Q3 2020 Ligand Pharmaceuticals Inc Earnings Call

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It is all my pleasure to turn today's program over to you.

Patrick O'brien: It is now my pleasure to turn today's program over to... Mr. Patrick O'Brien, Senior Vice President, Investor Relations. Sir, the floor is yours. Thank you and welcome to Ligand's third quarter 2020 financial results and business update conference. Consistent with the recommendations for social distancing, all of our speakers for today's call are in separate locations.

Mr., Patrick O'brien, Senior Vice President Investor Relations.

Sir the floor is yours.

Thank you and welcome to Logins third quarter 2020 financial results and business update conference call.

Consistent with the recommendations for social distancing Oliver speakers for today's call are in separate locations.

Patrick O'brien: Speaking today for Ligand will be John Higgins, CEO, Matt Fore, COO, and Matt Korenberg, CFO. We will be using slides to guide our discussion today. We will also use non-GAAP financial measures, and some of our statements will be forwarded. Additional information concerning risk factors and other matters concerning Ligand can be found in the Ligand earnings release issued earlier this morning, the slides associated with this call, and periodic filings with the SBA. As a reminder, Ligand takes no obligation to revise or update any statements to reflect events or circumstances after the date of this communication. With that, I would now like to turn the call over to John. Thank you, Patrick. Good morning.

Speaking today for like it will be John Higgins, CEO, Matt Foehr C O and Matt Korenberg CFO.

You will be using SEC got her discussion today, we will also use non-GAAP financial measures and some of her statements will be forward looking.

Additional information concerning risk factors and other matters concerning where again can be found in the legacy earning release issued earlier this morning, and the slides associated with this call and periodic filings with the FCC.

As a reminder, like it takes no obligation to revise or update any statements to reflect events or circumstances. After the date of this conference call.

With that I would now like to turn the call over to John Higgins.

Okay.

Thank you Patrick.

Good morning.

John Higgins: And thanks for joining our call. I'm pleased to report that Ligand is doing well and is closing out 2020 in a strong position in terms of financial growth, portfolio expansion, and excellence in our business operation. We have some slides to go with our program today. I'd like to turn to slide four, to start out.

Well, thanks for joining our call I'm pleased to report that I gave is doing well in his closing out 2020.

A strong position in terms of financial growth portfolio expansion.

Excellent and our business operations.

We have some slides to go with our program today I'd like to turn to slide four.

How to start out.

John Higgins: In this simple slide, Ligand is delivering major value. We serve the industry; we serve our partners with our research and technology. There are several ways that we are supporting our partners, but first, helping them discover new medicines. Secondly, helping improve the safety of their medicines, and thirdly, helping our partners reduce their costs to make their medicines. We are technologists, we are innovators, and we are proud of what we are doing to help facilitate care and human health around the world. Let's turn to slide five.

Simple slide why again, delivering major value a weaker or the industry, we serve our partners.

With our research and technology there are several ways that we're supporting our partners, but first is helping them discover new medicines.

Secondly, helping improve safety.

Their medicines and.

Thirdly, I, helping our partners reduce their cost to make their medicines.

We we are technology as we are innovators and we are proud of what we are doing to help facilitate a care and human health around the world.

Let's turn to slide five I'd like to give some comments overall about the business in third quarter, specifically Q3 was an exceptional quarter across the board not M&A major portfolio news our highlights, but we're also very pleased with our financial performance.

John Higgins: I'd like to give some comments overall about the business and the third quarter specifically. Q3 was an exceptional quarter across the board. M&A and major portfolio news are highlights, but we are also very pleased with our financial performance. Both of our major royalty-bearing assets posted growth, with underlying revenue for products increasing in all major regions in Q3 over Q2 2020. Earlier in the year, as we discussed, we forecasted the pandemic would impact patient visits and starts on some treatments in the short term, but we are very pleased to see growth returning now. And in particular, Amgen noted recently that early indications point to a strong launch of Kyprolis and Darzalex combined regimen for relapsed multiple myeloma following positive data and label expansion earlier this year.

Both of our major world P. bearing assets posted growth with underlying revenue for products increasing in all major regions. A Q3 over Q2 2020 early.

Earlier in the year as we discussed we forecasted the pandemic would impact patient visits and start on some treatments in the short term.

But we're very pleased to see growth returning now and in particular Amgen noted recently that early indications point to a strong launch of Kyprolis and Darzalex combined regimen for relapsed multiple myeloma following positive data and label expansion earlier this year.

John Higgins: Now, in terms of our expanding portfolio, we have completed multiple M&A transactions recently, bringing top-tier partners to Ligand, and we've had a very productive year-to-date with entering into a new license contract, granting technology rights to our partners. Notably, we have five partner programs in development now, more than ever before, with five drugs where Ligand is entitled to a royalty projected to be up for approval in 2021 alone. As for excellence in our business operations, it's best illustrated by our ability to rapidly scale up production to meet the world's capsule supply needs for the manufacture of remdesivir. One remdesivir, it's a capital partnership with Gilead, we are very proud of our capital is required to make. No other company provides the quality, the purity, the quantity, or the safety record for this vital ingredient. Veclari, as it is branded now in the U.S., is the first and only FDA-approved treatment for COVID-19. We know that for society to get back to normal, we need treatments, and we need vaccines.

Now in terms of our expanding portfolio, we have completed multiple M&A transactions recently, bringing top tier partners to like <unk> and we've had a very productive year to date with entering in a new license contracts granting technology rights to our partners.

Notably we have five partner programs in development now.

More than ever before with five drugs were likely and is entitled to a royalty projected to be up for approval in 2021 alone.

As for excellence in our business operations, its best illustrated by our ability to rapidly scale up production to meet the world Captisol supply needs for the manufacture of rent that severe.

[noise] one dusted there it's a capital partnership with Gilead had we're very proud of our Captisol is required to make it no. Other company provides the quality the purity the quantity or the safety record for this vital ingredient.

That cutlery.

As it is branded now in the U.S. is the first and only after FDA approved treatment for cold at night.

We know for society to get back to normal we need treatments and we need backseat there will be other treatments eventually approved to add to the armamentarium, but this drug works and is considered today to be a part of the standard of care.

John Higgins: There will be other treatments eventually approved to add to the armamentarium, but this drug works and is considered today to be a part of the standard of care. As such, all current and future therapeutic clinical trials will be required to use remdesivir into control R. Of note, the U.S. The Surgeon General said just last Friday that while hospitalizations are starting to go up, the country's COVID-19 mortality rate has decreased thanks to multiple factors, including the use of Remdesivir.

As such all current and future therapeutic clinical trials will be required to use rent disappear in the control arm.

Of note the U.S. surgeon General said just last Friday.

While hospitalization or starting to go up.

The country COVID-19 mortality rate has decreased thanks to multiple factors, including the U.S Supreme disappear.

On their recent earnings call Gilliatt executive.

John Higgins: On their recent earnings call, Gilead executives remarked that they have repeatedly seen the clinical benefits of Clery across multiple clinical trials. They said in the past quarter, these benefits have been unequivocally demonstrated in global clinical trials. The definitive results from a fully powered, double-blind, placebo-controlled, and randomized trial showed an average reduction in recovery time of five days.

Remark that they have repeatedly seen the clinical benefit of that.

Flurry across multiple clinical trials.

They said in the past quarter. These benefits have been unequivocally demonstrated in global clinical trials. The definitive result from a fully powered double blind placebo controlled and randomized trial showed an average reduction in recovery time of five days.

John Higgins: They see their peer-reviewed data from blinded and controlled trials as being the pinnacle of science and clinical studies today. They also commented that they currently estimate that roughly 40 to 50% of hospitalized patients are getting the cleri right now in the U.S. Gilead also said that the percentage of hospitalized patients receiving Bacleri is expected to grow with FDA approval. Recent peer-reviewed publications, and now that they have a field team to educate physicians on how best to determine appropriate patient populations for the CLERG. Also of note, Gilead reminded people that they are working on an outpatient treatment option under additional clinical trials to potentially expand the use of the drug outside the hospital setting. As for Ligand, the need for Rizethavir is real, and that could not be more clear to Ligand given our highly interactive work with Gilead to meet their cataract needs.

They see their peer review data from blinded controlled trials as being dependent couple of science and clinical studies today.

They also commented that they currently estimate that roughly 40% to 50% of hospital by hospital wise patients are getting the clarity right now in the U.S.

Gil you had also said that the percentages of hospice hospitalized patients receiving factory is expected to grow with the FDA approval.

Recent peer reviewed publications and now that they have a field team to educate physicians on how best to determine appropriate patient populations use of the clarity.

Also of note Gilead reminded people that they are working on an outpatient treatment options under additional clinical trials to potentially expand the use of the drug outside the hospital setting.

That's why again the meet the regressive here is real.

And that cannot be more clear to lie again, given our highly interactive work with gilliatt to meet their captisol need.

We're making as much captisol as we possibly can at this time to supply gilliatt in their international Generics consortium.

John Higgins: We are making as much capital as we possibly can at this time to supply Gilead and their international generics consortium. This is supply that we had not contemplated at the start of this year, and it's adding about $60 million of revenue this year alone, about a third of our total revenue forecast for 2020. And we see it adding significantly more revenue contribution next year. As we all know, the pandemic is raging right now worldwide, and hospital rates are again skyrocketing.

This is supply that we had not contemplated at the start of this year and it's adding about $60 million revenue. This year alone about a third of our total revenue forecast for 2020.

And we see it adding significantly more revenue contribution next year as we all know the pandemic is raging right now worldwide and hospital rates.

Our again skyrocketing.

John Higgins: We think this will not only drive demand for remdesivir but also will reinforce to major medical markets how much the healthcare system and patients can benefit from this drug right now. Our long-term value proposition is based on our core business and the growth we project. But no doubt, the additional capital we are selling to support Remdesivir is driving upside financial and strategic benefits for Ligand and our investors. We are better off in the short term as well, given our success in answering the call to supply this key manufacturing ingredient, as inbound requests for Capsol are now at an all-time high.

We think this will not only drive demand for ADESA beer, but also will reinforce to major medical markets, how much the health care system and patients can benefit from this drug right now.

Our long term value proposition is based on our core business and their growth we project.

But no doubt the additional capital we are selling its important that spirit is driving upside financial and strategic benefit for like <unk> and our investors.

We are better off in the short term as well given our success in answering the call to supply this key manufacturing ingredient.

As inbound request for capsule are now at an all time high.

John Higgins: For the next few quarters, we forecast substantial sales for Capstall, and the surge in business will enable us to support the expanding Capstall business long term and allow us to invest in other R&D over the next 18 months to drive future growth, along with my comments about rodespierre as an antiviral treatment for COVID-19. We are also pleased to know that there are three different partners developing novel antibodies for treating COVID-19 that come from Ligand's Omniab platform. But Clary is the first and, so far, only FDA-approved treatment for COVID-19.

For the next few quarters, we forecast substantial sales for capstone into certain business will enable us to support the expanding capsule business long term.

And allow us to invest in other R&D over the next 18 months to drive future growth.

[noise] along with my comments about Rugrats beer as in any viral treatment for COVID-19.

We're also pleased to know that there are three different partners developing novel antibodies for treating COVID-19, they came from Ly Gans Omniab platform.

But clearly it's the first and so far only FDA approved treatment for COVID-19, undoubtedly other treatments will come along to further support the medical needs in the market.

John Higgins: Undoubtedly, other treatments will come along to further support the medical needs of the market, and we are pleased to have three different partners working on novel antibodies derived from ligand technology. Now, I'd like to switch to slide five and just highlight the five main programs that are on deck for potential approval next year.

And we are pleased to have three different partners working on novel antibodies derived from a lagging technology.

Now I'd like to switch to slide five and good.

Hi, like the five main programs that are on deck for potential approval next year.

John Higgins: This is an important calendar of news events while we have significant late-stage regulatory and clinical events as well. This is the largest calendar of potential approvals we've had in our history, tied to some very well-funded high-science programs. One is partnered with Seastone, a Chinese company that's had some major news recently.

This is an important calendar these events, while we have significant.

Late state regulatory and clinical events as well this is the largest calendar or potential approvals we've had in our history.

Tied to some very well funded high science programs not one is partner with Keystone, a Chinese company to attempt to major news recently.

John Higgins: We have partnerships with Merck and Jazz, another with Gloria, and now with Alvagen. Notably, two of these are OmniAPP-based programs, and three of them, the Merck, Jazz, and Alvagen programs, came to us via our acquisition of Phoenix. We are excited about these assets and are pleased to see this calendar develop as it will create potential new royalty streams for us starting next year. Picking up on. The basis for these programs is

Oh, we have a partnership with Merck and jazz, another with Gloria and and Dallas. It was albertsons, notably two of these are omniab based programs and three of them to Merck Jazz now with your program I came to us via our acquisition of Phoenix.

We are excited about these assets and are pleased to see this calendar develop a is that as it will create potential new royalty streams for us starting next year.

Picking up on.

The bases for these programs are quick comment about our Omniab platform.

John Higgins: A quick comment about our Omnia platform. The business is doing very well and continues to perform above our expectations. There are many highlight examples to call out, but one recent development is the major commercial contracts that our partner Seastone entered into, partnering the commercial rights to their Omniab-derived antibody for a variety of cancers. The trial, the leading trial, concluded on an early interim readout of data given the outstanding positive results in reducing the death rate for patients with a rare form of lung cancer.

The business is doing very well and continues to perform above our expectations.

There are many highlight examples to call out but one recent development is the <unk> major commercial contracts that are partners Keystone entered into partnering to commercial rights to their army of derived antibody for a variety of cancer.

Well I hope the leading trial concluded on an early interim readout of data given the outstanding positive result in reducing.

The death rate for the patients with a rare form of lung cancer.

John Higgins: This is Seastone's number one program, and it's derived from Ligand technology, and we'll get royalties. Investors have taken note and bid the Seastone stock up to a $2 billion market value. More importantly, two major pharma companies, including Pfizer, have recently struck major deals with C-Stone. The Pfizer deal is worth calling out as Seastone announced the formation of a $480 million strategic collaboration that encompasses a $200 million investment in Seastone and a major collaboration between the companies for the commercialization of Seastone's ligand-based antibody. It's a first-in-line treatment for stage 4 squamous and non-squamous, non-small cell lung cancer.

This is Keystone number one program and is derived from like in technology, and we'll get royalties investors have taken note and bid the see some stock up to a 2 billion market value.

More importantly, two major pharma companies, including Pfizer have recently struck major deals with these down.

The Pfizer deal is worth calling out a cetone announced the formation of a $480 million strategic collaboration that encompasses a 200 million dollar investment in stone and a major collaboration between the companies for the commercial the commercialization of Keystone.

Like in base antibody.

As a first line treatment for stage for squamous and non squamous non small cell lung cancer.

We find this to be a bellwether deal a signature.

John Higgins: We find this to be a bellwether deal, a signature financial event for Seedstone, but a major validation for a ligand-discovered antibody for an important category. Another example of Omniab's stellar performance is ImmunoVamp, which is also developing an Omniab-derived antibody. ImmunoVamp announced positive top-line results from a multi-center placebo-controlled Phase 2a trial for their antibodies. It's an antibody that's being used in a subcutaneous injection form for patients with myasthenia gravis.

Financial event for seats down, but a major validation for in line again.

Discovered antibody for an important category.

Another example of Bobby had stellar performance is neither event, which is also developing an army of derived antibody.

You know ban announced positive topline results from a multi center placebo controlled phase two a trial for their antibody. It's an antibody that was that's being used in a subcutaneous injection form for patients with my speedier grab it.

John Higgins: They're pursuing a registration-enabling phase 3 trial in the first half of 2021. This is ImmuneVant's lead program, and their market cap has grown now to $4 billion, largely due to the success, again, of this ligand-based antibody. Just a quick comment about our Phoenix acquisition since three of these approvals that we're looking at next year are based on acquired assets through the Phoenix deal. Phoenix has proven to be a great deal for Ligand in just a few short weeks since we closed the deal. MATFOR is going to provide more color on that acquisition, but we see it as transformative for Ligand.

They are pursuing a registration enabling phase three trial in the first half of 2021.

This is a beautiful and lead program in their market cap has grown out of $4 billion largely due to the success again this like in.

Based antibody.

Just a quick comment about our Phoenix acquisition since Q3 of these approvals that were looking at next year are based on acquired assets through the Phoenix deal Phoenix is proving to be a great deal for like Andy just a few short short weeks since we closed the deal that force could provide more color on that acquisition, but we see it as transformative to like we put.

John Higgins: We project that it will add meaningfully to our financial growth, both in revenue and profitability. Royalty revenue is the main driver of our business, and Phoenix is projected to boost our royalty revenue by about 50% as we look out the next few years.

Second he will add meaningfully to our financial growth both in revenue and profitability.

Royalty revenue was the main driver for our business in Phoenix is projected to boost our warranty revenue by about 50% as we look out the next few years.

In addition.

The proprietary protein expression platform is backed by top tier existing partners and we are in discussions right now with multiple other parties for additional licensing in 2021.

John Higgins: The proprietary protein expression platform is backed by top-tier existing partners, and we're in discussions right now with multiple other parties for additional licensing in 2021. All right, now as I wrap up, I'd like to go to slide seven and just make some remarks about our growth as we see it going forward. We provided guidance last week at our Analyst Day for 2021 calling for robust, adjusted-to-lose-it earnings per share growth of more than 50% year-over-year. This outlook assumes funding two promising internal programs, PF810, which we just gained from our Phoenix acquisition, as well as CE IOHECSAL. Funding these high-value projects over the near term should not be viewed as changing our long-term R&D spend, and we remain committed to lean operations and strong annual profit growth over the years to come. Overall, we see accelerating growth for LIG.

[noise] right now as I wrap up I'd like to go to slide seven and just make some remarks about our grown because we see it going forward.

We provided guidance last week at our analyst day for 2021 comment the robot adjusted diluted earnings per share growth of more than 50% year over year.

This outlook assumes funding to promising internal program PL 810.

Which we just came from our Phoenix acquisition as well as the I O hexcel.

Funding these high value projects over the near term should not be viewed and changing our long term R&D spend.

And we remain committed to lean operations and strong annual profit growth over the years to come.

Overall, we see accelerating growth for like again this year, so far our revenues and earnings are up sharply over last year.

John Higgins: This year so far, our revenues and earnings are up sharply over last year. And given the information we have in the business right now, we are forecasting over 50% top line and bottom line growth for 2021 over 2020. The growth is coming from big increases in royalty and cap theft revenue.

And given the information we have in the business right now we are forecasting over 50% topline and bottom line growth for 2021 over 2020.

The growth is coming from big increases in royalty and capstone revenue.

Matthew E. Korenberg: This outlook is supporting our ability to keep having strong cash flows and investing in the business. Now, for a more detailed review of our financial results and guidance, I'd like to turn the call over to Matt Korn. Thanks, John.

This outlook is supporting our ability to keep having strong cash flows and investing in the business.

Now for more detailed review of our financial results and guidance I'd like to turn the call over to Matt corn.

Thanks, John.

Matthew E. Korenberg: As John mentioned in his comments, the third quarter of 2020 was a very busy period for LIG. We announced three acquisitions on the strategic front, including our largest ever. We announced the sale of our Vernalis business shortly after the quarter ended, and we had a robust top line driven by our capsule material sales combined with strong financial results across. More specifically, total revenues for the third quarter of 2020 were $41.8 million and included $9 million of royalty revenue and $23.4 million of capital material sales. 9.5 million in contracts. With respect to the royalties, Kyprolis revenue at Amgen for Q3 of 2020 was up over Q2. Unknown Speaker, The Cool Guys Podcast. Ohno, excuse me, Ohno in Japan.

As John mentioned in his comments the third quarter of 2020 was a very busy period for ligand, we announced three acquisitions on the street strategic fronts, including our largest ever.

We announced the sale of or analysis business. Shortly after the quarter ended and we had a robust topline driven by our captisol material sales combined with strong financial results across the business.

More specifically total revenues for the third quarter of 2020 were 41.8 million and included $9 million of royalty revenue.

$23.4 million of Captisol material sales and 9.5 million of contract revenue.

With respect to the <unk> royalties Kyprolis revenue at Amgen for Q3 of 2020 was up over Q2, 2020, but was down year over year as sales continued to be impacted by the pandemic is fewer new patients begin treatments for kyprolis due to the COVID-19.

Oh no.

Excuse me Ono in Japan.

Matthew E. Korenberg: Again, Ivo Mello had outstanding sales for Kyprolis, posting $17.3 million in Q3, the largest quarter ever for the product in Japan. Ivo Mello revenues in the U.S. and China were higher both year-over-year and sequentially. Our true royalty growth for the quarter was obscured principally by an anomaly in Q3 2019, that included a larger-than-typical true-up from Q2 2000. Adjusting for these true-up items, despite the pandemic, royalty revenue in Q3 2020 would have grown slightly rather than declined slightly versus Q3. Capitasol sales of $23.4 million in the quarter compared to $6.8 million a year ago, up over 240% or over three times the level in 2009, similar to our acute. Our contract revenue in Q3 2020 was in line with our revised expectations provided at our analyst day last week, coming in at $9.5 million as compared to $8.2 million. Adjusted diluted EPS for Q3 2020 was $1.04, or 112% higher than Q3 of 2000.

Again had outstanding sales for Kyprolis, posting 17.3 million in Q3, the largest quarter ever for the product in Japan.

Even though the revenues in the U.S. in China were booked were higher both year over year and sequentially.

True royalty growth for the quarter was obscured principally by an anomaly in Q3 2019 that included a larger than typical true up from Q2 2019.

Adjusting for these true up items. Despite the pandemic royalty revenue in Q3, 2020 would have grown slightly rather than declined slightly versus Q3 2019.

Captisol sales of $23.4 million in the quarter compared to $6.8 million, a year ago up over 240% or over three times the level in 2019 similar to our Q2 trend.

Our contract revenue in Q3 2020 was in line with our revised expectations provided at our analyst day last week.

Coming in at 9.5 million as compared to $8.2 million a year ago.

Adjusted diluted EPS for Q3, 2020 was a dollar for.

Or 112% higher than Q3 of 2019.

Matthew E. Korenberg: In addition, we generated $12 million in cash flow from operations. We finished the quarter with approximately $795 million of cash, cash equivalents, and short-term investments. After closing the Phoenix acquisition the day after the quarter closed on October 1st, our adjusted cash balance was approximately $400,000.

In addition, we generated 12 million in cash flow from operations in the quarter.

We finished the quarter with approximately $795 million of cash cash equivalents and short term investments after.

After closing the Phoenix acquisition the day after the quarter closed on October Onest, our adjusted cash balance was approximately $400 million.

Matthew E. Korenberg: Turning to guidance on slide 10, we provided updated guidance last week at our. As a reminder, our top-line guidance is now $170 million of total revenue for 2020, up from our previous guidance of $165 million. Royalty revenues are expected to be $33 million for the year, up from $32 million in our most recent year. Capital revenue expectations are now $92 million for the year, up from our previous guidance, and contract revenues are expected to be $45 million per year. Previous Guidance of Forty-Four. The $170 million annual guidance results in Q4 revenue of just over $53 million and is consistent with our previous guidance for the second half of 2020 revenue to be more heavily weighted. Regarding the rest of the P&L on the expense side, we expect an overall corporate gross margin for the year of approximately 80-85%.

Turning to guidance on slide 10, we provided updated guidance last week at our analyst day.

As a reminder, our top line guidance is now 170 million of total revenue for 2020.

Up from our previous guidance of 165 million real.

Royalty revenue is expected to be $33 million for the year up from $32 million in our most recent guidance.

Captisol revenue expectations are now 92 million for the year up from our previous guidance of 90 million.

Contract revenue is expected to be 45 million for the year up from previous guidance of 43 million.

The 170 million annual guidance results in Q4 revenue of just over 53 million, which is consistent with our previous guidance for the second half of 2020 revenues to be more heavily weighted to Q4.

Regarding the rest of the personnel on the expense side we.

Specked in overall corporate gross margin for the year of approximately 80% to 85%.

Expect cash operating expenses for 2020 of 73 million to 75 million.

Matthew E. Korenberg: We expect cash operating expenses for 2020 of $73 million to $75 million. These cash expense estimates incorporate the Taurus, Excella, and Phoenix transactions and also assume that the Bernal transaction closes. These revenue and expense components translate to full year 2020 adjusted earnings per diluted share of approximately $3.95, which is up 57% from the 2019 diluted EPS of $2.52 adjusted for the... In the next couple of slides, I'll dive a little deeper into each of the reviews.

These cash expense estimates incorporate the tourists accella in Phoenix transactions and also assume that the pronounced transaction closes in Q4.

These revenue and expense components translates to full year 2020, adjusted earnings per diluted share of approximately $3 or 95 cents.

Which is up 57% from 2019 diluted EPS of $2.52 adjusted for the Promacta sales.

For the next couple of slides I'll dive a little deeper into each of the revenue lines.

On Slide 12, you can see the royalty revenue trends for the last four quarters or 2020 guidance of $33 million implies a Q4 royalty number of 10.3 million.

We arrived at this estimate assuming that our two major products grow in Q4 versus Q3.

As John mentioned, both Kyprolis, even MELA grew quarter over quarter in Q3.

Matthew E. Korenberg: On slide 12, you can see the royalty revenue trends for the last four quarters. Our 2020 guidance of $33 million implies a Q4 royalty number of $10.3 million. We arrive at this estimate assuming that our two major products grow in Q4 versus Q3. As John mentioned, both Kyprolis and Evamela grew quarter over quarter in Q3 in each region around the world.

In each region around the world.

Focusing more now on the Captisol business on Slide 12, you can see from the chart on the right that for 2020, we were consistently operating at a much higher level than we were for the past few years we've.

We believe that 2021 will again take another step up with quarters, averaging over $45 million versus the low twentys million average we saw in 2020.

Our estimates for Q to Q1, 2021 are supported by binding orders and forecasts from our partners.

With the pandemic developments around the world continuing to create a very dynamic situation.

Matthew E. Korenberg: Focusing more now on the capsule business on slide 12, you can see from the chart on the right that for 2020, we were consistently operating at a much higher level than we were for the past few years. We believe that 2021 will again take another step up, with quarters averaging over 45 million versus the low 20s million average we saw in 2020. Our estimates for Q1 2021 are supported by binding orders and forecasts from our partners, as well as pandemic developments around the world, continuing to create a very dynamic situation. The ultimate need for treatments may fluctuate dramatically from month to month.

The ultimate need for treatments may fluctuate dramatically from month to month. However, we continue to believe that the manufacturing demand for Captisol for 2021 will sustain at these higher levels.

Related to contract revenue the chart on the right right.

Slide 13 shows the Q4 is expected to be the highest quarterly total we've had in the last two years.

As investors know contract payments and timing will move up and down as the flow of partner clinical trials in progress with programs ebbs and flows.

Before this year is lining up to be a quarter, where we see many events hitting all at once.

In addition to approximately $7 million of service related revenue in the quarter, we expect a number of omniab events.

Matthew E. Korenberg: However, we continue to believe that the manufacturing demand for Capsaicin for 2020 will be, Related to contract revenue, the chart on the right of slide 13 shows that Q4 is expected to be the highest quarterly total we've had in the last two years. However, as investors know, contract payments and timing will move up and down as the flow of partner clinical trials and progress with programs ebbs and flows. Q4 of this year is lining up to be a quarter where we see many events hitting all at once.

For Dallas events related to contracts that we're retaining in the transaction and protein expression events to generate significant Q4 revenue.

On the last slide that will cover today Im showing a summary of the 2020 full year expected results versus the 2019 full year on.

On the left you can see the 2020 revenue will far exceed the 2019 number with nice contribution from each revenue line.

On the PS chart on the right you can see that EPS exceeded each quarter in 2019.

Obviously, the 2020 bars on these charts include the contribution of Captisol sales related to room does severe in 2020, the added demand related or under severe contributed about 33% to total revenue.

Matthew E. Korenberg: In addition to approximately $7 million of service-related revenue in the quarter, we expect a number of Omniab events, Vernalis events related to contracts that we're retaining in the transaction, and Protein Expression Events to Generate Significant Q4 Results. On the last slide that I'll cover today, I'm showing a summary of the 2020 full-year expected results versus the 2019. On the left, you can see that the 2020 revenue will far exceed the 2019, number with a nice contribution from each. On the EPS chart, on the right, you can see that EPS exceeded each quarter in 2009.

In 2021, we expect the room desperate related demand will contribute approximately 55% to our total revenue.

The core business, though remains strong and will grow nicely into 2021, but we'll utilize the extra room desperate related revenue and cash flows to reinvest in the business and improve the strength and diversity of the core business.

Finally, before I turn the call over to Matt for a direct listeners to review our Q3 earnings press release and slides issued issued earlier today and available on our website for a reconciliation of our adjusted financials to GAAP reported items.

With that I'll turn the call over to Matt for some comments on the portfolio and pipeline.

Thanks, Matt I'm now on slide 16, our technologies in the license associated with that form the foundation of our portfolio.

Matthew E. Korenberg: Obviously, the 2020 bars on these charts include the contribution of Capitasol sales related to Remdesivir. In 2020, the added demand related to remdesivir contributed about 33% to total rep. In 2021, we expect the remdesivir-related demand will contribute approximately 55% to our total. The core business, though, remains strong and will grow nicely into 2021, but we'll utilize the extra remdesivir-related revenue and cash flows to reinvest in the business and improve its strength and diversity. Finally, before I turn the call over to Matt, I would like listeners to review our Q3 earnings press release and slides issued earlier today and available on our website for reconciliation of our adjusted financials to GAAP reported. With that, I'll turn the call over to Matt for some comments on the portfolio and pipeline. Thanks, Matt.

Our technologies enable new medicines to our licensing partnerships and ultimately help patients by meeting major unmet medical needs.

This morning, I'll review each of our core technologies and discuss the integration of Phoenix, and the like and as well as our strategy and plans for our new protein expression business.

I'm, referring now to slide 17, which highlights the suite of technologies within our Omniab platform.

We believe Omniab continues to be the best in class on the advanced antibody discovery tools, we continue to innovate and invest in the Omniab platform with internal R&D efforts academic collaborations untrue acquisitions.

Our partners values. The work, we do and understand the importance of efficient rediscovering fully human antibodies in a variety of formats.

Most recently, we acquired and integrated new technologies, and scientists from Excela and Taurus Bio Sciences you.

Matthew Gregory Hewitt: Now, on slide 16, our technologies and the license associated with them form the foundation of our portfolio. Our technologies enable new medicines through our licensing partnerships and ultimately help patients by meeting major unmet medical needs. This morning, I'll review each of our core technologies and discuss the integration of Phoenix into Ligand, as well as our strategy and plans for our new protein expression. I'm referring now to slide 17, which highlights the suite of technologies within our OmniAPP platform. We believe Omniab continues to be the best in class of advanced antibody discovery.

Do you sell the technology brings an ultra high resolution and high speed technology antibodies selections from our animals.

Current and prospective partners are already seeing the value of this technology and we are already deploying it in multiple partner programs.

Its worst acquisition brings cow based CDR, each three humanizing binding domain antibody technologies to the Omniab suite.

And we are branding the technology as omni tore.

Easy antibody features some of the longest CDR three east of any species with unique genetic and structural diversity that can enable binding to challenging targets with applications in therapeutics diagnostics and in research as we go forward. These acquisitions are expected to enable our omniab team to secure new licensing your green.

Matthew Gregory Hewitt: We continue to innovate and invest in the Omniab platform with internal R&D efforts, academic collaborations, and through acquisition. Our partners value the work we do and understand the importance of efficiently discovering fully human antibodies in a variety of formats. Most recently, we acquired and integrated new technologies and scientists from Accela and Taurus Bioscience. The Accela technology brings ultra-high resolution and high-speed technology to antibody selection from our animals. Current and prospective partners are already seeing the value of this technology, and we're already deploying it in multiple partner programs. The Taurus Acquisition brings Cal-based CDRH3 humanizing binding domain antibody technologies to the Omniab suite, and we are branding the technology as OmniTOR. These antibodies feature some of the longest CDR3s of any species, with unique genetic and structural diversity that can enable binding to challenging targets with applications in therapeutics, diagnostics, and research.

And expand economics as a result of the additional tools and IP, we can now offer to partners.

We carefully looked at multiple public and private platforms to acquire in order to continue our expansion of Omniab and.

And determined that accella in tourist represented the best fit and opportunity.

And now I'll move on to Slide 18, and note that multiple partners have leveraged our omniab platform for discovery of antibodies as potential therapeutics to treat COVID-19.

Three partners, our Takeda and precise and Jenna back.

Our Omniab partners see advantages to rapid discovery of fully human antibodies with the platform as an antibody approach may be well positioned to neutralize emerging strains of the Sars koby to buyers.

He chicken is viewed as a unique system for discovering sars relate to the antibodies given the chickens known ability to not vigorous antiviral responses.

And importantly, our gym assay can be leveraged to select for rare antibody specificities, including cross reactivity with other respiratory viruses.

We look forward to further updates from our partners as they disclose the details of their progress.

Matthew Gregory Hewitt: As we go forward, these acquisitions are expected to enable our Omniab team to secure new licensing agreements and expand economics as a result of the additional tools and IP we can now offer to partners. We carefully looked at multiple public and private platforms to acquire in order to continue our expansion of Omnia, and determined that Accela and Taurus represented the best fit and opportunity. And now I'll move on to slide 18 and note that multiple partners have leveraged our Omniab platform for the discovery of antibodies as potential therapeutics to treat COVID-19. The three partners are Takeda, Immunoprecise, and Genevac. Our Omnia partners see advantages to rapid discovery of fully human antibodies with the platform as an antibody approach may be well positioned to neutralize emerging strains of the SARS-CoV-2 virus. An omni-chicken is viewed as a unique system for discovering SARS-related antibodies given the chicken's known ability to mount vigorous antiviral responses.

And now moving on I'll provide an update on Captisol and refer you to slide 19.

And this year has been a transformational year of growth for the capsule technology on many levels.

With globally recognized programs that use our captisol technology, we've seen a record growth of inbound interest in the technology, along with continued and growing business momentum.

We've entered into more licensing deals for Captisol this year than any other year, our partners are expanding their usage and new delivery routes and we've expanded our intellectual property estate.

And all that happened in parallel to a sprint need pricing or manufacturing capacity global footprint and meeting significant increases in demand for clinical and commercial material that Matt Korenberg sprite.

We believe our Captisol technology is positioned very well for years to come.

Moving on to slide 20, the Kenan I could gen is managing our ion channel technology partnerships and they've had a very productive year as well. Thanks.

They've managed three high value partner programs and are progressing rapidly and positioned to contribute meaningfully to the business in the future.

There are two partnerships with Roche with more than 500 million and potential milestones associated with them as well as potential tiered royalties and also the valuable collaboration with cystic fibrosis Foundation.

Matthew Gregory Hewitt: And importantly, our GEM assay can be leveraged to select for rare antibody specificities, including cross-reactivity with other respiratory viruses. We look forward to further updates from our partners as they disclose the details of their progress. And now moving on, I'll provide an update on Capistol and refer you to slide nine. This year has been a transformational year of growth for capsule technology on many levels. With globally recognized programs that use our Caspasol technology, we've seen a record growth of inbound interest in the technology along with continued and growing business momentum. We've entered into more licensing deals for Capitol this year than any other year before.

I could just stature in the eye and channel space and the air Discovery successes with the current programs are now driving partnering interest from additional big pharma players for multi year collaboration but potentially valuable backend economics.

We're excited about the future of this technology, which we added to like and in April of this year.

And now switching to our newly added protein expression business on slide 22, the acquisition of Phoenix close four weeks ago and the integration of the business has progressed extremely well we've realized synergies in the business and I've also welcome some fantastic new colleagues to liking it.

Matthew Gregory Hewitt: Our partners are expanding their use of the technology into new delivery routes, and we've expanded our intellectual property. And all this happened in parallel to us greatly increasing our manufacturing capacity, our global footprint, and meeting significant increases in demand for the clinical and commercial materials that Matt Korenberg described. We believe our cap-to-cell technology is positioned very well for years to come.

We're very excited about this technology and the prospects for future growth of the protein expression business overall.

The technology is based around P. fluorescence, which is a highly personal organism for making therapeutic proteins in a real simple sense. The technology makes complex drugs possible.

Often times with increasing frequency traditional systems are just not well student suited for the desired structural complexity.

Matthew Gregory Hewitt: Moving on to slide 20, the team at Icogen is managing our ion channel technology partnerships, and they've had a very productive year as well. They have managed three high-value partner programs that are progressing rapidly and positioned to contribute meaningfully to the business in the future. There are two partnerships with Roche, with more than $500 million in potential milestones associated with them, as well as potential tiered royalties, and also a valuable collaboration with the Cystic Fibrosis Foundation. IQIGEN's stature in the Ion Channel space and their discovery successes with the current programs are now driving partnering interest from additional big pharma players for multi-year collaborations with potentially valuable back-end economists.

[noise] therapeutic proteins, and our technology delivers significant competitive advantages to our partners, including speed with which they can enter into clinical production decreased product quality and lower cost of goods.

Our platform has an over 80% success rate in producing proteins that have previously failed in traditional systems like those based on E. coli he.

Keep in mind that these are proteins that companies have wanted to manufacturer to progressing to development, but simply can't and our technology enables that.

This then leads to valuable partnerships like the two that we've highlighted here on slide 23.

With jazz pharmaceuticals, and with Merck.

In the case of Japanese thought to develop a recombinant or wynia asparaginase to provide reliable high quality supply.

Our technology enabled that for a drug that is now positioned for an approval filing in downstream economics to like again.

Matthew Gregory Hewitt: We're excited about the future of this technology, which we added to Ligand in April of this year. Now, switching to our newly added protein expression business on slide 22. The acquisition of Phoenix closed four weeks ago, and the integration of the business has progressed extremely well.

Merck sought a high quality and reliable source for their global needs of credit when 97 as a key carrier protein for the V. one one for vaccine program.

Merck's recently highlighted positive phase three data and plans to file their be Alain later this year and it's worth noting that this is a substantial program at Merck 16 phase three trials enrolling over 18000 participants in some 36 countries.

Matthew Gregory Hewitt: We've realized synergies in the business and have also welcomed some fantastic new colleagues to Ligand. We're very excited about this technology and the prospects for future growth of the protein expression business overall. The technology is based around P-fluorescence, which is a highly versatile organism for making therapeutic proteins.

This is a global opportunity in a multibillion dollar existing market.

Going forward, we see a growth trajectory for the protein expression business that can drive revenue in yield three different types of deals that are shown on slide 24.

And now a month into owning the business, we see clear path to an opportunity for partner development deals traditional asset out licensing deals and what we term as platform peering deals.

Matthew Gregory Hewitt: In a real simple sense, the technology makes complex drugs possible. Oftentimes, with increasing frequency, traditional systems are just not well suited to the desired structural complexity of therapeutic proteins, and our technology delivers significant competitive advantages to our partners, including the speed with which they can enter into clinical production, increased product quality, and lower cost of goods. Our platform has an over 80% success rate in producing proteins that have previously failed in traditional systems like those based on E. coli. Keep in mind that these are proteins that companies have wanted to manufacture to progress into development, but they simply can't, and our technology enables that. This then leads to valuable partnerships like the two that we've highlighted here on slide 23, with Jazz Pharmaceuticals and with Merck.

This is an important element of our overall strategy, but the business.

The partner development deals around the platform or the tight that yielded the jazz transaction and partnership either weren't partners come to us to solve their manufacturing issues.

These are generally collaborative deals and ones that leverage our team's deep knowledge and expertise.

Out licensing deals are the ones, where we license rights to an asset that was developed and enabled by our technology.

These can be extremely valuable and have yielded partnerships like the allergan to repair type relationship.

And I expect we'll see more deals like this in the near future as we leveraged the past investments in Phoenix and the team's knowledge around the programs.

We also see significant potential for platform peering deals, where our technology is married to an in house technology to partner to meet a key need.

That's been the case with the multi program deals with both Merck and ourselves and we expect to see more of these types of deals as well.

Matthew Gregory Hewitt: In the case of Jazz, they thought to develop a recombinant Erwinia asparaginase to provide a reliable, high-quality supply. Our technology enabled that for a drug that is now positioned for an approval filing in downstream economics to Ligand. Merck sought a high quality and reliable source for their global needs of CREM197 as a key carrier protein for the V114 vaccine program.

And lastly on slide 25, you'll see a summary of our partner pipeline and our valuable technology to create it.

And we can continue to expect this pipeline will grow and mature into much in quarters to come.

Before I turn the call back over to the operator for questions I wanted to remind investors and recommend to also follow like end on Twitter on Twitter is a great platform for us to communicate updates on our partner program progress and that's a great keep up to date on our expanding portfolio in real time.

Matthew Gregory Hewitt: Merck has recently highlighted positive phase 3 data and plans to file its BLA later this year. And it's worth noting that this is a substantial program at Merck, with 16 phase 3 trials enrolling over 18,000 participants in some 36 countries. This is a global opportunity in a multi-billion dollar existing market. Going forward, we see a growth trajectory for the protein expression business that can drive revenue and yield three different types of deals that are shown on slide 24. And now, a month into owning the business, we see clear paths and opportunities for partner development deals, traditional asset outlicensing deals, and what we term as platform pairing deals. This is an important element of our overall strategy. The partner development deals around the platform are the type that yielded the Jazz transaction and partnership.

And with that I will turn the call back over to the operator for questions.

Operator.

At this time as a reminder, if you would like to ask a question over the phone simply press Star then the number one on your telephone keypad again that would be star then the number one on your telephone keypad.

Your first question comes from the line of Matt Hewitt from Craig Hallum Capital. Your line is open. Please go ahead.

Good morning, gentlemen, thank you for taking the questions.

A couple from me first upward regarding the contract revenues or the implied contract revenue guidance for the fourth quarter, you mentioned $7 million coming from services, what kind of visibility do you have into the other payments that you're expecting in the fourth quarter.

Given that some of the variability there we're seeing because of the pandemic.

Yeah, Hey, Matt Thanks for the question good good question.

Matthew Gregory Hewitt: These are where partners come to us to solve their manufacturing issues. These are generally collaborative deals and ones that leverage our team's deep knowledge and expertise. Our licensing deals are the ones where we license rights to an asset that was developed and enabled by our technology.

There are.

A number of events tied to some things like Omniab trial advancements on things going from phase one to phase two or going into humans, but theres those types of things are not publicly.

Available or known in terms of timing precisely, but there's also a number of things that tie to events where partners have made public statements.

Matthew Gregory Hewitt: These can be extremely valuable and have yielded partnerships like the Alvagen-Paraparatide relationship. And I expect we'll see more deals like this in the near future as we leverage the past investments of Phoenix and the team's knowledge around the program. We also see significant potential for platform pairing deals where our technology is married to an in-house technology at a partner to meet a key need. That's been the case with the multi-program deals with both Merck and Arcelex, and we expect to see more of these types of deals as well.

Already around as an example, starting a phase III trial in the quarter.

Or filing a B.L.A. those types of things. So we have pretty good visibility into all of the events that were counting in this number for the for the quarter either publicly or privately.

Great. Thanks, and then there's.

Another question. This is little probably a little more challenging but you came out of the analyst event provided some pretty impressive growth targets for the next call. It two to three years and really highlighting how the business is going to shift more and see more growth on the royalty side more I think you can or.

Matthew Gregory Hewitt: And lastly, on slide 25, you'll see a summary of our partnered pipeline that our valuable technologies have created. And we can continue to expect that this pipeline will grow and mature in the months and quarters to come. Before I turn the call back over to the operator for questions, I wanted to remind investors and recommend all to follow Ligand on Twitter. Twitter is a great platform for us to communicate updates on our partner program progress, and it's a great way to keep up to date on our expanding portfolio in real time. And with that, I will turn the call back over to the operator for questions. Operator? At this time, as a reminder, if you would like to ask a question over the phone, simply press star, then the number one on your telephone keypad.

You're going to get more of a valuation benefit in your stock but.

The stock didn't react that way and I'm curious.

What are your thoughts on that reaction to it and I think investors are missing.

That that might fill that gap. Thank you.

Yeah, Matt.

John I'm committed.

Commented and Matt Korenberg can as well.

Yeah. The business. This year there are two major drivers that.

We are working to focus investors on one of course, the development with M&A.

Some kind of M&A its not entirely obvious what we acquired in terms of calendar news events.

Partner events, but also how products might ramp up with royalties and.

Phoenix of course is the largest acquisition, but I could just earlier this year as well brought us some top tier partnered assets. So so that's one one area of I'll say development that really has built out very very nicely. We are in M&A focused company. We think we are good at sourcing technologies and innovation to acquire.

Operator: Again, that would be a star, then the number one on your telephone keypad. We have our first question from the line of Matt Hewitt from Craig Helen Capital. Your line is open, please go ahead. Good morning, gentlemen. Thank you for taking the questions. A couple for me.

And and we know this with Captisol I mean that that has been a home run acquisition omniab as well, but we know with M&A. It takes a while for investors to fully.

Operator: First up, regarding the contract revenues or the implied contract revenue guidance for the fourth quarter, you mentioned $7 million coming from services. What kind of visibility do you have into the other payments that you're expecting in the fourth quarter, given some of the variability that we're seeing because of the pandemic? Yeah, hey, Matt, thanks for the question. Good, good question.

Comprehend how our technology acquisitions really drive value. So that's one thing we focused on at analyst day in and clearly when we're looking at three out of five of our potential approvals next year coming out of Phoenix.

This is an area, where we're LT contribution and growth next two or three years, we think we'll build out very nicely.

The second part of the message right.

Really comes with our core business the legacy assets every year or two.

Matthew E. Korenberg: There are a number of events tied to some things like Omniab trial advancements, things going from phase one to phase two, or going into humans, but those types of things are not publicly available or known in terms of timing precisely. But there's also a number of things that are tied to events where partners have made public statements already around, as an example, starting a phase three trial in the quarter or filing a BLA, those types of things. So we have pretty good visibility into all of the events that we're counting in this number for the quarter, either publicly or privately. Great, thanks. And then another question, this is probably a little more challenging, but you came out of the analyst event, provided some pretty impressive growth targets for the next, call it two to three years, and really highlighted how the business is going to shift more and see more growth on the royalty side, where I think you can argue you're going to get more of a valuation benefit in your stock, but the stock didn't react that way. And I'm curious, what were your thoughts on that reaction?

Doing anywhere from five to 15, new licensing contracts. We know there is lead time to development, but we have seen.

An unprecedented run of good developments positive development advancements with trials with R&D investments and movement toward a regulatory filings potential approvals with our legacy pipeline.

And one of them of course is Sparsentan. We're excited about that phase three data we expect here in the next couple of months yeah.

And while we did not call. This out specifically in our long term guidance, it's mostly because the real healthy economics to like and are there any very substantial if we see positive data in its files clearly we're going to get more clarity for investors, but this is an exciting asset deceased donor.

Yeah based drug we've talked a lot about that but this really was not on People's radar 12 months ago. So that is a second area.

Focusing investors on are developing portfolio of royalty bearing assets and this is coming together we call. This our core business the legacy assets, coupled with new M&A. These two factors are coming together, we do foresee and forecast significant royalty growth. We've had charts. We described the math.

John Higgins: And what do you think investors are missing that might fill that gap? Thank you. Yeah, Matt. It's Jon.

John Higgins: I'll comment, and Matt Korenberg can as well. In the business this year, there are two major drivers that we are working to focus investors on one, of course, the development with M&A. And sometimes with M&A, it's not entirely obvious what we acquired in terms of a calendar of news events, partner events, but also how products might ramp up with royalties. And Phoenix, of course, is the largest acquisition, but iKitchen earlier this year as well brought us some top-tier partner assets.

And what's important for wealthy growth is the understand the margins there essentially 100% gross margins once we have contracts in that world revenue there is no offsetting cost.

And there's very efficient operating cost throughout the rest of the PML. So.

We do forecast the revenue growth to be there and do believe it's going to create a tremendous leverage with earnings and cash flow over that period too.

John Higgins: So that's one area of development that really has built out very, very nicely. We are an M&A-focused company. We think we're good at sourcing technologies and innovation to acquire. And we know this with Capitasol. I mean, that has been a home run acquisition, Omniab as well.

Matt I don't know if you want to add any other color.

Yeah, Thanks, John I'd say.

To reemphasize the point John made when we gave our long term outlook.

We we treated it as a.

Long term guidance as John just called it.

I think some investors took that to mean that we didnt have confidence in either sparsentan or teriparatide getting a t. approval over the long term, we do have confidence in those events and rather than give folks the realm of possible all of the product assuming all products.

John Higgins: But we know with M&A, it takes a while for investors to fully comprehend how our technology acquisitions really drive value. So that's one thing we focused on at Analyst Day. And clearly, when we're looking at three out of five of our potential approvals next year coming out of Phoenix, this is an area where royalty contribution and growth in the next two or three years, we think will build out very nicely. The second part of the message... really comes with our core business, the legacy assets. Every year, we do anywhere from five to 15 new licensing contracts. We know there's a lead time to development, but we have seen an unprecedented run of good developments, positive developments, advancements with trials, R&D investments, and movement toward regulatory filings, potential approvals, and one of them, of course, is Sparsantin.

Approved and assuming peak sales are hit and all that sort of stuff.

We gave what we thought was.

What I'll call a risk adjusted or a true guidance number that we think we can live live up to.

In in any circumstance with some upside from all those other events that we left out so.

I just want to point that out and remind people that those those items are things, we still have high confidence in and and we think that.

They'd be upside to the numbers that we talked about.

Great. Thank you.

We have our next question comes from the line of Bill I'd Purcell from Barclays. Your line is open. Please go ahead.

Thank you hi, good morning, everyone and thanks for taking the question. So a couple of Big picture question. So I think in terms of trying to understand.

John Higgins: We're excited about that phase three data we expect here in the next couple of months. And while we did not call this out specifically in our long-term guidance, it's mostly because the benefits to Ligand are very, very substantial. If we see positive data and it's filed, clearly we're going to get more clarity for investors. But this is an exciting asset.

The business and outlook for it one of the questions a couple of questions I see the most as.

Really trying to understand what is the what is the guidance framing in our non Florida, 2021, and beyond and due partially addressed in the previous question I'd still like to get your views on what could be upside risk to your guidance for the next one to two years.

Secondly on capital allocation I'm, just kind of part of Mr. Bush and died in that business development, you'll still sitting on a significant amount of cash or do you think you have enough on your plate business development now and if so would this talk now what town sub ninetys level. What are your thoughts are on a buyback at these levels. Thanks, and I have a couple of.

John Higgins: The Seastone Omnia-based drug, we've talked a lot about that, but this really was not on people's radar 12 months ago. So that is a second area, focusing investors on our developing portfolio of royalty-bearing assets. And this is coming together; we call this our core business, the legacy assets coupled with new M&A; these two factors are coming together. We do foresee and forecast significant royalty growth. We've had charts, and we described the math, and what's important for royalty growth is to understand the margins. There are essentially 100% growth margins. Once we have contracts in that royalty revenue, there's no offsetting cost, and there are very efficient operating costs throughout the rest of the P&L. We do forecast the revenue growth to be there and do believe it's going to create tremendous leverage with earnings and cash flow over that period too. Matt, I don't know if you want to add any other color.

It's all related questions.

Yes. Thanks biologic. So first on on the guidance question and what remains to be upside from the guidance I think from that standpoint.

We give our guidance each year in a way that we think is a.

Achievable of course.

We've had a history of the last several years I'm on the contract payment line.

Of making sure that we frame that in a way for investors that.

That was a number we could live up to.

But that the realm of possibility for those numbers significantly exceeds the guidance that we.

Given this year with the pandemic obviously the.

Timing a lot of events was pushed back to the extent depend demick.

Matthew E. Korenberg: Yeah, thanks, John. I'd say, To reemphasize a point John made, when we gave our long-term outlook, we treated it as long-term guidance, as John just called it. I think some investors took that to mean that we didn't have confidence in either Sparcentin or Teriparatide getting TE approval over the long term. We do have confidence in those events, and rather than give folks the realm of possible, you know, all of the product, assuming all products are approved and assuming peak sales are hit and all that sort of stuff, we gave what we thought was what I'll call a risk-adjuste So I just want to point that out and remind people of that.

Continues steady state, let's call it where in our view the patient access and clinical trial World has return somewhat closer to normal than it was certainly in Q1 and Q2. This year, we could see a significant amount of upside we think to the contract payment line up for <unk>.

2021.

And then.

Separately on the severe.

Severe topic related to Captisol obviously.

Weve outlined for folks what we thought the number was there.

To the extent.

Current trends and hospitalization and infection rate continue to increase.

As we've seen over in Europe, and in the US I think that could.

Result in a significant upside to the capsule number.

The second part of your question on capital allocation.

Oh, we do have about 400 million of cash and cash equivalents left we obviously, a 500 million of convertible debt coming due in may of 2023.

Matthew E. Korenberg: Those items are things we still have high confidence in. The Upside, Too. Great, thank you.

Operator: We have our next question comes from the line of Balaji Prasad from Barclays. Your line is open, please go ahead. Thank you. Hi, good morning, everyone.

We're certainly mindful of that but we are.

Obviously very focused on monitoring the bond prices, we bought back bonds at a discount earlier this year, but also stock price relative to our own internal views and market dynamics.

Operator: And thanks for the questions. So, a couple of big picture questions, I think, in terms of trying to understand the business and its outlook for it. One of the questions, a couple of questions I've received the most is really trying to understand what the guidance framing is in or not for 2021 and beyond. And you partially addressed that in the previous question, but I'd still like to get your views on what could be upside risks, your guidance for the next one to two years. Secondly, on capital allocation, and it's kind of a mixed question tied in with business development, you're still sitting on a significant amount of cash. Do you think you have enough on your plate with business development now? And if so, with the stock now at around the sub-90s level, what are your thoughts around a buyback at this level? Thanks.

And we.

We would of course agree that we feel the stock is significantly undervalued now with our.

Window now opening likely tomorrow.

Next trading day.

We'll we'll certainly be opportunistically looking at stock price as well for for capital allocation for deployment of capital.

That said, our our specific focus on capital allocation continues as we said last week on the analyst day to be.

Split relatively evenly between the M&A side, and and returning cash to shareholders. So we'll.

We'll continue to look for new opportunities to.

Add interesting assets to the portfolio in the near term as well.

Great. That's helpful. Thank you on a captain's all I'm going to it. So you made an interesting comment in your opening remarks that all current and future trials have been applied tools vendors, who are in the control arm can you clarify what that means and also on the same subject gili.

Matthew E. Korenberg: And a couple of capital-related questions. Yeah, thanks, Balaji. So first on the guidance question, and what remains to be upside from the guidance, I think, from that standpoint, we give our guidance each year in a way that we think is. Unknown Attendee, Octavio Espinoza, Simon Latimer, Lawrence Solow, Scott Henry, Todd Davis, Unknown, making sure that we frame that in a way for investors that that was a number we could live up to, but that the realm of Unknown Speaker This year with the pandemic, obviously, the timing of a lot of events was pushed back. To the extent the pandemic continues in steady state, let's call it, where, in our view, the patient access and clinical trial world have been [inaudible] And then separately on the remdesivir topic related to Capitol, obviously, we've outlined for folks what we thought the number was there, to the U.S.

Had commented about cap them does weigh that off menton.

The hospital settings and installation. So can you also quantify though.

The contribution of Captisol or the quantity of Captisol, Indeed, indeed developmental study.

Yeah, well actually this is Matt where I can comment and I think John was just commenting on the on the use of Indesit here in clinical trials and generally when something is.

Established as standard of care.

It is you say enacting unit in clinical trials and were seeing that real time, both in the trials that are being posted on clin trials and in other in terms just clinical use.

So that's something we are seeing now and expect to continue to see high.

Your question about other you said I guess, yeah. We've been obviously very pleased with the work and the dedication of the of the Goliat team across the board, but they are on analyzing and.

All the additional settings for use for run desk here as well as additional forms right. So they've disclosed that they have a.

Matthew E. Korenberg: I think that could result in. [inaudible] The second part of your question on capital allocation. We do have about $400 million of cash and cash equivalents left. We obviously have $500 million of convertible debt coming due in May of 2023. We're certainly mindful of that.

And outpatient program both in in nursing homes as well as other outpatient settings.

Where they're looking at at that three used there. They're also doing work on an inhaled solution form that also uses captisol in its formulation.

Matthew E. Korenberg: But we are obviously very focused on monitoring bond prices. We bought back bonds at a discount earlier this year, but also stock prices relative to our own internal views and market dynamics, and, Of course, we agree that we feel that the stock is significantly undervalued now. With our window now opening, likely tomorrow or after the next trading day, we'll certainly be opportunistically looking at stock prices as well for capital allocation and the deployment of capital. That said, our specific focus on capital allocation continues, as we said last week on Analyst Day. You know, split relatively evenly between the M&A side and returning cash to shareholders. So we'll continue to look for new opportunities to add interesting assets to the portfolio in the near future. Great, that's helpful. Thank you. On captizol, I'm moving to it.

And also in a subcutaneous form that's also uses kapstones formulation. So they said they expect data to start coming for some of these other trials and forms or next year or early next year. So we'll continue to watch the space but.

I have been pleased with a with the investment in the work that's there obviously putting into that.

Thank you, Matt maybe if I can squeeze in a last question what are your thoughts on Capex for 2020, and 20 2021 and how much of this would go towards Captisol capacity augmentation and also you said that you are kind of just the playing as much captisol as again I'm I'm imagining that means you're running at full capacity of 400.

Victims is that right. Thanks.

Yeah, I'll comment generally about the the production and then Matt Korenberg can comment on on Capex.

Matthew Gregory Hewitt: So you made an interesting comment in your opening remarks that all current and future trials will be required to use remdesivir in the control arm. Can you clarify what that means? And also, on the same subject, Gilead commented on remdesivir development in pre-hospital settings and inhalation. So can you also quantify the contribution of captizol or the quantity of captizol in these developmental studies? Yeah, Balaji.

The.

When gilliatt contacted us at the beginning of the year, indicating their their need to move quickly obviously, we answered the call and.

Started the manufacture as much as we could but also we do keep a inventory a corner the extra supply for for all of our customers and really.

Really ramping up those first few months first couple of quarters, we we have delivered.

As much capital as we can we cleared out are covered so to speak and our manufacturing at peak levels of course early this year, we announced that we are investing to continue to scale up. So we're actually now producing at higher and higher levels and that scale up is still happening will be we've.

Matthew Gregory Hewitt: And I think, yeah, John was commenting on the use of remdesivir in clinical trials and, generally, when something is established as a standard of care, it is used in clinical trials, and we're seeing that real time, both in the trials that are being posted on ClinTrials and other clinical use. So that's something we are seeing now and expect to continue to see. Your question about other settings for use, yeah, we've been obviously very pleased with the work and the dedication of the Gilead team across the board, but they are analyzing additional settings for use for remdesivir, as well as additional forms, right? So they've disclosed that they have an outpatient program in nursing homes, as well as other outpatient settings, where they're looking at Veclary used there.

To be fully operational and or high scale, probably in next two or three months or so well.

We're giving an outlook on on revenue for Q3, I'm, sorry for Q4 and for Q1 really because we can look at what our Max production level is if we can manufacture more faster and deliver more scale yet we will.

Gilliatt, clearly seeing a tremendous demand and was fascinating last night, you finished or workday late last night and the the caseload reported the U.S. has the highest ever since the pandemic started over 87000, new cases reported yesterday.

Yeah, and we know what what's going to happen. It just a matter of days or so a week or perhaps at most.

Matthew Gregory Hewitt: They're also doing work on an inhaled solution form that also uses caposol in its formulation, and also in a subcutaneous form that also uses caposol in its formulation. So they said they expect data to start coming for some of these other trials and forms next year, early next year, so we'll continue to watch the space, but have been pleased with the investment and the work that they're obviously putting into that. Thank you, Matt.

The hotspot hospitalization rates are going to go up as well.

So what's interesting is that right now you Leann is calling 40% to 50%.

Those hot hospitalized patients.

Nearly half are getting run death severe.

They also are telling the markets that.

Post approval they expect the proportion of hospitalized patients getting run desk or will increase above that 40% to 50% level.

Matthew Gregory Hewitt: Maybe if I can squeeze in the last question, what are your thoughts on CapEx for 2020 and 2021, and how much of this would go towards captizol capacity augmentation? Also, you said that you're currently supplying as much captizol as you can, and I'm imagining that means you're running at full capacity of 100 metric tons. Is that right?

So if the proportion of patients are increasing and the number of patients in the hospital is increasing it it would follow that obviously that the demand the U.S. demand.

It's going to go up.

Also we know from disclosure completely add and just the public messaging out there that Europe has seen significantly higher rates the last couple of months.

They have not been receiving allocations of rendez severe but now that has changed so again the dynamics the pull through is real it's happening now and we are doing as a company we are doing our best to.

John Higgins: Yeah, I'll comment generally on the production, and then Matt Kornberg can comment on the CAPEX. Then when Gilead contacted us at the beginning of the year, indicating their need to move quickly. Obviously, we answered the call and started to manufacture as much as we could, but we also kept an inventory quantity, extra supply for all of our customers, and really ramping up those first few months, first couple of quarters; we have delivered as much capsule as we can. We've cleared out our warehouse, so to speak, and are manufacturing at peak levels.

To produce as much capital as possible.

<unk>, perhaps you want to comment on the Capex in the further investment.

Yeah, So blood you do.

You know, we we announced a number of 66 zero million dollars or earlier this year for capex related to too.

Two room disappearing capsule specifically.

For.

The benefit of everybody.

John Higgins: Of course, early this year, we announced that we were investing to continue to scale up, so we're actually now producing at higher and higher levels, and that scale up is still happening. What will be fully operational at our highest scale, we estimate, probably in the next two or three months or so. We're giving an outlook on revenue for Q3, I'm sorry, for Q4 and for Q1, really because we can look at what our maximum production level is. If we can manufacture more, faster, and deliver more to Gilead, we will. Gilead clearly is seeing tremendous demand, and it was fascinating last night that you finished your workday late last night and the US caseload report in the US is the highest ever since the pandemic started, with 87,000 new cases reported yesterday. And we know what's going to happen in just a matter of days or so a week, perhaps at most, the hospitalization rates are going to go up as well. And so what's interesting is that right Nearly half of them are getting remdesivir.

I think we've said a number of times, but I'll repeat that.

Let's call it a third of that number.

For simplicity was was things like buying machines and.

Expanding space and things like that about two thirds of the number was.

More akin to prepaying for materials and other things like that so.

The call it $20 million or so a number from that is.

Is spent and will run through the piano, adding.

Adding some burden to the cost of goods over the life of the machines.

The.

Expected need for additional spend like the $20 million.

There are is it really a significant need to expand beyond that so.

So that portion is done the rest of the business doesn't really require a significant amount of capex I'm, the new protein expression businesses, a little more capital intensive, but we still think capex annually will be a sub 5 million for sure and will will.

John Higgins: They also are telling the markets that, post approval, they expect the proportion of hospitalized patients getting remdesivir will increase above that 40 to 50% level. So if the proportion of patients is increasing, and the number of patients in the hospital is increasing, it would follow that. Obviously, US demand is going to go up.

Right more specific numbers as we get into the 2021 budgeting and forecasting process earlier next year.

Thanks, John Matt.

Yeah right next question comes from the line of Joe. Thank you needs from each C. Wainwright. Your line is open. Please go ahead hey.

Hey, guys. Good morning, Thanks for all the color thus far so two questions for the two Matt first for Matt Korenberg I guess I'll go off of the Capex discussion you just had and wanted to focus on the SGN a in the R&D line and obviously I know you don't break out specific guidance for that but I wanted to get a sense of.

Matthew E. Korenberg: Also, we know from disclosures from Gilead and just the public messaging out there that Europe has seen significantly higher rates in the last couple of months. They have not been receiving allocations of Remdesivir, but now that has changed. So again, the dynamics, the pull through is real, it's happening now, and we are doing everything we can to produce as much capsule as possible. Korenberg, perhaps you want to comment on the CapEx in the future. Yeah, so Balaji did, as you know, we announced a number of $60 million earlier this year for CapEx related to Dessevere and Capsule specifically, for the benefit of everybody. I think we've said that a number of times, but I'll repeat that.

You know any of these cash charges that you've had so far that can be considered sort of one time based on the acquisitions like any spikes that little but how do we look at normalizing these rates.

Thanks, Joe Good question.

Yes, you will see on the adjusted tables in the earnings release that there is a transaction.

Expense number that.

We'll do that that covers everything that.

Matthew E. Korenberg: Let's call it a third of that number for Simplicity. It was things like buying machines, expanding space, and things like that. About two-thirds of the number was more akin to prepaying for materials and other things like that. So.

Happened in Q3 and.

And so you'll see again in Q4, a small number associated with that.

In Q3, it was about $5 million, a little less and Ah. That's buried all in the DNA line. So that's really the onetime.

Matthew E. Korenberg: The call it $20 million or so number from that is spent and will run through the P&L, adding some burden to the cost of goods over the life of the machines. However, expected need for additional spend, like the 20 million there, there isn't really a significant need to expand beyond that. So that portion is done. The rest of the business doesn't really require a significant amount of CapEx. However, the new protein expression business is a little more capital intensive. But we still think CapEx annually will be sub 5 million for sure. We'll provide more specific numbers as we get into the 2021 budgeting and forecasting process. Thanks, John. We have our next question comes from the line of Joe Payanis from HC Wainwright. Your line is open. Please go ahead. Hey guys, good morning. Thanks for all the color thus far.

Costs that you'll see there.

And then deal.

The only other sort of Oh.

Gionee and R&D numbers that you'll see we talked about this at analyst day, but obviously.

With the sale of analysis that completes and closes in this year next year will reduce cost for that but then Phoenix transaction, obviously add some cost to both the Junaid R&D line that will.

We'll come on board and resulted in our.

Since we gave for for.

Cash expenses for next year got it thanks for that and then for met for wanting to focus on Captisol and I think you guys and your guess at the Analyst day gave some great color.

Specifically around the staying power for.

For Rem density or so in case, there was any earlier concerns from the investment community about it just might be a temporary blip for him to severe needs. I think that's been answered I hope you agree with that but I guess when you look at the staying power of the asset look a lot of people keep coming to you to help solve their soluble.

Matthew E. Korenberg: So two questions for the two Matts. First, for Matt Korenberg, I guess I'll go off of the CapEx discussion you just had and wanted to focus on the SG&A and the R&D lines. Now obviously, I know you don't break out specific guidance for that, but I wanted to get a sense of any of these cash charges that you've had so far that can be considered sort of one-time based on the acquisition, like any spikes that will, how do we look at normalizing? Thanks, Joe. Good question. You'll see in the adjusted tables in the earnings release that there is a transaction expense number that will build that covers everything that happened in Q3 and so you'll see again in Q4 a small number associated with that.

All of the issues. So I got to ask my question from a risk perspective, so Matt what do you consider the biggest risk to the Captisol franchise is it anything competitive based or is there anything you know what's at the top your list.

Yeah, Joe Thanks, Yeah to your to your point that the inbound interest in Captisol really has has never been higher I mean, when one of the best we often say among the captisol team the best.

Advertisements for Captisol or the publications partners naked and the progress that partners have and you.

Matthew E. Korenberg: Q3, it was about 5 million, a little less, and that's buried all in the GNA line, so that's really the one time. We talked about this at Analyst Day, but obviously, with the sale of Rinalis, if that completes and closes this year, next year, we'll reduce costs for that, but then... The Phoenix transaction obviously adds some cost to both the GNA and R&D lines, will come Page PAGE of NUMPAGES hf.com. Thanks for that. And then for Matt Fore, I wanted to focus on captosol.

I actually had a lot of high profile.

Highlights of the value of Captisol on not only with dust mirror, but other programs as well clearly there are other checked.

Technologies out there right that people can use to solve a solubility issue, but they generally freedom more torturous path through development right one can.

Check on that.

A different molecule that then you they've got to go back and repeat a lot of talk stayed out of the answer a lot of regulatory question. So the value proposition for Captisol is is very clear and I think that's why we're seeing so much impact interest I think for us the real key right and this is what we spend our time thinking about it is is.

Matthew Gregory Hewitt: And I think you guys and your guests at Analyst Day gave some great color, specifically around the staying power for remdesivir. So in case there were any earlier concerns from the investment community about, you know, it just might be a temporary blip for remdesivir, I think that's been answered. I hope you agree with that.

You should try being sure that we're consistently there to answer the call and that's.

What we're focused on making sure we continue to do that at this year's been been great from an operational perspective, but that's really where we focus our efforts, making sure. We're always there to not only each answer technical questions of partners, but make sure were there operationally.

Matthew Gregory Hewitt: But I guess when you look at the staying power of the asset, look, a lot of people keep coming to you to help solve their solubility issues. So I'm going to ask my question from a risk perspective. So, Matt, what do you consider the biggest risk to the Captosol franchise? Is it anything competitive-based, or what's at the top? Yeah, Joe, thanks.

Got it and you know what I could ask one question of John If you don't mind. So you know I really appreciate the color you gave before about the a question about you know what you think the street is missing here. So I guess you know are you still getting because we get some of this you know with our discussions I'm just wondering how much you get on your end with.

Matthew Gregory Hewitt: Yeah, to your point that the inbound interest in Captosol really has never been higher. I mean, one of the best, we often say among the Captosol team, the best advertisements for Captosol are the publications that partners make and the progress that partners make. And we've always had a lot of high-profile highlights of the value of Captosol, not only from Desimere but from other programs as well. Clearly, there are other technologies out there that people can use to solve a solubility issue, but they generally create a more torturous path through development, right?

And I'm very happy that you brought up retrophin today with regard to Sparsentan and the opportunity there because I think you know that can be quite sizable base than a fix 9% royalty. So you know you have those legacy assets that you talked about so I guess the question comes down to you do have some very interesting royalty streams that are coming in.

And the question that I was alluding to is do people still come to you and say we're not interested until you can replace promacta revenue because it seems like you can do that in a pretty timely a fashion.

Matthew Gregory Hewitt: can tag on a different molecule, but then they've got to go back and repeat a lot of talks, data, and answer a lot of regulatory questions. So the value proposition for Caplasol is very clear, and I think that's why we're seeing so much inbound interest. I think for us, the real key, right, and this is what we spend our time thinking about is execution, right? Being sure that we're consistently there to answer the call, and that's what we're focused on, making sure we continue to do that. This year's been great from an operational perspective, but that's really where we focus our effort on making sure we're always there to not only answer technical questions from partners but make sure we're operational. Got it. And you know what? I could ask one question of John, if you don't mind.

Fashion.

Yeah, Hi, good Joe Thanks the.

[laughter] as much as we are innovators in technologists.

Our business is.

Is delivering.

Solutions to our partners and if we're successful if our partner is successful we share in revenues and that that is as simple as our model is of course, we have to identify good technologies, we have to identify partners in structured good contracts along the way we get paid service revenue, we get paid milestones, but the royalty.

Line really is a vital it's paramount to why the growing success of our business. So.

John Higgins: So, you know, I really appreciate the color you gave before about the question about, you know, what you think the street is missing here. So I guess, you know, are you still getting, because we get some of this, you know, with our discussions? I'm just wondering how much you get on your end with, you know, and I'm very happy that you brought up Retrofin today with regard to Sparcentan and the opportunity there, because I think, you know, that could be quite sizable based on a fixed 9% royalty. So, you know, you have those legacy assets that you talked about. So I guess the question comes down to, you do have some very interesting royalty streams that are coming in. And the question that I was alluding to is, do people still come to you and say, we're not interested until you can replace Promacta Revenue, because it seems like you can do that in a pretty timely fashion? Yeah, yeah, good, Joe.

Investors should note was we had an amazing more off the asset with Promacta incredible medicine partnered with Novartis and.

It was entering its kinda in end of life stage, we divested that early 2019 debt.

That had a basis about 100 million a lumpy revenue at the time and in so.

Some legacy and Thats, what I'll say people, who have been with us for quite a while.

You asked the question what are you doing to replace Promacta a.

New investors of course may not have that that.

Pieces of that history in.

And are looking at as a baseline now up about 30 million or so loyalties and so whether you have been with US a couple of years and are asking for or how are we replacing 100 billion of revenue or with your your new investors I do think actually just in the last two or three months, we are hitting its stride where people are beginning to realize there.

The royalty growth is beginning to happen. It is well it's been relatively flat the last year and a half.

On the trend lines, even to the pandemic or looking encouraging for the core assets right now.

John Higgins: Thanks. The business, as much as we are innovators and technologists, our business is delivering solutions to our partners. And if we're successful, if our partners are successful, we share in revenues, and that is as simple as our model is. Of course, we have to identify good technologies, we have to identify partners, and we have to structure good contracts.

And the pipeline the calendar news of quality data.

Major partners and just the quantity the number of potential approvals is stacking up again, unlike anything we've ever seen in like ants history.

So so when we described this wealthy line again low 30 million. This year 33 million is our guidance we see this essentially tripling in the 2023.

John Higgins: Along the way, we get paid service revenue, we get paid milestones, but the royalty line really is vital. It's paramount to the growth success of our business. So investors who know us, we had an amazing royalty asset with Promacta, an incredible medicine partnered with Novartis, and it was entering its kind of end of life stage.

And its kornberg mentioned that exclude certain lead assets because of their outsize potential spar santen.

Shows good data is filed next year it gets approved and launches in 2022.

John Higgins: We invested in that early 2019. That had a basis of about 100 million dollars of wealthy revenue at the time. And so some legacy investors, I'll say people who have been with us for quite a while, do ask the question, what are you doing to replace Promacta? New investors, of course, may not have that basis or that history and are looking at a baseline now of about $30 million or so in royalties. And so whether you've been with us for a couple of years and are asking how we're replacing 100 million in revenue, or whether you're your new investors, I do think actually, just in the last two or three months, we're hitting a stride where people are beginning to realize that royalty growth is beginning to happen. It is, while it's been relatively flat the last year and a half, the trend lines, even through the pandemic, are looking encouraging for the core assets right now.

9% that could.

At some point generate promacta like royalties.

Some analysts Weve read have described that as a billion dollar potential market in the U.S. alone 9% on that is 90 million grumpy the U.S. alone so no.

So we are excited about what's happening now we are the core assets growing we see.

A stable of a fairly high probability assets that should be approved in the near term and then of course, the Phoenix contribution they already have some in line while piece that we see ramping up next year. So all three of these players are coming together in.

It's more focused and I think there's more tangible evidence that this royalty line is going to grow than than we've had the last six quarters.

A final comment I'll make just to call out a specific asset another program that we're very excited about is our partnered program with <unk> Belo.

John Higgins: And the pipeline, the calendar news of quality data, major partners, and just the quantity, the number of potential approvals is stacking up again, unlike anything we've ever seen in Ligand's history. So, when we describe this royalty line, again, low 30 million this year, 33 million is our guidance. We see this essentially tripling into 2023.

This is a a private company that is running a pivotal trial right now for a pack you Nikki a contented, that's a rare skin disorder incredibly debilitating and the data or expected here in the fourth quarter.

No we call. This project finance they came to us as a private company they thought funding.

Nickel to fund their phase three work.

John Higgins: And as Korenberg mentioned, that excludes certain lead assets because of their outsized potential. You know, if Sparsantan shows good data, it's filed next year, it gets approved, and launches in 2022, you know, 9% that could, at some point, generate royalties like pro-MACTA. Some analysts we've read have described that as a billion-dollar potential market in the U.S. alone. Nine percent of that is 90 million dollars in royalties in the U.S. alone.

So far the phase two data looks supportive and they are a very close we believe to announcing their pivotal result, if this is positive it could be a catalyst to filing and then yeah, you could be a catalyst to a major financing, possibly an IPO and a launch and we've disclosed the warranty rates for us it's a five to nine point.

8% rate, so again, a very substantial warranty.

For what could be an incredibly important medical market and that is.

Months, if not weeks away from a major data that.

John Higgins: So we are excited about what's happening. Not only are the core assets growing, but we see a stable of fairly high-probability assets that should be approved in the near term, and then, of course, the Phoenix contribution. They already have some in-line royalties that we see ramping up next year.

John very helpful perspective, Thanks, a lot guys.

Thanks, Joe.

Your next question comes from the line of Scott Henry from Roth Capital. Your line is open. Please go ahead.

Thank you and good morning.

First a couple just clarification.

From Matt Korenberg, Matt.

John Higgins: It's more focused, and I think there's more tangible evidence that this royalty line is going to grow than we've had in the last six quarters. A final comment I'll make just to call out a specific asset: another program that we're very excited about is our partner program with Palvelo. This is a private company that is running a pivotal trial right now for Pachynicia congenita, a rare skin disorder that is incredibly debilitating, and the data are expected in the fourth quarter. Now, we call this Project Finance. They came to us as a private company. They sought a funding vehicle to fund their Phase 3 work. So far, the Phase 2 data looks superlative, and they are very close, we believe, to announcing their pivotal results. If this is positive, it could be a catalyst for filing an NDA; it could be a catalyst for a major financing, possibly an IPO, and a launch. We have disclosed the royalty rates to us. It's a 5% to a 9.88% rate.

I thought I heard you give kyprolis in Japan revenues for the quarter and perhaps some color on evil mellow up for the quarter could you just walk through those one more time I think I missed that.

With.

Prolaris in Japan.

Japan.

Oh, No reported 1.8 billion yen.

Which translates to about 17.3 million us dollars.

And that was by far well.

Uptick from last quarter, which was about 16 million us dollars.

Translated so.

Record quarter for them.

And then on the even MELA side, we booked a revenue too.

A level that is above.

That shows a growth both over last quarter and also over.

Last year, but neither company has reported a officially yet so we can't disclose specific numbers.

John Higgins: Again, a very substantial royalty for what could be an incredibly important medical market, and that is months, if not weeks, away from a major data event. John, very helpful perspective. Thanks a lot, guys. Thanks, Joe. Your next question comes from the line of Scott Henry from Roth Capital. Your line is open, please go ahead.

Okay. Thank you and then with regards to tear up her a tight.

And the therapeutic equivalents.

What should the next data point, we get be I don't know I think you have to do factors testing will you announce that data or will you just announced when you file it just trying to get a sense of how we can gauge our progress on that event.

Operator: Thank you and good morning. First, a couple of clarifications from Matt Korenberg. Matt, I thought I heard you give Kyprolis in Japan revenues for the quarter and perhaps some color on Evo Mela for the quarter. Could you just walk through those one more time?

Matt Foehr can maybe give a little extra color, but the simple answer.

The answer is that or partner Allergan will be running the trial.

It's expected to start a relatively soon they've been discussing with the FDA.

When and how to run the trial prior to our acquisition Phoenix and salvage and we're seeing the trial would start in Q4.

Matthew E. Korenberg: I think I missed... Yeah, with Kyprolis in Japan. UNO reported 1.8 billion yen, which translates to about 7.5 billion yen, or 3 million U.S. dollars. And that was, by far, an uptick from last quarter, which was about 16 million U.S. dollars.

And then.

For the trials done no submit to the FDA and then we'll get our response sometime.

Matthew E. Korenberg: And then on the Eva Mella side, we booked our revenue to a level that is above and that shows growth both over the last quarter and also over the last year, but neither company has reported officially yet, so we can't disclose that. Okay, thank you. And then, with regard to teriparatide and the therapeutic equivalent, what should the next data point we get be? I don't know. I think you have to do factor testing.

The timing of all that is not precise but.

We expect we've said outages not but we have said publicly that we expect a sometime next year to to get an answer from the FDA.

The.

So in terms of things to look for I suspect it would be either allergan or or like and common.

Commenting on the start of the trial and then enrollment.

Re filing with the FDA.

Unknown Speaker: Will you announce that data, or will you just announce when you file it? Just trying to get a sense of how we can gauge progress. Unknown Speaker Matt Fork can maybe give a little extra color, but the simple answer is that our partner Alvagen will be running the trial. It's expected to start relatively soon.

Okay. Thank you that that's helpful and I don't know if you you've talked about it or given color <unk>, but and I know the two would take this question, but I could you give a sense of what the revenue potential for Terra parity side looks like with or without the therapeutic equivalents.

That designation I believe your guidance conservatively assumes it does not have it at this point throughout the duration of the guidance.

Unknown Speaker: They've been discussing with the FDA when and how to run the trial. Prior to our acquisition, Phoenix and Alvagen were saying the trial would start in Q4, and then after the trial's done, they'll submit it to the FDA, and then we'll get our response sometime. The timing of all that is not precise.

Sure Yeah I think.

We've given some framework in the past where.

In the U.S. at least we can frame that as a compared or drug forteo.

Unknown Speaker: We expect, we've said, Alvagen has not, but we have said publicly that we expect sometime next year to get an answer from the FDA. So in terms of things to look for, I suspect it would be either Alvagen or Ligand. Commenting on the start of the trial and then enrollment, refiling it with you. Okay, thank you. That's helpful.

In 2019 had about $645 million of sales.

The first two quarters. This year were about 125 million a quarter.

So plus or minus a 500 million dollar market run rates right now.

You can pick your.

Unknown Speaker: And I don't know if you've talked about it or given any color, but, and I don't know who would take this question, but could you give a sense of what the revenue potential for teriparatide looks like with or without the therapeutic equivalent designation? And I believe your guidance conservatively assumes it does not have it at this point throughout the duration of the guidance. Sure. Yeah, I think we've given some framework in the past where, in the US, at least, Comparator Drug for TAO. In 2019, they had about 645 million in sales. The first two quarters this year were about $125 million a quarter.

Penetration number for bio similar.

But.

Once once you pick your penetration.

For the for the bio similar and then you put a discount for price and then what Weve what has been publicly disclosed is that sharing.

Sharing well before before a therapeutic switch ability rating.

Tier, but up to 40% for login on gross profit.

So you've got to factor in some margin from the.

Sales.

Sales to gross margin.

And then and then you can factor in whatever.

Unknown Speaker: So, plus or minus a $500 million market at run rates right now. Unknown Speaker, take your penetration number for a biosimilar, but once you pick your penetration for the biosimilar, and then you put a discount for price, and then, what has been publicly disclosed is that sharing, well, before a therapeutic switchability rating tiered but up to 40% for Ligand on gross profit. So you've got to factor in some margin from the sale, sales to gross margin. And then factor in whatever else.

Penetration you'd like so we do all that math and what we've said is we think it could be kind of a five to 10, maybe 15 million prior to therapeutics, which ability to ligand.

At least double maybe triple that with therapeutic equivalents.

Partially because we think the substitution or the penetration would be higher but also because the sharing goes from teared up to 40% and a pre pre a approval and then it's a straight 55 zero percent gross profit year. Once you have approval.

Unknown Speaker: Lawrence Solow, Scott Henry, Todd Davis, Simon Latimer, Paul Hadden, Ligand Pharmaceuticals Inc. Gross Profit Sharing, Great, thank you for that caller and thank you for taking the question. If you have time for one more question from the line of Dan F. Manders from Guggenheim, your line is open, please go ahead. Great. Thank you for squeezing me in.

Great. Thank you for that color and thank you for taking the questions.

You have time for one more question from the line of Dennis Sandridge haven't gotten behind your line is open. Please go ahead.

Oh, great. Thank you for squeezing me in two quick questions for me first Matt maybe just some thoughts on how you are thinking about some of the oral antiviral treatments potentially impacting the cobot landscape Roche I think for instance, recently in licensed agent would face today.

Operator: Two quick questions for me. First, Matt, maybe just some thoughts on how you are thinking about some of the oral antiviral treatments potentially impacting the COVID landscape. Roche, I think, for instance, recently enlicensed an agent with phase two data in hospitalized patients early next year. So, maybe some comments on what the potential impact could be. And then, secondly, maybe from the other side, Matt, I know a bunch of moving pieces with M&A. You had historically given some long-term assumptions of material sales growth, extreme dysphoria, obviously, of 5 to 10 percent and contract payments between 40 to 60 million annually. Just wondering if those still hold or if those have potentially moved higher given some of the recent deals and, you know, obviously, greater focus on Captisol. Thank you. Yeah, thanks. Thanks, Dana. This is Matt Foer.

Uh huh.

<unk> in hospitalized patients early next year. So maybe some just comments on on what the potential impact could be and then secondly, maybe from the other Matt [laughter].

I know a bunch of moving pieces with M&A.

You had historically given some long term assumptions of material sales growth ex from disappear, obviously, a 5% to 10% and contract payments between 40 to 60 million annually I'm. Just wondering if it's no still hold or if those have potentially moved higher given some of the recent deals and obviously greater focus on uncapped.

Thank you.

Yeah. Thanks. Thanks, Dana this is not for yeah on in terms of therapeutic approaches for COVID-19, obviously this is a.

Matthew Gregory Hewitt: Yeah, in terms of therapeutic approaches for COVID-19, obviously, this is the biggest health crisis of our lifetimes. And clearly, there's a lot of investment going on, not only in the vaccine side, but on the therapeutic side. And we obviously monitor the landscape. There are clearly folks developing immune modulators, and obviously folks looking at antibodies to potentially block cellular uptake of viral particles.

The biggest health crisis of all of our lifetimes and clearly theres a lot of investment going on.

Not only in the vaccine side, but on the on the therapeutic side and we obviously monitor and way the landscape there clearly folks developing immune modulators, obviously chokes look.

Looking at antibodies that essentially block a cellular uptake of viral particles i. I actually highlighted that we've got to be partners pursuing an antibody and then and then also antiviral as well you know the ones ones that you mentioned and others and yeah. We continue to monitor the landscape there I think it's clear at this.

Matthew Gregory Hewitt: I, I obviously highlighted that we've got three partners pursuing an antibody route and then and then also antivirals as well. You know, the ones that you mentioned and others, and we continue to monitor the landscape there. I think it's clear at this point that remdesivir has established itself as standard of care with the first approval. We obviously monitor the landscape. And I think that's also why, you know, our partners Gilead are continuing to look at other ways to treat patients as well in an outpatient setting. So, as I mentioned, they're working on an entailed form that also uses Capstrol in its formulation, as well as a sub Q form as well. But yeah, we're, we monitor the landscape, as one would expect, they'll continue to innovate. And ultimately, we expect for a virus like this and disease like this, you follow the natural history of these viruses. And the fact is that they don't go away, right?

Point run that severe has.

He has established itself.

Standard of care with the first approval, we obviously monitor the landscape and I think Thats also why.

Our partners Gilliatt are continuing to look at.

Other ways to to treat patients as well in an outpatient setting so as I mentioned they are working on an inhaled form.

That also uses captisol on its formulation as well as a sub Q form.

As well, but yeah, we're we monitor the landscape as one would expect they'll continue to be innovation and ultimately we expect for a virus like this and that and disease. Like this you follow natural history. These viruses and the fact is that they don't go away right there around for.

A very long time, and one would expect there'll be multiple therapeutics used in combination as as we've seen with other viral diseases over the years.

Matthew Gregory Hewitt: They're around for a very long time, and one would expect there will be multiple therapeutics used in combination, as we've seen with other viral diseases over the years. Yeah, and on your comments on longer-term guidance, yes, short answer, both those still apply. The capsule business outside of Remdesivir continues to grow nicely. And I think, Can you see that?

Yeah and on your comments on longer term guidance.

Yes short answer both those still apply the capsule business outside of them does severe continues to grow nicely.

And Ah I.

I think.

We continue to see that.

Over the longer term M&A.

And then on the contract payment side, we had a slide in our analyst day that talks about.

Matthew E. Korenberg: And then on the contract payment side, we had a slide in our analyst data that talked about the total and then the risk-adjusted numbers. That was just some insight into how we're calculating those numbers that I've given over time, but we continue to see the contract line. Unknown Attendee, Octavio Espinoza, Simon Latimer, Lawrence Solow, Scott Henry, Todd Davis, Unknown Attendee, Octavio Espinoza, Simon Latimer, Lawrence Solow, Scott Henry, Todd Davis, Future Risk Adjusted Payment. And in particular, we had over 400 million over the next five years, where those things are coming from. Thank you. Well, thank you.

The total and in the risk adjusted numbers.

That was just some insight into how we're calculating those numbers that I've given over time, but.

We continue to see the contract line is.

40 to 60 million some years, it's going to be lower some years, it's going to be higher.

But that math was always driven by that risk adjusted portion of that chart. We showed at analyst day that showed over a billion dollars.

Of future risk adjusted payments.

In particular, we had over 400 million over the next five years.

We saw as potential so those numbers are.

John Higgins: I appreciate the questions and turn out on our call today. Just a quick wrap up remark. Again, we're pleased with the business and the performance for Q3 as we move into next year. The two main things that investors are focusing on are one financial growth and the other. This year, our numbers suggest we're going to have better than 50% growth in both top and bottom line revenue and adjusted earnings per share. And that's our outlook for next year as well. So we're pleased with the trend line. The second factor is quality partnerships. Not only quantity, we've got the most ever, but some top-tier partners that are funding some really important medical programs. We've got a windscreen on some good data, and obviously, a significant calendar of news events coming up.

Where those things are coming from.

Thank you.

Well. Thank you appreciate the questions and turn out on our call today, just a quick wrap up remarks.

We're pleased with the business the performance for Q3 as we move into next year.

The two main things that investors are focusing on one is financial growth. This year, our numbers suggest we're going to.

I have a better than 50% growth in both top and bottom line revenue and adjusted earnings per share and that's our outlook for next year as well. So we're pleased with the trend lines with that performance the second factor or the quality partnerships I'm not like one of the we've got the most ever but some top tier partners that are.

Funding some really important medical programs, we're going to win screen out some good data and obviously a significant counter a news events coming up.

Operator: We appreciate investors' time today, and we look forward to giving you more updates as the weeks roll forward. Thank you. Thanks to all our participants for joining us today. We hope you found this webcast presentation informative. This concludes our webcast, and you may now disconnect.

We appreciate investors time today, and we look forward to working.

As the week's report thank you.

[laughter] think solar participants for joining us today, we hope you found this met guest presentation informative. This concludes our webcast and you may now disconnect have a great day.

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