Negative Points

• Amgen's Kyralis net sales decreased 17% year-over-year due to lower volume, partially offsetting growth from other products, though it remains within guidance.

• The Zoma acquisition includes financial royalty assets with complex accounting, where milestone payments may not be fully recognized as revenue, potentially reducing reported earnings transparency.

• The FDA recommended a Phase 3 trial for Volixibat in PSC, delaying potential approval and pushing back the timeline for this asset, despite positive Phase 2B data.

• The company incurred a $12 million one-time charge related to the Orchestra Bio investment, which, while excluded from adjusted earnings, reflects the immediate expensing of certain R&D financing transactions.

• The business development pipeline remains highly active, but the company faces inherent binary risks in clinical development, as not all pivotal studies are expected to be positive, which could impact future royalty streams.

Q & A Highlights

Q: Can you quantify the Zoma revenue and cash flow contributions in your projections for second-half EPS accretion, including the principal commercial assets driving the contribution? How much of the $1.50 expected in 2027 represents underlying revenue growth versus cost synergies and tax benefits? A: Tavo Espinoza (CFO) stated that the contribution from the Zoma acquisition is entirely reflected in the increased guidance announced upon the deal's announcement. It includes both top-line contribution and expected cost synergies, taking effect starting in the third quarter. The $1.50 for 2027 is 100% tied to the top-line contribution from Zoma plus significant synergies, including the elimination of duplicative public company infrastructure.

Q: With the completion of the Zoma acquisition and your coffers refilled, can you talk about your thoughts on deal type? Are you going back to asset-based deals, or should we expect bigger, more portfolio-like transactions? A: Todd Davis (CEO) explained that while the portfolio has scaled, the total available market for sub-$100 million investments remains significant. The required investment level for perpetuity growth is around $100-125 million per year, but the team can consistently invest at the $200 million level. They expect to continue executing the same type of deals: sub-$100 million, typically in the $25-75 million range, focused on specific royalty assets, project financings, and special situations.

Q: With so many opportunities in the Zoma portfolio, is there anything you might be looking to unload or spin off now that you can talk freely since it's closed? A: Todd Davis (CEO) noted that many assets in the Zoma portfolio were valued at zero during underwriting due to lack of information or early stage. Lauren Hay (VP, Portfolio Strategy and Investments) is going through the full portfolio to identify opportunities requiring minimal investment to establish proof of concept, which could then be licensed or partnered. They are also looking at unpartnered assets as a target-rich area for creating upside beyond original underwriting.

Q: Can you frame the $2.3 billion of potential milestone opportunities from the Zoma portfolio? How much is tied to Phase 3 readouts in the next 18 months versus longer-dated commercial milestones? A: Tavo Espinoza (CFO) said they are still digesting the various contracts and getting their heads wrapped around the timing and probability of success. The stage of milestones ranges from preclinical to early development, with some potentially coming as early as later this year. They are not prepared to give further visibility on the quantum or partners yet but plan to provide more detail at Investor Day in December.

Q: Niram disclosed that the FDA recommended a Phase 3 for Volixibat in PSC at their pre-NDA meeting. How does this change your timeline and risk adjustment for the product? A: Lauren Hay (VP, Portfolio Strategy and Investments) expressed disappointment but noted continued conviction in the asset for both PSC and PBC. The partner executed the largest randomized study to date in PSC with no FDA-approved treatments. The company believes the delay was potentially due to a new review team, not data deficiencies, and received breakthrough therapy designation after the meeting. The submission is now targeted for the first half of next year instead of late this year, pushing out the potential approval date slightly.

Q: It's almost a month since the Zoma transaction closed. Have you found any surprises as you dug deeper into that portfolio of assets? A: Todd Davis (CEO) explained that when acquiring a royalty portfolio of this size, they value the entire portfolio on a subset of assets and value the rest at zeroa triage approach. Since closing, they've had several positive developments on assets originally valued at zero. Lauren Hay (VP, Portfolio Strategy and Investments) added that they've been connecting with partners and finding interesting new investment opportunities within the mid-stage pipeline and earlier opportunities.

Q: Zoma had a different type of royalty investmentthe financial royalty investment. What are the pros and cons between that structure and the way Ligand has historically done it? Do you anticipate seeking out more financial royalties? A: Todd Davis (CEO) clarified that Zoma's strategy involved acquiring distressed companies primarily for tax assets and net cash. While Ligand has looked at that strategy, they wouldn't pursue very small deals where you're netting a couple million. However, Zoma did a good job rolling up a number of these, and Ligand is now benefiting from those tax assets. They are looking at companies that provide tax benefits in their active pipeline, but the main focus remains on asset quality and royalty cash flow potential.

Q: As Ligand has grown its presence in the royalty aggregator space with the Zoma acquisition, how has your ability to be competitive been enhanced by having key members of the Zoma team as part of the Ligand team? A: Todd Davis (CEO) noted that royalty capital financing for biopharmaceutical companies is less than 9% on the development side, with few consistent players. The market has high demand and low supply, and even the players that do it consistently have very different approaches. Ligand hasn't been head-to-head on any royalty financings. They invest in capable partners with good management teams, which allows them to achieve high operating leverage. The market keeps everyone honest and competitive.

Q: You mentioned more than $110 million of tax credits and NOLs to be utilized over the next few years. Any cadence to the utilization as we think about the benefit to cash generation and any limitations? A: Tavo Espinoza (CFO) explained that Section 174 R&D tax credits came from the "Big Beautiful Bill," where sponsors can either take a 100% write-off or defer over five years. Most sponsors elected to defer, so Ligand will continue with that cadence, with the bulk of value realized over the next three to five years. NOLs are limited to 3% of the acquisition price per year. This meaningfully informs cash generation, contributing to the expected $300 million in 2027.

Q: Both Ligand and Zoma participated in a very interesting deal with Castle Creek. Is there an update there, given the profile for EB patients has increased significantly with Cristal and Aviona? A: Lauren Hay (VP, Portfolio Strategy and Investments) said they continue to have conviction in DEB. FIGVEC has been a great introduction for the EB community, but there are limitations regarding body surface area and wound types

For the complete transcript of the earnings call, please refer to the full earnings call transcript .