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spk05: Good day, and thank you for standing by, and welcome to the Legan Pharmaceuticals Q4 earnings call. At this time, our 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'll need to press star 1 on your telephone. Please be advised that this call is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your host today, Simon Latimer, Head of Investor Relations. You may begin.
spk03: Thank you, Justin. Welcome to Ligon's fourth 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 Foer, 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, the impact of the COVID-19 pandemic, and plans for OmniAd to become a standalone public company. Additional information concerning risk factors and other matters concerning Ligon can be found in our earnings press release and our periodic filings with the SEC. 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. With that, I'd like to now turn over the call to John Higgins.
spk06: Simon, thank you. And good afternoon. Thanks for joining our fourth quarter 2021 earnings call. 2021 finished strong financially and operationally. We are very pleased with our report to shareholders today and our progress and momentum in all areas of the business today. reinforces our plans to split Ligand into two separate public companies. First, as for our financial performance, 2021 was our best year ever in terms of top line performance. Revenues of $277 million were driven by robust cap to sell sales, along with strong growth in both royalties and contract payments. Record revenues produced significant earnings in cash flow per share, And we are pleased to see a substantial number of late stage and commercial events highlighting the progress by our partners. The business today is at a special inflection point. We have more partners, more programs under development, and more diversity to our business than ever before, as well as tremendous financial momentum. It is from this position of strength and knowing the needs of the business and how to keep driving success that motivates us to split the company into two businesses. As I said on our call in November, when we introduced the topic of splitting the company, given our success, the growth, and the evolution of the business, it has become increasingly clear that Ligand would be better positioned to drive value for partners and our shareholders by operating as two separate independent companies. Our core business model at Ligand is built around technology licensing, coupled with sharing in the success of our partners through royalties. We are now at the point where we anticipate significant top-line growth by existing and new royalty streams that should fuel superior bottom-line results and cash flow as we manage a lean operating structure. At the same time, progress and success with our OmniApp platform has far exceeded our expectations. OmniApp is now a substantial established technology leader in antibody discovery with a strong and well-earned reputation within the industry. OmniAB is performing at a level well beyond our expectations just a few years ago. The opportunity to further invest in and expand the business is clear, and the potential for investors to realize value will be better served with a focused business and investment narrative. Now, in terms of the separation process, we initially outlined plans that favored pursuing an OmniAB IPO, while also evaluating other listing alternatives. We made a lot of progress over the past several months exploring those paths and engaged with dozens of high-quality investors. Both existing Ligand holders and potentially new investors have shown strong interest in our plan to operate two independent public companies. Given our confidence in Omni's ability to thrive as an independent publicly traded company and Ligand remaining company's current trajectory, The positive feedback we've received from investors, as well as the volatility in the markets over the past several months, we've decided to move down a direct spin-out path that will result in the separation occurring in the soonest possible execution window as compared to other alternatives, as indicated by our advisors. Our plan now is for Ligand to directly fund the Omnia business with $70 million at the time of the spin-out. We are confident this investment along with the financial outlook for OmniAb, will provide a secure capitalization for OmniAb. The path we're on for a direct spin-out requires a Form 10 filing with the SEC, which we anticipate will be made in the coming weeks. Our goal is to complete the spin-out and distribute the shares to Ligian stockholders during the second quarter of 2022. There's still considerable work to be done, including full SEC review and final board approvals. but we are outlining our current thinking so our shareholders have a basic understanding of how the process is evolving. The businesses are well-suited to be run as two separate companies. OmniAd will be led by Matt Fore as CEO, and I will continue as CEO of Ligand. I've worked with Matt for over 20 years and have no doubt he will make a fantastic CEO. As shareholders, you know Matt. He is a dynamic, inspirational leader, He capably manages any level of detail and also sees the big picture and has a good instinct for strategy and investment. More information will be made public soon about the board of directors and how the current LIGAN board will split, as well as new directors who have signed on to join the OmniAB board. The executive leadership of OmniAB is nearly fully built out and there will be a comprehensive transition service agreement to facilitate a smooth transition to getting everything up and running. While we are pursuing the path to spin out the OmniAb antibody business from a position of strength, it's equally clear the remaining company has never been better positioned to thrive given our product roster, the revenue diversity, and portfolio. We had a well-timed major acquisition of Phoenix, and we have seen a steady flow of partner data readouts and product approvals. The culmination of these developments positions PostSpin Ligand to have a highly diverse set of assets and programs to drive financial growth. We look forward to serving our partners, customers, and investors under two separate companies. I will now turn the call over to Matt Kornberg for a review of our financials and more discussions about the plans underway. Matt?
spk10: Thanks, John. The fourth quarter of 2021 was a very strong finish to a successful 2021 year for Ligand. Financially, we reported record annual revenues with meaningful contributions from across the business. Operationally, we fully integrated our acquisition of Phoenix and what's now branded as the Pelican Expression Technology. We saw good pipeline progress by partners with product advancements across multiple programs and approvals for Rylase, Vaxnuvance, Zembrelumab, and Sugamalumab. and we made significant progress with our plans to separate Ligand into two separate publicly traded companies. The goal of the separation is to unlock value and allow the two distinct management teams to create value through focus on the OmniAb antibody platform and the remaining core Ligand businesses, respectively. We look forward to completing the separation in 2022. Turning first to our quarterly financials, Total revenues for the quarter were $72.5 million, up from $70 million a year ago. Royalty revenue increased 59% to $17.6 million, from $11 million a year ago. Royalty revenue is comprised of many products, and we are now seeing noteworthy contributions from five principal programs, Kyprolis, Evimela, Teriparatide, Numisil, and Rylase. Our growth in royalty revenue reflects strong sales for these products, with increasing contributions from the three programs backed by our pelican expression technology, which is Rylase from JAS, Numacil from the Serum Institute of India, and Teriparatide from Alvagen. Capsosal sales were $35.4 million for the quarter as compared to $41 million a year ago, with the reduction primarily reflecting a lower sales of Capsosal for manufacturing treatments for COVID-19. Contract revenue in Q4 2021 was $19.5 million, compared with $18 million a year ago. Our gap EPS for the quarter was a loss of $0.30. And adjusted diluted EPS for Q4 2021 was $1.80, and this compares with $1.62 in Q4 of 2020. For the full year, we achieved $277.1 million in total revenue, which is an increase of 49% from the $186.4 million in 2020. Within the 2021 total revenue approximately $34.8 million was attributable to the Omnia business, the unit we're preparing to spin off into a separate public company. Adjusted diluted EPS for full year 2021 was $6.42 or an increase of 41% over the $4.55 we reported for 2020. We generated over $75 million in cash from operations in 2021, and we exited the year with approximately $341 million of cash, cash equivalents, and short-term investments. Looking forward to 2022, as John discussed, we're working to separate OmniAb through a direct spinoff of 100% of OmniAb equity to Ligand stockholders, with Ligand capitalizing the OmniAb business directly. At the time of separation, we intend to break out the expenses between the two companies more specifically, and to provide information for the 2022 earnings outlook for both the LIGAN business and for the business excluding OmniApp. Today, we're providing 2022 revenue outlook for the combined business with some context for how the revenue will be allocated. We forecast 2022 royalties to be in the range of $55 million to $60 million, with a couple of million dollars attributable to the OmniApp products. Material sales we forecast to be $40 million to $50 million based on current views of demand size and timing, expected order flow, and production schedules. All of the material sales revenue is expected to remain with the Ligand business following the spinoff. And we forecast $52 million to $62 million of contract revenue with approximately two-thirds of that amount attributable to OmniApp. Wrapping up the financials, I'd like to direct listeners to review our Q4 earnings press release issued earlier today and available on our website for reconciliation of adjusted financial results with GAAP financial results. Now, regarding our corporate strategy, we spent a significant amount of time in 2021 on the separation of the Ligand and Omnia businesses. However, throughout the year, we continue to evaluate transactions that add new technology platforms to Ligand, add meaningful partner programs to our portfolio, and bringing companies and technologies that complement our existing technology platforms. Following the separation, Ligand plans to continue this strategic effort generally, with OmniApp expected to focus primarily on any transactions in the antibodies discovery space. Before I turn the call over to Matt Ford to provide additional details on the OmniApp business and strategy, I'll provide a few updates on some of our key portfolio programs remaining with Ligand. As mentioned earlier, three key Pelican programs are becoming significant drivers of our royalty revenue line. In the middle of 2021, the FDA approved Jazz Pharmaceuticals Rylase for the treatment of acute lymphoblastic leukemia, or ALL, and lymphoblastic lymphoma, or LBL. In July, Jazz launched Rylase and generated sales of over 20 million in the first quarter of launch. JAS recently announced the admission of a supplemental SPLA to the FDA, seeking approval for a Monday, Wednesday, Friday intramuscular dosing schedule for Rylase as a component of a multi-agent chemotherapeutic regimen for the treatment of ALL and LBL in certain patients. Expectations for this drug are for sales to exceed $200 million annually, and we're pleased to see JAS' progress toward that goal through a continued broadening of the data and the patient population around this important drug. Beyond Rylase, both Numicil and Teriparatide are showing commercial progress. Numicil is a 10-valient pneumococcal conjugate vaccine marketed by SII in India and neighboring countries. Teriparatide is a biosimilar to Eli Lilly's Forteo and is marketed in the U.S. by Alvagen. Combined, these two drugs contributed over $3 million in quarterly revenue to our reported numbers in Q4 2021. In addition to those three marketed programs, there are two key future drivers of royalties that I wanted to touch on briefly. Travere Therapeutics announced plans to submit an NDA to the FDA for accelerated approval of sparsentin for IgA nephropathy in the first quarter of 2022 and for FSGS in the middle of 2022. Travere also announced that plans are underway to submit a combined IgA nephropathy and FSGS marketing authorization application in mid-2022 for conditional marketing authorization in Europe. Travere's licensed the marketing rights to Sparsentin in Europe to V4 Pharma, and Ligand is entitled to a 9% net royalty on worldwide sales. In July 2021, also, Merck received approval for Vaccinavance and recently announced European Commission approval for the product for adults 18 years of age or older. Vaccinavance is a 15-valiant pneumococcal vaccine utilizing Ligand's CREM197 vaccine carrier protein produced using our Pelican Expression technology platform. Additionally, Merck announced that the FDA accepted for priority review the SPLA for vaccine advance in infants and children. On their earnings call earlier this month, Merck mentioned that they had recently launched vaccine advance in the U.S. Ligand is entitled to a low single-digit royalty on net product sales, and we look forward to Merck making inroads into the $6 billion market for this type of pneumococcal vaccines. With that, I think I'll turn the call over to Matt Fore for the update on our OmniAb technology and programs. Matt?
spk01: Thanks, Matt. I'm going to focus my comments today on our OmniAb platform and business overall, including our strategic goals. The OmniAb technology platform continues to demonstrate its value proposition to our partners around the globe by providing access to diverse antibody repertoires and screening technologies, to enable the efficient discovery of next generation therapeutics. Partners place high value on the fact that our team and technology can connect flexibly into a variety of workflows to meet their and each of their programs' scientific needs. That flexibility allows us to efficiently grow our portfolio programs while maintaining and investing in what we see as a best-in-class technology platform. At the heart of the OmniAB platform is the biological intelligence, or what we call BI, of our proprietary transgenic animals, which have been genetically modified to generate antibodies with human sequences. Over 55 partners now have access to OmniAB-derived antibodies, and more than 250 programs are being actively developed or commercialized. Today, the number of active clinical or commercial-stage OmniAB-derived antibodies has increased by over 50% from roughly a year ago, going from 16 to now 25. That's a substantial increase and illustrates the momentum of the platform and that momentum that's been built up, especially in the later stage programs. And there are now over 100 clinical trials that are currently being run or have been run by our partners who are pursuing the development of OmniAb-derived antibodies. Our business development team continues to secure new license agreements, and partners are using our platform more than ever and in new and in scientifically interesting ways. We're now in the process of expanding our BD team, given increasing demand for our platform and our growing partner base, and given that we are managing more inbound interest in the platform. Two OmniAb-derived antibodies received regulatory approval during 2021. Those are Zimbarilumab with Gloria Biosciences in China, and Sugamalimab with Seastone, who is also partnered commercially with Pfizer. Also, in late December, Janssen announced the submission of a BLA to the FDA seeking approval of teclistamab for the treatment of patients with relapsed or refractory multiple myeloma. Teclistamab is an omniab-derived bispecific antibody targeting BCMA and CD3. We're entitled to receive a $25 million milestone payment upon first commercial sale of teclistamab in the U.S., So that's something we'll be monitoring as time progresses. And recently, our first omni-chicken-derived antibody entered the clinic and is now in phase one trials that are sponsored by Bollinger Ingelheim. We have extensive biological capabilities for ion channels and transporters that were developed within the Icogen platform over many years. We see these as best-in-class capabilities for viable target-to-lead delivery and for difficult high-value ion channel targets. These capabilities were originally established around small molecules and have clear potential in multiple formats and modalities. In Q4, we expanded our existing deal with GlaxoSmithKline to leverage our ion channel technology in the targeting of neurological diseases. We received an upfront payment from GSK of $10 million and are eligible for milestones of over $247 million, as well as tiered royalties on net sales of any drug from the collaboration. With an added focus on our science and capabilities in the ion channel and transporter arena, we see opportunities to further leverage and expand this area even more broadly across modalities, including antibodies and ADCs and many others. In addition, these highly differentiated core capabilities can provide novel reagent generation, proprietary assays, and in silico capabilities that can also support partner discovery programs and can be accessed when pursuing ion channels and transporter targets in a broad variety of approaches. We track a number of metrics in the OmniAB business and have been pleased to see growth in all of the key areas that we currently track, those being the number of active partners with access to an OmniAB program, now at more than 55, the number of active programs being pursued by partners, which is now over 250, and we also closely track program matriculation, and the number of active clinical and commercial programs, which, as I mentioned, now stands at 25 programs. And lastly, we also track novel antibody patents filed by our partners. This is a metric that our science team monitors closely and I think provides an interesting line of sight into the plans by our partners. And there are now over 60 patents filed by our partners that claim an omniab-derived antibody as the invention. Our potential future royalties link back to these patents, and this creates a diverse base of intellectual property and potentially lengthy tail upon which potential royalties can be based upon. We've made great progress in building out the leadership team as we prepare for the split of the business in the coming months. And we are also framing our operational and strategic goals for the OmniAd business in 2022 as we prepare to become a separate standalone public company. Once public, our team will be focused on five main areas, and they are, first, partnered pipeline development, expansion, and advancement, also expanding the overall reach of the OmniAB platform, and continued workflow versatility initiatives and technology enhancement, as well as new transgenic animals and continued investment there to expand upon our leading position in that element of the landscape. And lastly, the successful completion of a number of operational initiatives, including completing a major expansion of our wet labs here in Emeryville, California, as well as in North Carolina, and significantly expanding our omni-chicken vivarium facilities, giving increasing demands from our partners. I look forward to talking more about these elements and updating on our scientific and strategic progress as the year progresses. And with that, I will turn the call back over to the operator for questions. Justin?
spk05: Thank you. As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by. We compile the Q&A roster. And once again, it's star 1 if you'd like to ask a question. And our first question comes from Joe Pant Guinness. With H.C. Wainwright, your line is now open.
spk09: Hey, guys. Good afternoon. Thanks for taking the question and very nice progress. And it's nice to get the final answer on the OmniApp plan. So great for that. And, Matt, good luck with your new endeavor there in running the company. So first, maybe just two questions on the OmniApp spin-out. I guess first, do you have any preliminary view on what the capital structure might look like And secondly, I guess more importantly, when you look at the underlying business, and I really appreciate the five points that you just outlined, Matt, over the one or one to three years, are you looking to keep sort of the business model the same with regard to partners? Do you envision, you know, in the five to ten year time frame that there might be some internally derived products that you would keep as long as you could or even keep altogether?
spk01: Yeah, thanks, Joe. Yeah, I'll comment on the strategy elements, and Matt Kornberg may want to comment on other elements of process and other things. But on the strategy piece, you know, as I mapped out, we really see what we kind of have coined internally as intelligent expansion of the platform. We see a lot of opportunities to not only remain on the cutting edge, but also – continue to invest in innovative elements of each piece of our technology that we've assembled around OmniAB to really continue to grow and expand the reach of the platform. Now, clearly, antibody discovery is one of the largest green fields in the pharmaceutical industry, as I think everyone knows, in 2020. over $180 billion in revenue attributed to antibodies. That's expected to grow to well over $235 billion just in the next few years. So what that's doing is really causing our partners and the industry to want to find cutting-edge tools. So that's going to be our primary focus is expanding our existing partnerships, expanding the number of partnerships, that intelligent expansion of the technology itself, That also creates other opportunities for investment, which is one of the foundational elements that's informed why we're doing the split. And so as we continue to embark on expanding our technology, we'll look at other opportunities for investment as well in kind of the next chapter of the technology.
spk10: Great. And, Joe, on the capital structure issue, The spin company or Omniab will be capitalized with the $70 million of cash that Ligon is contributing. And then it will have no debt. So it's a cash and debt-free business, cash positive debt-free business. And the remaining convertible notes and cash will stay at Ligon. So that's generally the split we're expecting.
spk09: Got it. Got it. And then just, I guess, briefly switching gears a little bit, when you look at – The Kyprolis franchise, obviously you guys put a lot of effort into building your manufacturing capacity, especially based on the remdesivir needs. So I guess my question is a little mixed. So, you know, you have Kyprolis that has, you know, expanding indications with the combination with Darzalex. So we're looking to see increases there. We're expecting to see maybe remdesivir not drop off as dramatically as people might have thought because we're looking at, you know, non-hospitalized patients, hospitalized patients, et cetera. So I guess just sort of checking in on, you know, your manufacturing currently to be able to address all the needs. And then in this particular day and age, You know, supply chain issues are a big problem still, and I'm just curious how you've looked to sort of head any potential problems off at the pass on that front.
spk01: Yeah, Joe, I can comment as well, and I know Matt Kornberg may want to add some color as well. You know, we have a very flexibly built supply chain for Captisol. We added in additional drying sites in the last couple of years. And that gives us a lot of flexibility and a lot of, I'll say, intelligent redundancy spread through the supply chain. That's something we were investing in well in advance of the pandemic and had done over the course of many years. So I think that builds a supply chain that's got a lot of flexibility and efficiency built into it. And that's really something that I think our partners have valued for Captisol over time. When you're developing an important IV medicine and Captisol is what enables that medicine to be developed, it's something our partners really have valued over time, the care and the investment we've made. in the overall supply chain. Matt Kornberg may want to make some other comments as well.
spk10: Matt Kornberg Yeah, thanks, Matt. Joe, I think maybe part of the question is, you know, how are we able to flexibly meet the potential demands of Bechler and others? And the answer is yes. We are able to dial things up and down as needed on the production front and anticipate whichever way the pandemic goes, we will be fine. I think that's, combined with what Matt said, that's probably helpful in answering what you're thinking.
spk09: It certainly is. Thanks a lot, guys.
spk05: And thank you. And our next question comes from Larry Solo from CJS Securities. Your line is now open. Great. Thank you.
spk02: And good afternoon, guys. Just a follow-up on the spin. You know, just from a high level, I think we kind of get the $40 million about in revenues. Can you tell me just will that be on the spin itself? Will it be dilutive or accretive to log in, you know, core log in?
spk10: Yeah, thanks, Larry. We're still working through exactly what the expense profile will look like of both businesses. Generally speaking, though, within Ligand, the business ran close to break-even, so it won't be materially one direction or the other in terms of impact to the historical financials when we get those breakouts reported into the Form 10 and then otherwise.
spk02: Got it. Okay, that's very helpful. So it's probably, you know, Minimal move one way or the other. So core ligand earnings or bottom line should stay about the same. Great. And just on the fourth quarter numbers, as you mentioned in the release, remdesivir or material sales were, I think, a little bit less than expected and were originally expected, and that's because of the reduction in COVID hospitalizations or serious hospitalizations. Is there any, you know, I thought, you know, for 22, I'm just trying to figure out how much can you get. It looks like you are still keeping some material sales guidance for remdesivir in your numbers a little bit, right?
spk10: Yeah, thanks, Larry. I think, as we've talked about on a number of calls, the demand for the remdesivir and capsules as it relates to that has been pretty variable over the course of the the pandemic and no one really knows where we're headed. Right. Given that Gilead is giving guidance on their quarterly call a week ago or so where they said that they would expect about two billion of end user sales for this year. But the majority of that in Q1 of this year. OK. Anything that they're selling Q1 this year, we sold them caps all long, long ago. So that just generally, I think, lines up and is reflective of what you'd expect for the guidance we gave for some beclary-related cap-to-salt sales in our numbers, but not a significant amount, at least as we see it at the moment.
spk02: Okay. So it sounds like it's a modest number, and it's front-end loaded, essentially, for you guys even to even know. It sounds like most of the Q1 will be satisfied with stock on hand, but maybe there's some residual sales, and that would be front-end loaded in your material sales number.
spk10: Yeah, we'll give more color on that as we go.
spk02: And the royalty number was a little bit, looked like it was a pretty decent number, at least compared to my expectation. You mentioned, it sounds like the Phoenix products, Riley's, and then the other two, you know, contributed $3 million to that. I'm just trying to get a better picture. I just, on Kyprolis, I guess that number for you guys, because it I know after the last quarter they were sort of running a little bit ahead of expectations relative to what you had built into guidance. Then I think they reported after the quarter, so it looks like they haven't reported yet again this time. Do you have a sense of you're just building in an expectation of a sequentially flat quarter, or how do you kind of view that?
spk10: Yeah, thanks, Larry. Agreed. Yeah, last quarter was a real strong quarter from Kyprolis, and this quarter was fine, but it wasn't a huge step up from where they had been. One of the things I think people should keep in mind, though, is we are booking to our expectations but not to actuals when we book these quarters. And I mention that specifically because we don't have any information on what Kyprolis has done in China for this last quarter. So we've not included anything for China. And that's one of the areas that we do think is going to be a significant area of growth for Kyprolis is Beijing and their team there launching Kyprolis in China. They report in another week or so, and we should get some more information there, which we'll carry over to the rest of the year.
spk02: Okay, and just sticking on the Phoenix side, I think you mentioned Riley's inevitable target of $200 million. I believe that they're no longer selling the existing prior products. So I guess that $200 million number, that target should come sooner than later, potentially in, I don't know, 2022, but a pretty new term type target. Is that a fair statement?
spk10: Yeah, good question. Jazz has not reported their numbers yet, so we can't comment publicly on exactly what we booked to. And we're looking at script trends, though, and we see nice progress in Q4 compared to Q3 of last year. And just reading through the script trends and some of the comments that you were just referring to where they're now fully replaced their prior predecessor product with this new product with Rylase, which did almost 200 on its own last year, the previous product.
spk00: Right.
spk10: One could expect that they should be trending towards that even for just this year. But, yeah, between that product and the other two, terparatide and numazil, all three were nice contributors this quarter to the royalty line.
spk02: And just to quick up on the terparatide, I guess the bioequivalency target now is, I know that's been pushed out, and it's still doing okay. It sounds like just on its own without the bioequivalency, so it's being marketed okay there. But is there a target for that? I guess maybe it hasn't been filed yet, or when you guys expect potential bioequivalency, at least the earliest it can be?
spk10: Yeah, that's correct. Our partner, Alvagen, is dealing with the FDA directly on that, and they continue to work with the FDA. They've actually recently submitted additional data that was requested by the agency. And they did that, I think, earlier this month, and they're just waiting for the FDA's decision. Just a reminder to folks, there's no mandated timeline for their response, but the last one was relatively efficient, so we're hopeful that we hear something in the next few months.
spk02: Great. Thanks.
spk05: Appreciate all the call. Appreciate it. Thanks. And thank you. And our next question comes from Matt Hewitt from Craig Hallam. Your line is now open.
spk04: Good afternoon. Thank you for taking the questions. Maybe one, but it's actually a two-pronged question. Commentary over the last couple of weeks has been that because of the weakness in healthcare and pharma and biotech stocks specifically, that it could create or that they are seeing some softness in funding for smaller pharma and biotech. And I guess two-pronged question here. Number one, What type of exposure do you have on that front, and are you seeing any impact from that? And more importantly, I guess, for me anyway, is does that create some opportunities for you from an investment standpoint where you could step in with some funding to obtain ownership positions in some really attractive assets? Thank you.
spk06: Matt, yeah. Yeah, go ahead, John. Thank you, Matt. It's a thoughtful question, certainly as to our business, just to address the impact or what we might be seeing. Overall, the majority of our assets are partnered with very, very secure, well-capitalized company. And so it's probably just numbers, but also the most important assets from a financial contribution today are backed by, again, well-capitalized companies. So I think the quick answer, obviously, we're looking at the financial markets, but we are not concerned about any pullback or change in the capital markets environment as it relates to our business model or our outlook. The second question about does this create an opportunity – Often when we meet with investors, we explain our model where we're a technology company. We provide the tools and the technology to our partners. And we really believe that in any economic cycle, our business is really positioned well to thrive. And over the last five years, the markets have been tremendous. They've been abundant, a lot of capital, a lot of new company formation. And we've done very, very well with licensing. We don't see a particular change, but realistically, if there are fewer companies or less funding, that may slow down a bit. However, in this market, maybe what you're alluding to is that when there is capital retrenchment, maybe a pullback, companies are looking for other more creative sources for capital or which LIGIN can participate in. We can fund. We can buy royalties. We can participate in research stage projects. Or as you know, we purchased private and public companies that really have been financially distressed, otherwise very good companies backed by great science. But in a more financially distressed market environment, we've been able to come in, acquire, and integrate those companies into ours. So we really have seen this. I've been at Ligand now over 15 years, and we've seen a few cycles. And in every cycle, we've been able to create opportunities and advance our business. We're very pleased with how we're positioned right now.
spk04: That's very helpful. Thank you.
spk05: And thank you. And our next question comes from Jacob Johnson from Stevens. Your line is now open.
spk08: Hey, thanks. Maybe, John, following up on your last answer to Matt's question, you talked, Matt Ford talked a little bit about the investment plan for OmniAb post-spin, but maybe for for legacy ligand. Can you talk about your interest in adding technologies to the platform and adding another leg to the stool at some point after the spin occurs?
spk06: Yes. Our, what we call remain co, or the remaining ligand business post-spin, the business model will be fundamentally unchanged. It's unlikely we're going to focus on antibody investments. Out of respect for our colleagues and new company We expect that would be their domain focus. But what we've seen the last decade, 10 acquisitions, a whole range of sizes, and we really are looking for the tools, technology the industry needs to meet their objectives for drug discovery. We've got a lot of insights for what the industry needs. We have over 140 partners, and we have a sense of where they want to invest, where they need to invest. So that gives us a bit of a treasure map for where we want to look for other acquisitions. And we do see the market environment creating opportunities, both public and private acquisitions. So we will recapitalize the business. Certainly as we spin out OmniApp, we can focus on our remaining assets, but then we're going to redirect our M&A at other targets. We had a large acquisition, as investors know, in October of 2020, so about 15 months ago. That was the Phoenix we call now Pelican business, largest in our company's history in people and in assets and in the magnitude of the purchase price. But now that is well integrated 15 months later, and we've got the capacity and the interest to find other assets and platforms to bolt on.
spk08: Got it. Thanks for that, John. And then a question for Matt Kornberg. I certainly understand there's moving pieces around expenses and so you're not guiding to it, but that means I'll still ask a question about it. Just in terms of the product gross margin line, any kind of directional indication about how we should think about that in 22 versus 2021, given the kind of vectory, probably mixed shift of those revenues?
spk10: Yeah, good question, Jacob. And the answer is that margins will continue to be somewhat below where they had been historically just as a result of the larger volumes that we continue to manufacture as well as the flow through of some of the costs that we've spent in the past that go forward. Some of those are The costs on there are non-cash versions of costs, so you'll see cash flow should be better than the margins would indicate on those sales. But I think last year is probably a good proxy for where those margins might be.
spk08: Got it. That's helpful. And if I could just sneak in one more for Matt for just, you know, a lot of talk about Omniab being spun out, but Icagen is part of that. Can you just remind me the kind of synergies? between the OmniAb discovery assets and ICOGEN?
spk01: Yeah, no, great question, Jacob. And it's really the capabilities that have been built up over many years at ICOGEN, the biological capabilities, really centered around ion channels and transporters, which are big areas, not only in the small molecule space, but in the antibody drug conjugate space, as well as an increasing number of partners pursuing antibody approaches for ion channel targets. And ion channels are really key components of a wide variety of biological processes that generally involve rapid changes in cells. So common in cardiac and smooth muscle tissue, they're important in nutrient transport, T cell activation. And so real broad therapeutic applicability across cancer, metabolic disease, pain, neurological diseases, infectious diseases, and the team at Igogen built up those capabilities over many years. So they fit very nicely and also are a big value driver, right? And we continue to do new deals centered only around those ion channel capabilities, but also see a lot of value in combining what are the best-in-class biological technologies intelligence elements of our transgenic animals and screening technologies that have been acquired and invested in, but also pairing that with these best-in-class biological capabilities around ion channels. So a real exciting area. I think the science teams are very excited about it, and I see a lot of potential for that going forward.
spk08: Awesome. Thanks for taking the questions.
spk05: And thank you. And our next question comes from Scott Henningry from Ross Capital. Your line is now open.
spk07: Thank you, and good afternoon. And first of all, congratulations to Matt. I think you're going to do a great job. From there, most of my questions have been answered, but I did want to look back at the Phoenix event acquisition now that we're kind of over a year past then. You've got these big three products, and it seems like it started a little slow, but it's really picked up. When you look back at the time of acquisition, I was just curious, of those big three, what's kind of tracking ahead of your expectations or in line or maybe slower? It certainly seems like Riley's seems to have been the strongest, but I just wanted to get your thoughts.
spk10: Yes, Scott, maybe I'll answer that one. I think all of the products out of the Pelican transaction are actually performing incredibly well for us. So, you know, we spoke about three of them in terms of their contributions to royalty this quarter. I think the first quarter launch from Rylase was fantastic, and we look forward to the actual earnings report from them in a couple weeks for their Q4. The teriparatide acid at Alvagen, you know, before the TE approval, the TE approval was maybe delayed from where we expected or hoped at the time, but we were never counting on that. At the time we bought the deal, that's why we bought the company, that's why we had a a contingent value rate or an earn-out payment tied to that happening during the year. And so we feel like it's performing on or ahead of expectations for not having achieved the TE rating, which is great. And same for Numasol at Serum Institute of India. They're making great progress on their product in their region. Vaccine Advance is not launched yet, but the approvals came on or ahead of schedule, and we look forward to them ramping up as well. So across the board, I think all four products are doing well.
spk07: Okay, great. Thank you for that, Culler. And when we think about the launch curves, I mean, obviously Riley's is a pretty steep launch curve with the switch there. How should we think about Pneumocil? as far as the launch curve. I know vaccines tend to be pretty rapid, but outside the U.S. may be a little bit different. Just wanted to get your expectations.
spk10: Yeah, that one's a little more difficult to predict. It is a lot of government contracts and other group purchasing contracts that they're putting in place. The good news is that the Serum Institute tends to announce when they add these contracts, which tend to be for repeating annual contracts of dosage. And so, so far, they've done well, and you'll see as the 10-K gets filed next week that the numbers that we're reporting here this quarter for Q4 for them look quite strong, and we look forward to a 2022 that continues along those trends.
spk07: Okay, great. Thank you for taking the questions. Thanks a lot.
spk05: And thank you. And I am showing no further questions. I would now like to turn the call back over to John Higgins, CEO, for closing remarks.
spk06: Yeah, thank you. Appreciate the people's time and attention today, the questions. And we look forward to staying in touch with everyone. The next two, three months is going to be a busy period for us. We're trying to be as transparent as possible with our spin-out plans, but we feel very good about the feedback we're getting. about the business planning that's going into now separating and running the two individual companies. And really on behalf of all of the management and the board, I just want to say that we are excited to present our investors to public companies. We're confident they'll be both well-run, good business plans and assets, and really an exciting investment opportunity. So We're pleased with that. We're pleased with our year-end performance at the end of 2021. The numbers speak for themselves, but it really, really was an extraordinary fourth quarter for the business, operationally and financially, and we're pleased to be able to share this time with you. Thanks, and we will be in touch on our next earnings call. If not, see you or talk with you before then. Goodbye.
spk05: Thank you. This concludes today's conference call. Thank you for participating. You may now
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