LGND
#Good afternoon.
Thanks for joining us for our fourth quarter earnings call.
2015 was a great year for Ligand, and the fourth quarter closed strong with substantial achievements that will continue to drive the business.
Ligand is now set up for a momentous 2016, with potentially five new product approvals from partners, advancements and expansion of the licensed portfolio, and significant projected revenue growth.
Now in 2015 the revenues were solid, and they were driven by higher royalty revenues.
The total underlying revenue for the products from which Ligand earns revenue from exceeded $1.1 billion in 2015.
That is up from about $850 million in 2014, and is in line with our expectations.
Now of note, Promacta and Kyprolis again hit all time high quarterly sales in Q4 2015, in the fourth quarter Novartis reported Promacta achieved $133 million in global sales, for a total of $465 million for the calendar year 2015.
Promacta continues to grow with new territories coming online under Novartis' commercial leadership, and the product label being updated with expanded uses.
On January 28th, Amgen announced that Kyprolis achieved $148 million in sales for Q4, which results in total sales for Kyprolis for the year as reported by Amgen of $512 million.
Notably Kyprolis realized approvals in just the second half of 2015 for use in major new territories.
And for expanded uses.
As investors who follow Ligand Pharmaceuticals know very well, Kyprolis is an Amgen product that uses Captisol in its formulation.
We have a license agreement with Amgen, but Ligand is not involved in the commercialization or development of the product.
In our view the product is early in its growth cycle, and third party analysts project Kyprolis will achieve significant revenue growth over the next few years, as the product addresses a critical medical need associated with multiple myeloma.
For Q4 our total revenues came in about $3 million lower than expected, due to the timing of Captisol orders.
Now as we've discussed in the past, Captisol orders can be lumpy based on timing of customer orders.
The Q4 orders were lower partly due to the deferred timing of anticipated product launches, and the material required to support the commercial products, and the timing and material needed for clinical trials.
We anticipate making up some or all of the Captisol revenue not realized in Q4 during 2016.
Overall, in 2015 Captisol revenues were nearly $28 million, close to the same level as the record year sales for Captisol set in 2014.
And of note, Captisol commercial material sales for 2015 were $17.6 million, up 20% over 2014.
Now looking at some pipeline updates, in 2015 positive Phase III data was reported from Spectrum for EVOMELA and Milenta for Bacstella, Sage announced positive data for SAGE-547, enabling them to initiate Phase III trials with the drug.
And of note, 2016 is teed up for multiple new products to potentially be approved and launched this year, that could generate new revenues for Ligand.
Specifically, we are looking at the May action date for EVOMELA, and in the second half of the year we may see approvals for Lundbeck's Carbella, Albegen's generic Voriconazole product, and pricing in Europe for Duavee.
In addition to these potential upcoming items, Zydus Cadila launched in January a biosimilar of Herceptin in India under the name Vivitra.
Economic rights to this program were acquired through the acquisition of the Selexis portfolio.
Now we closed the OMT acquisition in the first week of January.
OMT is the innovator of OmniAb, a platform to discover humanized antibodies from three types of transgenic animals.
The deal is significant for Ligand, as it bolts on another important drug discovery technology, that will enable our partners to discover novel biologics as medical treatments.
It brings a large portfolio of existing partnerships, and has the potential to meaningfully extend the patent timelines and period of royalty generation from these partnered programs.
The deal is expected to be immediately accretive, and has the potential to add meaningfully to our financial performance going forward.
So in summary, Ligand is a unique company, offering investors a business that is balanced between strong financial performance, driven by attractive top line growth projections and disciplined spending, and on the other hand, a large and diverse portfolio of technologies and partners.
With that, I'll turn it over to <UNK> <UNK> to add some more color on some of our partnered programs.
Thanks <UNK>.
I'm going to start off this afternoon with some additional highlights on partnered program developments, and I'll also provide updates on our progress and plans around the recently acquired OmniAb technology, and I'll also touch on our continued focus on expanding on our Captisol technology.
Our partners continue to make progress and invest substantially on programs in which Ligand has downstream economic rights.
Our portfolio of partnered programs is now the largest that it has ever been, with more than 140 shots-on-goal and over 85 partners.
We estimate our partners will spend approximately $2 billion developing Ligand-partnered programs this year.
Last month at the JPMorgan conference in San Francisco, we saw presentations from more than 30 Ligand partners, providing pipeline updates and mapping out plans for programs that leverage Ligand technology or Intellectual Property.
I'll highlight just a few examples briefly.
Coherus and Baxalta recently announced that a pivotal study evaluating their biosimilar of etanercept, met its primary endpoint, and that they are progressing to filing this year.
Marinus announced clinical advancements for a Captisol-enabled intravenous Ganaxolone, and our partners at Viking Therapeutics continue to make great progress and announced the start of a Phase II trial of their selective androgen for patients with hip fracture.
Additionally our partners with already commercialized assets that are paying us royalties continued to invest in expanding indications and geographic footprint.
Promacta, for instance, is being studied in a number of ongoing trials in cancer-related and other indications, and appears to have potential well beyond the three currently approved indications.
Promacta's label was also expanded recently into pediatric ITP patients down to 1-year-olds, and Novartis continues to expand geography and report market share gains and significant growth.
We noted also that in this quarterly earnings cycle Novartis announced that they determined that the Promacta support and ASPIRE clinical trials would not support registration in more advanced MDS AML patients.
Novartis continues development work in a number of areas, and the recent events with support in ASPIRE, two trials that were originally designed by GSK before Novartis acquired the asset last year, don't change our overall views for the potential of the medicine, which Novartis continues to describe as having 'blockbuster potential.
' I'm going to talk about our technologies now, starting with the OmniAb platform that we recently acquired.
While we are still early into integrating the technology and the two new team members into Ligand, we have been very pleased with OmniAb thus far.
We've owned OmniAb for about a month, but have already entered into two new licensing deals, with Emergent BioSolutions, and Tizona Therapeutics, and see potential for more deals in the future.
Our experience with the technology post-acquisition as we have been dialoging further with current partners and talking to new potential partners, has clearly validated what we determined during our diligence prior to buying OMT, namely that we believe we now have a technology that is among Best-in-Class in a number of ways.
OmniAb allows our partners to produce fully human antibodies in a eukaryotic system with two species, both rat and mouse, and importantly can produce naturally optimized antibodies in a bi-specific format as well.
While the OmniAb and Captisol technologies are very different from one another from a technical perspective, we see some interesting business parallels between the OmniAb business and the Captisol business that we acquired five years ago.
It's clear to us that Captisol has benefited greatly from being affiliated with a larger corporate platform, and a business that is laser focused on licensing and partnerships, and we feel similarly about OmniAb.
We continue to focus as much as ever on expanding Captisol, and I'll say that I'm quite proud of what our team has accomplished with the Captisol technology since the time we acquired it in 2011, and put it under the broader Ligand umbrella.
Since Captisol has been in Ligand's hands, we have more than doubled the number of active Captisol license partners.
We've invested and increased Captisol's manufacturing capacity by more than three times, have optimized our supply chain to reduce risk, and be positioned to meet our partners' needs.
We've increased visibility and targeted outreach, and have therefore seen an increase in inbound annual sample requests by more than four times what they were when we acquired the Captisol technology, and we have expanded and strengthened our IP portfolio for Captisol substantially over the last five years.
We continue to focus on adding new Captisol partnerships, and we're pleased to have added two new partners recently, Gilead and XTL Biopharma.
Gilead is using Captisol with GS-5734, a novel nucleotized analog, in development for the potential treatment of Ebola virus disease.
And I'll add that in December, we also completed a 3-Captisol enabled product deal with RODES Incorporated.
I want to note briefly as became visible on the FDA website over the last few weeks, that a PARA4 certification was filed in January with respect to Merck's NOXAFIL IV product.
The PARA4 was filed by Parr.
It involves one of our US patents relating to Captisol, and we will provide updates on this when it's relevant and appropriate to do so.
I will note also that filings such as these are not uncommon in our industry, and those that have been following Ligand and Captisol over the last few years, will recall we had a prior challenge to an individual Captisol patent in Europe few years ago, and we resolved that favorably.
Given what we know, we don't see this as material to our outlook for Captisol.
I'm going to conclude with a remark about our internal pipeline, specifically our Glucagon Receptor Antagonist, or GRA program.
Our R&D team continues to make significant progress towards initiation of our Phase II study this year.
We are currently initiating a clinical study that we will complete in advance of the Phase II, that is comparing the oral liquid formulation that we used in our Phase I's to a more traditional solid dosage form that we plan to use in our Phase II.
For those that follow the program closely, I note that we recently received acceptance for oral presentation of our full GRA clinical data set at the Endo meeting in April, and will also be presenting additional GRA date at the 16th annual Levine Riggs Diabetes Research Symposium here in southern California next month.
With that, I'll turn the call over to <UNK> <UNK> to discuss the financials.
Thanks <UNK>.
2015 was our third consecutive full year of profitability as we continue to see growing total revenues coupled with relatively flat cash operating expenses, providing us tremendous earnings leverage to our P&L.
As highlighted in our press release, we look for 2016 to continue this trend.
We expect continued strong growth from Promacta and Kyprolis royalties, higher demand for Captisol sales, robust milestone achievement by partners, and the additional contribution to revenues and earnings from our newly-acquired OMT business.
Turning to the Q4 financials, I'll review a few of the metrics from our earnings release issued earlier today.
Total revenues for the quarter were $21.2 million, and included royalty revenue of $11.5 million, which was an increase of 23% versus the year-ago period, and largely reflected higher Promacta and Kyprolis royalties, despite the currency headwinds we discussed previously.
Captisol material sales for Q4 were $7.2 million, which was about $3 million less than our expectations for the quarter.
As <UNK> mentioned, we view this as largely reflecting the timing of orders, and not indicative of any underlying trend in the Captisol business.
As we have said in the past, the business is lumpy, and the timing of commercial launches and trial starts, which the Captisol business is based on are estimates.
Collaborative R&D revenues were $2.4 million versus $615,000 for the year-ago period, with this increase due to the timing of achievement of milestones.
Beyond the mix of revenue we're very pleased with the earnings performance for the quarter and the year, coming in at the high end of our projected estimates due to lower expenses across the rest of the P&L.
Costs of goods, R&D, and G&A were all better than expected, even after considering some larger one-off items, like expenses associated with the OMT transaction.
Regarding gross margins, similar to Q3 we saw higher gross margins as compared to the prior period.
Q4 was driven by a favorable mix of clinical versus commercial Captisol sales, and continued realization of the benefits of the volume of Captisol we purchased in 2015, as discussed at our Analyst Day in November.
As we look forward to 2016 on this particular topic, I would like to remind you that our volume and mix can shift significantly from quarter to quarter and year to year, and we do not expect Q1 2016 margins to be as high as we experienced in Q4.
On the cash expense side, our Q4 R&D and G&A expenses, cash operating expenses were better than expected, and flat compared to the year-ago period.
For the quarter, we reported adjusted earnings from continued operations of $14.3 million, or $0.66 per diluted share, compared to $12.5 million, or $0.60 per diluted share for the same period last year.
As previously mentioned, the primary driver of the increase was higher royalties from Promacta and Kyprolis milestones, and then combine that with a decrease in expenses.
On the balance sheet we generated operating cash flow of $13.7 million during the quarter, an increase from the $10.3 million of operating cash flow in the year-ago period.
We ended the quarter with just over $200 million of cash and investments.
However, after closing OMT and making the related cash payments, our current cash balance is approximately $100 million.
As detailed in our press release, we're increasing our full year 2016 guidance slightly.
We now expect full year 2016 total revenues to be between $114 million and $118 million, and adjusted earnings per diluted share to be between $3.37 and $3.42.
This compares with our previous 2016 guidance for total revenues to be between $113 million and $117 million, and adjusted earnings per diluted share to be between $3.33 and $3.38.
As we look forward to 2016, I wanted to provide some more detail on the P&L and financial projections.
We estimate that approximately 40% of the year's revenue and adjusted earnings will be booked in the first half of 2016.
And our 2016 estimates result in revenue breakdown for the year that includes about 50% of revenue coming from royalties, 25% from Captisol, and 25% coming from license and milestone payments.
Of the license and milestone revenue, I wanted to note that about $10 million is tied to product approvals that we expect in 2016.
Gross margins are currently expected to be at the higher end of our previously disclosed 60% to 65% range, and cash operating expenses for the year should be between $26 million and $28 million.
Lastly, just a reminder that our adjusted EBITDA per diluted---+ [audio break] OMT purchase price amortization non-cash pro rata net losses of Viking Therapeutics, fair value adjustments related to Viking Therapeutics convertible note receivable, mark to market adjustments for amounts owed to licensors, and excess convert shares covered by the bond hedge.
We believe that our adjusted earnings more closely aligns to cash earnings per share.
With that, I'll turn the call back over to the operator and open it up for questions.
Yes, thanks <UNK>.
So we don't break out the details of that obviously, but some of the orders that we talked about at the end of the quarter were some of the lower margin orders, so the mix was even more favorable than expected for Q4.
And the cost improvements that we talked about in November at Analyst Day, and then that we benefited from the rest of the period certainly helped as well.
And the comments about 2016 really are just that we have a predicted volume for 2015, and that really is what is driving us towards the higher end of the 65%, combined with the mix shift that we predict for 2016.
But obviously both the volume and the mix shift for 2016 could change.
Yes, typically you're right.
And I think on the royalty side you'll see that.
The milestones and license fee line will probably swing that closer to an even split this year.
I think that's probably fair to say, largely driven by the EVOMELA milestone in May, if that comes through, obviously.
Thank you, <UNK>.
Yes.
Well, appreciate the comment.
The portfolio is very large in our world, it hasn't happened overnight.
Every year we're adding more and more, in some ways I think we're getting better and just more efficient at managing the portfolio.
But bringing on new systems and the like are also important, in terms of managing the data flow, milestone calendar, et cetera.
Specific to the market environment, look, there's no doubt that the market is pretty dramatically changing over the last three to six months.
<UNK>rally speaking we are a participant obviously in the macro markets, and the biotech markets more specifically, but two observations.
One, because of the diversity of our programming, most of our programs are funded by very deep pocketed partners.
They are highly committed financially and scientifically to the programs.
And because of that, that commitment of partnerships, the diversity and the breadth of the portfolio, again we are really a unique company, as it relates to the otherwise volatility that individual issuers are experiencing.
The second part of this beyond the diversity and the uniqueness of Ligand's story in that sense, the second part I want to relate to your question specifically about M&A.
We are disciplined in deal-making.
Not everything is a fit for us.
We're disciplined in what we want to add.
We're disciplined, we believe, in valuation.
But what is unique about this is that, if property values across the board for technologies or companies come down, that does create opportunities for us.
We don't give guidance as to deal expectations.
But generally the integration of OMT has gone very well.
I would say we are well ahead of schedule in terms of not only on-boarding our new team members, Roland Beaulieu and Brian Lundstrom.
We have already announced a couple of deals.
It really has gone very well.
Once again we've proven that we can acquire and integrate smoothly.
And yes, we are still looking to acquire or pursue other potential transactions.
Yes.
So it's a good question, at least for newer investors following Ligand.
The business, today we're 21 employees.
We have essentially been at that head count level, and I'll say the general administrative business has been largely unchanged for the last three or four years.
We're showing, we're demonstrating we can scale up the business in revenue, expansion the portfolio et cetera without increasing costs.
That's unique again compared to a commercial business that has to scale up sales force, manufacturing, marketing, and the like.
The R&D expenditure has been relatively constant the last few years as well.
And despite that we also have been productive with new discoveries, inventions, and licensing.
Specifically the two areas that are driving costs up this year in 2016, one is the diabetes program.
We're advancing to Phase II trials.
We're excited about this molecule.
It's a large field, and we believe we've got a path towards a fairly straightforward trial.
So we are funding that.
Secondly as you reference, OMT.
We've brought on a couple of new staff members, but also we're funding some research projects around that to support new deal-making.
So aside from those two new areas of investment that may add combined maybe $5 million of expenses this year, the rest of the cost structure is relatively steady state.
Yes, <UNK>, thanks for the question.
We've got few programs in addition to 6972 that we invest in, in a focused manner.
The way we think about R&D investment is to drive partnering.
We ask ourselves what key questions will drive partnering events.
And we've got a few programs where we're investing in, one is an oral G-CSF program.
We continue to do focus work on that towards a potential IND.
We also look at Captisol programs.
And this has been an area, I'll say Captisol-enabled products because this has been an area that's been quite fruitful for us, in doing very focused R&D work to build essentially a data set to drive partnering.
This past year we focused a little bit on meloxicam, turned that into a partnership with RODES.
We're also looking currently at a Captisol-enabled acetaminophen, another program where we think could drive potential partnering as well.
Thanks, <UNK>.
Yes, <UNK>, thanks, this is <UNK> <UNK>.
Thanks for the question.
I'll say the OmniAb technology, as I mentioned earlier, what we learned through the diligence, really, this is a technology among Best-in-Class.
It's got fantastic properties that really enable partners to find the antibodies they're looking for, and do it in an efficient way.
We've already seen just post the announcement, obviously partners that we're already connected to that may have an interest in OmniAb, just by putting it under a larger platform, much like with Captisol, that at the time we brought it with a private company, probably maybe not as visible as it could be under a larger umbrella.
So we do feel like that will have an influence on the potential for the technology.
And as <UNK> said, continuing to focus on investing in it to expand the technology and expand deal-making.
Yes, absolutely a contribution of the OMT programs, adding on those OMT partners.
<UNK>rally in the antibody space, when people are going after an antibody, it's a big endeavor and they're very focused on large markets, that's one of the things we really liked about the business and the programs.
And that certainly has a contribution.
Thanks for the question, <UNK>.
Just to clarify, that the trial is in advanced MDS patients, it was a trial that was designed by GSK, taken over by Novartis.
It's worth mentioning that last year in the spring conferences, positive data was announced in the low and intermediate risk MDS population, showing improved platelets, erythrocytes, neutrophil counts.
I believe the increases were as much as 64% in patients, so good high-quality data.
They continue to invest in that overarching umbrella of oncology-related thrombocytopenia, which includes a number of conditions.
As I said, it doesn't change our outlook for the brand, or the outlook for where Novartis is taking it.
They continue to highlight it, and we're cheering them on.
Yes, thanks, <UNK>.
It sounds like you're asking specifically about the earnings side.
But just from a math standpoint, the revenue went up by about $1 million.
That's about $0.05 a share.
So we dropped that to the bottom line.
Sure.
Yes, thanks for the question, <UNK>.
So as we talked about earlier, we expect to start the Phase II trial in the second half of the year.
It's going to be in the later part of the year.
We're doing some lead-up work obviously leading to that Phase II trial, that is going on now.
But in general, roughly it's about an even spread as you look at the spending through the year that's dedicated specifically to the GRA program.
And all of that work is focused on us having the Phase II data package in 2017 as we talked about in the summer, when we received the positive Phase Ib data.
Good.
Well, thank you.
It looks like that completes the list of questioners.
Really appreciate the turnout.
We can see on our digital screen here it's the highest turnout we have had in a couple of years, I believe.
Maybe we'll give credit to <UNK> <UNK>, our new CFO, rounding out his year, first full annual report.
In any event, we really do support appreciate your support and interest in following Ligand.
We're running a Company that is exciting.
I mean the data flow on our partners is gratifying to see.
We're pleased with how we're managing the business from a tight financial discipline, but at the same time we believe making shrewd investments, not only in developing our own technologies, but in terms of pursuing new technologies and companies to acquire and bolt on.
We'll continue to do that.
We have a busy calendar of conferences coming up this spring.
Next month we'll be at the ROTH Conference on the West coast.
We'll be at the Deutsche Bank Conference, which is in Denver in early March.
And then we will also be at the Bank of America Conference in May.
Hopefully we'll overlap with some of you there.
Thanks for tuning in.
