Ligand Pharmaceuticals Incorporated

Thank you for standing by and welcome to Ligon 4th 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 Herrmann, who may begin.

Good morning everyone and welcome to Ligand's fourth quarter and full year 2025 earnings call. With me on the call today are CEO Todd Davis, Chief Financial Officer Tavo Espinoza, and Vice President of Portfolio Strategy and Investments Lauren Hay. During the call today, we will review the financial results released earlier today and provide commentary on our partnered portfolio 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 exclude certain items such as stock-based compensation, amortization of intangible assets, amortization or impairment of financial assets, gains or losses from derivative assets, and gain on 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 suggested measures provide valuable insight into our core operating performance, both historically and moving forward. Our release today and a link to today's webcast can be found in the investor relations section of our website at ligand.com. 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. 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 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. And with that, I will now turn the call over to Todd.

Thank you, Melanie, and good morning, everyone. We appreciate you joining us today. 2025 was a defining year for Ligand. we delivered exceptional financial performance with full year adjusted EPS exceeding our original 2025 guidance by more than 30%. That growth reflects the strategic changes we began implementing in 2023, the lean operating structure, the talented team, the focused investment strategy, and the strength and depth of our royalty portfolio, which continues to outperform expectations. Full-year royalty revenue grew 48% over the prior year, and full-year adjusted EPS increased 42%, reflecting strong performance across the portfolio. Key drivers contributed to the 48% growth include the continued ramp of Felspari, successful launches of Merck's O2VeR and CapPaxi, and the commercial launch of Zelsubme, and continued growth of Record RD's Carzeba. With substantial cash and investments on hand, we are well positioned to pursue disciplined investments that create new clinically differentiated product royalty streams and enhance long-term shareholder value. I'd like to take a moment to congratulate our partner, Palvella Therapeutics, on their announcement this week of positive top line data for their phase 3 saliva trial of cuturin rapamycin for the treatment of microcystic lymphatic malformations, also known as MLM. Based on the strong trial results, we believe cuturin rapamycin is likely to become the first FDA-approved therapy for more than 30,000 diagnosed patients with MLM, a serious, rare, and debilitating disease. We are proud to partner with Palvella and commend them on their hard work and dedication to develop transformative, high clinical impact treatments for patients living with this rare disease for which there are currently no approved therapies. Separately in 2025, our deal team executed on a special situations transaction through the strategic merger and financing of TELTHOS and Channel Therapeutics. significant effort, but we are rewarded with our efforts with superior risk-adjusted investment returns. Our team was patient and thoughtful, creating a subsidiary, building out a top-notch management team, and spinning Pelcos out into a publicly traded entity and creating significant equity and royalty value for Ligand investors. Importantly, we were also able to rescue and shepherd Zelsuitme from bankruptcy, TO FDA APPROVAL AND INTO THE HANDS OF A CAPABLE TEAM THAT WILL NOW SERVE MILLIONS OF PATIENTS THAT ARE IMPACTED BY MOLLUSCUM CONTAGIOSUM. AS WE LOOK AHEAD TO 2026, WE ARE ACCELERATING OUR BUSINESS DEVELOPMENT EFFORTS. OUR TEAM IS EXPANDING, OUR PIPELINE IS DEEPER, OUR CAPITAL BASE IS STRONGER THAN EVER IN OUR EFFORTS TO FUEL OUR GROWTH INITIATIVES. STATEMATIC PORTFOLIO MANAGEMENT STRATEGY TO DRIVE VALUE IN OUR DEVELOPMENT STAGE PARTNERSHIPS. WE'RE NOW FOCUSED ON MORE PROACTIVELY COMMUNICATING WITH OUR PARTNERS AND DOING WHAT WE DO BEST, IDENTIFYING NEW OPPORTUNITIES TO PROVIDE ADDITIONAL INVESTMENTS OR EXPAND THE PARTNERSHIPS IN OTHER WAYS. I ALSO WANT TO ADDRESS HOW WE VIEW ROYALTY FINANCING IN THE CURRENT BIOPHARMACEUTICAL FUNDING ENVIRONMENT. Importantly, we are seeing growth in the demand for royalty capital as evidenced by the doubling of the royalty funding market over the last five years. Even with improvement in the equity markets, royalty financing has become a strategic capital structure tool companies are choosing regardless of the broader market conditions. Our partners value royalties because they are non-dilutive, COMPLEMENTARY TO EQUITY CAPITAL AND ALIGNED WITH OUR PARTNER'S LONG-TERM DEVELOPMENT CYCLES. ADDITIONALLY, ONLY A SMALL PORTION OF THE OVERALL ROYALTY FINANCING MARKET IS TIED TO DEVELOPMENT STAGE ASSETS. WIGAND IS UNIQUELY POSITIONED IN THIS WAY WITHIN THE RAPIDLY EXPANDING BIOPHARMACEUTICAL ROYALTY FINANCING SECTOR, WHERE DEMAND FOR CAPITAL IS HIGH. SINCE 2022, We've been on a strong upward growth trajectory. Earnings have more than tripled as our royalty portfolio has scaled and we have aggressively managed our operating margins. Core revenue has also grown meaningfully from $108 million in 2022 to $240 million this year, and we are now expecting $265 million in 2026. That's based upon the midpoint range of our guidance. and more than $430 million is expected by 2030. Adjusted EPS reflects the same momentum, moving from $2.44 a share in 2022 to more than $8 per share this year, with visibility to over $13.50 per share by 2030. Looking ahead to 2030, I would like to highlight our five-year royalty receipts outlook, which we shared in our investor day in December of 2025. We now expect a 23% compound annual growth rate in royalty receipts from 2025 through 2030. This growth is driven by contributions across the entire portfolio. The commercial programs form the core of the growth profile and contribute to an expected 15% annual growth. These products are already marketed, supported by strong partners, and in some cases have the opportunity for additional label or geographic expansion. Additionally, the farm team, which represents significantly risk-adjusted development stage programs currently in Ligand's portfolio, is expected to contribute an additional 5%, and future investments should add at least another 3%. We believe the strength of our recent results, the continued momentum of our royalty portfolio, and our investment team's disciplined capital deployment approach POSITIONS US TO DELIVER SUSTAINED LONG-TERM GROWTH FOR YEARS TO COME. AND WITH THAT, I'D LIKE TO TURN IT OVER TO TAVO FOR THE FINANCIAL UPDATE.