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Ligand Pharmaceuticals, Inc. (NASDAQ:LGND)

Q2 2008 Earnings Call Transcript

July 31, 2008 4:30 pm ET

Executives

Erika Luib – IR

John Higgins – President and CEO

John Sharp – VP of Finance and CFO

Martin Meglasson – VP of Discovery Research

Analysts

Derek Jellinek – Susquehanna Financial Group

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 second 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. Ms. Luib, you may begin your conference.

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; Dr. Martin Meglasson, Vice President of Discovery Research; 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 the Federal Securities laws. These may include, but are not limited to, statements regarding intent, belief or current expectations of the company, its internal partner 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 second quarter press release and this conference call.

Additional information concerning risk factors and other matters concerning Ligand can be found on 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, July 31, 2008. 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'll turn the conference call over to John Higgins. John?

John Higgins

Erika, thank you. Good afternoon and welcome to all of you joining our call. Here we are in the middle of 2008 and I'm pleased to report that I believe our business is doing great. We have had a number of recent positive developments with our partnered programs, we are making real progress with our three main internal programs, and we are running the business efficiently from an operational and cost perspective.

Let me start first with a review of highlights from our partnered programs where we have valuable license agreements with GSK, Wyeth and Pfizer for drugs that we collaborated on for drug discovery. All three companies have drug applications that are pending FDA action. No doubt, like many of you, we are anxiously awaiting the FDA outcomes.

In regards to GSK, Ligand has a license agreement with GlaxoSmithKline for PROMACTA. We believe, given the potential size of the TPO market, the status of drugs in development and the competitive positioning of the various players, that the opportunities for Ligand and GSK are quite promising for this program. The FDA extended priority review of the NDA for PROMACTA for the short-term treatment of ITP. The PDUFA action date is now scheduled for September 19, 2008, just less than two months away.

GSK mentioned in its recent quarterly conference call that they should expect to see positive agency action before the PDUFA date in September. In May, the FDA's ODAC panel unanimously voted 16-0 that PROMACTA demonstrated a favorable risk benefit profile for the short-term treatment of patients with chronic ITP. I was actually there in person at the meeting, and it was encouraging to hear firsthand from the panel members about the significant need for new treatments for ITP and to witness their vote in favor of PROMACTA.

GSK filed the first NDA for this drug for the short-term treatment of ITP at the end of last year. GSK expects to make MAA for Europe and NDA submissions for the long-term treatment of ITP later on this year. In addition to ITP, GSK also has several other important clinical trials underway with PROMACTA, including two Phase III studies for hepatitis C, multiple Phase II trials for CIT, and a Phase I trial in sarcoma.

Switching gears, during the second quarter, our partner Wyeth received a third approvable letter for Viviant or bazedoxifene. Wyeth states that they are on track to file a complete response with the FDA by year-end and expects that following the FDA's review of that response, Viviant will move forward to an FDA Advisory Committee meeting. For Aprela, which is bazedoxifene in combination with Premarin for the treatment of vasomotor symptoms and the prevention of osteoporosis, Wyeth has completed the bioequivalent studies and we anticipate they will submit an NDA for that drug in the second half of 2009.

Switching gears again. In January of 2008, earlier this year, another one of our partners, Pfizer, submitted an application in the EU for osteoporosis treatment for Fablyn, which was formerly branded Oporia. The NDA for Fablyn for osteoporosis was filed right at the end of 2008 for the US markets. We anticipate an update on the regulatory status of Fablyn by the end of 2008.

Next, I would like to touch briefly on our progress with LGD-4665, our TPO mimetic drug. We will complete a series of Phase I pharmacology studies this year to further define drug activity in healthy volunteers. We expect to announce the data at the American Society of Hematology Conference in December. We are also conducting a Phase II trial in ITP and we anticipate initiating studies in azacytidine-induced thrombocytopenia in MDS.

About one-third of cancer patients have clinically meaningful reductions in their platelet counts due to the suppression of the bone marrow by various chemotherapy agents. In our study, we will test the effectiveness of our drug in premalignant patients where the bone marrow is suppressed by the chemotherapy agent azacytidine. We are also developing plans for a Phase II trial in hepatitis C. Many patients with hepatitis C have thrombocytopenia due to the failure of their damaged livers to produce adequate thrombopoietin.

The treatment for hepatitis C, ribavirin plus interferon, exacerbates this problem of low platelets. We believe the potential for once-weekly dosing with LGD-4665 could offer valuable dosing convenience for this patient population. We are excited about the potential for the TPO market overall. While we are testing LGD-4665 in ITP to get a look at the drug's effectiveness in patients, we believe the largest potential markets for this drug by far are hepatitis C and CIT.

Our goal with our current clinical plan is to conduct studies to establish the potential for the drug in these markets and to demonstrate how LGD-4665 can be clinically and commercially differentiated from the other TPO mimetic products in development. In the last few months, we have filed additional patents for our TPO compounds including for once-weekly dosing. If issued, these patents could provide protection through 2029.

Before I turn it over to John Sharp, I’d like to say I believe we have made substantial progress over the last 18 months cleaning up our business and refocusing on what I think we're good at, which is drug discovery and early stage development. Our objective is to convert our R&D investment into partnerships with big pharma companies, and I believe for all of our programs, we are on the right path. Plus, after years of development, we believe we are now on the cusp of getting positive news from one or more of our corporate partners in terms of drug approvals. We have a strong balance sheet with a substantial amount of cash. We have a fairly low burn rate and a real potential of becoming a financial growth story driven by multiple lucrative royalty streams.

With that, I’d like to turn it over to our CFO, John Sharp.

John Sharp

Thank you, John. Our focus from the financial perspective for 2008 has been to continue to look for ways to become more efficient and further reduce our discretionary spending. To that end, we have made great progress across all functional areas resulting in reduced operating expenses, as reflected in our second quarter financial results that I will now review in more detail.

In the second quarter of 2008, revenues from continuing operations were $4.8 million compared with $1.4 million in the second quarter of 2007. Revenues for both periods relate to royalties from AVINZA sales. The increase in revenues was due to the timing of the sale of AVINZA to King Pharmaceuticals. As the sale took place in February of 2007, our second quarter 2007 reported revenue, which is reported on a one-quarter lag included just over one month of AVINZA sales.

Total operating expenses for the second quarter of 2008 were $10.9 million compared to $16.3 million for the second quarter of 2007. General and administrative expenses were lower due to reduced headcount related costs, reduced occupancy costs as a result of subleasing one of our facilities, and reduce consulting costs as a result of internal efficiencies. Research and development costs were lower, primarily due to reduced headcount related expenses.

For the second quarter of 2008, we reported a loss from continuing operations of $4.9 million or $0.06 per share compared with a loss from continuing operations of $7.7 million or $0.08 per share for the second quarter of 2007. For the second quarter of 2008, we reported a loss from discontinued operations of $1.5 million or $0.01 per share compared with income from discontinued operations of $7.9 million or $0.08 per share in the second quarter of 2007. The loss in the second quarter of 2008 related to adjustments to our product returns reserves, while the income in 2007 related to the release of $10 million of escrow funds related to the sale of our oncology product line.

Our total net loss for the second quarter of 2008 was $6.4 million or $0.07 per share compared with net income of $200,000 or $0.00 per share for the second quarter of 2007. As of June 30, cash, cash equivalents, short-term investments and restricted investments totaled $86.4 million. In addition, there was $10.2 million of cash held in a trust account to support potential indemnifiable claims on behalf of certain current and former members of our Board of Directors.

As we look ahead to the remainder of 2008 on the revenue side, we reaffirm our previous guidance, as we expect to receive approximately $20 million in royalty revenue for the full year related to King's AVINZA sales as well as potential milestone payments from existing partners. On the expense side, for the remaining half of 2008, we anticipate total operating expenses will be $17 million to $20 million, including stock-based compensation and $1 million of gain on sale leaseback. This updated forecast is consistent with the guidance provided on our first quarter call.

Finally, I would like to provide an update on our ongoing arbitration with our long-term partner, the Salk Institute. As we have previously disclosed, Salk filed a demand for arbitration seeking a portion of the money we received for the sale of our oncology product line back in November 2006 to Eisai. Specifically, Salk believes they are owed 25% of the proceeds from the sale of Targretin based on past drug discovery agreements we had with Salk.

While we have not accrued any liability for this matter, there can be no assurances Ligand will prevail. We anticipate the matter to be resolved by the end of 2008. If you would like more information on this, please review our recent SEC filings, including our second quarter 2008 Form 10-Q, which will be filed with the SEC on or before August 11, 2008.

Now I would like to turn the call over to our Head of Discovery Research, Martin Meglasson.

Martin Meglasson

Thanks, John. I will first talk about our erythropoietin or EPO program. This program aims to make the first orally-active, truly small molecule EPO mimetic drug. We expect that our prior experience in developing orally-active small molecule TPO mimetics will increase our efficiency and help us in discovering small molecule EPO mimetics. We believe the medical need for a safe, orally active EPO drug could be quite substantial.

Currently, the non-iron deficiency anemias, such as in chronic renal failure and many cancers, are treated with either blood transfusions or injections of recombinant human EPO. Both of the current alternatives are inconvenient and carry health risks, which have been much in the news recently. While there are biosimilars to recombinant EPO and protein-based mimics in development, these are injectable treatments that provide little differentiation from the currently approved recombinant proteins. A small molecule drug will provide a new option that can be superior for many anemia patients. Currently, our program is in the research stage.

Now, turning to our SARM program. Later this year, we expect to file an IND on a compound from our selective androgen receptor modulator or SARM program. SARMs have the desirable effects of testosterone without its undesirable effects such as hypertrophy of the prostate in men and virilization in women. SARM drugs may have utility in treating patients with aging-related frailty, osteoporosis, and cancer cachexia, as well as sexual dysfunction and male hypergonadism.

We have presented preclinical information on one of our SARMs, LGD-3303 at recent meetings of the Endocrine Society, the American Society for Bone and Mineral Research, and the Society for Neuroscience. In these presentations, we have shown that our compound increases skeletal muscle mass and bone mineral density. The effects on bone involve stimulation of new bone formation. This is a different mechanism than the currently approved antiresorptive drugs, and we have shown the effects of our SARM to be additive to a bisphosphonate drug such as Fosamax.

At this time, we expect to file an IND on another SARM compound, LGD-4033, which shows similar pharmacology in our animal models. We have successfully completed the three-month pharmacology study in osteopenic rats that is needed to demonstrate increased bone strength and resistant to fractures. We have either completed or have underway all good laboratory practice safety studies required for an IND, and we have produced sufficient good manufacturing practice drug supplies at this time to initiate our Phase I studies. So, we are on track to meet our goal of a fourth quarter IND filing.

Now back to you, John.

John Higgins

Martin, thank you. Just in summary, this is an exciting time for Ligand. The impact of years of hard work and dedication from our scientists has yielded three drugs now pending FDA action. We can also point to the strength of our balance sheet and our continued rigor in controlling costs, which reflect our focus on those activities and programs that can yield the greatest benefit to our shareholders.

More so than ever in Ligand's history, we have the business and scientific talent throughout our staff, combined with a pragmatic Board and management team that understands the realities of the biotech business and are committed to delivering R&D performance and financial results in a challenging economic and regulatory environment.

In summary, Ligand continues to focus in three main areas; pipeline quality with a solid scientific track record, cost control, and establishing key collaborations to advance product development and commercialization. Execution in each of these areas is what will position the company for success and drive long-term value. In the coming months, we believe there will be news from our partners as well as from Ligand.

Here are some highlights to keep in mind. Glaxo's PDUFA date for PROMACTA is now set for September 19. Wyeth expects that following its complete response by year-end to the recent FDA approvable letter, there will be an FDA Advisory Committee meeting. We also expect Wyeth will file an NDA for Aprela in the second half of 2009. Pfizer submitted an NDA for osteoporosis treatment for Fablyn at the end of 2007 and an MAA submission was made in Europe in January of this year. And for our internal programs, again, we continue to make progress advancing our studies for LGD-4665. And we look forward to filing an IND for clinical candidate in a very important area, the SARM area of research, here in the fourth quarter of 2008.

That concludes our prepared remarks. We would like to turn it over to the operator for questions. Thank you.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) Your first question comes from Derek Jellinek.

Derek Jellinek – Susquehanna Financial Group

Great. Thanks for taking my question, guys. A couple questions. On 4665, can you maybe talk about the current ongoing trial in ITP, the enrollment that is? When do we expect data there? And given that it’s a 24-patient study, do you think we'll have enough numbers once that report is out to potentially peak partner interest? That's the first question.

John Higgins

Yes, okay. So, maybe we'll address those questions. So, Derek, I'll give you a little more color on the status of that study. We generally don't report the specific numbers in terms of enrollment in terms of having a regular minute-by-minute update. I will say that out of 24 patients, we have not enrolled even half of the patients yet. We just started the study in April. We have just in the last six weeks or so brought most of the centers online. As you know, it’s kind of a staggered effect, as you bring the centers online. And then there is a period of screening of patients and so on. We screen quite a few patients. We've got strict enrollment criteria. Patients are enrolled. A few patients, in fact, have completed the six weeks of treatment. As far as having data, it is too hard to predict when the study will be finished. We would like to be able to have interim data at least at ASH at the end of 2008. We think that is doable at this time. But we are going to continue focusing on getting the patients enrolled. As far as will this study be adequately powered to give us some further evidence of activity in sick patients, we absolutely believe it is. You never know until the study is finished, but the drug activity in healthy volunteers is very clear. We're measuring platelets, which is a clean, discreet end point. And we do believe since it is only one treatment dosing group that that sample size will be large enough to show meaningful differences between drug and placebo.

Derek Jellinek – Susquehanna Financial Group

Great. Thanks for that. And on 4665, the other clinical study, can we talk about, John, the gating factors currently to commencing the MDS study and when will we really see the start of the HCV study?

John Higgins

In both of these – as I mentioned in my remarks, these two indications are, no doubt, the biggest indications. The MDS study, instead of going after patients simply with MDS that have low platelet counts, we are going after patients who are on an azacytidine treatment regimen. That treatment, a form of chemotherapy, actually further suppresses platelet counts. So, while it isn't MDS, it is really more of a CIT-type model, a treatment-induced thrombocytopenia model. We've been refining the protocol. We've had a lot of tremendous input from thought leaders and investigators, and we expect to file that IND later on next month with a goal to start by the end of the third quarter. As far as hepatitis, we are running pharmacology studies, weekly dosing, liver impairment, food impairment, really some stuff that will help shore up the protocol features for that study. And we'll be continuing to develop the hepatitis Phase II plans over the next few months or so.

Derek Jellinek – Susquehanna Financial Group

So do you think that study is going to get into the clinic before the year-end?

John Higgins

Hard to say right now. It is a possibility. Ligand could do that. It’s hard to say right now. We need a little more time to know exactly when that study will start.

Derek Jellinek – Susquehanna Financial Group

Okay. A couple of quick questions on the partner programs. I mean, obviously the saga continues in ITP with the endplay FDA pushing out endplay with PDUFA. Do you guys feel that the delay is more an agency problem or intrinsic to the filing really on a complex REMS [ph] program? What do you think the implications are for PROMACTA? And look at the osteoporosis field as well. Amgen again is in there with great data and on denosumab with the FREEDOM study. What are the implications for the SARMs? Thanks.

John Higgins

Right. I'll let Martin remark about the D-mab program and SARMs, but specific to what’s Amgen's drug end-played [ph] and maybe how that regulatory status may relate to PROMACTA. We don't know. I mean, that's very simple and correct perspective. We do not know the particulars of certainly what's going on with Amgen and even at GSK. It is our sense that both of these drugs have a very good chance of getting approved. Our perspective is informed by the unanimous vote, panel vote in favor of both drugs. Amgen had an 11-0 vote in favor of. We know PROMACTA had a 16-0. The medical need is crystal clear. These patients are very sick. They have poor alternate treatment options. And thought leaders and FDA advisers clearly want these drugs on the market. At the same time, we know the FDA is safety conscious. Our sense is that both companies are likely talking with the FDA about their risk management programs, about the label, et cetera. We don't know anything more than that, but those are matters that have to be resolved. And Amgen on the last earnings call just a week ago or actually beginning of this week had some remarks that they felt things were going well between the agency and Amgen. We'll just have to keep waiting to see how and when the drugs are approved. Martin, you want to comment about the D-mab program vis-à-vis SARMs with the competitive scenario?

Martin Meglasson

Sure. It is important to note that both denosumab and the SARMs are antiresorptive compounds. So they are all going to compete in the antiresorptive space, which is now dominated by the bisphosphonates. So, I think that that's really – the bisphosphonates set the ground for any of these compounds entering the market in a successful way. But denosumab will present – as an injectable protein, will present its own profile and its own issues, just as SARMs will have some that are unique to them. With denosumab, the principal issue is one of – is there immunosuppression and the potential for an increase in serious infections. And we'll have to see how that risk is ultimately considered. I think in the end, the success of the SARMs will be very much based on the extent to which they not only protect bone and produce higher bone quality, but serve to relieve menopausal symptoms and thereby encourage women to get on these drugs to begin with.

Derek Jellinek – Susquehanna Financial Group

Right. Thanks, Martin. Thanks, John.

John Higgins

Thank you, Derek. Appreciate your questions.

Operator

(Operator instructions)

John Higgins

Okay. Thank you. Well, that seems to be the end of our questions. We do appreciate people's attendance. I know today is a busy day with conference calls. It is a tough economic environment, and obviously there are difficult financial markets out there. At the very least, I hope people can get out and get to the lake or the ocean or the park and enjoy some time off with their family this summer. As I outlined, we have a number of news events potentially this fall and we look forward to updating investors as the months roll on. Thank you very much.

Operator

Thank you. This concludes today’s conference call. You may now disconnect.

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