Ligand Pharmaceuticals Incorporated

Ladies and gentlemen, thank you for standing by. Welcome everyone to the Legan fourth quarter 2023 earnings webcast. At this time, all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you'd like to withdraw your question, please press the star followed by the one once again. Thank you. I will now hand the call over to Tava Espinoza, Chief Financial Officer. You may begin your conference.

Hello, everyone, and welcome to our earnings call for the fourth quarter and year-end 2023. During the call today, we will review the financial results we released prior to today's market open and offer commentary on our partner pipeline and business development activity. After which, we will host a question and answer session. Our earnings release can be found in the investor relations section of our website at Ligan.com. Participating for Ligan today will be our CEO, Todd Davis, our CEO, Matt Kornberg, and myself, Tavo Espinoza, CFO. This call is being recorded and the audio portion will be archived in the investor section of our website. It is our intent that all forward-looking statements regarding our financial results and commercial activity made during today's call will be protected under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties. Actual events or results may differ materially from those projected or discussed. All forward-looking statements are based upon current available information and Ligand assumes no obligation to update these statements. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Ligand has filed with the Securities and Exchange Commission, including our most recent forms 10-Q and 10-K. With that, I will now turn the call over to Todd.

Thank you, Thabo, and welcome to everyone on the call. The end of 2023 marks the completion of my first full year as CEO of Ligand. And I'm happy to say that in the last year, we've successfully transformed the company to take Ligan to the next stage of growth. Slide three summarizes our financial and portfolio achievements in 2023, which underscores our strong momentum and the strength of our business model. First, we delivered strong financial performance. We grew revenue by more than 20% when you exclude last year's COVID-related capped-as-all sales. while reducing 2023 cash operating expenses from above $90 million per year to below $40 million per year. This resulted in core adjusted diluted earnings per share of $4.06, which is 66% above the prior year. Second, we streamlined and improved the financial profile of the business through restructuring efforts. In addition to spinning out the OmniAb business, We also divested our pelican protein expression platform via equity merger or spin out to form Primrose Bio. Both of these businesses are valuable technology platforms, but they required additional investment in infrastructure that was inconsistent with our core financial strategy. This enabled a headcount reduction from over 170 to 35 employees. This operational streamlining was completed even while adding significant talent in the investment, portfolio management, and diligence functions to create a premier investment team. Accordingly, that team began to execute on our newly defined strategy in the second half of 2023. Third, we strengthened our royalty portfolio by adding several innovative and exciting new programs, including Sanofi's TZILD, and Takeda's Ceticlistat. We also expanded existing partnerships, acquiring full rights to the recently approved Zelsovmi and expanding a royalty investment in Pavela's PTX022 program, which is in development for microcystic lymphatic malformations. Fourth, as shown on slide four, at our investor day in December, we announced for the first time a longer-term outlook where we see royalty revenue CAGR of over 20% and an adjusted EPS CAGR exceeding 25% over the next five years. The breadth of our asset portfolio provides us with a lower volatility and much greater predictability than is typical in biotech businesses, which in turn provides us the confidence to share these longer term projections. The forecast is driven by our current major commercial programs, our existing pipeline, and the expected contribution from the new business development efforts. TABO will cover our financials in a little more detail, but I'd like to highlight that the increase in Viking Therapeutic stock price in 2023 has bolstered our balance sheet as we generated approximately 80 million in proceeds from the sale of Viking shares and still hold approximately 1.7 million shares. we are reinvesting these proceeds into new investments that will drive additional growth and value creation in the future. Also, there are several exciting developments across our partnered commercial portfolio and clinical pipeline during late 2023 and early 2024, and there is an opportunity for further value creation through additional important catalysts expected this year. On January 5th, 2024, the FDA approved Zelsuvime as a first-in-class medication for the treatment of molluscum contagiosum in adults and pediatric patients one year of age or older. Zelsuvime is the first and only prescription medication that can be applied by patients, parents, or caregivers at home outside of the physician's office to treat this highly contagious infection. You may recall that we own 100% of Zelsuvime rights after funding Novan through a restructuring process and acquiring a significant portion of their assets in 2023. Additionally, we have two partnered products that have PDUFA dates scheduled during June of 2024. Verona's Encephentrine and Merck's V116. Encephentrine, if approved, is expected to be the first novel mechanism available for the maintenance treatment of COPD in more than 10 years. Additionally, the FDA accepted for priority review Merck's new BLA for V116, an investigational 21-valent pneumococcal conjugate vaccine specifically designed to help prevent invasive pneumococcal disease and pneumonia in adults. Our royalty rates on encipentrine and D116 are in the low single-digit royalty range. Finally, Travere announced that it received 459 new patient start forms for Filspare in the fourth quarter of 2023, and announced net product sales of approximately 15 million through the fourth quarter, which is an increase of over 80% from the prior quarter. We have a 9% royalty on Filspare, and consensus estimates continue to show $500 million to $1 billion in peak Filspare sales. Shortly, Matt will provide more detail around these and other programs. Now let's turn to our business development efforts. In 2023, one of our key priorities was assembling a strong and experienced investment team to execute on our strategy, and we are pleased with our progress in this regard. Additionally, I can share today that we've recently added Rich Baxter and Dr. Karen Reeves to the team. Rich joins us as SVP of investment operations and a member of the investment committee. Rich brings significant commercial pharmaceutical industry experience and private equity investment experience. He co-founded the healthcare group for Drawbridge Special Opportunities Fund at Fortress Investment Group, which invested approximately $1 billion in emerging life science companies. He also served as co-head of the healthcare team at Hayfin Capital Management, which deployed $1.4 billion in capital over four years. Karen is a board-certified physician and joins us as SVP of Clinical Strategy and Investments. She brings more than 20 years of experience in senior roles at top pharmaceutical companies with extensive experience in successful Phase I through Phase IV drug development across multiple therapeutic areas. Most recently, she served as President and Chief Medical Officer of AZ Therapies a private late-stage clinical biopharmaceutical company focused on neurology. Prior to AZ Therapies, Karen held multiple leadership positions at Pfizer, including VP Worldwide R&D, VP Worldwide Safety and Regulatory, and Head of Global Clinical Submissions for Quality. We welcome both Karen and Rich to the Ligand team. Paul Haddon has been leading our investment origination efforts and was instrumental in increasing our available opportunity set during 2023. Last year, we reviewed over 300 investment opportunities, signed 45 CDAs, and closed five transactions. We enter 2024 with $130 million in cash, plus we expect to generate approximately $80 million in cash from operations this year. Adding to this is our ownership in Viking Therapeutic stock, a $75 million revolving credit facility. With this strong financial position, we feel we are well positioned to have another successful year led by investment activity, providing exciting growth opportunities for Ligand. As we discussed in December, the team has built a robust pipeline of investment opportunities that span both significant breadth of therapeutic area but also diversified transaction types. We are in active dialogue with multiple counterparties and are constantly looking for new exciting opportunities in which to invest capital. The team is currently reviewing approximately $1.4 billion in investment opportunities across multiple strategies, including royalty monetization, project finance, M&A, and special opportunities. As a reminder about our investment criteria, We are primarily focused on assets that are within a few years of approval in either phase two or phase three, are highly differentiated, offer significant value to patients, provide favorable market exclusivity, and have above average probability of technical and regulatory success. Ultimately, the number and size of investments we make will depend on the quality of the opportunities we identify. We believe that we have the right team to execute and excel in this high margin, high growth strategy. It's important to note that the majority of our diligence assessment is done under confidentiality agreements, which provides us advantageous insight into our investment decisions. In summary, 2023 was an important year for Ligand in terms of our financial performance, strategic evolution, investment activity, and team building efforts. With these accomplishments, we're looking forward to a busy and productive 2024. Now, Matt will cover the portfolio highlights.