LGND (2019 - Q3)

Hello, and welcome to this webcast, Ligand Pharmaceuticals' Third Quarter 2019 Earnings Call. My name is Lira and I will be your event specialist today. Please note that all lines have been placed on mute to prevent any background noise and that today's webcast is being recorded. [Operator Instructions]It is now my pleasure to turn today's program over to SVP of Investor Relations, Patrick O’Brien. The floor is yours. Patrick

Thank you and welcome everybody to Ligand's third quarter 2019 financial results and business update conference call. Speaking today for Ligand are John Higgins, CEO; Matt Foehr, COO; and Matt Korenberg, CFO.As a reminder, today's call will contain forward-looking statements within the meaning of the federal securities laws. These may include, but are not limited to statements regarding intent, belief, or current expectations of the company and its management regarding its internal and partner programs.These statements involve risks and uncertainties and actual events or results may differ materially from the projections described in today's press release in this conference call. Additional information concerning risk factors and other matters concerning Ligand can be found in our Ligand's earnings press release and the public periodic filings with the SEC.The information in this conference call related to projections or other forward-looking statements represent the company's best judgment based on information available and reviewed by the company as of today, November 5, 2019, and do not necessarily represent the views of any other party. Ligand undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.At this time, I'd like to turn it over to John Higgins.

Welcome to our call. And I would like to welcome the Ligand and introduce to all of you Patrick O’Brien. Patrick, just joined Ligand yesterday as our Senior Vice President of Investor Relations. Pat, welcome.

Thank you, John. It's a pleasure to be here and nice to work with you again.

Yes. Yes, absolutely. Since you’re on our call, Pat, how about you share a little bit about your background.

Well, really focusing on post investment banking in late 1990s, started in Investor Relations at Allergen in 2001 and really the bulk of my experience came from my 10-year at Gilead, which was from 2007 to 2016.

Yes. Fantastic. Well, it's great having Patrick on board. His first day was yesterday and if you saw the earnings release his name is now posted in the upper left corner. The business is growing and doing well and as we work with investors, top priority is quality, proactive communications with investors. And so we're thrilled to have someone with Patrick's experience running for Ligand. I want to acknowledge the outstanding work that Todd Pettingill has done in IR in the last few years. I know most of you on the call today have worked closely with Todd and Todd will keep working with Matt Korenberg focusing now entirely on corporate development. Todd is in the room here. We are going to give Todd a little pat on the back. Thank you. Really appreciate your excellent work.Now speaking of new additions, we just added Sarah Boyce to our Board of Directors. Sarah, she is a great new addition, bringing extensive biopharma management experience from companies such as Novartis, Medimmune and Akcea, which is a spin out from Iona. Iona's has a business model that is similar to Ligand. She is now CEO of Avidity, a drug discovery company based in San Diego. Sarah has great experience in business development, strategic planning, commercialization and communications. We are very pleased to expand our Board to include her.Now on the Board topic, we've had strong interest from people to join the Ligand Board, with many names coming forward as potential candidates. Our focus at Ligand is to have top-tier Directors on our Board managing the oversight governance and strategic planning. Our Board is composed of very talented, highly experienced professionals. We are former heads of research from Merck and Pfizer, past research analyst, large fund investors and business operators.Diversity in the Board room is also very important and we're pleased to expand the number of women directors on our Board and have a Board with diverse ethnicity. We’ve a team of outstanding leaders that are highly engaged and working hard for investors. Sarah will fit in well.Now in terms of some business highlights, Ligand is doing great here in 2019. It's a very balanced business with great execution, strong deal making, good data events driving the portfolio and a robust business calendar that is building for some major events in 2020 and 2021.I want to give just a quick couple of highlight comments on Kyprolis. This is today our largest royalty asset. Kyprolis posted $280 million combined worldwide sales for third quarter. That’s the highest quarterly sales ever, equal to last quarter. Importantly, we enjoy a higher royalty tier as revenue increases through the year for Kyprolis, so our revenue is even higher this quarter than last.Last year total sales were just over $1 billion for the product and this year full-year sales are on track to exceed that by a good margin. We don't market the drug. Amgen and Onyx do, but we book a royalty on worldwide sales. As we study sales trends over the past few years, Q3 sales are somewhat flat compared to Q2. In some cases they are actually down. But Q4, what we’ve looked at, what we noticed Q4 has shown a nice bump as the year closes out. That trend we hope continues here in the fourth quarter of 2019.There have been two important developments for Kyprolis in the past six weeks that we believe set the product out for continued growth in the years ahead. The first was Amgen's announcement of positive topline Phase 3 data for its CANDOR trial testing Kyprolis in combination with Darzalex, very encouraging efficacy data that could potentially support expanded use of the drug in the future. And just last week, Amgen announced a commercial partnership with Beijing for commercialization in China. Now our assessment is China has not been a major focus for commercial forecasting for analysts. So this deal could provide a nice expansion to worldwide revenue long-term, once that market is opened up.Now I want to turn to OmniAb. This is our largest most valuable platform and we’ve been posting significant positive financial and licensing updates from that platform over the past couple of years. We highlighted this, of course, at our Analyst Day and within the row with investors, Matt and I -- Matt Foehr and I get out and we’ve had really some good news with a lot of focused questions about that business. But Matt, maybe you want to give a couple of highlights, some developments in the last few months around the OmniAb platform.

Yes. Often we get asked the question how is OmniAb doing? In a word, I will say OmniAb is being doing fantastic. We are seeing -- the partners are increasingly turning to the OmniAb platform for their novel antibody discovery needs and we're confident in our view that OmniAb truly is a best-in-class technology and our partners are continuing to help illustrate that with the progress they are making.Three things I will point out, new deals, the recent Ab Initio acquisition and program clinical progression and new program starts, specifically around OmniChicken. On the new deals we enter into five new OmniAb partnerships recently with Takeda, GigaGen, Talem Therapeutics, Kira Pharma and AbVivo. And our signing on with new partners continues to be very strong. And we’ve a number of other potential new OmniAb licenses that are in various stages of finalization that we hope to execute in the coming months.On the Ab Initio antigen technology acquisition, while it was a small deal, it's really a game changer from a technical perspective and we are already seeing the benefit of it. Antigens generate specific immune responses in animals and partners have been and are attracted to the OmniAb platform, both by the quality and the performance of our multiple species of animals and now with the Ab Initio antigen piece, once the program is underway its chance of technical success can be greatly improved. Its driven initially by a high-quality antigen.And then on the general progression of OmniAb programs. The number of clinical trials evaluating OmniAb-derived antibodies continues to increase in breadth and number, and the patient numbers and the volume of clinical trials are continuing to grow. We are looking forward to data readouts for OmniAb derived antibodies this year and next from CStone, from Immunovant, from J&J, Synthogen and others. So that’s on the clinical side.And on the discovery side and for OmniChicken, in particular, we work very closely with our partners performing some of the earliest stages of work. We see them leveraging OmniChicken for drug targets that are generally considered difficult targets. And in the last few months, we’ve had the most new OmniChicken programs starts for partners that we’ve had in any period in our history. And we actually see that accelerating significantly in the coming months based on current planning dialogue with our existing partners.

Right. Yes, no doubt a big portfolio. Matt, a lot of new slot of OmniAb as the year is winding down, we're getting questions about what are some leading partnered assets that investors should be focusing on. And I know we’ve had a couple of big news events and some calendar events are coming up next year. So maybe highlight a couple of key programs for investors.

Yes. There are two in particular, that I call out Retrophin sparsentan and then also Viking's TR-Beta programs. Regarding sparsentan, last week Retrophin confirmed that enrollment is on track in pivotal Phase 3 trials to support registration of sparsentan for patients with FSGS and IgA nephropathy. They’ve what’s called the DUPLEX study running in FSGS and the protect study running in IgA nephropathy, topline data are expected in the first half of 2021 for DUPLEX in the first half of 2022 for protect.And importantly, Retrophin also mentioned last week that they will be presenting new data on sparsentan at the American Society of Nephrology's Kidney Week meeting that’s happening this week in Washington DC. They've got new data from the Phase 2 DUET study examining the important impact of sparsentan on quality of life in patients with FSGS, and have preclinical data -- new preclinical data exploring the potential effect of sparsentan on Alport syndrome. So this is new news for the program. And there is another new potential indication for sparsentan, Alport syndrome. Just this background is a genetic condition characterized by kidney disease, hearing loss and eye abnormalities and people with Alport syndrome experience progressive loss of kidney function.And then for Viking, they announced just this morning that they are quickly approaching the start of VK2809 Phase 2B trial in biopsy-confirmed NASH. So that's one that we're watching closely. NASH is obviously seen as a large market with a high unmet need. And Viking announced positive Phase 2 data last year for the program, achieving key primary and secondary endpoints and showing post reductions in liver fat content and plasma lipids. Separately they also announced this morning that clinical development of VK0214 for X-ALD is expected to begin in the first half of next year. So that was new news as of this morning as well.

Yes. It was great to see that. And their market reaction today clearly investors can be focused on that. The stock, if I can say, up almost 20%, a very high volume. What -- what’s interesting about those two programs you call out, both those came via acquisitions we did. Boy, 7, 8 years ago, Pharmacopeia, and Metabasis. As far as statin was originally the DAR [ph] program out of Pharmacopeia and then the TR-Beta came from the Metabasis acquisition. So some great marquee assets.More recently we’ve done a couple of other deals, a little bit different type of deals. We are still doing M&A, corporate M&A, but also we are looking at what we call project finance where we are investing some of our cash to acquire royalty rights in late stage assets. And ideally we are targeting Phase 3 stage assets, and there are two deals we did earlier this year. I know investors had been following this, but Matt both Palvella and Novan have has very good progress. Maybe you want to give some update on those two programs.

Yes. So, Palvella, a private company, they've now started the Phase 3 pivotal portion of the Phase 2/3 VALO study, PTX022 in Pachyonychia Congenita, which is a significant milestone for the development program with the first subjects now randomized in the Phase 3 double-blind placebo-controlled portion just this past quarter. In our interactions and technical dialogue with Palvella are very close and they report that patient enrollment efforts continue to be strong with full study enrollment projected to be achieved in Q1. The Phase 2 portion of the clinical study will be complete in Q2 of next year with the full Phase 3 study readout expected to happen in the second half of 2020.Palvella recently made the decision to implement an open-label extension study for patients who participate in the VALO trial. And the primary purpose of the open-label extension study will be to generate additional safety data around long-term treatment with PTX022. They also have identified and we will be pursuing a second high potential rare genetic indication called gorlin syndrome. Gorlin syndrome is genetic -- is a genetically driven disease in which patients can develop hundreds to thousands of malignant skin cancers in the form of basal-cell carcinomas over the -- over a lifetime.In recent scientific work from leading cancer researchers has confirmed that the mTOR pathway has a key role in BCC tumorigenesis in gorlin syndrome. So an estimated 10,000 patients are affected by gorlin in U.S. There are no FDA approved therapies indicated for gorlin and Palvella has said that they will commence a Phase 2 study in gorlin syndrome in 2020.Similarly, Novan has been making great progress as well. They completed patient recruitment in the e B-SIMPLE Phase 3 pivotal trials with SB206 for the treatment of molluscum contagiosum. Novan affirmed that topline data from these trials are expected in the first quarter of 2020. And again as you mentioned, both of these programs are new additions to the Ligand pipeline and both are now positioned for late stage data readouts next year.I will just make a comment more generally on the pipeline. I also mentioned that we look forward to the American Society of Hematology or ASH annual meeting this year, which is in early December. We expect a number of our partners may present data there and we will be monitoring the abstract releases that are happening tomorrow. ASH is traditionally an important meeting across the industry and we expect to see data again this year.

Yes. Yes, great. And again both those programs did not exist in our portfolio, just 10 months ago. And they’re really very high quality [technical difficulty] yes, it's making good progress. And if they are successful, we believe they have a chance to contribute significant economics to Ligand. Before turning over to Matt Korenberg to walk through the financials, Matt, maybe just a couple of quick highlights on some of our internal research projects.

Sure. Obviously, a key element of our business model is focused R&D investment with the goal of downstream partnering. In July, we announced positive topline results from our Phase 1 trial of Captisol-enabled iohexol demonstrating pharmacokinetic bioequivalence between our CE iohexol in a reference product after IV administration. CE iohexol was safe and well-tolerated and adverse events were in line with the known safety profile of GE's Omnipaque.The study was conducted in Canada under CTA with Health Canada. Details and data from that Phase 1 trial will be presented at ASN's Kidney Week later this week in Washington DC. And also additional data will be presented next week at the Contrast Media Research symposium in Italy, along with a presentation on data from CE iohexol in preclinical models of acute kidney injury.There will also be a presentation on comparative cardiovascular assessment of CE iohexol and iohexol in dogs at the AAPS PharmSci meeting in San Antonio later today. And I know that we've a significant presence to the AAPS this year with our Captisol technology as well. I just returned from the conference last night and want to give credit to our Captisol team for their efforts leading up to enduring the AAPS Conference.So for iohexol, we plan to submit an IND with the FDA and initiate a Phase 2 study in the U.S in the second half of next year. The IND filing is a necessary step as the plan will be to run the next trials here in the U.S. We are highly confident that the data generated so far support further development and we will explore potential commercial partnerships with the program as we prepare for the next phase of development.And switching gears a bit, I will also just quickly comment on the internal antibody programs that we have ongoing leveraging OmniChicken. We’ve been pleased with our teams progress on the internal OmniChicken programs and we will be presenting data in December at the AATC meeting in San Diego on our B7H3 antibody program and our CD38 program where we are seeing evidence of Picomolar Affinity. I realize that's fairly technical, but antibody affinity refers to the strength with which an antibody binds to a specific target. High affinity antibodies permit greater sensitivity in assays and often correlate with higher potency in vivo. Once our work is complete on those programs, our goal will be to partner them. And so that’s our general update on our internal programs.And with that, I will turn the call over to Matt Korenberg to review the financials.

Thanks, Matt. I will start today as I usually do with a review of the financials contained in our earnings release issued earlier this afternoon. Total revenues for the quarter were $24.8 million and included 9.8 million of royalty revenue, $6.8 million of material sales and $8.2 million of milestone and license fee revenue. It was another strong quarter across all three lines of revenue.With respect to royalties, we saw newly 40% quarter-over-quarter organic growth driven by reaching the higher royalty rate tiers on Kyprolis and by the launch of Evomela in China by our partner CASI Pharmaceuticals. Material sales considered -- continued their strong performance this year with another strong quarter. And on the milestone and license fee line, we again saw more than double the revenue we recorded a year-ago from the normal course contracted milestones.Total revenues for Q3 of 2018 were $45.7 million and included $27.8 million of nonrecurring royalty revenue for Promacta. As investors know, we divested the Promacta asset to Royalty Pharma in March of 2019 for $827 million. Accordingly, Ligand did not receive any Promacta royalties in the third quarter of 2019. So on a apples to apples basis, Q3 2019 total revenues of $24.8 million compared with Q3 2018 total revenues of $17.9 million, and represented an increase of about 39%.Regarding gross margin, our Q3 gross margin for Captisol sales was lower versus the prior year. Our mix of commercial and clinical material sales shifts from quarter-to-quarter and from year-to-year, resulting in the changes in gross margin. Our material sales costs are still expected to translate to an overall corporate gross margin of over 90% for the 2019 fiscal year.On the expense side, R&D in Q3 2019 was $13.7 million. Excluding stock comp and other non-cash charges, R&D was $6.2 million. For G&A, our Q3 total was $9.5 million and excluding stock comp and other non-cash charges G&A was $5.6 million. Taken together the total cash operating expenses for the quarter were $11.8 million, which was right in line with our expectations.During the third quarter, we processed a couple of tax provision items that are impacting our third quarter and full-year net income and EPS. Two factors impacting our tax accruals are the divestiture of Promacta and the application of R&D tax credits, but primarily it's the divestiture of Promacta. As the year end progressed, we now see the sale of Promacta had a higher net profit than we expected due to the lower tax rate. That's good news for the business overall, because it makes the sale of the asset even more profitable for Ligand. But the result is that the rest of the business post Promacta is taxes slightly higher rate as compared to our initial estimates.In addition, we have a lower benefit from R&D tax credits this year compared to last. The impact of these two changes is that we anticipate more than $13 million of additional overall cash tax savings for Ligand. But given the way we broke out our guidance for investors earlier this year, excluding the Promacta transaction, we have about a $0.20 impact to our guidance.Again, just to reiterate, we will pay about $13 million less in taxes compared to our original estimates, but there's a non-operating tax impact due to our adjusted earnings reporting methodology. And I'll discuss this more in a moment.GAAP net loss for Q3 of 2019 was $15.3 million or $0.81 per share. In this quarter, the performance of Viking share price and the amortization of the purchase price for Palvella and Novan investments contributed to the loss. The unrealized loss related to the movement in Viking stock price that’s included in our GAAP earnings this quarter was $10.5 million.Just as evidence of the variable nature of that item, after Viking announced their Q3 earnings this morning and provided an update on their development plans, their stocks up about 19% and based on our 7.5 million shares and warrants, if we were to book that number today, it would be a $10 million gain versus yesterday's price.With respect to Palvella and Novan, any future product investment trends in any other future product investment transactions that we do, just a reminder, they were required to expense the upfront cash investment over the period in which the funds are spent by our partners. These acquisitions are product economics, therefore result in ongoing non-cash R&D expense during the life of the clinical trials. In Q3, these deals contributed $4.8 million of non-cash R&D expense.For the quarter, we reported adjusted net income of $9.5 million or $0.49 per diluted share. This compares with adjusted net income last year of $31.7 million or $1.32 per diluted share. And again, last year's Q3 numbers were higher due to the inclusion of the Promacta royalty revenue. And as I just mentioned, earlier for the -- for this year, the tax -- the change in tax assumptions for the core and noncontinuing business will impact to these numbers.Overall, the full-year full company results will be more profitable with the inclusion of the new Promacta tax assumptions. However, our adjusted diluted EPS excludes the sale of Promacta and the benefits of that transaction. To highlight this point, if the Promacta tax changes have not been run through the P&L in Q3, adjusted diluted EPS would have been $0.61 a share.Turning to cash flow. In Q3 2019, we generated $18 million of operating cash flow before tax payments. And on the balance sheet, we finished the quarter with $1.1 billion of cash and we spent approximately $181 million on share repurchase and $24 million on taxes, principally associated with the sale of Promacta.With respect to share repurchase, since the last update to investors in our quarterly filings, we've repurchased 1.4 million shares of our stock for $139 million and as we will disclose in our 10-Q when we file, we have about 17.6 million basic shares outstanding today and today's stock prices that translates to about 18.4 million diluted shares outstanding.We began actively repurchasing our shares about one year ago in November of 2018. And over the past 12 months, we've repurchased about 18% of our outstanding shares. We currently have $500 million share repurchase authorization in place and have utilized about $91 million of that authorization so far.Turning now to guidance. we're reiterating our full-year 2019 revenue guidance and expense outlook, and we are updating our adjusted diluted EPS guidance to allow for the changes in tax assumptions that I described. For the year, we continue to expect total revenues of approximately $118 million. In reaffirming this full-year number, we are implying about $24.5 million of Q4 revenue.And one -- taking one step deeper on our revenue guidance, our revenue mix has shifted slightly over the course of the year from our -- since we give our original guidance. But we still believe it will meet or perhaps exceed our $118 million target. And within the royalty revenue line, given the early-stage launch process for ZULRESSO from Sage, we've included an immaterial amount of royalty revenue related to that product in our guidance for the remainder of the year.Overall, the operating business is performing well and is coming in right in line with our expectations. Our outlook is consistent and expectations for revenue, cost of goods sold and operating expenses remain unchanged. The one factor that’s changing is the allocation of taxes between a large one-time sale of Promacta and the rest of the ongoing core business.As mentioned, we updated our assumptions this quarter for the taxes related in the Promacta divestiture, and we realize the lower tax rate was applicable to Promacta, taking the sale of that asset more profitable for Ligand. As a result, the rest of the business is now being taxed slightly higher, and the $0.20 impact to our -- and resulting in a $0.20 impact to our previous EPS guidance.As such, our new guidance for core adjusted diluted EPS for the year reflecting these tax changes is $3 per share instead of our previous guidance of $3.20 per share. Our EPS line is one other nonoperating items I mentioned. Our guidance at the start of the year reflected interest rates at the time, as investors know the interest rate environment has been challenging for owners of significant cash with the Federal Reserve break cuts decreasing interest yields.As a result, we’ve given up nearly $0.10 of EPS from lower interest income. However, the lower share count due to the share repurchase is made up for the lower interest income compared what was originally assumed for guidance. And these changes are all factored into our updated guidance.Finally, just as a reminder, our adjusted diluted EPS guidance excludes stock-based compensation expense, non-cash debt related costs, changes in contingent liabilities including our CVRs, transaction-related amortization expenses, and one-time costs, unrealized gains or losses related to our holdings in public company stock, mark-to-market adjustments for amounts owed to licensors, excess tax benefit from share based compensation, excess convert shares covered by our bond hedges and certain other one-time nonrecurring items.With that, we will take your questions and I'll turn the call back over to the operator to open-up for questions.

Thank you. [Operator Instructions] Your first question comes from the line of Matt Hewitt. Your line is open.

Yes. This is Lucas on for Matt Hewitt here at Craig-Hallum. You touched briefly on the Omni -- internally developed OmniChicken programs. And I was just wondering if there is anything you can tell us about kind of the level of interest you're getting in those programs? And if you’re still planning to out license them before the end of the year?

Yes. Lucas, thanks. This is Matt Foehr. Yes, we announced the programs in the first quarter of this year, and it actually -- once we announced them at our Analyst Day, we actually had some inbound interest right out of the gate. But we've obviously decided and we wanted to focus on generating data packages. The key in any internal R&D investment is to generate data that derisk the program or answers key questions, characterizes the program and over the years we've been very focused on what are the key things we need to do for the various programs in order to translate those into a partnership with better downstream economics. So we’ve five programs running. We will be presenting data at the AATC Conference in San Diego in December for two of the programs, specifically the B7H3 Antibody Program and a CD38 antibody program both with novel antibodies that are derived at our OmniChicken. So we will generally describe some technical data around that. And then from there we will assess the partnering landscape for the programs as we go into next year.

Okay, great. And then, I guess on a similar topic, it's been a couple of quarters since you launched the OmniClic platform. Is that a platform that you see may be spawning some internally developed programs as well?

I guess the short answer is, yes, it certainly could. We do have the OmniClic just as background for investors is a specialized version of OmniChicken that produces antibodies with a common light chain. And those are generally used for development or pursuing biospecific antibodies that can go after a couple of targets. At the same time, that’s a growing area of interest and need in the industry. So we launched that earlier this year. We actually -- already have partnered programs that are producing OmniClic derived antibodies. But, yes, it certainly could be one that we leverage for internal programs but are focused right now is on spreading that and expanding that with our partnered programs.

Okay, great. And then maybe I can just squeeze one more in. You kind of highlighted the opportunity that exists with Palvella. I guess how are you thinking about the addressable market for that product and assuming everything kind of reads out when it's supposed to, do you think we could see sales from that late in 2020.

Yes. The data readouts as I generally described, kind of the clinical plan and then and Matt Korenberg talk a little bit about the market and the business deal itself. But just switched over to the Phase 3 pivotal portion of the trials, so that just as a background, it's a Phase 2/3 trial called the VALO study, they just started the Phase 3 pivotal portion and have patients now randomized into the double-blind placebo-controlled portion which has happened this past quarter. So the Phase 2 portion will readout in Q2 of next year and in the full Phase 3 readout is expected to happen in the second half of next year. This is a drug obviously with orphan designation. There's -- also as fast-track designation and real high unmet need for the program, we’ve been really pleased with not only to team at Palvella, just their focus and commitment to progressing the trial quickly and with a target of getting this product out to the market for patients in need.

Yes. On the market size with any rare disease drug like this, it ultimately comes down to pricing. Obviously, in this case the expected impact on patients lives is significant, and we could imagine pricing would be relatively attractive. And with -- about 8,000 or 9,000 patients likely in the U.S market, we could do see that translate into several hundred million dollars of end-user sales. So, a real nice market for the drug.

Okay. Thank you very much. That’s all I had.

Lucas, thank you.

Your next question comes from the line of Joseph Pantginis. Your line is open.

Hi, guys. This is Emanuela for Joe Pantginis. I was wondering if you can give little bit more color on these novel license agreement you mentioned maybe in regards to how you look at partners when you’re -- how you look at this license agreement and the choice you make in terms of the company? And also, if we should expect news flow coming soon from all of them or some of them?

Yes. This is Matt Foehr. Thanks for the question. We entered into -- I think you're referring to the five OmniAb platform license agreements we entered into in the last quarter here. Our agreement with Takeda, obviously a large multinational global player. GigaGen, Talem Therapeutics, Kira Pharma and AbVivo, in all of those instances they’re partners who are looking to access our OmniAb technology to discover fully human antibodies that they want to take into development. So, I think a further validation of the platform and we continue to see nice momentum in new deal making.

And generally these are similar transactions to deals we've done in the past. The cadence of deals is very consistent and it's a mix of private and public companies, some smaller, some much larger, but a common interest to access what we think is a best-in-class antibody in discovery platform.

Okay. Thank you. And I also saw in your press release you mentioned some data coming out from the Verona Pharma Phase 2b data. I was wondering if you have any thoughts on how our view on Verona's RPL554 should change based on the -- based on the approval of [indiscernible] in cystic fibrosis, if you have any?

Yes. I will just speak generally. This is the Verona Pharma asset is -- an asset that came to us through our Vernalis acquisition last year. They reported positive Phase 2 data, they’re working on a number of forms of presentation, which is not uncommon in the respiratory space and they’ve reported positive Phase 2 data with their dry powder inhaler formulation recently. And then they also announced the completed enrollment in their Phase 2bt study with a nebulized form of ensifentrine as an add-on to long-acting bronchodilator. Obviously, they’re going after a big indication COPD, which is the third largest -- third leading cause of death. And their plan is to enter Phase 3 trials in COPD sometime in 2020. That's been their communication. So, yes, that’s kind of -- the summary, the status of the program is when we’re continuing to watch and obviously cheering them on.

Okay. Thank you very much.

Your next question comes from the line of Scott Henry. Your line is open.

Thank you and good afternoon. Just a couple questions. Fortunately I’m going to ask you about the tax changes and that impact. I certainly have -- I don’t think I fully understand all of the moving parts, but the question is should these changes impact only 2019, or will this also impact the tax rate in 2020 and going forward? And how should we think about that magnitude going forward if it does impact?

Yes, Scott. It's Matt Korenberg. Thanks for the question and don’t apologize. We are not upset about this at all really. It's pretty simple at a high level. When we announced the transaction, we had an estimated tax rate for Promacta. And today as we kind of get through filing the taxes and paying the taxes, we are realizing that the tax rate is going to be lower than we had estimated. It might help investors, if I remind folks that before we excluded Promacta from what we were going to call our adjusted EPS this year, the gain, we gave guidance of $32.25 for the total company. Today, we are still reporting on that number largely as a result of the change in the tax estimate and partially a result of the share repurchase that we've done. At $32.25 today would be over $35 a share in earnings. So EPS has actually increased significantly since the time we gave the original EPS guidance. What we did at the time after $32.25, guidance came out, the next call we said let's give investors an estimate of what the actual business is doing and we estimated the amount of tax that will be associated with Promacta, we deducted then the after-tax gain from that $32.25 and got to that $3.20 that we were -- we are talking about. Flash forward to today, we're starting with a higher number at $35, that again is significantly higher than we expected the after-tax gain is significantly higher than we expected. So when we’re reducing that $35, you reduce it down and it gets down to $3 a share. So in -- a big picture, overall, company perspective as I mentioned, cash flow is higher, but the split between the two buckets is just a little different and so we end up with slightly lower EPS attributable to the non-Promacta part of the business.

And then, Matt -- just Scott, was also asking about the tax rate going forward. Should we anticipate an increase in the rate in next year?

Yes. Thanks for the reminder, John. No, tax rate for the core business is still 21% federal and a little bit of state, so as we say on most calls, 21% to 23% is our estimate. Transparently when we gave the Promacta guidance, we estimated that that number would be closer to 23% on the Promacta gain. Its turning out to be closer to the 21% level. And so that's really the bulk of the difference.

Okay. Thank you. That's helpful. And then just another question on the royalty line, we're starting to get some other products filtering into that line. Are any of them material? And would you expect any of them to be -- I mean, I think you said certainly I think it was one of them was not material yet, ZULRESSO, I believe. But any of the other ones Carnexiv or any of the [indiscernible], when would we expect those to be material?

Yes. Scott, it's john. The -- a couple of new entrants. [Indiscernible] you mentioned that was now about a year-ago, that has been a very small product, we talked about this. Frankly, the revenues for that product have been considerably lower than the streets expectations and frankly even our internal expectations. That’s not new news. That’s really has been the story in the last three or four quarters. ZULRESSO just launched. First quarter there's really no script data, there was no trend or other information for us to go off up sell. Consistent with other modeling, we are -- until we have information really assuming a very negligible amount. Carnexiv, you mentioned the product we expect to launch early part of 2020. It's a good royalty, but we believe that will be a relatively small product just in terms of its market category. So what’s interesting is that you’ve got a couple of these products and [indiscernible] small or unknowable right now. One other entrant though is CASI. This is the China partner marketing Evomela in China and it is a brand-new market, right? The product launched just a couple of months ago. China is a big market, multiple myeloma is an important segment in the China market and we have been told by our partner that they expect to get pretty good pricing. So all of those assumptions are included in our revenue, but next year and the year beyond as those forecasts come together there may be some upside potential there. There are some other products that are coming into focus. We mentioned sparsentan and TR-Beta, the Novan, the Palvella asset, those are still a couple of years out. But those are much more substantial products in royalty rate and market size. And we believe will create a very different revenue narrative than some of these other small products we're just talking about right now.

Okay. Thank you for that color. And I know you haven't put out the 10-Q yet, but obviously we know Kyprolis is -- I could factor that and it still looks like there's some upside for the royalty line. I mean, could that be inferred that that would be Evomela and would there will be any stocking in China we should factor in?

Yes. So good question, obviously. We have to make estimates of what our partners have done. And CASI will report later this week or early next week, I’m not sure exactly their data report, but when you see that you'll get more color specifically on what that is. But I think, Scott, it's a fair way to assess it that at a 20% royalty rate the only thing that could really move the needle significantly enough to make the difference are probably seeing is on the Evomela line. In terms of stocking in China, I think it's like any pharmaceutical marketers. There was just probably a bit of stock in the -- at the beginning of the launch, but we understand that they’re seeing good procedure flow and procedure volumes in China, which is generating real underlying demand.

And, Scott, this is Matt. I will just make one other comment on Evomela in China. Unlike the U.S where there is competition in that melphalan market, even though it was actually the first approved melphalan in China in the form. So that obviously plays a role as well.

Okay, great. Thank you for taking the question.

Thanks, Scott.

Thank you, Scott. So that wraps -- looks like -- okay, yes. Operator, please. It looks like we have one more question.

Yes. Your next question comes from the line of Larry Solow. Your line is open.

Hi. It's Pete Lucas for Larry. I'll make a quick. I think you touched on quickly just on Kyprolis. Can -- do you anticipate the positive CANDOR trial results in combo with Darzalex moving the needle in any significant way? I think you touched on -- I think you’ve said no, and can you remind us where Kyprolis stands in the first multiple melanoma treatment and when we'd see data from that?

Yes. This is Matt Foehr. I will comment on the that CANDOR data. So Amgen announced in mid-September positive Phase 3 data that was the CANDOR trial combining Kyprolis with Darzalex. And amidst its primary endpoint of progression free survival when it was a large Phase 3 trial, they saw a 37% reduction in risk of progression or death in patients with relapsed or refractory multiple myeloma. So a pretty substantial increase and very positive data. We -- based on Amgen's public reporting, we imagine they will present the full data set at an upcoming medical meeting, and then will pursue getting that in the label. It's tough to say exactly when that would happen, but I think generally folks maybe estimating it would be sometime next year. And that's usually when you start to see the impact of what this is, which is obviously a substantial data, yes, addition and label expansion.

Yes, and our view is, we internally at Ligand are actually bullish about the prospects of that label expansion. To be clear, we do not manage the regulatory, the clinical work. We do not market the drug. So it's really not our business to get ahead of ourselves in terms of projection. We look at street estimates. They are about 15 or 16 analysts who cover Amgen and we are really looking consensus to help guide our forecasting. But fundamentally it is a great drug, it's been on the market for now 5, 6 years or so. And the data set, safety and efficacy continues to build and it get more robust. We know Amgen is investing considerably. It's our sense, they believe the big time of that asset and the potential for it to treat broader group of patients. So on balance the CANDOR data is a good news event. And in fact the market receded in size. We saw a variety of articles not just analysts reports, but medical articles or commentators that were remarking on the robustness of that data. So we are excited about that. I mentioned the Beijing commercial partnership, that as well we see as a very interesting development. That was not on our radar. Obviously, we knew China was open potentially for partnering, but that is something that was really new news for us. China is a big market for multiple myeloma, and it's hard to tease out exactly markets as segmentation, but we think generally China has not been included in those long-term sales forecast. So that could be some upside in royalties if that market launches in the next couple of years.

And just last one for me. Your thoughts going forward on [indiscernible]? I mean it seems like you touched on results so far, but it seems like it has potential just needs the marketing partner with deep product, with deep pockets. Do you waited out with [indiscernible] or kind of how are you looking at the opportunity there going forward?

Yes. I -- that’s actually a good summary. We will wait it out. We care about our partner, they obviously have a license. They've had some challenges with their commercial business and general operations. But aside from that it is a good drug. It's a capsule [ph] based asset. There has been very good data, new indications, recent approval for expanded label. So it's -- at one end, the superpotent antibiotics space, it's a very attractive asset. It's been underperforming. It has had a really a big impact on our business in terms of our forecasting. But the prospect is still there that they are able to solve their financial issues and find a quality larger marketing partner. So that that’s some upside. I will say there's no overhead -- overhang or risk to our financial performance, given the way we’re looking at that asset now. But that is potential upside if they do find a larger partner.

Great. Very helpful. Thank you, guys.

You bet.

Thanks.

Appreciate it. Thank you. All right. Well, that looks like that wraps up the questions. So I really appreciated the turnout today. Again it's great to have Patrick on board. Patrick I know just couple of days in the job, but you are going to have a busy fall coming out. Any [indiscernible] or conferences?

Yes, at this point, John, we got the Stephens Conference set up for November 13. So looking forward to being out there.

And that’s where? That’s …

In Nashville.

Nashville.

Matt Korenberg will be representing Ligand at that conference.

Fantastic. And you'll be out there and you are probably be on the road as well …

Yes.

… with the analysts and investors and so on.

I hope so.

Yes, fantastic. All right. Hey, look, really appreciate the turnout and we will be in touch keeping posted as the business advances. Thank you.

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