Ligand Pharmaceuticals 2026 Q3 Earnings Call

Melanie, please go ahead. Good morning, everyone, and welcome to Ligand's third quarter 2026 earnings call.

With me on the call today are CEO Todd Davis, Chief Financial Officer Tavo Espinoza, Vice President of Portfolio Strategy and Investments, Lauren Hay, and Paul Hadden, Senior Vice President of Investments and Business Development. During the call today, we will review the financial results released earlier today and provide commentary on our recent business development activity and partner portfolio, followed by a question and answer session. Before we get started, I would like to point out that we will be discussing non-GAAP results, which exclude certain items such as stock-based compensation, amortization of intangible assets, amortization or impairment of financial royalty assets, transaction costs, and gains or losses from derivative assets, and mark-to-market changes in investments, amongst others.

I encourage you to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP measures, which can be found in today's release available on our website. Reconciliations of forward-looking non-GAAP measures are not provided because of the unreasonable effort associated with providing such reconciliations due to the variability in the occurrence of the amounts of certain components thereof. We believe these adjusted measures provide valuable insight into our core operating performance, both historically and moving forward. Our earnings release and a link to today's webcast can be found in the investor relations section of our website at ligand.com. This call is being recorded, and the audio portion will be archived in the investor section of our website. On today's call, we will make forward-looking statements regarding our financial results and other matters related to the company's business.

Please refer to the safe harbor statement related to these forward-looking statements, which are subject to risks and uncertainties. We remind you that actual events or results may differ materially from those projected or discussed, and that all forward-looking statements are based upon current available information. Ligand assumes no obligation to update these statements. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Ligand files with the Securities and Exchange Commission, or SEC, that can be found on Ligand's website at ligand.com or on the SEC's website at sec.gov. With that, I'd like to turn the call over to our CEO, Todd Davis.

Thank you, Melanie. Good morning, everyone. We appreciate you joining us today. The third quarter was an important one for Ligand, with royalty revenue growing 51% year-over-year to approximately $70 million. FILSPARI, OHTUVAYRE, and the addition of the XOMA commercial assets, VABYSMO, OJEMDA, and MIPLYFFA led that growth with the FILSPARI launch and FSGS being a primary growth driver as well. We are also raising our adjusted diluted EPS guidance to a range of $9.50-$9.75 per share, up from our previously stated range of $9-$9.50 per share. We have scaled our portfolio meaningfully over the past few months, closing the XOMA acquisition on July 14, which added three key commercial assets and more than 100 pipeline programs.

We also made two new investments this quarter, AvenCell, an investment in a next generation CAR T platform technology, and Ryjunea, a commercial royalty investment in Santen's pediatric myopia product. We have scaled our investment team, expanding our deal capacity while continuing to apply a disciplined approach to every investment. Our pipeline remains strong with more than 180 opportunities reviewed so far this year. We are entering an extremely catalyst-rich period at Ligand and anticipate up to seven pivotal readouts across the portfolio through 2027, five of which came from the XOMA acquisition. I'll use the next few slides to cover the team we've built, what we've accomplished over the past several years, and Tavo will walk you through the financials. Lauren will provide an update on our portfolio, and Paul will provide you an update on new investments and the origination pipeline.

Over the past few years, we have built an investment team with deep relationships across the biopharmaceutical industry and extensive investment experience in this space. Those relationships are a meaningful part of how we source opportunities, and the team's technical, clinical, and legal depth is what supports the rigorous diligence we apply to every investment. The team was expanded this year to add two new deal leads, Dr. Pete Renehan and Lee Brown. We also built out a systematic portfolio management system led by Lauren Hay to drive value into our development stage partnerships. We're now focused on more proactively communicating with our partners and doing what we do best, identifying new opportunities within the portfolio, which may offer attractive investment opportunities, as well as increasing portfolio yield and the probability of success on existing portfolio assets.

Over the past three years, Ligand has committed more than $1 billion across more than 20 investments using three distinct approaches: royalty monetization, project finance, and special situations. The third quarter built on that momentum with the $730 million XOMA deal, which is the largest transaction in our history, as well as the Ryjunea and AvenCell investments. This slide shows the results and growth that our strategy has delivered. In 2022, we began shifting to a pure royalty aggregation model by spinning out the OmniAb platform and then Pfenex, a recombinant protein expression platform now referred to as Primrose Bio, which we spun out in 2023. This pivot transformed us into a capital-light business model with an efficient cost structure built around a seasoned deal team. From 2022 to the midpoint of our 2026 guidance range, we anticipate royalty revenue would grow at a compound annual growth rate of 34%.

Over the same period, adjusted EPS would grow at a compound annual growth rate of 41%. This growth was achieved while simultaneously cutting our core OPEX from $92 million in 2022 to an expected $50 million in 2026. With that, I'll turn the call over to Tavo for the financial update.

Tavo? Thank you, Todd, and good morning, everyone.

Before I get into the numbers, there is one change I want to share with you. Starting this quarter, we're reporting earlier than we have in the past, and we plan to keep that schedule through 2027. The reason is that many of our royalty interests are accounted for as financial royalty assets. In fact, after the XOMA acquisition, our financial royalty asset balance has increased from approximately $200 million as of last quarter to $800 million this quarter. For those assets, the income we recognize each period is driven by our long-term forecast of the royalty cash flows over the life of each asset, rather than by a single quarter of partner-reported sales. So waiting for every partner to report adds little information. There's more detail on that accounting in our Form 10-K.

For partners that have not yet reported product sales when we closed the quarter, our royalty revenue and income for partners is based on our estimates, which are informed by sell-side consensus and may differ from actual results. If results differ, they will be adjusted in the following quarter. I'll begin with our third quarter results and the drivers behind the year-over-year changes, and then turn to our balance sheet, including our convertible notes and our guidance. Royalty revenue was $70.3 million in the quarter, an increase of 51% over the prior year, reflecting the contribution from XOMA and continued momentum across our legacy portfolio. Adjusted diluted earnings per share was $2.67 compared with $3.09 in the prior year quarter, which included $24.5 million of one-time ZELSUVMI out-license income. On a GAAP basis, we reported a net loss of $1.43 per share, which I'll walk through shortly.

We ended the quarter with approximately $450 million in cash equivalents, and short-term investments, compared with approximately $734 million at December 31, 2025. The change primarily reflects the proceeds from our $700 million 0% coupon convertible notes, net of the cash we paid to acquire XOMA. Including our equity holdings and our credit facility, we have approximately $750 million of deployable capital available for additional royalty acquisitions and strategic investments. Looking at royalty revenue, legacy royalties grew 25% to $58.1 million, and the XOMA-acquired assets added $12.3 million in the roughly 11 weeks since the July 14 close. FILSPARI is now our largest royalty asset at $16.8 million estimated for the quarter, up 85% a year ago and overtaking KYPROLIS at $10.5 million. The FILSPARI estimate is based on sell-side consensus.