Full Transcript: Ligand Pharmaceuticals Q2 2026 Earnings Call

On Thursday, Ligand Pharmaceuticals (NASDAQ: LGND ) discussed second-quarter financial results during its earnings call. The full transcript is provided below. APIs provide real-time access to earnings call transcripts and financial data. Visit to learn more.

The full earnings call is available at Summary Full Transcript OPERATOR Hello everyone. Thank you for joining us and welcome to the Ligand second quarter 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand.

To withdraw your question, press star one again. I will now hand the conference over to Melanie Herman, Head of Investor Relations. Melanie, please go ahead. Melanie Herman, Head of Investor Relations 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 Thabo 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. com. This call is being recorded and the audio portion will be archived in the Investors 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 currently available information. Ligand assumes no obligation to update these statements to better understand the risks and uncertainties that could cause actual results to differ.

gov. And with that, I will now turn the call over to our CEO, Todd Davis. Todd Davis, Chief Executive Officer & Director 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 continue 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 Thabo 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. 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. 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.

And 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. Our strategy remains unchanged: deploy capital with discipline, partner with innovative and capable biotechnology companies, and continue building a high-quality royalty portfolio designed to deliver significant and durable growth over time. With that, I'll turn the call over to Thabo for the financial update. UNKNOWN, Chief Financial Officer Thank you, Todd.

As you've highlighted, we're entering a new chapter for Ligand Pharmaceuticals. The business is performing exceptionally well. We've significantly expanded our royalty portfolio through the XOMA acquisition and we further strengthened an already exceptional balance sheet. I'll begin with our second quarter financial results before discussing the financial implications of the XOMA integration, our recent financing activities, and our updated outlook.

The second quarter was another strong quarter across the business. We generated $64 million of total revenue, an increase of 34% over the prior year. Royalty revenue grew 32% to $48 million, driven primarily by continued strength from Filspari, Otuvair, and Zel Sumi. 37, reflecting the scalability of our business model and continued operating leverage.

Turning to our balance sheet, we continue to strengthen our financial position after successfully completing our convertible note offering and closing the XOMA acquisition. Shortly after quarter end, we still have approximately $700 million of deployable capital. At the same time, we're generating strong operating cash flow in excess of $200 million in 2026, growing to an expected $300 million in 2027. Together, this capital strength and cash flow generation gives us significant flexibility to continue executing our disciplined business development strategy going forward.

Turning to XOMA, the integration is progressing extremely well. Before discussing the details, this team deserves real credit for what's been accomplished. Executing a transaction of this complexity required extraordinary collaboration across our business development, legal, finance, accounting, and operations teams. Successfully completing the acquisition while maintaining strong execution across the core business is a significant achievement.

From an operating perspective, we're on track to capture virtually all of the anticipated cost synergies. XOMA previously operated as a standalone public company with annual operating expenses of approximately $30 million. Under Ligand's operating model, we expect XOMA's annual operating expenses to decline to less than $5 million, primarily through the elimination of duplicative public company infrastructure, including legal, audit, and SEC reporting costs. S.

cash tax savings. Strategically, the transaction more than doubles the size of our royalty portfolio by adding over 120 assets, including seven commercial-stage programs, approximately 14 late-stage clinical programs, and more than 100 additional clinical and preclinical programs that provide substantial long-term optionality. 3 billion of publicly disclosed potential milestone opportunities. While those milestones are naturally contingent upon further development, regulatory, and commercial success, they represent meaningful embedded economic upside over time.

It is important to note that some of these milestone rights are associated with assets accounted for as financial royalty assets. As a result, cash received upon achievement of a milestone may not be recognized entirely as revenue in the period received; a portion may instead reduce the carrying value of the underlying asset. The XOMA acquisition increases the number of financial royalty assets within our portfolio. While the accounting for financial royalty assets differs from intangible royalty assets, both represent valuable contractual rights that contribute to Ligand's long-term economic returns.

We reflect the economics of these assets in our adjusted financial measures through the amortization of financial royalty assets. As they become a larger contributor to our results, we will continue providing additional transparency around both the accounting presentation and the underlying economics. Finally, I'd like to briefly address the Tremfya contingent value right. Under the transaction structure, we're entitled to receive 25% of any net proceeds ultimately received from the Janssen Tremfya litigation.

Importantly, we have no governance responsibilities, no obligation to fund litigation costs, and no downside financial exposure associated with this asset. It simply provides additional upside for our shareholders. Turning to our recent financing activities, we took advantage of an exceptionally attractive convertible debt market and successfully completed a $700 million convertible note offering at a 0% coupon. We paired the offering with a call spread transaction that reduces potential shareholder dilution.

Because we intend to settle the principal amount in cash at maturity under the net share settlement feature, the structure protects shareholders from dilution up to approximately $524 per share. We also repurchased approximately 229,000 shares for roughly $60 million, reflecting our confidence in the intrinsic value of the company while helping offset the market impact from the convertible hedge activity. Overall, this transaction lowers our long-term cost of capital, strengthens our balance sheet, and gives us additional flexibility to continue executing against what we believe is one of the strongest royalty acquisition pipelines in the company's history.

Turning to our detailed financial results, royalty revenue increased 32% driven primarily by Filspari, O2 Bear, and Zills of Me. S. Filspari net sales of $141 million, representing 96% year-over-year growth. Merck reported net sales of EAU to VAR of $204 million, representing year-over-year growth of 98%.

This was partially offset by Amgen's reported Kyprolis net sales of $314 million and a year-over-year decrease of 17% driven by lower volume, a decline we had anticipated to some degree and one that remains within our royalty revenue guidance. Operating expenses increased compared to the prior year as we continued investing in the growth of the business.