Ligand Pharmaceuticals Incorporated (NASDAQ:LGND)
12th Annual BIO CEO & Investor Conference Transcript
February 9, 2009 9:00 am ET
John Higgins - President and CEO
Speaking for Ligand Pharmaceuticals will be Mr John Higgins, President and CEO.
Thank you. Welcome everybody. We have got a good turnout here, it looks like more people are coming in. I look forward to sharing with you the Ligand story. Here we are early in 2010, we had a very auspicious year last year and there have been several substantial updates from our partnerships and our pipeline, which are now summarized. Just this morning we announced year-end financial results. A press release was out in addition to a long list of business updates, which are also captured in this presentation. So, it is a good time to be talking with you, welcome.
Alright. I would like to direct you to our public filings with the SEC 10-K and 10-Q for a full disclosure of the risks and description of our business. For the presentation, I am going to give just a couple of slides and the financial highlights. Again, as we announced our results this morning, give an overview of our company just to ground those who may be new to the story, share some highlights with our pharma partnerships and our internal pipeline, and then conclude with the outlook for the business as we see it right now.
In regard to 2009, we had a very strong year financially. We are a biotech company, many of our peers do not have revenue, we have substantial revenue. We finished 2009 with close to $39 million in revenue. There were four components, royalties, research payments, milestones, there are also some non-cash deferred revenue. The revenue is up about 50% 2009 over 2008. This year we had about $55 million of operating expenses, down considerably from last year. We finished the year with about $55 million in cash, and we have over $600 million in NOLs before limitations.
In terms of some business events last year, again, it was a very significant year, a busy year, many financial business and clinical events. We closed the acquisition of two companies, Neurogen and Metabasis, both public companies. Promacta which is a drug that is partnered with GSK had several substantial events at the end of 2009 notably is recommended for approval in Europe. The Phase III trial, there are two very large Phase III trials that have been ongoing, they are fully enrolled. Also GSK filed an NDA in Japan for ITP, I will have another slide with more details on these activities.
We successfully completed the first part of our Phase I trial with SARM, an androgen drug; Pfizer has a JAK-3, a late stage JAK-3, we had a JAK-3 partnered with Wyeth now that those have come into merge, they have expanded this program. We received $4 million of milestone payments at the end of the year for Merck, a couple of drugs, the CXCR2 and p38 both finished Phase II trials with our partners. We expect some data coming out of those and new trials initiating now, and also both Conbriza and Fablyn, two drugs that we discovered in our labs were approved in Europe and maybe up for launch in 2010. That is a year-end review, again, we are proud of the year and our achievements, now let us talk about going forward.
A quick overview of Ligand for those new to the story, we are based in San Diego, we have about 75 employees. It is a company that is focused on drug research and converting our research into profit and cash through our partnerships. Significantly, we have revenue from current marketed products over 30 partnered programs, an attractive internal research pipeline, and with $185 million market cap we are sitting on about $55 million in cash.
Our view of a strong biotech, what makes an attractive company in the industry, first the potential to generate substantial profits and cash from R&D. Big upside markets, big opportunities, markets that are attractive to pharmaceutical partners in the medical community, we believe that Ligand has that, a strong discovery capability and track record. We have been around about 20 years, five drugs that we have discovered have made it all the way from our labs to commercial approval and launch. We have got a robust pipeline for partnering. We are targeting some of the largest markets, and again clearly what we are seeing out at big pharma is that it is the largest medical market where the big investment dollars are going for partnering right now, and finally, a strong balance sheet and spending discipline. Again, you will see this more as I talk through our financial guidance for 2010, but with our cash balance and our spending outlook we feel we have got a very solid business from a financial perspective.
So, why own Ligand right now? I will get into some of the details around our programs but there are several reasons. Today, we have the potential to earn major revenues from three partnership programs, these are late-stage programs or currently marketed drugs that have a chance for label expansion. The first and perhaps our largest asset is our partnership with GSK for Promacta, it is a drug to treat thrombocytopenia or boost platelets. Second is a drug CXCR2 targeting COPD and asthma, and also a drug that is partnered with BMS for inflammatory disease notably rheumatoid arthritis. Beyond this, we have earlier stage partnerships that have higher royalties, very substantial milestones tied to them and are targeting what we believe in this environment to be some of the most attractive markets, a deal with Pfizer, for a drug targeting asthma and arthritis, a partnership with Merck targeting Alzheimer’s, and a partnership with Roche targeting hepatitis C. Internally, we have an attractive pipeline. We expect to get data this year that could drive our new deals. Again, strong financials, we have solid revenue, cash revenue, a strong balance sheet, decreasing expenses, the company has no plans to do financing.
Finally, significant news flow. I will show you a calendar, our outlook for the near term, we think we have a very prodigious schedule of events driven both by partnered activities as well as our internal programs. If we are to look at the big picture go out a couple of years, a major potential value drivers through the end of next year, Promacta, the product launched just about a year ago, we expect US revenue growth and rest of world launch; major trial completion, there is a long list of studies, but most significantly, we believe these Phase III hepatitis trials will be finished, this could be a very significant watershed period for Ligand presuming those data are positive. The CXCR2 Phase IIb trials, these are large studies, and the trials should finish within a year or so; and finally the p38 Phase II trials, these are large indications, significant investment by the partners, and a chance to see the data in this timeframe.
Finally, product approvals and launch, this is the growth of the business, a chance to see new products launched this year in Europe for treating osteoporosis, chance to see Promacta launched in Europe and Japan, and finally Acadesine is finishing up a Phase III study. This is a Schering-Plough program. Right now, what we understand is a trial that is on course to be finished here in 2010.
Ligand just has a simple overview. There are two main components of our business. We have a robust partnership portfolio and a biotech business. The partnership portfolio, these are fully funded programs, again, over 33 programs, I will give some details on those; and then the biotech business, this is what the company was founded on, drug discovery, drug research that is driving towards some of the largest markets.
To go into, let us break it down, let us first focus on the pharma partnership portfolio. Here is a simple slide, the logos of all the companies that we have partnerships with. We think it is an impressive list. We are working with the world’s largest drug companies and a handful of other mid-cap biotechs that have I think a very strong reputation. Beyond this list though what is important is the significant investment. These are partners that are highly committed to the programs, they are investing hundreds of million of dollars, and are targeting some of the largest indications.
When we look at the distribution of the research right now, we are excited about this because again, these are fully funded programs. This is a pie chart that breaks down by stage of development these 33 programs. As I mentioned already, Ligand, our market cap is less than $200 million, we are not aware of any other company our size or frankly multiples our size that has this sort of roster [ph] of fully funded assets. Just over a third are in preclinical, that is not a surprise, there are a lot of shots on goal. The hit ratio is pretty good though. We are seeing a lot of conversion from the preclinical, the pre-human research into human trials. Working up the pie chart, if you look at the three purple slices, those represent the human stages of development Phase I, II and III. Over half of these programs are in human trials right now, driving toward potential NDA filings and obviously announcement of data. The Phase II and Phase III slices, we believe, will generate significant news flow this year as well as driving potential milestone payments.
Then in the upper right, we just commented that in the NDA category, we have a couple of products pending approval a couple that had recently been approved and have not launched yet. We have Phase III programs that may have data within a year that could be ready for an NDA filing. So this category again is the leading edge of our business. It is where we believe there will be a chance for news, market expansion and increased revenues.
A couple of highlights on a handful of these programs, I have already mentioned Promacta is our leading asset, it is a major value driver given the market size, we believe this could be a multi-billion revenue potential for GSK. We have a substantial royalty and there is a long patent life, upwards of 12 years of remaining patent life. Now, the product was just approved a year ago for a small indication ITP. It was a very good proof of concept [ph] indication showing that patients who are thrombocytopenic or have low platelet counts have the drug in a once-a-day oral medicine have a very profound effect at boosting platelets, reducing bruising, bleeding, and the risk of hemorrhagic stroke. The US sales were $20 million in 2009, we are looking at expecting European launch in early 2010. It was recommended for approval just a couple of months ago and an NDA filed in Japan.
Beyond this though, the big market is hepatitis. There are tens if not hundreds of thousands of more eligible patients to be treated with hepatitis. These are patients that not only have low platelet counts, their platelet count is so low they cannot go under any virals. They cannot take the treatment for the underlying disease. This is a very substantial investment by GSK, over 1500 patients in 200 countries worldwide, and again, we believe potential data by the end of 2011. Also, there are Phase II trials ongoing, MDS and Sarcoma. If you went to currenttrials.gov there are over 31 different clinical studies that are mentioned that are being sponsored by GSK our investigator. There is a very robust investment with the outlook that this could be a promising and large market.
The next program I will comment on is the CXCR2 program with Merck. This was originally partnered with Schering-Plough but now with the Merck merger, Merck has carried it forward. What is notable about this is that it is targeting pulmonary disease. There are essentially no good drugs out there. This is believed to be a very substantial market, potentially a $5 billion category. Following the merger of the Merck’s acquisition of Schering, Merck has extended this program, they have finished the Phase IIa trials, they have got good results, they have now advanced these to Phase IIb. It is significant these are large studies, over a thousand patients between the pulmonary disease and asthma trials, severe asthma, very significant investment, and the COPD data we believe to be out first quarter of next year. It is a large market and Merck by far has the most advanced program.
Another program is the p38 program. This is a program targeting inflammatory disease. It is a partnership with Bristol-Myers. We have leads, several back-ups, several studies in Phase II trials, perhaps the most exciting is targeting arthritis. This is a large market and it is one where the positive Phase I data, while it came out about a year ago, we think portends positively for potential more data out of the Phase II rheumatoid arthritis trials and advancing to Phase IIb or Phase III trials.
Another program we have with Merck is a Beta-Secretase program. This is a partnered program originally also with Schering-Plough given the merger with Merck, Merck is advancing this. They are finishing up a Phase I trial. Alzheimer’s is arguably the largest untapped medical market. Every new report that is analyzing Alzheimer it seems the potential risk, the incidence rate, the potential size of the market keeps increasing the more we learn about the disease. While there are several Phase III programs, our researchers are very excited about the Beta-Secretase target. Merck has announced Phase I data significantly with a single dose they thought the drug crossed the brain barrier and they had a 58% reduction in A-Beta Peptide in the cerebral and spinal fluid. This is a significant finding, we believe there could be more Phase I data out in the next few months and a Phase II trial start by the middle of 2010.
Another program to share some highlights on, Pfizer owns two SERMs, these are selective estrogen receptor modulators targeting osteoporosis. This is on the market right now, at peak sales it did about $1.7 billion. These are two SERMs that we discovered that came out of our lab, one was partnered with Wyeth, the other Pfizer, now with that merger Pfizer owns both of them. Notably both drugs were approved in the spring of 2009 that is about the time that Pfizer announced their acquisition of Wyeth. So the launch plans were essentially put on hold until the merger closed. It is our estimate that one of both of these products could be up for launch in Europe this year and we could also see some advancement on the regulatory front for Viviant, which was Wyeth’s product in at the US, the panel meeting as well as an NDA filing for a combination drug which has the SERM plus PREMARIN in it. So we are excited about this. This is a late-stage regulatory launch stage program.
And finally, the last part of our update I will provide is around JAK-3. This is a hot topic, those who do know Pfizer and were inside know the promise of this field. Pfizer has described this as their most important pipeline program. They have a Phase III program. This program actually is an early research stage program, originally done with Wyeth. Now, of course, Pfizer owns Wyeth and owns this program. What is significant is that this program is set to naturally expire or terminate at the end of last year. Pfizer saw the data, they wanted to extend it, we agreed to extend it, they have extended the contract. Today we have received over $15 million in research payments. It is a very promising target. There is a chance to earn up to $175 billion in milestones and a significant double-digit royalty. We could not have a better partner for this program in Pfizer. We are very excited about their commitment towards the program.
Switching gears to our internal pipeline, those are our partnered programs, fully funded research projects that our partners are driving forward with. Internally, we have five programs that we are advancing. We are doing animal work, toxicology work Phase I studies with the goal to announce data and drive forth new deals. We have an androgen receptor modulator, a SARM targeting muscle wasting and frailty. Merck is the largest player in this category right now. We have a Phase I program, we have a TR Beta program for hyperlipidemia, I think it is Lipitor [ph], it is a huge market and with Lipitor coming off patent, we think this is an attractive category for partnering. The Glucagon program targets diabetes. We have a H3 program targeting cognitive disorders, ADHD and the like as well as an oral EPO. We are familiar with Erythropoietin, the large franchise Amgen has with the ESAs, the recent headlines with Affymax and Takeda, this is an important category and we think one that could be opened wide up with an oral versus an injectable medicine. As I mentioned earlier, we have five molecules discovered in our labs that have made it to approval or are marketed, and we have done over 15 licensing deals.
In terms of our SARM program, we believe this is a best-in-class molecule. We have had some Phase I single-dose data successfully finished study. We are now this month starting the Phase II multidose, we expect to have data later this year. It is targeting muscle wasting, frailty, cancer, cachexia. Our objective is to announce the data and then to move the program towards partnering later this year. We have other research programs, I mentioned the takeaways that these are important targets. Ligand’s discovery platform is not therapeutic specific. It is a broad discovery platform that can target any receptor targets that either our partners bring so that we want to go after. Our objective is to pick the largest markets that can be differentiated from our large pharma platform driving towards potential partnering deals.
Now, just to conclude, a few slides on our business outlook and upcoming events. For 2010, our financial outlook, our revenues are projected to be about $30 million. This will come from royalties, milestones and research payments plus we will have some non-cash revenue as well. We believe this is achievable and this does not exclude revenue from new licensing deals. We have a chance to enter some potential licensing deals. We are focusing on this revenue guidance for the operating budget and there is a chance for revenue upside if we bring in new deals.
Operating expense is approximately $35 million in that are a significant amount of non-cash expenses. When you look at the business, while revenues do not quite equal expenses, this is a very efficient business. We have an attractive base of revenue, cash revenue that is going almost all the way to cover expenses. We expect a very small amount of cash burn on an operating basis in 2010. Given there is a potential for additional revenue from new licensing agreements and over $600 million in net operating loss carry-forwards puts [ph] forth limitations.
When we look at our calendar of events, it is a very robust calendar. This is what we are looking at for 2010. This is not everything obviously but it is a good characterization of the depth of our business. There are product launches, there are regulatory events, late stage clinical events and so on. Notably, the year started off strong. We have seen Promacta Phase III studies fully enrolled and the CXCR2 Phase II trials started. The drumbeat is now picking up on those important programs. We expect multiple opportunities to present data on our SARM program. We do believe that Conbriza will launch in Europe as well as Promacta. We believe that Merck will start their Alzheimer’s Phase II trial. We will complete our Phase I SARM trial. We believe we are in line to declare a lead (inaudible) candidate for our EPO program. Acadesine, this is our drug to treat bypass graft surgery to minimize the risk of heart attack and stroke. Phase III data should be out by the end of this year. We could see Promacta approved towards the end of 2010 as well as potential milestones from existing collaborations for hitting some important research targets.
My final slide, just to leave you with kind of a visual, what we call, the pyramid of value, Ligand has, we believe, a very compelling story. We have closed acquisitions of three companies the last year. We have rebuilt and restructured the business, those who know Ligand the last couple of years we have cut costs, we have realigned the business and now we are sitting on, we think, a very, very envious roster of assets. At the top of our pyramid are our top value drivers. If you were to look at the story as a new investor, these are the two or three reasons that we think are most compelling in terms of final upside, Promacta, CXCR2 and p38. These are important partnerships for big targets with big royalty potential. Beyond that in the middle, we have a core potential news and deal flow. These are the programs that we are driving forward, they are not high-cost programs from an investment perspective, but they are high value. We can drive a deal and potential data here in the next year or so.
Finally, the bottom layer, is what we call the deep foundation. The benefit of having these fully funded partnerships is that there are hundreds of million of dollars being invested by our partners for programs that we are waiting for data, for news events and potential milestone payments. Any one single event may not be the number one reason to buy the stock but across our whole platform of JAK-3 programs, the Beta-secratase, our SERMs, the Acadesine Phase III trial, over 14 other undisclosed programs, again there is a deep foundation that could drive news as well as financial events, and we expect over time some of these programs again will migrate higher up. We are proud of the business that we have built. We are excited about the future and we look forward to having a dialogue with you as 2010 continues.
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