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Ligand Pharmaceuticals Inc. (NASDAQ:LGND)

Q2 2009 Earnings Call Transcript

August 03, 2009 at 4:30 pm ET

Executives

John Higgins - President and Chief Executive Officer

John Sharp - Vice President, Finance and Chief Financial Officer

Erika Luib - Investor Relations

Analysts

Joe Pantginis - Merriman Curhan Ford

Operator

Good afternoon. My name is Christie and I will be your conference operator today. At this time, I would like to welcome everyone to the Ligand's second quarter 2009 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)

I will now turn the call over to Erika Luib, with Investor Relations.

Erika Luib

Thanks, Christie. Welcome to Ligand's second 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.

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 risks and uncertainties and actual events or results may differ materially from the projections described in today's second quarter 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, August 3, 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 conference call over to John Higgins. John?

John Higgins

Thank you, Erika, and thank you for joining our call this afternoon. Here, we are in the middle of the summer and the middle of 2009, Ligand had a productive past few months and we are pleased to be on the call here to update you on our developments.

The last few months have been marked by positive clinical and regulatory events, advances on our research programs and a number of other developments with our corporate partners.

Overall Ligand is focused on strong financial management with the goal to drive value for the shareholders through collaborations with pharmaceutical companies and progress on our own pipeline.

In this quarter, our revenues increased nicely while we continued to focus on reducing expenses. We saw the third product that we contributed to the discovery of, get approval by one of our partners. We initiated human trials for another promising drug we discovered and we entered into a new license agreement that may generate future royalties for us.

Going to a little more detail as far as the clinical development, two partners announced new Phase 3 data. Wyeth announced that data from a Phase 3 clinical trial for APRELA, which is bazedoxifene with PREMARIN were published in the journal Fertility and Sterility. The APRELA significantly reduced the frequency and the severity of hot flushes and improved measures of vaginal atrophy when compared to placebo. Wyeth expects to file an initial NDA for APRELA in the first half of 2010.

On the clinical front, GSK announced new data for the RAISE and EXTEND studies in June at the European Hematology Conference in Germany. According to GSK, the data showed that patients treated with PROMACTA experienced significant elevations in platelet counts, as well as reductions in bleeding and bruising compared with placebo. In addition, patients experienced a statistically significant improvement in quality of life metrics. The quality of life assessments measured patients’ vitality, fatigue or ability to participate in normal day to day physical and social activities as well as concerns relating to bleeding and bruising.

Now, in addition to this Phase 3 data which we are encouraged by, we announced data from the completed Phase 2 DARA trial. DARA is our dual acting drug targeting angiotensin and endothelin receptors. The Phase 2b data showed DARA to be safe and well tolerated and demonstrated statistically significant greater reductions in blood pressure than placebo. The high dose produced a statistically significant greater reduction in blood pressure than the active comparator, irbesartan which was tested at its highest approved dose.

Now, on the regulatory front in terms of other developments here in the quarter, Wyeth’s drug, CONBRIZA or single agent bazedoxifene otherwise known as VIVIANT was approved by the European Commission for the treatment of postmenopausal osteoporosis in women at increased risk of fracture. We are excited about this approval. The approval on Ligand a $550,000 milestone payment, in the US, Wyeth anticipates an FDA advisory panel to be scheduled following the submission of a complete response to the approvable letter later this year.

Now, this quarter we entered into a patent license agreement with ParinGenix. We announced this deal in June, ParinGenix is a private company currently developing PGX-100, which is an intravenous formulation of desulfated heparin. The agreement license is certain of our patents, for ParinGenix is Phase 2 program targeting the treatment of acute exacerbations of Chronic Obstructive Pulmonary Disease or COPD. As part of the deal, we received a $360,000 cash payment this quarter and have the potential to earn a $3 royalty on any eventual sale.

Another revenue highlight is that as of the beginning of 2009, we are receiving royalties from GSK for the sales of PROMACTA. It is the early month of launch, but according to the financial reports by GSK, the product enjoyed a doubling of sales in Q2 2009 over the first quarter with sales increasing from $2.5 million to about $5 million.

The product is approved first for chronic ITP, believed to be a smaller indication in the ITP market and GSK continued to develop the drug in numerous Phase 3 trials for potentially much larger indications including chronic liver disease and Hepatitis C.

Moving to other development this quarter, in June, we initiated our Phase 1 dose escalation trial with LGD-4033. This is our lead SARM molecule. SARMs or selective androgen receptor modulators are designed to safely and selectively target the androgen receptors to help build bone strength and muscle mass.

We are very pleased to be back in human trials with another Ligand discovered compound. We expect the single dose escalation segment of the trial to be finished this fall. If the results are satisfactory, we will then advance to the multi dose component of that trial.

Last week, we announced the termination of the research collaboration under our agreement with Schering Organon. This is the research collaboration we inherited in our acquisition of Pharmacopeia. Over the last few years, we have had a successful collaboration with Schering but given various factors, we agreed to mutually terminate the research program.

Now, for Ligand, we believe we came to a favorable outcome that we will receive research funding through year end and have the potential to earn cash milestones depending in which programs are transferred to Schering after termination. While we will not receive research funding from Schering going forward in regards to the Schering research, the net effect on the income statement is expected to be neutral as we will be able to eliminate the cost required to serve the collaboration.

Now, before I turn the call over to John, I would like to just summarize by saying I believe the business is progressing nicely. The Company overall is doing very well. We continue to execute well and deliver on our goals. Most notably we have a long and attractive roster of current and potentially fully funded royalty partnerships. We are working hard and clearly having success bringing cost down and as John will point out in our guidance, we anticipate cost decreasing substantially next year while we continued to project numerous sources of revenue.

With that, I will turn it over to John.

John Sharp

Thanks John. I will start by briefly recapping our Q2 financial results that were just released and then provide an update on our outlook for the remainder of this year and as John mentioned provide an early look at 2010 as well.

Second quarter of 2009 revenues was $7.6 million compared with $4.8 million for the second quarter of 2008. The increase was due to revenues from collaboration agreements of $4.7 million as well as license and milestone revenues totaling $0.9 million. These increases were partially offset by decline in AVINZA royalty due to the change in our contractual royalty rate from 15% to 5%.

Total operating costs and expenses for the second quarter 2009 were $12.7 million compared with $10.9 million for the second quarter of 2008. Research and development expenses in the second quarter were $9.5 million compared with $6.4 million in the second quarter of 2008. The increase of $3.1 million is primarily due to $4.7 million of costs associated with servicing or collaboration agreements, which were partially offset by $0.6 million of reduction in clinical trial cost as we completed our ongoing LGD-4665 clinical trials, and $1 million reduction in consulting and outside service costs associated with our internal research programs.

General and administrative expenses in the second quarter of 2009 were $2.8 million compared with $4.6 million in 2008. The decrease of $1.8 million is primarily due to reduced legal expenses as we reached the settlement with Rockefeller University and the SEC concluded this investigation in the first quarter of 2009.

Additionally, during the second quarter of 2009, we recorded a $0.4 million write-off of acquired in-process research and development as a result of adjustments related to the purchase price allocation for Pharmacopeia.

The loss from continuing operations for the second quarter was $4.5 million or $0.04 per share compared to $4.9 million or $0.05 per share in 2008. During the second quarter of 2009, we also reported income from discontinued operations of $2.8 million or $0.03 per share compared with a loss from discontinued operations of $1.5 million or $0.02 per share in 2008.

Our total net loss for the second quarter was $1.7 million or $0.01 per share compared with a net loss of $6.4 million or $0.07 per share in 2008. As of June 30, our cash, cash equivalents, short-term investments and restricted investments totaled $56.9 million.

Now taking a look at the rest of 2009, we are affirming our previous 2009 revenue forecasts. We expect 2009 revenues to be $30 million to $34 million consisting of royalty payments for sales of AVINZA and PROMACTA, revenues from collaboration agreements, and potential milestone payments from existing corporate partners.

On the expense side, for the second half of 2009, we expect operating costs will be between $23 million and $25 million, including $4 million of non-cash expenses. This remains in the range of our original guidance for full year operating expenses with expenses estimated to be between $52 million and $54 million for the full year. We also currently project to finish 2009 with approximately $45 million in cash.

Finally, I want to provide an early preview for 2010. Based on steps we have been taking and will continue to take, we believe that our operating expenses for 2010 will be approximately $25 million. We also believe that revenues will be in the same range as these 2010 operating expenses.

We will provide more details on our 2010 outlook later in the year or early next year. With that, I will turn the call back over to John.

John Higgins

Thanks John and thanks for the summary. We would like to open the call up for questions, so perhaps the operator can queue in the callers.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Joe Pantginis - Merriman Curhan Ford.

Joe Pantginis - Merriman Curhan Ford

Just a couple quick questions, obviously the focus is on a lot of your partnered products currently, I am just wondering if you add a little color on any visibility on potential data catalysts surrounding these partnered products and then the follow up question is where are you focusing mainly on your internal programs currently? Thanks a lot.

John Higgins

You bet. Joe thanks, nice to hear your voice on the call. The partnered programs, we have highlighted actually a number of clinical regulatory events this quarter. We think a very good data, particularly out of GSK for their ITP program and Wyeth for APRELA.

As far as other important events, while we do not know the timing clearly, we are interested in seeing data coming out of Bristol-Myers Phase 2 program. They have got a p38 program there in psoriasis, arthritis and so on. We have got a Phase 2 stage program partnered up with Schering there in COPD and asthma.

Both of those collaborations we brought in with our acquisition of Pharmacopeia, we are monitoring clinical trial of another public sites to try to get a sense of when the trials are fully finished and data might be out. Both partners have communicated to us that they really take a fairly kind of type approach to disclosing data but we do believe that the data from some or all of studies to be forthcoming in the next six to nine months or so.

So those are perhaps the more substantive clinical events that we are anticipating in the next several quarters. Specific to PROMACTA, as I alluded in my prepared remarks, GSK continues to make a significant investment and we have seen progress advancing PROMACTA for a number of other indications of this. I think by all accounts are believed to be the much larger indications. There is one Phase 3 ongoing for chronic liver disease. I believe ClinicalTrials.gov suggests that study to be finished or fully enrolled in 2009 and they are also running two Phase 3 trials for hepatitis.

Those are longer term studies and many more patients so we may not see data for that, for those studies for another six quarters or so but that is just a general roadmap for the more substantive news event.

Your other question as to what we are focusing on. Internally, the top two programs and we have got a great research heritage there, four or five projects that we are working on. But the top two that really warrant attention at the investor level either SARM program, we have talked about that. We think the androgen receptor area is very exciting. It is a huge untapped market. There is a lot of evidence of the potential for androgens. The key is to get a safe one, one that is selective.

Merck, we know, is now in Phase 2 studies. We are obviously a bit behind Merck and GTx but we are now well into our Phase 1 single dose escalation study. As I said, we expect that to be finished this fall and then will be starting our multi dose.

So that is one and then the other area of a top research focus is our oral EPO program. As investors know, we have had tremendous success discovering drugs, oral medications to stimulate thrombopoietin or TPO to stimulate the growth of platelets. We believe that some of that research will be very useful and applicable for our work targeting EPO and even GPSF. So, we have made some strides there and we are still in the lead optimization phase, but if we stay on schedule, we might be able to clear it within the next six months or so.

Operator

(Operator Instructions) We have no further questions.

John Higgins

Okay. Operator, thank you. I appreciate everybody’s attendance and just in summary, I want to thank investors’ support, the research analysts who are covering story. We believe that Ligand is coming together very nicely. Overall, we are excited about our potential sources of revenue. We believe we have done an excellent job, reducing expenses. I think our execution on the operating phases have been exceptional particularly in light of the fact we went through a major restructuring a couple of years ago and recently acquired and brought under our full operating company in Pharmacopeia.

We have clearly very high quality partnerships that have continued to deliver positive news flow and internally we have got a number of successes with our own research. We continue to advance our pipeline and we are pleased with the progress we are making in those areas.

So, again, we appreciate your support. We will be at a couple of conferences this fall as we get closer to those dates. We will be putting out announcements to let you know when and where we will be and as always we are out on the road every so often and be reaching out to investors for investor meetings as well.

So, again, we appreciate your support and appreciate your time here.

Operator

This concludes our conference call for today. You may now disconnect your lines.

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