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spk04: Good day, and thank you for standing by. Welcome to the Ligon Pharmaceuticals second quarter earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to you. First speaker today, the head of investor relations, Mr. Simon Latimer. Please go ahead, sir.
spk05: Thank you. Welcome to Ligon's second quarter of 2021 financial results and business update conference call. Our speakers for today's call are in separate locations. Speaking today for Ligon will be John Higgins, CEO, Matt Thor, COO, and Matt Kornberg, CFO. We will use non-GAAP financial measures, and some of our statements will be forward-looking, including those related to our financial condition, results of operations, financial guidance, and the impact of the COVID-19 pandemic. Additional information concerning risk factors and other matters concerning Wigan can be found in our earnings press release and our periodic filings with the FCC. We undertake no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. A reconciliation between the non-GAAP financial measures we discuss and the closest GAAP financial measures can be found in our earnings release issued earlier today. I'd now like to turn the call over to John Higgins.
spk06: Good afternoon, and thanks for joining our second quarter 2021 earnings call. Outstanding financial performance and operating execution are the themes of our call today. We are very pleased with the business and how the company is doing. In Q2, Ligan posted one of the highest quarterly revenues in the company's history. Along with that strong top-line performance, we are also enjoying robust earnings and strong cash flows. While most of our revenue is currently driven by Captisol, we are very pleased to see the business flourishing across all technology platforms, as Captisol sales are expected to diminish later this year and next with lower demand for Remdesivir and the evolution of the COVID-19 medical landscape. We are delighted with the turnout for the call today. We've got a number of new investors who are beginning to look at the story. And for those who are new to Ligand, just a quick background. Our company offers integrated drug discovery services, and our service offerings are broader than ever, and our partner achievements with R&D and clinical success have been outstanding these past few months. The value of our services and the technology and inventions we provide are result in significant milestone revenue along with royalty economics on high-value medical treatments. Over the past two years, we have increased our investments in our laboratories and expanded our R&D team to provide more customized services to our partners. Our investments are paying off. Driving our investments is a shift in the industry. We are witnessing an evolution in how pharma and biotech partners tackle their R&D projects. Increasingly, they are looking to well-fitted, highly qualified partners like Ligan to help answer their needs in a more end-to-end fashion. Ligan enjoys a premier spot in the industry as a technology licensor. Now, with our expanded services, particularly with our OmniAb antibody business and with our protein expression platform, we provide both access to what we believe is best-in-class technology and also expert information. customer service, and partner support. Our investments are fueling our success as we've been securing more and bigger deals than ever before. In a moment, Matt Ford will walk through our roster of new and expanded deals. In addition to internal investments to expand our offerings, we continue to leverage M&A to build and strengthen our business. Last year, we closed four transactions, and all four are driving our deal-making. expanding our patents and generating revenue from license fees and royalty payments. Two excellent examples are the major partnerships with Jazz and Merck we gained through our acquisition of Phoenix less than a year ago. Both companies recently received regulatory approvals of medicines partnered with Ligand that will compete in global billion-dollar markets. Ligand will soon start to earn royalties from both products. This past quarter, we relocated our corporate headquarters to our Emeryville site in the San Francisco Bay Area. We've expanded our facilities and operations in Emeryville as we invest more to build our OmniApp business. We still have a strong and proud center of robust R&D and administrative operations in San Diego. Yet the move of our principal offices to the Bay Area is supported by the location of many of our partners and access to R&D services and talent to support our work. We look forward to hosting you at our new headquarters when you travel to San Francisco. As a final topic, after the close of the second quarter, we expanded and further diversified our board of directors with the appointment of Jennifer Cochran. Jennifer is a tremendous addition to the LIGAN board with impeccable credentials in bioengineering combined with a fantastic track record of building businesses and translating research into practical applications. She also has great intuition for where the industry is heading. We met Jennifer about a year ago during our acquisition of Accela, where she had been a co-founder. In addition to her entrepreneurial acumen for the past 15 years, Jennifer has been on the faculty at Stanford University, where she is the chair of the Department of Bioengineering, a faculty member of the Chemical Engineering and Bioengineering Department, and a member of the Cancer Biology, Biophysics, and Immunology programs. She has published nearly 100 research papers, and has named on more than 50 patents and invented the number of small molecule drugs, including one that is in phase three trials now for ovarian cancer. At Ligand, we are committed to excellence throughout the organization and to diversity and inclusion. And we're delighted that Jennifer is the third woman to be serving on our board. I will now turn the call over to Matt Kornberg to review our financials.
spk08: Thanks, John. The second quarter of 2021 was another strong quarter for Ligand across the business. Total revenues for the quarter were $84.7 million, up from $41.4 million a year ago. With respect to royalties, royalty revenue increased to $8.6 million from $7.2 million a year ago. Royalty revenues comprise principally of Kyprolis and Evamela royalties, but we look forward to increasing contribution from the four recently approved programs that are backed by our Pelican Expression technology, including Riley's from Jazz, Vax NuVance from Merck, Numacil from the Serum Institute of India, and Teriparatide from Alvagen. Captisol sales were 62.5 million in the quarter, and this is up from 155% from the 24.5 million a year ago. Our Q2 Captisol revenue exceeded our expectations as we experienced significant urgent demand from India for Captisol for use in manufacturing of remdesivir. Our contract revenue in Q2 2021 was 13.6 million, compared with $9.8 million a year ago. The 2021 quarter once again included strong contract revenue from all of our technologies, with significant contributions from OmniApp, Pelicun, Icogen, and the NCE portfolio of products. We expect the diversity and robustness of our contract revenue line to continue for the remainder of the year, with Q3 off to a great start, driven by the $5 million milestone earned upon the launch of Rylase. Adjusted diluted EPS for Q2 2021 was $1.63 compared with $1 even last year, or an increase of 63%. Our GAAP EPS for the quarter was $1.79 and included a one-time gain of approximately $34 million related to the CVR, or contingent value right, we structured with our Phoenix acquisition last year. We now believe the Terra Paratide TE approval is unlikely to happen in 2021 and therefore will not be obligated to pay the contingent payment tied to that regulatory event. Accordingly, we have reduced the expected liability associated with the CVR event, given the payment is triggered by a TE approval happening prior to December 31st in 2021. The one-time gain is excluded from our adjusted earnings and adjusted diluted EPS, as well as from our financial guidance. We exited the corridor with approximately $302 million of cash, cash equivalents, and short-term investments. This cash balance reflects the repurchase of $45 million of convertible bonds during Q2. We now have about $345 million of base value of convertible bonds outstanding. Turning now to financial guidance, we're updating our guidance for 2021 revenue and adjusted EPS. We now expect full year 2021 total revenues to be between $265 million and $275 million, and adjusted earnings per diluted share to be between $5.80 and $6.05. This compares with our previous 2021 guidance for total revenues of $291 million and adjusted earnings per diluted share of $6.15. The reduction in revenue is entirely associated with the lower CAPTASOL sales related to remdesivir. We expect our combined royalty and contract revenue to exceed our previous guidance of $91 million combined. The updated outlook for CAPTASOL reflects our current view of the pandemic, both in the United States and globally. CAPTASOL's role as a critical component of remdesivir is something we're very proud of at Ligand. The scientific and logistical undertakings by our team were amazing, and they resulted in a medical benefit to patients that was critical at a time of significant need. It also was a period of substantial revenue contribution to Ligand compared with pre-pandemic levels. We believe this heightened demand for Capsosil will end in 2021, and we generally foresee a return to pre-pandemic levels and trends of Capsosil revenue in 2022 and beyond. With respect to quarterly pacing for the business overall, As discussed on our last call, we expect our royalty line for the second half will continue the typical trend with Q3 and Q4 each increasing over Q2. For cap to sell quarterly revenue, as mentioned on our Q1 call, we expect that the second half of the year will be more heavily weighted to Q4. At this time, we currently see approximately $20 to $30 million of cap to sell demand in Q3 and the balance coming in Q4. As we frequently do, I note the cap salt can be lumpy and can shift from quarter to quarter based on a variety of factors. Lastly, our contract revenue for the remainder of the year is now expected to be realized about 50% in each of Q3 and Q4. This is updated from our Q1 estimates largely due to the RILAs milestone that was earned early in Q3. The second half revenue components will result in adjusted diluted EPS for Q3 of $0.95 to $1.05 per share. with the balance of the earnings coming in Q4. Regarding strategic M&A, we continue to maintain an active evaluation of M&A opportunities as well as of our capital deployment strategy overall. Our main focus for M&A is on assets and technology that will further bolster our best-in-class OmniAd antibody platform and our recently acquired Pelican Expression technology platform. Before I turn the call over to Matt Fore, I'll direct our listeners to review our Q2 earnings press release issued earlier today and available on our website for a reconciliation of adjusted financial results with our GAAP financial results. And with that, I'll turn the call over to Matt for some comments on our technologies and partner programs. Matt?
spk01: Thanks, Matt. As John mentioned, Q2 was a very productive quarter with partner product approvals followed by recent launches, expanding relationships with existing partners, and entering into new deals with new partners. I'll start with OmniAb, which we see as our most valuable platform technology, as it continues to provide our partners with a powerful combination of advanced antibody discovery tools. Partners who license our OmniAb technologies are supported by a team of respected scientists and a track record of quickly discovering high-quality antibodies. Two OmniAb partners, Seastone and Gloria Pharmaceuticals, have submitted applications for approvals, and we expect both regulatory decisions later this year. If approved, we believe these will be the first of many to come for the OmniAB platform. Seastone's NDA is for Sugamalamab, which was discovered using OmniAB and is under review by the NMPA for stage 4 squamous and non-squamous non-small cell lung cancer. Seastone has stated they expected termination with respect to the NDA this year. and Seastone and Pfizer have also formed a strategic development and commercialization collaboration for Sugamalimab in China. At Gloria, Zimbarilumab is an investigational omniab-derived anti-PD-1 monoclonal antibody that was discovered using our OmniRat. Gloria filed with China's NMPA for relapse or refractory classical Hodgkin's lymphoma, with a determination also expected this year. In addition to the late-stage regulatory work Gloria is doing, Here in the U.S., Arcus Biosciences also recently announced encouraging clinical results with Zimbarilumab treatment in multiple cancer settings. Arcus and Gilead formed a 10-year partnership in 2020 to co-develop and co-commercialize Arcus' product candidates, including Zimbarilumab, outside of China. And we continue to actively innovate and invest in our OmniApp platform with internal R&D and technology development, expansion of our team and our labs, and through targeted bolt-on acquisitions. We've recently added new team members here in Emeryville and are expanding our lab operations to reinforce our position on the cutting edge of antibody discovery. The OMNIAB platform is differentiated by leveraging our increasing artificial intelligence or AI capabilities, along with our deep history of novel genetic engineering and the biological intelligence or BI of our proprietary transgenic animals. The BI elements allow us to operate a highly efficient business model in serving our broad partner base. As we see it, our best-in-class technology stack is enabling our OmniApp business development team to secure new license agreements and expand existing relationships. Specifically, during the second quarter, we entered into new OmniApp licensing deals with Genscript as well as Immunext. We continue to see a trend in the industry toward more end-to-end discovery partnerships. And we believe the tech stack that we've assembled and developed is ideally suited to meet those needs. It's also been a busy and exciting period for our Pelican Expression Technology platform. With approvals from our partners at Merck and at Jazz, as Matt mentioned, we now have a total of four programs approved that leverage the Pelican Expression Technology. Merck recently received FDA approval for VaxNuVance for the prevention of pneumococcal disease in adults. VaxNuVance was formerly referred to as V114, and it's a 15-valent pneumococcal vaccine that utilizes CRM197 vaccine carrier protein that's produced using the Pelican Expression Technology platform. We look forward to following Merck's progress in commercialization and further development of VaxNuVance as an important and global medical market. I'll also point out that in the second quarter, Merck announced positive results from an initial phase three pediatric clinical trial of vaccine advance in pneumococcal disease. And when they announced that in May, they also indicated that plans are on track for submission of a supplementary regulatory licensure application to the FDA for use in children before the end of the year. CRM 197 made in the Pelican expression technology is also used by Merck in its investigational vaccine candidates, including V116. We're also encouraged that additional global big pharma and small biotech players continue to expand their use of our CREM-197 that's also referred to as Pellicrem, which is a non-toxic mutant diphtheria toxin vaccine carrier protein that's produced using our Pelican technology. Jazz recently received the approval for Rylase, as Matt described. for the treatment of acute lymphoblastic leukemia or lymphoblastic lymphoma. Rylase, which was formerly referred to as JZP458, is a recombinant erwinia asparaginase used as a component of a multi-agent chemotherapeutic regimen for the treatment of pediatric and adult patients with ALL or LBL who are hypersensitive to E. coli-derived asparaginase products. Scientists from Jazz and Ligand co-authored a manuscript that ran in the peer-reviewed journal Pediatric Blood and Cancer, describing the manufacturing development of Rylase. And it's yet another successful example case study, adding to a rich technical history for the platform. While we leverage our high-throughput screening technologies and our proprietary computer-driven automation to identify robust production strains very efficiently and quickly for our partners. I'll note that Jazz will be presenting the RILES development story at the upcoming Bioprocess International Conference on September 22nd in the Speed from Gene to Market segment of that conference. And the Pelican technology will be highlighted as being critical to that program's success. We believe that our CMC development and state-of-the-art analytical capabilities position the Pelican technology to be a leader in the space for some time to come. In the second quarter, we also entered into an expansion of our Pelican Expression Technology Agreement with our partner, Arcelex, to include production of additional Sparex proteins. Ligand is eligible to receive development funding for protein production using the Pelican Expression Technology platform. Our partners value the fact that the Pelican technology is supported by a robust patent portfolio in the areas of biosimilars, microbial toxins, and vaccine antigen production, as well as a growing number of patents that cover the technology itself. These include promoters, secretion leader sequences, methods for high-throughput screening, protein expression, strain engineering, and marker systems. Together, there are more than 200 issued patents worldwide related to the Pelican technology, and nearly 50 applications are pending. Now, a couple of final remarks. In June, we entered into a new collaboration with Praxis Precision Medicines, to discover and develop novel therapies for neurological disorders utilizing the Icogen ion channel technology platform. The transaction includes research funding, potential milestones, and royalties should a product be commercialized. And later in June, we also expanded our collaboration with Roche to a new program, bringing the total number of Icogen technology-related collaborations with Roche to three. This one is for the development and commercialization of small molecule ion channel modulators, for the treatment of neurological diseases. Roche made an upfront cash payment to Ligand and will provide research funding. In addition, Ligand is eligible to receive up to $274 million in research, development, and commercial milestone payments, as well as royalties on net sales should a drug be commercialized from the collaboration. And with that, I will turn the call back over to the operator for questions. Operator?
spk04: Thank you, Matt. As a reminder to all our participants, to ask or if you wish to ask a question, please press star 1. Again, that's star 1 on your telephone. Now let's just pause for a few seconds to compile the Q&A roster. And we have now our first question from Larry Solo of CJS Securities. Go ahead, sir.
spk07: Great. Good afternoon. Thanks for taking the questions. Just first question, Matt. You mentioned that the guidance hasn't changed yet. I'm just curious, has the mix, it sounds like there's going to be a little bit less on the royalty side, if I'm not mistaken. It feels that way. Certainly royalties were a little bit below my number this quarter. And I guess part two of that question is, I thought Amgen hasn't reported yet, so how do you have the Kyprolis expectations already or numbers already?
spk08: Thanks, Larry. Yeah, so I think your first question is I mentioned that the combined royalty and milestone numbers should exceed our previous guidance. That's correct. The mix has shifted just a little bit from royalty to the contract side. But if you think about it both as all or all as 100% margin business, overall we're much better off as we've exceeded those numbers. And then the second part of your question is, The Kyprolis numbers, you're correct. Amgen and Ono have not reported. So we have an algorithm that uses some of the last quarters mixed with our expectations, and then we take a little bit of a haircut to those numbers to make sure that we're in line with the conservative nature. And then from there, just as in any quarter, If our revenue is booked, is off, we'll have a catch-up or a true-up, I should say, in the next quarter, similar to all quarters.
spk07: And you're assuming some – I think I was down 10% last quarter. Are you assuming some sequential and year-over-year growth on CardPulse? Because that's probably the biggest – clearly the biggest driver by far of your royalty line, right? So just trying to get a little more clarity on that.
spk08: Yeah, that's correct. When you see the queue come out, which hopefully is in the next few days, the specific numbers will be in the queue. I just remind investors that it is our assumptions. It's not based on information from Amgen, or the same will be true for Evomela, not from Evomela. So you'll see those numbers in the queue, but they do have a bit of sequential growth, as you pointed out.
spk07: Okay. All right. Okay. Just a few questions. I know you guys highlighted recent approval of Rileys and VaxNuvance from Phoenix or Pelican, as you renamed it. Could you just briefly give us an idea of this potential market size? I guess Rileys is going to, I guess, will be or going against Irwinase, I guess, in that market? Can you give an idea of that market size and what this could potentially do? And then, obviously, the pneumococcal vaccine market is much larger, but, you know, can you slice that down and maybe what the target opportunity maybe is? It seems like Merck is going for the U.S. only at first, or maybe you can discuss that, too. Thanks.
spk08: Yeah, thanks, Larry. Okay. So first on Jazz, yep, correct. The new Rylase product will replace a product that Jazz had been marketing prior to that with Erwin Ace. That product had done just under $200 million in a supply-constrained market, and so we expect it to be $200 plus now that they have full access to as much product as needed. Um, and they'll go look to, um, ramp that as quickly as possible. Um, they've talked about a launch, uh, or they've already, uh, announced the fact that they've launched. And so, um, the first couple of quarters here will be, um, initial launch quarters, but, um, we do expect that to be, uh, to, to start contributing to the royalty line this year. Um, On Merck and Vaccine Advance, it competes in the $6 billion plus or minus market with principally Prevnar from Pfizer. There's obviously, as you suggested, a split between that market of adult and pediatric and then U.S. and global, et cetera. But Merck has been talking about the end of this year, as a potential launch following the ACIP conversations towards the end of the year in October.
spk07: Okay. And then just last question, any update on IO-Hexol?
spk01: Yeah, Larry, this is Matt Fore. I can comment on that. Obviously, IO-Hexol is a capsule-enabled program, a great asset. As we said earlier, we're balancing inbound partner interest and late-stage study design. And so we took a pause on starting the trial, and we'll update more in the future.
spk07: Okay, because I think if I look at the clinical.gov, you know, that website, I think it says maybe that's a mistake that you guys have a planned trial beginning in January 22. Is that just a? placeholder in there, or did I read that wrong?
spk01: Yeah, the timing's on clintrial.gov. That's just, we put a pause on that trial for the reasons we described earlier, but that's, you know, just the protocol that is out there.
spk07: Okay, fair enough. Thanks a lot. I appreciate it, guys.
spk04: And our next question is from Joe Pantginas of HC Rainway.
spk00: Hi, this is Sarah on for Joe. I was actually Asking also regarding the IOXL program, if your primary focus at this point, as you previously mentioned, is it really just working on the BD around the program at the moment?
spk01: Yeah. Again, this is Matt. As I said, we've received inbound interest around the program, and we're balancing that with the late-stage study design. So in general, yes, that's the thought.
spk00: All right, thank you.
spk04: And our next question is from Matt Hewitt of Craig Hallam Capital.
spk03: Good afternoon. Congratulations on the strong quarter and for all the color that you provided. Just a few questions for me. Maybe first up, regarding the news this morning, regarding your landing AI partnership, maybe if you could provide a little bit of color on what drove that relationship what are your expectations as far as how that relationship can maybe drive some incremental opportunities in OmniAB? Any color would be helpful.
spk01: Yeah, thanks, Matt. You know, with everything around OmniAB, we have been and always want to remain on the cutting edge of antibody discovery tools, and part of that is obviously accessing pieces that can further enhance the capabilities we already have, This one is a software relationship specifically related to the exploration platform that we gained through the Accela acquisition last year and really selected Landing AI because they have a unique data-centric approach that really blends very well into the platform that we've built around exploration. And we saw it as an opportunity to also collaborate – with high-end folks who are world-renowned in the world of AI and incorporate that into some of the things that we're doing in the lab. That allows us to even increase our throughput even further, support our partners even better, and that's kind of the world we want to remain in. So it's a software relationship, but it's just, I think, another example of us really remaining on the cutting edge with our OmniApp platform.
spk03: That's great. Thank you. And then shifting gears a little bit, regarding Captasol, with the emergence of remdesivir and what that was able to provide from a humanitarian standpoint, I know that you commented previously that it drove a lot of incremental interest. A lot of samples were sent out for customers to trial. How are those proceeding? Have you heard back from some of those customers, are those translating into new orders, anything that you can provide on that side?
spk01: Yeah, Matt, I think the value, certainly the visibility that has been created for Captisol is substantial any time a new drug that's been approved for, what, 18 months or so, but it's already treated over approximately 7 million patients globally, and obviously had a big impact on human health. And our team's quite proud of the role they've been able to play in that. But Capasol itself, really the differentiating factors are increased, but really the same as they've always been. Our global reach, right, there are Capasol-enabled drugs everywhere, marketed globally. We've got a vast intellectual property portfolio, the drug master files, which have our safety data, and then, of course, the manufacturing and quality and scale that we've built over the years and invested in. So those are the things that partners value. And yes, we do have partners entering into new clinical trials and new forms. Those require different amounts of Capasol depending on the form, but our team continues to support those scientific efforts, and we're proud of that progress.
spk03: That's great. And then last one, given the recent success that you've had with the Pelican platform, I think you commented a little bit, but are you seeing incremental interest even here over the past month or so for that technology, and what does that pipeline look like? Thank you.
spk01: Yeah, Matt, you know, when we first started looking at Phoenix prior to the acquisition, at that time there had been no products approved utilizing or leveraging the Pelican technology platform. Now there are four. And that's a substantial development when it comes to partnering discussions. It becomes very important. And so we do see a nice flow of potential partnerships there. As I mentioned, we've expanded some of our existing partnerships. That's always something that validates that those that are working with the technology are having success with it. As we disclosed today, Merck's V116, which is another vaccine candidate, is leveraging our technology. And we are seeing additional global big pharma and small biotech partners expand their use of our Pellicrem as well. So, yeah, we do see a nice interest there, and a lot of it comes from the validation, the regulatory validation, and the success of our current partners.
spk03: That's great. Hopefully we get some of that for Omnib here pretty quick. Thank you.
spk04: And our next question is from Balaji Prasad of Barclays.
spk02: Hi, good afternoon. John, Matt, thanks for taking the questions. Firstly, on the guidance itself, we seem to have come around a full circle now. Last year on this time, you changed your guidance, raising caps on lowering royalties on contract revenues. So I just want to understand from a time period point of view, What is the environment on business discussions now, and how comfortable are you with Outlook, especially on the royalties and contract revenue side? That's one. And secondly, coming back to Capdissol, while there was not much doubt that 2021 was a peak year for sales, at least in the near term, based on COVID, and we all expected some deceleration into next year, is your guidance revision signaling a faster pace of deceleration both for the second half and for 2022. Thanks.
spk08: Thanks, Balaji. Yeah, so I'll take a first crack, and I don't know if John or Matt would want to add any color, but I think a year ago versus today, I think we're all in a very different place. A year ago, we had no idea when or how vaccines would roll out. We had no idea, you know, generally how the virus and the pandemic would play out. And at the time, we said some of this on our calls last quarter, there was anticipated stockpiling by governments. There was anticipated of remdesivir, of course. And, you know, just generally speaking, a lot of uncertainty around where the need for remdesivir would be and ultimately, therefore, capicil. Today, I think we have a lot clearer picture. Vaccines have rolled out very successfully, thankfully for humans generally. And we're in a place now where the manufacturing has caught up with demand generally and folks can plan a little bit more. So while there still could be changes in the numbers if things happen in unexpected ways, new variants or vaccines lose efficacy or something like that. As my comments said, based on our current understanding of the pandemic and outlook for it, we feel pretty confident in the expected cathesol for the remainder of the year. On the flip side of that, the royalties and contract payments Similarly, last year we had kind of little certainty on when folks would return to normal doctor visits and normal patient visits, et cetera. And that's all now, I think, even in a world where coronavirus exists more permanently, the world has figured out how to have those things more regularly. And some of the things that people were putting off, whether it's trial starts, trial visits, or actual doctor visits, people are back to understanding how to do that. So I think you're seeing that in our royalties returning to more normalized levels and certainly our contract business exceeding significantly our expectations. So I think that's really the – what's driven the new guidance, and we have high confidence that we'll meet or exceed our current guidance. On the Capasol side, I don't think the decline is any more or swift than we expected other than reflected in our guidance here, but I think the message for next year is Um, we see the, the principal, uh, factor for capsule from 2022 and forward to be kind of the, uh, core demand in the core business. Um, so we're back on trends from there. Is it possible that, uh, we may see, uh, a tail of some, um, remdesivir related capsule sales? Yes, but we don't plan to guide to it or talk to it. It'll simply be upside to our guidance from, from this point forward.
spk02: Thank you. That's helpful. Maybe just a couple of follow-ups on the CVR liability and the change or adjustment in it. Was it based on expectation that there's now not a 2021 event or is the overall probability itself low now? And secondly, on RILAs, just a quick clarification that your royalty revenues is linked to global sales and not just the U.S. revenues.
spk01: Yeah, Balaji, I can give a little more color. I know Matt covered the accounting elements related to teriparatide. I'll just say our partner, Alvagen, is a strong and committed partner. They've got a great team doing the work. Based on recent feedback from the FDA, Alvagen will perform and then submit results from an assessment to address elements related to potential innate immunogenicity. So they're doing that. And it was really just simply the timing of them doing that work and submitting it that drove the change. I don't know, Matt Kornberg, you may want to comment if there are other accounting elements to that.
spk08: No, that's it. It's purely a timing issue. There's nothing about the accounting that reflects the probability of it happening at some point. It's purely a probability of it happening in 2021. And on the jazz program, yes, it is a global royalty.
spk02: Thank you.
spk04: And our next question is from Jacob Johnson of Stevens.
spk09: Hey, thanks. Good afternoon. Maybe just first question for Matt Korenberg on guidance. On Sparcentan, it looks like maybe that'll be a push for approval in 2022 instead of 2021. I think you have a $6 million milestone from that. Can you just remind us what that milestone is tied to, and is that contemplated in 2021 guidance, or should we think about that as a 2022 event?
spk08: Hey, Jacob, good to talk to you. Yeah, the milestone you're referring to is tied to filing for approval, and it is just under $6 million, $5.99 million. And it was originally a reason that we increased guidance in 2021, and that is now an event that will happen in 2022. So despite that moving out of our guidance, we're still tracking well ahead of our contract payment line.
spk09: Got it. Super helpful. Thanks for that, Matt. And then for Matt, just on the recent OmniApp deals, on the AI capabilities you added via Accela, and it seems like you added to this morning as well, how has that helped business development efforts? Is this something customers were asking for? Does it kind of increase the funnel for OmniAb more broadly? And is this something that's pretty easy to cross sell?
spk01: Yeah, look, we're quite proud of what we've built and what we continue to build around OmniAb, not only through our own internal technology development, but through what we've acquired. And we've done multiple acquisitions related to OmniAb over the last few years. And I'll just speak generally and say, every single one of them, when they're announced, they're quite technical, right? So investors naturally want a little more background, understand a little bit more about the technology, et cetera. Across the board, our existing partners get it immediately. And we've had great success of expanding our relationships with the partners as we've expanded our technology stack, adding new programs. It's been a real source of additional programs For instance, when we added Accela, I can think of multiple conversations with partners where they've said, look, we had these other ideas. We never thought these types of programs would be possible, but now that these technologies are married under OmniAB, we can actually go after these targets that previously we've wanted to but have never tried. And that's one example. We also have seen great success in increasing the speed and throughput of finding high-quality antibodies for our partners. So the answer across the board is really yes, that partners understand that value, and it causes them to increase the depth and the breadth with which they're leveraging our technologies.
spk09: Got it. Thanks for that, Matt. And then if I can just sneak in one more just for Matt Kornberg. Just on gross margins, given the dynamics around CAPTIS all-sales, You know, I think maybe a little bit impacted. They're a little bit lower this quarter probably due to Veclary sales. As we think about the back half for gross margins, just any help you could give us in terms of how to think about those.
spk08: Yeah, thanks. Good question. As you pointed out, the royalty and contract payments are obviously 100% margin. And so our material sales and our capsule sales specifically are really where all the cost of goods comes from. And as that's a more significant portion of our overall business, it drives corporate gross margins down. One of the things that we've talked about in the past is that some of our sales to India, which were significant in Q2 related to the consortium, those are a bit lower margin than our typical sales just given the logistics and nature of where they're selling and some of the contracts with those parties. So capital margins themselves will be a bit lower this quarter and should rebound over the course of the second half of the year a bit. And then the overall corporate margins will continue to be just driven by the mixed shift between royalty and contract as it compares to capital.
spk09: Got it. Super helpful. Thanks, Matt and Matt.
spk08: Thank you.
spk04: And for our last question, it is from Scott Henry of Roth Capital. Go ahead, sir.
spk10: Thank you, and good afternoon. If I could just follow up very briefly on Captisol because it ties into that prior question, and I think you probably answered it, Matt, but I just wanted to make sure I was interpreting it correctly. From the looks of of it to me that the cogs went way up into Q for, for cap to sell, not, not just incrementally. Uh, when I'm going forward, should, should I think of it as a blend between Q2 and prior quarters or, or do you think it'll revert all the way back to kind of prior quarter rates? Um, it's probably that large anyways.
spk08: Yeah. Hard to tell exactly where the demand will, will be, but, um, uh, The majority of sales that we've sold to the consortium in India, the vast majority of it happened in Q2. So we expect continued sales there over the course of the balance year, but based on our current expectations, we've probably sold most of what we expect to sell to India already. The next couple quarters, we'll have some in there, but generally speaking, it should be closer to previous margins than this past quarter.
spk10: Okay, thank you. And then you talked earlier about not really expecting a huge tail from Remdesivir, but that would be upside. When we think about back to a steady state run rate, I would assume the new normal isn't going back into the $30 million a year range. Because of the attention it's gathered, there will always be some remdesivir use after this. Is that a fair assumption that going back to normal is probably a higher normal than what we saw in 2019?
spk08: Yeah, it's hard to sort through all of the pandemic impact versus previous shifting some of the sales to the urgent need for Remdesivir. But generally speaking, I think the business for the, let's say the four or five years pre-pandemic were $25 to $30 million of demand. And we had just ticked into that $30 to $35 million per year of demand range. And I think generally speaking, that's where we probably are starting from. And then some of the factors we talked about here, but any sort of increased demand from new partnerships that eventually trickles into capsule sales and any sort of upside from lingering capsule for remdesivir sales would be upside to those numbers.
spk10: Okay. And then just a couple of small questions. Rylase, did you disclose the royalty ligand received on that product?
spk08: It's not disclosed, but it is a low to mid-single-digit royalty.
spk10: Okay. And then V116, obviously it's a vaccine. Have you disclosed anything about what it's a vaccine for?
spk01: No. Merck has just said it's part of their innovative vaccine portfolio. They've said they're going to have some Phase II data before the end of the year. They actually talked about it on their call this morning, but that's the extent of what they've disclosed thus far.
spk10: Okay, great. And then final question, just with regards to Sparsentin. You know, after last quarter, it really feels like that's a core growth driver for the revenue and royalty line going forward. Obviously, a little bit of a delay there. But do you have the same amount of enthusiasm and confidence for that program in the long run, just perhaps pushed out a year?
spk06: Yes. Scott, good question. We do. And obviously the announcement, the data, the regulatory, the clinical presentation we saw earlier this year really, I think, brought that product back to the forefront. All of us and investors were expecting it would be on a little bit faster regulatory path. But what we're hearing out of Trever and the narrative and all the public disclosure is that while they're answering questions, there's still tremendous medical need. There's high engagement with the FDA. There's a path forward that may be actually a faster path for registration in Europe. And since the product qualifies for orphan designation in terms of of having a market that they can really develop in terms of the medical potential, that registration and the duration of the market protection does not start until it's actually approved. So you're right. I think overall we're looking at a bit of a delay, but the milestones, we do think it's got a good probability for approval and launch. We're excited about that partnership and product. At the same time, right now, literally the last few months into the next quarter or two, we've got two or three new approvals out of the Pelican franchise. We are looking at potential approvals for some Omniab drugs. So there's a nice growing base of new royalty-bearing assets that are going to enter the story and start to, we believe, elevate that royalty line and support our growth going forward.
spk10: Okay, great. Thank you for the caller, and thank you for taking the questions.
spk06: Thank you, Scott.
spk04: And this concludes today's conference call. Thank you, everyone, for your participation. You may now all disconnect.
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