Micron Technology Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 8, 2023

There are 7 speakers on the call.

Operator

Thank you for standing by. My name is Danica and I will be your conference operator today. At this time, I'd like to welcome everyone to the Ligand Third Quarter 2023 Earnings Webcast. 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

Again. I would now like to turn the call over to Simon Latimer, Head of Investor Relations. Please go ahead.

Speaker 1

Thanks, Danica. Welcome to Ligand's Q3 of 2023 financial results and business update conference call. Speaking today for Ligand will be Todd Davis, CEO Paul Hatten, Senior Vice President of Investments Matt Korberg, President and COO and Tava Espinosa, CFO. Please note that there are slides accompanying today's call. These can be accessed by going to the Investors section of our corporate website, where you can find the link to the webcast and presentation on the IR calendar page.

Speaker 1

We will use non GAAP financial measures and some of our statements will be forward looking, including those related to our financial conditions, results of operations and financial guidance. Additional information concerning risk factors and other matters concerning Ligand can be found on Slide 2, as well as in our earnings press release and our periodic filings with the SEC. We undertake no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. A reconciliation between the non GAAP financial measures we discuss and the closest GAAP financial measure can be found in our earnings release issued earlier today. Before we get started, I'd like to highlight that earlier today, we announced that we'll be hosting an in person Investor and Analyst Day on December 12 in New York.

Speaker 1

Our senior management team will provide an in-depth update on our business strategy, an overview of our portfolio, financial outlook and other developments. We look forward to seeing many of you there and we'll provide more details on the event in the future. I'd now like to turn the call over to Todd Javis. Todd?

Speaker 2

Thank you, Simon, and good afternoon, everyone. Thanks for joining our Q3 2023 earnings call. I'm pleased to have the opportunity to speak with you today and provide an update on the company's performance and recent developments. We are approaching the 1 year anniversary of my appointment as CEO and I am very pleased with the strong execution by my colleagues and our partners over the last 12 months. By every measure, we've had a terrific year, a great quarter and are poised to accelerate our momentum as a business in 2024.

Speaker 2

Adjusted earnings per share is growing. We've closed a number of exciting and diverse types of investments to execute on our strategy, which our team will detail in this presentation. We've cut costs and streamlined our business and made a number of additions to the team who have already made a significant impact on our business. In short, we have achieved everything we set out to do this year and are very well positioned for 2024. There are 3 drivers to our current performance and future growth.

Speaker 2

1, the commercial portfolio continues to generate growing revenues. 2, we are seeing continued progress across our existing development stage partnered portfolio. This existing OYO offers us significant future growth on a standalone basis. 3, we have implemented a strategy to scale our business development and investment capabilities. This allows us to build upon the existing asset portfolio, adding new late stage development and commercial assets to achieve more sustainable long term growth.

Speaker 2

We are now seeing tangible results of this effort with several notable recent transactions to contribute to our goal of adding in high growth risk mitigated programs into our existing portfolio. We have a strong debt free balance sheet and we have also improved our P and L by reducing overall expenses. The growth in our commercial portfolio together with these initiatives is having a direct impact on our earnings. Today, we are raising our adjusted EPS guidance to $5.25 to $5.40 per share, up $0.15 per share from our prior guidance of $5.10 to 5.25 When compared to guidance introduced at the beginning of the year of $3.10 to $3.30 this increase is driven by $0.60 to $0.65 EPS from the strength of our operating business and an additional $1.50 from the sale of Viking Therapeutics stock. Revenues for the Q3 of 2023 were $32,900,000 including $23,900,000 in royalty revenue.

Speaker 2

We ended the quarter with cash and short term investments of $191,000,000 Pavel will go into greater detail on our financial performance and developments. Moving to Slide 4, we will discuss business development and the investment team scale up. One of our key priorities over the last 12 months has been to scale our investment capabilities including origination, diligence and deal making to bring more institutional process to the way we originate, negotiate and execute on investment. This requires the best available talent in pharmaceutical investing and deal making. Earlier in the year, we hired Paul Hadden as Senior Vice President of Investments and Business Development.

Speaker 2

We've also added Lauren Hay as VP of Strategic Planning and Investment Analytics as well as several key additional members to our Investment Analysis team. Internally, we've added Keith Marshke, one of our most experienced scientific leaders to our deal diligence and sourcing team. These additions are complementary to our corporate team that is highly capable with regard to public company administration, operations and execution. In September, we appointed Martine Zimmerman to our Board of Directors. Doctor.

Speaker 2

Zimmerman brings considerable experience in development and regulatory affairs at the global level, having held senior roles at small and large pharmaceutical organizations in the U. S, Europe and Asia Pacific. Her skills are very valuable and complementary to the existing science, clinical and business expertise that we already have on the board. As we continue to source and execute on investments, we look forward to the strategic contributions that she will make. These new hires in a fortified process have enabled us to execute on a portfolio investment strategy, which will build our portfolio of partnered assets and accelerate our growth trajectory over the coming years.

Speaker 2

Additionally, We have emphasized significant focus on portfolio management. With our extensive portfolio of partnerships, We believe that this will maximize results from the existing portfolio and generate new opportunities. This year, We also opened up an office in Boston. This is helping raise awareness of Ligand in Boston and Cambridge, a major life sciences hub. As a result, we now have greater access to the academic community, scientific centers of excellence and the talented biopharmaceutical business executives in that region.

Speaker 2

Moving to Slide 5, we will discuss our strategy. This slide summarizes the multiple tactical approaches by which we add late stage programs into our portfolio. These are royalty monetization where we purchased existing royalty rights on existing royalty contracts that are owned by inventors, university or companies and they are in later stages of development. Number 2 would be M and A where we buy companies with valuable assets or partnerships realizing the value of the assets while restructuring operations, partnering the assets and cutting costs. The currently challenging financing environment for Biotech favorable for this leg of our strategy.

Speaker 2

Ligand has a history of doing this successfully with deals like Viking Therapeutics and the PelicanPrimordial Genetics merger. Project Finance is where we provide development capital to fund late stage clinical programs in return for royalty contracts that we draft, create and those royalties are on future sales of those products. And finally, the platform technology acquisitions that is where we look for technology platforms with high operating margins and existing licensing contracts where we seek to generate new royalties by operating those platforms as well as harvesting existing royalties. The ideal platform will be scalable and have broad applicability. An excellent example of this is our current Captisol business.

Speaker 2

Now Paul Hadden will provide additional comments on our investment strategy as well as specific comments on our recent Ovid, Tolerance and Pelican transactions. Following Paul, our President, Matt Kornberg will provide an overview with progress made in our portfolio operations, near term growth drivers and the Novan follow on investment. Tavo, our CFO will follow Matt and will provide details on the Q3 financial update. Paul?

Speaker 3

Thank you, Todd, and good afternoon, everyone. It's a pleasure to be able to address you in my first earnings call. I've been in the seat for a little over 8 months now and our team is very pleased with the progress we have made to date. We are excited about what we are building at Ligand and we hope to provide a small glimpse of things to come on today's call. We recently entered into 4 separate investments in which Ligand invested a total of $77,000,000 These illustrate some of the different approaches we have in our team's toolkit.

Speaker 3

I will review 3 of our most recent investments: Tolerance, Ovid and Pelican transactions. By way of background, I joined the company in late Q1 this year. What attracted me to Ligand was an opportunity set that remains unprecedented. Specifically, the company is at a very important pivot point in both our own history, but also within our industry. During one of his first earnings calls, Todd laid out the significant imbalance between the supply of alternative capital and the demand for it.

Speaker 3

That imbalance continues and if anything has grown. We also stated our goal was to accumulate more royalty interest, specifically focused on driving sustainable high profit growth. We will review some of our recent investments to demonstrate how we are executing against that goal. Moving to Slide 7, let's touch on our business development process. Perhaps the most important change we made at Ligand in the last 6 months was to build up a highly proactive outbound global sourcing effort, capable of identifying attractive risk reward investment opportunities to acquire royalty interests.

Speaker 3

This requires experience, relationships and discipline. Creating a global business development pipeline and execution capability is something many of our senior team has done before. We are in the early innings of this effort and look forward to continued progress in adding these internally sourced to our transaction funnel. In terms of our target investments, we are looking for royalty interest in products that are no more than a few years from market, products that have strong clinical differentiation, which address significant unmet medical needs, have solid patent protection in strong alignment with the products marketer. Beyond that, we are agnostic as a therapeutic area.

Speaker 3

Our Q4 pipeline today has over 25 actionable opportunities, representing an excess of $800,000,000 of potential transaction value. Origination is clearly a strength of our team. Collectively, our existing investment team has a decades long track record of executing on the 4 key approaches to royalty aggregation. In my 1st 3 months at Ligand, we were laser focused on adding to our team. Specifically individuals with skills that span sourcing, underwriting and execution that could complement the strong foundation we already had.

Speaker 3

This required us to assess our internal capabilities, recruit and hire top talent, build a bench of expert external consultants and establish best in class investment processes. We knew this would enable our team to effectively invest and acquire new royalty interests while allowing us to scale the business at the same time. Our most recent investments in Ovid and Tolerance are evidence of those capabilities being established and mature. As providers of not just technology, but also alternative capital to emerging biopharma companies, our broad mandate is exciting, but it also requires discipline as there is no shortage of opportunities to look at. And that is where our senior team's experience and judgment plays an important role.

Speaker 3

I also want to highlight a critical element of our investment strategy, thorough and process driven diligence. Today, we have a lot of in house investing and scientific experience. While M and A as a tool may leverage from time to time, when underwriting new royalty interest in transactions, We're always conducting private equity level due diligence. Our investment teams and consultants analyze many aspects of the product, bringing you from clinical trial design, pipeline competition, manufacturing, intellectual property, commercial sales potential and licenses to name a few. Furthermore, we execute on this process under confidentiality agreement, which provides us with significant informational advantages in our decision making.

Speaker 3

Every investment goes through the same rigorous process before being added to our portfolio. Turning now to specific transactions, I'll next cover Ovid. On Slide 8, you can see that in October, we announced a deal with Ovid Therapeutics in which we invested $30,000,000 to acquire a 13% portion of the royalties and milestones that are owed to Ovid related to the potential approval and commercialization of saticlostat, a Phase 3, 1st in class novel mechanism of action molecule for epilepsy. It is being studied by Takeda in 2 rare pediatric epilepsy indication, Lennox Gastaut syndrome or LGS and Dravet syndrome. Takeda is one of the world's leading pharmaceutical in neurology and rare diseases.

Speaker 3

LGS and Dravet are 2 very difficult trait conditions where despite Having a few products have been recently approved, there remain high unmet clinical needs. After Ovid successfully completed a Phase II trial, Takeda bought back the rights in 2021 for $196,000,000 upfront, up to $660,000,000 in milestones and if approved tiered royalties up to 20%. We purchased 13% of that license from Ovid for 30,000,000 which means Ligand will be eligible to receive up to $86,000,000 in milestones and up to a 2.6% royalty on global net sales of satiglasat. Takeda is now conducting a global Phase 3 clinical program. Takeda has also stated that it anticipates regulatory filings for the product in its fiscal year 2024.

Speaker 3

So we expect royalties to Ligand could begin a year later. This is a great example of a royalty monetization. Aside from our upfront investment, we are not taking on any incremental expense or overhead, which is attractive to Ligand. There is no requirement for Ligand to build supporting infrastructure or get involved in the product development. We have very capable partners that are doing that for us.

Speaker 3

For Abid, in this transaction, they successfully raised non dilutive capital to further invest in their own pipeline, while keeping the majority of the license economics. We believe there are other biotech companies with products in late stage development that will find non dilutive investments like this one be highly attractive relative to other financing alternatives in today's equity marketplace. Our goal is to pursue many future investments like this, which offer Ligand investors the potential for high margin growth over many years. This transaction is noteworthy as it was the first under our new investment process where our investment team sourced, performed diligence and negotiated the terms of the entire investment. Moving on to Slide 9, The second deal we closed this quarter was a $20,000,000 acquisition of Tolerance Therapeutics, a holding company owned by the inventors of tZeal or tepuzumab.

Speaker 3

Tolerance is owed a royalty of less than 1% of worldwide net sales of Sanofi's TZeal. TZeal is the first disease modifying therapy in Type 1 diabetes or T1D. It is a CD3 direct antibody indicated to lay at the onset of Stage 3 T1D in adults and children age 8 years and older with Stage 2 T1D. TZeal was granted breakthrough therapy designation by the FDA in 2019 and was approved by the FDA in November 2022. TZU was marketed by Sanofi following its $2,900,000,000 acquisition of prevention biome earlier this year.

Speaker 3

Sanofi recently announced new data from TZILT PROTECT 3 Phase 3 trial, which showed TZIL potential to slow the progression of Stage 3 T1D in newly diagnosed children and adolescent. This data was published last month in the New England Journal of Medicine. Sanofi described the acquisition of prevention bio as a strategic fit being at the intersection of the company's growth in immune mediated diseases and disease modifying therapies in areas of high unmet need. Sanofi has a robust history within the diabetes space. Sanofi has been featuring tZeal as one of their key launches with significant blockbuster potential since on its recent Q3 earnings describe TZL as having a multi $1,000,000,000 potential.

Speaker 3

Coincidentally, the day we announced the acquisition, Canopy press released and announced their One Pledge campaign. This is a program to help boost awareness of type 1 diabetes early screening and detection so that families can be more prepared for a diagnosis. The campaign tapped singer and actor, Usher, Head Instructor and VP of Fitness Programming at Peloton, Robin Arzon and journalist Adam Schefter to tell their stories about Type 1 diabetes. Because TZIL is already FDA approved, the TONRANCE acquisition will be immediately accretive to Ligand's royalty revenue and is an example of what Ligand believes will be many future transactions with inventors and academic institutions. Moving on to Slide 10.

Speaker 3

In September, we announced that we were spinning off our Pelican business and merging it with Primordial Genetics to form a new company Primrose Bio. As part of the deal, Ligand is retaining the existing commercial royalties related to the Pelican platform and will own 49.9 percent of Primrose Bio. We also entered into a purchase and sale agreement with Primrose, whereby we invested $15,000,000 exchange for a portion of the economic rights from 2 existing contracts of Primordial Genetics and an economic interest in potential future revenues generated from the Pelican business. As background, we acquired the Pelican business through the acquisition of Pfenex in 2020. After incubating Pfenex for 3 years, we now have 5 commercial royalty streams from the technology platform.

Speaker 3

And with the spin off and merger, We also retain a significant equity stake in an exciting new company with capabilities in synthetic biology. This process is very similar to other transactions in the past, including Viking Therapeutics and the OmniAb spin off. The acquisition of Pfenex was a very successful transaction for Ligand and one that we expect will continue to generate revenues. The recent spin off is consistent with our strategy to streamline the company's operations and focus on accretive high margin businesses and royalties. We wish the Primrose team well as they continue to advance technologies that enable the development of next generation therapeutics as a standalone company.

Speaker 3

I will now pass it over to Matt,

Speaker 4

who will cover our portfolio updates. Matt? Thanks, Paul. It's been an exciting period for the portfolio over the last 3 months. Today, I'm pleased to be able to provide investors an update on the developments across the commercial programs and the progress and additions to the partner development portfolio.

Speaker 4

Slide 12 shows our key commercial and late stage pipeline assets, including 2 new recent additions through portfolio investments. I'll touch on our new programs in a moment, but I always like to remind investors that our broader portfolio includes more than 75 additional partner programs beyond the 12 that are highlighted on this slide. The products listed here are a subset of our programs that are currently approved or in Phase III development. Our current commercial portfolio includes over 25 different royalty streams and 30 commercial drivers overall. With the addition of TZYLD, There are now 8 royalty bearing programs that we believe are significant enough that investors should focus on them in the near term, and I'll provide updates from Q3 on a few of those commercial programs now.

Speaker 4

Kyprolis, which is an important drug for myeloma, continued its strong 2023 with another solid quarter. Kyprolis is marketed by Amgen in the majority of the countries around the world as well as by Ono in Japan and Beijing in China. In Q3 2023, these companies are again expected to report combined quarterly revenue exceeding $370,000,000 Year over year growth for the product has been driven by strong volume growth and the product is on track to exceed $1,400,000,000 of global sales this year. After receiving approval in February, this is now the 2nd full quarter of Trevea marketing Vilspari and IgA nephropathy. We earned a 9% royalty on sales and we expect that this will be a significant driver of long term growth for our royalty.

Speaker 4

Travere reported sales of $8,000,000 for Q3 and Travere also disclosed that the momentum on new patient recruitment continued in Q3. Travir had 430 new patient forms submitted in Q3 and 9.90 total since the launch. The continued growth in potential new patients provides good evidence of successful product launch and ramp. Cell site analyst estimates for peak sales in IgA nephropathy are between $500,000,000 and $1,000,000,000 Sales anywhere in that range would make those far as ligands most significant royalty generated. Rylie's, marketed by Jazz, is a component of a multi agent chemotherapy therapeutic regimen for the treatment of children with adults children or adults with ALL or LDL.

Speaker 4

This product continues to do extremely well in a market that was historically constrained by supply issues. In Q2 of 2023, Rylaids reached a record level with $101,700,000 in sales. And just before we got on this call, we saw that Jazz reported Q3 sales of Rylase increasing quarter over quarter to $104,900,000 Q3 2023 as compared to Q3 2022 was an increase of over 42%. Vaccin Advance is a 15,000,000,000 pneumococcal vaccine utilizing Ligand's PrIM-one hundred and ninety seven vaccine carrier protein produced using the Pelican Expression Technology platform. Merck is now marketing Vaccin Advance in both the adult population and the pediatric population.

Speaker 4

Merck announced $214,000,000 in Vax NuVance sales in Q3 2023. 3rd quarter results show that Vaxdovant is on its way to blockbuster status and the 2023 sales for the product are now on track to exceed 700,000,000 Paul already covered the details of our recently acquired rights to Sanofi's TZIELD program. And as Paul mentioned, expectations for TZIELD are clearly in the blockbuster range, We're thrilled to add this premier product to our royalty portfolio. Lastly, I wanted to provide a quick update on our Captisol business. Core Captisol sales have continued to outperform our expectation for the year as reflected by another increase in guidance for this revenue item.

Speaker 4

We reported Captisol sales on a separate line from our royalties, but this business is another of our major drivers of revenue and profitability. The gross profit from Captisol should equate to about $17,000,000 which would exceed our largest current royalty other than Kyprolis. Over the next two slides, I'll provide some updates on the portfolio progress we've seen so far in 2023. First on Slide 13, you can see that some of the key programs we highlighted at the beginning of the year, and the progress that those programs have made for each. On the approval front, we saw Travir obtain U.

Speaker 4

S. Approval for Filspari and Jaswin EU approval for Rylase, which is marketed as nRylase in Europe. Both Verona and Novan submitted NDAs to the FDA for key programs, and I'll touch more on our Novan strategy in just a moment. Merck reported favorable data for B-one hundred and sixteen, a product that it expects to use to broaden the Merck offering in pneumococcal Beck, and existing partners Palvella and Viking reported positive Phase 2 data in their respective disease areas. On Slide 14, we lay out some of the broader portfolio progress in Captisol licensing that has occurred this year.

Speaker 4

While these products were not previously highlighted as key programs, We wanted to provide a quick update on these additional growth drivers. On the portfolio front, our Chinese partner, Jintam submitted an NDA for predefevir to the Chinese FDA in late 2022. And then in May of 2023, we received notice of acceptance and priority review status. Hepatitis B market in China remains significant and with a 9% royalty to Ligand, we expect for defraver to be a solid contributor to the royalty line over the longer term. Our partner in nebulo reported positive Phase 2 data in acute cannabinoid intoxication, which is a significant new market opportunity as regulation shift throughout the country.

Speaker 4

Novartis received pediatric approval for this year for its combination program of tafinlar and Mekanist. Mekanist is a capsisol formulated product and the newly approved combination is indicated for pediatric patients with certain solid tumors. While this program is not expected to be a huge contributor given the population size, it's an important product for patients and it should provide a growing royalty stream over the next decade or more. The bottom portion of this slide provides an update on our Captisol licensing efforts. Table on the left shows the history of our licensing deals since our acquisition of Cydex early 2011.

Speaker 4

Continued strong interest in our technology provides an organic source for new royalty deals that do not require deploying new investment capital. Of course, will drive our Captisol sales over the longer term as well. The table on the right list the new Captisol agreements we put in place so far this year to give investors a sense of the types of programs that we see when we're initially signing up partners to Captisol use agreements. Over time, assuming program success, these programs will move into our later stage pipeline and drive a portion of our longer term growth. Turning now to Slide 15, I'll cover the Novant business.

Speaker 4

This follow on investment is an example of one of the tools we can utilize capture additional economics on programs. We already had a royalty interest in Novant's verdasamer gel, which has a PDUFA date of January 5, 2024. Product is in development to treat infections from a virus called molluscum. If approved, the product would be the 1st at home treatment for this condition. For $12,200,000 Ligand acquired Verdasmer Gel, all the assets related to the NitroSil technology platform as well as the rights to Novant Citibate program.

Speaker 4

We're able to execute on this transaction quickly as a direct result of our fortified business development team that has capabilities in reorganization and operations. As we incubate this newly acquired business, the Novian team continues to progress the program towards approval and is preparing for commercialization. Consistent with our business model, we'll intend to seek marketing and development partners for the acquired assets to maximize the value for Ligand shareholders. Alternatively, we're evaluating the opportunity to create a standalone company to develop and commercialize the NOVAN technology and program. We've had a significant success incubating and creating new standalone companies through our Viking, OmniAb and Pelican transactions and we'll consider the same for Novant.

Speaker 4

Slide 16 lists some of the programs that we currently view as key pipeline programs that will drive revenue growth in the wave following our currently approved We've updated this list to show upcoming catalysts and move the successful 2023 events to the previous slide. Of course, we made the new addition to the list with Takeda's saticlofat program that Paul discussed previously. Of particular notes on the slide are upcoming events for Travir, Verona, Ovid and Viking. With HILSPARRI and Travir, The recently reported data from the Phase III PROTECT study showed that the improvement in eGFR chronic slope was statistically significant with respect to the confirmatory endpoint for the EU. This data is expected to support the EU decision on approval in IgA nephropathy in the first half of twenty twenty four.

Speaker 4

Varonis submitted its NDA to the FDA for approval of ensifentrine for the maintenance treatment of patients with COPD. The PDUFA date for the product has been established as June 26, 2024, and Verona is building its commercial infrastructure as we speak. Satiklostat is a 1st in class novel compound with the potential to reduce seizure susceptibility. The product targets the main neurotransmitters in the brain and has been shown to play a role in the initiation and spread of seizure activity. Takeda is currently running a Phase III trial and expects data in the fiscal year It's fiscal year 2024.

Speaker 4

Ligand are the tiered royalty of up to 2.6% on the drug, if successfully commercialized as well as up to $86,000,000 of lab cells. Finally, during the Q2 of 2023, Viking announced positive top line results from the Phase 2b voyage study evaluating VK2809 in patients with biopsy confirmed NASH. Company expects to report data from the secondary and exploratory objectives of the study in the first half of twenty twenty four. We expect that following these results, Ligand would move forward into Phase 3 with this program. With that, I can turn the call back over to Tavo for the financial update.

Speaker 4

Tavo? Thanks, Matt. The Q3 of 2023 was an exceptional quarter financially with continued impressive performance in royalty revenue, strong Captisol sales, lower overall operating expenses and an improved outlook for the year, resulting in our 4th upward guidance revision this year. Total revenues for the quarter were $32,900,000 which represents a 22% increase when excluding last year's contribution from COVID Captisol sales. Total revenues for the Q3 of 2022, including COVID-nineteen related sales were $59,200,000 Royalty revenue increased 24% to $23,900,000 from $19,300,000 a year ago with the growth driven by strength in Amgen's Kyprolis and growth in sales of drugs using the Pelican platform, namely Pneumosil, Rylase and Vaxnuban.

Speaker 4

Captisol sales were $8,600,000 this quarter versus core Captisol sales of $3,600,000 in Q3 of 2022 with the increase due to timing of customer orders. Total Captisol sales in Q3 of 2022 were $35,900,000 with $32,400,000 of that related to COVID-nineteen. We did not have any COVID-nineteen related Captisol sales this quarter. Contract revenue this quarter was $400,000 versus $4,000,000 in last year's Q3. The decrease is driven primarily to the timing of partner milestone events.

Speaker 4

We continue to focus on managing costs to maximize our operating margins. In Q3, total R and D and G and A operating expenses decreased 17% when compared to the prior year quarter, primarily due to a decrease in headcount related expenses associated with the spin out of the Pelican business. The decrease in operating expenses was offset by an increase in transaction related expenses associated with the Novant transaction. G and A and R and D expenses were $14,700,000 $5,500,000 in Q3 2023 versus $14,900,000 $9,200,000 in Q2 2022 respectively. GAAP net loss from continuing operations in the Q3 of 2023 was $12,800,000 or $0.74 per share.

Speaker 4

And this compares with GAAP net income from continuing operations of $9,600,000 or $0.56 per diluted share in Q3 2022. The decrease in GAAP net income this quarter as compared to the same quarter last year is due largely to unrealized losses on our remaining holdings of Viking Therapeutics stock and the COVID Captisol sales in the Q3 of 2022. Adjusted diluted EPS for the Q3 of 2023 was $1.02 versus $0.60 in the Q3 of 2022, which excludes COVID-nineteen related Captisol gross profit. The increase in adjusted EPS is primarily due to an increase in core capital sales and the decrease in operating expenses. Our future operating costs are expected to decrease as a result of the Pelican spin out as those costs will now be absorbed by Primrose Bio.

Speaker 4

We will account for our 49.9 ownership interest in Primrose under the equity method. As a result, Ligand will absorb its share of Primrose Bio net losses, which will be presented separately at the non cash items and adjusted out for purposes of reporting adjusted non GAAP earnings. Additionally, in the Q4, we expect to incur incremental operating costs associated with our acquisition of Novant. Our intent is to spin out and or out license the Novan business and therefore we will be adjusting out these expenses for purposes of reporting adjusted non GAAP earnings. Turning to the balance sheet.

Speaker 4

As of September 30, 2023, we had cash and short term investments of $191,000,000 which includes $25,000,000 of our holdings in Viking common stock. In October, we deployed $50,000,000 to acquire the tolerance and Ovid assets that Paul described earlier. We are a cash flow positive company that generates over $75,000,000 of cash annually from our existing business. Our current cash plus annual cash flow generation will be sufficient to fund the investment activity we anticipate over the foreseeable future. Turning now to guidance.

Speaker 4

We are raising total 2023 revenue to be in the range of $126,000,000 to 129,000,000 and adjusted earnings per share in the range of $5.25 to $5.40 The increase in guidance is attributable primarily to an increase in Captisol sales as well as a decrease in operating expenses. Approximately $1.50 of adjusted earnings per share is attributable to realize gain from sales of Viking Therapeutics stock earlier this year. Adjusted for the Viking stock gains, our core 20 3 adjusted EPS guidance is $3.75 to $3.90 or approximately 55% above last year's adjusted EPS of $2.44 As a reminder, due to the unpredictable nature of the pandemic, we exclude Captisol for COVID-nineteen related sales guidance and we'll update investors as orders are received and shipped each quarter. Finally, I'd like to direct listeners to our Q3 earnings press release issued earlier today, which is available on our website for a reconciliation of our adjusted financial results to GAAP results I talked about today. I'll turn the call over now to Todd for closing comments.

Speaker 2

Thank you, Thiago. Our unique business model means We have a lot of portfolio activity and a significant amount of new deal activity to follow. All of this activity is focused to the filter of our main objective, which is achieving superior reward relative to the risk we take on and delivering substantial predictable growth of earnings per share. We're very pleased with this quarter's results as well as the progress we've made over the last 12 months. We've improved our investment in business development capabilities and have grown our asset portfolio.

Speaker 2

Comparing where we are now to December of last year, in the last year we have grown commercial product drivers up to 8 plus Captisol. In the last year, royalty revenue has grown from $73,000,000 to our current guidance of $82,000,000 to 84,000,000 We expect growth to continue for years off of this existing portfolio. In the last year, cost management efforts have reduced our operating expenses from approximately $92,000,000 a year ago prior to the OmniAb spin out and other restructuring activities to today's annual cash operating expense run rate in the mid $30,000,000 range. As a result, in the last year, Adjusted EPS has grown from $2.44 per share last year to an annual EPS run rate of approximately $4 per share, excluding gains from the sale of Equity Holdings. Meanwhile, the investment team has added 3 new assets to our growth portfolio over the last several months and is actively pursuing additional growth opportunities.

Speaker 2

Thank you everyone for joining us for today's earnings call. I want to remind you that Ligand will be hosting an in person Investor Day on December 12 in New York, where we will go into significant detail. I'd like to now open it up for Q and A.

Operator

We will pause for just a moment to compile the Q and A roster. Your first question comes from Matt Hewitt with Craig Hallum. Please go ahead.

Speaker 5

Hi, this is Jack on for Matt. Congrats on a good quarter. The recent $20,000,000 acquisition of Tolerance, how did that come about? And to be clear, there's no milestones related to TZIELD, correct?

Speaker 4

Yes. Hey, Jack, it's Matt. I'll just confirm that there are no milestones remaining in the deal that we are entitled to. And then I'll ask Paul to give a little color on how the transaction came about.

Speaker 3

Yes. Matt, this is Paul. Our Proprietary Intermediator relationships, It's a very focused sale and we have some distant relationships with the Inventor Group. So that's all I can say for that question, but

Speaker 5

That's helpful. And then for a follow-up with the $30,000,000 investment of Ovid Therapeutics, you obtained 13% interest in milestones and royalties. 1st of the milestones, could you please walk us through how much of the original 6.60 in regulatory and commercial milestones is still available. And then second, are they structured similar to most of your existing milestones and that you receive them upon trial starts not completions?

Speaker 3

Yes. So we can't comment on the structure of the milestones and when they get paid. But I can tell you is that 1,000,000,000 is still on the comp. So none of that's been paid yet. So what we bought into was that milestone waterfall And then obviously the tiered royalties behind that that we mentioned on the call up to the 20%.

Speaker 6

That's helpful. Thank you.

Operator

All right. Our next question comes from Larry Solow with CJS Securities. Please go ahead.

Speaker 6

Hey, good evening guys. Thanks for a lot of color tonight. I'm not going to ask too many specific questions on the product because I guess we'll get On some of these new products you acquired because I guess we'll get an update at the Analyst Day. So just a few. On the guidance, There will bump up for the rest of the year.

Speaker 6

If I do my math, it looks like it's like a couple of million on the capital, which you said and then couple of million on the operating expense side, right? That'll kind of get us to probably $2,500,000 after tax savings or somewhere around there. Am I in the ballpark there?

Speaker 4

Yes, that's about right. I would say the majority of the increase to the guidance was driven by the Like Capisol sales this quarter and generally the operating expense savings contribute that most of that had already been accounted for.

Speaker 6

Got it. And in terms of Travir, I didn't read your transcript. But I guess, I Let's see the $8,000,000 and it sounds like the funnel of sales opportunity is growing there. Is there any word they mailed the FDA yet? I know the PROTECT study came out.

Speaker 6

It was good, but obviously didn't meet fiscal significance. I know it's still published by The Lancet. Obviously, it's getting pretty high praise, it's not that easy to get into The Lancet. Just trying to Has the outlook changed at all? Has anything get pushed to the right?

Speaker 6

Any thoughts? And I know, I guess, the rights are review. But any thoughts that you guys could share on that would be great.

Speaker 4

Yes. Thanks, Larry. So just to remind everyone, the TILESPARI product was approved on accelerated approval and they were running a confirmatory trial running the trial to the end to get the confirmatory endpoints. And the endpoints did slightly miss statistical significance for the U. S.

Speaker 4

Version of the endpoint. What I would do is direct all investors definitely to listen to everything that Travir is saying and listen closely to what they're saying. But I think the company has high confidence that the product will remain on the market and that robust package of data that they've generated over the Phase II and Phase III programs, clearly is supporting evidence for the benefit to patients and that it would be a very surprising outcome for the product to be pulled off the market. The company hasn't commented on exactly what their conversations have been with the FDA so far, but they have said that they are in conversation with the FDA. And so, we'll look to them to provide any more details.

Speaker 4

But we're pretty optimistic internally based on the public info that we've seen.

Speaker 6

Okay. I appreciate that color. Just a couple on Opelika assets. On Riley's, you mentioned Jazz, I think reported, They're on a run rate now over $400,000,000 in the U. S.

Speaker 6

Does that with the European approval, I know I'm sure it's not a simple double, But the European market inevitably similar size and just actually be like $1,000,000,000 potential drug at some point?

Speaker 4

Yes. Thanks, Larry. The market for Rylase and NRI Lase Historically, prior to this product and the predecessor product that was supply constrained was a worldwide product and Jazz marketed it around the world. And they're certainly pursuing additional territories. The EU approval does add some potential for the product, But we point investors to Jazz's public comments as well on this.

Speaker 4

I think they reiterate frequently that In the U. S, it's a product without significant competition. And in Europe and some of the other markets around the world, there is competition for the product. And so if you can't comment, I can't comment on the potential size, but I wouldn't be surprised if it's as big as you suggested Turning into a $1,000,000,000 product worldwide. I don't think that's the opportunity.

Speaker 6

Okay. I mean that's a little bit too big. Okay. That's it. I'm all set.

Speaker 6

Thanks for taking the questions.

Speaker 4

Thanks,

Operator

star followed by the number 1. If we do not have any other questions, And that concludes our question and answer session and today's call. Thank you all for joining. You may now disconnect.

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Earnings Conference Call
Micron Technology Q3 2023
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