Ligand Pharmaceuticals Inc. 2026 Q2 Earnings Call

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

With me on the call today are CEO, Todd Davis, Chief Financial Officer, Tavo Espinoza, and Vice President of Portfolio Strategy and Investments, Lauren Hay. During the call today, we will review the financial results released earlier today and provide commentary on our partner portfolio and business development activity, followed by a question and answer session. Before we get started, I would like to point out 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 assets, and gains or losses from derivative assets, 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.

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 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 will now turn the call over to our CEO, Todd Davis.

Thank you, Melanie, and good morning everyone. We appreciate you joining us today. We continue to execute on the financial transformation of Ligand. In the second quarter, we continued to deliver outstanding financial performance while executing on two initiatives that significantly strengthen and position our long-term growth platform. First, shortly after the end of the quarter, we closed the acquisition of XOMA Royalty, the largest transaction in our company's history. Second, we successfully completed a $700 million zero coupon convertible offering. Both of these represent outstanding execution by our team while they simultaneously continued to execute on our core business. During the second quarter, royalty revenue increased 32% year-over-year, and adjusted EPS grew 48%, reflecting the continued strength of our business model and diversification of our portfolio.

As Tavo will discuss in more detail, our growth continues to be broad-based across multiple products and partners, demonstrating the compounding growth of the royalty aggregation strategy that we have been executing on over the past several years. As we enter the second half of the year, we believe Ligand is stronger, more diversified, and well-positioned for our continued growth. Before discussing XOMA, I'd like to briefly touch on our financing strategy. Our objective has always been straightforward, maintain the financial capacity to move decisively when compelling opportunities arise. Our recent convertible offering accomplished exactly that. The financing strengthened our balance sheet, provided exceptionally attractive long-term capital, and increased our flexibility to execute against a highly active business development pipeline. Access to low-cost capital is important and a strategic aspect of any investment business.

It enables us to act quickly when attractive opportunities arise while maintaining the disciplined capital allocation philosophy that has guided our strategy since 2022. The XOMA acquisition officially closed shortly after quarter end, but it represents the culmination of months of work and marks an important milestone in Ligand's evolution. The transaction adds more than 120 commercial, clinical, and preclinical assets to our portfolio, including several meaningful commercial royalty streams, while nearly doubling our late-stage clinical pipeline. It also extends the duration of our royalty portfolio with intellectual property rights that, in many cases, extend beyond the next decade. The acquisition is immediately accretive, and we expect the acquisition to contribute approximately $0.50 of adjusted earnings per share during the second half of 2026 and approximately $1.50 during 2027, with meaningful growth and duration expected beyond that.

Some investors have asked us, "Isn't the XOMA acquisition a concentrated bet given the size?" In reality, it does not concentrate our risk. Due to the broad XOMA portfolio, it further diversifies our risk and accelerates our growth. This means higher growth at lower risk. It also extends the duration of our cash flows, in some cases, through 2040. The XOMA acquisition and our recent financing further demonstrate the effort we've been focused on since 2022, the execution of a differentiated royalty aggregation strategy. We are building a high-quality, diversified royalty portfolio through disciplined capital deployment and rigorous underwriting, led by a lean and highly skilled investment team. We continue to see an exceptionally attractive market for royalty investing. Across biotechnology, companies are increasingly seeking flexible, non-dilutive financing to advance innovative therapies while preserving their strategic optionality.

At the same time, continued pharmaceutical innovation is expanding the universe of investable royalty assets. At Ligand, we have scaled the organization, recruited an experienced investment team, grown our base of diversified royalty cash flows, expanded our financial capacity, and demonstrated consistent, disciplined investment execution. We believe this gives Ligand a meaningful and strong position as a preferred partner of choice for companies seeking creative financing solutions. Our business development pipeline remains exceptionally active. It spans traditional royalty acquisitions, structured financings, project finance opportunities, and importantly, our special situations approach. The XOMA acquisition broadens our already diversified platform and further strengthens our ability to pursue additional opportunities. The transformation of Ligand since 2022 provides clear evidence that our strategy is working. Over the past four years, we have built a more focused, capital-efficient, and royalty-driven company.

Royalty revenue has increased from $73 million in 2022 to expected 2026 royalty revenue between $225 million and $250 million. This was accomplished with cash operating expenses of about half the 2022 level. That combination of strong royalty growth and operating discipline has produced significant earnings growth. Adjusted EPS has increased from $2.44 a share in 2022 to our updated 2026 guidance range of $9 to $9.50. Importantly, this transformation has not come from adding organizational complexity. It has come from simplifying the company, focusing our resources on high-quality royalty opportunities, and building a platform designed to compound over time. The XOMA acquisition accelerates that strategy. It adds scale, diversification, and long-duration royalty rights while fitting squarely within the capital-efficient and operationally lean model we have been executing on since 2022.

The next slide illustrates another important benefit of that strategy, the breadth of clinical and regulatory catalysts now embedded within our portfolio. Following the XOMA acquisition, Ligand is entering one of the most catalyst-rich periods in our history. Over the next 18 months, we expect a steady cadence of potential FDA approvals, pivotal trial readouts, label expansions, and geographic launches across a broad range of therapeutic areas. Importantly, our outlook is not dependent on the success of a single product or program. These opportunities span rare disease, oncology, ophthalmology, cardiovascular disease, autoimmune disorders, and neuroscience, and they are being advanced by a diverse group of highly capable and curated partners. This breadth and diversification are among the defining strengths of our business model.

Rather than relying on a small number of binary events, we benefit from a broad portfolio of independent opportunities, each with the potential to initiate, expand, or accelerate a future royalty stream. Of course, each of these opportunities carries some level of inherent risk. That's the nature of a broadly diversified portfolio. Many will succeed, but some will not. The business model is structured to be resilient to that. This is also why we continue to believe the royalty model is so compelling. By partnering with innovators across biotechnology, we gain exposure to important therapeutic advances without assuming the full burden and operational complexity of developing, manufacturing, and commercializing those medicines ourselves. Furthermore, we do so with great selectivity and access to proprietary information. Together, these advantages provide us with the opportunity to deliver superior risk-adjusted returns.

Our partners fund and lead those activities while Ligand participates in the long-term value they create through royalties and other contractual rights. As the portfolio grows, each investment adds another potential source of future value and further strengthens the diversification and durability of the business. As we enter the second half of the year, Ligand is operating from a position of considerable strength. We have a larger and more diversified portfolio, a stronger balance sheet, a highly active business development pipeline, and one of the deepest collections of potential catalysts in our history. Our business looks meaningfully different today than it did when we presented our long-term outlook last December. At Investor Day this December, we will share an updated five-year outlook that reflects the larger, more diversified, and higher growth business that we have built over the past year.