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Ligand Pharmaceuticals Inc. (NASDAQ:LGND)

Q1 2009 Earnings Call Transcript

May 6, 2009 4:30 pm ET

Executives

Erika Luib – IR

John Higgins – President and CEO

John Sharp – VP, Finance and CFO

Analysts

Joe Pantginis – Merriman Curhan Ford

Will Richardson [ph]

Operator

Good afternoon. My name is Jennifer, and I will be your conference operator today. At this time, I’d like to welcome everyone to the Ligand's first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator instructions) Thank you. Miss Luib, with Investor Relations, you may begin your conference.

Erika Luib

Thanks, Jennifer. Welcome to Ligand's first quarter financial results and business update conference call. Speaking today for Ligand are John Higgins, President and CEO; and John Sharp, Vice President of Finance and CFO; our Vice President of Discovery Research, Dr. Martin Meglasson is also joining us for our Q&A portion for today’s call.

Just a reminder to everyone that today's call will contain forward-looking statements within the meaning of Federal Securities laws. These may include but are not limited to statements regarding intent, belief or current expectations of the company, its internal and partnered programs, and its management. These statements involve risk and uncertainties and actual events or results may differ materially from the projections described in today's press release and this conference call.

Additional information concerning risk factors and other matters concerning Ligand can be found in Ligand's public periodic filings with the Securities and Exchange Commission, which are available at www.sec.gov. The information in this conference call related to projections or other forward-looking statements represents the company’s best judgment as of today, May 06, 2009. Ligand undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

At this time, I will turn the call over to John Higgins.

John Higgins

Erika, thank you, and thanks for joining us this afternoon. This is a good time to update you on the business. The recent months have been productive and marked by the successful integration of Pharmacopeia, multiple product approvals, and efficient operations.

First off, biotech companies define success in different ways. At Ligand, we think an objective measure is whether drugs we helped discover obtain regulatory approval and start generating revenue. By that measure, Ligand is an unqualified success.

About a decade ago, we brought to market two cancer drugs we discovered in our labs. Now, in just the past six months, three more products that Ligand helped discover through collaborations have been approved. This is perhaps an unprecedented string of approvals in such as short period of time for a company our size .

Notably, two SERMs, selective estrogen receptor modulators that were derived from research collaborations with Pfizer and Wyeth from the 1990s were approved in Europe over the last two months. FABLYN is Pfizer’s drug, which was approved in February and CONBRIZA is Wyeth’s drug that was approved in April. Both drugs treat osteoporosis in post-menopausal women.

Now Wyeth intends to introduce CONBRIZA in certain European markets following receipt of necessary reimbursement authorizations in those markets, and Pfizer said they plan to license FABLYN to a partner for commercialization. In addition, both products are pending various stages of regulatory review in the US and we are eager to see if either or both will be approved here.

Ligand is entitled to royalties on sales of both products and we expect that one or both have the potential to start producing new revenue based on European sales for us over the next few quarters.

The other important drug that was approved and that has now launched is PROMACTA. This is GSK's drug to stimulate platelet production to treat people with thrombocytopenia, or a low platelet count. The product was approved and launched at the end of last year. So we are just seeing the first quarter of sales and the drug has a long future ahead of it. GSK is making a major investment in developing the drug beyond ITP. The initial indication it is approved for, and likely the smallest market. They are now conducting multiple clinical trials including a Phase III trial for chronic liver disease as well as a pair of Phase III trials for hepatitis. We believe these are substantial medical market opportunities and the trials by our estimation have the potential to produce data over the next one to two years. The product is priced very favorably versus the competitor product and PROMACTA is a convenient once-daily oral dosing regimen. The primary US patent expires in 2021 so we're looking at a long runway for potential royalties. And the product is also filed and pending approval in Europe for ITP as well.

Looking at our internal operations, the integration of Pharmacopeia has gone very smoothly. Notably, since combining our businesses just a few months ago, we have earned milestone payments from four partners. We received contract funding from numerous companies, and we entered a new drug screening collaboration. In addition, we are now cross-screening Ligand's original pipeline programs against the combinatorial chemistry library, and we are tackling some drug research challenges with our newly combined and energized team. The deal made sense on paper when we announced it last fall, and now in reality it is proving to be an excellent complement to our business.

In regard to other developments this past quarter we also cleaned up some distractions from the past. We settled the litigation with Rockefeller University relating to their claims to royalty sharing on PROMACTA and other molecules. In the settlement we agreed to cash payments and a smaller sharing of royalties we get from GSK. In addition, after several years, we just learned last month that the SEC dropped its investigation into our financial restatement from about five years ago. Both of these projects were consuming management's time and legal costs and it's good to have them resolved.

Overall, the business is doing well operationally and financially. We're producing positive results with our research and partnered programs. We are efficiently managing expenses, and we believe we have a promising portfolio of royalty assets that has the potential to generate significant future revenues.

With that I will turn it over to John Sharp to talk about our finances.

John Sharp

Thank you, John. I will briefly recap our Q1 financial results that were just released as well as provide an update on our outlook for the remainder of the year.

For the first quarter of 2009, total revenues more than doubled over the same period last year. First quarter revenues were $11.6 million, compared with $4.9 million for the first quarter of 2008. The increase is attributable to milestones earned from our partners GlaxoSmithKline, Pfizer and Wyeth totaling $4.5 million and revenues from collaboration agreements of $4.3 million. These increases were partially offset by a decline in AVINZA royalty revenue due to the change in our contractual royalty rate from 15% to 5% in the fourth quarter of 2008.

I would also like to remind everyone that in addition to the change in royalty rate, under the terms of our agreement with King, we now will receive the cash payment for AVINZA royalties on an annual basis versus a quarterly payment as in the past. Therefore, while we won’t see the cash coming quarterly, we will get the full year payment in early 2010.

Total operating costs and expenses for both the first quarter of 2009 and the first quarter of 2008 were $17.3 million. Research and development expenses in the first quarter of 2009 were $10.5 million compared with $7.2 million for the first quarter of 2008. The increase is primarily due to the costs associated with servicing, the collaboration agreements that were acquired from Pharmacopeia in December of 2008. While research costs are higher to service these contracts, we also received cash revenue from certain partners that offset nearly half of these costs.

General and administrative expenses in the first quarter of 2009 were $6.8 million compared with $10.1 million in the first quarter of 2008. The decrease is primarily due to $4.1 million of expenses incurred during the first quarter of 2008, as a result of us exiting one of our facilities, which was partially offset by an increase in legal expenses in the fourth quarter of 2009 associated with settlement reached with Rockefeller University and the SEC investigation that was recently dropped.

The loss from continuing operations in the first quarter of 2009 was $5.4 million or $0.05 per share compared to $9.7 million or $0.10 per share for the first quarter of 2008. During the first quarter of 2009, we also reported income from discontinued operations of $2.4 million or $0.02 per share compared with income from discontinued operations of $5.8 million or $0.06 per share in the first quarter of 2008.

Our total net loss for the first quarter of 2009 was $3 million or $0.03 per share compared with a net loss of $3.9 million or $0.04 per share for the first quarter of 2008.

As of March 31, cash, cash equivalents, short-term investments and restricted investments totaled $53.9 million. In addition, following the close of the quarter, we received $10.3 million of cash that had been held in a trust account on behalf of certain current and former members of our Board of Directors. These funds were released to us upon notification from the SEC that it had terminated its investigations surrounding our financial restatement from several years ago, and that no enforcement action was being recommended.

In addition to operating expenses, the cash outflows in the first quarter of 2009 included $8.5 million of settlement payments to the SALK Institute and Rockefeller University and approximately $7.5 million of payments related to the Pharmacopeia transaction, including the pay off of their outstanding equipment line of credit.

Now taking a look at the rest of 2009, affirming our previous 2009 revenue forecast, we expect 2009 total revenues of $30 million to $34 million consisting of royalty payments for AVINZA and PROMACTA, revenues from collaboration agreements, and potential milestone payments from existing corporate partners. These revenues can be further broken down roughly into four categories. About one quarter is royalty revenues, one quarter anticipated milestones, one quarter cash revenue from collaboration, and the remaining quarter is non-cash revenue from collaborations.

Also, as previously announced, and per a 1996 agreement, Pfizer has elect to return 323,000 shares of Ligand stock in lieu of a cash payment for the $3 million milestone we earned for FABLYN approval in Europe.

On the expense side, for the remaining three quarters of 2009, we expect total operating costs will be between $35 million and $37 million, including approximately $6 million of non-cash expenses. This is in the range of our original guidance for full year operating expenses with total full year expenses now estimated to be between $52 million and $54 million. This takes into account slightly higher expenses in the first quarter, largely due to costs to complete the Phase IIb study for DARA and legal costs associated with litigation matters that have now been settled or resolved.

Finally, we now expect our full year cash burn from operations to be $25 million, up from our original estimate of $20 million. The increase is primarily due to Pfizer's decision to pay its milestone payment in shares rather than $3 million of cash, as well as higher payments for accrued legal fees that have built up at the end last year relating to litigation, which has now been settled.

With that, I will now turn the call back over to John Higgins.

John Higgins

John, thank you. With that, operator, let's open the lines up for questions.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from Joe Pantginis from Merriman Curhan Ford. Your line is now open.

Joe Pantginis – Merriman Curhan Ford

Hi guys, how are you? Thanks for taking the call. Couple quick questions if you don’t mind, I guess maybe in the order you discussed them. On PROMACTA, do you have any further visibility? Obviously you said data next one to two years. Which study might come first, the CLD or the hepatitis study?

John Higgins

Joe, we are doing well. Thanks for listening in. CLD – we should see the data for CLD first. This is our estimate, obviously we don’t have any role in running that study but we're just monitoring clinicaltrials.gov and so on. It's one study to approximately 600 patients, and we believe that that study could produce data in the next few quarters. So we'll monitor that closely. The other program hepatitis C, which the other broad Phase III program. It’s two trials; it’s a big international campaign. I think total, there are about 1,500 patients. It's also, instead of six months of treatment for CLD, it’s a full 12 months. So that program will probably take longer before we see the data.

Joe Pantginis – Merriman Curhan Ford

Okay. And regarding some of your partnered products, you discussed them in the press release but not during the call. Your Bristol Myers and Schering-Plough partnered products, obviously these studies are close to completion. Any visibility on the data read out for those?

John Higgins

Really, no. I mean, no visibility in terms of when we'll see data. What we have disclosed in our press release, and again, this is monitoring the public Web sites, Schering-Plough, it appears have finished all three of their Phase II trials in the last couple of months. So obviously, we are pleased by that. A full quarter ago we really did not even know when those trials would be finished. So it appears that they are finished. However, it's our sense that with the Schering/Merck merger that’s pending, there's I think a good chance that we won't see that data come out for some time. The next event may be seeing Phase III trials initiated. So, it's hard to tell. With BMS, our sense is that they are just finishing up their Phase II studies. So we'll monitor whether data is coming out from those studies later this year.

Joe Pantginis – Merriman Curhan Ford

Actually for Schering-Plough to start a Phase III that would be a good sign either way. And then just one internal question. Obviously, you had the positive DARA data recently. I was just getting a sense on how potential partnering discussions are going on that.

John Higgins

Right, sure. We did finish up the Phase IIb study that Pharmacopeia started. We're pleased with the data we announced couple months ago. In fact tomorrow, we will be in San Francisco at the Hypertension conference. The principal investigator will be making presentation of that data as well. In general, our outlook for DARA is that it is a very promising molecule. I think there is very compelling efficacy. We are in discussion with partners. We're really picking up the baton from where Pharmacopeia was last year. It's hard to predict the timing or probability of a deal. Again, it’s a big medical market, very promising drug profile. We know Pharmacopeia have been seeking partners for a while. Now we are hopeful with new data, some breakthrough on the synthetic chemistry and the formulation process, we believe we do have a stronger package. But we really can’t forecast probability of deal making here.

Joe Pantginis – Merriman Curhan Ford

Thanks a lot, John, very helpful.

John Higgins

Thank you, Joe.

Operator

(Operator instructions) We have a question from Will Richardson [ph], a self investor.

John Higgins

Okay.

Will Richardson

Hello. Yes, I've been an investor in Ligand for 10 years now. Over that time, I’ve seen the Wyeth and Pfizer SERMs develop and going through testing and finally getting approved. My first question is how much patent life is left in those drugs? Is there very much left at all? My second question is, in the February 9 BIO/CEO conference, you mentioned that Ligand has a possible $500 million in payments from milestones and so from its partners. The question is what's a reasonable estimate of how much of that would come to fruition, and over how long a period of time?

John Higgins

Thank you, Will. First of all, while we've never met, I want to acknowledge your long investment in Ligand. That's nice to hear that you've been with the company for 10 years. Let me answer, or give some information as to the first question. The patent life. We like to be precise with answering patent life questions, and I will be honest, on the phone, I don't have the exact year those patents expire, but we believe, or my estimate is somewhere in the mid to late 20 teens, 2015, 2017 range. So we can follow up and confirm that but we believe these products launching in Europe. We hope they will get approved in the US, will yield years of potential royalties to Ligand.

Will Richardson

Okay. That answers that question very well. Thanks. No more information is needed on that one.

John Higgins

Okay. Great. And then, if you could just repeat your second question?

Will Richardson

Okay. On a presentation that was made on February 9 at a BIO/CEO conference, on page 35 of that presentation, there's a statement that says $500 million possible payments from Ligand partners and so on. And the question is that’s a large number, but how much of that could possibly come to fruition and over what period of time?

John Higgins

Right. Will, thanks for the question. And to clarify, that aggregates a whole list of partners. We have six or seven different licensing agreements that have a series of milestones tied to clinical events completing studies, regulatory approvals as well as various commercial sales thresholds. So admittedly that is a big number, but they are payments spread across yields with Wyeth, with GSK, with Bristol Myers, Schering-Plough. Obviously, in this business we cannot predict the likely outcome for any one program. But it does illustrate that these are contracts in place. They have, we believe, meaningful economic terms, even before royalties would be paid to Ligand. So again, we aren't forecasting that we're going to collect all that or in any period of time, but these are contracts that we have in place today. At least, currently these companies are investing heavily in advancing those programs, so we've got a chance to earn milestone along the way. This past quarter, if I can bring it into current time here, the past quarter is evidence of our success in doing this. Four companies, Pfizer, Wyeth, GSK, and Schering-Plough each paid us milestone payments just in last few months, for various and unrelated events. And this is again, the sort of cash flow that we might be able to generate if we continue to see success out of these partnerships going forward. Thank you for the question though; appreciate your interest.

Operator

Thank you so much, sir. And I would like to turn it over to Mr. Higgins for any closing remarks.

John Higgins

Well, thank you. It looks like that was our last question, so we appreciate people's time and interest for dialing in and listening to our call. I believe you will agree, with the recent product approvals we've seen and success with our partnerships in our R&D program that Ligand is facing a promising future. I mentioned this already, but tomorrow data will be presented on DARA, the dual acting angiotensin and endothelin receptors agonist, by Dr. Joel Neutel who is the principal investigator of the Phase IIb trial. That is being presented in a late breaking presentation at the American Hypertension conference in San Francisco. We look forward to giving you more update as the business evolves. Thank you for calling in.

Operator

This concludes today's conference call. You may now disconnect.

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