LIGAND PHARMACEUTICALS INC Q4 FY2024 earnings call

• Todd Davis emphasized 2024 was a strong year with notable growth in royalty revenue, core adjusted EPS, and operating cash flow. Key commercial assets like Verona Pharma’s Ohtuvayre, Merck's Capvaxive, and Travere’s Filspari performed well. - Paul Hadden detailed the $50 million royalty investment in Castle Creek's D-Fi, a phase 3 gene-modified autologous cell therapy for dystrophic epidermolysis bullosa, and the strategic aspects of this collaboration. - Tavo Espinoza focused on non-GAAP results, reaffirmed 2025 guidance with specific ranges for royalty revenue, Captisol sales, contract revenue, total revenue, and adjusted EPS. - Lauren Hay provided updates on Ligand's portfolio, including the approval of multiple products in 2024, additions to the commercial portfolio, and updates on commercial products and pipeline candidates.

Royalty revenue saw a 28% year-over-year growth in 2024, with the fourth quarter royalty revenue jumping 55% compared to the same period in 2023. Core adjusted EPS reached $5.74 per share, and operating cash flow in 2024 exceeded $100 million. In terms of revenue contribution, royalty revenue was a key driver, growing significantly. The Captisol business generated $30.9 million in material sales in 2024, up from $28.4 million in 2023. Contract revenue in 2024 totaled $27.5 million, primarily driven by milestones from Verona's Ohtuvayre. For the fourth quarter of 2024, total revenue climbed 52% to $42.8 million, with royalties accounting for a 55% increase to $34.8 million.

• Reaffirmed 2025 financial outlook: royalty revenue is expected to be between $135 million and $140 million, Captisol sales range from $35 million to $40 million, contract revenue is between $10 million and $20 million, resulting in total revenue guidance of $180 million to $200 million and adjusted earnings per diluted share forecast of $6 to $6.25. - Reiterated the long-term outlook projecting royalty receipts to grow at a compound annual growth rate of 22% or greater from 2024 through 2029.

• Risks associated with the successful execution of strategic transactions for Pelthos Therapeutics' Zelsuvmi. - Uncertainties regarding the regulatory approval process and market acceptance of new products and pipeline candidates. - Potential impact of payer pressure on the reimbursement of products.

Q: Is the recent investment in Castle Creek Ligand's first cell and gene therapy?

A: Yes, it is Ligand's first cell and gene therapy, and it's a focused program that is de-risked by the existing approved Krystal Biotech product.

Q: What's the outlook for Captisol sales with SQ Innovation's Lasix launch?

A: Tavo Espinoza said they are looking forward to the eventual approval later in 2025, but it will be a minor contributor to Captisol sales.

Q: How does the D-Fi deal indicate Ligand's ability to do more syndicated deals?

A: Paul Hadden said they will syndicate deals when necessary, driven by discipline around deal size to create a risk-diversified portfolio, with typical deal size for development stage assets being $20 million to $50 million, selecting assets with significant safety and efficacy evidence.

Q: Any plans for share buybacks with the growing cash balance?

A: Paul Hadden said they continue to believe the best use of capital is to look for high value royalty assets, have a stock buyback program but currently have no immediate plans to use capital for buybacks.

Q: What about the asset impairment charge related to Takeda?

A: Paul Hadden said Takeda discontinued the program, so Ligand had an asset balance carrying value written off in the fourth quarter.

Q: How is D-Fi expected to be used in combination therapy with Krystal's product?

A: Paul Hadden said D-Fi is an injectable product versus Krystal's topical product, potentially more advantageous for delivery, with less frequent dosing and different surface area treatment, making them complementary.

Q: What's the revenue generated by Vyjuvek and population differences between D-Fi and Vyjuvek?

A: Paul Hadden said Vyjuvek last year generated just shy of $300 million, and D-Fi is complementary with potential overlap in patient population but different product profiles.

Q: What's the financial impact of the termination letter to CASI on Ligand?

A: Tavo Espinoza said there will be no material impact in 2025, as the generic implication to the China market is unchanged and the direct license agreement with Acrotech will continue.

Q: How has the opportunity set changed?

A: Paul Hadden said they've seen an uptick in the pipeline, with a disciplined approach to triaging opportunities to the highest clinical value products.