Ligand Pharmaceuticals Incorporated

Good day and welcome to the Ligand second quarter 2025 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. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star one again. For operator assistance throughout the call, please press star zero and finally I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Melanie Herman, the executive director of investor relations to begin the conference. Melanie, over to you.

Good morning, everyone, and welcome to Ligand second quarter 2025 earnings call. During the call today, we will review the financial results we released earlier today and provide commentary on our partner pipeline and business development activity, followed by a question and answer session. Before we get started, I would like to point out that we will be discussing non-GAP results, which excludes certain items such as stock-based compensation, amortization of intangible assets, amortization or impairment of financial assets, losses from derivative assets, and expenses incurred to incubate the Peltos business, amongst others. I encourage you to review the reconciliation of these non-GAP measures to their most directly comparable GAP measures, which can be found in today's release available on our website. We believe these adjusted measures provide valuable insight into our core operating performance, both historically and moving forward. 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, Chief Financial Officer Tavo Espinoza, SVP of Investments and Business Development Paul Haddon, and Vice President of Strategic Planning and Investment Analytics Lauren Hay. 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 our company's business. Please refer to the Safe Harbor Statement related to these forward-looking statements, which are subject to risks and uncertainties. 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. LIGAN 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 LIGAN files with the Securities and Exchange Commission, or SEC, that can be found on LIGAN's website at ligand.com or the SEC's website at sec.gov. With that, I will now turn the call over to Todd.

Thank you, Melanie, and good morning, everyone. Thank you for joining us today. When I took on the role of CEO in the fourth quarter of 2022, we set out a new vision for LIGAN. That vision was ambitious, and it required growth as an organization. Today, I am pleased to confirm that our new strategy at LIGAN is working and producing tangible outcomes. Our second quarter results reflect strong momentum across our expanding royalty portfolio, evidenced by an increase to our 2025 financial guidance, which Tava will cover in detail later on the call. Flight 3 highlights our financial and portfolio achievements in the second quarter. Royalty revenue grew 57% over the same quarter last year, and adjusted EPS increased 14%, reflecting strong performance across our portfolio. We ended the quarter with a strong balance sheet, including approximately $450 million in deployable capital factoring in our undrawn credit facility. I am very proud of our team's execution and our continued commitment to disciplined capital investment. During the quarter, we completed the strategic merger of PILTOS with Channel Therapeutics, which I will go into more detail on in a few slides. As part of a recent $40 million investment commitment, we partnered with Medtronic and Orchestra Biomed to support development of two promising cardiovascular therapies, AVIM therapy and Virtue SAB therapy. Notably, Orchestra Biomed has received four breakthrough device designations from the FDA across these two programs. Recognition that underscores the potential of these innovations to address significant unmet needs in cardiovascular care. Paul Haddon will provide additional detail on these investments later in the call. Finally, we are very pleased with Merck's recent announcement of its planned $10 billion acquisition of Verona, and we are optimistic that Merck's global scale and commercial capabilities will further accelerate the launch trajectory of O2 bear, where we receive a 3% royalty on worldwide net sales. We would like to congratulate Verona on all that they have accomplished to bring this novel product to market and one of the most important advances in the treatment of COPD in history. Moving to the next slide, I'd like to provide some important updates on Ligan's portfolio. Verona's partner in China, Nuance Pharma, announced positive data and completion of its Phase III trial in China. Merck's entry into this arena should further fortify the global commercialization of the asset and continued U.S. launch, which has been the strongest COPD launch in history. Stating the obvious, one of the benefits of royalty investing is as the equity investors in Verona are cashed out in the acquisition, we as royalty investors continue to participate in what we hope will be the outperformance of O2 bear as Merck continues to launch this product globally. Turning to Felspari, there are a few upcoming catalysts, including the REMS modification PDUFA date of August 28, which will determine if IgA nephropathy patients can change from monthly to quarterly REMS monitoring. In Felspari's second indication, FSGS, there is an upcoming advisory committee meeting in the second half of 2025 to discuss the application. The FTA has assigned a PDUFA date of January 13, 2026 to the FSGS indication. This approval has the potential to double the sales potential for this product. Record Audi reported sales of carziba grew 12% in the first half of 2025, reaching 78.5 million euros. Ligand earns a high teens royalty on carziba sales. In addition, the FDA granted Record Audi orphan drug designation for carziba in Ewing sarcoma and a clinical trial was initiated in the second quarter to evaluate safety, dosing, and early signs of efficacy. Thus far, carziba is significantly outperforming our initial underwriting assumptions from when we purchased this just one year ago. In future development stage catalysts, Aginas announced that they have aligned with the FDA on their phase three trial design and have stated publicly that they anticipate they will initiate their phase three study in the fourth quarter of 2025. They also entered into a partnership with Zytus, raising over 90 million dollars of capital at closing with a potential for 50 million dollars in contingent payments. A very positive capital raise in what is a tough fundraising market. Palvella completed full trial enrollment ahead of schedule in their phase three trial in microcystic lymphatic malformations in June of 2025, with results anticipated in the first quarter of 2026. Additionally, the phase two trial results in venous malformations are expected in the fourth quarter of 2025. Moving back to commercial stage developments, I would like to talk about two exemplary case studies that demonstrate the power of our business model, Zelsudni and O2VAR. First, we will discuss Zelsudni. Our commitment to bringing Zelsudni to patients has required vision, scale, and commitment. Through our special situation strategy and talented team, we accomplished the following. We acquired the Novan Nitric Oxide Platform out of bankruptcy for 12 million dollars at the end of 2023. This is a broad platform that enables the use of nitric oxide and a breadth of topical therapies. Almost 400 million had been invested in the development of this asset. We also set up a subsidiary to incubate and hold the assets to maximize optionality. Zelsudni, the lead product, achieved FDA approval at the beginning of 2024 in the indication of Mollscum contagiosum, a highly contagious, primarily pediatric skin infection with no other take-home prescription treatments available. We restarted manufacturing, hired a world-class commercial leadership team to focus on the approved asset, and recruited two highly experienced commercial board members. We engaged in market planning to position this important infectious disease product properly in the market, and began market launch planning. Finally, we ran a financing process which culminated in a 50 million dollar financing with a reverse merger to form a newly traded public company, Piltos Therapeutics. Piltos has now launched Zelsudni into the market. The result? Piltos is now publicly traded on the New York Stock Exchange under the ticker PTHS. The current market value of Ligand's equity stake in Piltos is approximately 100 million dollars. Following the recent commercial launch of Zelsudni, Ligand earned a 5 million dollar milestone payment. After just 18 months, Ligand has public equity today worth substantially more than our invested capital, an attractive 13% royalty on an exciting product, we've retained strategic ownership of a nitric oxide platform which can produce new products and royalties in the future, and a pipeline of late stage clinical programs with potential in wound care, on conical mycosis, and atopic dermatitis that offer the potential to generate multiple new royalty streams in the future. Piltos' initial forecast estimates peak sales of 175 million in revenues. That assumes they capture just under 100,000 patients in a market with 16.7 million patients. At a 175 million dollar peak sales estimate, that would be approximately 23 million dollars per year to us in royalties in the US market alone. We are optimistic. In summary, what our team accomplished in a difficult fundraising environment was nothing short of outstanding, and we're excited about the prospects for Piltos and Zelsudni. Next, we will discuss the O2VeR case history. As Verona's launch of O2VeR gains momentum, I'd like to provide a brief overview of our investment history in this asset. In October of 2018, Ligan acquired Vernalis, a UK-based drug discovery biotechnology company, with a broad portfolio of partnered programs, including Verona's Encephentry, now marketed as O2VeR. The acquisition cost was 10 million dollars net of cash on the Vernalis balance sheet. After operating the research business for two years, Ligan sold the Vernalis R&D operations to HitGen, a Chinese-based company, for 25 million dollars, while retaining the economic rights to several fully funded and partnered programs, including O2VeR. During 2024 and early 2025, Ligan further strengthened its position by accumulating an additional 1% royalty interest in O2VeR from several of the original inventors, increasing our total royalty to 3%. We expect meaningful long-term revenues from O2VeR, making it one of the most capital-efficient royalty assets in our portfolio. Turning to the next slide, Verona's O2VeR is on track to achieve blockbuster status by 2027. For context, our previous long-term royalty outlook had anticipated reaching this level of sales by 2029. In July, Merck announced its acquisition of Verona for 10 billion dollars. We believe Merck's global scale and commercial strength positions them to further accelerate O2VeR's launch trajectory. Some analysts now predict peak sales of 5 to 6 billion for O2VeR, which would be a meaningful upside to our current long-term outlook. Moving to the next slide, I would like to highlight what strategically differentiates Ligan. The first is focus. Our guiding objective is to deliver profitable, compounding growth. We pursue this by remaining disciplined in our investment approach and identifying underappreciated but high-quality assets that address significant unmet need. Second is our asset base. We manage a diversified and growing portfolio of royalty assets that generate consistent and predictable revenue. Our royalty interests are acquired or originated in late-stage development and commercial-stage assets, where we see a superior risk-reward profile. Third is our team. Ligan's highly experienced team brings decades of expertise across investing, clinical development, operations, regulatory strategy, and deal structuring. Coupled with strong origination networks, this enables us to source and close high-quality royalty investments in areas of significant clinical value with relatively low risk. We are outcome-oriented and remain focused on executing our strategy of acquiring high growth, high-margin assets that require de minimis operating expense investment. Today, royalty capital still represents a small fraction of the total capital deployed across the life science sector. We believe that our model is highly differentiated, scalable, and positioned to drive significant growth for years to come. In conclusion, the strength of our investment portfolio of over 90 assets has never looked better. Through our disciplined investment approach, we continue to create and unlock shareholder value through innovative strategies and we are highly optimistic about the future of Ligan. I'll turn it over to Paul Haddon now for an update on our investment pipeline and our recently announced investment in Orkestra Biomed.