Ligand Pharmaceuticals Incorporated

good morning my name is aaron and i will be your conference operator for today at this time i would like to welcome everyone to the ligan third quarter 2024 earnings call 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 and if you would like to ask a question during that time simply press star followed by the number one on your telephone keypad if you would like to withdraw your question Just press star followed by the number one again. Thank you. With that, I would like to turn our call over to Melanie Herman, Senior Director of Financial Planning and Analysis. Melanie, you may begin.

Good morning, everyone, and welcome to Ligand's third quarter earnings call. During the call today, we will review the financial results we released before today's market opened and offer commentary on our partner pipeline and business development activity, followed by a question and answer session. Our earnings release and a link to today's webcast can be found in the investor relations section of our website at ligand.com. With me on the call today are CEO Todd Davis, Senior Vice President of Investments and Head of Clinical Strategy, Dr. Karen Reeve, and Chief Financial Officer, Tavo Espinoza. This call is being recorded and the audio portion will be archived in the investor section of our website. On today's call, we will make forward-looking statements regarding our financial results and other matters related to the company's business. Please refer to this safe harbor statement related to these forward-looking statements, which are subject to risk and uncertainty. We remind you that actual events or results may differ materially from those projected or discussed, and that all forward-looking statements are based upon current available information. Legan 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 filed with the Securities and Exchange Commission, or SEC, that can be found on Ligand's website at ligand.com or on the SEC's website at sec.gov. With that, I will turn the call over to Todd.

Thank you, Melanie, and welcome to everyone on the call. I'm delighted to report one of the best quarters of performance and Ligand's history. Slide three summarizes our strong business momentum in the third quarter. We grew total revenue by 58% over the prior year and we increased guidance for the second time this year. We are well capitalized with access to over $300 million in capital to continue to execute on our strategy of acquiring high value, royalty generating assets. Our growing roster of major commercial programs gives us predictable and growing royalty revenue that is the foundation for our strong financial performance this quarter. Tavo will delve more into our financial performance later on the call. I'm extremely proud of our team and the many accomplishments we've achieved in the last 18 months. We have invested almost $300 million since last fall and have added several programs to our pipeline, including Carziva, that came from our immediately accretive acquisition of Opiron Biologics this summer, and our transaction with the O2VeR inventors, increasing our royalty rate on that drug to nearly 3%. Additionally, our efforts to incubate Peltos and Radiesl Sudme for commercial launch continue in earnest, and we aim to select a partner that can launch Selsudme in the first half of 2025. This drug addresses significant unmet need in Mollicum contigiosum as the first at-home prescription product for this condition. On our second quarter earnings call, we talked about two important FDA approvals within our portfolio, Verona Farmer's O2Ver and Merck's Capvaxif. We are pleased to report that both products were successfully launched during the third quarter. Merck announced in October that the CDC's Advisory Committee on Immunization Practices, or ACIP, has recommended Capvaxie for adult pneumococcal vaccination in adults 50 years of age and older. The ACIP's recommendation lowers the current age-based recommendation from 65, and as stated by Merck, has the potential to be a practice-changing milestone that may improve vaccination rates. Analysts estimate that both O2Bear and Capaxi have blockbuster sales potential, and we believe these products will be meaningful contributors to our royalty revenue over the next few years. Dr. Karen Reeves will provide more details on these and other programs later in the call. Another important milestone this quarter was the full FDA approval and label expansion of Travere's PhilSparry. This therapy has the potential to become foundational care in IgA nephropathy, a rare kidney disease that affects up to 150,000 people in the U.S. and is one of the most common glomerular diseases in Europe and Japan. We continue to see more widespread adoption of this groundbreaking therapy as evidenced by the recent Swiss approval of TOSPARI and look forward to the continued European launch in the coming months. We are also excited about PhilSparry's potential indication expansion into focal segmental glomerular sclerosis, or FSGS. FSGS is a rare kidney disease that has a high risk of progression to kidney failure. There are no FDA-approved therapies for FSGS. Dr. Karen Reeves attended the Parasol scientific workshop meeting last month, which convened various stakeholder groups, including the FDA, to discuss endpoints for the FSGS clinical trials. We are encouraged by the outcomes from this meeting and Travere's plan to reengage with the FDA later this year about a potential path forward for Felspari in FSGS. All of these recent developments reinforce what we believe Felspari will be a significant driver of revenue for us over the next several years. Ligand has a 9% royalty on all indications of Tospari. Turning to slide four, I would like to remind our listeners about Ligand's strategic differentiation. We are a biopharmaceutical company that seeks to generate profitable, diversified, compounding growth. We target late-stage development assets and commercial assets with superior risk-reward profiles. Our highly qualified team brings decades of investing experience, along with clinical, operational, and regulatory expertise, as well as strong origination networks throughout the industry. We continue to execute on our strategy of acquiring high growth, low OPEX assets, a plan we outlined nearly two years ago. There is a sizable demand for royalty capital in the life science industry, which allows us to invest selectively. as we offer a differentiated capital solution that traditional investors do not typically provide. Our capable team originates, diligences, and negotiates proprietary investments with customized investment structures and novel tactics to create investment opportunities. Our acquisition of a pylon is a prime example of this. It is also important to emphasize that we do this while maintaining low operating expenses. Our structural approach to investing is a very small percentage of the total capital that is invested in life science companies today. Therefore, we believe our model is differentiated, scalable, and offers immense growth potential for years to come. Turning to slide five for our royalty revenue outlook, we've made substantial progress towards meeting or exceeding the longer-term growth goals we outlined at our analyst day in December of 2023. Our investment origination seeks and identifies high-value clinical products that will offer significant positive clinical impact. Looking at the third quarter, we see the result of this focus as we saw an increase in Wall Street consensus estimates on several of our partner products, including Trier Stillsparry, which, as I mentioned earlier, has received full approval by the FDA and has been granted conditional approval by the European Commission and Swiss authorities. We also added several major new commercial products to our portfolio, including Carzeba, Gapdaxy, and O2VeR, which will positively impact our royalty revenues over the coming years. We will provide an updated long-term view that incorporates these recent events at our investor day on December 10th. As I've shared previously, we believe our long-term royalty revenue growth is on pace to exceed the 22% compounded annual growth rate we outlined last December. The existing portfolio alone supports a royalty revenue CAGR of 18%, which is above our previous estimate of 16%. Further investments should add at least 4% to this, with potential upside on top of the current outlook. Our business development team is constantly searching for attractive new investments. In conclusion, we are all proud of what we've accomplished since we began restructuring and executing on this new strategy in the fourth quarter of 2022, and we are very optimistic about our future prospects. Ligand's pipeline remains robust. We are currently reviewing over 20 investment opportunities representing an excess of $800 billion of investment potential. The operating leverage gained from our lean corporate cost structure is expected to result in adjusted EPS of greater than $10 per share in 2028. I'll now turn it over to Dr. Karen Reeves for a portfolio update. Karen?

Thank you, Todd. Today, we'd like to highlight a few key commercial products in our portfolio. Turning to slide six. I would like to go into more detail on Travere's Falspari, where we are entitled to a 9% royalty on global net product sales. In September this year, the FDA granted full approval for Travere's Falspari, an endothelin and angiotensin II receptor antagonist, to slow kidney function decline in adults with primary immunoglobulin A nephropathy, IGAN. who are at risk for disease progression. This is the first and only non-immunosuppressive therapy approved for the treatment of IGAN, a rare kidney disease that leads to diminished kidney filtering, proteinuria, and progressive kidney function loss. The FDA's full approval for Filtari expands the indication to include, without qualifiers, patients with IGAN at risk for disease progression. Moreover, With full approval, filspari is now indicated to slow kidney function decline from the previous only reduced proteinuria. Importantly, the full approval label details the long-term durable benefit of filspari on proteinuria and kidney function in the two-year PROTECT study, which compared filspari with erbisartan and angiotensin-2 receptor blocker. Tremere estimates that this broader label means that the addressable solspari IgM patient population could nearly double. We believe full approval will allow for more detailed physician communications regarding solspari, and its sustained proteinuria reduction as well as long-term kidney function preservation should give physicians greater confidence to prescribe the drug. Filspari was also recently recommended as a foundational kidney targeted therapy for IGAN in the draft Kidney Disease Improving Global Outcome, CDIGO, 2024 guidelines, which is a very important positive development that should drive further adoption of the drug. Outside the U.S., the European Commission granted conditional marketing authorization for Filspari for IGAN in April. During the third quarter, Trevier announced that their European commercial partner, CSLV4, launched Filspare in Germany and Austria, and that Switzerland achieved temporary marketing approval in October. Additionally, Trevier reported that they have submitted a supplemental NDA requesting modification to the REMS liver monitoring requirements. We are also excited about initial data shared by Trevier showing that Silspare induced further proteinuria reduction when used with SGLT2 inhibitors, supportive of the flexibility to be used in combination with other medicines. Turning to slide seven, Silspare is also being evaluated in a second important indication, focal segmental glomerulosclerosis, or FSGS. FSGS is a rare complex kidney disorder and leading cause of kidney failure affecting children and adults. There are currently no FDA approved pharmacologic treatments for FSGS. Prompted by the urgency of no approved drug and the need to develop FSGS treatments with alternative proteinuria based endpoint, a group known as the Parasol Initiative was formed as an international collaboration of Nefcure and other global kidney foundations, patients, nephrologists, academia, scientists, and regulators, including the FDA. The Parasol team reported at a scientific workshop with the FDA analyses of existing global databases from more than 1600 children and adults with FSGS. A key finding was that the reduction of proteinuria over 24 months is associated with a reduction in the risk of kidney failure. The goal of Parasol is to define quantitative relationships between biomarkers and long-term outcomes to support proteinuria endpoints as a basis for accelerated and traditional approvals. On their recent earnings call, Travere stated that they have scheduled a Type C meeting with the FDA to discuss a regulatory pathway for both SPARI and FSGS and that they are preparing a supplemental NDA. There are estimated to be more than 40,000 FSGS patients in the United States and a similar number in Europe. Approximately half of these would be candidates for Filspare. Approval of Filspare for FSGS would represent the first FDA approved treatment, an important milestone for the long waiting FSGS community. Turning to slide eight, I would like to talk about Merck's TAP vaccine. As Todd noted earlier, Merck launched TAP vaccine during the third quarter of 2024. TAP vaccine is a 21-valent pneumococcal conjugate vaccine for the prevention of invasive pneumococcal disease and pneumococcal pneumonia in the adult population that was approved by the FDA in June. We are entitled to a low single-digit royalty on worldwide net sales of capacity. Merck is in the early stages of the commercial launch. They mentioned on their third quarter earnings call that the capacity launch is off to an encouraging start and that they expect to get a majority share of the market over time. The other recent and exciting development with capacity is that in October, the CDC's ACIF voted to expand the age-based recommendations for Kepp vaccine to 50 years of age and older from the previous 65 and older. This will significantly expand the patient population for this vaccine and should accelerate the adoption of Kepp vaccine over time. Turning to slide nine, let's look at Verona's Otuver, which was granted FDA approval in June. Otovir is a dual inhibitor of PD3 and PD4 enzymes that combines bronchodilator and non-steroidal anti-inflammatory effects for the broad indication of maintenance of chronic obstructive pulmonary disease, COPD. Otovir is the first inhaled product with a novel mechanism of action for the maintenance treatment of COPD in more than 20 years, and we believe it has blockbuster commercial potential. We are entitled to a royalty rate of approximately 3% on worldwide sales of O2Bear. From the perspective of product reimbursement, following the end of the third quarter, Verona received notification from the Centers for Medicare and Medicaid Services, CMS, that its permanent product-specific J-code for O2Bear has been accepted and will be effective January 1st, 2025. There is also significant pipeline value in O2Vir to be realized. Verona's development partner in greater China, Nuance Pharma, continues to make great progress and completed enrollment in its pivotal phase three clinical trial, evaluating O2Vir for the maintenance treatment of COPD in China. Results from that trial are expected in 2025. At the recent CHESS annual meeting in late October, there were presentations and posters on analyses from Verona's successful Phase III enhanced studies with O2-VeR for the treatment of COPD. The analyses summarize the efficacy and safety of O2-VeR in subgroups of COPD patients, including data supporting improvements in lung function, symptoms, and quality of life, as well as reductions in the rate of exacerbations regardless of COPD severity, smoking status, and whether or not the patient had chronic bronchitis. Furthermore, an analysis of O2Vir's impact on reducing exacerbation rates and COPD-related healthcare resource utilization over 48 weeks showed O2Vir decreased the exacerbation rate and healthcare utilization in patients with moderate to severe COPD. OTAVIR may help decrease the burden of disease for patients and the healthcare system, an estimated cost of $24 billion annually. With that, I will now turn the call over to Tavo for the financial update.

Thanks, Karen. First, I want to highlight that I will be discussing non-GAAP results, which exclude certain items, including stock-based compensation, amortization of intangible assets, amortization or impairment of financial assets or derivatives, and expenses incurred to incubate the Pell Falls business, amongst others. I encourage you to review the gap reconciliation of these non-gap measures, which can be found in today's release, available on our website. We believe that the adjusted measures can assist investors in analyzing and assessing our past and future core operating performance. The third quarter of 2024 delivered exceptional financial results. with continued growth in royalty revenue and an increasingly positive outlook for the year. This strength allowed us to revise our guidance upward for the second time this year, underscoring our confidence and sustained momentum. Total revenues for the third quarter reached 51.8 million, representing a 58% increase over Q3 23. This growth was driven by a 33% increase in royalty revenue, which reached 31.7 million UP FROM 23.9 MILLION IN THE SAME PERIOD LAST YEAR. WE REPORTED ADJUSTED EARNINGS PER SHARE OF $1.84, WHICH IS AN 80% INCREASE OVER Q3 23, AND WE ENDED THE QUARTER WITH A STRONG BALANCE SHEET WITH ALMOST 350 MILLION IN AVAILABLE INVESTABLE CAPITAL WHEN YOU CONSIDER OUR CASH AND INVESTMENTS IN OUR CREDIT FACILITY. TURNING TO SLIDE 11, KEY DRIVERS IN ROYALTY REVENUE GROWTH WERE THE ADDITION OF CARZIVA TO OUR ROYALTY REVENUE PORTFOLIO IN JULY, COUPLED WITH STRONG PERFORMANCE FROM AMGENS, KYPROLIS, AND TREVIER SPILSKARG. WHILE WE ARE CONTRACTIALLY LIMITED FROM DISCLOSING CARZIVA SALES, I CAN CONFIRM THAT Q3 SALES AND THE CORRESPONDING EARNED ROYALTY WERE IN LINE WITH OUR JULY GUIDANCE OF APPROXIMATELY $1 IN ANNUALIZED EPS CONTRIBUTION. AMGEN REPORTED $378 MILLION IN KYPROLIS SALES THIS QUARTER, MARKING AN 8% INCREASE year-over-year, largely attributed to robust volume growth outside the United States. We received a tiered royalty on Kyprolis sales from Amgen, ranging between 1.5% and 3%. Given Kyprolis' current annual sales level of approximately $1.5 billion, we achieved a maximum 3% royalty rate in the second half of the year. Trevia reported $35.6 million in Fosfari sales, including 505 new patient start forms, which represented strong sequential growth of 31%. Sell-side research analysts are projecting peak global post-party sales in the range of 500 to 700 million in IGA nephropathy alone, reinforcing our view that this product could be a significant driver of royalty revenue for us over the coming years. Turning to the two recently approved programs that have expanded our major commercial portfolio, Verona reported a robust start to the U.S. launch of O2Bear, achieving quarterly net sales of 5.6 million, with October sales alone exceeding the entire third quarter. Merck also highlighted a promising launch for Capvaxis during their third quarter earnings call. We earn a low single-digit royalty on both programs, and expect them to contribute more meaningfully to our royalty revenue in 2025. Capital sales came in at $6.3 million, down from $8.5 million in Q3 23, primarily due to the timing of customer orders. Contract revenue for the quarter was $13.5 million, driven mainly by a milestone payment from Verona following the commercial launch of O2Bear. Operating expenses increased this quarter with G&A expenses at $24.5 million, and R&D expenses at $5.7 million, compared to $14.7 and $5.5 million respectively in Q3-23. This increase in operating expenses was primarily due to an increase in personnel-related costs, as well as continued investments made to incubate the Pelto's business. This quarter's operating expenses also included a $7.8 million non-cash expense, stemming primarily from a fair value adjustment on several partner programs from Agenis, that were returned to them in Q3. On our income statement, this adjustment is reflected as fair value adjustment to partner program derivatives. Gap net loss in the third quarter of 2024 was 7.2 million or 39 cents per diluted share compared to a gap net loss of 10.3 million or 59 cents per diluted share in Q3 23. This quarter's gap net loss was primarily impacted by several non-cash items including a 7.4 million stock award modification expense related to the departure of our former president and COO, an 8 million fair value reduction of a genus warrants, and the previously mentioned 7.8 million fair value adjustment on our partner program derivatives. Adjusted diluted EPS for the third quarter of 2024 was $1.84, up from $1.02 in Q3 23. This increase reflects growth in royalty revenue, and a $13.5 million milestone earned from the commercial launch of Ochevere, partially offset by an increase in shares outstanding. Turning to the balance sheet, in July, we invested $100 million to acquire Appire Biologics. To partially offset this outlay, we accessed our ATM facility, issuing 334,000 shares of common stock at an average price of $105 per share, which contributed $35 million to our cash position. As of September 30th, 2024, our cash and short-term investments totaled $220 million, including $53 million in holdings of Viking Common Stock. Turning to slide 12 and turning to guidance, we are raising our 2024 total revenue forecast to a range of $100 to $165 million, with adjusted earnings per share now expected to be between $5.50 and $5.70, a 38% increase over last year's adjusted EPS of $4.06. This upward revision reflects robust performance across our three primary revenue streams, royalty revenue, capital material sales, and contract revenue. For the full year 2024, we now expect total royalty revenue to be in the range of 105 to 108 million, up from prior guidance of 100 to 105 million, capital material sales between 27 and 29 million, previously $25 to $27 million, and contract revenue to come in at $28 million, previously $15 to $25 million. Year-to-date, we've recorded total revenue of $124 million and core adjusted EPS of $4.46. We feel confident that we're on track to meet or exceed our updated 2024 financial guidance. We also continue to feel confident about the longer-term outlook with SHARE, which goes out to 2028 and calls for royalty revenue growing at a compound annual growth rate above 20% and adjusted core EPS growing even faster at a compound annual growth rate above 25%. Finally, I'd like to direct listeners to our second quarter earnings press release issued earlier today, including a reconciliation of GAAP results to adjusted financial results, which is available on our website. Before we open it up for questions, I'd like to remind everyone that we'll be hosting our annual Investor Day on December 10th in Boston, where we plan to provide you with an update to our financial guidance and long-term outlook. With that, I'd like to turn the call over to the operator to open it up for questions.

Ladies and gentlemen, once again, if you would like to ask a question today, you need to hit star followed by the number one on your touchtone keypad. Our first question from today comes from the line of Matt Hewitt with Craig Halliam.

Congratulations. A strong quarter, guys. Go ahead. Can you hear me okay? We can hear you. Great. Maybe first question is you still have a very strong balance sheet, and I'm just curious what the pipeline looks like. Does Do the election results this week have any impact on that, on how you think about the market from an investment standpoint? Any update basically on your thoughts regarding adding more shots on goal?

Yeah, I think the pipeline remains very robust. There's still very high demand for capital regardless of the election results one way or the other. And the pharmaceutical industry performance in terms of revenue is generally uncorrelated with market volatility, even around elections. That's kind of one of the beauties of having royalties in pharmaceutical products is it's non-correlated with capital markets volatility typically. So the demand for capital continues on mass, and we continue to look at each asset that's presented to us in the form of a deal opportunity. and analyze those, you know, the best we can. And we're constantly culling that pipeline to pursue what we think are the very best opportunities. And that activity is now pretty continuously at a very high level. And I think the business development machine is pretty well honed here at this point.

That's great. All right. Thank you very much. Congratulations. Thank you for your questions.

Our next question is from the line of Douglas Mean with RBC Capital Markets. Your line is live.

Yeah, thank you. Mike's first question just has to do, delve a little deeper into those 25 potential investments that you are looking at. When you think about whether they're, well, the size number one, is there a range that you can provide What's the mix of, let's say, royalties versus structured deals versus any acquisitions at this point?

Okay. That's a great question, Doug. I think that about half of what we're looking at right now is what we call the project finance. That's often also called synthetic royalties. That's where you're providing capital. small and mid-cap companies that need capital to develop their assets and in return for that you're creating a royalty as a form of financing those deals are really creative they're not made they're not shopped you proactively are identifying companies and products you're interested in approaching them and making those deals happen as an alternative form of capital that's available to them on the m a front we continue to scour opportunities on that front as well. That's a little chunkier. We've got one of those we're looking at now amongst the many deals we're looking at. And on the passive royalty front, we are actively engaged in academic inventor community as well as the corporate community looking at royalties that are currently held in the form of license agreements by those institutions, and that's probably another third of our pipeline that we're looking at at any given time. Excuse me, on the size, Doug, I didn't answer that. But right now at our current size, to maintain kind of our diversity limits that we're trying to achieve, we're targeting, 30 to 40 or so per product if it's on the development side. If something is significantly lower risk or commercial, for example, we will size up. And we view diversification by product, not necessarily investment. So if we're doing a basket of products, those deals may be sized up too. But at our current size, we think 30 to 40 million per asset is appropriate for us. And that's how we're structuring most of the deals in that range. As we grow over time, we will inevitably kind of size that up a little bit on a proportionate basis.

Great. Okay. And the follow-up question has to do with Phil Sparry, which is going to be an important backbone of the company going forward. And I was just wondering if you'd be able to talk a little bit about how you see that competitive environment.

I know you touched on... Yeah, I'm calling for the InfuSystems earnings call. Matt, M-A-T-T, Hewitt, A-T-W-R-T-C.

Bear with me one second. Go ahead with your question. I'm sorry.

Yeah, I just wanted to expand a little bit on the competitive environment you see for PhilSpark. It seems to be quite attractive, but maybe you could provide a bit more context. Thank you. Sure.

Why don't I have Karen address this? I think an IGAN is a monotherapy in combination, and then, of course, an FSGS where there's currently no other treatment.

Yes. Thank you for the question. We believe that filspari will be a foundational treatment for the treatment of IHAN. And the guidelines that are in the draft guidelines have recently come out really talk about hitting two aspects of this disease. So it's going to be important that TILSPARI can be seen as a primary treatment And in addition, along with other concomitant therapies. And recently, Travere actually showed some very good data, which I mentioned, regarding SGLT2 inhibitors, that they are doing a study of using both of them. And you can see that when you add felspari, the reduction in proteinuria goes up. which is good news because the guidelines now are saying you should be lowering your proteinuria at the best mark would be less than 0.3 grams per day. So that is good news. In addition, some initial data was shown using fosfari as the primary drug in patients who have no treatment, and that also is showing. Excellent results. So we're confident that Silspari is going to really only grow in what it's able to do in IGAN. And in addition, we just reported on the outcome from the parasol initiative in FSGS. This is a huge area of unmet need. There's never been an FDA approved drug for this illness. And Trevir is going to the FDA to discuss what is needed now to submit an SNDA for that drug, now that the parasol initiative has come up with a proteinuria-related endpoint.

Thank you very much.

That was helpful. Thank you for your questions. Our next question comes from the line of Dr. Joseph Pantinus with Wainwright, your line is live.

Everybody, good morning. Thanks for taking the questions. First, a couple logistical questions, if you don't mind. So, Todd, when you look at, you know, obviously the number of opportunities that you're currently looking at, how do we view that with regard to your ability to look at even more? And it really correlates to my question of, you know, is ligand right-sized right now?

I think, yeah, if I understand your question, Joe, when you say right-sized, you mean in terms of access to capital relative to our current market cap, or how are you thinking about that?

The employee base and, you know, the number of people.

Oh, yeah. Yeah. I think, you know, we've made a number of senior hires over the past year and a half as we put this strategy in place. We have this year kind of tweaked that with executives at the vice president level that come in with significant skill sets to back that up as well. And I think we're pretty set on the team. And that's kind of one of the things about this business model is that it offers very high operating leverage on the investment side. And we don't really need to add a lot to our team at this point. even if the size of the company grows dramatically over the next two to four years so you know we're just under 40 employees now um you know i'd be surprised if we're over 50 employees three years from now that's just the way this business model works and we like it that way no it's very helpful thanks and then just a quick logistical question before i ask my usual question

is what is the status? I don't think you'd really be doing it right now, but what's the status of your buyback program?

Well, we just have that in place as a matter of general, I would say, corporate hygiene. If there are any significant dislocations in the market that have nothing to do with what we view as the inherent value of our business, we may take advantage of that. We have no immediate plans to use it right now. No, that's helpful.

And then, as I alluded to, my usual question focuses on CAPTASOL. You know, it's typical volatility that you alluded to earlier with regard to the timing of payments and customer orders. So I guess, you know, the concept I want to look at is the mix here. Obviously, you know, you have growing revenues from CAPTASOL used products. or capicaptosol-formulated products, so I guess how should we view the mix right now and view it going forward with regard to, say, research requests versus, you know, say, early clinical study requests?

Yeah, Joe Tomo here. Thanks for the question. It's a similar answer. Nothing has really changed here. The 80-20 rule, we get 80% of our revenue from 20% of our customer base, the commercial customers, And then a long tail of smaller research, clinical use only customers. And that tail, we're encouraged by the activity there. We expect that some of those smaller customers will be successful in their development and eventually become some of the, you know, join the roster of the larger commercial. But so the business is doing well. And like implied with our updated guidance, you know, exceeded our guidance for the year. So the business continues to perform well.

Great. Thank you very much.

Thank you for your questions. Our next question is from the line of Dr. Balaji Prasad with Barclays. Your line is live.

Good morning. This is Shao for Balaji. Thanks for taking our question. And just a follow-up question on Felsparry. So as Paver is preparing a supplemental NDA for FSGS, wondering if FSGS is already factoring into the 18% CAGR that like you highlighted earlier, although only like the current indication IGAN is already factoring. Thank you.

Yeah, this is Tom. Good question. So when we came out with our long-term outlook at Investor Day last December 23, we had significantly discounted, very small contribution allocated to the pipeline from FSGS. We will update our view here coming up in December 10th.

Very helpful. Thank you.

Thank you for your question. Our next question comes from the line of Trevor Allred with Oppenheimer. Your line is live.

Hey, good morning. Can you guys talk about some of the recent changes with the Agenis Royalty Assets? Have you had any interactions with them, and do you have any current expectations for those subroyalties going forward?

Yeah, I think for the Agenis acquisition overall, I think that they did have some programs returned. The BMS was a bit of a surprise to us. As you know, just for the general audience here, there were seven assets overall. The main asset underlying the deal is Agenis' BotVal. Our investment thesis around that is primarily driven by the BotVal asset. And that particular asset, we reviewed the six-month data in an ongoing study that they have underway, which we viewed as very promising. And in the next few months, there should be 12-month data available which is what we are really focused on. And if that is consistent with the six-month data, I think we're in good shape, and Agenis is in good shape in that regard. So that's what's kind of driving our thinking around the Agenis deal, and we will wait for that data to unfold.

Okay, thanks for that. And can you also talk about some of the things that give you confidence in a commercial launch for Peltos and FirstNet 25?

Yeah, we would be happy to. So Peltos is the company we formed to commercialize Zelsudmi. Zelsudmi is the first approved take-home treatment for molluscum contagiosum. The only other treatments that have been available historically have been in-office procedures that are, you know, I would just say relatively inconvenient and can be painful. There's cryo, And then there's the use of cantharidin oil as well. Some companies have reformulated that as a presentation of that, but cantharidin oil has been around for quite a while. So we're competing in a prescription market for take-home medications when that drug is launched, and there is very high demand for this product, we believe. We're, I think, you know, conservatively estimating that this is $150 to $200 million net sales potential in the U.S. market. We have global rights to the product. And so we're pretty optimistic about what can be achieved here. And that's the lead asset around the platform that we purchased, if you recall. We're very focused on that because it is now FDA-approved. and we are engaged with potential marketing partners to launch it. And so that is our number one priority around that. But I would just remind people, we're pretty enthusiastic about the platform overall. We have clinical data on four other assets that we will start to look for partners to further develop and then potentially commercialize as successful. And nitric oxide, in general, as a platform, has wide applicability and why it is not an antiviral or an antibiotic definitionally. It has those characteristics broadly and is promising clinical data and other products. So long term, we think we could end up with a few royalties around this platform. And leading off with Zelsovmi, We think that the numbers in that investment look very positive overall in the long term.

Thank you for your question. Ladies and gentlemen, once again, if you would like to ask a question today, remember it is star followed by the number one on your telephone keypad. Our next call is from the line of Zach Vanderhosten with – I'm sorry, John Vanderhosten with Zach's Small Capital Research. Your line is live.

Great. Thank you, and good morning. So we like to look at M&A to get a sense of where things are going, and I took a quick look at some of the over $1 billion transactions that have taken place, and they've been in neuro, cancer, and dermatology. Do you look at these at all to get a sense of kind of where the next trend will be in terms of good investments and where products may have a good end market?

We do, but our primary driver, because we're very product-focused, is high unmet clinical need. And so even on the commercial side, when we come across commercial products, we're looking at things like carzeba and neuroblastoma. We don't specifically have a strategy around certain therapeutic areas, which the market can... tend to group around. Market moves around, various therapeutic areas can come in and out of favor. We're very just focused on the products and the high-end clinical need and whether they're addressing something that's really important clinically to patients. And the reason we're focused on that is, one, I think that's important in general in terms of what we do with our daily lives, but that's your best defense also against payer pressure. And so ultimately, all of these products are going to have to sit down when and if the development is successful and have discussions with payers around reimbursement. And the best positioned companies are getting drugs approved that make big clinical differences in the lives of patients. And so that's why we're focused on that just as a matter of business strategy. And that does drive us into different corners. Sometimes we'll make contrarian investments. I would say that right now, something like Zilsudme, which is a topically applied medication, may be viewed as contrarian because it's more of a specialty pharma product. It's topically applied. I think dermatology is a little out of favor right now. But the reality is there's very high unmet clinical need. These patients present primarily to pediatricians. They can't really do much for these patients other than refer them to pediatric dermatologists. The waiting lists are very long to get in to see those types of physicians. And so we just think that this offers a really key solution in this clinical arena for patients and are confident in it. And so that's kind of how we think about our investing and our choices. Because in the long term, various therapeutic areas will come in and out of favor, even if they remain relatively underserved. You know, that just happens as a matter of investing strategies. So that's how we view it, if that's helpful.

Okay. Yeah. Thanks, Todd. And a couple of questions on Captisol. I think that the company had indicated that there might be some lifecycle management type of efforts that could take place. And then secondly, what is the competitive environment like for solubility and instability agent out there and you know do you guys control I guess I'm just wondering you know how much of the market do you do you have a handle on there and who are the some of the others that might come up when when somebody's looking for anything like that sure yeah there remains very high demand for solubility enhancing molecules or excipients that can enhance the solubility of the chemical entities that are active

Solubility and permeability are the two biggest drug delivery issues, stability being the third. And captozol itself has probably the strongest position amongst the solubilizers. There are other ways to do that, obviously with nanocrystals and things like that. So there are different technological approaches. So why is captozol, why does it have 16 approved products historically? That's probably, I don't know because I haven't done a historical analysis, that's probably the most prolific single drug delivery platform in history. They have 16 approved products on one. Maybe there's a gel cap technology or something that's similar. But in terms of solubilization, that's pretty dominant. And the reason why it's dominant is because it works so well, it works broadly, and it's very easy to work with. So our customers can basically get samples from us Any chemist in the pharmaceutical industry can work with it very easily. If it works on their molecules, they come back to us and they take a license. So we make it easy to work with, and it solves a lot of the solubility problems that our customers face with the chemicals they're trying to formulate. So I hope that helps answer that question.

Yeah, it does. Thank you. Thank you for your question. And with that, ladies and gentlemen, that will conclude our Q&A session for today. And to wrap up, I'd like to turn the call back over to Todd. Thank you.

We are confident and optimistic. We believe we have the right strategy, we have the right team, and we are executing with discipline on the right market segment to deliver lasting, predictable, and compounding growth. Thank you all for attending the earnings call today.