Ligand Pharmaceuticals Incorporated Stock

Hello, everyone. Thank you for joining us, and welcome to the Ligand Third Quarter Earnings Call. [Operator Instructions]

I will now hand the conference over to Melanie Herman, Head of Investor Relations. 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 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 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. And with that, I'd like to turn the call over to our CEO, Todd Davis.

Thank you, Melanie, and 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 in FSGS being a primary growth driver as well.

We are also raising our adjusted diluted EPS guidance to a range of $9.50 to $9.75 per share, up from our previously stated range of $9 to $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 then 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 the 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 Reneahan 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 had 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 onetime 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, 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. Travere has not provided us with a royalty amount or Q3 revenue yet as they report Monday, November 2, after market close.

Any difference from our estimate will be trued up in the fourth quarter. We expect growth to continue across IgAN and FSGS, which was approved in April. OJEMDA and Ohtuvayre followed at $7 million each.

Turning to our detailed financial results. Total core revenue was $78.7 million, down 9% from $86.9 million last year, which included $24.5 million of Zelsuvmi out-license income recorded on the sale of the Pelthos business. Excluding that, core revenue grew 26%.

Research and development expense was $2.8 million compared with $21 million in the prior year, which included a $17.8 million charge related to the R&D funding arrangement for the AVIM therapy royalty rights we acquired from Orchestra BioMed. G&A expense was $72.6 million compared with $28.4 million. Of that increase, $35 million related to onetime XOMA transaction and integration costs with the remainder reflecting our expanded business development and investment team.

Nonoperating expense was $28.3 million, primarily noncash mark-to-market adjustments on our equity investments, which are excluded from adjusted net income. As a result, GAAP net loss was $28.5 million or $1.43 per share compared with net income of $117.3 million or $5.68 per share last year, which included $53.1 million of Pelthos divestiture-related income.

Adjusted net income was $57.5 million or $2.67 per diluted share compared with $63.8 million or $3.09 in the prior year. The decline reflects the absence of last year's $24.5 million Zelsuvmi out-license income.

I'd like to highlight that while GAAP G&A rose this quarter on XOMA transaction costs, our core cash operating expenses for 2026 remain on track at approximately $50 million, including XOMA.

On our convertible notes, we have $460 million of 75 basis point notes due 2030 and $700 million of 0% notes due 2031. Both were paired with call spreads and our net share settled. So principal is repaid in cash and dilution comes only from the warrants and only above their strike prices of roughly $294 for the 2030 notes and $524 for the 2031 notes. At a $400 share price, for example, the warrants would add about 600,000 shares or approximately 3% of shares outstanding.

Turning to guidance. We are reaffirming our full year 2026 revenue guidance. Royalty revenue of $225 million to $250 million, total revenue of $270 million to $310 million, Captisol revenue of $35 million to $40 million and contract revenue of $10 million to $20 million. We are also raising our adjusted diluted earnings per share guidance to $9.50 to $9.75 per share, up from $9 to $9.50 per share.

I want to point out that we expect our 2026 revenue to be weighted more heavily towards the fourth quarter. There are two reasons. First, Q4 will include a full quarter of royalties from XOMA, whereas Q3 included only a pro rata portion following the July 14 close.

Second, many of our royalty arrangements include tiered rates that step up as sales grow and the higher tiers are typically not reached until later in the year. I would also note that timing remains the most challenging variable in providing guidance. The timing of customer orders affects Captisol material sales, and the timing of milestones across our growing portfolio can shift revenue between quarters.

Our updated EPS range reflects our strong results through the first nine months while keeping appropriate room for that timing. With our expanded portfolio following the XOMA acquisition, there are also a growing number of clinical and regulatory events whose outcomes and timing are inherently uncertain and which we do not rely on in setting guidance because many of these events carry milestone payments, positive outcomes would represent potential upside to our guidance, and we look forward to updating you as they occur.

Finally, as we noted last quarter, the business today is materially different from the one we reflected in the five-year framework we introduced at our 2025 Investor Day, which targeted a 23% royalty receipt CAGR. We are not updating that outlook today. We'll do so at our Investor Day on December 8.

Three major developments will factor into that update.

First, the XOMA acquisition, which will shift a larger amount of future expected royalties from the future investment section of the chart to the commercial and farm team sections of the chart.

Second, the approval of Filspari in April as the first FDA-approved treatment for FSGS, which expands its opportunity beyond IgAN and is already contributing to Filspari royalties.

And third, Palvella's NDA acceptance and priority review of QTORIN rapamycin in microcystic lymphatic malformation, the FDA has assigned a PDUFA target date of February 28, 2027.

Ligand will earn a tiered 8% to 9.8% royalty if approved. With that, I'll turn the call over to Lauren for an update on our royalty portfolio and pipeline.

Thank you, Tavo, and good morning, everyone. Following the acquisition of XOMA Royalty and our September investments in Ryjunea and AvenCell, our portfolio now includes more than 200 commercial, clinical and preclinical royalty assets. I'll start with our commercial programs, then turn to the pipeline and the catalysts ahead. The Ryjunea acquisition adds our 16th key program to the commercial portfolio.

Of these 16 programs, 10 stem from royalties tied to new approvals or investments made since 2022 when we pivoted to a lean royalty aggregation model. Together, they span a wide range of therapeutic areas and partners, reflecting a diversified, durable and growing royalty revenue stream. There were several updates from our commercial partners in the quarter.

OJEMDA was approved in Japan in September as announced by Ipsen. We expect Filspari to continue its strong launch in FSGS and show sustained IgAN growth, and Ohtuvayre and Zelsuvmi continue to show significant growth in product sales as well. Pelthos reported that more than 25,000 patients have been prescribed Zelsuvmi since its launch in July 2025.

Turning to a snapshot of our key partnered pipeline programs. This slide highlights what we believe are the most significant late-stage opportunities, though it's just a subset of our broader development stage portfolio. As these assets advance through clinical development toward approval, they will further contribute to our growth and portfolio diversification. Importantly, every program on this slide represents a new or follow-on investment we have made since 2022.

We often get asked which assets are the most exciting in the XOMA development stage pipeline, so I'd like to touch on a few of those here.

Starting with the Takeda programs, mezagitamab is being developed in both ITP and IgA nephropathy with Phase III results expected between late 2027 and early 2028. Peak sales are estimated at more than $1.5 billion, which would represent a royalty of more than $30 million to Ligand. Osavampator, which is being developed by Neurocrine under license from Takeda, is in Phase III in major depressive disorder with results expected in the second half of 2027. Based on limited available analyst estimates, peak sales are estimated to be between $500 million and $1.8 billion, representing a royalty of up to $80 million to Ligand.

Volixibat, which Mirum is developing under license from Takeda, was granted breakthrough therapy designation for primary sclerosing cholangitis in August. A pre-NDA meeting has been held and additional discussions are planned before a potential NDA submission in the first half of 2027.

In primary biliary cholangitis, enrollment is complete in the pivotal Phase IIb VANTAGE study with top line results expected in the first quarter of 2027. Peak sales are estimated above $1 billion, representing a peak royalty of more than $45 million to Ligand.

And finally, OJEMDA, which is marketed by Servier and Ipsen has a Phase III trial in frontline pediatric low-grade glioma with results expected in 2027. That indication is estimated to represent peak sales of approximately $500 million or a peak royalty of approximately $25 million on top of the royalty we already earned on the marketed indication.

Next, I'd like to discuss some of the positive developments we have seen in 2026 across our portfolio.

First, Filspari's FDA approval and commercial launch in FSGS has been one of the largest growth drivers in the second and third quarters of this year, and we expect that momentum to continue. Additionally, FILSPARI's marketing partner, Chugai, announced regulatory submission in Japan.

Second, yesterday, Palvella announced NDA acceptance and priority review for QTORIN rapamycin in microcystic lymphatic malformations. The FDA assigned a PDUFA target action date of February 28, 2027. If approved, Palvella is expecting a U.S. commercial launch in the first half of 2027. We congratulate our partner, Palvella, on this important milestone, which brings this potential new treatment one step closer to patients who currently have no FDA-approved therapies.

Additionally, in May, Palvella announced initiation of its Phase II trial of QTORIN rapamycin in clinically significant angiokeratomas and also plans to begin a Phase III trial in cutaneous venous malformations in the fourth quarter of this year. With our tiered royalty of up to 9.8% on all QTORIN rapamycin indications, we expect this pipeline in a product to be a sizable near-term growth driver.

Third, at Orchestra BioMed, the FDA granted AVIM therapy a second breakthrough device designation in patients with uncontrolled hypertension despite anti-hypertensive medication who are indicated for a pacemaker. And on October 1, Orchestra announced that the BACKBEAT global pivotal trial surpassed its full enrollment target of 316 randomized patients.

We look forward to top line results from Orchestra in the second quarter of 2027. I'd also like to highlight new additions to the portfolio this quarter.

The acquisition of XOMA, including three commercial assets Ojemda, Vabysmo, and Miplyffa and two new royalty investments, AvenCell and Santen's Ryjunea. Our interest in soticlestat was also revitalized in August. Ovid announced that Mistral Bio, a newly formed portfolio company backed by Perceptive Advisors, acquired global rights to the asset from Takeda. Soticlestat narrowly missed its primary endpoint in the Phase III Dravet syndrome trial.

Ligand is entitled to a share of royalties and milestones received by Ovid. We are excited to see this new investment in this asset by Perceptive and are reminded that one of the benefits of royalty investing is that our interest stays with the asset even as it moves from one clinical development partner to another.

We are also pleased that our partner, Immedica, announced that they will advance the development of IV ganaxolone for the treatment of refractory status epilepticus and plans to initiate a new Phase III study in 2027. RSE is a life-threatening neurological emergency in which ongoing seizure activity does not respond to at least two different antiseizure medications. There is a significant need for therapies that could rapidly control seizures and reduce the need for escalation to IV anesthesia.

Immedica acquired the global rights to ganaxolone through its acquisition of Marinus Pharmaceuticals in 2025. The decision follows an extensive review of the available clinical data and productive interactions with the FDA, which have provided a clear regulatory path forward for the program.

Immedica is now progressing the activities required to prepare and operationalize the new study, including finalization of the study design, manufacturing of clinical trial material and clinical site planning.

Looking forward to the remainder of the year and into 2027, we believe we are in the most catalyst-rich period in our company's nearly 40-year history. Through 2027, we anticipate up to seven pivotal trial readouts, including important assets from the legacy Ligand portfolio as well as programs more recently added through the XOMA acquisition. We also have the potential FDA approval of QTORIN rapamycin and microcystic LMs, which, if approved, would be a major growth driver as well as potential geographic expansion for commercial stage products already generating royalties today, including Filspari and Ohtuvayre.

Of course, biopharmaceutical development carries inherent binary risk, and we do not expect every one of these studies to be positive. The strength of Ligand's model is that we have intentionally built a diversified portfolio that is resilient to that risk so that no single readout or approval determines the outcome for our shareholders. With that, I'll now turn the call back over to Paul for an investment update.

Thank you, Lauren. Turning to our investment activity for the year. Our pipeline of investment opportunities remains robust. We have reviewed more than 180 investments so far in 2026, which puts us on track to exceed prior years. Of those, 115 moved to sign a confidentiality agreement, a 60% conversion rate and the highest number of CDAs signed in the past four years. What matters just as much is our discipline on the other end of the funnel.

We closed six investments or roughly 5% of the CDAs we signed. That selectivity is deliberate. We look at a very wide set of opportunities precisely so that we can be selective about where we commit capital. The six we closed this year are XOMA, Zerion, Agenus, Primrose, AvenCell, and Sydnexis. Some were large in size, while others were smaller follow-on or platform investments, but each fits the profile we've described before, differentiated assets, experienced management teams and structures that give us attractive economics.

We expect our review activity to continue at this pace through the fourth quarter, and we remain confident in our ability to deploy capital at the same standard. In September, we acquired a royalty and milestone interest in Santen's Ryjunea from Sydnexis for $23 million upfront.

Ryjunea is a once-nightly low-dose atrophy eye drop and is the first and only approved pharmacologic treatment to slow pediatric myopia progression in the European Union and the United Kingdom approved by the European Commission and the U.K. MHRA. Under the agreement, we acquired 100% interest in Sydnexis' payment rights under its Santen license, which includes a tiered low double-digit to high teens royalty on net sales in Europe, the Middle East and Africa, plus certain milestones.

Sydnexis retains the U.S. and all other non-Santen territories. Myopia is a large and growing condition. Santen estimates that 14 million patients in Europe were affected in 2025, and Santen has identified myopia as a key strategic growth area with a strong ophthalmology presence across Europe. That gives us confidence in the long-term commercial potential of Ryjunea, and it becomes the 16th key program in our commercial portfolio.

Also in September, we entered into a financing agreement with AvenCell Therapeutics for up to $47 million, which includes up to $41 million of royalty financing and up to $6 million in a concurrent Series C investment. The first tranche includes both royalty and equity for an initial investment of $9 million. What makes this transaction distinctive is that it is a platform royalty. In exchange for our commitment, we receive a mid-single-digit to low double-digit royalty on worldwide net sales of all current and future AvenCell pipeline assets with the applicable rate determined by the total amount ultimately funded.

The capital is deployed in four tranches. The first at closing and the remaining three tranches tied to clinical milestones and other conditions, which aligns our capital with the progress of the programs.

The lead asset, AVC-201, is an anti-CD123 CAR-T in a Phase Ib expansion study in relapsed/refractory AML, one of the most acute and fatal cancers and one for which there are no approved cell therapies. AvenCell is also advancing AVC-203, a Phase Ia program in B-cell malignancies. The platform combines CRISPR-engineered allogeneic CAR-T cells with a switchable feature that enables the therapy to be turned off, providing greater control over CAR-T activity.

It is an off-the-shelf approach with potential across hematologic malignancies and other diseases. We are encouraged by the data generated to date with AVC-201 and look forward to working with the AvenCell team as they advance the pipeline. For both of these profile investments, our team had long-standing preexisting relationships. And with that, I'll turn the call back over to Todd for closing remarks.

Thank you, Paul. Stepping back, this quarter marks an important moment for Ligand. Our results demonstrate the strength of our business, now including the XOMA portfolio. We have achieved a 51% year-over-year growth in royalty revenue, constructed a diversified portfolio of more than 200 assets and have $750 million of deployable capital to continue building our portfolio. Put simply, we have the capital, the people, the process, all focused on a very robust market opportunity.

We believe that positions Ligand to drive growth well into the next decade. I would like to thank the Ligand team for their outstanding execution and our partners whose progress in developing treatments for patients is what ultimately drives our success and results. Thank you for joining us today. I will now turn the call back over to the operator for questions.

[Operator Instructions]

Your first question comes from the line of Matt Hewitt with Craig-Hallum Capital Group.

Congratulations on the strong quarter. Maybe first up, now that you've kind of had some time to dig through the XOMA portfolio a little bit deeper, I'm just curious if there's incremental assets. I think initially when you valued the transaction, it was just on a handful. Obviously, it's a much larger portfolio than that. So as you've dug in deeper, are you finding maybe some hidden gems? And how does that transaction feel today?

Thanks, Matt. That's a great question. There is. I mean, when you are valuing a portfolio of the size that XOMA had created, you really use a triage approach to valuation around those assets that you have the most information on that carry value. And so that was really a small subset of their total asset base. As we have begun to dig through that over time, of course, there's a number of news flow on things that we had underwritten frankly, to zero that are developing quite nicely and have positive information. We believe that has come out.

There are real shots on goal. And other portfolio assets that XOMA had that we have the follow-on capital capability to support those companies, which improves their probability of success as well as represent very good investment opportunities for us. So we are kind of farming through that portfolio carefully with Lauren in the lead there and assessing each asset, and we are uncovering a lot of, I would say, option value on things like the Rezolute assets, the volixibat, et cetera.

That's super helpful. And then maybe just kind of sticking with the XOMA. I think initially, your guidance contributed $0.50 to XOMA to earnings this year, $1.50 to next year. As you've gotten a little bit more comfortable with the portfolio, do you still see that as being the contribution? Or has there been any changes to that initial thought?

Yes. No changes to that. I'll let Tavo follow up here, but significant changes in our views on the viability of very promising assets within the portfolio. Tavo?

Yes, that's right, Todd. No changes to what we've said in terms of immediate accretion in '26 and then $1.50 in '27. Now that the dust is settling on the acquisition, I am pleased to say that the cost synergies are coming in a tad better than we had expected. So we're very pleased to see that come through. But no change. And we'll talk about the contribution, our updates to the contribution next year when we meet at Investor Day. We'll talk about it more specifically at that point.

Your next question comes from the line of Dave Risinger with Leerink Partners.

Just wanted to add my congrats on the quarterly results. So my question relates to the news flow ahead. So specifically, could you talk about the QTORIN rapamycin PDUFA and the prospects for the sales for that drug over the long term and remind us about the royalty opportunity for Ligand, please?

Sure. As everybody may have seen, they yesterday got very good news with Palvella and are expecting a PDUFA date in February. That's very big news for us. The sales potential here is high several hundred millions to $1 billion in kind of when you take all territories into consideration and our royalty rate on this scales pretty quickly at lower levels of sales up to just under 10% at 9.8%.

Your next question comes from the line of Jason Zemenski with Bank of America.

This is Jackie on for Jason. Congrats on the quarter. So as you look towards 2027, how are you thinking about the pace of capital deployment? And given the growth of the existing portfolio, how much do you need to deploy annually to sustain it?

Yes. Thank you, Jackie. I think the rate of deployment here is accelerating. We think somewhere below $200 million or $200 million deployed per year sustains our growth for a significant period of time. Obviously, in the far, far outer years beyond 2040 or so. the scale of our investment activity must be significantly higher than $200 million.

But for the next three to five years or so, that pace will sustain our growth significantly through the mid-2030s. And we're deploying at that rate. I would say that we've added two deal leads over the last 12 months, and they've come on board very rapidly, are highly productive along with the other three folks that are leading deals. And so the pace probably does increase, and that will increase our option value. The pace could go up or the selectivity could go up. But either way, I think that works very well for us.

Your next question comes from the line of Glen Santangelo with Barclays.

Just two quick ones for me. I just want to focus on the royalty revenue guidance. I mean you basically just maintained that guidance on what was a pretty strong quarter here. And if I look at the implied sort of royalty revenues in the fourth quarter, I think it's $64 million to sort of $89 million. And given the things, Tavo, that you sort of talked about having XOMA for the full quarter, the step-up in the royalty rates and all those reasons why revenues would be more weighted towards the fourth quarter, the bottom end of that range just feels unrealistic, particularly given what we're seeing out of Filspari. So, I was wondering if you could just sort of comment on that.

Then secondly, as we look to the Analyst Day coming in December, I'm just kind of curious how you think about this PDUFA now in Q2 and all the data readouts that we're expecting in 2027 and how that shapes your thinking in providing that updated five-year guidance at Analyst Day.

Go ahead, Tavo.

Yes. Thanks for the question. You do raise a good point, in particular, the lower end of the implied royalty for Q4. I agree. It does imply a measured approach. We definitely have a certain amount of confidence -- a high level of confidence that we'll approach the mid- to higher end, if not even exceed it. We are being a little cautious in part, as I announced in my prepared remarks, we are still waiting for many of our partners to report, and we feel good about the range, in particular, the upper side of the range. So, we'll leave it at that.

Any thoughts on the Analyst Day and how you formulate that five-year plan given all the data that we're expecting?

Yes. So we'll update our long-term outlook. Like I mentioned also in my prepared remarks, there's a number of positive events, news flow and catalysts that have happened throughout the year and in particular, the Palvella news, the XOMA acquisition, obviously, will inform that. But yes, we're very much looking forward to updating that long-term outlook when we present that on Investor Day on December 8.

Your next question comes from the line of Annabel Samimy with Stifel.

Congratulations on the progress. I had a couple here. So thinking about XOMA and some of the capabilities that they brought, I'm curious if this changes the technological complexity, level of innovation or clinical risk that you're going to take in some of the deals that you're pursuing right now? And I guess the second question goes to the deal flow. You signed 115 CDAs, six investments were closed. So I'm curious to know what results in those other deals not closing? And if there's any level of competition that you're seeing that could be a reason for that?

Okay. I think that in terms of our investment strategy and the addition of XOMA, the strategy has not really changed at all. We're focused on positioning our capital in late-stage clinical development, sub-$100 million deal sizes where we're going after very high unmet clinical need. We're therapeutically and scientifically agnostic on the approach and focused really on the risk reward of each specific situation, which we analyze typically with access to confidential information and very competent experts with deep levels of expertise in the given area of science.

Any time you're running an investment business, of course, it's 80-20 in terms of your capabilities on the inside when you're assessing opportunities and calling through your pipeline. But we always go outside of Ligand in our confirmatory diligence stage to some of the deepest expertise in the world around a given therapeutic area, around a given scientific base, et cetera.

So that's best practices. And the acquisition of XOMA hasn't really changed that. And in fact, they did a great job kind of building the company, but this is just such a highly synergistic business with us that we really brought over two employees, full time and one in a consulting arrangement. So the synergies around that acquisition are very high. And our capabilities are quite broad. And on the deal flow front, Paul, if you're on the mic, I'll let you take that one.

Yes. Thanks, Todd. Annabel. Yes, I think the deal flow is definitely upticking. I think you can see from the CDA signed, I think we signed about 69 last year. So it's up quite considerably. And I think that's reflective of the additional deal leads we brought on. So we're quite comfortable with the activity level and also just the pace of deployment, and we're anticipating having a very good year next year. So we're excited for what's to come.

Your next question comes from the line of Yigal Nochomovitz with Citi.

Just a question on the risk model and how you think about probability weighting success. Obviously, with the Palvella priority review and the PDUFA, you've passed a certain mark in terms of risk reduction. So do you embed that in your forecast now in terms of probabilities? And then how do you think about the option to acquire royalty in a different topical candidate now that you've got a little bit more confidence with respect to Palvella's path to approval?

Yes. I think that the original Palvella investment was done relatively early stage for us, but there was significant third-party evidence and evidence of the potential safety and efficacy on that particular drug. What we really invested in there originally was the formulation risk and the team, which is outstanding. So that's kind of how we looked at the risk originally. It was earlier, but derisked in many ways that typically earlier-stage compounds are not. But we're constantly assessing both the probability of success, which we define as an approval and launch and then obviously discounting the commercial risk over a significant period of time. And in general, that's how we approach that. And what was the second part of your question, Yigal?

I was just curious about how you think about acquiring additional options on some of their other topical candidates given the royalty you have there.

Yes. There's no tangible discussions ongoing right now. And Palvella has very strong, significant access to capital. But of course, we're always engaged with our partners. We work hard on the origination effort with the deal teams to meet new management teams, assess the assets and the team's ability to execute. Of course, we're doing that within our own portfolio as well.

The Palvella team is outstanding. So of course, we're always willing to engage with partners like Palvella and put follow-on capital. In fact, since the original investment, which don't quote me on this, I could be wrong. I think it was 2019 that when Ligand came into the deal, we have followed on in every single round of investment, including the equity rounds. So we're not really an equity finance strategy, but we will use equity as a tool to support our partners because that helps get round syndicated. It shows support from the inside. Of course, it makes our royalties more valuable. So there's a self-serving element to that, but that's paid off for us very nicely as well.

Your next question comes from the line of Leland Gershell with Oppenheimer.

Just wondering, in terms of the cost synergies post XOMA, just wondering, I think maybe it was on your last earnings call, you had mentioned that those may be even better than you had originally expected. So just curious if you could give us a sense of what you see to be kind of the quarterly ongoing run rate for G&A as you remove 1X costs and transaction integration costs and so forth. Where do you stand on the XOMA cost synergies?

Yes. Go ahead, Tavo.

Thanks, Leland, for the question. So we acquired a business that had a cash operating expense run rate above $25 million. when we announced the acquisition and then reaffirmed when we closed the deal that we would bring that down to approximately a $5 million run rate post-acquisition. What we're seeing today is that that's going to perhaps be a tad better than that. So modeling out the future, I'd keep it to just under $5 million per year in additional incremental cost as a result of the acquisition. So that's been a very nice outcome in that regard.

Okay. Great. And then just wanted to ask another question with respect to Q4. It does seem you're being conservative here on the top line. Just wondering if there's any particular driver for that conservatism? Is it just estimates from the sell side that may change with the true-up? Just wondering what's driving your conservatism in Q4 revenues.

Yes. We have line of sight on a lot of the below-the-line items, operating expenses, share count, tax rates and things that we have more direct control in, and that's what inspired the move in the earnings per share guide. On the top line, like I mentioned in my prepared remarks, the order flow from Captisol customers, the regulatory clinical milestones, there's some uncertainty there. And so again, just taking a bit of a measured approach there and seeing -- and also seeing what we learned from our partners here over the next couple of weeks, I think, that's the primary driver behind our measured approach on the top line.

Your next question comes from the line of Sahil Dhingra with RBC Capital Markets.

This is Sahil for Doug. My questions are related to your two recent acquisitions. So first on Ryjunea. So we are aware there is an AdCom for the drug in the U.S. despite the clinical trial meeting both endpoints. So my question there is, does the U.S. regulatory skepticism post any read across risk to European prescriber confidence? Or any reimbursement negotiations for the drug? Or do you view that EU and U.K. approval are sufficiently independent? And also, is there any risk of unregulated compounded atropine in the regions where it is approved?

Yes. Go ahead, Paul.

Yes. So Sahil, thank you for the question. To answer the first part first, no, we don't view any read across as a risk. The product has been approved in Europe for a few quarters now, independent of what's been happening in the U.S. Obviously, the AdCom will be on Friday. But we feel comfortable and have conviction that Santen will continue to roll out the product. And with respect to your second part of the question, there are compounding pharmacies that have been distributing atropine, but that dynamic is moved now that they have an approved product that's regulated and obviously being distributed by a very formidable ophthalmology company in Santen. So we feel comfortable there.

Okay. That's helpful. And then my second question is related to the IRR and risk profile. So could you speak to the targeted IRR on the two acquisitions? And how does the risk return compared to a preclinical stage asset and the commercial product for with Ryjunea? And I'll leave it there.

Yes. So on every deal, we basically are assessing the risk and estimating what we think is an appropriate risk rate. And then we price in excess of that because our objective is to create alpha for our investors. Also, we realize their estimates. So you want to price in excess of your risk assessment to make sure you've got some buffer there and are delivering appropriate returns.

Typically, in the commercial stage royalty space, you're seeing returns on investments of between kind of 9% and 12%. There's a lot of royalty capital in that space. It's highly competitive. Usually, there are multiple bids on a given asset or a financing situation, which is why for us, I think we're typically underwriting well in excess of that. Usually, that's for structural reasons like, for example, the acquisition of Apeiron in '23. That was a commercial asset, but we needed to buy the entire company and restructure the asset. So we delivered returns in the high teens is what we underwrote that, and it's overperforming. So that will deliver kind of in the low 20s and took a similar approach here on the Santen situation. And that's why our special situations approach is quite important. We have significant operating capabilities, and that allows us to execute and differentiate our approach in more complex situations, which generate superior returns for our investors.

There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to the Ligand Second Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Melanie Herman, Head of Investor Relations. 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, Octavio 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 excludes 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 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 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.

And 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 2 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 0 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. Octavio 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 nondilutive 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 4 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 and adds scale, diversification and long-duration royalty rights while sitting 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 carry 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 5-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 Octavio for the financial update.

Thank you, Todd. As you've highlighted, we're entering a new chapter for Ligand. 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, Ohtuvayre and Zelsuvmi. Adjusted diluted earnings per share increased 48% to $2.37, 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 stand-alone 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.

The acquisition also brings meaningful tax attributes, including more than $110 million of Section 174 tax credits and net operating losses that we expect to utilize over the next 3 to 5 years, resulting in significant U.S. cash tax savings. Strategically, the transaction more than doubles the size of our royalty portfolio by adding over 120 assets including 7 commercial stage programs, approximately 14 late-stage clinical programs and more than 100 additional clinical and preclinical programs that provide substantial long-term optionality. In addition to the royalty streams, the acquired portfolio includes approximately $2.3 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, Ohtuvayre and Zelsuvmi. Travere reported second quarter U.S. Filspari net sales of $141 million, representing 96% year-over-year growth. Merck reported net sales of Ohtuvayre of $204 million, representing year-over-year growth of 98%. This was partially offset by Amgen's reported Kyprolis net sales of $314 million, 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. Research and development expense included a $12 million onetime charge related to our Orchestra Bio investment.

As we've discussed previously, depending on the structure, our R&D financing transactions may be required under GAAP to be expensed immediately. And even though we view them economically as investments expected to generate future royalty streams. The Orchestra Bio transaction this quarter is an example of that accounting treatment. And accordingly, this one-time charge is excluded from our adjusted earnings. General and administrative expense increased primarily due to higher stock-based compensation, continued investment in our business development capabilities and transaction costs associated with completing the XOMA acquisition. Outside of operating results, nonoperating income benefited primarily from fair value adjustments within our investment portfolio. GAAP diluted earnings per share were $2.22, while adjusted diluted earnings per share increased 48% to $2.37, reflecting the continued earnings power of our royalty-focused business model.

Turning to guidance. We are increasing the low end of our adjusted diluted earnings per share guidance to $9 per share, while maintaining the upper end at $9.50. The increase primarily reflects the incremental earnings contribution from the proceeds of our 0 coupon convertible note offering, together with the benefit of the share repurchase completed during the year -- excuse me, during the quarter. At the same time, we're reaffirming all of our revenue guidance, including a royalty revenue of -- including royalty revenue of $225 million to $250 million, total revenue of $270 million to $310 million, Captisol revenue of $35 million to $40 million and contract revenue of $10 million to $20. For modeling purposes, I'd also note that within our Captisol guidance, we expect the remaining sales this year to be weighted towards the fourth quarter, approximately 40% in the third quarter and 60% in the fourth quarter, reflecting our current expectations for the timing of customer orders.

Similarly, we expect the majority of remaining contract revenue to be recognized in the fourth quarter based on the timing of certain anticipated partner milestone events. Overall, we maintain highly confident in our outlook. With XOMA now closed, we believe we're well positioned to deliver another year of strong financial performance, supported by continued growth from our commercial royalty portfolio and the accretive contribution from the acquired assets. Importantly, the business today is materially different than the one reflected in the long-term framework we introduced last December. As Todd mentioned earlier, we'll update that outlook at Investor Day this December. That original 5-year framework didn't contemplate the acquisition of XOMA or several significant positive developments across our existing portfolio.

The approval of Filspari in FSGS, the positive Phase III results for palvella and rapamycin and the acquisition of XOMA have all enhanced the long-term earnings power of the business. Those positive developments continue to build. In fact, 2 days ago, Travere reiterated its confidence that Filspari has the potential to achieve peak sales exceeding $3 billion across IgA nephropathy and FSGS. That further reinforces our confidence in the long-term growth opportunity for one of our largest royalty assets. We're excited to share the details with you at our Investor Day later this year.

With that, I'll turn the call over to Lauren for an update on our royalty portfolio and pipeline.

Thank you, Octavio, and good morning, everyone. Following the acquisition of XOMA Royalty, our commercial portfolio now consists of over 40 royalty revenue-generating products with 15 key programs. The XOMA acquisition adds Roche's Vabysmo, Ojemda, which is marketed by Servier in the U.S. and Ipsen in Europe and Zevra Miplyffa. Of these 15 programs, 9 stem from royalties tied to new approvals or investments made since 2022 when we pivoted to a lean royalty aggregation model. Together, they span a wide range of therapeutic areas and partners, reflecting a highly diversified, durable and growing royalty revenue stream.

Turning to a snapshot of our key partnered pipeline programs. Our portfolio now includes more than 70 clinical stage assets. While this slide highlights what we believe are the most significant late-stage opportunities, it represents a small subset of our broader development stage portfolio. The breadth and depth of these partnered programs provide multiple opportunities for future royalty growth as the assets advance through clinical development, achieve regulatory approval and ultimately reach commercialization. This diversified pipeline further strengthens our long-term growth profile and underscores the value of our royalty aggregation strategy.

One asset I would like to highlight is Agenus Bot/Bal. Agenus entered into a financing in July, raising $85 million upfront with an up to an additional $225 million upon full exercise of purchase warrants. The financing was led by Commodore Capital with participation from Ligand among other investors. With this financing, Agenus is discontinuing its current Phase III trial in relapsed/refractory colon cancer and has reached alignment with the FDA on a new trial in the neoadjuvant setting. First patient dosing in this new study is expected in the first quarter of 2027. Last quarter, we highlighted near-term growth drivers, which had positive catalysts in the first half. These included Filspari, which was approved in April in a second indication, FSGS, where is the first and only FDA-approved treatment. Additionally, rapamycin demonstrated very positive Phase III data in microcystic lymphatic malformations. Both of these products are expected to be significant near-term growth drivers for Ligand.

This quarter, I'd like to turn our focus to a few programs we gained through the recent acquisition of XOMA that are expected to play meaningful roles in the Ligand portfolio. First is the multibillion-dollar blockbuster treatment, Vabysmo, which is the third best-selling product in Roche's portfolio. Vabysmo is indicated for patients affected by wet age-related macular degeneration, diabetic macular edema and retinal vein occlusion, where treatment was recently approved to extend beyond 6 months. First half 2026 sales were approximately $2.6 billion and analyst consensus peak sales are approximately $7 billion, which would represent a peak royalty of approximately $35 million to Ligand. Roche is currently conducting a large-scale prospective non-interventional observational trial evaluating the long-term real-world effectiveness and safety of Vabysmo.

The trial was initiated in 2022 and aims to track over 6,000 patients. Interim data has already been presented showing significant functional and anatomical improvements as early as 6 months into treatment. The trial has the potential to be an incremental growth driver for Vabysmo. In July 2026, Roche announced the Phase III trial evaluating Vabysmo in myopic choroidal neovascularization, or CNV, met its primary endpoint. A potential catalyst is expected in 2027 as Roche is expected to file a BLA in CNV. We look forward to following these key developments over the coming months.

Turning to the next slide. Ojemda addresses an area of high unmet medical need in pediatric oncology. Ojemda is currently marketed in the U.S. by Servier and recently gained marketing authorization in Europe and is being marketed by Ipsen as its ex-U.S. partner. Servier acquired rights to Ojemda through its recent acquisition of day 1 for $2.5 billion, further validating the commercial potential of this asset. Ojemda is currently marketed under accelerated approval in relapsed/refractory pediatric low-grade glioma or pLGG, and is the first targeted therapy delivering clinically meaningful tumor shrinkage with durable responses in patients with BRAF fusion or rearrangement and V600 mutated disease. It is also in Phase III for frontline pLGG with top line data expected mid-2027. We are entitled to milestones and a tiered mid-single-digit royalty on worldwide net sales.

Day One previously guided to 2026 sales of between $225 million and $250 million and Day One analyst consensus peak sales were estimated to be in excess of $1 billion. In addition to our mid-single-digit royalty on net sales of Ojemda, we are also entitled to regulatory milestones.

Taking a step back to look at our portfolio as a whole, following our acquisition of XOMA, we are entering the most catalyst-rich period in our company's nearly 40-year history. Over the next 18 months, we have as many as 7 pivotal trial readouts alongside potential FDA approvals and geographic expansion opportunities for products already on the market. Each of these represents a potential royalty revenue stream being initiated, expanding or accelerating for our shareholders. Of course, biopharmaceutical clinical development carries inherent binary risk, and we do not expect that every one of these pivotal studies will be positive. The strength of Ligand's model is that we have strategically and intentionally positioned our business to be resilient to this risk by creating a highly diversified royalty portfolio.

Let's start with the expected pivotal study readouts. Orchestra Biomed's AVIM therapy, if successful, could represent a significant new royalty in cardiovascular disease. Ojemda 's Phase III readout in frontline pLGG could result in a label expansion opportunity. LeonaBio's lasofoxifene has the potential to capture significant market share in the metastatic ER-positive HER2-negative breast cancer market. Takeda's Mezagitamab is being developed in both immune thrombocytopenia or ITP and IgA nephropathy, and Takeda has shared the IgAN data could read out as early as late 2027. Osavampator has several Phase III readouts expected in major depressive disorder.

Rezolute announced positive interim data for Ersodetug in tumor hyperinsulinism in June with top line results expected in the second half of 2026. The Phase IIb trial of volixibat in primary biliary cholangitis is expected to read out in the first quarter of 2027. In addition, they have announced positive Phase IIb data in primary sclerosing cholangitis and will hold additional discussions with the FDA prior to NDA submission. Volixibat has orphan drug designation and breakthrough therapy designations in both indications.

Turning to FDA approvals. Palvella began the process of submitting a rolling NDA for Rapamycin in microcystic lymphatic malformations, which is on track for completion by the end of 2026. Rapamycin has the potential to be approved in 2027 and if approved, would represent a major growth driver for Ligand. Finally, we're tracking potential geographic expansion for commercial products already generating royalties today. Filspari has the potential to be approved in Japan and IgAN, Ohtuvayre in China and Ojemda in Japan, which could significantly drive royalty revenue with potential milestone opportunities as well.

In closing, with the acquisition of XOMA, we have never felt more confident about the potential of our portfolio, both in the near term and the long term. With that, I will turn the call back over to Todd for his closing remarks.

Thank you, Lauren. We are incredibly proud of the team at Ligand for their outstanding execution in the financing and the acquisition of XOMA Royalty. We have significantly scaled our royalty portfolio and accelerated our long-term growth profile while adding a highly complementary and diversified business to our platform. Additionally, we are pleased with the continued progress of our incredible partners and late-stage pipeline. While we are driving growth for our shareholders, it is very satisfying that we get to do so by helping our partners as they develop life-saving treatments and improve the lives of patients.

Thank you for joining us today. And I will now turn the call back over to the operator for questions.

[Operator Instructions] Your first question comes from the line of Matt Hewitt with Craig-Hallum Capital Group.

Congratulations on the strong quarter. I guess, first up, it's almost a month since you closed the XOMA transaction. I'm just curious if you found any surprises as you dug in a little more deeply into that portfolio of assets.

Yes. Good question, Matt. I'll have Lauren weigh in here. But I think, yes, there have been a number of developments in the portfolio that are positive. And I would just set Lauren up by saying that when you're acquiring a royalty portfolio of this size, you value the entire portfolio on a subset of assets and you value the rest of the assets at 0. It's kind of a triage approach to valuation. And we've had several positive developments on assets that we had originally valued at 0 in that process. So go ahead, Lauren.

Yes. Thanks, Todd. I think, yes, Todd is exactly right. We did focus our underwriting process on some of the later-stage pipeline assets. And since the acquisition closed, we've been connecting with each of the partners in our new portfolio and finding some really interesting new investment opportunities, both within kind of the mid-stage pipeline as well as some earlier opportunities. So I think related to our ongoing portfolio management strategy that we implemented this year, there's a tremendous amount of opportunity for us to provide further investment into some of those early to mid-stage pipeline assets, and we have a lot of conviction around some of those that we're starting to learn more about since the acquisition closed. So thanks for the question, Matt.

And I guess as a follow-up, XOMA had some -- a different type of royalty investments, the financial royalty investment. What are some of the pros and cons between that structure and the way that Ligand has historically done it? And do you anticipate going forward that you might seek out more of those financial royalties versus the prior version?

Thanks, Matt. I think that you're referring to the zombie strategy where they were acquiring essentially companies that had become distressed. And one of the main motives there was acquiring the tax assets and net cash from companies that were looking for basically liquidity options. And we certainly have looked at that strategy. I think part of each XOMA's royalties, and our strategy are driven by sort of circumstances, scale, access to capital, et cetera. And I don't think that we would look at very small deals where you're netting a couple of million and a de minimis amount of assets. But XOMA did a very good job of rolling up a number of these, which cumulatively we're benefiting from those now in terms of the tax assets that Tavo mentioned. But we are looking at a number of companies that do provide some tax benefits right now in our active pipeline. But our main focus is on the quality of the asset and the ability to monetize that in terms of royalty cash flows downstream.

Your next call comes from the line of Annabel Samimy with Stifel.

Congratulations on this integration. So the composition of your royalty assets now post XOMA seems to have really stepped up quite a bit. And it might be hard to move the needle now with additional one-off product deals. So with this completion here and your coffers refill, can you talk about your thoughts on deal type? Are you going back to asset-based type of deals? Should we expect bigger, more portfolio-like transactions? Just trying to think about how you're going to think about business development going forward.

Yes. It actually -- while we have scaled the portfolio, and accelerated the growth, the size of the market, the total available market that we're investing in the sub-$100 million market is very, very significant in size relative to the amount of capital we're deploying. And we've kind of done some analysis around the required level of investment for us to continue really perpetuity levels of growth. And it's around $100 million to $125 million per year at the yields we expect to generate off of those investments. But we're able to invest really very consistently in this market at the $200 million plus or minus level with this team on an annual basis.

So I do think that we expect to continue to execute on the exact same type of deals, sub-$100 million, typically in the $25 million to $75 million range around specific royalty assets that we acquire or project financings that we do with partners. And in some cases, special situations, which can, on average, be a little bit larger, but are typically also pretty deep value opportunities. So I would say, expect to see more of the same.

And if I could just ask a quick follow-up. it looks like you can be shocking your closet for a while here with some of the early-stage assets. So anything -- have you started digging into that early portfolio yet? Or is it still -- are you still primarily focused on late-stage assets and mid-stage assets here?

We have. And because financially, we just -- we're a little bit more mature than XOMA and have more scale, more access to capital. It allows us to play the portfolio with a lot more optionality. And there are some, I think, pretty interesting assets in the portfolio that I'd say we're on the cusp of proving their value. So for very small levels of investment, in some cases, a couple to $3 million, you can validate some of these earlier-stage assets in the clinic and make them very licensable. So we're pursuing a number of ideas like that. It's a little bit early to say which ones seem most promising and which ones we will actually make final decisions around follow-on investments in. But it's such a large target-rich portfolio that I think there will inevitably be a few of those coming out of it. And I would just ask Lauren if she has anything to add to that response.

Yes. I think -- I would reiterate Todd's points and just add that the opportunities that we're focused on in the earlier-stage portfolio are still very well aligned with our investment criteria, which include ability to address high unmet medical need, evidence of efficacy and safety, strong alignment with our partners. We're looking to invest with great teams. So we're definitely finding opportunities in the earlier stage on the portfolio that while they may be a little bit earlier than we would historically look at, the assets themselves and the teams themselves are completely aligned with our overall strategy in terms of the types of assets that we're looking at. So hopefully, more to share publicly a little bit later on this year, but we're busy and excited about what we're seeing.

Your next question comes from the line of Yigal Nochomovitz with Citigroup.

Also congrats on a very good momentum. I was also curious about XOMA. Obviously, you have a lot in the early-stage pipeline. You mentioned over 100 preclinical and clinical assets. But with regard to the 14 late-stage ones, could you speak to those a little bit more? Which ones would you call out as potentially most interesting or most promising? And of those 14, were some of those or a subset of those or all of those included in the valuation during the underwriting process? Or were some of those also sort of zeroed out as you referenced earlier?

Yes. Happy -- good question, Yigal. And I'll just -- I'll hand this one off to Lauren, but just by stating and leading in that a strategic part of our organizational changes over the last couple of years has been to put in place a sophisticated portfolio management opportunity or opportunity system, which allowed us to absorb the XOMA assets with a de minimis amount of absorption of their existing infrastructure. So Lauren is overseeing that. She heads our portfolio management system and is engaged in detail on the late-stage assets, the analysis of those and additional follow-on activities where it makes sense. Lauren?

Yes, sure. Thanks for the question, Yigal. I think we've talked about what we're uncovering in some of the earlier-stage pipeline. So I think I'd respond by saying what we're most excited about in the near term are probably some of the assets that we highlighted in our prepared remarks related to upcoming pivotal study readouts. So we're looking at Ojemda in frontline pediatric low-grade glioma. And then we have data expected for Mezagitamab, Osavampator, volixibat in PBC as well as. So there's a number of shots on goal here when you look at just the late-stage portfolio. So as we shared in the prepared remarks, we don't expect all of these to be positive.

But I think when you think about the volume of catalysts that we have in the next 18 months in the late-stage XOMA portfolio relative to, say, what we had this year, we had one major data readout with palvella and rapamycin in microcystic lymphatic malformations, which really delivered exceptional results. When you think about that compared to up to 7 potential pivotal study readouts in the next 18 months across both the XOMA and Ligand portfolio, it really is going to be a busy exciting time for us. And so we're most focused at the moment on some of those later-stage assets. So thanks for the question, Yigal.

And then just one follow-up. Obviously, with the recent $700 million transaction with a very low cost of capital, just wondering if that impacts or changes your thinking in terms of what you'd be willing to accept or transact with regards to deal size or hurdle rates? Or is the underwriting discipline essentially unchanged despite obviously a very attractive cost of capital on that tranche of money?

Yes, Yigal, that's a great question. Our strategy and our underwriting criteria as well as target returns remain unchanged. Lower cost of capital just allows us to deliver greater alpha and a spread for our investors. So -- and the deal sizes will remain in the same ballpark as well because we're really focused on the market that needs this type of capital the most. And we think the sub-$100 million deal size, which is our typical range that we're in, at least that's our limit, say, per asset is quite target rich. There's lots of small-cap companies, late-stage private companies, even some mid-cap companies where this is a very good fit. And we're focused on really serving that market. So this is really where we've focused the engine that we've built is in that market.

Your next question comes from the line of Jason Zemansky with Bank of America.

This is Jackie on for Jason. Congrats on the quarter. So can you quantify the XOMA revenue and cash flow contributions contributed in your revenue projection -- or sorry, in your projections and the second half EPS accretion, including the principal commercial assets driving the contribution? Ultimately, how much of the $1.5 is expected in the 2027, representing underlying ROE growth versus cost synergies and tax benefits?

Go ahead, Tavo.

Jackie, thanks for the question. The contribution from the XOMA acquisition is entirely reflected in the increase in guidance that we announced a couple of months ago upon the announcement of the XOMA deal. It does include the top-line contribution as well as cost synergies that we expect. And obviously, that all takes effect starting in the third quarter and then obviously, the full year contribution in 2027. So yes, that $1.50 is 100% tied to the top line contribution from XOMA plus the significant synergies that I referenced in my prepared remarks.

Your next question comes from the line of Leland Gershell with Oppenheimer.

Adding my congratulations as well to Todd and the team. A couple of questions from us. I wanted to ask, as Ligand has grown its presence in the royalty aggregator space with the XOMA acquisition, I wanted to ask how your ability to be competitive may be enhanced by not just having a larger presence in terms of assets, but also some of the key members of the XOMA team as part of the Ligand.

Yes. I think in general, in terms of the landscape, the competitive landscape, our ability to execute within the markets. The overall amount of royalty capital involved in financing pharmaceutical companies, biopharmaceutical companies is less than 9%. On the development side, now this is my own estimate, so this is rough, but it's less than 5%, I would say well less than 5%. And there's only a few players that really do this consistently, and they all have their different approaches. So it's a very early-stage market, and it's pretty low competition in terms of providing nondilutive capital in the form of royalty finance.

That is exactly why we proactively and initially focused on the market that we focused on, which is development stage, sub-$100 million deals, mostly small-cap companies, but late-stage private and some mid-cap as well. And there's a very, very high demand and low supply of capital in the space in general. But even the players that do it consistently as part of their core business have very different approaches. So, we haven't really been head-to-head on any royalty financings. We do invest in very capable partners. They have to have good management team so that we don't have to manage it. That allows us to achieve very high operating leverage. So, they usually almost always have alternatives. Those alternatives are -- there are other options in the equity markets, access to debt, et cetera. So that keeps everybody honest, and it keeps the market pretty level. But it's a very good market, and there's a high demand for what we do.

And just maybe one question for Tavo. You mentioned on the $110 million -- more than $110 million of the tax credits and NOLs to be utilized over the next few years. Any cadence to the utilization of those as we think about benefit to your cash generation and any limitations on their utilization?

Yes. Thanks for the question, Leland. Yes. So, the Section 174 R&D tax credits that came about from the big beautiful bill. The sponsor, the holder of the asset has the option of either taking a 100% write-off against their taxable income or deferring it over 5 years. The vast majority of the sponsors that generated these assets under the XOMA -- these are assets that came over from XOMA, obviously. They elected to defer them over 5 years. So we will continue with that cadence, if you will. And the bolus of the value will be absorbed or realized over the next, call it, 2 to 4, 3 to 5 years, given our taxable income profile.

On the NOLs, which is a significant smaller portion of the overall asset. Those are limited to the general rule there is 3% of the acquisition price per year. But it does inform our cash generation meaningfully. You heard me say in my prepared remarks that we expect to generate approaching $300 million in 2027. And some of that is informed by this tax asset, this tax attribute that comes over from the XOMA acquisition.

Your next question comes from the line of Joe Pantginis with H.C. Wainwright.

So my 2 questions. First, Todd, I guess I'm going to approach XOMA from the opposite end. With so many opportunities there, you say you might be looking to invest in some of the smaller opportunities that you're looking more into. But is there anything now since you can talk 100% freely about XOMA since it's closed, that you might be looking to unload or spin off at this moment?

Nothing that I can really talk to, Joe. I think in terms of how we monetize assets, and I'll use this great question as a platform to make, I think, an important point. A lot of and what we value the XOMA company on were partnered assets and it was a subset of the total number of assets. There are many assets. In fact, a significant majority of the assets that we either do not have enough information about or they were just very early. So we valued those at 0. So again, it's kind of a triage approach. Now Lauren, through the system that she set up to manage these is going through the full portfolio. There are also unpartnered assets. And so, when we look at these opportunities to create upside beyond our original underwriting, we're looking at certain technologies and assets that may be very promising, but require really a de minimis amount of investment to establish proof of concept, which would then make them very licensable or partnerable.

So that is a whole other area that is pretty target-rich for us. And I can't name anything specifically yet because it is early in our analysis in that regard. But I'd be surprised if we don't get a couple or several opportunities like that, that are pretty compelling. And so we can continue to farm basically some of the unpartnered assets that come along with the portfolio. In terms of the already partnered assets, just as we do with our existing portfolio, we basically will participate, as Lauren mentioned earlier, as she reestablished the lasofoxifene opportunity within a new company platform and a new financing, we'll participate in those financings as we did with the Agenus financing as well to support those companies and facilitate the robust kind of nature of the programs to make sure they're properly capitalized.

So you need to stay engaged with these assets from a partnership management perspective and support the companies. So in many cases, like with Palvella, I think we have followed on in every equity financing they've done to give them basically strength from the insiders as they've gone out for additional equity rounds. And that's a sign of confidence, of course, in the team and the asset. But we will do that to support our companies on the equity side, even though we're not equity investors as a core business, we will use that as a tool to make sure that our partners have financial strength, which ultimately leverages the value of our royalty asset. So that's how we think about managing these things, and we're constantly reassessing, reprioritizing the portfolio as news, as data rolls out.

No, that's very helpful color. I appreciate that. And then my follow-up is maybe a question for Lauren. So both Ligand and XOMA participated in a very interesting and powerful deal with regard to Castle Creek. Just wanted to see if there was an update there because the profile for DEB patients has really increased significantly over the last several years with Crystal and Abeona.

Yes. Thanks for the question, Joe. So we continue to have a lot of conviction in D-Fi. We think that VYJUVEK has been a great introduction for the DEB community because historically, there were no FDA-approved treatments, and it's been a great first step. There are some limitations with byproduct that we think D-Fi can address. Those include the body surface area that you're able to treat, the types of wounds. So could we be looking with an injectable treatment and addressing some of the chronic wounds that patients have or different locations of the body. So we think the unmet need here still remains. We think there's a great opportunity for combination therapy as well now that we have a second product in the market with Abeona. But we think that these are nice complementary programs that really the DEB community has been waiting for, for quite some time.

When you think about especially the RDEB patients and some of the more severe folks, they have extensive body surface area coverage with wounds. So we continue to have a lot of conviction in this program. XOMA did as well. So our royalty rate increases a little bit, and we will look to see additional developments in the coming months.

Your next question comes from the line of Sahil Dhingra with RBC.

This is Sahil. My first question is related to the $2.3 billion of potential milestone opportunities from the XOMA portfolio. Can you frame for us the probability where near-term value? How much is tied to the Phase III readouts in the next 18 months versus longer-dated commercial milestones? And how would your contract revenues look in 2027 and beyond versus the 2027 versus the 2026 contract revenue guidance of $10 million to $20 million.

Sahil, thank you for the question. Yes, frankly, very excited about the potential upside here from the magnitude of milestones that we have contractual rights to. It's $2.3 billion. You're right, as you said, that have been disclosed. You could see that figure in XOMA's previous filings. We are still digesting the various contracts and getting our head wrapped around the timing of the potential -- the probability of success the stage of these milestones ranges from, as you would imagine, preclinical early development stage and yes, even some that we see coming through potentially as early as later this year. We're not prepared to give further visibility to the quantum or the partners that these are attributable to, but we do plan to provide more visibility and greater detail when we discuss this more broadly at Investor Day in December.

And then my follow-up question is related to Mirum's call last night, they disclosed that the FDA recommended a Phase III for in PSC at the pre-NDA meeting. So how does this change your timeline and risk adjustment for the product?

Yes, sure. I'm happy to take that question. So we were certainly disappointed to see that news last night. We continue to have a tremendous amount of conviction in this asset, both in PSC as well as PBC. I think with regards to PSC, our partner executed the largest randomized study to date in this indication, and there are no FDA-approved treatments. The company remarks that they thought it was potentially due to a new review team, not data deficiencies. And then interestingly, they got breakthrough therapy designation after the meeting. So there's a little bit of mixed signals, if you will. So it pushes it out a little bit in terms of the potential approval date. They're now targeting iterative discussions with the FDA that they get through the breakthrough therapy designation and then a submission in the first half of next year as opposed to the last half of this year.

So move things out a little bit. We think this is an indication that the company continues to believe strongly that they'll get approval here without another Phase III study being required. And then they also continue to believe that the IIb that they're completing the VANTAGE study in PBC remains on track. So disappointing news for sure. We've seen this a delay earlier this year with Filspari in January when there was a major amendment and push out the approval to April. No major changes in terms of our projections, and we'll hope for good news here as they continue to engage with the FDA and hopefully clear up some of the miscommunication.

We have reached the end of the Q&A session. This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to Ligand's First Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Melanie Herman, head of [Technical Difficulty]. Please go ahead.

Good morning, everyone, and welcome to Ligand's First Quarter 2026 Earnings Call. With me on the call today are CEO, Todd Davis; Chief Financial Officer, Octavio Espinoza, Vice President of Portfolio Strategy and Investments, Lauren Hay; and Vice President of Investments and Business Development, Michael Vigilante.

During the call today, we will review the financial results released earlier today and provide commentary on our partner portfolio and business development activities, 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 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 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 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 will now turn the call over to Todd.

Thank you, Melanie, and good morning, everyone. We appreciate you joining us today. 2026 is off to an exciting start for Ligand with transformative milestones within our existing portfolio and through the anticipated acquisition of XOMA Royalty Corporation that we announced last week. Though it is still early in 2026, we are showing significant financial performance already with 56% royalty revenue growth over the first quarter of 2025 and 23% EPS growth over the same period in 2025.

This is in the context of a broad portfolio. So it is not just serendipity or the result of a single fortunate product approval. This is the result of an intentional strategy change that we executed on in 2022. At that point, we shifted into a pure royalty aggregation model and away from the development of infrastructure-heavy technology platforms.

In 2022 to 2023, we divested two platform businesses and went from almost 200 employees down to approximately 40. This took operating expenses from the $90 million range down to about the $40 million range. The profitability of the company and the operating leverage of our model improved dramatically. We subsequently added a very experienced investment deal team and began executing on royalty aggregation through three main deal approaches: royalty monetizations of existing licenses, project finance and special situations where we engage operationally and rescue good assets trapped in challenging situations.

Since then, we have a deal organization of 18 people executing on these various tactics as we pursue assets that address serious unmet needs for patients. We have gone from seven commercial assets to 15 commercial assets and have closed on 18 deals in the last 3 years, adding high potential assets into our late-stage clinical pipeline as well. This bodes well for our future growth and for the development of high-value medicines for patients.

Pursuing medicines that are impactful for patients is also good for business. Our EPS in that time frame has gone from $2.44 a share in 2022 to our guidance for 2026 of $8.50 to $9.50 per share. For the first quarter of the year, Tavo and Lauren will show significant value opportunity in our commercial portfolio, including growth drivers such as Filspari, Ohtuvayre and Qarziba. We also saw exciting progress in Palvella's QTORIN rapamycin for MLMs, which achieved positive top line Phase III results and has the potential to become the first FDA-approved therapy and first-line standard of care treatment for an estimate of more than 30,000 diagnosed patients.

In April, we announced our largest deal to date, the acquisition of XOMA Royalty, which will add more than 120 commercial, clinical and preclinical stage assets into our royalty portfolio. Upon closing, XOMA is expected to be immediately accretive and further accelerate our long-term growth and earnings potential as reflected in our updated financial guidance. XOMA will add seven marketed products and nearly double our portfolio of Phase II and Phase III assets, which we believe will create significant value for our stockholders, all through a single transaction. Also in April, we were pleased to see Travere's announcement of the full FDA approval of Filspari in FSGS, making it the first and only approved medicine for FSGS and marketing its expansion beyond IgA nephropathy into a second rare kidney disease. This is an important milestone for people living with FSGS who, for the first time, have an FDA-approved medicine for this rare and devastating condition.

Filspari is an important program for Ligand and recently became our largest commercial royalty asset. We expect the expansion into FSGS will continue to drive significant growth for Ligand in the coming years. We continue to execute on the strategy that we set place in 2022 and have a strong belief in this business model. The acquisition of XOMA Royalty is expected to add $0.50 a share of adjusted EPS in 2026 and $1.50 in 2027. These financial results are validating evidence of this compounding strategy and our acquisition of XOMA Royalty further accelerates our ramping growth.

XOMA's significant upside potential also draws from its earlier-stage opportunities and longer-dated IP and royalty rights, some of which extend past 2040. Over the last couple of years, Ligand has scaled the business and our portfolio management system in anticipation of absorbing new assets into our portfolio. As a result, we anticipate very significant operational and financial synergies as we integrate the XOMA portfolio. We believe this approach will continue to deliver compounding profitable growth for our shareholders.

With long-dated royalty cash flow, proprietary financing capabilities and increased financial strength through this acquisition strengthens our position as a biopharma royalty aggregator. Since we put out our last 5-year outlook for royalty receipts in December of 2025, we've had several positive catalysts. In addition to announcing our acquisition of XOMA Royalty, we expect the FDA's approval of Filspari and FSGS and Palvella's most recently announced positive Phase III data in MLM for its QTORIN rapamycin will continue to add significant growth and value accretion over time.

Importantly, we continue to have significant balance sheet strength and cash flows, allowing us to opportunistically execute on additional value-creating partnerships as we have historically done. The pipeline is robust, and we will be disciplined, but we are excited about the continued growth and value creation that we can deliver. We will share more about the longer-term view and update our 5-year plan at the Investor Day that we expect to hold in December of this year.

And with that, I would like to turn it over to Tavo for the financial update.

Thank you, Todd, and good morning, everyone. We're in a very strong position as a business with multiple drivers contributing to both near-term performance and long-term growth. Importantly, while Filspari has become a major growth driver for Ligand, it is only one component of a much broader growth story. The continued launch trajectory in IgAN and the expected expansion into FSGS represent an important inflection point for our royalty portfolio and long-term cash flow profile. At the same time, we're seeing encouraging early progress from Zelsuvmi following the Pelthos spinout, where we earn a 13% royalty. We're also benefiting from continued contributions across Merck's portfolio, including VAXNEUVANCE, Capvaxive and Ohtuvayre, which continues to gain traction following its launch. We also continue to benefit from Qarziba, a royalty asset we acquired through our acquisition of Apeiron in 2024.

Overlaying all of this is the announced acquisition of XOMA Royalty, which we expect to further diversify and scale the portfolio and serve as a meaningful long-term growth accelerator.

Turning to our first quarter results. Total revenue was $52 million, up 14% year-over-year. Royalty revenue was $43 million, increasing 56% and adjusted EPS was $1.63, up 23%. These results reflect strong underlying momentum in the business, driven primarily by continued growth from Filspari, Ohtuvayre and Qarziba.

We ended the quarter with approximately $780 million in cash and investments, along with $200 million of undrawn capacity under our revolving credit facility, giving us nearly $1 billion of available capital as we move toward closing the XOMA transaction. Looking more closely at royalties, Filspari continues to perform very well with strong demand trends and growing physician adoption.

Travere has built a field force of over 100 professionals with meaningful overlap between IgAN and FSGS prescribers, which we believe will support a faster launch trajectory in FSGS. Ohtuvayre also delivered strong year-over-year growth, while sales were modestly impacted sequentially by seasonal dynamics and reimbursement timing, trends improved as the quarter progressed, and Merck continues to invest in expanding awareness and adoption.

On the expense side, R&D expense was $2.1 million in the quarter compared to $50.1 million in the prior year period. As a reminder, last year's results included a onetime $44 million accounting charge related to Castle Creek's funding of the Phase III D-Fi study. G&A expense was $21 million compared with $19 million in the prior year, reflecting higher employee-related costs as we continue to scale our business development function. Importantly, we continue to operate with a highly efficient cost structure. And as the business scales, we expect to see continued operating leverage.

Nonoperating expense was $41.6 million compared to $14 million in the prior year period, primarily driven by changes in the fair value of our investment in Pelthos and other equity holdings. These items are excluded from adjusted net income and do not impact the underlying performance of the business. From an earnings perspective, GAAP diluted earnings per share was a loss of $0.67 in the first quarter compared to a loss of $2.21 in the prior year period.

The 2026 loss was primarily driven by fair value adjustments on our equity holdings, while the prior year loss largely reflects a onetime $44 million accounting charge related to our investment in Castle Creek. On an adjusted basis, diluted earnings per share increased to $1.63, up 23% year-over-year, reflecting strong operating leverage and higher royalty contributions.

Turning now to guidance. Consistent with the revised guidance we provided in connection with the XOMA announcement and assuming the acquisition closes in the third quarter, our 2026 total revenue outlook is $270 million to $310 million. Our royalty revenue outlook is $225 million to $250 million, and our adjusted EPS outlook is $8.50 to $9.50. Looking ahead to 2027, we expect approximately $1.50 per share of incremental adjusted EPS from a full year contribution of the XOMA portfolio.

We also expect combined operating cash flow of approximately $300 million, which reflects the benefit of the tax attributes acquired in the XOMA transaction, including net operating losses and Section 174 R&D tax credits and supports our capital deployment strategy of investing $150 million to $250 million annually in new royalty opportunities. We believe this creates a highly attractive model, one where strong tax-efficient cash generation funds continued portfolio expansion, driving further growth over time.

Finally, I'd like to touch on the CVR associated with the XOMA acquisition. The CVR relates to potential proceeds from XOMA's litigation with Janssen. The litigation assets will remain in a post-reorganization XOMA LLC, which will distribute 75% of any net proceeds to former XOMA's shareholders through the CVR, while Ligand will retain rights to the remaining 25%.

Importantly, Ligand has no obligation to fund the litigation. As a result, there is no P&L impact associated with the case, only potential upside.

With that, I'll turn it over to Lauren for a portfolio update.

Thank you, Tavo, and good morning, everyone. I'd like to focus today on two very important recent positive events in our portfolio. The first is the announcement of extremely successful Phase III SELVA trial results for Palvella's QTORIN rapamycin in microcystic lymphatic malformations.

QTORIN rapamycin demonstrated a highly statistically significant outcome on the primary endpoint and all secondary endpoints. On the primary endpoint, QTORIN rapamycin demonstrated a positive 2.13 point improvement on the MLM Investigator Global Assessment scale. This is clinically transformative for patients and even more compelling considering that there are no FDA-approved treatments for this serious rare dermatological condition.

For context, Palvella had guided to a change on the mLM-IGA of positive 1 as being a decisive win with an upside case of positive 1.5 points. Palvella plans to submit an NDA in the second half of this year and is accelerating U.S. launch readiness efforts. As a reminder, QTORIN rapamycin has been granted breakthrough therapy, orphan drug and Fast Track designations from the FDA for the treatment of MLM.

Palvella is also developing QTORIN rapamycin for the treatment of cutaneous venous malformations. In December, Palvella announced positive top line results from its Phase II Travere study. Palvella recently completed a very successful CVM breakthrough therapy designation meeting with the FDA and plans to submit a breakthrough application shortly.

Across the two lead indications, there are estimated to be more than 100,000 patients diagnosed with either MLM or CVM. Based on payer research and orphan analog launches, Palvella projects an annual per patient price of between $100,000 and $200,000. At peak, this positions the U.S. commercial opportunity for QTORIN rapamycin to reach an estimated $1 billion to $3 billion in U.S. annual sales across the initial two indications. This could translate into a potential $100 million to $300 million peak annual royalty revenue to Ligand if achieved.

Moving on to the second major catalyst in our portfolio this year. In April, the FDA granted full approval of Filspari for the treatment of FSGS in patients without nephrotic syndrome. In our view, the approval was highly positive, given the broad label encompassing patients with primary, secondary and genetic FSGS.

From a commercial perspective, Travere estimates there are over 30,000 patients in the U.S. with FSGS who are eligible for treatment with Filspari. With no approved therapeutic alternatives and serious unmet medical need, we are optimistic about the commercial potential in FSGS. Travere has an estimated nephrology team of over 100 field professionals with high overlap between IgAN and FSGS and payer coverage is already established in IgAN, so we expect a rapid and successful launch.

Additionally, Filspari continues to perform well commercially in IgAN and Filspari now represents the largest royalty in our portfolio. Travere has seen strong sales growth in IgAN, driven by the recent REMS modification as well as updated KDIGO guidelines even as new therapies have entered the market.

Physician confidence continues to build as real-world experience reinforces the long-term clinical data and its role as a foundational non-immunosuppressive therapy. Across IgAN and FSGS, we believe Filspari is well positioned for meaningful and accelerating revenue growth, and Travere has guided to a $3 billion peak opportunity across both indications, which would translate into a $270 million annual royalty to Ligand if achieved.

Taking a step back, we have 12 major royalty revenue drivers across our existing portfolio. As you can see by the boxes highlighted in green, five of these 12 products have been approved or acquired since 2022 as we have implemented a strategic focus on generating predictable compounding royalty revenue growth for our shareholders.

Moving to the next slide. We have eight key pipeline programs we are currently focused on, 6 of which represent new investment activity since 2022. The growth in our commercial and clinical stage portfolio has been strategic, intentional and methodical as we are focused on adding high-value assets with the potential to address areas of high unmet medical needs such as oncology, rare disease and hypertension.

Turning to our recently announced acquisition of XOMA Royalty, which is expected to close in the third quarter, I'd like to discuss XOMA's royalty portfolio. XOMA's assets will enhance Ligand's portfolio in three distinct stages. First, XOMA's seven commercial programs, including three key products, VABYSMO, OJEMDA, and Miplyffa provide near-term predictable revenue as well as significant growth potential through geographic and indication expansion.

XOMA's 14 late-stage clinical programs represent the next wave of growth opportunities and are anticipated to further diversify the portfolio. As these programs reach approval and launch, they transition into royalty-generating assets and further expand the predictable compounding revenue base.

Beyond that, XOMA has an extremely diverse array of over 100 earlier-stage programs that provide the foundation for long-term royalty portfolio longevity. Not only do these assets have the potential to generate significant long-term royalty revenue, they also have the potential to generate near-term development and regulatory milestone revenue. When we look at the full year, we've already seen several positive events in 2026. In addition to Palvella's positive Phase III results in MLN, Palvella also announced the initiation of a Phase II trial in clinically significant angiokeratomas.

Turning to Filspari. Following its FDA approval, the first FSGS patients were treated within just 1 week, which is an encouraging indicator as we monitor the early stages of the launch. Looking ahead to additional potential catalysts expected this year across the Ligand portfolio, we anticipate continued geographic expansion of Filspari as Chugai advances towards regulatory submission in IgAN in Japan and Nuance awaits regulatory decisions for Ohtuvayre in China.

On the clinical front, Orchestra BioMed and LeonaBio expect to complete enrollment of their pivotal trials this year, both representing important late-stage assets in Ligand's portfolio. Turning to the XOMA royalty portfolio. One of the key pipeline partner programs, volixibat in development by Mirum Pharmaceuticals for both primary sclerosing cholangitis and primary biliary cholangitis announced positive Phase IIb data in patients with PSC earlier this week.

Mirum has a pre-NDA meeting scheduled with the FDA this summer with a planned NDA submission in the second half of this year. We're excited to see this important milestone for the PSC community, which currently has no approved therapies. Additionally, marketing decisions are expected in Japan for OJEMDA and Europe for Miplyffa in the second half of this year, which will be growth drivers for these commercial products.

With the vast size of the anticipated combined portfolio, these are just a few of the many important catalysts we expect in the coming months. In closing, with the acquisition of XOMA, we have never felt more confident about the potential of our portfolio, both in the short term and the long term.

With that, I will turn the call back over to Todd for his closing remarks.

Thank you, Lauren. We now have a deep and talented team at Ligand, and we are incredibly proud of our deal makers for driving our substantial growth. The acquisition of XOMA Royalty represents an exciting opportunity to significantly grow our portfolio and accelerate our long-term growth profile with the addition of a highly complementary business.

Additionally, we are pleased with the progress of our incredible partners and late-stage development pipeline, specifically the strong trial results of Palvella's Phase III MLM trial and the recent FDA approval of Filspari in FSGS. We have strong conviction around these important programs and are encouraged to see both the clinical development progress of QTORIN rapamycin in MLM and the expansion of Filspari into a second rare kidney disease.

While we are driving growth for our shareholders, we also do not lose sight of the broader goal of creating greater access to life-saving treatments and improving the lives of patients. We are privileged to be in a business where we can do well by doing good. Thank you, everyone, for joining us for today's earnings call. I will now pass it back to the operator and open it up for questions.

[Operator Instructions] Your first question comes from the line of Matthew Hewitt from Craig-Hallum Capital Group.

Maybe first off, could you explain how the XOMA deal came to pass and why it makes sense now?

Sure, Matt. For this question, I'll hand it over to Michael Vigilante, who is our deal lead on this. Michael?

Can you hear me?

Yes. Go ahead.

So yes, Ligand, we've had a long-standing relationship with the XOMA team, a lot of respect for Owen and what they've accomplished. We believe their business has reached an inflection point. The parties engaged fully in December. Ligand spent considerable time diligencing XOMA's portfolio business at that time.

The discussions continued into 2026, where we reached alignment on terms and structure in April. The transaction provides XOMA shareholders with liquidity and attractive returns since their pivot to a royalty aggregator model in 2017. For Ligand, the XOMA deal provides meaningful synergies via broadening our portfolio across commercial, all stages of development, accelerates our growth and immediate EPS accretion as well as long-term durable accretion.

Got it. And then maybe as a follow-up, Todd, I think you noted in your prepared remarks that you've got a robust pipeline of targets. And I'm curious, are there others in that pipeline similar to XOMA, meaning like a portfolio of assets? Or do you expect to revert back to more of the individual drug investments?

Sure. Matt, the majority of our pipeline are single or double assets. I think the XOMA portfolio is unique in its breadth. There are not many like this in the market that we know of. And so it is a fairly unique transaction. There are other special opportunities that would be larger deals that involve multiple assets, but not quite with this level of breadth.

Your next question comes from the line of Annabel Samimy from Stifel.

This is Jack on for Annabel. Congrats on the quarter. So to what extent does the earlier-stage portfolio impact your commitment to conducting those 4 deal to 5 deal targets per year? It seems like you can do a lot of shopping there already for promising assets. So do you really see yourself needing to go external for additional deals for the remainder of the year?

We don't need to do additional deals to sustain over 20% growth for the next 5 years. We have an immense amount of growth embedded in the current portfolio. but there's so much opportunity in kind of the late-stage private to mid-cap project finance arena that we've been scaling the team to execute on that.

And so we expect the addition of new deals and new assets in the portfolio to continue to compound the growth and drive it even higher, which is good for our investors. So we will continue to do that.

Your next question comes from the line of Yigal Nochomovitz from Citigroup.

This is Joohwan Kim on for Yigal. Maybe just two quick ones from us. Firstly, we noticed that you had reiterated guidance for the year following Travere's record high new PFS for Filspari. Could you elaborate on the key performance indicators or specific achievements you would be looking for that might lead to an upward revision of Filspari's projected contribution for the remainder of the year?

Yes. Tavo, go ahead.

Yes. We had Filspari for FSGS on a risk-adjusted basis included in our model coming into the year, and we talked about that at Investor Day. And so now that obviously, it's approved, it's derisked. But it did -- as you'll recall, it did move over about a quarter. It was originally scheduled for approval in early January. It subsequently got approved in April. So that's a quarter of the year. That kind of offsets the derisking. So it's incremental advance here in 2026, where we'll see a significantly more impactful impact from FSGS sales as we get out into 2028 and beyond. But no impact on the $0.50 -- the $0.50 increase in guidance is purely related to the XOMA acquisition.

Got it. And if I could just throw in a second one here. We noticed the 8-K filing in April regarding the TR Beta program termination of Viking. Could you help us understand the strategic thinking here specifically, if the 2809 and 0214 assets are reclaimed, would you seek to repartner these out and just to help frame the potential impact, how are these assets being carried on the books from a royalty contribution standpoint?

Yes. I'll let Tavo answer the -- how it's being carried question. But our objective with 2809 is to move it forward in development so that patients can benefit from it. We think it's very high potential. We think as demonstrated by the current MASH product that's in the market, there is strong demand and a need for products like 2809 and that it has very high potential to be a differentiated product in that market, which is quite large. So our objective is to get moving forward in development really. And that's the reason for that.

And with regard to the -- how it's being carried, Tavo?

Yes, there's nothing -- we don't carry anything on the balance sheet that we did have intangible assets on the books related to these at some point, those are fully amortized. And financial impact as a result of this, maybe just some minor incremental legal expenses, but nothing that will impact what we've already guided.

Your next question comes from the line of Jason Zemansky from Bank of America.

This is Jackie on for Jason. Congrats on the quarter. Appreciating that Tzield is a smaller part of the portfolio. But with the recent label expansion to age 1 from age 8 for the delaying progression to Stage 3 type 1 diabetes, how does this change your view on the size of the opportunity? Should we expect a meaningful shift in peak sales potential? And how might that translate into royalties for Ligand?

Yes. Laura, do you want to take that?

Yes, sure. So we were certainly encouraged to see that label expansion. I think it's great for patients and their families that are on the younger end of the spectrum in terms of the type 1 diabetes onset. I'd say that it'd probably be an incremental addition to what we're seeing in terms of the Tzield sales. This is really a market where we're having to identify patients before they become symptomatic. So it's quite a bit of investment that Sanofi is undertaking to go out and screen family members who are newly diagnosed and then find patients who'd be eligible in that kind of Stage 2 of the disease. So I'd say it'd be incremental, and we're certainly encouraged to see access available for some of the youngest patients who would be now eligible for treatment.

Your next question comes from the line of Sahil Dhingra from RBC.

My first question is on the Captisol performance in the quarter, which was down year-over-year. What gives you confidence in achieving the full year Captisol guidance? And also, how should we think about the pacing of contract revenue for the remainder of the year?

Tavo, do you want to take the Captisol question? And was the second part, pacing on deals?

Contract revenue.

Go ahead on both of those, Tavo.

Yes. Yes, on the Captisol revenue line, we do have visibility to orders into the early part of 2027. So we're confident we'll be able to meet our guidance range of $35 million to $40 million. It tends to be inconsistent. It's not linear quarter-to-quarter, largely due to the kind of the nature of the orders, the size of the orders that we get from some of our larger customers. But you can expect the amounts to normalize here over the next few quarters.

And in terms of contract revenue, that's another one that's lumpy. It's the nature of that line that's obviously dependent on regulatory and commercial milestones reached by our partners. We have over 18 different milestone opportunities. Obviously, not all of those will come in at various sizes. But again, we feel very comfortable that we'll be able to meet our guidance range.

Great. And then my next question is related to the XOMA acquisition. Can you comment on the ease of challenge of integrating XOMA post-closing? And how much synergies are you expecting from that transaction? And also, does integrating XOMA impact your deal activity in the near term, either in terms of deal size, capacity or time lines?

Sure. Yes. I think on the -- with regard to synergies on the XOMA transaction, they're extremely high, approaching 100%. Now we are scaling our business. So we probably will pick off some of their team, which is talented, if they're interested, obviously. And there's a lease obligation, but the synergy is potentially approaching something close to 100%. So that's -- this business is worth quite a bit to us, plus the tax benefits are immediately beneficial to us. So we've kind of set up the business to absorb these types of partnerships, contractual passive partnerships, which is a very highly leverageable acquisition for us. So the operating leverage around this is very beneficial.

And could you just repeat, Sahil, the second part of your question?

Yes. It was related to the other transactions. So does integrating XOMA impact your deal activity in the near term as it relates to size of the time line?

Yes. Yes. So we'll have access to a couple of hundred million dollars post transaction here. Our deal pace has been $150 million to $250 million a year. So -- and we're generating now, we're approaching -- we're not quite there, but we're approaching $300 million a year in cash flow generation. So we have, at this pace, essentially reached kind of a self-funding status almost. So there's no need to do an immediate financing or anything like that. Our balance sheet will be in good shape. I will say that the opportunity in this late-stage private kind of mid-cap space for project financing, co-development funding and things like that, is really very significant for nondilutive capital.

And so we have continued to scale our team and our execution capabilities are accelerating. So our pace could go up a little bit. But again, from a balance sheet and cash generation perspective, we're in a strong position to do that.

Your next question comes from the line of Joe Pantginis from H.C. Wainwright & Co.

So I'm going to go a little bit slightly into the weeds on XOMA, and I'm also curious whether this could apply to your broader portfolio as well at Ligand. So XOMA had acquired a few or multiple companies over the last 18 months or so with the hope of out-licensing those assets. Was curious if you will be taking on that responsibility. And also, is that a potential for Ligand's current assets where beyond attrition because of, say, negative news, you have any assets in the future you might want to potentially offload?

Yes. So I think that our -- we are in the business of identifying really high-value clinical opportunities that either require funding or require partnering. And so that's why we have kind of the three-pronged approach is sometimes it needs additional management or it needs a new home, sometimes it needs capital. And we get involved in all of the above. And so that's why we've kind of scaled our portfolio management capability because it's not just about doing new deals for us. It's about making sure that we farm the existing portfolio that we own and making it as highly productive as possible. So we're constantly prioritizing and reprioritizing our own set of assets.

And if they stall out or if they need new partnering, we definitely will be engaged in out-licensing, finding new homes, partnering, helping to back potentially those new companies or existing companies that we help finance to move valuable assets forward. So that's really the business that we're in. It's far more than just acquiring or monetizing passive royalties. We get involved with the portfolio management. And Lauren Hay is heading that effort up, who's on the phone. So I'll just ask her to weigh in with any additional comments.

Yes. Joe, I think Todd summarized things really well. We have a sizable existing portfolio at Ligand that we're always looking for opportunities to potentially repartner assets if the situation presents itself. We did have an example of that late last year with lasofoxifene and getting that over to Athira, which is now LeonaBio. And we're really encouraged by the progress that, that team is making on completing the Phase III trial there where we expect a readout next year. And so with the expected acquisition of the XOMA portfolio, that will be certainly an opportunity for us to look across their existing programs in all stages of development and look for similar opportunities. So we're well set up to do that and adding some resources to that effort, and we're excited about the opportunities in the short term and long term there.

Your final question comes from the line of John Vandermosten from Zacks.

I wanted to start out with a question on the milestones. And if you look at XOMA's revenues last year, there was a good chunk from things like that. And I'm wondering if you anticipate any milestones from XOMA in the second half of the year, 2026?

Tavo, go ahead.

Yes, with the XOMA portfolio, along with that comes a number of milestones, some of which we do have the opportunity to realize here in the second half of 2026, obviously, assuming the acquisition happens as expected in the third quarter. But yes, that's -- we do have an opportunity to realize some of those and significantly more as we get into the '27, '28 and beyond years.

Okay. And just taking a look at the R&D assets and the NOLs, you did mention that, I guess there's some benefit from that expected in 2027. How quickly will you be able to use them? And I guess what's the amount that you'd be able to use? Are you going to lose any due to M&A restrictions or anything like that?

Yes. John, it is significant. We haven't disclosed the quantum. We're going to let the deal close and make sure we get through our entire financial diligence before we disclose the amount. You can get a sense, if you want, by looking at their financial statements, their annual report in particular. The NOLs that they've accumulated over time will be limited. However, the Section 174 R&D tax credits will come over 100%, and we will be able to make use of them immediately. So it's going to put us in a very tax-efficient position.

At this time, there are no further questions. This concludes today's call. Thank you all for attending. You may now disconnect.

Thank you.

Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to Ligand Pharmaceuticals to acquire XOMA Royalty. [Operator Instructions]

I would now like to turn the conference over to Melanie Herman, Head of Investor Relations. Melanie, please go ahead.

Good morning, everyone, and welcome to Ligand's investor call highlighting the announcement of our Acquisition of XOMA Royalty. Here with me today are Ligand's CEO, Todd Davis; Chief Financial Officer, Tavo Espinoza; and Vice President of Portfolio Strategy and Investments, Lauren Hay.

Today, we'll be discussing certain non-GAAP financial measures, and some of those will be forward-looking. We'd like to refer you to the safe harbor statement in these forward-looking statements, which are subject to risks and uncertainties. Actual results or events may differ from those projected or discussed, and all forward-looking statements are based on our current available information. Ligand assumes no obligation to update these statements.

And with that, I will now turn the call over to our CEO, Todd Davis.

Thank you, Melanie, and good morning. Today, Ligand announced that it has entered into a definitive agreement to acquire XOMA Royalty Corporation. We have known the XOMA team and have been impressed with the robust portfolio of biopharmaceutical assets that they have established over the last several years. This is an exciting acquisition of a highly complementary business that meaningfully expands Ligand's Royalty portfolio and accelerates near-term and long-term growth.

Through this acquisition, we will increase the number of commercial assets generating revenue today and significantly expand the pipeline of development-stage programs that will be future contributors. I will begin with a brief overview then provide background on XOMA and the strategic rationale before turning it over to Tavo to discuss the financials. After that, Lauren will cover portfolio details.

We are paying $39 a share in cash to the XOMA shareholders. Plus, there will be a CVR tied to the litigation proceeds from XOMA's dispute with Janssen Biotech over Tremfya. Subject to shareholder and regulatory approval, we expect the transaction to close in the third quarter of 2026 and be immediately accretive to earnings. When the transaction closes, we will add 7 commercial royalties to our portfolio. Including 3 we consider key commercial programs that we expect to be near-term growth drivers for Ligand.

Vabysmo, Ojemda and Miplyffa was over 100 partnered development stage programs. This will more than double the size of our portfolio and position us to drive future growth for Ligand shareholders. Consistent with our ongoing investment strategy, we are adding the XOMA clinical stage programs to our portfolio and believe they will be important contributors to our performance over time.

XOMA has built an impressive portfolio since pivoting to become a royalty aggregator in 2017. In the last 2 years, XOMA has closed 9 acquisitions, building a portfolio of royalty, tax and intellectual property assets that have begun to generate significant receipts and contains a robust pipeline of earlier-stage pipeline assets that will complement Ligand's later-stage pipeline. We believe the timing for the acquisition is very good as XOMA approaches inflection on its portfolio of over 100 assets. We look forward to integrating the XOMA portfolio into Ligand's portfolio.

Slides 8 and 9 provide a few more details on the rationale of the transaction. As I mentioned, this transaction is immediately accretive, and we expect it will add approximately $0.50 to Ligand's adjusted earnings in 2026, assuming a closing time line in Q3 and $1.50 in 2027. Beyond 2027, we expect the portfolio revenues will likely continue to grow significantly. XOMA's significant upside potential also draws from its earlier stage opportunities and longer-dated IT and royalty rights, some of which extend past 2040.

Additionally, we anticipate very significant operational and financial synergies as we integrate the XOMA portfolio. Over the last couple of years, Ligand has scaled the business and our portfolio management system in anticipation of absorbing new assets into our portfolio. With long-dated royalty cash flow, proprietary financing capabilities and increased financial strength for execution, this acquisition strengthens our position as the next-gen life sciences capital allocator. We believe this approach will continue to deliver compounding profitable growth for our shareholders and deliver high-value medicines patients in need.

I will now turn it over to Tavo to go deep on the financials.

Thank you, Todd. Turning to Slide 11. This slide captures the financial impact of the XOMA acquisition on our 2026 outlook. Our revised guidance assumes the transaction closes in Q3 of this year. The transaction adds royalty revenue that translates efficiently into cash flow through our operating model, and that dynamic is reflected in the meaningful earnings contribution even on a partial year basis.

Starting with royalty revenue. We are raising our full year royalty guidance to a range of $225 million to $250 million, up from $200 million to $225 million previously. The primary commercial contributors from the XOMA portfolio in 2026 are Ojemda, Vabysmo and Miplyffa, three approved products with established revenue streams. On total revenue, we are raising our range to $270 million to $310 million from $245 million to $285 million or non-royalty lines Captisol at $35 million to $40 million and contract revenue at $10 million to $20 million are unchanged.

On earnings, we are increasing adjusted core EPS guidance to $8.50 to $9.50 per share up from our prior range of $8 to $9 per share. The transaction is immediately accretive on a partial year basis in 2026. And as we move into 2027 and realize that the first full year of XOMA royalty cash flows, we expect the acquisition to contribute approximately $1.50 of incremental adjusted earnings per share.

Slide 12 provides additional detail on the financials. Cost of goods sold remains unchanged while operating expenses increased modestly, reflecting small incremental costs that are more than offset by the meaningful synergies we expect to realize. Together, operating leverage and continued royalty growth are expected to drive a 10% increase in cash operating profit or approximately $20 million. This is partially offset by an approximate $6 million decline in other income, reflecting capital deployment at lower interest earnings.

Net of these factors, we expect adjusted core EPS to increase by $0.50 with no change to share count. We intend to fund the acquisition through a combination of cash on hand and our credit facility. We expect to retain sufficient remaining capacity to continue executing on our capital deployment strategy of investing $150 million to $250 million annually in high-value royalty assets.

Slide 13 provides a few highlights on key long-term drivers of performance. As mentioned earlier, we expect the acquisition of XOMA to be accretive to 2026 EPS by $0.50, and we also expect an additional $1.50 of adjusted EPS in 2027. In addition to XOMA, the FDA recently approved Filspari in FSGS and Palvella announced positive Phase III data in microcystic lymphatic malformations for its QTORIN rapamycin. The latter two events we expect will contribute significant and ramping value to Ligand shareholders over time. We will share more about the longer-term view and update our 5-year plan at an Investor Day we expect to hold in December of this year.

I'll now turn it over to Lauren to discuss our portfolio more broadly.

Thank you, Tavo. XOMA's assets will enhance Ligand's portfolio in three distinct stages as outlined on Slide 15. So almost 7 commercial programs, including the 3 key programs: Vabysmo, Ojemda and Miplyffa provide near-term revenue and visibility, supported by continued adoption and potential label expansion. So most 14 late-stage programs, including Phase III and registrational assets, represent the next wave of contributors. As these programs reach approval and launch, they transition into royalty-generating assets and further expand the revenue base.

Beyond that, XOMA has an extremely diverse array of over 100 earlier-stage programs that provide the foundation for long-term growth. These assets have the potential to generate near-term income through contractual milestones as they progress through development as well as the potential to generate royalties in the longer term. The result is a layered portfolio structure with current contributors, near-term growth drivers and longer-dated opportunities working together to support sustained growth.

The breadth of the portfolio across therapeutic areas, development stages and counterparties provides diversification and reduces reliance on any single asset supporting a more predictable and compounding growth profile over time.

Now I'd like to highlight a few specific near-term growth drivers from XOMA's portfolio that we're particularly excited about. The first is Roche’s Vabysmo, The first approved bispecific antibody targeting both VEGF-A and Ang-2 reducing vascular leakage, neovascularization and inflammation more than VEGF-only agents. Vabysmo has been one of Roche's key growth drivers and is currently the third best-selling product in their entire portfolio. Analyst peak sales estimates for Vabysmo are $7.5 billion. As a reminder, XOMA is entitled to a 0.5% royalty on net sales. At peak, this would equate to a $37.5 million annual royalty.

Turning to Ojemda. This product addresses an area of high unmet need in pediatric oncology. Ojemda is currently marketed in the U.S. by Day One under accelerated approval in relapsed/refractory pediatric low-grade glioma and is the first targeted therapy delivering clinically meaningful tumor shrinkage with durable responses in relapsed/refractory BRAF fusion/rearrangement and V600-mutated pLGG.

Ojemda also recently gained marketing authorization in Europe and is being marketed by Ipsen as its ex U.S. partner. It is also in Phase III development for frontline pediatric low-grade glioma. In Q1, Servier announced the acquisition of Day One for $2.5 billion, further validating the commercial potential of Ojemda. XOMA is entitled to milestones and a tiered mid-single-digit royalty on worldwide net sales. Day One reported net sales of $155 million in 2025, and analysts expect peak sales in excess of $1 billion.

Turning to a near-term growth driver in the XOMA development stage pipeline, Osavampator currently has 5 Phase III trials evaluating the drug as an adjunctive treatment for major depressive disorder. It is a potential first-in-class AMPA-PAM offering oral convenience with strong safety, positioning it well in the MDD market. Analyst peak sales consensus is $1.8 billion. And as a reminder, XOMA is entitled to a low to mid-single-digit royalty on worldwide sales, excluding Japan.

Slide 21 is an exciting look at the substantial number of 2026 catalysts we have and will gain with XOMA. We've already had two major positive catalysts from Ligand's late-stage portfolio this year. In February, our partner, Palvella announced positive top line results of the QTORIN rapamycin program in microcystic lymphatic malformations. QTORIN rapamycin has the potential to be the first FDA-approved therapy and standard of care for the estimated 30,000 individuals living with mLM in the U.S., and Ligand earns a tiered 8% to 9.8% royalty on all QTORIN rapamycin sales. Additionally, this month, Travere announced the FDA approval of Filspari for the treatment of adults and pediatric patients age 8 and older in FSGS without active nephrotic syndrome. Filspari is now the first and only medicine approved by the FDA for the treatment of FSGS, marking expansion beyond IgAN into a second rare kidney disease. Ligand earns a 9% royalty on net sales of Filspari.

Turning to the XOMA portfolio. We are excited about several clinical and regulatory milestones, including Ojemda marketing decision in Japan, as well as the Miplyffa marketing decision in Europe. With the potential for geographic expansion, these catalysts have the potential to be near-term growth drivers for Ligand. In closing, with the acquisition of XOMA, we have never felt more confident about the potential of our portfolio, both in the short and long term.

With that, I'll turn it back to Todd.

Thank you, Lauren. We are incredibly excited about this acquisition and the accelerating growth it offers to Ligand. With long-dated royalty cash flow, proprietary financing capabilities and increased financial strength, our position is a next-generation life sciences capital allocator is strengthened. We believe the Ligand strategy and continued execution will continue to deliver compounding profitable growth for our shareholders and deliver important treatments to patients in need.

I will now hand it back so that we can take questions from the participants.

[Operator Instructions] And your first question comes from Matt Hewitt with Craig-Hallum Capital Group.

Congratulations on what looks to be a fantastic fit for Ligand. Maybe first up, why now? Obviously, XOMA has been out there for a while. A little bit different portfolio strategy on their part tending to favor earlier stage. But maybe why now? And how does this fit in your long-term strategy?

Thank you, Matt. That's a great question. And in fact, XOMA has been around for 45 years. They just had their 45th anniversary, so it's one of the original and early biotech as this industry began. And why now is that over the years, XOMA has built up really an amazing portfolio, but it is approaching an inflection point right now. They have 7 commercial assets, 14 assets in late-stage development that are very attractive, over 120 assets overall. And that's going to be very accretive, not just immediately, but that grows and accelerates our growth over the long term.

We have very long-dated IP, which lasts beyond the mid-2030s. It's very complementary to our portfolio and just a fantastic fit. Additionally, in this type of business model, which is basically it provides investors exposure to biotech, but at the same time also provides compounding profitable growth. And this just accelerates that. So we already have anticipation of over 20% growth in our existing portfolio, this will accelerate that going forward. So I think it's a very good fit. The synergies are almost 100%, not quite, but almost 100% synergies in this business model. And the value is structured to accrete directly to our existing shareholders with no dilution.

That's helpful. And then maybe -- and I don't want to distract, but just for clarity purposes, the increase in guidance today is that entirely tied to the XOMA acquisition or have you started to factor in some of the FSGS approval into that new guidance range?

Tavo?

Thank you. Super excited for this news this morning. Yes, so on the guidance, we do expect a 50% increase to adjusted EPS in the partial 2026 year. And then in 2027, $1.50. The longer-term model projects significantly more accretion as the development assets mature, but we'll wait either for a future earnings release or once this deal closes, and we'll provide a little bit more color around what we think that longer-term accretion looks like, we think it's very healthy.

So yes, the updated guidance is purely a result of today's news, the $0.50 in '26 reflects roughly half of the year of XOMA royalty contributions from the 3 -- primarily the three royalty generating assets of Vabysmo, Ojemda and Miplyffa plus the partial year of synergy realization from eliminating XOMA's a significant portion of their operating expenses that are largely centered around running a public company.

And then the step-up in $1.50 in '27 represents that full year of again, all three of those royalty streams combined with full year synergies and no changes in share count. And again, we'll provide a more detailed bridge to the 2027 number and an updated 5-year model at Investor Day that we expect to hold again this year in December.

Your next question comes from the line of Annabel Samimy with Stifel.

Congratulations on an interesting deal. So I just wanted to understand the capital used for the deal. Your stock is trading close to its 52 weeks highs, but you're buying XOMA all cash. So can you talk about the rationale in doing so and whether that limits your capital flexibility going forward? And just a separate question, given all the new opportunities, how do you think about future deal flow and priorities? And how will you manage the new portfolio programs, particularly in the pipeline? Any triaging of the portfolio you expect to take?

Thank you, Annabel. Great questions. I think although we're trading near 52-week highs, we believe that our stock is undervalued in the summer, as you know, lead the convertible bond financing to make sure we had significant cash on the balance sheet for these types of eventualities. And so that we had a de minimis amount of dilution to our shareholders but could still execute opportunistically on deals in the market.

As a result of this, there's no dilution, and it's an all-cash deal, and we think that's very good for our shareholders because all of the cash flows from the XOMA portfolio will flow directly in terms of the value to our existing shareholders. So that is the rationale for the structure. In terms of cash, we'll have approximately $200 million still available in cash plus the equity holdings and liquid securities that we have. And you have to remember, we're really, our targeted investment in our model is about $150 million to $250 million per year. So we have plenty of balance sheet to service our business model and our execution going forward.

But beyond that, now our cash flow generation is approaching $300 million per year. But the cash flow is now self-generative in terms of replenishing the balance sheet around our deal activity as well. So we think we're very well positioned to execute with de minimis solution to shareholders going forward. And we're very excited about this for that reason. In terms of the second part of your question, the portfolio management, -- so we've been scaling this business. As we said, we're going to scale the balance sheet and the team. We've gone from 3 investment professionals to 18.

We have billions of dollars of private equity investment experience on our team of 18 people. That includes significant portfolio management skilling as well. So we know that we have a large portfolio, which will now be well over 200 assets, and you have to constantly iterate, probe and manage that portfolio. We have dormant assets that we try to move along or we partner with new companies, and we've recently had some success around things like lasofoxifene in that regard. And we'll continue to work this portfolio hard with our new portfolio management system. And I expect there will be some positive surprises in the portfolio this large as well that we're not even aware of yet. So that's all part of our plan.

And in terms of future deal flow, I mean we're now positioned with pretty significant financial strength, and we're one of the few royalty players that are focused on servicing a late-stage private SMID-cap market. And so our deal flow is going to accelerate. We have -- there are more deals to do in this market that we can possibly do. And we've just added 2 additional deal leads in the last 6 months. So our deal flow should accelerate and our deal activity should be accelerating as we grow.

Your next question comes from the line of Yigal Nochomovitz with Citi.

Congrats on the transaction. I'm wondering if you could just go into a little bit more detail in terms of the strategy for the deal flow given that you're going to continue to deploy $150 million to $200 million now that you have a weighting of assets from XOMA that are earlier stage all the way from preclinical through to late-stage clinical as well as the new commercial ones. How are you thinking about the new deals in terms of risk and stage of development? And then secondarily, regarding the CVR with Tremfya, could you speak to what that may be worth if that litigation ends up being successful or any additional comments you can provide there?

Sure. Thank you, Yigal. In terms of the strategy for our deal flow, we're targeting assets that are addressing very high unmet clinical need that is both strategic in that if you're not solving big clinical problems in this market, in this regulatory world, in this payer world, that introduces more commercial risk downstream. But it also gives us and our team significant purpose as we go after the types of assets that we look for, which are addressing extremely high unmet clinical need.

We are also, from a size perspective, as you know, typically looking at deals in the $25 million to $60 million range. As our portfolio grows in value, the deal size could go up proportionately. I don't expect it to go up substantially here, but I do think we have the flexibility to do slightly larger deals as our portfolio grows. We will continue to target late-stage clinical assets. It doesn't mean that we won't occasionally do earlier stage assets, but those are smaller deals and you have to underwrite them according to the risk at that stage. So we are going to stay focused on sourcing and originating our deals and late-stage clinical pipeline.

Opportunistically, we do look at earlier stage programs occasionally, if they're significantly derisked, they're solving a big clinical problem, and there still can be strong evidence of safety and efficacy earlier programs, especially around things like repurposed molecules where there's already lots of clinical data. So that is how we're running our strategy now, and that is how we'll be running it in the future.

With regard to Tremfya and the CVR, I think I can't really obviously comment on the litigation. The value of that can be, of course, highly variable. XOMA believes they've got a very good case though. And effectively, we will be recipients of 25% of any potential net proceeds after legal costs, et cetera from that litigation. And that could effectively lower our effective purchase price by a couple to $3. But we'll have to see how that plays out, and that is in terms of predictability, that's on the lower end of the spectrum. So that's our strategy going forward.

Your next question comes from the line of Joe Pantginis with H.C. Wainwright.

Very nice transaction. So first, I just wanted to ask the housekeeping question. So I don't know if you disclosed the number as you've been giving a lot of details of your strategy and deployment going forward. You said it was a combination between current cash and the credit facility. Are you disclosing how much -- what the split was there, number one.

And then more broadly, with XOMA's aggregate royalty aggregation model being in place since 2017, as you said, they've been very, very creative in a lot of their transactions. And I was just curious, when you consider the proverbial meeting of the minds here with -- in acquiring XOMA, how much of these strategies might apply to your strategy and any changes that might happen. For example, a lot of their deals that have revolved around acquiring companies through companies that were in trouble or other types of creative deals there?

Yes. I'll take the second part, and then I'll hand it back to Tavo for the first question in terms of the financial breakdown. But the XOMA team has been very creative. I think with a lot of these kind of small acquisition deals, they've actually acquired a lot of tax assets, which I think added value to their portfolio in a very creative way. And so you tip our hat to them on that. I'd just remind you though that our strategy is fairly broad.

And we have a very diverse deal team that comes from hedge funds, royalty funds, growth equity funds, public equity funds. So we understand all aspects of the cap structure with the current team that we've assembled and we've actually engaged in M&A as well. First, with the Pyron in Europe, as you recall, which is where our Carziva royalty came from, that was immediately accretive to the tune of about $1 a share to us.

And more recently, we acquired the Novan assets all out of the bankruptcy, incubated the company for 18 months to fund that back out as Telios Therapeutic, who is now in the midst of launching their new drug for molluscum contagiosum that we have a 13% royalty on. So I think the team that we've assembled has the ability to execute in almost any deal format M&A, royalty finance in terms of project finance, royalty acquisitions.

We've navigated bankruptcies. We've restructured. We've created new companies and spun them out. So it's hard to find an approach that the team we've assembled is not capable of executing on. And I think it's probably one of the strongest, if not the strongest deal teams in the biopharmaceutical world. Tavo, do you want to take the first question on yes.

Yes. Yes. On the balance sheet question, we have not disclosed specifically the mix between cash on hand and tapping the credit facility, the revolver. But Joe, I'll just tell you that we have -- as we've stated publicly, we have over $1 billion in deployable capital. We entered the year generating approximately $200 million in operating cash on an annual run rate basis as we exit this year. That will be approaching $300 million post combination. So we're going to strike a balance here between having enough balance -- enough cash on the balance sheet, excuse me, to continue to execute on the strategy and also focusing on cost of capital and doing right by shareholders in that regard.

Your next question comes from the line of Jason Zemansky with Bank of America.

Congrats on the deal, I guess, can you speak a little bit more to the puts and takes of growing via, I guess, the acquisition of a large portfolio versus a more organic approach. I mean, fundamentally, is this a new type of deal we should be looking forward to moving forward a similar sort of transaction versus kind of the individual ones?

Great question, Jason. I think XOMA is a special asset. They've been in, first of all, long-standing biotech company, lots of legacy and history within the industry that convert into a royalty aggregation platform and approximately 2017 and added quite a bit in terms of royalty assets to the portfolio. So that's fairly unique.

And it takes a long time to build up a robust royalty portfolio like the XOMA has and in general, this is just my personal opinion, the earlier-stage assets in these portfolios are just typically not valued by the public markets. It's hard to, frankly, do all the math around the portfolio this large, but there is value there. And so this is a pretty unique asset. I don't see a lot of others like this in the market. Certainly, there are companies that may have partnered lead assets, and they have a lot of royalty value in them that you could acquire through M&A, restructure and hold on to the royalty assets.

We are a source of liquidity in those biotech companies that are out there in the market. So I suspect ultimately, the answer to your question is our regular way business, where we're doing more concentrated bets and adding them in to our vastly diverse portfolio is going to be -- kind of a consistent approach going forward. But we will do M&A. We obviously like multiple asset deals and risk in the biopharmaceutical industry in general and value, specifically is held -- 100% of it is held in the form of pharmaceutical products and royalties are simply derivative economic rights on those assets that hold all of the value in the pharmaceutical industry.

So this is a highly efficient investment model that is -- can be replicated kind of throughout the industry. And the diversity of our risk is actually calculated by the diversity of our asset portfolio, not the number of deals that we do. So when you look at the XOMA deal with over 100 assets in it, this is effectively similar to us doing about 14 or 15 deals individually and just aggregating it up. So this is a very efficient deal exercise for us, and we think we'll deliver great value to the Ligand shareholders as well.

Your next question comes from the line of Larry Solow with CJS Securities.

Congratulations as well. Just curious, just from a high level, I know you mentioned they're earlier stage, mostly programs, of course, they have a few commercial and some later stage ones.

Just can you just give us a quick highlight how the funnel -- what's their engine? How do they get these products and compounds? Do they have a business development team? It sounds like nothing to the substance that you have, but can you just kind of give us an idea of that? And then the second question was just on the acquisition itself. Was this a process? How did the kind of transaction come about?

Yes. I'll take the second part of that first, Larry, but thank you for those questions. XOMA is kind of an obvious potential target for us. We know them very well. I think Owen and the team there have done a great job. So we followed them really for the last few -- several years or so. And the timing seemed right for the reasons I mentioned earlier in the call, we think they're really approaching an inflection point. So the process, at least from an awareness perspective, has been going on for a couple few years.

However, I think we really engaged more earnestly in the December time frame and have been working on it since then. So that's how that portion evolved. And in terms of the earlier-stage assets and the process for aggregating them, I think it's a similar process. And we certainly -- we have a larger portfolio. We're larger on average. We have more financial strength. Therefore, our team is larger. So we probably have a higher level of activity than just practically they're capable of. But the teams are doing similar activities.

And it's important to point out that these deals are made. They're not in a book being marketed typically by intermediaries. You have to be aware of the types of assets in the market that you're highly interested in. You have to be able to approach the management teams you have to have a broad understanding of their financial alternatives because we invest in really good teams, and so they typically have a lot of alternatives. And you need to understand how royalty finance fits into their capital structure, which means you must understand the equity and the debt and why that makes sense for them.

And royalty finance isn't always the best solution. But it is a solution, and it's a very differentiated solution and in that it's nondilutive to equity and equity can trade above or below intrinsic value. And we also don't typically need to redirect, upset or change governance and things like that. So it's a pretty friendly form of investment. And additionally, our royalty investors' returns are tied to the long-term performance of the product.

So in terms of the life cycle of product development and pharmaceutical products, we are the most aligned form of financing. So again, royalty finance isn't always the best possible solution for a company, but it often can be. So you just have to be in the mix with those companies when they're considering a financing or when they need capital, and you have to know which companies it is that you want to be talking to and you have to understand their assets in detail so that you're directing your business development efforts efficiently into the pockets of value they're going to add the most to our portfolio.

We spend a lot of time managing that. We're very focused on that. We have weekly business development meetings, weekly investment committee meetings, and we're really running a private equity style process here where the partners and the investment committee meet around these assets, discuss them and prioritize them every week because one of the most important things we do is directing our business development efforts towards the right assets.

So that's how we go about it. I think probably was similar for XOMA and this whole deal that strengthens our portfolio and allows us to continue to scale our strengths around origination, deal execution, et cetera.

And ladies and gentlemen, that's all the time we have for questions today. This does conclude today's conference call. Thank you all for joining, and you may now disconnect.

Thank you for standing by, and welcome to Ligand's Fourth Quarter 2025 Earnings Call. [Operator Instructions]. I would now like to turn the conference over to Melanie Herman. You may begin.

Good morning, everyone, and welcome to Ligand's Fourth Quarter and Full-year 2025 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 that we will be discussing non-GAAP results, which excludes certain items such as stock-based compensation, amortization of intangible assets, amortization or impairment of financial assets, gains or losses from derivative assets and gain on the sale of the Pelthos business, 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 release today 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 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 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 will now turn the call over to Todd.

Thank you, Melanie, and good morning, everyone. We appreciate you joining us today. 2025 was a defining year for Ligand. We delivered exceptional financial performance with full-year adjusted EPS exceeding our original 2025 guidance by more than 30%. That growth reflects the strategic changes we began implementing in 2023, the lean operating structure, the talented team, a focused investment strategy and the strength and depth of our royalty portfolio, which continues to outperform expectations.

Full-year royalty revenue grew 48% over the prior year, and full-year adjusted EPS increased 42%, reflecting strong performance across the portfolio. Key drivers contributed to the 48% growth include the continued ramp of FILSPARI, successful launches of Merck's Ohtuvayre and CAPVAXIVE and the commercial launch of ZELSUVMI and continued growth of Recordati Qarziba.

With substantial cash and investments on hand, we are well positioned to pursue disciplined investments that create new clinically differentiated product royalty streams and enhance long-term shareholder value. I'd like to take a moment to congratulate our partner, Palvella Therapeutics on their announcement this week of positive top line data for their Phase 3 SELVA trial of QTORIN rapamycin for the treatment of microcystic lymphatic malformations, also known as mLM.

Based on the strong trial results, we believe QTORIN rapamycin is likely to become the first FDA-approved therapy for more than 30,000 diagnosed patients with mLM, a serious, rare and debilitating disease. We are proud to partner with Palvella and commend them on their hard work and dedication to develop transformative high clinical impact treatments for patients living with this rare disease for which there are currently no approved therapies.

Separately, in 2025, our deal team executed on a special situations transaction through the strategic merger and financing of Pelthos and Channel Therapeutics. Our special situations efforts can require significant effort, but we are rewarded with our efforts with superior risk-adjusted investment returns. Our team was patient and thoughtful, creating a subsidiary, building out a top-notch management team and spinning Pelthos out into a publicly traded entity and creating significant equity and royalty value for Ligand investors.

Importantly, we were also able to rescue and shepherd ZELSUVMI from bankruptcy through to FDA approval and into the hands of a capable team at Pelthos Therapeutics that will now serve millions of patients that are impacted by molluscum contagiosum. As we look ahead to 2026, we are accelerating our business development efforts. Our team is expanding, our pipeline is deeper. Our capital base is stronger than ever in our efforts to fuel our growth initiatives.

Additionally, in 2025, we launched a systematic portfolio management strategy to drive value in our development stage partnerships. We're now focused on more proactively communicating with our partners and doing what we do best, identifying new opportunities to provide additional investments or expand the partnerships in other ways.

I also want to address how we view royalty financing in the current biopharmaceutical funding environment. Importantly, we are seeing growth in the demand for royalty capital as evidenced by the doubling of the royalty funding market over the last 5 years. Even with improvement in the equity markets, royalty financing has become a strategic capital structure tool companies are choosing regardless of the broader market conditions. Our partners value royalties because they are non-dilutive, complementary to equity capital and aligned with our partners' long-term development cycles.

Additionally, only a small portion of the overall royalty financing market is tied to development stage assets. Ligand is uniquely positioned in this way within the rapidly expanding biopharmaceutical royalty financing sector where demand for capital is high.

Since 2022, we've been on a strong upward growth trajectory. Earnings have more than tripled as our royalty portfolio has scaled and we have aggressively managed our operating margins. Core revenue has also grown meaningfully from $108 million in 2022 to $240 million this year, and we are now expecting $265 million in 2026. That's based upon the midpoint range of our guidance and more than $430 million is expected by 2030. Adjusted EPS reflects the same momentum, moving from $2.44 a share in 2022 to more than $8 per share this year with visibility to over $13.50 per share by 2030.

Looking ahead to 2030, I would like to highlight our 5-year royalty receipts outlook, which we shared at our Investor Day in December of 2025. We now expect a 23% compound annual growth rate in royalty receipts from 2025 through 2030. This growth is driven by contributions across the entire portfolio. The commercial programs form the core of the growth profile and contribute to an expected 15% annual growth. These products are already marketed, supported by strong partners and in some cases, have the opportunity for additional label or geographic expansion.

Additionally, the Pharm team, which represents significantly risk-adjusted development stage programs currently in Ligand's portfolio is expected to contribute an additional 5% and future investments should add at least another 3%. We believe the strength of our recent results, the continued momentum of our royalty portfolio and our investment team's disciplined capital deployment approach positions us to deliver sustained long-term growth for years to come.

With that, I'd like to turn it over to Tavo for the financial update.

Thanks, Todd, and good morning, everyone. I'll start with a brief overview of our full-year 2025 financial performance, followed by the fourth quarter highlights and then discuss our 2026 outlook. 2025 was a breakout year financially for Ligand, driven by strong execution across our royalty portfolio and disciplined capital deployment. For the full-year, total GAAP revenue was $268 million, up from $167 million in 2024. This includes a gain related to the sale of the Pelthos business. Excluding that gain, core revenue was $240 million, reflecting 43% year-over-year growth.

Royalty revenue grew to $161 million, an increase of 48% year-over-year, driven primarily by FILSPARI, Ohtuvayre, CAPVAXIVE and Qarziba. From an earnings perspective, core adjusted diluted earnings per share increased to $8.13, up 42% year-over-year, reflecting strong operating leverage in the model and higher royalty contribution. Importantly, while 2025 benefited from the $25 million ZELSUVMI out-license fee, the underlying royalty portfolio delivered substantial organic growth independent of that onetime item.

Turning to the fourth quarter. Total revenue in Q4 was $59.7 million, representing a 39% increase compared to the same period last year. Royalty revenue was $50.5 million, up 45% year-over-year and again, represented the primary driver of growth. Key royalty contributors during the quarter included continued strength in FILSPARI with U.S. net sales of $103 million. This represents 108% growth year-over-year and $322 million of net sales for the full fiscal year.

As a reminder, we also received a royalty on net sales of Travere's partner in Europe, CSL Vifor. In total, we recorded royalties of $32 million on approximately $355 million in global FILSPARI sales in 2025, including those reported by CSL Vifor. Merck's Ohtuvayre, which reported net sales of $178 million in the partial fourth quarter on a full quarter basis, accounting for the fact that Verona owned the asset for the first 7 days of the quarter, sales were just under $200 million. U.S. net sales of Ohtuvayre for the full-year 2025 were $506 million. Merck's CAPVAXIVE, which reported net sales of $279 million in the fourth quarter and $755 million for the full-year is rapidly approaching blockbuster status. Recordati's Qarziba reported net sales of EUR 159 million for the full-year 2025, representing 12% growth.

Adjusted net income for the quarter was $42.7 million or $2.02 per diluted share compared with $1.27 in the prior year period. The increase was driven almost entirely by higher royalty revenue, reflecting the scalability of our model. On the expense side, R&D expense declined to $3.5 million in the quarter compared to $4.4 million last year, and G&A expense was $25 million, relatively flat year-over-year as we maintained disciplined cost management while supporting portfolio growth. Overall, the fourth quarter capped a year of accelerating earnings and expanding margins.

For the full-year, R&D expense was $81.2 million compared to $21.4 million in the prior year. 2025 full-year R&D costs include $62 million related to the accounting treatment of Castle Creek and Orchestra investments. Full-year G&A costs for 2025 were $92.4 million compared to $78.7 million, driven by stock-based compensation costs, Pelthos transaction costs and other headcount-related costs primarily to scale the BD function.

We also ended the year with a very strong balance sheet, including $734 million in cash, cash equivalents and short-term investments. When combined with our equity holdings in Pelthos Therapeutics and available capacity under our credit facility, we ended 2025 with over $1 billion in deployable capital.

Turning now to 2026. We are reaffirming the financial guidance we introduced at our Investor Day in December. For the full-year, we expect adjusted EPS of approximately $8 to $9 per share, royalty revenue of $200 million to $225 million, representing 32% growth at the midpoint, Captisol revenue of $35 million to $40 million and contract revenue of $10 million to $20 million. In total, we expect revenue of $245 million to $285 million for 2026. As a reminder, the year-over-year adjusted EPS growth appears modest at the midpoint due to the onetime ZELSUVMI out-license income recognized in 2025. Excluding that item, the underlying earnings power of the business continues to grow meaningfully.

Royalty growth in 2026 is expected to be driven primarily by FILSPARI, Ohtuvayre, CAPVAXIVE and ZELSUVMI, all of which remain in relatively early stages of their commercial life cycle.

With that, I'd now like to turn the call over to Lauren for a portfolio update.

Thanks, Tavo, and good morning, everyone. I'd like to provide more detail on our new portfolio management strategy that Todd touched on earlier. We recently launched a more sophisticated and systematic portfolio management process designed to actively drive value across our partnerships. This approach allows us to track progress and catalysts in a more disciplined manner to increase the frequency and depth of our partner dialogue and to proactively identify new investment opportunities.

This positions us to take initiatives to ensure our partners have what they need to be successful, whether that means adding investment behind programs in which we have high conviction, broadening the scope of existing collaborations or identifying novel ways to expand the partnership. In short, it's all about being more proactive, more data-driven and more investment focused across the portfolio.

Moving to the next slide, I'd like to provide an update on one positive development from our recent portfolio management efforts. Lasofoxifene is a program that has been in our portfolio for quite some time. The product was originally discovered in 1991 through a research collaboration between Ligand and Pfizer and is currently midway through its Phase 3 trial for the treatment of ER-positive/HER2-negative metastatic breast cancer in patients with ESR1 mutation.

Lasofoxifene has a compelling value proposition. In Phase 2 studies, lasofoxifene demonstrated a 13-month median PFS in combination with abemaciclib, significantly stronger than the 3- to 6-month median of currently approved monotherapies. Lasofoxifene also has a unique mechanism of action as a selective estrogen receptor modulator, or SERM, presenting potential advantages in tolerability as well as bone and urogenital health.

Additionally, the product has a large safety database of approximately 10,000 patients from prior Pfizer studies. Lasofoxifene was being developed by Sermonix Pharmaceuticals who ran into financial challenges midway through the pivotal study. Late last year, we worked collaboratively with Sermonix equity investors to successfully assign the license to LeonaBio, previously Athira Pharma.

In conjunction with the license, Leona completed a $90 million PIPE with very strong investor demand led by Perceptive, Commodore and TCGX with additional potential financing of $146 million to support the program. Ligand participated in the PIPE to signal our support and partnership with Leona, and we are encouraged to see this important late-stage program backed by a strong investor base under the leadership of the talented team at Leona.

Top line data for lasofoxifene is expected to read out in mid-2027 in the ongoing pivotal ELAINE 3 trial, which is currently more than 50% enrolled. Additionally, Henlius has exclusive rights to lasofoxifene in Asia and certain countries in the Middle East and is currently in Phase 3 development in China. Ligand earns a tiered 6% to 10% royalty on worldwide net sales of lasofoxifene. With management peak sales estimates of approximately $1 billion, this could potentially result in annual royalties to Ligand of $80 million.

Moving to the next slide, I'd like to provide some important updates on other key assets in Ligand's portfolio. I will go into more details on Palvella's QTORIN rapamycin, Travere FILSPARI and Merck's Ohtuvayre on the following slides. First, I'd like to briefly touch on 2 of our pipeline assets. This includes Sanofi's Tzield and Agenus' BOT/BAL.

In October 2025, Tzield was accepted for expedited review for Stage 3 type 1 diabetes, or T1D, through the Commissioner's National Priority Review Voucher pilot program based on its potential to address a large unmet medical need. Tzield is currently approved in the U.S. for patients with presymptomatic Stage 2 disease to delay the onset of Stage 3 in patients who are 8 years of age and older. If approved, this new indication would expand treatment to patients diagnosed with symptomatic Stage 2 disease. This represents a much larger and more accessible patient population.

Sanofi expects a regulatory decision in the first half of 2026. Sanofi is also pursuing a lowering of age eligibility from 8 years of age to 1 year of age in the approved Stage 2 indication with a PDUFA date of April 29. In addition, Tzield is expanding geographically after recent approvals in Europe and China.

Turning to Agenus' BOT/BAL. Agenus announced the closing of a strategic collaboration with Zydus designed to accelerate global development and commercialization of BOT/BAL. Agenus has initiated a global Phase 3 trial evaluating BOT/BAL in patients with refractory unresectable microsatellite stable colorectal cancer. The trial will enroll approximately 800 patients across more than 100 sites in Canada, France, Australia and New Zealand. The Phase 2 data are highly encouraging, demonstrating deep and durable responses in this difficult-to-treat population, underscoring the meaningful benefit observed in patients who have failed standard therapies.

Moving to the next slide. Let's look at Palvella's QTORIN rapamycin. The successful Phase 3 trial results in microcystic lymphatic malformations represent a major positive catalyst for Ligand this year. Palvella announced this week that QTORIN rapamycin demonstrated a highly statistically significant outcome on the primary endpoint, the key prespecified secondary endpoint and all 4 additional secondary endpoints.

For the primary endpoint, QTORIN rapamycin demonstrated a plus 2.13 point improvement on the mLM Investigator Global Assessment scale. This is clinically transformative and even more compelling when viewed in the context of a disease where patients currently have no FDA-approved treatments. 95% of trial participants were rated as improved and 86% of patients were rated as much improved or very much improved.

Additionally, QTORIN rapamycin was well tolerated with no drug-related serious adverse events. A remarkable 98% of all participants who completed the trial elected to continue to receive treatment through the ongoing extension period. I'd like to encourage our listeners to review Palvella's presentation on its Phase 3 results located on the Palvella website. The work Palvella has done has the potential to be transformative, providing a high clinical impact treatment for patients living with this rare disease.

Palvella plans to submit an NDA in the second half of 2026 and is accelerating U.S. launch readiness for this potentially first FDA-approved treatment for mLM in a first-line standard of care treatment for this serious lifelong disease affecting an estimated more than 30,000 diagnosed patients in the U.S. As a reminder, QTORIN rapamycin has been granted breakthrough therapy designation, orphan drug designation and Fast Track designation from the FDA for the treatment of mLM.

Now turning to Palvella's development of QTORIN rapamycin for the treatment of Cutaneous venous malformations or cVM. In December, Palvella announced positive top line results from its Phase 2 TOIVA study for the treatment of cVM. Palvella recently completed a very successful cVM breakthrough therapy designation meeting with FDA and plans to submit a breakthrough application shortly. The FDA has also granted Fast Track designation to QTORIN rapamycin for the treatment of clinically significant angiokeratomas.

There are currently no FDA-approved therapies for the estimated more than 50,000 U.S. patients diagnosed with angiokeratomas. Palvella plans to initiate a Phase 2 trial evaluating QTORIN rapamycin for clinically significant angiokeratomas in the second half of 2026. Across the 2 lead indications, there are an estimated more than 100,000 patients diagnosed with either mLM or cVM. Based on payer research and orphan analog launches, Palvella projects an annual per patient price of $100,000 to $200,000 per patient. At peak, this positions the U.S. commercial opportunity for QTORIN rapamycin to reach an estimated $1 billion to $3 billion in annual sales. This could translate into a potential $100 million to $300 million in peak annual royalty revenue to Ligand.

We congratulate our partner, Palvella, on their tremendous recent success and their momentum heading into their first potential FDA approval as well as important development milestones. The upcoming year will be a very catalyst-rich year for our Palvella partnership.

Next, FILSPARI continues to perform well commercially in IgAN, and it now represents the largest royalty in our portfolio on an annualized go-forward basis. Q4 sales in IgAN reflected initial tailwinds from 2 important Q3 catalysts, REMS modification as well as updated KDIGO guidelines. Additionally, Renalys, who was recently acquired by Chugai, announced positive Phase 3 results and plans to submit an NDA in Japan for IgAN in 2026. We believe there could be significant commercial upside if approved in Japan based on population estimates.

While we were disappointed to see that the FDA extended the review time line for the sNDA for FILSPARI in FSGS, we continue to believe in the potential of FILSPARI to make a meaningful difference in the lives of patients living with FSGS, and we are encouraged by Travere's engagement with FDA, their commitment to continue to work with the agency through the extension period as well as their continued efforts on commercial preparations.

Moving to the next slide. Ohtuvayre is tracking well ahead of initial expectations, and it continues to be the strongest launch in COPD history. Q4 sales grew more than 40% sequentially over the prior quarter and the product generated approximately $500 million in sales in its first full calendar year of launch. Additionally, the National Medical Products Administration of China accepted the NDA for Ohtuvayre for the maintenance treatment of COPD for review. Ohtuvayre is currently only approved in the U.S. and has potential for significant upside from geographic expansion.

Beyond the portfolio highlights we reviewed today, we have a wide range of diversified assets with meaningful upcoming catalysts. Collectively, our commercial portfolio is the strongest it has ever been, and it represents a deep pipeline of potential value drivers over the coming years.

With that, I will turn the call back over to Todd for his closing remarks.

Thank you, Lauren. We are pleased with the progress of our late-stage development pipeline, specifically the strong trial results of Palvella's Phase 3 mLM trial and the recent new partnering of lasofoxifene with LeonaBio. We've always had strong conviction around these important late-stage programs and are encouraged to see both the clinical development progress of QTORIN rapamycin in mLM and to see lasofoxifene now backed by a strong investor base under the leadership of a talented team.

When we combine the strong launch momentum, we've seen across multiple products in our commercial stage portfolio and build on that with our late-stage development pipeline, it's easy to see how quickly momentum can build and begin to predictably compound. Our strong origination capabilities, our investment team and our robust investment process are driving meaningful portfolio growth. Our deal team's ability to identify, access and create high-quality investments sets Ligand apart.

Thank you, everyone, for joining us for today's earnings call. I will now pass it back to the operator and open it up for questions.

[Operator Instructions]. Your first question comes from the line of Thomas [Alver] with Oppenheimer.

It's Trevor. Congrats on the quarter and the recent Palvella data. I had a question regarding clinical update expectations for your late-stage royalty portfolio. We all know about the big update for FILSPARI in FSGS, but what other clinical updates might we expect for other assets during 2026 that investors might be overlooking?

Thanks, Trevor. I think in terms of our late-stage pipeline, it's quite active. I think if you look at it holistically, just a short list here, but you have Qarziba in the study for U.S. approval, Qarziba in Ewing sarcoma, that's with Recordati, BOT/BAL with the Agenus is in Phase 3. With Orchestra, you've got both the AVIM therapy and Virtue-SAB trials in Phase 3. With our Castle Creek partnership, they're working on another treatment for DEB, similar to Krystal's drug called D-Fi that is in Phase 3. We mentioned, obviously, and significantly discussed the mLM, but quickly coming in behind mLM for QTORIN rapamycin at Palvella is the cutaneous venous malformations where they read out some new data in December.

Then you heard about lasofoxifene today, and we have Tzield with ongoing studies in type 1 diabetes that could expand the use of the drug there. We should have a number of robust updates on all of those over the coming several quarters. I would just point out that a significant majority of these have been added into the portfolio in the last 2, 2.5 years. Those efforts are accelerating. You can expect additional late-stage assets to continue to be added into our pipeline. That is core to our business model and will be a key driver for our growth going forward.

Your next question comes from the line of Matt Hewitt with Craig-Hallum.

Congratulations on the strong finish to the year. Maybe first up, and this is a question for Lauren. I know that you've been championed with monetizing some of the older assets in the portfolio. I'm just wondering if you could give us an update on that and whether or not you see some potential for low-hanging fruit, some reinvigoration of that older pipeline.

Yes, Matt, thanks for joining, and thanks for the question. The answer is yes, definitely. We have 5 to 10 opportunities across the portfolio where we're very actively engaged at the moment. Some of those would be new investment opportunities for Ligand. Others are opportunities where we do have operating capabilities on our senior team in terms of really a lot of depth and breadth of experience scientifically across the regulatory domain and then commercially where we could offer advice and support to our partners.

Then looking at the balance of the year, there's another 10 opportunities on our list where we plan to engage over the next couple of quarters. I imagine that we'll see publicly another announcement or 2 by the end of the year. I think as an example with lasofoxifene a strategy that's already yielding quite a bit of value to our portfolio and some of those legacy investments that you referenced.

Your next question comes from the line of Annabel Samimy with Stifel.

Congratulations on a strong year. I guess in the last few months, we've been hearing a lot more about Tzield. It's a low royalty, but it seems like it could be a decent market. Can you talk a little bit more about the larger opportunity that you see? Do you have any sense of a peak sales size and what that can contribute to Ligand given the low royalty?

Yes. Thanks, Annabel, for the question, and thanks for joining. You're right. Our royalty on Tzield is on the lower side relative to some of our other partnerships. This is a potentially blockbuster opportunity that Sanofi has. The current indication where they're approved is in Stage 2 type 1 diabetes, which is a little bit complex to digest and there's a lot of words associated with that indication. Basically, what that means is that they're going out and looking for patients who are presymptomatic. If a patient is diagnosed with type 1 diabetes, what they do is they go out and they screen the family members and see if there are any patients who may be presymptomatic who would be progressing to symptomatic disease and then they treat them with Tzield.

Sanofi is doing a fantastic job building out that market. However, it's very difficult, as you can imagine, going out and screening large numbers of these presymptomatic patients. We're continuing to see gradual growth in that indication. The one where they have the commissioner's voucher, that indication is in Stage 2 disease. Those are newly diagnosed symptomatic patients. Those are much more accessible commercially just because they're already in the health care system and being treated. Commercially, that opportunity is probably much larger. Sanofi acquired this asset from Provention Bio, and they have a lot of conviction around it. We're eager to see the decision on that Stage 3 indication sometime in the first half of this year.

Your next question comes from the line of Yigal Nochomovitz with Citigroup.

This is Joan [Kim] on for Yigal. Congrats on the quarter. We were wondering if you could help contextualize the reiterated guidance range given the slight delay for FSGS approval? How much, if anything, did the low end of the range assume for FSGS royalties in addition to continued IgAN royalties?

Yes, thanks for the question. We assumed relatively -- we have a relatively modest assumption. It is a risk-adjusted number on FSGS going into the 2026 royalty guide. We did disclose that number. It's in our Investor Day slides. It's $4 million in 2026. Obviously, at the time, we had the January 13 PDUFA date, moving it out a quarter in tax that number minimally, I believe, it is a risk-adjusted number. Obviously, if it's a good outcome on the approval, then that is a derisked input, and it's somewhere north of that $4 million. It's overall, FSGS is going to be, we think, a minor contributor in 2026. Obviously, that becomes more significant and more meaningful as we get out to the -- into the later years. Yes, so that's the input on FSGS.

Your next question comes from the line of Joe Pantginis with H.C. Wainwright.

First, maybe for Todd or anyone else that wants to chime in, off of your recent Analyst Day and combined with your very strong deployable capital, do you have any thoughts or does it stay the same with regard to any changes or updates toward your selection criteria for potential partnerships, for example, the sizes or anything else?

Joe, thanks for the question. This is Todd. Well, I think that in general, as the value of our portfolio grows and it is growing rapidly, the average value per deal that we want to capture will go up proportionately. Just as a matter of functional strategy, you can increase proportionately your deal size or you can do more deals. We really like the range that we're in because we're very focused on these high clinical value assets.

A lot of times, you can create really significant value with Phase 3 studies that are in the $30 million to $80 million cost range in total. That's a very good investment target for us, where there's a high demand for capital and there's relatively few solutions in terms of structured finance or royalty financing. We'd like to stay in that space. On average, we are going to be looking for greater value generation and having that accelerate over time through a combination of maybe slightly larger deals and more deals.

Then maybe a question for Lauren, if you don't mind. Maybe you can remind us or provide some detail, and I know, obviously, get more information for the company. With regard to the Castle Creek technology, we had a lot of familiarity with that. I think maybe it's important to remind us or talk about any potential differentiations with regard to VYJUVEK because obviously, for example, any differences in potential surface area addressed or any other differentiation you might want to discuss?

Yes. Great. Thanks, Joe, for the question. We have a lot of conviction in D-Fi, which is the Castle Creek treatment that, as you mentioned, is the same indication as Krystal's VYJUVEK. The investment thesis here is that we think it's a validated target. We're looking at a Phase 3 gene-modified autologous cell therapy with Castle Creek. The differentiation here is that it's injectable. It could expand the body surface area, whereas VYJUVEK has a live HSV vector and is applied topically. They're pretty limited in terms of the accessible body surface area for any individual patient.

We also think that VYJUVEK has really validated the market here. They did just under $400 million in 2025 sales. We think D-Fi could come in and be a nice complementary treatment for patients with DEB. They have -- the vast majority of their body surface areas affected by these really debilitating wounds. If you offer patients a range of treatments where VYJUVEK as an example, needs to be dosed on open wounds, whereas these patients have -- they develop over time, a lot of these chronic wounds that get crested over and so they're not accessible with a topical treatment like VYJUVEK.

When you introduce an injectable into the marketplace, then it really expands the treatment options for patients. Longer-term, there could be a potential to also use this treatment in the hands and feet, whereas patients with DEB, they get almost a webbing in between their fingers and toes that really limits their ability to perform activities of daily living. Longer-term, that could be on the horizon as well. They have a really strong team in place at Castle Creek. We think that with the differentiation and a validated target, we're pretty optimistic about the trajectory for this one.

Your next question comes from the line of Larry Solow with CJS Securities.

It's Pete Lukas for Larry. Just a couple of questions on FILSPARI. Does delay in approval in FSGS have any impact on your 2026 outlook? Or can we assume negligible or no expectations in guidance?

Yes, it's going to be negligible. It's a relatively small assumption from FSGS in 2026. We did disclose at our Investor Day that we're assuming $4 million contribution from FSGS in 2026, relatively minor.

Can you remind us of the potential market size opportunity in the U.S. for FILSPARI, FSGS versus IgAN? Outside of the U.S., it's been approved in Europe and trials underway in Japan. Can you give us an idea there also of the market opportunities outside of the U.S.?

Thanks for the question. Consensus estimates for FILSPARI in IgAN and in FSGS are around $1 billion per indication. Just as a reminder, our royalty is 9% here. That would be a potential of around a $90 million royalty revenue to Ligand for each indication stand-alone. FSGS, they are expecting will launch more quickly than IgAN because there are no treatment options. It's a more rapidly progressing disease. The patients are younger. Travere has really built out all the commercial -- or the vast majority of the commercial infrastructure that they need they've shared that they'll be adding some sales reps to help cover the pediatric nephrologists, but they already have a lot of the infrastructure in place. They've guided to the fact that the launch, if approved, would probably ramp more quickly than in IgAN.

I think that on the Japan side of things, IgAN is quite prevalent in Japan. There could be a pretty sizable commercial opportunity there. Travere and then Chugai have not shared anything externally in terms of their expectations there. We'll have to see if the drug is approved, how the pricing comes in. We're optimistic that there could be some real value to unlock there.

Your next question comes from the line of John Vandermosten with Zacks SCR.

Jazz's Rylaze beat estimates in fourth quarter. I'm wondering if that was enough to push it into your category of key royalty drivers? Then also, what are your thoughts on this asset as we look ahead towards the rest of the year?

Yes. Great. Thanks for the question. Rylaze is one of the more mature products in our portfolio. We don't talk about it as much as we do some of the products that we have that are newer to the portfolio in terms of launching and ramping and a lot of growth. What we continue to see is real strength in the performance of Rylaze. As you've evidenced by the recent strong quarter that they shared, we don't have a lot of catalysts in terms of inflection points that could drive the sales of that drug up or down. It is one of our key royalty revenue drivers, and we expect that it will continue to be over the coming quarters and years. Probably, nothing on the near-term horizon that we see that would materially drive the sales to grow substantially from here.

Looking at Pelthos and your equity holding in that asset, do you see that as a source of cash? Or is that just a good place to stay as they roll out their portfolio and add new assets?

Yes. I think obviously, with a strategic transaction like that where you end up with a real significant percentage in the company, we're going to have a very long-term view on that as holders. We're not looking for liquidity right away, and we think there's a lot of upside there as well. Overall, in terms of our equity strategy, I mean, between warrants and legacy investments and things like that, we still have 1 million shares in Viking, for example. We have had a general philosophy that once these things are mature and that's the appropriate time, of course, we do look for liquidity, and we do see them as a source of cash in some cases.

Then last question is just a broader one on the markets at all. M&A was kind of up in the second half of '25 and then it's maybe slowed a bit this year, and the IPO market has been fairly weak for our space. How is that affecting the opportunities that you see?

I mean, it's generally, I would say, an okay market right now. Better than it was 2 years ago, for example. For us, John, in good markets and in bad, I think royalty financing is growing rapidly regardless. It's doubled in the last 5 years. People are seeing it as much more a mainstream part of their capital structure for lack of a better term. There's debt, there's equity, and there's royalty financing available for companies.

It used to be 10 years ago when you would approach a company and offer a royalty financing. There was typically, not always, but typically an education process required. Now most of the CFOs and CEOs out there immediately know what you're talking about conceptually and understand how it fits into their capital structure. They also realize that there's many advantages. I mean it's not better, but it's different than other forms of financing.

For example, our investments are extremely long term, and they're tied much better to the life cycle of assets within our biopharmaceutical development time lines because we're attached to the assets over time, even when they trade hands. There's a lot of advantages to doing this. Obviously, at some point, if people think their equity is significantly undervalued on a relative basis, it can look attractive for that reason. In good markets and in bad, we have just found our pipelines to be quite robust. Paul Hadden and the investment team simply have more deals to do than they can possibly do. We're really culling our pipeline of opportunities pretty aggressively to make sure that we're spending our time on things with a high probability of closing. That offer good assets, meet all of our asset criteria that we look at and will offer appropriate returns as well.

Thank you. That concludes our question-and-answer session. I would like to thank our speakers for today's presentation, and thank you all for joining us. This now concludes today's conference call. You may now disconnect.

Good morning, everyone, and welcome to Ligand's 2025 Investor Day. I'm Melanie Herman, Head of Investor Relations for Ligand. And on behalf of our entire team, I'd like to thank you for taking the time to join us today, whether in person or via webcast.

I'd like to touch on a few logistical points. There will be a question-and-answer session immediately following today's formal presentation. And if you're dialing in via webcast, you can submit any questions in the online call manager. For those of you joining us in person, we hope you'll join us for lunch after the presentation.

Today, we'll be discussing certain non-GAAP financial measures, and some of those will be forward-looking. We'd like to refer you to the safe harbor statement in these forward-looking statements, which are subject to risks and uncertainties. Actual results or events may differ from those projected or discussed and all forward-looking statements are based on all current available information. There's no obligation to update these statements. And with that, I'd like to introduce our CEO, Todd Davis.

Thank you, Melanie. Good morning, everyone, and I just want to say thank you for attending. We appreciate the support of our investors. We take that very seriously and a high priority for us is to deliver to investors as well as patients. And those 2 things are very synergistic. I want to just mention, Martine and Jason, 2 of our board members made it here live today. There may be a couple of others online, and welcome them and thank them for attending as well.

In 2022, the Board was discussing our strategy, frankly, our lack of results in terms of stock price appreciation, which had been flat for a little over 6 years and tasked us with finding a new path and a new strategy that could deliver something that rewards our investors as well as patients. We felt we were creating value, but that value is not so easily discerned. It's hard to invest in biotech. It's hard to value companies. You're talking about future promise of potential cash flows from highly complex products. And so we set out to devise a business that would deliver current cash flows, much more discernible as well as the future promise of the biotech has to offer in a diversified way. And we believe that we're on plan.

Today, we'll update you on that progress. We're going to talk a little bit about the 2025 results, 2026 guidance, and the plan beyond that as well as numbers beyond that. We will update our 5-year forecast as well, which we do every year. This will take about an hour. So there should be plenty of time for questions at the end for anything that we left out. And we've come a long ways in 3 years. So let's talk about that. Ligand's position today, if you look at where we are is we have a strong portfolio that we've added to significantly. That's driven at the top of the iceberg by 12 commercial stage products that are rapidly driving our financial growth and increasing our financial strength. There's over 80 development-stage programs that -- some of which will bubble up and be future cash flow for us as well. So we have cash flow and the promise of future cash flow. We also have a very strong team, which is adding high-value assets targeted on high unmet clinical need that we'll continue to add into the portfolio on a regular basis, as you've seen us doing over the last 3 years.

We believe that, that offers the significant opportunity for very visible and high growth going forward, which is our goal. We also have 2 lean technology platforms where we primarily are licensing and commercializing the intellectual property. So we run those 2 platforms with very low-cost infrastructure. So we believe we're set up for predictable and profitable growth. And if you look at what's happened since 2022, I think there is evidence of that so far. One, our royalty revenue is approximately doubled since then. Our operating expenses are less than half of what they were. And as a result of that, our profitability or adjusted EPS is up 3x, but we are just getting started. As you know, we have -- in the last 3 years, this is the third time we've done it. We'll update this chart once a year. We provide 5-year guidance. Why? Because we believe that we have highly predictable and visible future growth. And this year, we're raising the long-term 5-year guidance from a 22% CAGR and on royalty receipts to 23%. Now Lauren and Taber going to cover this chart in detail, but I would just mention a couple of things.

One is that 15% of that 23% growth is in commercial stage rapidly growing assets. And so that's as derisked as you can get in the pharmaceutical industry, and it's diversified. Secondly, a severely subsection a subset of assets are selected in our development programs significantly discounted, and that's our farm team as we call it, which offers an additional 5% growth and 3% of the growth, as you can see the numbers on the right-hand side of the chart, we're attributing which we believe is modest to the investments that were -- that are occurring over the next 5 years. So that is our 5-year plan. We think there's high visibility to that. That's why we're comfortable sharing it. We do not like to overpromise. We like to not under promise, but we like high assurance in the numbers that we share. I'd just like to remind folks, in our view, there are many structural advantages and differences in royalty investing compared to other forms of investment. One is that royalty investing, royalties in general, are a percentage of the top line. So you're somewhat mitigated from the operating expense risk, operating expense volatility, operating expense, misallocation sometimes because we are a percentage of the top line.

Also, this offers a very low infrastructure, therefore, high operating leverage model to us, and to our investors because our partners have the sales and marketing infrastructure. Our partners have the development and clinical development infrastructure. They have the manufacturing infrastructure. We are simply investing with them, cooperating with them and helping to create the products through our investment activities. So there are many structural advantages to royalties in general. Also, the financing risk is somewhat mitigated -- as you know, I mean, you can invest in the right company at the wrong time. That happens all the time. It's 1 of the challenges of investing in biotech. In our case, we could make that mistake as well, but at least royalties are nondilutable a 5% royalties, a 5% royalty, even if there's some twists and turns. So there's some advantage there as well. There are advantages in the general business model as well, which will deliver current cash flows and the future promise. One is the small infrastructure, which I just mentioned. We're also offering diversified exposure to the biotech industry with the products that we carefully curate select. This is a compounding strategy as we reinvest our cash flows as the value of our portfolio grows, we're going to be investing more rapidly or a greater volume of capital will be invested every year that mathematically will simply compound. And then we have less concentrated risk, as I mentioned. We're much more diversified.

And then finally, just the optionality in this model is, I believe, superior -- we need the biotech industry is creating a lot of amazing products. We need that business model. I'll just point out, we do have the advantage, though, of investing our capital when we reinvest and reallocate our capital. We don't -- we're not limited to the 4 walls in which we're operating. We have the entire industry. We go out, we find the best teams, the best technologies, addressing high unmet clinical need. That is our mission, and that is what we're executing on. So how do we go about this? Some of you have seen this before, but there's several different tactics to aggregate royalties One simply is royalty monetization. So we go to individuals or institutions that hold royalty rights, and we will offer them capital and return for those royalty rights. That's a royalty monetization. Second one is project finance. We'll find teams with assets that we have conviction in, we'll approach them and we'll create a deal. These deals are created. They're not typically banked or found. You have to create them through a discussion will create a project financing with royalties rather than equity or debt securities.

As many of you know, we also have a special situations approach. Apeiron is a good example of that, [indiscernible] a European company, restructured it and held onto the Qarzibaroyalty, which is currently marketed by Recordati. That was a great deal for us. And more recently, the Peltos transaction was done. That was acquiring what we viewed as high-value assets out of bankruptcy for about $12 million, incubating them, bringing in a phenomenal team. You'll hear from Scott Plesha today, our partner at Pelthos incubating that and then taking that public midyear here to launch a newly created company, Pelthos, to focus on that pediatric infectious disease segment. And then finally, we have 2 platforms, as you know, we have the Captisol platform, which we had for a number of years, which continues to perform. And we also have the Nitricil intellectual property platform, which we think has the promise for future results. To execute on all these different approaches does take a talented and diverse team. We have strong corporate management, we believe, with very strong financial systems. Tavo did a great job with the convert and the management of the fundraising as well. We have a strong legal experience.

Andrew has over 20 years of experience in royalty structuring and as our Chief Legal Counsel. We have significant expertise in deal leading and investment activities. Paul and Rich Baxter both on the Investment Committee. Michael Vigilante is really doing a fantastic job leading deals and this year, we've launched a pretty sophisticated portfolio management system to make sure we're getting the most out of our development stage partnerships that we have in place and that those assets are moving along and Lauren Hay is leading that activity. So a strong investment team. And of course, in this industry, you need to know what you're doing. And so we have a strong operating team and a strong scientific team with folks like Karen Reeves, Keith Marschke that have a deep knowledge in clinical development, clinical operations, very important. That's what people often get wrong, CMC, biology and chemistry.

So we have the talent, but you really have to give that talent direction and make it cohesive. And we do that with a very rigorous private equity style process. We have an investment committee. There are 3 members, myself, Rich and Paul and as the deal leads are taking deals through our deal activity and our deal progresses from Phase I through Phase II to Phase III, which is the final stage of deep diligence and investment decisions. The deal leads are iterating with the investment committee on structure and the risks as the diligence unfolds what those risks are as well as the opportunity. So that is our process. We're fairly rigorous. We have business development meetings and investment committees, typically on Mondays. Monday is a very busy day, and then we'll follow up with sporadic IC meetings that there's something really urgent going on. This serves a lot of purposes in addition to disciplined investment process. This drives the company culture. It drives our selection criteria that is all communicated through this process. And when you're doing that with talented people, it's very effective. Here's just a sampling of some of the things that this team has closed recently. Orchestra. As I mentioned, we're going after very high unmet clinical need. Orchestra is focused on hypertension and arterial disease. Castle Creek and Palvella are focused on rare and very severe skin diseases and are making a lot of progress there.

Recordati and Agenus are focused on severe diseases in oncology. Sanofi has a type 1 diabetes drug that we think is very important for type 1 diabetics could potentially slow the progression. And they are actually a recent beneficiary of the new kind of policy orientation, which overlaps very well with our strategy because the new policy orientation with Dr. McCarrey is focused on very high unmet clinical need. That's where he's putting in place more pragmatic policies or attempting to do so. And that's what we're investing in. So we think that represents a tailwind. And in fact, Sanofi just received one of the new national priority vouchers for that program. And then finally, at here, you'll see Pelthos. Scott Plesha will tell you about that today. But I think our team had the vision to realize the opportunity, Rich, in particular, here with this product. We love strategies where there's a high unmet need and where you're going from 0 to 1. So there's no therapeutic competition. We're the only one with a take-home therapeutic treatment in our portfolio for molluscum contagiosum. And Scott is leading that company and the launch is going very well. He will update you on that.

So there's significant funding, of course, required in these types of companies. A recent Deloitte survey said there's about $310 billion of development capital raised, our total funding in the biopharmaceutical industry. The significant majority of that is equity but the royalty financing is less than 10%. And royalty financing, as you can see on the right, is rapidly growing. And I would just point out that the significant majority of royalty capital is actually focused on commercial stage investing. So it's probably less -- well less than 4% is development stage investing. And most of that is focused on large Phase IIIs with large pharma, large biotech. So we've positioned the company in a place where we're in a growing industry with a rapidly going finance segment in a place where there's a very low competition. So we've done that by design and positioned it into an inefficient market. So we think we've made a lot of progress since that first Investor Day in 2022. Financially, we're performing, and we believe we've set up the portfolio in a way where it will continue to perform. We've built the investment team, and we will continue to scale that. As I mentioned, we've got 3 experienced deal leads, and we're probably adding a fourth this year. So our capacity goes up 33%. And there is more to do than we can do. There are more good deals to do than we can possibly do right now. So the opportunity is significant.

And importantly, we've advanced the portfolio. So we've gotten yield out of the portfolio in terms of approvals, and we've added both commercial stage royalties as well as really high-value development-stage royalties into the portfolio since '22. So we think the future is bright. We're excited about it? And how is that playing out in terms of evidence and financially. Well, we have evidence of a strong financial track record. The stock is up about 3x since then in '22. And I've been asked the question, are you guys getting ahead of yourselves, stock is getting hot. Well, I don't think so because our profits are up about 3x as well. So it's directly proportional to the profits as they were in '22, but now we have a much more robust well setup portfolio and executing team that will continue to improve that portfolio and much greater financial strength. So we're excited about where we're headed, and we believe that, that provides a very visible model to investors. And with that, I'd like to hand it off to Tavo Espinoza who will give you a more granular view on our financial update.

Thank you, Todd. Good morning, everybody. Thank you for joining us here today and also those that are online, I'm going to cover 3 areas today. I'm going to take a quick look at 2025 and where we think the year is going to land. We'll also preview 2026. We'll also get into our longer-term outlook. Let's click over here. get into the longer-term outlook, which is shaping up to be a very meaningful value creation horizon for the company. We'll also get into the balance sheet and our capital deployment capacity and how that enables us to continue extending the long-term royalty growth trajectory. All taken together, I hope that you get a clear view of how this model scales not just next year but through the end of the decade.

Since 2022, we've been on a strong upward trajectory. Earnings have more than tripled as our royalty engine has scaled and operating leverage has kicked in. Core revenue has also grown meaningfully from $108 million in 2022 to an expected $230 million this year, $265 million in 2026 and more than $430 million by 2030. EPS shows the same momentum, moving from $2.44 in 2022 to more than $7.50 per share this year with visibility to over $13.50 by 2030. And the catalyst behind this performance are real and are in place. The spinouts of OmniAb and Pelican a couple of years ago, increased the operating margins by removing infrastructure heavy cost structures that those businesses carried. Meanwhile, the Pelthos spin out, the Peiron acquisition and the approvals of Filspari, Capvaxive and Ohtuvayre have all expanded and strengthened the portfolio. And importantly, our business development engine continues to scale, adding new opportunities each year. We've been investing more in this work stream, and we expect it to remain a very meaningful contributor to our long-term growth.

Together, these drivers create a model with increasing leverage, higher margins and a strong foundation for dependable, compounding royalty growth going forward. Focusing now on this year, the financial picture remains very strong, and we are reiterating the 2025 financial guidance that we shared with you at our third quarter earnings release in November. We expect $225 million to $235 million in core revenue with royalty revenue continuing to be the primary engine of growth. Adjusted earnings per share is on track to meet or exceed the guidance range we gave of $7.40 to $7.65 per share. Turning to the more detailed guidance for 2025. This chart here shows a strong top and bottom line growth. Royalty revenue grows nearly 40% and driven by continued growth in Filspari, Ohtuvayre, and Capvaxive. We did record meaningful milestones in 2024 and from Ohtuvayre and this year in 2025 from Zelsuvmi. We don't expect those to continue into 2026. So contract revenue is expected to normalize next year. Cash operating profits increased roughly 50% year-over-year, reflecting both the scaling royalty base and continued disciplined operating expense management. Adjusted EPS grew 31% and even with some modest dilution there from late 2024 ATM activity and an increase in fully diluted shares outstanding as a result of the higher stock price on outstanding stock options. So across the P&L, 2025 reflects a business with strong visibility, expanding margins and high-quality growth.

So looking ahead to 2026 and beyond, we see several strong tailwinds supporting the continued growth. Filspari, Ohtuvayre, and Capvaxive have all continue to scale as the launches progress and market penetration expands. Zelsuvmi contributes meaningfully in its first full year, and Qarziba remains a key contributor. We also expect meaningful momentum across the rest of the commercial portfolio, driven by continued partner execution. And then while the newer programs added throughout -- through the recent business development activity are still early. They are expanding the portfolio and adding to the overall tailwind as we move forward. Altogether, these drivers set up a highly visible step-up royalty revenue as we move into 2026. Looking at 2026, we expect another strong year of high-quality growth. We expect royalty revenue to grow again 40% to $200 million to $225 million. The growth is driven by continued expansion across Filspari, Ohtuvayre, Capvaxive, Zelsuvmi and Qarziba. The same core programs that are propelling 2025. Total revenue grows to $245 million to $285 million, with royalties making an even higher percentage of the overall mix. adjusted core EPS increases to a range of $8 to $9 per share, representing mid-teens growth year-over-year. Breaking down the 2026 outlook in more detail. Total revenue grows about 15%, driven by the strong royalty growth we just discussed.

On cash operating expenses, you'll see an increase here of just over 10%, which is driven primarily by planned investments to further scale our business development and investments function. Despite the increase in cash OpEx, cash operating profit grows meaningfully year-over-year, benefiting from the expanded royalty base. And on the bottom line, adjusted core EPS increases to a range of $8 to $9 per share, as I mentioned, representing 15% growth. So at the detailed level, the components of 2026 reflect scaling royalty portfolio, disciplined investment and strong profitability. Moving on to the next slide, where we break down the components of the 2026 revenue outlook. As mentioned, royalty revenue growth nearly 40% with the increase driven by the same core components we've been highlighting as each of these -- each of these programs continue to scale. And just to name a few here, we assume Filspari grows approximately 75% reflecting its full label expansion and expanding market penetration. We see Ohtuvayre growing approximately 150%, driven by Merck's commercial scale and increasing adoption. Capvaxive growing 70%, benefiting from continued uptake following its mid-2024 launch. And Zelsuvmi contributes its first full year of royalty revenue in 2026, and we're assuming that comes in at a 200% growth over the partial year here in 2025. Captisol material sales are expected to contribute $35 million to $40 million and contract revenue forecasted at $10 million to $20 million reflecting that normalized -- that normalization that I mentioned earlier.

Overall, the 2026 revenue build is driven by a broad-based growth across the commercial programs, supported by consistent contributions from the rest of the portfolio. Moving on now to the -- our longer-term outlook. When we introduced this for the first time in December of 2023, we projected a royalty compound annual growth rate of 22% through 2028. Since then, performance across the portfolio has exceeded those original expectations. Filspari, Ohtuvayre, Capvaxive, Qarziba have all outperformed and several key transactions, including the Apeiron acquisition, the Pelthos spin-out, the Ohtuvayre royalty purchase have all strengthened the long-term curve. We've also seen continued execution from our partners and meaningful progress across programs that were earlier in development when we published the original outlook. These factors have enabled us to raise our long-term outlook meaningfully. And while we feel the updated curve remains conservative, it clearly shows an improvement over the prior projection and reflects the increased visibility we have today. So this sets up a good strong foundation for what I'm going to show you here. Here's our updated 5-year royalty outlook that Todd previewed, which really anchors the company's long-term financial story. We now expect a 23% compound annual growth rate in royalty receipts from 2025 through 2030. The growth is driven by contributions across the entire portfolio. You'll hear more about many of these from Lauren when she speaks to this in a bit.

The stacking chart shows how the components fit together. The commercial programs form the core of the growth profile. These are launch products supported by strong partners, expanding markets and in several cases, additional label or geographic opportunities. Captisol-enabled programs contribute meaningfully through the middle years of the outlook, though it does begin to taper after 2027, consistent with our prior commentary. Layered on top of that is the Pharm team. This is our preapproval pipeline, which contributes approximately 5 percentage points to the total 23% compound annual growth rate. These include later-stage programs such as Palvella’s QTORIN, Castle Creek's D-Fi, Orchestra's Virtue SAB, the FSGS expansion for Filspari, Merck's Ohtuvayre expansion programs and others. These programs add incremental risk-adjusted growth across the curve. To provide more context behind the long-term curve, the next slide highlights 2 programs that contribute the most Filspari and Ohtuvayre.

Based on current sell-side consensus estimates Filspari and Ohtuvayre together are expected to deliver roughly $200 million in annual royalties by 2030. Starting with Filspari. What you're seeing here reflects both the approved IgA nephropathy indication and the FSGS opportunity, which has a January 13 PDUFA date. Sell-side models today assume a high likelihood of approval roughly 80%. If FSGS is approved, Filspari becomes an even more meaningful contributor through the end of the decade, driven by expanding prescriber adoption, increasing payer coverage and a large underserved patient population. On the right side is Ohtuvayre, which continues to build momentum under Merck's commercial execution adoption is increasing, payer coverage continues to expand and Merck's commercial scale gives the product meaningful leverage. The chart shows -- reflects only the approved indication and consensus expectations continue to trend upward as the launch progresses and market penetration builds. So taking a step back, these 2 programs anchor the long-term model they're large, they're growing, they're backed by strong commercial partners. And together, they represent the biggest contributors to the 23% compound annual growth rate. And wrapping up with the balance sheet. We now have close to $1 billion in deployable capital.

Earlier this year, we bolstered the balance sheet with a $460 million convertible note financing at a 75 basis point coupon. We paired that with a call spread overlay that lifts the effective conversion premium to the conversion price, excuse me, to $294 per share. It's a very low-cost source of capital that added meaningful flexibility to the model. In terms of capital deployment, we continue to target $150 million to $250 million per year with a typical $20 million to $50 million investment per asset. We feel this cadence is disciplined. It's repeatable, and it's aligned with the scale of our business development function. Our capital position also gives us the flexibility to go bigger or faster when the right opportunities present themselves. And we expect our capital deployment to increase incrementally as our overall portfolio grows, and we scale the BD engine. This capital base supports 3 pillars. First, the ability to add high-quality royalty programs that extend the growth curve. Second, the strength and strategic optionality of our equity holdings, which you see listed here; and third, the power of our annual cash generation, roughly $175 million on an annualized basis today, which steadily rebuilds and expands our capital base.

So taken together to close, these pillars make our model durable, repeatable and compounding over the long term. So that's the financial picture, strong royalty growth, expanding profitability and a capital base that positions us to keep compounding value well into the next decade. With that, I'll pass it over to Paul Hadden, who will cover our investment in BD activities.

Thank you, Tavo. We thought we'd start this section by talking a little bit about our start pace of growth since 2022. If you look at our investment team, we finished the year -- that year with 3 people. Going to 2026, we anticipate we'll end up with projected 18 people on the investment team, many of which are already in their seats. So quite a significant amount of growth in the past few years. Todd talked about deployable capital, which has grown quite substantially. We took obviously some strategic moves this past year to strengthen our balance sheet. And so we're entering next year with quite a different profile than when we finish '22. And on the operating cash flow side, decisive moves by our leadership team to control expenses while growing revenue have changed that also significantly, obviously, creating a lot of strength going into the future years from a balance sheet perspective.

We feel very confident with the team that we've built and all that they've accomplished in a very short time period and feel that sets the foundation for growth going forward. In terms of one of our strengths, origination has always been a key facet. It has continued to be one of our key strengths of our team. Many investors asked us early on, are there really these deals out there to do. And I think the investment activity over the past couple of years has largely answered that question. If you look at some of the flavor of deals that we've closed this past year, they included project finance, complex royalty monetizations coupled with equity and even special situations, whole company spin-offs. Each of those requires a team with specialized skills, access to specialized relationships and a nimble organization that's capable of supporting that. The combination of all of these starts to form our moat as an investment team, which brings us to our investment criteria. The pillars of our investment criteria, which many of you saw at last year's Investor Day event remain unchanged. Clinical differentiation remains a key facet and pillar of that. It's important to investors, it's important to payers, it's important regulators, but most important, it's important to patients. More than a few of our investments include FDA designations like breakthrough designation, which is a key indicator of the potential for a therapy to impact the patient's life.

Our team's ability to originate investments that meet these criteria, we think provides a superior risk reward profile in terms of our investing style. Let's next talk about our diligence process. Our diligence process remains robust and exhaustive. This has been consistent since we made the pivot in early 2023 at Ligand. As we continue to add experienced team members, we add their experience base to our process, making our diligence process better each year. As you can see, our team conducts M&A level due diligence always under confidentiality, meaning we see a lot of things that others will never see. Speaking of CDAs, let's took a snapshot of 2025. 2025 was another robust year. We reviewed in excess of 135 investments. We saw an uptick in CDA signed, which meant an uptick in quality deal flow. We closed 6 investments. So we remain highly selective, and I'd like to make a couple of observations. First off, this is about a snapshot at the end of 2025. Many of the CDAs we signed remain in our active pipeline in terms of opportunities we're still prosecuting. What has not come to life in this slide is the effort that our team has taken in investments like Pelthos, which oftentimes felt like more than several transactions as opposed to just 2 and so that's an important observation. When you look at the disproportionate value creation in terms of the 13% Zelsuvmi royalty, we will now receive as well as the Pelthos equity that we now own.

Let's turn our attention to some of the accomplishments over the past 2 years. Our team has been quite busy. Across the past few years, we've committed in excess of $400 million of investment capital. We've sprinkled that capital across the numerous investment strategies that we have to drive long-term shareholder value. Each full year has brought us one needle-moving immediate deal transaction. 2024 was Apeiron and for 2025, it was Pelthos. I would also point out that 7 of the 11 investments illustrated here have some equity upside component, either warrants, equity or in some cases, both. Finally, we continue to be able to source globally, illustrating our team's deep ability to source different pools of opportunities, both U.S. and ex U.S. Let's talk about some of those recent deals in a little more in-depth. The Castle Creek investment was a $50 million project finance investment in a Phase III program in dystrophic epidermolysis bullosa, or DEB for short, which I will continue to say as DEB, a serious and debilitating skin condition that can sometimes lead to cancer. Our investment brought us a mid-single-digit royalty in this commercially validated program that is being studied in the market that Crystal biotech is right now launching and commercializing in. It's important to note that Crystal is a $6 billion market cap company. As part of investment, we also received warrants in Castle Creek.

Castle Creek is led by a management team that we've known for a long time period, and we think is well positioned to develop this promising program. Our $50 million investment also allowed insiders to come in and participate alongside of us illustrating our ability to syndicate larger deals than just the initial $50 million. In closing, we were pleased to add this late-stage orphan program to our late-stage portfolio. Worchester Biomed was also interesting, but for different reasons. We invested a total of $40 million and in the end, catalyzed a capital raise of over $110 million, which was the third largest med tech raise of 2025. $35 million of the capital went into monetizing to royalty contracts in breakthrough designated programs that were starting pivotal trials, one partnered with Medtronic, the other partner with Terumo. We saw -- we knew the company needed more capital. And so we, alongside Medtronic anchored to pipe that was required to access our royalty investment. In the end, we helped the company raise an outsized amount of capital, illustrating our ability to participate in different areas of company's capital structure in creating win-win situations for counterparties.

As we look to 2026, it's important to reflect on what the potential of the future holds. One might ask, what is different from last year? Well, one thing that's unchanged is we were so excited about the coming year. I think what is different is everything is a little bit larger. Our pipeline is a little bit deeper which means we have a lot more to prosecute, awareness of what we do and what we're capable of has grown. The team has scaled to meet demand in the market. And importantly, we've scaled the capital base to meet that demand and support the team. And with that, I'll hand it over to Rich Baxter, my esteem colleague.

Thank you, Paul. It's the first time he's ever called me esteemed. I'm Rich Baxter. I'm a member of Ligand's investment team and Investment Committee. I'm delighted to be here today with you. I was here with you last year. We've made a tremendous amount of progress. I'm going to talk about our special situations effort and Pelthos, which I think is probably a perfect case study for our special situations effort. I'm also going to introduce Scott Plesha, the CEO of Pelthos. I've had the pleasure of working with Scott for the past 2 years very closely. It has been a pleasure, and I'm looking forward to continuing to work with Scott as he takes Pelthos from a very promising investment to the reality of a very exciting company. And so it's great to have you here after what we've done over the last 2 years together.

As you can see from this slide, there are 4 elements the Ligand Special Situations business. It's the product, the management team that is attracted to the product, the financing opportunities that come out of getting that product right, and then the results. So let's just take this piece by piece. It all starts with the product. We like differentiated assets as opposed to me-too or commodity-type products. We're not afraid of distressed. We've got to have a solid value proposition. Pelthos was the epitome of a very good asset, a great asset, trapped in a very bad situation. We bought it out of bankruptcy of Novan and that was just -- if we hadn't done that, that product probably would have never seen the light of day. Why did we step into a bankruptcy? And why did we step in such a difficult situation -- we can see the Phase III data. They had Phase III data, a lot of visibility into what the product did, how it performed. We were able to review that data with FDA people. We were able to review it with specialists in the field. We were very excited by that data. And more importantly, the people who treat patients with molluscum contagiosum. They just absolutely love the product and love the data. very underappreciated asset, but when you listen and you do your homework, you can figure it out, and we had a lot of visibility, and it's a great product. So what happens when you get a great product like this? It attracts management. People like Scott, people like our Board members, we have some luminary CEOs on the Board that have been immensely helpful. What does that do? It mitigates execution risk, obviously, but it also validates the investment hypothesis and what you're doing. And you get more confidence as you get great people involved with it.

So you get the product right, you get good management in there. It affords you tremendous financing opportunities. Ligand took advantage of this. We financed the company. We basically -- because we had such visibility into that product, we're able to do equity, royalty, royalty with debt-like characteristics, like a security interest hybrid structures you can put it together, so it's customed to the situation, custom to the company and actually gives you risk-adjusted enhanced returns. And also with the Ligand strategy, it balances with that equity component, near-term potential returns with our long-dated strategy, that long-dated cash flow strategy that Todd and Tavo talked about makes it a very powerful combination. And the results you unlock asset values even in products that are underappreciated or just never see the light of day. We did that. You broadened your investment opportunities. So you can go into places where other people can't see it or won't see it, or don't do the work to find it. And I can't emphasize enough that when you do this and you do it right, you create proprietary deal flow. People can't -- competitors can't get into this easily. They can't commoditize the space. They can't cut 100 basis points and win the deal, like in a lot of other type of financings. And what does that do? You get enhanced risk-adjusted returns. We're very conscious about the risk that we're buying has to be commensurate with the risk that we're taking.

So I'm going to turn here to some real details. about Pelthos. Pelthos, this is really what we did over the last 24 months with Scott and our team had touched every element of Ligand. It checks all the boxes that I mentioned in that overview of the Special Situations type business. This -- as you can see from this, it's not a passive, it's not a hands-off business. You've really got to get in. You got to dig in and you work very hard, and you have to be very diligent in how you manage this. Again, it was a box 1. It was a great asset, trapped in a bad situation and a bankruptcy. We were able to figure that out and take it forward. Box 2, it was an incredibly unique, incredibly differentiated asset. It's had a technology platform that is very unique derived from Nobel prize science. It had people in the company, and this is another thing I can't emphasize enough. The people at Novan were also trapped in a bad situation that Ligand came in and unlocked. And I'm proud to say that we retained 100% of the people that we thought were essential to this enterprise and we kept them all and they're still there, like our manufacturing guys world-class. We needed a world-class manufacturing guy. We had one and we kept them. And that is really, really important in the special situation type investing.

Box 3 and 4, the details matter in this type of investing. We got the details right on a lot of things here. Some of the things that we did to label, Ligand was intimately involved in the label discussions with FDA. I think if you just pull it up online, you'll see from a sales and marketing and a clinical perspective, why that's so great. We also repositioned the product relative to Novan. Instead of being a derm product for a nuisance condition, we figured out very early that this is a pediatric infectious disease product treating a pox virus that can be on your child for up to 5 years, very different positioning. We got that right. Scott and team saw that and seized it very important part of this. And again, with that product, the positioning, the understanding that you get from the intimate involvement in that product, you're able to bring in great management. Again, Scott put you on the highlight again. But our Board, we brought in 2 luminary specialty pharma CEOs that we're at. They're absolutely terrific and have been a huge help standing up Pelthos and moving it down the path to independents. Again, financings. We're able to do some bespoke financings. We've used all those techniques and all those type of financings at Pelthos. we did a convertible debenture. We did control equity, we've got royalties, the whole 9 yards, and we're able to put that together for risk-adjusted returns for our shareholders.

And incidentally, this was taking a company out of bankruptcy and standing it up, not an easy task. We did it because we were in this company in a royalty, and we take managing our investors' capital very, very seriously. Protect it, we fight for it. We're not going to just let it go away. And in this circumstance, we turn that into multiples. So what does that mean? Pox 9, the culmination Scott and team announced the first quarter on the market, they delivered $7 million of net sales. an excellent launch, great results, far greater than what we thought we were going to achieve when we started this enterprise together. Truly, Scott is going to go into great detail. It's truly remarkable. So what does this all mean for investors? That's a lot of activity. It means we took a company from insolvency to a stand-alone New York Stock Exchange American listed approximately $300 million market cap on a fully diluted basis company instead of insolvent, $300 million market cap. We've gotten an exciting complementary product. Pelthos is no longer a one product company. We created immense operating leverage, option value, potential for future capital gains and royalty income in that vehicle under the right leadership. We structured a 13% royalty on Zelsuvmi, a 2.5% royalty on Xepi. We did a convertible financing, potential royalty income. We are monetizing from Japan rights where it's being in clinical trials in Japan.

And what does it mean? We own approximately 50% of Pelthos for the future capital gains. We have a 2-year mark-to-market MOIC of about 2x public traded stock, 46% IRR. And all of that is before receiving $1.01 of royalty income. So we've taken near-term opportunity near-term returns, blended it with long-term cash flows, which is the Ligand model. And it's just beginning. So we have 100% of the Nitropil platform. We're very excited about the future here, both from the product and the company and from that platform. So with that, I'd like to introduce Scott. Scott is CEO. I can't tell you, I can't sing his praises highly enough. Scott is also probably the perfect guy for the job, the perfect person for this job. He's been in the pharmaceutical industry for 30 years. He's been proactively every commercialization position. You can imagine, you get great training and great companies like Solvay, Glassen. He knows the derm, the ped derm space in the pediatric space. Most importantly, he's a very well-known person to Peter Greenleaf, the Chairman of the Board; and Todd, CEO of the company. He's worked with them. They've seen how, what he did and how we did it. I can't tell you how they sung his praises in terms of standing up a sales and marketing team. He did it in light speed very quickly. And I'm happy to say with very, very high-quality people. And I've also really enjoyed working with him. I don't know if he's enjoyed working with me, but we've had a great time. We've got a great time together. So with that, Scott, I reluctantly hand over the podium to you.

Good morning, everyone. Thank you, Rich, and I appreciate all the kind comments. I just want to -- before I get started, I wanted to thank Ligand for the opportunity to share our story this morning. So it's been a busy time at Ligand, but the last 6 months here at Pelthos has been quite crazy to go through all that we had and execute at the high level we have. So I'm going to talk a little bit about Pelthos and our launch and how it's got off the first 4 or 5 months here, exceeded our expectations. But before I do that, I just want to kind of ground a little bit on the disease state and why we think our product fits so well within the disease state.

So Zelsuvmi is a topical nitric oxide releasing product that's indicated for the treatment of molluscum contagiosum in patients 1 year of age and older for up to 12 weeks. And it's really important we start talking about the patient population here because we see about 6 million new patients a year. Of that, about 80% or 10 years of age or younger, 90% 20 and under. You do see it in some adults that are immunocompromised. The disease state itself does self-resolved in about 13 months on average, but you can see lasting up to 5 years in some patients, as Rich kind of shared earlier. What's interesting about it, though, is that -- you get about these lesions that you see in the picture here. On average, it's about 20 in our studies. But you see patients even 70, 80, 100 of these. So when you look at the disease state itself, it's not going to kill you it's self-resolving, but there are some serious effects that down the line. So auto inoculation. You see patients that may present with 10 lesions, the next thing you know they have 20. It's highly contagious to others. So when you look at the literature, if there's more than one child in the household and one gets it, 41% chance, the other 1 is going to get it as well. high risk of secondary bacterial infections, worsening of atopic derm, eczema.

So you see a lot of second -- a lot of topical antibiotics and also corticosteroids prescribed don't really treat the virus, but they are treating kind of these secondary sequalae that you see. Really important here, the #1 reason that patients are treated is due to parental anxiety. So parents looking at how their child is being ostersized, how they're anxious about these lesions, how they have to cover them up if they go to school, put bandages on and kind of the social withdrawal you see here. Three factors when they're looking at how they treat this disease state, it's age of patient, location of lesions and number of lesions. So unfortunately, you see a lot of the patients around 6 years of age is kind of the sweet spot. But when you look at the number of lesions and locations, they're usually in sensitive areas. So behind the knees, groin, under the arms. So you can imagine a patient presents a 4-year-old with 40 lesions and the groin, behind the knees, it's really difficult to use some of the treatments that were available prior to our product. So now go into Zelsuvmi a little bit. So we believe it has potential to shift the MC treatment paradigm. And here's why I talked a little bit about treatments. There is one other product that's approved for the treatment of molluscum, but it has to be done in office every 3 weeks. It's actually a blistering agent. And so you actually have to do 4 to 5 visits up to 4 or 5 visits to get resolution.

Other things that are painful and destructive are curetage, cryotherapy. And importantly, about all those different procedures, they're not one and done. So if you have cryotherapy, you may have to go in 4 or 5, 6 times. So a lot of absenteeism for the children getting pulled out of school as well as the parents having to leave work to go in. And there are some other things being used off-label, even some homeopathic natural remedies like Tea Tree Oil and Apple cider vinegar. I think they care everything nowadays. But when you actually look at the data and talk to the thought leaders, they don't believe that there's actually efficacy there. So really an unmet need. And one of the things I'll say is on the last slide, that 73% of the children that are tenant under aren't being treated. And part of it is they can't tolerate these destructive modalities. So with our product, you apply it every day. Again, it's just topical, you dive it on each light film of it on each lesion. It has a really good safety profile. It's always important when you're launching, you have a safety profile that's great, but especially if you're treating kids down to 1 year of age. And it's really important here, first approved medication for molluscum that can be applied at home or on the go. So not having to go into the office and also using, we call a more like therapeutic effect versus using destructive modalities to get your efficacy. And then we have very good efficacy here. There's one graphic there at 58.1% mean lesion reduction.

And these are difficult diseases to treat because as you're treating this pox virus you may have 20 lesions you present with. You're treating them, 4 or 5 may also pop up. So it's difficult to get to complete clearance. And what we have learned in talking to the HCPs even parents, that we can get at least a 50% reduction of this kind of disease state, it's very meaningful clinically. So we launched July 10 right after we had our merger with Channel Therapeutics and raised our $50 million. This is the footprint, 50 sales representatives around the United States, calling on about 8,000 targets. We spent about 45% of our time in the derm and pediatric derm space, 55% within pediatricians office and a splattering of Ob/Gynes and some family practice. We built out also sales training, marketing, commercial apps, market access team. The one thing I'll point out is you can see there's large areas of this map that aren't covered. So large metropolitan areas, specifically 14 of them. Kansas City, St. Louis, Minneapolis, Seattle, Vegas, Salt Lake to name a few. And we announced at our earnings call that we'll actually be expanding to 64 reps and 8 managers. We're at 50 and 6 right now.

And what's driven that is we got into market, and I've worked, as Rich said, in 30 years in the pharmaceutical industry. I built Salix's sales force and led that until we were acquired by Valeant and that it did the same at BioDelivery Sciences. But in 9 weeks, we were able to get to breakeven on our sales force. So 9 weeks into launch, we paid for the sales force. So we got into market, earn the right to expand. We saw the uptake. We saw the market access uptake also in how we were being treated. And now we're kind of investing behind the drug and help. We believe that will help build our momentum. Importantly, also, we hadn't contracted to this point. We actually just announced last week that we did a contract with a PBM, our first one that became active on December 1. So we think that's going to help with our growth as well as this one as well. But again, leading as many teams as I have, I've never seen a sales force pay for itself within 9 weeks. So just a really nice return and a great job by the team. So the results, early days here. But as you can see, we've had consistent growth every month. We reported 2,716 prescriptions for Q3. You can see October was just a little bit short of that. And as of November 13, we actually had more business in Q4 than we had all of Q2 -- I'm sorry, all of Q3.

And what's that being driven by also prescriber count. So we're seeing prescribers jump on board here as well. You can see unique prescribers every month going up over 1,000 in October, totally through October, almost 1,800 unique prescribers. As we sit here today through the end of November, it's well over 2,200 now. So additional doctors coming on board and just under 50% have actually written for more than one patient. So when you kind of look at the numbers, what does that drive? Rich mentioned a $7 million first quarter revenue in Q3, first quarter end market. And right now, if you just look at October, that puts us at a run rate of about $35 million. Actually, it's a little bit over $35 million in net sales run rate at that point in time, just 4 months into launch. So again, very excited about where we are with Zelsuvmi, but then also equally excited to be able to find a synergistic fit and actually leverage our sales sport structure and actually all of our commercial infrastructure with the acquisition of Xepi for the treatment of impetigo. And talk a little bit about the disease state and why we think it fits so well. It's a highly contagious bacterial skin infection. It's actually the #1 infection you see in pediatric offices. So again, we're spending a lot of time in that space. And you see about 3 million cases annually. We're indicated for patients down to 2 months of age, which is really important, great clinical efficacy, safety. And right now, the industry standard is muperisen, is being used to treat this. So if you look at the derm space and the pediatric space, there's about 4.4 million prescriptions in 2024. And for mupirosin withinjust those specialties. But there's this huge issue with mupirosin resistance because of all the use and overuse, just a big number, but over 14 million prescriptions in 2024 written for this antibiotic. I'm sure a lot of you have it in medicine chest at home that you use part of it and as you're saving it for -- if you have to use it again. So you see that quite often, and that doesn't help with resistance, obviously.

Strategic fit. Again, it's a complete overlap with our current call points in our commercial infrastructure, so we can leverage sales force. We will not change our call points basically. And the other thing we like about it is it allows us to maybe go a little lower in our Zelsuvmi targets. By putting 2 products together, the value of a call goes up. So instead of maybe top 5 deciles Zelsuvmi, we may be able to go one deeper because we're getting incremental Xepi business as well. So it could be a catalyst for sellout. The other thing, we're in the process of getting manufacturing up and running anticipate a late 2026 commercial launch. That's really just about getting validated manufacturing done. But we actually like the fact that we have about a year here. So it's going to allow us to really focus on Zelsuvmi, drive that to get full credit for Zelsuvmi, we have to get Zelsuvmi right. So it's a critical we do that, get that established. And so again, we're excited about it. So that kind of summarizes where we are with Zelsuvmi, again, early days, but really excited about how the team's executed and the progress we've made. So thank you for your time today. So with that, I'd like to introduce Lauren Hay to talk about the portfolio.

Thank you, Scott. It's hard to follow such an incredible early launch, but I'll do my best here. Thank you to those of you who are here in person, braving the cold weather that we saw this week in New York and those of you who are joining us online, we welcome you as well. I'm pleased to provide an update on Ligand's portfolio. So as Todd mentioned in his remarks, what's the advance, Scott. We can go back. We can do the rest of the presentation over again.

Here we go. All right, round 2. So as Todd mentioned, portfolio management has been a big area of emphasis for us at Ligand this year. We have around 100 partnered programs in total across the clinical and commercial domains. And with every new investment that we close, we're adding new assets to the portfolio. So this is becoming an increasingly important objective for us. We've been focused on 2 main categories. The first is improving the way that we're tracking incoming sales and royalty information, and also how we're capturing and disseminating across the company, all of the news and catalysts that come from our partners. We're now leveraging AI to help with some of this, and we're pleased with some of the early results in terms of trying to make this whole process more efficient given the volume of assets that we're working with. The second area that we've been focused on is more proactively communicating with our partners and then also identify new opportunities to provide an additional investment or expand the partnerships in other ways. So this has been a big accomplishment for us and something that we're investing a lot to continue to develop. In terms of our commercial portfolio, we have 12 major royalty revenue drivers. You'll see these are nicely diversified across therapeutic categories, across treatment modalities and then across commercial partners. The largest royalties that we have currently are Amgen's Kyprolis, Recordati's Qarziba, Travere's Filspari and Jazz's Rylaze.

However, I'll emphasize that the portfolio is something that's in constant flux. And so as we see sort of the natural evolution of products launching and other products coming off patent. You can expect this to continue to evolve over time. I imagine that when we all come together in December of '26, we'll probably see Merck's Ohtuvayre rise up pretty substantially. And we also expect that Pelthos' Zelsuvmi will grow pretty substantially in the next year. In terms of our key pipeline partnered programs, again, we have nice diversification across therapeutic category. Several of these have been added to the portfolio this year, including Castle Creek's D-Fi and Orchestra's AVIM/Virtue SAB programs, which Paul talked about, and then also Recordati has recently announced a planned trial in Ewing Sarcoma, which we're really encouraged by, and that could potentially expand the label in a pretty meaningful way. So with that, I'll go through a couple of our products in a little bit more detail. The first of these is Qarziba, which has been commercialized by record add since 2017 in Europe and select ex-U.S. jurisdictions. It's approved to treat high-risk pediatric neuroblastoma, which is a very severe childhood cancer. We acquired the royalty rights to this asset through the special situations investment acquiring Apeiron last year, a private Austrian company for $100 million. The product has been on the market since 2017, but Recordati continues to invest a lot in terms of exploiting new geographies and moving the product into new treatment settings. And so we've seen 14% growth in sales year-to-date, which is pretty impressive for a more mature product. So you congratulate Recordati, our partner here. They're doing a fantastic job with this product.

As I mentioned, very high unmet need indication. It's very well established and supported by treatment guidelines globally. And our royalty interest here, importantly, is very well diversified across more than 35 countries. In terms of recent news, in addition to the study that is initiating in wing sarcoma, Recordati continues to invest in seeking U.S. approval for this asset. Most recently, they met with FDA and at that meeting, FDA expressed an interest to see some additional data coming out of Recordati's BEACON 2 study, which is ongoing in Europe. So we'll expect another couple of years before this product might be introduced here, but Recordati has shared that if it were approved in the U.S., it could add another $30 million in annual sales, which are not included in our underwriting projections. Next up is formerly Verona now Merck's Ohtuvayre which is approved for COPD and in a couple of new indications as well in terms of new development. It was approved in June of last year, we earned a 3% royalty here. The product is launching really well, is the strongest launch in COPD history, and we've seen around $300 million in sales through the third quarter of this year. I think the Ohtuvayre investment history provides a really nice snapshot of the value that we can unlock at Ligand through the flexible investment structures that we have at our disposal. So the original investment here traces back to October of 2018, when we acquired Vernalis for $10 million. And in conjunction with that, we acquired a 2% interest on what was then [ ensifentrine, ] which is now Ohtuvayre. Just 2 years later, we were able to divest the research operations from Vernalis for $25 million. So we more than recovered our basis in just a very short 2-year period of time. And importantly, we held on to that 2% royalty interest.

The product got approved in June of last year. And then we spent 2024 and '25, pursuing 5 distinct inventors to monetize their individual royalties which then aggregated another 1% interest for Ligand. So our total exposure to this asset now is 3%. Merck announced the planned acquisition of Verona this summer. And while the equity investors were cashed out upon the closing of that acquisition, one of the benefits of being a royalty investor is our royalty now travels to Merck. So we'll continue to benefit from the larger infrastructure that Merck has to continue to exploit the U.S. launch, which Verona has already done a really tremendous job setting Merck up here for success. But also importantly, to invest in some of the pipeline indications. Ohtuvayre is the first novel inhaled program in COPD in over 20 years. strongest launch in COPD history. The peak sales here are just north of $3 billion, which could translate into nearly $100 million in annual royalty revenue to Ligand. Merck has recently announced the closing of the acquisition of Verona, and they have also announced that they're planning to invest $0.5 billion in this asset in terms of continuing to launched the program in the U.S., potentially look at new markets and then also importantly, new indications, which could include non-CF bronchiectasis, where there are studies ongoing as well as a fixed dose combination with LAMA.

Moving on, we can talk a little bit about Traverse FilsparI, which is approved to treat IgA nephropathy and it has an important PDUFA date coming up in January in FSGS. We earn a 9% royalty here in the launch in IgAN is going really well. We're seeing growth of nearly 200% year-over-year through the third quarter. Filspari was the first non-immunosuppressive drug approved to treat IgA nephropathy. And if it is approved in FSGS would be the first FDA-approved treatment for that disease. Both of these are rare, progressive, very serious renal diseases. Each indication, consensus forecast is around $1 billion. So collectively, this could be close to a $200 million annual royalty revenue to Ligand. The numbers that you saw in the 5-year chart, you have a pretty substantial risk adjustment for the FSGS indication. Traverse had a number of tailwinds recently. The REMS liver monitoring requirement was relaxed earlier this year. And they've recently announced through their partner, Ranalli, who's now [ Chugai ] positive top line data in Japan, where IBM is quite prevalent. So we are very focused on the January 13 PDUFA date for FSGS in terms of clinical considerations. [indiscernible] ran and executed 2 really compelling clinical studies showing the benefit of filspari on proteinuria. They've also been working very closely with this group called the Parasol Working Group, which is comprised of FDA as well as patient stakeholders, clinical stakeholders, really to kind of try and bring a treatment -- any treatment to patients who are in dire need of anything. In terms of regulatory considerations, the FDA division director was very closely involved with the Parasol working group, which we think is very positive. And Travere was recently notified that an ADCOM would no longer be required for FSGS. This was perceived as a positive development by investors.

However, I think we'll -- this is far from conclusive, and we'll look to the final decision on the 13th. If it is approved, Trevere believes that this is at least as large as IGAM, if not larger, the prevalent population here is around 40,000 patients, whereas an IgAN, it's more like 50,000 to 70,000. However, the dosing in FSGS is twice that of IgAN and there's no competition. So if this is approved, we expect a pretty rapid uptake here, and so we'll be closely watching on the 13th, which coincidentally is also the week of the JPMorgan conference. And then finally, moving into one of our key partnered pipeline programs. This is Palvella's Qtorin Rapamycin. Palvella is a company that's focused on developing treatments for patients with severe rare dermatological conditions, and we have several indications in development for Qtorin Rapamycin. Our investment here dates back to our original project finance investment in 2018. And we -- if Qtorin Rapamycin is approved, we would earn a tiered 8% to 9.8% royalty on this asset. [indiscernible] has breakthrough therapy designation from the FDA, consensus peak sales for the 2 active indications, which include microcystic lymphatic malformations and cutaneous venous malformations are just north of $1 billion, which would translate into upwards of $100 million in annual royalty revenue to Ligand. Palvella has had a really tremendous year. The team over there is doing an exceptional job. Their stock is up over 400% year-to-date. They've completed enrollment in both the Phase II and Phase III studies, and they've recently announced a third indication in clinically significant angiokeratomas. In terms of upcoming catalysts, there are a couple of important ones here.

Later this month, we expect Phase II results in cutaneous venous malformations, which is a fairly heterogeneous and somewhat difficult to treat dermatological disease. In Q1 of next year, we'll be looking for the Phase III microsystic lymphatic malformations results. The Phase II results in this setting were quite compelling. And then later next year, we'll learn more about the new indication. In terms of commercial opportunity for MLM, it's quite robust. Palvella estimates through claims analysis, there are around 30,000 diagnosed patients in the U.S. and 1,500 annual incident patients. They believe they have strong pricing power given the rare and serious nature of this disease, and they believe that they can access this population through a pretty small field force of just 20 to 40 reps. Since these patients tend to be congregated at vascular anomaly centers. And then finally, Palvella is really looking to Qtorin Rapamycin as a pipeline in a product. So in the first quarter, we'll eagerly anticipate the results from the Phase III microcysticclymphatic malformation study shortly, we should see the Phase II results in CVM. And then moving on beyond clinically significant angiokeratoma, Palvella plans to announce future indications, which could meaningfully expand the footprint for this program. So with that, I will turn things over to Karen for a Captisol update.

Thank you, Lauren and warm welcome to all. Ligand owns and operates Ligand owns and operates the Captisol technology platform with a lean team of world-class solubility experts and commercial operational excellence. Captisol requires only 8 full-time equivalents and has an annual operations spend of approximately $5 million. Captisol addresses an enduring industry need for solubility and stability. Approximately 90% of small molecule drug candidates are poorly soluble. The Captisol technology is IP-enabling and the recurring customer base generates material sales as well as royalties in partnered programs, royalties range from single digit to low double digits.

Captisol is used in 17 approved products, 16 FDA approvals and 1 in Japan. The latest FDA approval is for SQ innovations, Lasix ONYU, that was approved October 7 this year. The enormous clinical and regulatory success and large safety database have increased Captisol's visibility and position it for growth Here, you can see the 17 approved Captisol products, Lasix ONYU, the latest approved one is for the treatment of edema and heart failure. It delivers furosamide subcutaneously through a drug device combination. The Captisol technology platform is highly productive, has a strong breadth of applicability across 17 products and more are in clinical development. With that, I want to say thank you, and I'm going to hand it back to Todd Davis, our CEO.

Thank you, Karen. Thank you, everybody, again, for coming. I want to thank Kelly and Melanie in the back have been trying to keep us on time. You failed miserably, by the way. We all ran over. We still have a little over 10 minutes for questions. So I'll be very brief other than to say, I think we're on track. We're delivering current profitability. And we think we have a lot of visibility on the profitability going forward. That's our goal from a business model perspective, and I think we're delivering.

Also, just real quickly because we're going to break after this for lunch if Andrew, Lee and Michael could stand up, just so people know who you are when we're sitting down. I don't know where Andrew want he was back there. A couple of other team members. Andrew is not on the stage today because he wouldn't shave. So that's where we left it. So that's all we have today. Look forward to meeting during lunch. And now we're going to open it up for Q&A.

Joe Pantginis, H.C. Wainright. So 2 questions, one on the macro and one on Captisol in 1 of the lines in your 5-year growth plan. So can you talk to any potential cyclicality of your underlying business? Financing windows have opened up in biotech. Last night, we had essentially record amounts of deals announced. So how might that impact your business development opportunities now? And then with regard to the line that's going out in your 5-year growth that's impacted mostly by [ Kyprolis. ] However, with regard to Captisol, I appreciate the details. Are there any opportunities for growth there?

Yes. I'll take the cyclicality portion of that question, and perhaps Tavo, Karen can address the Captisol plan going forward. But in terms of cyclicality of the business, the market moves around quite a bit. There are so many more deals to do than we can do that we don't really notice the cyclicality to be honest with you. I will say there are some idiosyncrasies like if the IPO market has been shut for 2 or 3 years and it opens up a lot of the late-stage private companies are going to favor an IPO to provide their investors liquidity, of course, because they need to deliver that regardless of cost of capital and a bunch of other financing considerations.

But that said, even in those markets, we're very complementary to equity capital. So they can do both and they do to both in those markets. So we continue. I've seen multiple cycles as a royalty investor in my life. We continue to invest through all of those cycles and find good deals. On the Captisol plan going forward, Tavo in terms of the numbers and if Karen can comment objectively?

Yes. So specifically on the 5-year outlook chart where you see the drop off, that's really driven by KYPROLIS with Amgen. They've been public with their announcement with the generics coming late 2027. So we're taking some pretty conservative assumptions on the drop-off there. And in terms of the longer-term outlook, the Captisol business has been core to the business. But over the long term, it's going to be the royalty revenue that increases that's going to be the overall increasing mix of the overall royalty line.

But we continue to see activity in the business, licensing activity. We continue to see inflow. Obviously, these are earlier stage, lower volume consumers of Captisol, but it's a pretty broad portfolio. All takes is one of those to become the next Citratus all of a sudden, we're talking about growth back into the mid-teens. But the growth is going to be in the high singles to low double digits over the next hand [indiscernible] years.

And I can add, we're always looking to enhance our Captisol with additional opportunities.

[indiscernible] group. Great presentation, lots of interesting detail. In terms of therapeutic areas, could you just comment broadly, are you happy with the swim lanes that you're in? Are there areas that you want to be in that you're not in? Or is it really just deal dependent and what you see out there in the market? And then secondly, just more specifically on Pulsar, I noticed that your royalty projections for FSGS, based on some of the comments on the portfolio section, they seemed a little conservative given the fact that you're going to double the dose as well as FSGS being a bigger market. So if you could maybe expand a little bit on that.

Sure. Yes. So I think I'll take the FSGS question, and then I'll let others weigh in. But I think on FSGS, we tend to lean conservative. FSGS is not approved yet. There's high expectations in the market that it will be approved. We have a pretty significant discount and probability of approval probably relative to the market. That's why in our 5-year chart, we've got about 5% in there as a 5% contribution to the 23% growth from our development pipeline that probably does lean conservative.

And Yigal, just to add on the contribution in 2026, it's relatively modest. Obviously, it hasn't been approved, so we have risk adjusted. But even if it gets approved, it's a $5 million to $7 million royalty contribution in 2026.

And thank you for the new coverage this morning as well.

Annabel Samimy at Stifel. So everyone can't help but notice, but that telcos was an extremely successful special situations that you launched. And I guess from that perspective and now with $1 billion in deployable capital, how are you thinking about the balance of the types of deals that you do, given the high success rate in some of these special situations. And do you have any expectation to change the deal size? Or do you want to stay in this lane because that's a sweet spot in the competitive landscape?

Yes. I'd say on the -- going backwards on the deal size, per asset, we're in that range. We may go to 60. We have high confidence in a single asset, but we do look at multiple asset deals. And so those can scale proportionately because we view diversification by asset. So that's really the way we view the world. On the special situations, we have a high bar on that because it does consume more resources. It's often very worth it, as you've noted, we have a high success ratio. We're pretty independent thinkers. We've got a lot of industry experience. We don't follow the herd at all. Nobody was interested in rescuing the Novan asset, for example.

But [indiscernible] million patients, 0 take-home prescription treatments. I wouldn't say we're the smartest people in the world, but you see patterns over a period of decades that you start to recognize and we will go after the special situations like those when we see them. A lot of times, people are just cautious to step into those, but we've got the experience where we multiple times, bought things out of bankruptcy, restarted them. And if you have that experience, you're comfortable with the process. No process is certain in a bankruptcy, you're dealing with trustees that have their own interest in mind, in fact. But there are rules around it. We know how to go about that. And with things like a Pyron, it's kind of easy to shoot the gap there. That was a very salable asset, but that was simply a tax structure issue for everybody because most of the funds that we're bidding on the royalty, which they've marketed before were bidding to purchase the royalty, which would have been capital gains for the company and then a second distribution tax when they distributed that to their investors who had been in this private company for 17 years and won in liquidity.

Furthermore, we're able to align interest a little bit with our flexibility because the management team there wanted to continue to invest in the oncology assets they had, which are pretty early stage. So we simply spun them out with the cash they had on their balance sheet to do that. We see those a lot. We're very selective about where we step in. we've just scaled capital significantly, as you know, and now we're scaling the team. So our capacity to do more of these will increase over time.

Dave Risinger from Leerink Partners. Thanks for the detailed presentation today. So my question is on [indiscernible] ould you just add some more color on the access and adoption. So if there were no PBM contracts at all how is the product being reimbursed to generate the $7 million in revenue? And then if you could just provide some more color on prior auths, step edits, things like that. And I guess to conclude, was such a strong launch of $7 million, given the trajectory, why have any PBM contracts at all?

I'm going to have Scott answer this, but this was a bold call that he saw immediately the instinct is to contract with everybody, and the PBMs asked for very significant discounts. So Scott, go ahead.

Yes. Great question. So the other thing we announced with that $7 million of revenue was a gross to net of $25.3 million, which we shared that on our earnings call, which is unheard of, especially in a topical derm product. We did a lot of market research early on around this. I spoke to a lot of consultants we know. And I'm very fortunate I have a great team. We've talked about OTR a bunch today. My Head of Market Access worked for me for 25 years at different companies, but he set up [indiscernible] go-to-market strategy on the market access side. So very strong skills there, but we did market research.

So it's predominantly pediatric disease. We said that 90%, 20% and [indiscernible] 80% tenant under. The PBMs pay for pediatric drugs more readily than they do for adults, it's just hard. It's hard to make a 4-year-old with 40 lesions and they're [indiscernible] to step through any kind of procedure. So the steps are very difficult there. There's really not much that has -- there's not much anything prescription that you can write that actually has good efficacy even in like secondary studies like Aldera, amicamod was a step-through in some plans, but their label actually says, do not use in molescum. They actually had 2 FDA trials. So you present that to the payer and they pulled back on it, right? So it's that. And the other thing that helps is it is an acute medication. So basically, we're getting at MAX 3 units. We might get a few more. But if you're using it as a label, that would be basically 12 weeks, 3 units. So they know that there's a limited exposure expense-wise. This isn't like, I was in the IBD market forever. So Crohn's, ulcerative colitis, that could be for life, right?

So this is kind of like -- almost like an antibiotic when you think about it. So those kind of things helped us as we were formulating our position. Our plan and our strategy from day 1 was get into market, see what it looks like because once you contract, you have a contract, it's almost impossible to pull back. And over time, they'll only go up on your rebates. So get into market see re friction is and then contract. So the contract we did was where we thought we'd have the most friction and we are watching it very closely. It's about 20% of commercial lives, but we're only getting about 5% of the business out there. As we sit here today, we're at about 25% of commercial lives covered, and that's going to go up. It will go up in January just because Open Line is a business start reflected, they don't change until the beginning of the year.

And really, I think, importantly, 30% of the patients that we have going through are Medicaid. And right now, we have almost 80% of Medicaid lives covered without any supplemental rebating whatsoever. So again, going through, I think, because of the clinical profile -- and the other thing I didn't mention is the first and only at-home treatment. So it's something that is empowering people to treat at home and there's been nothing like it.

Matt Hewitt from Craig-Hallum. First, a fantastic presentation. Maybe 2 separate questions. First up, regarding KYPROLIS with generics coming in 2027, have you had an opportunity to speak with some of those potential partners? And how are those discussions going? And then separately, for Paul, your team has grown 3 to 18. You've started to expand beyond traditional pharma opportunities with Orchestra Biomed and Castle Creek the addition that you've been making, is that adding new layers of expertise to kind of go after some of these outside of pharma opportunities? Or is it just adding more depth to the bench?

Paul?

Yes. So in terms of the team adds, I mean, you're right, Matt, we've been adding quite substantially to the team. It's mostly adding more depth and execution capabilities. So really, if you look at the DNA of most of the team, it's in biopharma, there is some medtech, obviously, the biopharma investments or most of what we've been doing. And so I think to an earlier question about sort of therapeutic areas where we're focused. We like the lanes we're in. I think what we did not like was our bandwidth. And so we're changing that and solving for that. So we're pretty excited about where we start the year off in next year. And we have -- on the Kyprolis question, Matt, we have one partner on that product, and it's Amgen. Milan, you have any questions for me? Anyone else?

A quick follow-up. Still capital or prevented what do you guys look at the.

On material sells side, yes, you're typically not getting royalties on generics, but on the material sales, that's true. However, sometimes you sign exclusivity with partners, right? They want the captives all they wanted exclusively. That's with the proprietary company. So it's well worth doing that. And that's your typical arrangement when you're licensing technology. is you'll go exclusive with your partners. So when the generics come around, they want to use you, but they're prohibited from doing it.

In most categories, if it's there's stability in order, it's actually solubility, permeability then stability is third. So those are the 3 main drug delivery problems. And usually, they'll find some other way to soluble lives. There's EMSO chemicals, which are toxic. There -- you can do nanocrystals very expensive. I used to license that at Elan Pharmaceuticals. Manufacturing process there is quite expensive. So at any rate, that's usually what happens in these markets.

Yes. Thank you. Another question for Palos and Scott. What are the ex U.S. opportunities look like for sell-side?

Yes. Great. Yes. So we do have the rights worldwide to Zelsuvmi. We do already have a partner in Japan. I think Rich touched on that, and they're actually wrapping up their Phase III trial this year. So when that happens, both Ligand and Pelthos, will get a milestone on commercialization and then royalties to Ligand going forward. But we're having active discussions with other countries about the marketing in other countries. But we got to make sure, number one, there's different policy things out there right now. They're around most favored nation pricing and things like that. We want to make sure whatever we do, it doesn't compromise the U.S. market because that's really what's going to drive Zelsuvmi. But there is an opportunity there.

Any other questions?

All right. Thank you all very much. Everybody is hungry, so let's go.

Thank you for standing by. Welcome to Ligand Third Quarter 2025 Earnings Call. [Operator Instructions]

I would now like to turn the conference over to Melanie Herman. Please go ahead.

Good morning, everyone, and welcome to Ligand's Third Quarter 2025 Earnings Call. During the call today, we will review the financial results we released earlier today and provide commentary on our partner pipeline and business development activity, 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 excludes certain items such as stock-based compensation, amortization of intangible assets, amortization or impairment of financial assets, losses from derivative assets and gain from the sale of the Pelthos business, 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. With me on the call today are CEO, Todd Davis; Chief Financial Officer, Tavo Espinoza; and Vice President of Strategic Planning and Investment Analytics, Lauren Hay.

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 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 will now turn the call over to Todd.

Thank you, Melanie, and good morning, everyone. Thank you for joining us today to discuss another exciting quarter for Ligand. This quarter was pivotal. Not only did we deliver another quarter of exceptional financial results, we also successfully completed a convertible debt financing, providing us with additional flexibility to pursue strategic opportunities that support our growth initiatives. We are raising our full year guidance for the second time this year. This increase in guidance is a result of the strength of our commercial royalty portfolio, which has continued to outperform our expectations due to products like Merck's Ohtuvayre and CAPVAXIVE as well as Travere's FILSPARI.

Additionally, I'm proud of our deal team's ability to create superior risk-adjusted returns through transactions such as strategic merger of Pelthos with Channel Therapeutics that has driven substantial value creation for our shareholders. When we restructured Ligand in 2022 with the spinout of our antibody operations, we set a new strategic direction for Ligand, one grounded in focus and discipline. Since then, we've stayed true to that plan, scaling our deal team to accelerate growth in the late-stage pipeline and build a diversified portfolio of high-margin royalties designed to deliver superior returns.

The strategy has played out exactly as envisioned, and I couldn't be more pleased with the progress we've made over the past few years. Royalty revenue grew 47% over the same quarter last year, and adjusted EPS increased 68%, reflecting strong performance across our portfolio. Key drivers contributing to the 47% growth in our royalty portfolio include the commercial launch of ZELSUVMI, strong launch of Merck's Ohtuvayre and CAPVAXIVE, growth of Recordati's QARZIBA and the continued ramp-up of FILSPARI. We ended the quarter with a strong balance sheet, including approximately $1 billion in deployable capital, factoring in our undrawn credit facility, which will allow us to take advantage of our robust business development pipeline. There's been strong uptake of ZELSUVMI in the early launch phase, and we look forward to the continued momentum. The launch of ZELSUVMI is an exciting milestone for patients with molluscum, who now have an at-home treatment option for this burdensome skin infection.

We encourage our investors to listen in on the Pelthos earnings call, which will occur on November 13. We expect a robust update on the launch performance. Our deal team has been busy this quarter, committing $35 million to Orchestra Bio for royalty interest in their AVIM therapy and Virtue SAB. Ligand has also invested an additional $5 million to help catalyze their equity private placement, which successfully completed a total raise of $111 million, including participation by AVIM partner, Medtronic. We also committed $11 million to Arecor in exchange for royalty rights to AT220 and milestone and technology access fees for AT292, Sanofi's efdoralprin alfa program. We are pleased to report that just 1 month after our investment, Sanofi announced positive Phase II results from its trial, demonstrating all primary and key secondary endpoints were met in adults with alpha-1 antitrypsin deficiency emphysema, a rare disease.

Since restructuring in 2022, we've been executing on our current strategy and have seen significant growth across the core revenue as well as adjusted EPS. I'd like to point out that in 2024, there were 4 FDA approvals of assets in our pipeline: Merck's CAPVAXIVE, Merck's Ohtuvayre, Pelthos' ZELSUVMI and the full approval of Travere's FILSPARI. With these 4 products all in early stages of their launch, with the potential for both indication expansion as well as geographic expansion, we expect this growth to continue in the coming years.

I would like to look ahead now to 2029 and discuss our 5-year royalty receipts outlook, which we first presented at our Investor Day in December of 2024. We believe our long-term royalty growth is on pace to meet or exceed the 22% compound annual growth rate we outlined at that time. The existing portfolio alone supports a royalty receipts CAGR of 18%. Future investments should add at least 4% to this with potential upside on top of the current outlook.

The strength of our existing portfolio is evident across both our commercial and development stage programs. However, we believe that what truly differentiates Ligand as a royalty aggregator is the expertise of our deal team in sourcing and executing high-quality investment opportunities and the ability to drive superior returns with our operating capabilities and our special situations initiatives.

It is through the strength of this team that growth across the future investment segment of this chart has the potential to surpass expectations. Turning to the next slide. I'll highlight a few positive developments since our long-term outlook was presented last December, each of which has the potential to meaningfully enhance our long-term royalty projections.

First, Ohtuvayre is tracking well ahead of the initial forecast and continues to be the strongest launch in COPD history. Q3 sales grew 32% sequentially and consensus forecasts now project $2 billion in sales by 2029, up from $1.2 billion previously. As a 3% royalty holder, Ligand stands to benefit materially from this upside. Second, FILSPARI continues to perform well commercially in IgA nephropathy with Q3 sales growing 26% over the prior quarter. Additionally, there is potential upside if approved in FSGS. If approved, the FSGS indication could significantly expand FILSPARI's market opportunity, potentially north of $1 billion in FSGS alone according to sell-side analysts.

Turning to one of our development stage programs. Let's look at Palvella's QTORIN rapamycin programs. We'll hear updates on their Phase II program in cutaneous venous malformations in the fourth quarter and their Phase III program in microcystic lymphatic malformations in the first quarter of 2026. Analysts expect peak sales from these 2 indications could be $1 billion. In 2025, we continue to execute our strategy of partnering with life sciences companies to provide innovative, nondilutive capital solutions.

Since the beginning of the year, we've closed 5 new investments, including the final Ohtuvayre inventor monetization, Castle Creek, Orchestra BioMed, the merger of Pelthos Therapeutics with Channel Therapeutics and our most recent investment in Arecor. These transactions reflect the unique flexibility of our investment strategy and are well diversified across our investment tactics, including royalty monetization, project financing and special situations. Our investment to fund Castle Creek's Phase III clinical study of DeFi in patients with dystrophic epidermolysis bullosa is an exciting opportunity to advance an orphan drug designated gene-modified cell therapy for a serious unmet clinical need.

This collaboration reflects our commitment to invest in groundbreaking derisked treatments that have the potential to transform patients' lives, and it also strengthens our late-stage portfolio. Our partnership with Orchestra Biomed also expands our pipeline of development stage partnerships with potential royalties on 2 late-stage partnered cardiology programs. Orchestra's AVIM therapy partnered with Medtronic and Virtue SAB has received FDA breakthrough device designations and the products target high-risk patient populations with hypertension and arterial disease, 2 significant global health challenges.

Next slide, we have seen record-setting origination activity this year, reviewing more than 130 investment opportunities through the first 3 quarters of the year. We remain disciplined in our approach, prioritizing investments that offer compelling return potential and strategic alignment while deprioritizing those that do not meet our long-term objectives.

At present, we have approximately 32 active investment opportunities under review, representing a mix of accretive and pre-approval transactions. I'd like to take this opportunity to remind everyone of our upcoming Investor Day, which will be held on December 9 in New York at the Harvard Club. The registration link can be found on our website. We'll be evaluating consensus updates and commercial progress as well as clinical progress of our assets in our Pharm team to share a refreshed view of this long-term outlook with you at that time, and we hope you can join us.

I'll turn it over now to Lauren for a portfolio update.

Thank you, Todd. Turning to a portfolio review, I'd like to provide some important updates on Ligand's key portfolio assets. I will go into more details on Merck's Ohtuvayre, Travere's FILSPARI and Palvella's QTORIN rapamycin program on the subsequent slides, but I'd like to briefly discuss updates on 2 of our key pipeline assets, Sanofi's TZIELD and Agenus' BOT/BAL.

In October, the FDA nominated TZIELD as 1 of 9 products selected for the prestigious new Commissioners National Priority voucher. These vouchers are designed to recognize and reward products with significant potential to address a major national priority, such as meeting a large unmet medical need, reducing downstream health care utilization or addressing a public health crisis. This overlaps perfectly with Ligand's mission, delivering high clinical value to patients impacted by serious disease.

The new commissioners voucher program aims to shorten the standard 10- to 12-month FDA review time line to just 1 to 2 months, which is remarkable. While we have heard concerns surrounding volatility at FDA, to date, we have not seen any impact in terms of delays or other issues related to our key portfolio assets. In addition, we have seen a new willingness by the agency to accelerate time lines and provide incentives that spur real innovation.

We believe this new FDA orientation is forward-thinking and very good for patients. As a result of receiving the commissioner's voucher, the supplemental BLA for TZIELD in individuals 8 years and older who have been recently diagnosed with Stage III type 1 diabetes was accepted in October and will be reviewed expeditiously, which is welcome news for patients and their families.

We are excited about TZIELD's recent recognition and the potential for a significantly expanded indication in the near term. We congratulate our partner, Sanofi, on this exceptional accomplishment. Additionally, our partner, Agenus, plans to initiate a streamlined 2-arm Phase III trial of BOT in patients with refractory non-liver metastatic microsatellite stable colorectal cancer in the fourth quarter of 2025. The Phase II data are highly encouraging, demonstrating deep and durable responses in this difficult-to-treat population, underscoring the meaningful benefit observed in patients who have failed standard therapies.

Next, turning to Travere's FILSPARI. In August, the REMS liver monitoring requirement was relaxed from monthly to quarterly for IgAN patients during the first year of treatment. FILSPARI is becoming firmly entrenched as a foundational treatment for people living with IgAN and the approval of these streamlined monitoring requirements reflects the strong safety profile of FILSPARI, simplifying treatment initiation for patients.

In Japan, our partner, Renalys Pharma completed primary endpoint data collection in its Phase III IgAN trial, and top line results are expected in the fourth quarter of this year. In October, Chugai Pharmaceuticals announced plans to acquire Renalys. Chugai is recognized for its rare disease and nephrology expertise, and we believe they have the ability to accelerate access to FILSPARI for patients.

In FILSPARI's second indication, FSGS, the FDA has assigned a PDUFA date of January 13, 2026, and has informed Travere that an advisory committee meeting is no longer required. If approved, FILSPARI would be the first and only FDA-approved treatment option for FSGS, and Travere believes the FSGS commercial opportunity could be an even larger one with more rapid uptake as it compared to IgAN.

Moving on, on October 7, Merck closed its acquisition of the Ohtuvayre marketer, Verona Pharma for $10 billion. Our 3% Ohtuvayre royalty will now be assumed by the new marketer, Merck, who has significant geographic reach to expand the Ohtuvayre footprint globally as well as robust clinical development infrastructure to accelerate development of Ot2vir in indications such as non-cystic fibrosis bronchiectasis.

Moving on, we're very pleased with the commercial performance and clinical and regulatory updates provided by Merck on CAPVAXIVE at this quarter. Merck expects that CAPVAXIVE will achieve majority market share in the adult setting in the pneumococcal vaccine category. Merck reported third quarter sales of $244 million, representing a significant increase over the prior quarter as well as a beat to analyst consensus. CAPVAXIVE was approved to prevent pneumococcal disease in Japan in August. And additionally, the FDA accepted Merck's SBLA for CAPVAXIVE in children and adolescents at an increased risk of pneumococcal disease with a PDUFA date of June 18, 2026.

Next slide, Palvella completed full enrollment ahead of schedule in their Phase III trial in microcystic lymphatic malformations in June with results anticipated in the first quarter of 2026. Additionally, Phase II trials in cutaneous venous malformations are expected in December of this year. Palvella recently announced a third QTORIN rapamycin indication in clinically significant angiokeratomas. Palvella plans to meet with the FDA in the first half of 2026 to discuss this Phase II trial design. I'd also like to briefly discuss the commercial opportunity specific to QTORIN rapamycin for the treatment of microcystic lymphatic malformations.

Phase III results are expected in the first quarter of next year, and this promising product has the potential to be the first and only FDA-approved treatment with strong prescriber interest. The therapy targets a concentrated population of over 30,000 diagnosed patients primarily treated at 400 vascular anomaly centers, enabling a lean sales force strategy. Validated orphan pricing models and high unmet clinical needs suggest significant revenue potential in MLM.

With QTORIN rapamycin, Palvella is building a compelling pipeline in a product, which could represent a sizable royalty opportunity for Ligand. This franchise strategy outlines a phased approach targeting rare dermatological conditions, starting with microcystic lymphatic malformations, followed by cutaneous venous malformations and clinically significant angiokeratomas.

Palvella's longer-term plans include expanding to potential future indications, which Palvella believes could potentially grow the addressable patients by a factor of 10x. This represents a significant opportunity for market growth and our 8% to 9.8% royalty extends across any and all approved QTORIN rapamycin indications.

With that, I will turn the call over to Tavo.

Thank you, Lauren. Before getting into the broader overview, I want to start with the deconsolidation of Pelthos since it provides important context for this quarter's results. The spinout became effective on July 1. And from that date, Pelthos has been deconsolidated from Ligand's financials. Historical operating costs through June 30 remain on Ligand's books, but beginning July 1, Pelthos' expenses are now reflected under the newly merged Pelthos Channel Therapeutics entity, operating independently as a publicly traded company under the ticker symbol PTHS with its own Board and management team.

Similar to our equity interest in Viking and Palvella Therapeutics, we hold an equity stake in Pelthos, approximately 50% of its outstanding shares. These are carried on our balance sheet as a long-term investment and remain restricted until the 6-month lockup period expires on December 31, 2025. The current estimated fair value of our holdings in Pelthos is about $180 million as of yesterday's close. On July 1, we recognized a $53 million gain related to the Pelthos transaction, reflecting the difference between the $62 million fair value of the consideration received and the $9 million of net assets sold.

As noted on our Q2 call, this gain included value associated with the ZELSUVMI out-license, which we've now quantified at $24.5 million and retained in adjusted earnings. While the out-license itself is a onetime event, out-licensing is core to our business strategy and the Pelthos equity we received represents tangible value. For that reason, we included it in core revenue and adjusted EPS. The remaining $28.6 million of the gain, along with the historical incubation costs have been excluded from non-GAAP results to maintain comparability with recurring operations.

In addition to the gain on Pelthos, we recorded a $76 million unrealized gain tied to the increase in Pelthos' share value from $62 million at issuance on July 1 to $138 million at quarter end. This appreciation underscores both market confidence in Pelthos and the strategic value of the transaction to Ligand. I'll walk through the financial implications of the Pelthos transaction in more detail on the next few slides.

Moving now into the quarter's financial highlights. This was an exceptional quarter for Ligand, marked by record financial performance, driven by the continued strength in several assets in our royalty portfolio and the recognition of the aforementioned ZELSUVMI out-license component following the spinout and merger of the Pelthos business. We also capitalized on favorable conditions in the convertible debt markets in August, securing a 5-year $460 million convertible note, which further strengthens our balance sheet.

Total revenue and other income for Q3 2025 on a GAAP basis came in at $115.5 million, up from $51.8 million in the same quarter last year. Of that, $53.1 million was tied to the Pelthos transaction, including $24.5 million from the ZELSUVMI out-license and a $28.6 million gain on the sale of the business to Channel Therapeutics.

As discussed earlier, we're including the $24.5 million representing the estimated stand-alone value of the ZELSUVMI out-license as core revenue. The $28.6 million gain on sale of the business has been excluded. Therefore, on an adjusted basis, core revenue for Q3 2025 grew 68% year-over-year to $86.9 million. Other financial highlights to note. Royalty revenue rose 47% year-over-year to $46.6 million, reflecting strong launch trajectory and outperformance across several recently approved products in our portfolio.

Adjusted EPS grew 68% from the same period last year to $3.09. Given this strong financial performance, we're raising full year 2025 guidance. We now expect core revenue of $225 million to $235 million and adjusted earnings per share of $7.40 to $7.65 per share. We closed the quarter with $665 million in cash and investments. That brings total deployable capital to approximately $1 billion, a strong position that continues to fuel a very active business development pipeline.

The funnel remains robust. At this point, we're not limited by dollars, we're limited by human capital, and we're planning to expand our business development and investment teams to meet the opportunity ahead. In August, we executed on a $460 million convertible debt transaction. We were very pleased with the pricing terms and secured a 75 basis point coupon rate and a 32.5% conversion premium. We also structured the transaction to be net share settlement to further reduce dilution. In conjunction with the notes, we executed an up 100% call spread, which will result in no dilution to our stock up to a price of $294 per share.

The net proceeds not only bolster our balance sheet, but are accretive to earnings and allow us to take advantage of our robust business development pipeline. Moving on to the next slide. Let me expand on our capital deployment capacity. We continue to generate robust annual operating cash flow now exceeding $150 million on an annualized basis, and our current investment pace ranges between $150 million to $250. Against this backdrop, our decision to pursue a convertible debt financing was strategic, driven in large part by favorable conditions in the convertible debt markets.

As of September 30, 2025, we held $665 million in cash and short-term investments and maintained access to a $200 million credit facility, bringing our total financial capacity to roughly $1 billion, inclusive of our holdings in Pelthos. We own approximately 50% of Pelthos' outstanding shares carried on our balance sheet as a long-term investment with an estimated fair value of $138 million at quarter end, which we view as another potential liquidity lever.

Looking ahead, given the robustness of our business development funnel and the ongoing expansion of our business development function, we may look to incrementally increase our capital deployment pace. We believe our bolstered balance sheet positions us well to pursue high-quality opportunities that align with our strategic and financial objectives.

Moving on to the next slide. Key drivers of royalty revenue growth this quarter include strong performance from Travere FILSPARI, Merck and Verona's Ohtuvayre, Merck's CAPVAXIVE and Recordati's QARZIBA. Expanding briefly on a few of these, starting with FILSPARI, Travere reported third quarter sales of $90.9 million, a 26% sequential and 155% year-over-year increase. They also received 731 new patient start forms during the quarter, showing continued adoption among both new and repeat prescribers. That momentum underscores the expanding use of FILSPARI in IgA nephropathy.

As a reminder, Ligand earns a 9% royalty on sales, translating to nearly $9 million in royalty revenue this quarter, including our internal estimate of $7 million from sales generated by CSL Vifor in Europe. We're pleased to share that FILSPARI has now become our largest royalty-generating asset on an annualized run rate basis. Turning to Ohtuvayre. We continue to see strong commercial momentum. Verona reported $136 million of Ohtuvayre sales, a 32% sequential increase over the prior quarter. Ohtuvayre sales have beaten consensus in every quarter of 2025, and we anticipate a strong launch trajectory to continue. We are excited to see potential acceleration with this program now benefiting from Merck's broader commercial organization.

Merck's CAPVAXIVE also grew significantly this quarter, reinforcing Merck's competitiveness in the pneumococcal vaccine space. CAPVAXIVE generated $244 million in sales, an 89% sequential increase and a 46% increase over consensus. On Captisol, we recorded $10.7 million in material sales this quarter compared to $6.3 million in the third quarter of 2024. The increase was driven primarily by the timing of customer orders. We recorded $58.2 million in contract revenue this quarter, up significantly from the $13.8 million in the prior year period. This includes the previously mentioned $28.6 million gain on the sale of the Pelthos business and the $24.5 million ZELSUVMI out-license.

Turning to operating expenses. For Q3 2025, G&A expenses were $28.4 million, up from $24.5 million in the prior year quarter, primarily due to recognition of transaction costs related to the Pelthos transaction. R&D expenses rose $21 million from $5.7 million in the prior year period, driven by a $17.8 million one-time charge tied to our investment in Orchestra BioMed. This funding supports late-stage partnered cardiology programs and is accounted for as an R&D funding arrangement fully expensed in the period of investment.

Other income for the quarter totaled $86.2 million compared to other expense of $9.5 million in Q3 2024. This year-over-year swing was primarily driven by unrealized gains from the increase in value of our equity holdings in Pelthos and Palvella and higher interest income, reflecting the impact of our strengthened cash position following the convertible note transaction.

GAAP net income for Q3 2025 was $117.3 million or $5.68 per share compared to GAAP net loss of $7.2 million or $0.39 per share in Q3 2024. On a non-GAAP basis, adjusted net income was $63.8 million or $3.09 per share, up from $35.3 million or $1.84 per share in the prior year period. The 68% increase in adjusted EPS was primarily driven by the $14.9 million increase in royalty revenue and the $24.5 million ZELSUVMI out-license component.

Turning to guidance. As mentioned, we are raising total core revenue forecast to a range of $225 million to $235 million, and adjusted earnings per share is now expected to be between $7.40 and $7.65, a roughly 30% increase over last year's EPS of $5.74. With that context, here's how our revised full year 2025 guidance is shaping up. Royalty revenue is now expected to be between $147 million and $157 million, up from the prior range of $140 million to $150 million. Captisol sales are expected to come in at $40 million. Contract revenue, which is where we capture the value of the sell ZELSUVMI out-license component has increased to $38 million, up from $25 million to $35 million.

Again, to reiterate, total core revenue is now expected to be in the range of $225 million to $235 million, up from $200 million to $225 million, and we're raising core adjusted EPS to $7.40 to $7.65 compared to the previous range of $6.70 to $7. These updates reflect not only the impact of the Pelthos transaction, but also strong underlying growth and increased visibility into our royalty streams, particularly from FILSPARI, Ohtuvayre, QARZIBA and CAPVAXIVE. That concludes my remarks.

I'll now turn the call back over to Todd for closing comments.

Thank you, Tavo. We are very pleased with the strong launch momentum across multiple products, including CAPVAXIVE, Ohtuvayre, FILSPARI and ZELSUVMI and believe there are significant opportunities for both indication expansion as well as geographic expansion for these products, which represent further upside for Ligand. We believe that Merck's global reach will accelerate Ohtuvayre's rollout and their plans to invest in the ensifentrine pipeline programs will maximize its potential.

Additionally, we're encouraged by the great progress the Pelthos team is making in ZELSUVMI and look forward to watching the continued launch momentum in the coming months. With a solid base of royalty-generating assets and late-stage pipeline, we are well positioned to deliver sustained compounding growth and long-term value for shareholders.

Additionally, our strong origination capabilities, our investment team and our robust investment process is driving meaningful portfolio growth. Our deal team's ability to identify, access and execute high-quality investments sets Ligand apart.

Thank you, everyone, for joining us for today's earnings call. I will now pass it back to the operator and open it up for questions.

[Operator Instructions] And your first question comes from the line of Trevor Allred with Oppenheimer.

I've got a few. First, we've seen both Pelthos and Palvella generate enormous value over the past year. Is there anything you can share on the available opportunities and special situations?

Thank you, Trevor. This is Todd. And I think the opportunity set there is quite robust. Just to kind of frame this, the special opportunities is when one of the kind of the value components is missing, and we need to be more active in the investment in terms of adding team members, restructuring and things of this nature. When we look at any investment, we're looking at kind of those 3 components, company's financial strength or access to capital. And if that's all they need, then we're usually looking at a royalty investment, a royalty monetization or simply providing capital.

The other thing is strong management teams. We really need strong counterparties because we want to have as much operating leverage as possible. So we're partnering with people that have the clinical development capabilities and infrastructure, sales and marketing capabilities and infrastructure, manufacturing capabilities and infrastructure. When those -- when that portion of the component breaks down, then we have to get more involved than just providing capital, and we'll bring other complementary management into the mix. And those are restructurings.

So there are many opportunities like that out there. And the last component is just general financial strength aside from our financing because we need companies that have strong access to capital, and we have to exist in this ecosystem and equity is a very important component of what we do. Royalty capital needs to be a portion of the company's capital structure, but certainly can't rely solely on it or even predominantly on it. So when these situations arise, if they just need capital, it's usually not a special situation. The Novan situation where we picked up ZELSUVMI and the nitric oxide platform is a good example. There, you had a very good technical team, which we still work with today. We brought them into a subsidiary at Ligand, and they have what we believe was a great asset. And so we brought that into the subsidiary as well, restructured it and eventually we reset the marketing plan for ZELSUVMI once we got that approved and then relaunched the new company in the form of Pelthos.

That's a situation where the company's access to capital had broken down, and they needed a more sales and marketing-oriented management team. So that's where we will get involved in these special situations. There are a lot of those out there. We're typically doing those in cooperation with the counterparties, though, where they know those components are missing. And the one other consideration on those is that they are quite consuming. They take a deal team. It takes a lot of attention. And so you really have to go after deep value and significant returns, which we believe we will achieve in the Pelthos situation and in others like that, that we've taken on. But there's -- let me put it this way, there's way more of those to do than we can do, and that's why we are adding a little bit to our management and deal team, including the operating components that we have, which help us manage through these situations.

Got it. That's helpful. And then my second question is a bit of a 2-parter. Can you comment on how the number of investment opportunities have shifted over the past year? Are you seeing accelerating capital demands? And then can you also comment on how your new cash balance changes either the scope or the size of how you're approaching deal making, if at all?

Sure. Yes. So taking the latter first, I think that our diversification strategy right now has us pegged at about, as we've been saying, we don't want to put any more than $50 million into a binary risk situation. and we're seeking out things that have significant evidence of safety and efficacy and on a relative basis are derisked. But still, we are buying risk, and we don't want to put more than $50 million right now into a potential binary risk situation.

That said, we view diversification by asset. So in multiple asset situations, we can size up the deals very significantly. And we also, as you know, we will use equity as a tool here. And this makes us a very good partner. I think the Orchestra example, which Paul led for us is a good one. We got what we think is a very good royalty investment in 2 great product development programs there. But we were also able to facilitate or catalyze, if you will, a broader equity round and get the company into a much greater position overall of financial strength. so that we are, in fact, coexisting with significant amounts of equity in that situation at this point. And we believe the company has a great management team and has now much, much better access to capital in the long term as well.

So we can be very good partners because we are able to support companies kind of throughout their capital structure. Getting to the overall kind of deal types and demand, I would just say that royalty capital, for lack of a better term, is really 5% or less of the market. And I would say on the development side, significantly less. And that's where capital is most needed. So I think there's a huge opportunity there. There's way more to do than we can do. So the deal flow does move around a little bit, mostly in style, not in amount. as the capital markets change.

For example, when an IPO market opens up, a lot of the late-stage private companies want to get public. So they're more inclined to do that so they can provide liquidity for their equity investors. But still, even in those cases with very strong companies and strong equity syndicates, as was the case with Castle Creek, they want and there is a rationale for having royalty capital be a component of your total capital structure.

[Operator Instructions] Your next question comes from the line of Matt Hewitt with Craig-Hallum.

Congrats on the quarter. This is [indiscernible] on for Matt Hewitt. So last week, the FDA announced it wants to speed up the process of personalized gene therapy. How should we think about the Castle Creek investment and general opportunities in gene therapies going forward?

Yes. I think that's one of the points that Lauren was making earlier in the call here is that there are some concerns around some volatility and changes at the FDA. But we're focused, as we've said many times, on high-value assets targeted towards severe clinical need that can be really impactful. And that's kind of the FDA's core reorientation strategy as well. So we think there's great overlap between just our investment strategy in general, investing in products that will make the most amount of difference for patients and what the FDA is orienting around in that regard.

And so I can't say that it will have a specific impact on any individual asset or company, although we know that TZIELD has already benefited from that. But there clearly is an effort to be more pragmatic in severe diseases where there -- certainly where there are currently no treatments, but also where there's marginally adequate types of treatments available. And I think that, that's a sensible strategy, and they're talking about shortening the review time lines from 12 months to a couple to a few months, and that's very positive for us.

As you know, our general strategy also is to invest in assets that are within at least 3 or 4 years of a potential approval. And we sometimes will invested in Phase II. That's where we originally invested at Palvella. And in those situations, we rely heavily on third-party data. For example, off-label use of rapamycin in some of the conditions that Palvella is currently exploiting had existed prior to that investment. So there's real-world evidence of efficacy and safety, even though it was, for us, an earlier-stage asset. So we view that as derisked, but it still had the full time line to march through. Now on top of being able to take advantage of those types of repurposed and derisked assets, we also potentially, in general, can be looking at shorter time lines for approval and review.

And the next question comes from the line of Jayed Momin with Stifel.

This is Jayed on for Annabel. Congrats on the strong quarter. I have 2 questions. One, is there any additional color you can provide for the ZELSUVMI launch? I know you talked about it a bit, but is there -- what do you expect going forward over the next couple of quarters? And then my second question is if there's any other details you could provide for the Arecor transaction, specifically for AT292 that's being developed by Sanofi. What does the royalty rate look like? Any details there would be helpful.

Sure. I'll cover the ZELSUVMI launch, and you'll be disappointed with the additional information I can't share because I can't share much more. And then I'll have Lauren discuss AT292 and our arrangements there. In terms of the ZELSUVMI launch, they're reporting, I think, on the 13th, where you will get a lot more information. We just followed a general script data. And I can tell you from our perspective, that's encouraging. That's something that analysts and everybody else has access to as well. But they haven't changed their guidance yet going forward. I think that -- the general guidance they've offered at this point, which is sensible early in a launch because launches are very hard is peak sales of $175 million. And in general, I think that's conservative. The management team there is appropriately conservative at this point in the launch. But there will be a lot more specifics available for that on the 13th when they have their earnings call.

And with that, I'll hand it off to Lauren just to discuss the Arecor and AT292.

Great. Thanks, Todd. So sure, thanks for the question. On AT292 or efdoralprin alfa, we're really excited about that asset. We view it as being highly differentiated versus the standard of care. This is a treatment that is designed for patients with alpha-1 antitrypsin deficiency. It was licensed to Inhibrx and then acquired by Sanofi in 2024 for $1.7 billion. So clearly, they have a lot of conviction around the asset as well.

What's differentiated about it is that we're seeing a potential movement from plasma-derived to recombinant treatments and also a much more convenient dosing regimen for patients. And then as Todd mentioned in his remarks, we were really encouraged to see the Phase II potentially pivotal data released by Sanofi, which was very positive just last month. So we're really encouraged by the progress of this asset in the very short time since we've closed this transaction. And then with regards to the royalty exposure here, these are actually technology access fees, and that's what we're able to disclose in terms of what we will receive on this asset. So thanks for the question.

And the next question comes from the line of Sahil Dhingra with RBC.

This is Sahil for Doug. My first question is related to the competition. Have you seen any changes in the competitive landscape for royalty assets as it relates to either on the market products or products that are in clinical stage? And then I have a follow-up.

Sure. Yes. Just not yet. I think there will be people interested in this space because it makes so much sense. I think that this is a very, very logical place for royalty capital to focus on, and I thought that for a long time. But there was a lot of inertia around the initial funds because they were funded mostly by large debt allocators like pension funds that were following debt metrics and wanted debt levels of risk. So you really couldn't go into the development side.

So I think that will change over time. Our view is that there will be competition. We haven't seen any yet, frankly. We haven't been competitive in very many deals at all. Most of the folks that do development stage clinical investing are much, much larger than we are. That's one component of it. And then the other component is that in excess of $12 billion of royalty capital that is available, the very significant majority of that is focused on commercial stage assets as opposed to development stage assets.

That is helpful. And then my follow-up question is related to the recent approval of Lasix ONYU, the product where you have royalties. How do you see that product versus the existing products in the market, specifically FUROSCIX that is marketed by scPharma, which was recently acquired by another company, MannKind. And we also saw a recent approval of a nasal spray in the same category. So could you speak to what are your thoughts on the product and peak sales potential for that product?

Sure. Thanks for the question. So yes, we were really encouraged to see the full approval for our partner SQ Innovation. And I think the existing product kind of has validated the potential for moving the treatment from the inpatient setting to the outpatient setting. And there's a lot of kind of macro momentum around trying to get patients out of the hospital more quickly kind of across the health care spectrum. And so we're really encouraged to see patients have another treatment option, and we believe that it's differentiated in several ways, including the size of the device and just sort of the convenience for patients and the commercial rollout strategy. So we'll look forward to seeing more. At this point, there's no information regarding guidance or anything like that, but we view this product as a very positive introduction into the marketplace.

Thank you. And this does conclude our question-and-answer session. I would like to thank our speakers for today's presentation, and thank you all for joining us. This concludes today's conference call. You may now disconnect.