Ligand Pharmaceuticals Incorporated

Welcome to Ligon third 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 the star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press the star one again. Thank you. I would now like to turn the conference over to Melanie Herman. Please go ahead.

Good morning, everyone, and welcome to Ligand's third 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-GAAP 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 gain from the sale of the Paltos business, amongst others. I encourage you to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP 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 Chavo Espinoza, and Vice President of Strategic Planning and Investment Analytics, Lauren Hayes. 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 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. 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 files 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 now turn the call over to Todd.

Thank you, Melanie, and good morning, everyone. Thank you for joining us today to discuss another exciting quarter for Ligand. This quarter was pivotal. Not only did we deliver another quarter of exceptional financial results, we also successfully completed a convertible debt financing, providing us with additional flexibility to pursue strategic opportunities that support our growth initiatives. We are raising our full-year guidance for the second time this year. This increase in guidance is a result of the strength of our commercial royalty portfolio, which has continued to outperform our expectations due to products like Merck's O2VeR and Capaxi, as well as Travere's Filspari. Additionally, I'm proud of our deal team's ability to create superior risk-adjusted returns through transactions such as a strategic merger of Pilthos with Channel Therapeutics and has driven substantial value creation for our shareholders. When we restructured Ligand in 2022 with the spin-out of our antibody operations, we set a new strategic direction for Ligand, one grounded in focus and discipline. Since then, we've stayed true to that plan, scaling our deal team to accelerate growth in the late-stage pipeline and build a diversified portfolio of high-margin royalties designed to deliver superior returns. The strategy has played out exactly as envisioned, and I couldn't be more pleased with the progress we've made over the past few years. Royalty revenue grew 47% over the same quarter last year, and adjusted EPS increased 68%, reflecting strong performance across our portfolio. Key drivers contributing to the 47% growth in our royalty portfolio include the commercial launch of Zil Suvmi, strong launch of Merck's O2VeR and Capvaxiv, growth of Recordati's Carziba, and the continued ramp up of Zelsubmi. We ended the quarter with a strong balance sheet, including approximately $1 billion in deployable capital, factoring in our undrawn credit facility, which will allow us to take advantage of our robust business development pipeline. There's been strong uptake of Zelsubmi in the early launch phase, and we look forward to the continued momentum. The launch of Zelsubme is an exciting milestone for patients with molluscum, who now have an at-home treatment option for this burdensome skin infection. We encourage our investors to listen in on the Pilthos earnings call, which will occur on November 13th. We expect a robust update on the launch performance. Our deal team has been busy this quarter. committing $35 million to Orchestra Bio for royalty interest in their AVIM therapy and Virtue SAB. IGAN has also invested an additional $5 million to help catalyze their equity private placement, which successfully completed a total raise of $111 million, including participation by AVIM partner Medtronic. We also committed $11 million to Ericor in exchange for royalty rights to AT220 and milestone and technology access fees for AT292, Sanofi's Aldoliprin Alpha program. We are pleased to report that just one month after our investment, Sanofi announced positive phase two results from its trial, demonstrating all primary and key secondary endpoints were met in adults with Alpha-1 atrypsin deficiency emphysema, a rare disease. Since restructuring in 2022, we've been executing on our current strategy and have seen significant growth across the core revenue as well as adjusted EPS. I'd like to point out that in 2024, there were four FDA approvals of assets in our pipeline. Merck's Capvaxiv, Merck's O2Ver, Pelphos's Gelsuvme, and the full approval of Travere's Delspari. With these four products all in early stages of their launch, with the potential for both indication expansion as well as geographic expansion, we expect this growth to continue in the coming years. I would like to look ahead now to 2029 and discuss our five-year royalty receipts outlook, which we first presented at our investor day in December of 2024. We believe our long-term royalty growth is on pace to meet or exceed the 22% compound annual growth rate we outlined at that time. The existing portfolio alone supports a royalty receipts CAGR of 18%. Future investments should add at least 4% to this with potential upside on top of the current outlook. The strength of our existing portfolio is evident across both our commercial and development stage programs. However, we believe that what truly differentiates Ligand as a royalty aggregator is the expertise of our deal team in sourcing and executing high quality investment opportunities and the ability to drive superior returns with our operating capabilities and our special situations initiatives. It is through the strength of this team that growth across the future investment segment of this chart has the potential to surpass expectations. Turning to the next slide, I'LL HIGHLIGHT A FEW POSITIVE DEVELOPMENTS SINCE OUR LONG-TERM OUTLOOK WAS PRESENTED LAST DECEMBER, EACH OF WHICH HAS THE POTENTIAL TO MEANINGFULLY ENHANCE OUR LONG-TERM ROYALTY PROJECTIONS. FIRST, O2VER IS TRACKING WELL AHEAD OF THE INITIAL FORECAST AND CONTINUES TO BE THE STRONGEST LAUNCH IN COPD HISTORY. Q3 SALES GREW 32% SEQUENTIALLY AND CONSENSUS FORECAST NOW PROJECT 2 BILLION IN SALES BY 2029. up from 1.2 billion previously. As a 3% royalty holder, Ligand stands to benefit materially from this upside. Second, Filspare continues to perform well commercially in IgA nephropathy, with Q3 sales growing 26% over the prior quarter. Additionally, there's potential upside if approved in FSGS. If approved, the FSGS indication could significantly expand Felspari's market opportunity, potentially north of $1 billion in FSGS alone, according to cell site analysts. Turning to one of our development stage programs, let's look at Palvela's cuturin rapamycin programs. We'll hear updates on their Phase II program in cutaneous venous malformations in the fourth quarter and their Phase III program in microcystic lymphatic malformations in the first quarter of 2026. Analysts expect peak sales from these two indications could be $1 billion. In 2025, we continue to execute our strategy of partnering with life sciences companies to provide innovative, non-dilutive capital solutions. Since the beginning of the year, we've closed five new investments, including the final O2VAIR inventor monetization, Castle Creek, Orchestra Biomed, the merger of Pilfos Therapeutics with Channel Therapeutics, and our most recent investment in Ericor. These transactions reflect the unique flexibility of our investment strategy and are well diversified across our investment tactics, including royalty monetization, project financing, and special situations. Our investment to fund Castle Creek's phase three clinical study of DeFi in patients with dystrophic epidermolysis bullosa is an exciting opportunity to advance an orphan drug designated gene modified cell therapy for a serious unmet clinical need. This collaboration reflects our commitment to invest in groundbreaking de-risk treatments that have the potential to transform patients' lives and it also strengthens our late-stage portfolio. Our partnership with Orchestra Biomed also expands our pipeline of development stage partnerships with potential royalties on two late-stage partnered cardiology programs. Orchestra's ADEM therapy partnered with Medtronic, and VirtuSAP has received FDA breakthrough device designations, and the products target high-risk patient populations with hypertension and arterial disease, two significant global health challenges. Next slide. We have seen record-setting origination activity this year, reviewing more than 130 investment opportunities through the first three quarters of the year. We remain disciplined in our approach, prioritizing investments that offer compelling return potential and strategic alignment, while deprioritizing those that do not meet our long-term objectives. At present, we have approximately 32 active investment opportunities under review, representing a mix of accretive and pre-approval transactions. I'd like to take this opportunity to remind everyone of our upcoming Investor Day. This will be held on December 9th in New York at the Harvard Club. The registration link can be found on our website. We'll be evaluating consensus updates and commercial progress as well as clinical progress of our assets in our farm team to share a refreshed view of this long-term outlook with you at that time, and we hope you can join us. I'll turn it over now to Lauren for a portfolio update.