forward to the American Society of Hematology's (ASH) annual meeting this year, which is in early December. We expect a number of our partners may present data there, and we'll be monitoring the abstract releases that are happening tomorrow. ASH is traditionally an important meeting across the industry, and we expect to see.

No band affirmed that topline data from these trials are expected in the first quarter of 2020 and again as you mentioned both of these programs are new additions to the login pipeline and both are now position for late stage data Readouts next year I just make a comment were generally on the pipeline also mentioned that we look forward to the Americans.

Volunteer Ash annual meeting this year, well, which is in early December we expect a number of our partners may present data there and we'll be monitoring the abstract releases that are happening tomorrow I'm ashes traditionally an important meeting across the industry and we expect to see data again this year, yeah, yeah, great and again, both those programs.

John Higgins: Yeah, yeah, great. And again, both those programs did not exist in our portfolio just 10 months ago, and they're really very high quality. Yes, it's making good progress, and if they are successful, we believe they have a chance to contribute significant economics to Ligand. Before we turn it over to Matt Korenberg to walk through the finances, Matt, maybe just a couple quick highlights on some of our internal research projects.

It did not exist in our portfolio, just 10 months ago, <unk> dot and they're really very high quality.

Yes, it's making good progress and if they are successful we believe they have a chance to contribute significant economics to lie again.

Before I turn it over to Matt Korenberg and walk through the finance is that maybe just a couple of quick highlights on some of our internal research projects sure. Obviously, a key element of our business model is focused R&D investment with a goal of downstream partnering in July we announced positive top line results from our phase one trial of Captisol and.

Matt Foer: Sure, obviously, a key element of our business model is focused R&D investment with the goal of downstream partnering. In July, we announced positive top-line results from our Phase 1 trial of captocella-enabled iohexol, demonstrating pharmacokinetic bioequivalence between RCE iohexol and a reference product after IV administration. CE iohexol was safe and well-tolerated, and adverse events were in line with a known safety profile of GE's OmniPEG. The study was conducted in Canada under a CTA with Health Canada.

Allow xol demonstrating pharmacokinetic bio equivalence between RCD IMAX all in a reference products after Ivy administration, CIO Xomas safe well tolerated and adverse events were in line with a known safety profile of GE He paid.

The study was conducted in Canada under a C.T.A. with health, Canada details and data from that phase one trial will be presented to ask Sens kidney week. Later this week in Washington, DC and also a additional data will be presented next week at the contrast media research symposium in Italy, along with a presentation.

Matt Foer: Details and data from that Phase 1 trial will be presented at ASN's kidney week later this week in Washington, D.C., and also additional data will be presented next week at the Contrast Media Research Symposium in Italy, along with a presentation on data from CE iohexol and preclinical models of acute kidney injury. There will also be a presentation on comparative cardiovascular assessment of CE iohexol and iohexol in dogs at the AAPS PharmSci meeting in San Antonio later today. And I note that we have a significant presence at AAPS this year with our captocella technology as well. I just returned from the conference last night and want to give credit to our captocella team for their efforts leading up to and during the AAPS conference.

On data from CIO EXL in preclinical models of acute kidney injury they'll also be a presentation on comparative cardiovascular assessment of CIO Xol and Io Xol in dogs at the A.P.S. farm sign meeting in San Antonio later today.

And I know what do we have a significant presence in ABS. This year with our Captisol technology as well I just returned from the conference last night and want to give credit to our captisol team for their efforts, leading up to and during the ABS conference.

Matt Foer: So for Vryo Hexel, we plan to submit an IND to the FDA and initiate a phase two study in the U.S. in the second half of next year. The IND filing is a necessary step as the plan will be to run the next trials here in the U.S. We're highly confident that the data generated so far support further development, and we'll explore potential commercial partnerships for the program as we prepare for the next phase of development. And switching gears a bit, I'll also just quickly comment on the internal antibody programs that we have ongoing, leveraging OmniChicken. We're pleased with our team's progress on the internal OmniChicken programs, and we will be presenting data in December at the AETC meeting in San Diego on our B7H3 antibody program and our CD38 program, where we are seeing evidence of picomolar affinities. I realize that's fairly technical, but antibody affinity refers to the strength with which an antibody binds to a specific target. High affinity antibodies permit greater sensitivity in assays and often correlate with higher potency in vivo.

Brian Xol, we'll plan to submit and I envy with the FDA and initiate a phase two study in the U.S. in the second half of next year.

D. filing isn't necessary step as the plan will be to run the next trial here in the U.S., we're highly confident that the data generated so far support further further development and we'll explore a potential commercial partnerships for the program as we prepare for the next phase of development.

Switching gears a bit will also just quickly comment on the internal antibody programs that we have ongoing leveraging omni chicken we've been pleased with our team's progress on the internal omni chicken programs.

And we will be presenting data in December at the AGTC meeting in San Diego on our Vseven. Each three antibody program NRC 38 program, where we are seeing evidence of peak I'm older affinities I realize.

That's fairly technical but antibody affinity refers to the strength, which an antibody binds to a specific target.

Hi, affinity antibodies permit greater sensitivity analyses and often correlate with higher potency in vivo.

Matt Foer: Once our work is complete on those programs, our goal will be to partner them, and so that's our general update on our internal programs. And with that, I'll turn the call over to Matt Korenberg to review the financials.

Once our works complete on those programs our goal will be to partner them and so that's our general update on our internal programs and with that I'll turn the call over to Matt Korenberg to review the financials.

Matthew E. Korenberg: Thanks, Matt. I'll start today, as I usually do, with a review of the financials contained in our earnings release issued earlier this afternoon. Total revenues for the quarter were $24.8 million and included $9.8 million of royalty revenue, $6.8 million of materials sales, and $8.2 million of milestone and license fee revenue. It was another strong quarter across all three lines of revenue. With respect to royalties, we saw nearly 40% quarter over quarter organic growth driven by reaching the higher royalty rate tiers on Kyprolis and by the launch of Evamella in China by our partner Casi Pharmaceuticals. Material Sales continued their strong performance this year with another strong quarter.

Thanks, Matt I'll start today as I, usually do with a review the financials contained in our earnings release issued earlier this afternoon.

Total revenues for the quarter.

We are to 24.8 million and included 9.8 million of royalty revenue 6.8 million a material sales and 8.2 million of milestone in license fee revenue. It was another strong quarter across all three lines of revenue.

With respect to royalties, we saw nearly 40% quarter over quarter organic growth driven by reaching the higher royalty rate tiers on kyprolis and by the launch of Eva MELA in China by our partner Kathy Pharmaceuticals.

Material sales considered can continued their strong performance this year with another strong quarter.

Matthew E. Korenberg: And on the milestone and license fee line, we again saw more than double the revenue we recorded a year ago from the normal course contracted miles. Total revenues for Q3 of 2018 were $45.7 million, and $27.8 million of non-recurring royalty revenue for Promacta. As investors know, we divested the Promacta asset to Royalty Pharma in March of 2019 for $827 million. Accordingly, Ligand did not receive any pro-macto royalties in the third quarter of 2019.

And on the milestone in license fee line, we again saw more than double the revenue recorded a year ago from the normal course contracted milestones.

Total revenues for Q3 of 2018 were 45.7 million.

Included 27.8 million of nonrecurring royalty revenue for Promacta as investors know, we divested the promacta assets or royalty pharma in March of 2019 for $827 million.

Accordingly, lagging did not receive any promacta royalties in the third quarter of 2019, so on an apples to apples basis Q3, 2019 total revenues of 24.8 million compared with Q3 2018 total revenues of 17.9 million represented an increase of about 39%.

Matthew E. Korenberg: So on an apples-to-apples basis, Q3 2019 total revenues of $24.8 million compared with Q3 2018 total revenues of $17.9 million, and this represented an increase of about 39%. Regarding gross margin, our Q3 gross margin for capsule sales was lower versus the prior year. Our mix of commercial and clinical material sales shifts from quarter to quarter and from year to year, resulting in these changes in gross margin.

Regarding gross margin our Q3 gross margin for capital sales was lower versus the prior year, our mix of commercial and clinical material sales shift from quarter to quarter and from year to year, resulting in the changes in gross margin or material sales costs are still expected to translate to an overall corporate gross margin of over 90% for acute.

Matthew E. Korenberg: Our material sales costs are still expected to translate to an overall corporate gross margin of over 90% for the 2019 fiscal year. On the expense side, R&D expenses in Q3 2019 were $13.7 million. Excluding stock comp and other non-cash charges, R&D was $6.2 million. For GNA, our Q3 total was $9.5 million, and excluding stock, comp, and other non-cash charges, GNA was $5.6 million. Taken together, the total cash operating expenses for the quarter were $11.8 million, which was right in line with our expectations.

2019 fiscal year.

On the expense side R&D in Q3, 2019 was 13.7 million, excluding stock comp and other non cash charges R&D was 6.2 million for DNA. Our Q3 total was 9.5 million and excluding stock comp and other non cash charges gionee. It was 5.6 million.

Taken together the total cash operating expenses for the quarter were 11.8 million, which was right in line with our expectations.

During the third quarter, we processed a couple of tax provision items that are impacting our third quarter and full year net income in NPS two factors impacting our tax accruals or the divestiture of Promacta and the application of R&D tax credits, but primarily it's the divesture and Promacta promacta.

Matthew E. Korenberg: During the third quarter, we processed a couple of tax provision items that are impacting our third quarter and full year net income in EPS. Two factors impacting our tax accruals are the divestiture of PROMACTA and the application of R&D tax credits. But primarily, it's the divestiture from active to. As the year has progressed, we now see the sale of Promacta has had a higher net profit than we expected due to the lower tax rate. That's good news for the business overall because it makes the sale of the asset even more profitable for Ligand. But the result is that the rest of the business post-ProMACTA is taxed at a slightly higher rate as compared to our initial estimates. In addition, we have a lower benefit from R&D tax credits this year compared to last.

So your has progressed, we now see the sale the Promacta had a higher net profit than we expected due to the lower tax rate.

That's good news for the business overall, because it makes the sale the asset even more profitable for like it but the result is that the rest of the business post Promacta is tax was slightly higher range as compared to our initial estimates.

In addition, we have a lower benefit from R&D tax credits this year compared to last.

The impact of these two changes is that we anticipate more than $13 million of additional overall cash tax savings for ligand, but given the way we broke out our guidance for investors earlier this year, excluding the Promacta transaction, we have about a 20 cents impact to our guidance.

Matthew E. Korenberg: The impact of these two changes is that we anticipate more than $13 million of additional overall cash tax savings for Ligand. But given the way we broke out our guidance for investors earlier this year, excluding the Promacta transaction, we have about a 20% impact on our guidance. Again, just to reiterate, we'll pay about $13 million less in taxes compared to our original estimates, but there's a non-operating impact due to our adjusted earnings reporting methodology. And I'll discuss this more.

Yeah, just to reiterate will pay about $13 million lesson taxes compared to our original estimates, but there is a non operating tax impact due to our.

Adjusted earnings reporting methodology, and I'll discuss this morning moment.

GAAP net net loss for Q3, 2019 was 15.3 million or 81 cents per share in this quarter the performance of Viking share price and the amortization of the purchase price from our Pell Villa Nova in investments contributed to the loss.

The unrealized loss related to the movement in Viking stock price. This included in our GAAP earnings this quarter was 10.5 million.

Matthew E. Korenberg: Gap net net loss for Q3 of 2019 was $15.3 million, or $0.81 per share. In this quarter, the performance of Viking's stock price and the amortization of the purchase price from our Pelvella and Novan investments contributed to the loss. The unrealized loss related to the movement in Viking stock price that's included in our GAAP earnings this quarter was $10.5 million.

Just as evidenced in the variable nature of that item after Viking in house or Q3 earnings. This this morning and provided an update on their development plans.

Their stocks up about 19% and based on our seven and a half million shares and warrants.

If we were booked at number today, it would be a $10 million gain versus yesterdays price.

With respect to Pell Villa Nova in any future product investment trends in any other future product investment transactions that we do just a reminder that were required to expense the upfront cash investment over the period in which the funds are spent by our partners. These acquisitions of product economics. Therefore result in ongoing noncash R&D expense during the life.

Matthew E. Korenberg: Just as evidence of the variable nature of that item, after Viking announced their Q3 earnings this morning and provided an update on their development plans, their stock is up about 19%, and based on our 7.5 million shares in Lawrence, if we were to book that number today, it would be a $10 million gain versus yesterday's price. With respect to Palvela and Novan, any future product investments, and any other future product investment transactions that we do, just a reminder that we're required to expense the upfront cash investment over the period in which the funds are spent by our partners. These acquisitions of product economics therefore result in ongoing non-cash R&D expenses during the life of the clinical trials.

Clinical trials.

In Q3. These deals contributed 4.8 million of noncash R&D expense.

For the quarter, we reported adjusted net income of 9.5 million or 49 cents per diluted share. This compares with adjusted net income last year of 31.7 million or $1.32 cents per diluted share and again last year's Q3 numbers were higher due to the inclusion of the Promacta royalty revenue and as I just mentioned.

Earlier for the for this year the tax the change in tax assumptions for the core and non continuing business.

Matthew E. Korenberg: In Q3, these deals contributed $4.8 million of non-cash R&D expense. For the quarter, we reported adjusted net income of $9.5 million, or $0.49 per diluted share. This compares with adjusted net income last year of $31.7 million, or $1.32 per diluted share. And again, last year's Q3 numbers were higher due to the inclusion of the ProMACTA royalty revenue. And as I just mentioned earlier, for this year, the change in tax assumptions for the core and non-continuing business will impact these numbers. Overall, the full year...

Will impact of these numbers overall the full year.

Full year full company results will be more profitable with the inclusion of the new Promacta tax assumptions. However, our adjusted diluted EPS excludes the sale of Promacta and the benefits of that transaction.

To highlight this point if the Promacta tax changes had not been run through the piano in Q3 adjusted diluted EPS would have been 61 cents a share.

Turning to cash flow in Q3, 2019, we generated 18 million of operating cash flow before tax payments and on the balance sheet. We finished the quarter with $1.1 billion the cash.

Matthew E. Korenberg: Unknown Speaker, Unknown Attendee, Unknown Speaker, Unknown Speaker, Unknown Speaker, To highlight this point, if the PROMACTA tax changes had not been run through the P&L in Q3, adjusted diluted EPS would have been 61 cents a share. Turning to cash flow, in Q3 2019, we generated $18 million of operating cash flow before tax payments. And on the balance sheet, we finished the quarter with $1.1 billion of cash, and we spent approximately $181 million on share repurchase and $24 million on taxes, principally associated with the sale of Prometheus. With respect to share repurchase, since the last update to investors and our quarterly filings, we've repurchased 1.4 million shares of our stock for $139 million. And as we'll disclose in our 10Q when we file, we have about 17.6 million basic shares outstanding today.

And we spent approximately 181 million on share repurchase and 24 million on taxes, principally associated with associated with the sale of Promacta.

With respect to share repurchase since the last update to investors in our quarterly filings, we've repurchased 1.4 million shares of stock for 130 might $39 million and as we will disclose in our 10-Q. When we file we have about 17.6 million basic shares outstanding today and at today's stock price.

Is that translates to about 18.4 million diluted shares outstanding.

We began actively repurchasing our shares about one year ago in November of 2018 and over the past 12 months, we've repurchased about 18% of our outstanding shares.

We currently have a 500 million dollar share repurchase authorization in place and have utilized about $91 million of that authorization. So far.

Turning now to guidance, we're reiterating our full year 2019 revenue guidance and expense outlook and we're updating our adjusted diluted EPS guidance to allow for the changes in tax assumptions that I described.

Matthew E. Korenberg: And at today's stock prices, that translates to about 18.4 million diluted shares outstanding. We began actively repurchasing our shares about one year ago in November of 2018, and over the past 12 months, we've repurchased about 18% of our outstanding shares. We currently have a $500 million share repurchase authorization in place, and we have utilized about $91 million of that authorization so far.

For the year, we continue to expect total revenues of approximately 118 million.

In reaffirming this full year number we're implying about 24 and a half million of Q4 revenue.

And one taking one step deeper on our revenue guidance, our revenue mix has shifted slightly over the course of the air from a rich since we gave our original guidance, but we still believe that will meet or perhaps exceed our $118 million target and within a royalty revenue line given the early stage launch process for the rest so from Sage we've been.

Matthew E. Korenberg: Turning now to guidance, we're reiterating our full year 2019 revenue guidance and expense outlook, and we're updating our adjusted diluted EPS guidance to allow for the changes in tax assumptions that I described. For the year, we continue to expect total revenues of approximately $118 million. In reaffirming this full-year number, we're implying about $24.5 million of Q4 revenue. And taking one step deeper on our revenue guidance, our revenue mix has shifted slightly over the course of the year since we gave our original guidance, but we still believe that we'll meet or perhaps exceed our $118 million target. And within the royalty revenue line, given the early stage launch process for Zolresso from Sage, we've included an immaterial amount of royalty revenue related to that product in our guidance for the remainder of the year. Overall, the operating business is performing well and is coming in right in line with our expectations. Our outlook is consistent, and expectations for revenue, cost of goods sold, and operating expenses remain unchanged.

We did an immaterial amount of royalty revenue related to that product in our guidance for the remainder of the year.

Overall, the operating business is performing well and is coming in right in line with our expectations are outlooks consistent and expectations for revenue cost of goods sold and operating expenses remain unchanged. The one factor that's changing the changing is the allocation of taxes between the large onetime sale of Promacta and the rest of the ongoing Corbett.

Yes.

As mentioned, we updated our assumptions this quarter for the taxes related to the Promacta Divesture divestiture.

And we realized a lower tax rate was applicable to promacta, making the sale that asset more profitable for like in as a result, the rest of the business is now being taxed slightly higher and the 20 cents impact to our and resulting in a 20 cents impact to our previous Dps guidance.

As such our new guidance for core adjusted diluted EPS for the year, reflecting these tax changes is $3 per share instead of our previous guidance of $3.20 for sure.

Matthew E. Korenberg: The one factor that's changing is the allocation of taxes between the large one-time sale of Promacta and the rest of the ongoing core business. As mentioned, we updated our assumptions this quarter for the taxes related to the PROMACTA divestiture, and we realized a lower tax rate was applicable to PROMACTA, making the sale of that asset more profitable for Ligand. As a result, the rest of the business is now being taxed slightly higher, resulting in a 20 cents impact on our previous EPS guidance. As such, our new guidance for core-adjusted diluted EPS for the year, reflecting these tax changes, is $3 per share instead of our previous guidance of $3.20 per share. On the EPS line, there's one other non-operating item to mention.

I mean, if you asked why there's one other non operating items to mention our guidance at the start of the year reflected interest rates at the time as investors know the interest rate environment has been challenging for homeowners. This is a significant cash with the federal reserve rate cuts decreasing interest yield.

As a result, we've given up nearly 10 cents vps from lower interest income.

However, the lower share count due to the share repurchase has made up for the lower interest income compared to what was originally assumed for guidance and these changes are all factored into our updated guidance.

Finally, just as a reminder, our adjusted diluted EPS guidance excludes stock based comp stock based compensation expense noncash debt related costs changes in contingent liabilities, including our CV ours transaction related amortization expenses and onetime costs unrealized gains or losses related to our holdings in public company stock.

Matthew E. Korenberg: Our guidance at the start of the year reflected interest rates at the time. As investors know, the interest rate environment has been challenging for holders of significant cash, with the Federal Reserve rate cuts decreasing interest yields. As a result, we've given up nearly 10 cents of EPS from lower interest income. However, the lower share count due to the share repurchase is made up for the lower interest income compared to what was originally assumed for guidance. And these changes are all factored into our updated guidance. Finally, just as a reminder, our adjusted diluted EPS guidance excludes stock-based compensation expense, non-cash debt-related costs, changes in contingent liabilities, including our CVRs, transaction-related amortization expenses and one-time costs, unrealized gains or losses related to our holdings and public company stock, mark-to-market adjustments for amounts owed to licensors With that, we'll take your questions, and I'll turn the call back over to the operator to open up for questions.

Mark to market adjustments for miles Licensors.

Excess tax benefit from share based compensation excess convert shares convert covered by our bond hedges and certain other onetime non recurring items.

With that well, we'll take your questions and I'll turn the call back over the operator to open up for questions.

Thank you.

And if he would like to ask a question over the phone press Star then the number one on your telephone keypad and again that star one on your telephone keypad.

Your first question comes from the line.

Matt Hewitt.

Your line is open.

Yeah. This is the Lukas on for Matt Hewitt here at Craig Hallum, you touched briefly on the omni internally developed omni chicken programs and I was just wondering if there is anything you can tell us about kind of a level of interest you're getting in those programs and if.

You are still planning to out license than before the end of the year.

Yeah, let luca. Thanks. This is a mass for yeah, we announced the programs a in the first quarter or this year and actually once we announce them at our analyst day, we actually had some inbound interest.

Operator: Thank you. And if you would like to ask a question over the phone, press star then the number 1 on your telephone keypad. And again, that's star 1 on your telephone keypad. Your first question comes from the line to Matt Hewitt. Yeah, this is Lucas on for Matt Hewitt here at Craig Hallam. You touched briefly on the Omni internally developed Omni chicken programs. And I was just wondering if there is anything you can tell us about the level of interest you're getting in those programs and if you're still planning to outlicense them before the end of the year.

Right right out of the gate, but Weve, obviously decided and we wanted to focus on generating data packages. The key in any internal R&D investment is to generate a data that de risked their program or answers key questions characterized as a program and over the years we've we've.

Been very focused on what are the key things we need to do for the various programs in order to translate those into a partnership with better downstream economics. So we have five programs running a we'll be presenting data at the 18 conference in San Diego in December for two of the program specific.

Matt Foer: Yeah, Lucas, thanks. This is Matt for Yes, we announced the programs in the first quarter of this year. And actually, once we announced them at our analyst day, we actually had some inbound interest right out of the gate. But we've obviously decided, and we wanted to focus on generating data packages. The key to any internal R&D investment is to generate data that de-risks a program or answers key questions that characterize a program. And over the years, we've been very focused on what are the key things we need to do for the various programs in order to translate those into a partnership with better downstream economics. So we have five programs running; we'll be presenting data at the AETC conference in San Diego in December for two of the programs, specifically the B7H3 antibody program and the CD38 antibody program, both with novel antibodies that are derived from our omni chicken. So we'll generally describe some technical data around that. And then from there, we'll assess the partnering landscape for the programs as we go into next year.

We need to be 73 antibody program and the CD 38 antibody program, both with a novelty antibodies that are derived out of our omni chicken.

So will generally describe some technical data around that and then from there we'll assess the partnering landscape for the programs as we as we go into next year.

Okay, Great and then I guess Sun is similar topic spend a couple of quarters. Since you launched the omni click platform.

Is that a platform that you see maybe spawning some internally developed programs as well.

I guess the short answer is yes. It could certainly could we do have good Ami click just as background for investors is I specialized version of omni chicken.

That.

Produces antibodies with a common light chain and those are generally used for a development or pursuing by specific antibodies that can go after a couple of targets at the same time, that's a growing area of interest and need in the industry.

Matt Foer: Okay, great. And then, on a similar topic, it's been a couple of quarters since you launched the OmniClick platform. Is that a platform that you see maybe spawning some internally developed programs as well?

So we watch that earlier this year, we actually had already have partnered programs that are producing omni click a derived antibodies, but yeah. It certainly could be one that we leverage for internal programs, but our focus right now is on a spreading that an expanding that with our with our partner programs.

Matt Foer: I guess the short answer is yes, it certainly could. We do have OmniClick, just as a background for investors, is a specialized version of OmniChicken that produces antibodies with a common light chain. Those are generally used for the development or pursuing bi-specific antibodies that can go after a couple of targets at the same time. That's a growing area of interest and need in the industry. So we launched that earlier this year, and we actually already have partner programs that are producing OmniClick-derived antibodies. But yeah, it certainly could be one that we leverage for internal programs, but our focus right now is on spreading that and expanding that with our partner programs.

Okay, Great and then maybe I can just squeeze one more in a you kind of highlighted the opportunity that exists with Powell Valla I guess, how are you thinking about the addressable market for that product and assuming everything kind of reads out when it's supposed to do you think.

Matt Foer: Okay, great. And then maybe I can just squeeze one more in.

We could see sales from that you know late in 2020.

Matt Foer: You kind of highlighted the opportunity that exists with Palvella. I guess, how are you thinking about the addressable market for that product? And assuming everything kind of reads out when it's supposed to, do you think we could see sales from that, you know, late in 2020?

Yeah. The data read outs as is I'll generally describe kind of the clinical plan and then and then Matt Korenberg and talk a little bit about the market and the business deal itself, but.

Just switched over to the phase three pivotal portion of the trial. So that it just as background that the into phase two three trial called the Veilleux study. They just started the the phase three pivotal portion and have patients now randomized into the double blind placebo controlled portion, which just happened just this past quarter. So the phase.

Matt Foer: Yeah, the data readouts are I'll generally describe kind of the clinical plan and then Matt Kornberg and talk a little bit about the market and the business deal itself. But we just switched over to the phase three pivotal portion of the trial. So just as a background, it's a phase two, three trial called the VALO study. They just started the phase three pivotal portion, and patients have now been randomized into the double-blind placebo-controlled portion, which happened this past quarter. So the phase two portion will read out in Q2 of next year, and then the full phase three readout is expected to happen in the second half of next year. This is a drug, obviously, with orphan designation, there's also a fast track designation and real high unmet need. For the program, we've been really pleased with not only the team at Palvella, but their focus and commitment to progressing the trial quickly and with a target of getting this product out to the market for patients in need. Yeah, and

Two portion I will read out in Q2 of next year and then the full phase three read out is expected to happen in the second half of next year.

This is a a drug obviously with with orphan designation. There's a it also has fast track designation and real high unmet need for the program. We've been really pleased with not only the team at Palmetto adjust their focus and commitment to progressing to the trial quickly and and and with an eye target of getting this product out to the.

Market for patients in need.

Yeah and on the market size with any rare disease drug like this it ultimately comes down to pricing.

Obviously in this in this case or do you expect expected impact on patients lives is significant.

Matt Foer: On the market side, with any rare disease drug like this, it ultimately comes down to pricing. Obviously, in this case, the expected impact on patients' lives is significant, and we could imagine pricing would be relatively attractive. With about 8,000 or 9,000 patients likely in the U.S. market, we could see that translated to several hundred million dollars of end-user sales. So, a really nice market for the drug.

And we can imagine pricing would be relatively attractive and with about eight or 9000 patients a likely in the U.S. market.

We could see that translated into several hundred million dollars of end user sales, so a real nice market for the drug.

Okay. Thank you very much that's all I had.

Okay. Thank you.

Your next question comes from the line up.

Unknown Attendee: Okay, thank you very much. That's all I had.

Unknown Attendee: Lucas, thank you. Your next question comes from the line of Joseph Pantginis. Hi guys, this is Emanuela on behalf of Joseph Pantginis. I was wondering if you could give a little bit more color on these novel license agreements you mentioned, maybe in regards to how you look at partners when you are, how you look at these license agreements and the choice you make in terms of the companies, and also if we should expect news flow coming soon from all of them or some of them.

So.

Your line is open.

Hi, guys. This is a runway left Florida Jochen genius.

Yeah I was wondering if you can give the you know these more color on D. is now the license agreement you mentioned.

Maybe in regards to how are you look at partners when Youre.

You look at these license agreement and the choice to make intensity companies.

And it would still if we should expect to news flow coming soon.

Some of them.

Matt Foer: Yeah, this is Matt Foer. Thanks for the question. We entered into, I think you're referring to the five OmniApp platform license agreements we entered into in the last quarter here. An agreement with Takeda, obviously a large multinational global player, GigaGen, Talent Therapeutics, Cura Pharma, and Avivo. In all of those instances, there are partners who are looking to access our OmniApp technology to discover fully human antibodies that they want to take into development. So, I think it's further validation of the platform, and we continue to see nice momentum in new deal making.

Yeah. It's about four thanks, a question we entered into I think you're referring to the five omniab platform license agreements we entered into in the in the last quarter here an agreement with Takeda, obviously, a large multinational a global player or get Jan.

Talon Therapeutics, Chira pharma and vivo in all of those instances are partners, who are looking to access our omniab technology to discover fully human antibodies that they want to take into development. So I think it further validation of the of the platform and we continue to see nice momentum in new Dealmaking generally these are similar.

Matt Foer: Generally, these are similar transactions to deals we've done in the past. The cadence of deals is very consistent, and it's a mix of private and public companies, some smaller, some much larger, but all with a common interest to access what we think is the best-in-class antibody discovery platform.

Or transactions two deals we've done in the past.

The cadence of deals is very consistent and it's a mix of private and public company, some small or something much larger but a common interest to access what we think as a best in class antibody discovery platform.

Okay. Thank you and I also still in yard a passing easy you mentioned.

Unknown Attendee: Okay, thank you. And I also saw in your press release that you mentioned some data coming out from Verona Pharma, face-to-face data. I was wondering if you have any thoughts on how our view on Verona's RTL554 should change based on the recent approval of Trikafta in cystic fibrosis, if you have any.

Data coming out from there and apply them are faced with the data I was wondering if Suzanne you how many todd on the how I would view on that or not so at the end. This high score should change based on the E. They sent.

Oh, it's pretty tough guy in cystic fibrosis.

Oh.

Yeah I'll just speak generally this is the Verona pharma asset is a an asset that came to us through our Vern Alice acquisition last year.

Matt Foer: Yeah, I'll just speak generally. This is the Verona Pharma asset. It is an asset that came to us through our Vernalis acquisition last year. They reported positive phase two data, and they're working on a number of forms of presentation, which is not uncommon in the respiratory space. And they recently reported positive phase two data with their dry powder inhaler formulation. And they also announced that they completed enrollment in their phase two B study with a nebulized form of ensophendrine as an add-on to a long-acting bronchodilator. Obviously, they're going after a big indication, COPD, which is the third largest and third leading cause of death. And their plan is to enter phase three trials in COPD sometime in 2020. That's been their communication. So yeah, that's kind of a summary of the status of the program. It's one we're

They reported positive phase two data, they're working on a number of forms a presentation, which is not uncommon in the respiratory space and they reported positive phase two data with their dry powder inhaler formulation recently and the they also enough that they completed enrollment in their phase to be study with a nebulized form of and suffer.

Entering as an add on to a long acting Bronco dilator I'm, obviously, they're going after a big indication a CR P.D., which is the third largest in our third leading cause of death and their plan is to enter phase III trials in C O PD.

Sometime in 2020, that's been their communication. So yeah, that's kind of a summary of the status of the program. It's one we're continuing to watch and obviously a cheering them on.

Okay. Thank you very much.

Unknown Attendee: Okay, thank you very much. Your next question comes from the line of Scott Henry. Your line is open. Thank you, and good afternoon.

Your next question comes from the line, it's called Hendi.

Lines open.

Thank you and good afternoon, just a couple of questions.

Scott Robert Henry: Just a couple questions. Unfortunately, I'm going to ask about the tax changes and their impact. I certainly haven't, I don't think, fully understood all of the moving parts, but the question is, should these changes impact only 2019 or will this also impact the tax rate in 2020 and going forward? And how should we think about that magnitude going forward if it does impact that?

Unfortunately, I'm going ask about the tax changes in that impact.

Certainly have I don't think a fully.

I understand all the moving parts, but but the question is.

Should these changes impact.

Only 2019 or will this also impact the tax rate in 2020 and going forward and how should we think about that magnitude going forward. If it if it does it back that.

Matthew E. Korenberg: Yes, Scott, it's Matt Korenberg. Thanks for the question, and I don't apologize. We're not upset about this at all, really. It's pretty simple at a high level.

Yes, Scott, it's Matt Korenberg. Thanks for the question and I don't apologize, where we're not upset about this at all really.

It's pretty simple at a high level, when we announced a transaction.

Matthew E. Korenberg: When we announced the transaction, we had an estimated tax rate for Promacta. And today, you know, as we kind of get through filing the taxes and paying the taxes, we're realizing that the tax rate is going to be lower. It's going to be lower than we had estimated. It might help investors if I remind them that before we excluded Promacta from what we were going to call our adjusted EPS this year, the gain, we gave guidance of $32.25 for the total company. Today, if we were still reporting on that number, largely as a result of the change in the tax estimate and partially as a result of the share repurchase that we've done, that $32.25 today would be over $35 a share in earnings.

We had an estimated tax rate for promacta.

And today as we kind of get through filing the taxes and paying the taxes are realizing that the tax rate is going to be lower than we had estimated.

It might help investors, if I remind folks that before we excluded.

Promacta from what we were going to call or adjusted EPS. This year the gain.

We gave guidance of $32.25 for the total company.

Today, we're still reporting on that number.

Largely as a result of the change in the tax estimate and partially a result of on the share repurchase that we've done that $32.25 today would be over $35 a share in earning so yes is actually increased significantly since that time, we gave the original EPS guidance.

Matthew E. Korenberg: So EPS has actually increased significantly since the time we gave the original EPS guidance. What we did at the time after $32.25 came out was, on the next call, we said, let's give investors an estimate of what the actual business is doing. And we estimated the amount of tax that would be associated with PERMACTA. Then we deducted the after-tax gain from that $32.25 and got to that $3.20 that we were talking about. Flash forward to today, and we're starting with a higher number of $35. The gain is significantly higher than we expected. The after-tax gain is significantly higher than we expected. So when we're reducing that $35, you reduce it, and it gets down to $3 a share. So from a big-picture overall company perspective, as I mentioned, cash flow is higher. But the split between the two buckets is just a little different. So we end up with a slightly lower EPS attributable to the non-PERMACTA part of the business.

What we did at the time after 30 225 guidance came out the next call. We we said, let's give investors an estimate of what the actual business is doing and we estimated the amount of tax there would be associated with promacta, we deducted than the after tax gain from that 30 225.

And got to that $3 in 20 cents that we were talking about.

Flashforward to today.

We're starting with a higher number 35, the gain is significantly higher than we expected. The after tax gain is significantly higher than we expected. So when we're reducing that 35, you reduce it down and it gets down to $3 a share so in in a big picture overall company perspective, as I mentioned cash.

Cash flow is higher on but the the split between the two buckets is just a little different and so we end up with slightly lower yes attributable to the non productive part of the business and then Matt just got it was also asking about the tax rate going forward.

Matthew E. Korenberg: And then Matt, just Scott was also asking about the tax rate going forward. Should we anticipate an increase in the rate next year? Yeah, thanks for the reminder, John.

Should we anticipate an increase in the rate.

Next year, yes. Thanks for the reminder, John no tax rate for.

Matthew E. Korenberg: No, the tax rate for the core business is still 21% federal and a little bit of state, so as we say on most calls, 21 to 23% is our estimate. Transparently, when we gave the PROMACTA guidance, we estimated that that number would be closer to 23% on the PROMACTA gain. It's turning out to be closer to the 21% level, and so that's really the bulk of the difference.

The core business is still 21% federal and a little bit of state. So as we say on most calls 21% to 23% our estimate.

You know transparently when we gave the Promacta guidance, we estimated that that number would be closer to 23% on the promacta gain on it's turning out to be closer to the 21% level and so that's really the bulk of the difference.

Scott Robert Henry: Okay, thank you. That's helpful.

Okay. Thank you that's helpful.

And then just another question on the royalty line, we're starting to get some other products.

John Higgins: Just another question, on the royalty line. We're starting to get some other products filtering into that line. Are any of them material? And would you expect any of them to be material? I mean, I think he said certainly one of them was not material yet, Zylresso, I believe. But any of the other ones, Carnexiv, or any of them, Baxtella? When would we expect those to be material?

Filtering into that line or any of them material and would you expect any of them to be even I mean, I think he said certainly I think it was one of them with was not mart material, yet still rest so I believe but any of the other ones Cognex Eve already there baxdela.

When when would we expect those to be material.

John Higgins: Yeah, Scott, it's John. A couple of new entrants into Accela, you mentioned, that was now about a year ago; that's been a very small product. We've talked about this, frankly; the revenues for that product have been considerably lower than the street's expectations and, frankly, even our internal expectations. That's not new news; that really has been the story for the last three or four quarters.

Yes, Scott, it's John the a couple of.

New interests back selling you mentioned that was now about a year ago. That's been a very small product we've talked about this frankly that the revenues for that product have been.

Considerably lower than the streets expectations, and frankly, even our internal expectations. That's not new news that that's really has been the story than last three or four quarters. The rest. So I'd just launched first quarter Theres really no scripting theres no trend or other information for us to go off of so I consistent with other modeling.

John Higgins: Xeresso just launched, the first quarter, there's really no script data, there's no trend or other information for us to go off of, so consistent with other modeling, until we have information, we're really assuming a very negligible amount. Carnexiv, you mentioned, the product we expect to launch in the early part of 2020, it's a good royalty, but we believe that'll be a relatively So what's interesting is that you've got a couple of these products that really are small or unknowable right now. One other entrant, though, is CASI, this is China Partner Marketing, Eva Mella, in China, and it's a brand new market, right? The product launched just a couple of months ago. China is a big market, multiple myeloma is an important segment in the Chinese market, and we have been told by our partner that they expect to get pretty good pricing.

Until we have information really I'm, assuming a very negligible.

About card exit you mentioned some products, we expect to launch early part of 2020.

It's a good royalty, but we believe that will be relatively small product just in terms of its market categories. So what's interesting is that you've got a couple of of these products that are small or unknowable right now one other entrant, though is kasey this is the China partner.

Marketing, even MELA in China, and it's a brand new market right. The product launch just a couple of months ago, China is a big market multiple myeloma is an important segment.

In the China market and we have been told by our partner that they expect to get pretty good pricing.

John Higgins: So all of those assumptions are included in our revenue, but next year and the year beyond, as those forecasts come together, there may be some upside potential there. There are some other products that are coming into focus, we mentioned Sparsantan and TR Beta, the Novan, and the Pavela Acid. Those are still a couple of years out, but those are much more substantial products in royalty rate and market size and we believe will create a very different revenue narrative than some of these other small products we're just talking about right now.

So all of those assumptions are included in our revenue, but next year the year beyond as we as those forecasts come together, there maybe some upside potential there.

There are some other products that are coming into focus we mentioned sparse antenna TR beta that no band to prevail assets. Those are still a couple of years out but those are.

Much more substantial products and warranty rate and market size and we believe will create a very different revenue narrative than some of these other smaller products were just talking about right now.

Okay. Thank thank you for that color and I know you Havent put out the 10-Q yet.

Scott Robert Henry: Okay, thank you for that color, and I know you haven't put out the 10Q yet, but obviously, we know what Kyprolis is, and I can factor that in, and it still looks like there's some upside to the royalty line. I mean, could it be inferred that that would be Evo Mella, and would there be any stocking in China we should factor in?

But obviously, we know a kyprolis is and I could factor that in and it still looks like there's some upside to the royalty line I mean could that be inferred that that would be evil MELA in would there be any stocking and in China, we should factor.

Yeah. So good question, obviously, we have to make estimates of what our partners have done and Kathy.

Matthew E. Korenberg: Yeah, so a good question. Obviously, we have to make estimates of what our partners have done. And Cassie will report later this week or early next week. I'm not sure exactly on their date of departure. But when you see that, you'll get more color specifically on what that is. But I think, Scott, it's a fair way to assess it that, you know, at a 20% royalty rate, the only thing that could really move the needle significantly enough to make the difference is the amount of money that's going to be spent. In terms of stocking in China, I think it's like any pharmaceutical market; there's probably a bit of stockpile at the beginning of a launch, but we understand that they're seeing good procedure flow and procedure volumes in China, which is generating real underlying demand.

We'll report.

Later this week or early next week I'm not sure exactly there their data report, but when you see that you'll get more color specifically on what that is but I think Scott. It's a fair a fair way to assess it that you had a 20% royalty rate the only thing that could really move the needle significantly enough to make a difference you're probably seeing.

As is on even though the line.

In terms of stocking in China, you know, it's I think it's like any pharmaceutical market theres, three probably a bit of stocking at the beginning of a launch but.

I understand that they're seeing good procedure flow in procedure volumes in China, which is generally real underlying demand yeah, and it's got its Matt for I'll, just make one other comment on even though in China. Unlike the U.S., where there is competition in that melphalan market, even though as al.

Matt Foer: Yeah, and Scott, this is Matt Foer. I'll just make one other comment on evamel in China. Unlike the US, where there is competition in that melphalan market, evamel is actually the first approved melphalan in China in its form. So that obviously plays a role in

Actually the first approved Melphalan in China in the form so that obviously plays a role as well.

Matt Foer: Okay, great. Thank you for taking the questions.

Okay, great. Thank you for taking the questions.

Thanks, Scott Thank you Scott.

Scott Robert Henry: Thanks, Scott.

Operator: Thank you, Scott. So that, that, Operator, please. Looks like we have one more question.

So that that.

Perhaps how weve looks like okay. Yes, operator, please looks like we have one more question. Yes. Your next question comes on line. That's nice follow your line is open.

Operator: Yes, your next question comes from the line of Larry Solow. Your line is open. Hi, it's Pete Lucas on behalf of Larry. I'll make it quick. I think you touched on it quickly.

Hi, its Peter Lugers for Larry I'll make it quick.

I think you touched on a quickly just on Kyprolis can do you anticipate the positive candour trial results in combo with Darzalex moving the needle that any significant way I think you touched on I think it said no and can you remind us where kyprolis stands in the first multiple melanoma treatment and no.

Unknown Attendee: Just on Kyprolis, do you anticipate the positive CANDOR trial results in combination with

Matt Foer: Dr. Zelleck, moving the needle in any significant way. I think you touched on, I think you said no, and can you remind us where Kyprola stands as the first multiple melanoma treatment and when we'd see data from that?

When we'd see data from that.

Yes. This is Matt for all comment on the the candor data So Amgen announced a in mid September positive phase three data that was the candor trial, combining kyprolis with Darzalex and it met its primary endpoint of progression free survival.

Matt Foer: Yeah, this is Matt Foer. I'll comment on the CANDOR data. So, Amgen announced in mid-September positive Phase III data from the CANDOR trial combining Kyprolis with Darzalex, and it met its primary endpoint of progression-free survival in what was a large Phase III trial. They saw a 37 percent reduction in risk of progression or death in patients with relapsed or refractory multiple myeloma. So, a pretty substantial increase and very positive data. Based on Amgen's public reporting, we imagine they'll present the full data set at an upcoming medical meeting, and then we'll pursue getting that in the label. It's tough to say exactly when that will happen, but I think generally folks may be estimating it would be sometime next year, and that's usually when you start to see the impact of what this is, which is obviously a substantial data addition and label expansion.

What was in large phase three trial, they saw a 37% reduction in risk of progression or death in patients with relapsed or refractory multiple myeloma, so a pretty substantial increase and and and very positive data we either.

Based on engines public reporting we imagined no don't present, the full data set at an upcoming medical meeting a and then we'll pursue getting that into label except to say it exactly when that would happen, but and I think generally folks maybe estimating it wouldn't be sometime next year a and.

That's usually when you start to see the impact of what this is which is obviously a substantial data. Yeah addition, and label expansion Yeah, and our view is we internally that lie again are actually bullish about the prospects on that label expansion to be clear, we do not managed to record.

John Higgins: And our view is that we internally at Ligand are actually bullish about the prospects of that label expansion. To be clear, we do not manage the regulatory, and clinical work, we do not market the drug, so it's really not our business to get ahead of ourselves in terms of projections. We look at street estimates.

Turing to clinical work, we do not market the drug.

So it's really not our business to to get ahead of ourselves in terms of projections. We look at street estimates there by 15 or 16 analysts who cover Amgen and we really look at consensus to help guide our forecasting but fundamentally it is a great drug it's been on the market for now 556 years, or so and and the datasets safety and efficacy.

John Higgins: There are about 15 or 16 analysts who cover Amgen, and we really look at consensus to help guide our forecasting. But fundamentally, it is a great drug; it's been on the market for now for five, six years or so, and the data set, safety and efficacy, continues to build and get more robust. We know Amgen is investing considerably, and it seems to us that they believe big time in that asset and the potential for it to treat a broader group of patients. So on balance, the CANDOR data is a good news event, and the market received it as such. We saw a variety of articles, not just analyst reports, but medical articles or commentators that were remarking on the robustness of that data.

Continues to build and get more robust.

We know Amgen has invested considerably as our sense. They believe a big time of that asset and the potential.

For it to treat a broader group of patients so a balanced the cantor.

Data is a good news event and frankly the market received it is such that we saw a variety of articles that just analyst reports, but medical articles or commentators that were remarking on the robustness of that data. So we're excited about that I mentioned, the Beijing, the Beijing commercial partnership that as well we see.

John Higgins: So we're excited about that. I mentioned the Beijing commercial partnership. That, as well, we see as a very interesting development that was not on our radar. Obviously, we knew China was open to potentially partnering, but that was something that was really new news for us. China is a big market for multiple myeloma, and it's hard to tease out exactly market segmentation, but we think, generally, China has not been included in those long-term sales forecasts. So there could be some upside in royalties if that market launches in the next couple of years.

As a very answering development that was not on our radar. Obviously, we knew China was open potentially for partnering but that is something that was really new news for US China is a big market for multiple myeloma and it's it's hard to tease out exactly market segmentation, but.

We think generally China has not been included in those long term sales forecast so that could be some upside.

And royalties if that market launches the next couple of years.

Unknown Attendee: And just the last one for me, your thoughts going forward on Baxtella. I mean, it seems like you touched on the results so far, but it seems like it has potential, just needs a marketing partner with DeepProduct and DeepPockets. Do you wait it out with Malinta, or kind of how are you looking at the opportunity there going forward? Yeah, that's actually a good summary.

And just the last one for me your thoughts going forward on Baxdela I mean, it seems like you touched on the results so far but seems like it has potential just needs to marketing partner with deep product with deep pockets do you wait it out with my winter kind of how are you looking at the opportunity there going forward.

Yeah.

That's actually a good summary.

John Higgins: We'll wait it out. Yeah, we care about our partner. They obviously have a license, but they've had some challenges with their commercial business and general operations. But aside from that, it is a good drug. It's a capsule-based asset. There's been very good data, new indications, and recently an approval for an expanded label. So on the one hand, in the super potent antibiotic space, it's a very attractive asset. It's been underperforming. It hasn't had a really big impact on our business in terms of our forecasting, but the prospect is still there that they are able to solve their financial issues and find a quality, larger marketing partner. So that's some upside. I'll say there's no overhang or risk to our financial performance given the way we're looking at that asset now, but that is potential upside if they do find a larger partner.

We will wait it out yeah, we care about our partner they obviously have a license they've had some challenges with there.

Their commercial business in general operations, but aside from that it is a good rock.

Capsule based asset there's been very good data new indications recent approval for an expanded label. So it's it's I want to and the Super Bowl antibiotic space, It's a very attractive asset.

It's been underperforming it hasn't had a really big impact on our business terms are forecasting but the prospect is still there that they are able to.

Solve their their financial issues and buying a quality.

Larger marketing partner. So that's some upside I will say, there's no overhead overhang or risk to our financial performance given the way, we're looking that asset now, but that is potential upside if they do find a larger partner.

Unknown Attendee: Great. Very helpful. Thank you, guys.

Great very helpful. Thank you guys.

Ben I appreciate it.

John Higgins: Thanks. I appreciate it. Thank you. All right. Well, that looks like that wraps up the question.

Thank you all right well that looks like that wraps up the question. So I really appreciate the turn out today and again, it's great to have Patrick on Board Patrick I know a just a couple of days have a job, but you could have a busy fall coming up on a any travel laser conferences yeah. No at this point John We've got the Stephens Conference set up for November 13th So looking forward to being out there and that's where that's.

John Higgins: So I really appreciate the turnout today. And again, it's great to have Patrick on board. Patrick, I know, just a couple of days on the job, but you're gonna have a busy fall coming up. Any travel dates or conferences? Yeah, I know at this point, Joe.

Patrick O'brien: We've got the Stevens Conference set up for November 13th. So looking forward to being out there. And that's where it's at, in Nashville, Nashville.

In Nashville, Nashville, Matt Korenberg will be representing like ended that kind of for fantastic and you'll be out there and you're probably beyond the road as well yeah analysts investors and so on I hope So fantastic Alright, Hey, look really appreciate that turned out and we'll be in touch it can be posted as the.

Matthew E. Korenberg: Matt Kornberg will be representing Ligand at that conference. Fantastic. And you'll be out there, and you'll probably be on the road as well. Yeah. Analysts and investors and so on.

Patrick O'brien: I hope so. Yeah, fantastic. All right. Hey, look. We really appreciate the turnout, and we'll be in touch. It can be posted as the business advances. Thank you.

Advances thank you.

Thank you for centuries, and thanks, all are participants we try to yesterday. We hope you found this webcast presentation employment Dan.

Operator: Thank you, presenters, and thanks to all our participants for joining us today. We hope you found this webcast presentation informative. And this concludes our webcast. You may now disconnect. Have a good day.

This concludes our webcast you may now disconnect have a kidney.