Ligand Pharmaceuticals - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 revenue was $42.8M, up 52% YoY, driven by a 55% YoY surge in royalty revenue (Qarziba and Filspari), while GAAP EPS swung to a loss of $1.64 largely due to a $23.9M loss from short‑term investments; core adjusted EPS rose to $1.27 (+21% YoY).
• The company reaffirmed 2025 guidance: total revenue $180–$200M, Royalty $135–$140M, Captisol $35–$40M, Contract $10–$20M; adjusted EPS $6.00–$6.25, citing broad portfolio momentum (Ohtuvayre, Capvaxive, Filspari, Qarziba).
• Sequentially, royalty revenue accelerated Q3→Q4 ($31.7M → $34.8M), with Captisol sales rising on order timing ($6.3M → $7.9M); contract revenue fell on milestone timing ($13.8M → $0.1M).
• Stock reaction catalysts: reaffirmed 2025 outlook, strong Filspari uptake (Q4 sales +40% QoQ at partner), early strength in Ohtuvayre and Capvaxive launches, and new Castle Creek D‑Fi royalty financing positioning future optionality.

What Went Well and What Went Wrong

What Went Well

• Royalty engine inflecting: Q4 royalties +55% YoY to $34.8M, led by Qarziba addition and Filspari growth; core adjusted net income rose to $25.2M ($1.27/share) on mix shift to higher‑margin royalties.
• Multiple launch assets exceeded internal expectations: “both Ohtuvayre and Capvaxive exceeded our expectations in the fourth quarter product sales” (CEO); Filspari +~40% QoQ in Q4 at partner, with label expansion and EU progress underpinning durability.
• Balance sheet strength for BD: $256M cash & investments (incl. $40M VKTX) and undrawn revolver capacity, enabling the new mid‑single‑digit royalty on Castle Creek’s D‑Fi Phase 3 cell therapy program.

What Went Wrong

• GAAP loss driven by non‑cash volatility: Q4 GAAP net loss of $31.1M (−$1.64/share) driven by a $23.9M loss from short‑term investments and fair value adjustments to partner program derivatives ($7.2M).
• Elevated OpEx: Q4 G&A rose to $25.6M (+60% YoY) on stock‑based comp and Pelthos incubation; full‑year G&A +49% YoY reflecting team build‑out and Pelthos costs.
• Asset headwinds: 2024 financial royalty asset impairment of $30.6M tied to Takeda’s soticlestat discontinuation; Q4 noted Agenus program derivative fair value reduction.

Transcript

Melanie Herman (Head of Investor Relations)

Good morning, everyone, and welcome to Ligand's Q4 and Full Year 2024 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. 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, Paul Hadden, Senior Vice President of Investments and Business Development, 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 investor section of our website. On today's call, we will make forward-looking statements regarding our financial results and other matters related to the company's business.

Please refer to the safe harbor statement related to these forward-looking statements, which are subject to risks and uncertainties. We remind you 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.

Todd Davis (CEO)

Thank you, Melanie. Good morning, everyone, and thank you for joining our call. I am delighted to report an outstanding quarter and full year results for Ligand. 2024 was a strong year of execution and performance for Ligand. We grew our top line, expanded our portfolio of commercial stage royalty assets, and added to our pipeline of development stage royalty opportunities. Over the past two years, we've been able to transform Ligand into a profitable, economically diversified, and infrastructure-light organization. We remain focused on identifying and investing in highly differentiated royalty assets and operating our royalty-generating platform technologies that we believe will generate significant long-term shareholder value. Our portfolio of major commercial programs delivers predictable and growing royalty revenue and is the foundation of our strong financial performance this year. Slide three summarizes our financial and portfolio achievements in 2024.

We grew royalty revenue by 28% and year-over-year core adjusted EPS by more than 40% to $5.74 per share. Royalty revenue in the Q4 increased 55% over the same period in 2023, which helped generate over $100 million of operating cash flow in 2024. Ligand has over $250 million of cash and investments, no debt, and access to a $125 million revolving credit facility, which we can upsize to $175 million. We believe we are in a strong financial position to capitalize on our robust business development pipeline. Lauren will provide more detail on our portfolio later on the call, but I wanted to touch on a few of our key commercial stage assets. On our third quarter earnings call, we talked about two new commercial launches within our royalty portfolio during 2024: Verona Pharma's Ohtuvayre and Merck's Capvaxive.

We are pleased to report that both products exceeded our expectations in the Q4 product sales. Analysts estimate that both Ohtuvayre and Capvaxive have blockbuster sales potential, and we believe these products will be meaningful contributors to our royalty revenue over the next several years. Another meaningful royalty contributor for us this quarter was Travere's FILSPARI, which received full approval from the FDA in September. FILSPARI sales increased approximately 40% in the Q4 and continue to exceed our expectations. Another exciting development this quarter is the regulatory update Travere provided following the Type C meeting held with the FDA for FILSPARI in focal segmental glomerulosclerosis, or FSGS. It is a rare kidney disease that has a high risk of progression to kidney failure. There are currently no FDA-approved therapies for FSGS.

Travere announced its plans to file an sNDA in FSGS by the end of the Q1 of 2025. Also, in the portfolio, we are excited about our latest investment. Ligand led a $75 million financing round with a $50 million commitment to fund the phase III study in Castle Creek's D-Fi. D-Fi is a phase III gene-modified autologous cell therapy for the treatment of rare orphan disease, dystrophic epidermolysis bullosa. Paul will provide an update on the new investment in Castle Creek. Turning to slide four, over the last two years, we have restructured our business model into an operationally light strategy focused on delivering profitable and compounding growth, and we are now seeing the fruits of those efforts. We have grown our royalty revenue by nearly 50% and have reduced our cash operating expenses by over 50%.

Headcount is less than a third of what it was in 2022. This is a significant accomplishment. More importantly, it sets Ligand up for a very bright future. Turning to slide five, I would like to remind our listeners about Ligand's strategic differentiation. We are a biopharmaceutical company that delivers profitable and compounding growth. Our diversified and growing portfolio of royalty assets generates consistent and predictable revenues. We acquire or generate royalty interests in late-stage development assets and commercial assets where there is superior risk-reward. Our highly qualified team brings decades of investing, clinical, operational, and regulatory experience, as well as a strong origination network throughout the industry. We continue to execute on our strategy of acquiring high-growth, low-OpEx assets, a plan we put in place nearly two years ago.

There is a sizable demand and low supply for royalty capital in the life sciences industry, which allows us to invest selectively as we offer a differentiated capital solution than traditional investors provide. Our team works thoroughly to source, diligence, and negotiate investments with customized structures to create proprietary opportunities. Our 2024 acquisition of APEIRON is a prime example of this approach. We can replicate this playbook while maintaining a low level of operating expenses. Royalty capital is a very small percentage of the total capital invested in life sciences today. We believe our model is differentiated, scalable, and offers immense growth potential for years to come. Turning to slide six, I would like to discuss our five-year royalty receipts outlook.

As we shared during our most recent analyst and investor day, we believe our long-term royalty revenue growth is on pace to meet or exceed the 20% compound annual growth rate we initially outlined in December of 2023. The existing portfolio alone supports a royalty receipts CAGR of 18%, which is above the previous estimate of 16%. Future investments should add at least 4% to this, with potential upside on top of the current outlook. Our business development team is constantly developing attractive new investment opportunities, and we anticipate another productive year on the investment front. In conclusion, we are proud of all that we have accomplished since we began executing on our new strategy in the Q4 of 2022. We are highly optimistic about our future prospects. I'll now turn it over to Paul Hadden for an update on our recently announced royalty financing transaction with Castle Creek.

Paul Hadden (SVP of Investments and Business Development)

Thank you, Todd. As we discussed at investor day last December, 2024 was a year of significant progress at Ligand. We remain excited by the opportunity to partner with companies, both public and private, to provide creative non-dilutive capital solutions, as well as working with inventors. In early January, we closed our final Ohtuvayre inventor royalty acquisition, bringing our total royalty on Verona's Ohtuvayre to 3%. 2025 is shaping up to be an active year for us. Two days ago, Ligand announced the closing of a new $50 million royalty investment with Castle Creek Biosciences, a private company. Our investment will go to fund a pivotal phase III clinical trial for Castle Creek's lead program, D-Fi, an injectable gene-modified autologous cell therapy that is phase III ready. D-Fi, which has FDA orphan drug designation, targets a disease called dystrophic epidermolysis bullosa, or DEB for short.

DEB is a devastating and debilitating rare inherited skin disease. DEB is caused by mutations in the COL7A1 gene, leading to extreme skin fragility and blistering from even minor friction. A majority of patients are at significant risk for a deadly form of skin cancer and, as such, have an estimated lifespan of only 30 years. For our investment, Ligand will receive a mid-single-digit royalty on global sales should D-Fi receive regulatory approval. In May 2023, the DEB landscape changed with the approval of Krystal Biotech's VYJUVEK, a topical HSV vector-based gene therapy administered weekly by healthcare providers in patients' homes. VYJUVEK's approval marked a major breakthrough for DEB patients. 2024 U.S. sales were nearly $300 million, and peak global sales were projected over $1 billion.

While VYJUVEK has delivered a much-needed treatment option, it does have its limitations, including restrictions on treatable body surface area and the need for weekly topical dosing. This leaves the DEB community still eager for additional innovative solutions. The D-Fi product profile is expected to be meaningfully differentiated and also complementary. Ligand's investment team sourced, led, and structured the $50 million royalty investment, which was joined by an additional $25 million co-investment by Castle Creek insiders and investors, bringing the total financing to $75 million for the combined syndicate. As highlighted in our press release, the $75 million syndicate is eligible for a high single-digit royalty. Ligand represents2/3 of the syndicate and, as such, is eligible for a mid-single-digit royalty. This strategic collaboration with Castle Creek is a testament to our commitment to invest in potential breakthrough de-risk therapies.

By partnering on D-Fi's development, we not only expand our diversified portfolio of potential revenue-generating assets but also make a significant stride towards transforming the lives of patients suffering from DEB. Ligand is excited to welcome this promising late-stage clinical royalty investment to our portfolio. Ligand's investment pipeline remains strong as we continue to evaluate multiple proprietary opportunities like D-Fi that cannot be accessed through the public markets. With that, I'll turn the call over to Tavo.

Tavo Espinoza (CFO)

Thank you, Paul. First, I want to emphasize that I 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, losses from derivative assets, and expenses incurred to incubate the Pelto's business, among others. I encourage you to review the GAAP reconciliation of these non-GAAP measures, which can be found in today's release available on our website. I believe these adjusted measures provide valuable insight into our core operating performance, both historically and moving forward. In 2024, we delivered strong financial results, surpassing the high end of our guidance range, with total revenue of $167 million and core adjusted EPS of $5.74. We ended the year with $256 million in cash and investments, and when factoring in our credit facility that's expandable up to $175 million, we have more than $400 million in deployable capital.

Notably, our continued growth in royalty revenue reinforces our confidence in meeting or exceeding the long-term outlook we shared at our December 2024 investor day. Slide 11 provides a more detailed breakdown of our financial results for both the Q4 and the full year. Starting with our full-year performance, total 2024 revenue grew 27% to $167.1 million from $131.3 million in 2023. Royalty increased 28% to $108.8 million from $85 million in 2023, primarily driven by FILSPARI and Qarziba, which we acquired through the recent APEIRON acquisition in July of 2024. Travere ended 2024 on a strong note with total FILSPARI sales of $132 million, generating approximately $12 million in royalty proceeds for Ligand. We expect FILSPARI to be a key driver of royalty revenue growth and anticipate that 2025 royalties from FILSPARI will approximately double compared to 2024 levels.

Other key contributors to our 2024 revenue include the Captisol business, which generated $30.9 million in material sales, up from $28.4 million in 2023, and contract revenue totaled $27.5 million in 2024, primarily driven by milestones earned upon the approval and commercial launch of Verona's Ohtuvayre. In 2023, contract revenue was $18 million, largely from the approval of Travere's FILSPARI. Total R&D and G&A operating expenses increased 29% in 2024 due primarily to higher non-cash stock-based compensation expenses as a result of executive departures, as well as an increase in costs incurred to incubate the Pelto's business. Combined G&A and R&D expenses were $100.1 million for the full year and $30 million for the Q4 of 2024, versus $77.3 million and $21.5 million in 2023, respectively. We expect that cost to incubate the Pelto's business to cease in 2025 upon the execution of a Pelto's strategic transaction.

GAAP net loss in 2024 was $4 million or $0.22 per share, versus GAAP net income of $53.8 million or $3.03 per diluted share in 2023. The decline in GAAP net income is driven by non-cash items, including a financial royalty asset impairment, fair value adjustments to certain partner programs, and losses from our equity method investment in Primrose Bio. Adjusted Net Income for 2024 was $156 million or $8.25 per diluted share, compared with $107.4 million or $6.09 per diluted share in 2023. To highlight our core earnings, we exclude gains from sales of Viking Therapeutics stock, which totaled $47.6 million in 2024 and $35.7 million in 2023, net of tax. Excluding these gains, core adjusted net income was $108.5 million or $5.74 per diluted share in 2024, versus $71.7 million or $4.06 per diluted share in 2023.

Now, focusing on the quarter, total revenue for Q4 2024 increased 52% to $42.8 million, primarily driven by a 55% increase in royalties to $34.8 million, up from $22.5 million in the prior year quarter. The key drivers of royalty growth were FILSPARI and Qarziba. Total operating expenses increased compared to the prior year's quarter due to higher headcount-related costs, increased stock-based compensation, and continued investment in the Pelto's business. GAAP net loss for Q4 2024 was $31.1 million or $1.64 per share, compared to GAAP net income of $18.2 million or $1.03 per diluted share in Q4 2023. This decline was largely due to volatility in the price of Viking Therapeutics stock. As a reminder, we own 1 million shares of Viking stock. Core adjusted net income for Q4 2024 was $25.2 million or $1.27 per share, compared to $18.6 million or $1.05 per share in Q4 2023.

Moving on to the next slide and turning to guidance, we are reaffirming our 2025 financial outlook introduced at our investor day in December. We expect royalty revenue to be between $135 million-$140 million, capital sales to range from $35 million-$40 million, and contract revenue between $10 million and $20 million. These components result in total revenue guidance of $180 million-$200 million, with an adjusted earnings per diluted share forecast of $6.00-$6.25. Additionally, we reiterate our long-term outlook projecting royalty receipts to grow at a compound annual growth rate of 22% or greater from 2024 through 2029. Finally, turning to our balance sheet, as of December 31, 2024, we had $256 million in cash and short-term investments, which includes $40 million in Viking Common Stock.

We believe that our existing cash, combined with ongoing cash flow generation, is sufficient to fund our anticipated investment activities for the foreseeable future. In closing, I'd like to direct listeners to our Q4 earnings press release available on our website for a reconciliation of our adjusted non-GAAP financial results to the GAAP results discussed today. I'll now turn the call over to Lauren for a portfolio update.

Lauren Hay (VP of Strategic Planning and Investment Analytics)

Thank you, Tavo. I'm pleased to provide some important updates on Ligand's portfolio. 2024 was a year of significant achievement across our partnered programs with the approval of four products: Verona's Ohtuvayre, Merck's Capvaxive, Pelto's ZELSUVMI, and full FDA approval of Travere's FILSPARI. In addition, we added Recordati's Qarziba to our commercial portfolio through the acquisition of APEIRON Biologics. This brings us to 12 major commercial revenue drivers with significant momentum heading into 2025. I will review updates on our major commercial partnered products, followed by key pipeline updates. First, on the commercial portfolio, Qarziba demonstrated strong growth in 2024. Recordati reported that sales in its oncology franchise, which comprises Qarziba and one other main product, were EUR 227 million in 2024, an increase of 13% as compared to 2023. As a result, Recordati has increased its peak sales guidance for the franchise by EUR 50 million, an increase of 20%.

Our partner, Recordati, has a broad international footprint with extensive geographic reach. Recordati continues to invest in seeking U.S. approval for Qarziba. Following an encouraging meeting with FDA in 2024, Recordati plans its next engagement with FDA in mid-2025 to discuss details surrounding a potential BLA filing for Qarziba in the U.S. Ligand's royalty rights extend globally and would include sales in the U.S. if approved. In addition, at the J.P. Morgan Conference, Recordati shared plans to work to expand the label to Ewing Sarcoma, which would represent a major expansion for the product and an important milestone for patients and their families. Next, FILSPARI continues to show tremendous progress in treating rare progressive kidney diseases. In September, FILSPARI received full FDA approval in a label expansion, which is estimated to expand the total addressable population from 30,000 to 50,000 patients to over 70,000 patients.

Our partner, Travere Therapeutics, reported Q4 2024 FILSPARI sales of $50 million, a remarkable 40% increase as compared to Q3 2024. This robust performance demonstrates that FILSPARI is becoming well-established as a foundational kidney-directed treatment in Ligand. FILSPARI will be a significant driver of revenue growth for Ligand in the coming years, contributing meaningfully to our financial performance. Analyst consensus for peak FILSPARI sales is estimated at $1 billion in Ligand alone, which, if achieved, would translate to $90 million in annual royalty revenue to Ligand. Moving on, the June approval of Ohtuvayre marks the first inhaled COPD treatment with a novel mechanism of action approved in over two decades. This important achievement also delivered a milestone payment of $5.8 million to Ligand. In its short time on the market, Ohtuvayre has demonstrated impressive commercial success.

This underscores the significant unmet need for novel therapeutics in COPD, as well as the value Ohtuvayre is delivering to patients. In Q4, sales of Ohtuvayre were $36 million, far surpassing consensus estimates. Our partner, Verona Pharma, reports that pulmonologists are prescribing Ohtuvayre to a broad range of patient types, highlighting its expansive real-world utilization. Additionally, Verona reports that to date, over 80% of treated patients have a copay of $10 or less, facilitating extremely strong market access. The maintenance COPD market is enormous, and Verona estimates that every one percentage point in Ohtuvayre would translate into over $1 billion in net sales. Consensus estimates for peak Ohtuvayre sales are in the range of $2 billion, which would result in annual royalty of $60 million payable to Ligand. Early prescription trends and patient experience have been overwhelmingly positive, and we are excited about what 2025 has in store.

Next, Merck's Capvaxive. Capvaxive achieved nearly $100 million in just two quarters in 2024 and is off to a very strong early launch trajectory. Capvaxive has a compelling competitive value proposition relative to other vaccines in the category. Because of this, Merck is optimistic about Capvaxive's potential and expects it to gain majority market share in the adult setting. We expect strong performance from Capvaxive in 2025, the first full year of launch for this innovative vaccine. Our fourth approval of 2024 was ZELSUVMI, a topical treatment for molluscum contagiosum. Ligand gained rights to ZELSUVMI through a special situations investment with Novan in 2023 and achieved FDA approval of ZELSUVMI in 2024. Ligand then launched Pelto Therapeutics, a wholly owned subsidiary, to prepare for launch. ZELSUVMI is the first and only at-home treatment for molluscum, a highly contagious viral skin disease.

Commercial launch is expected by mid-year, and Ligand is in the final stages of executing on a strategic transaction to launch the asset. Next, I'd like to focus on key developments in our pipeline. Building upon FILSPARI's success in IgA nephropathy, Travere is planning to submit an sNDA for FILSPARI for the treatment of FSGS, another serious rare kidney disease by the end of Q1. FSGS is a leading cause of kidney failure, and there are no approved medicines for patients living with this progressive disease. Earlier this month, Travere shared that the company held an encouraging Type C meeting with FDA to align on the contents of a potential submission in FSGS, integrating FILSPARI's phase II and phase III data, as well as feedback from the PARASOL working group.

If the sNDA is accepted and FILSPARI is granted priority review, this critically important medication could become available to patients by the end of this year, marking what could be the first FDA-approved treatment in FSGS. Travere has guided that the commercial opportunity in FSGS is at least as large as in IgA, and approval would mark an important accomplishment in our commercial portfolio. In terms of additional pipeline updates, Agenus presented compelling data in several colorectal cancer treatment settings at the recent ASCO GI Conference. Their efforts to secure a development and commercial partner remain ongoing. Palvella recently initiated clinical studies of Qtorin rapamycin in two serious rare dermatological conditions. First, the company started dosing patients in the phase III Selva trial in microcystic lymphatic malformations. Additionally, last month, Palvella began dosing patients in the phase II Toiva trial in cutaneous venous malformations.

We look forward to the results of these studies in early 2026. And finally, last month, Takeda announced full discontinuation of the soticlestat program. If relicensed, Ligand's royalty economics would remain intact. In closing, the success we achieved in our portfolio in 2024 underscores our commitment to investing in high-value medicines that deliver significant clinical benefits and generate long-term predictable revenue streams for Ligand. With that, I will turn the call back over to Todd for closing remarks.

Todd Davis (CEO)

Thank you, Lauren. To sum up, we are very pleased with our 2024 Financial Results, as well as the progress we've made over the last year in improving our investment capabilities and growing our asset portfolio. Our diversified portfolio, including our major commercial royalty-generating programs and the late-stage pipeline, forms the foundation of our growing success. On its own, the commercial portfolio should drive growth in the mid-teens through the early 2030s. When you add our development-stage portfolio, including but not limited to Palvella's Qtorin MLM asset, Travere's FSGS sNDA submission, and our recent investment in D-Fi, we continue to expect EPS growth in excess of 20%. Through investing, we will continue to add to our commercial and late-stage clinical assets, as this portfolio provides us with substantial cash flow to reinvest in new high-value-enhancing royalty opportunities.

We are well-positioned to execute against our goals in 2025 and deliver attractive growth and shareholder returns over the long term. Thank you, everyone, for joining us on today's earnings call. We will now pass it back to the operator and open it up for questions.

Operator (participant)

If you wish to ask a question, please press star followed by one on your telephone and wait for your name to be announced. Your first question comes from the line of Matt Hewitt from Craig-Hallum. Your line is open.

Matt Hewitt (Analyst)

Good morning. Congratulations on the strong year, and looking forward to another strong year here in 2025. Maybe first up, this recent acquisition or recent investment into Castle Creek, if I'm not mistaken, that might be your first move into cell and gene therapies. Can you confirm if that was the case? And number two, are you looking at others? How does the risk profile change for that type of a program versus maybe a large or small molecule? Any color on that, please.

Paul Hadden (SVP of Investments and Business Development)

Yeah, it's a great question. This is Paul Hadden. I think you are correct. That is our first cell and gene therapy. We're excited about the program. It's a very focused program. It's de-risked in the sense that the targets going after is already established with the approved Krystal Biotech product. We're seeing cell and gene therapy, but we're not actively pursuing that as a particular sector, but we will be opportunistic where we find good risk-reward opportunities like the Castle Creek investment.

Matt Hewitt (Analyst)

That's great. And then maybe a question on Captisol, and this is maybe two parts, but the SQ Innovation LASIX, with that launch potentially coming later this year, is that a big user of Captisol? I'm trying to think of magnitude what that could mean for your Captisol sales. Obviously, there was a nice step up with your 2025 guidance for that segment to begin with on the Gilead news, but would this create another potential step up later this year into fiscal 2026? Thank you.

Todd Davis (CEO)

Yeah, Matt.

Paul Hadden (SVP of Investments and Business Development)

Go ahead, Todd.

Todd Davis (CEO)

Hey, Matt. Todd here. Yeah. So first of all, we're looking forward to that eventual approval later in 2025. And just as a reminder to our audience, we are doing relatively modest milestones and royalties on that product. But then again, to your question, we will be selling material Captisol product to SQ Innovation. But it's not going to be one of the major contributors to the overall commercial cycle there, but it'll be, I would say, more of a minor contributor.

Matt Hewitt (Analyst)

Got it. All right. Thank you very much.

Operator (participant)

Your next question comes to the line of Joe Pantginis from H.C. Wainwright. Your line is open.

Joe Pantginis (Managing Director and Analyst)

Hey, everybody. Good morning. Thanks for taking the question. So very nice with the D-Fi deal. And I'm just curious, as you're looking forward with regard to all the kinds of creative deals that you're looking at, how does this deal signal your desire and ability to do even more syndicated deals?

Todd Davis (CEO)

Yeah. So we will syndicate deals when necessary. That's often driven, Joe, by our discipline around size. There are certain size limitations that we want to observe so that we can create a risk-diversified portfolio. And so opportunistically, we will syndicate these deals. There are a number of other folks that are interested in them. But as you know, our typical deal size, especially on development-stage assets, is $20 million-$50 million. And we're selecting things that have significant evidence of safety and efficacy, as was the case with D-Fi. And that is kind of the major risk parameter that we observe when we're analyzing these assets. And then on top of that, we kind of limit ourselves at $50 million on development-stage products. That number will increase over time as the size of our portfolio increases on a proportional basis.

Joe Pantginis (Managing Director and Analyst)

No, that's helpful. Thank you. And then I guess two financial-related questions. Can you discuss any potential with your growing cash balance of thoughtful share buybacks that I know could potentially be available? And then maybe, Tavo, can you just discuss the asset impairment charge? Thanks.

Tavo Espinoza (CFO)

Yeah, Joe. Yeah, we continue to believe that the best use of our capital is to continue to look for high-value royalty assets. We do have a stock buyback program in place. We don't want to be opportunistic there, but we don't have any plans to put that in any real plans to use the capital to buy back stock today. But there's a soticlestat asset that's with Takeda. They discontinued that. And so we did have an asset balance carrying value on the balance sheet that we wrote off in Q4.

Joe Pantginis (Managing Director and Analyst)

Great. Thank you.

Operator (participant)

Your next question comes to the line of Doug Miehm from RBC Capital Markets. Your line is open.

Doug Miehm (Analyst)

Yeah. Thank you. First question just has to do with the D-Fi deal. I know that you expect this to be used in combination therapy, but perhaps you can walk us through how you see it being used that way, given that we do already have that Krystal product on the market today.

Paul Hadden (SVP of Investments and Business Development)

Hi, Doug. This is Paul again. Great question. First off, I think there's a couple of important points to note. I think the D-Fi product is an injectable product. Krystal's product is a topical product. So you can imagine that from a patient perspective, you have these breaks in the skin in different places, and one could envision where an injectable product would be much more advantageous for delivery versus a topical product. That's one piece. The other piece is obviously the potential frequency of dosing. The Krystal product is weekly. We expect the D-Fi product to be much less than that. And then additionally, the surface area that you're allowed to treat in any given treatment course could also be different. So those coupled together, you can see how these products could be complementary.

And so from that perspective, we envision that it would be a welcome addition if it's approved.

Doug Miehm (Analyst)

Okay. Excellent. Second question just has to do with the potential deals that you're working on. And maybe, Todd, you could speak to what proportion of the deals would be synthetic versus actual royalties that you're contemplating on buying or even companies like you did last year? And then finally, maybe you could expand on potential strategic transaction as well in any way that you can. And I'll leave it there. Thank you.

Todd Davis (CEO)

Sure. Yeah. So we don't discriminate or favor royalty monetizations, or also known as royalty acquisitions, project finance, or special situations. We do observe quite often in special situations, such as our Pelto's setup that we've been working on this year, that the potential returns can be very significant, and they need to be significant because they do require more bandwidth from the team. And so that is just an observation that we make when we're stepping into these things. So we need the technologies that we do this with or the products that we do special situations with to be potentially very highly valuable. And in that case, just for example, as you know, we paid just a little bit over $12 million to buy those assets out of bankruptcy. We already have an approved product. ZELSUVMI.

It's not launched yet, of course, because there's a number of things you have to do to set up for a launch when you're buying something out of a bankruptcy. But it's very promising. And on top of that, there's an underlying NitroCell platform that is potentially usable in many, many different areas. So the potential returns on that are significant, but you've got to work that long term. So that's really the key observation. Between royalty monetizations and project finance, or project finance being synthetic royalties that you create, we're really mostly focused on the due diligence and how promising the asset is. And the key criteria around that, in addition to strong evidence of safety and efficacy, is high unmet clinical need. That's your ultimate and best protection against payers and payer pressure.

It's the factor that we think is the most important when you're considering reimbursement risks. Of course, when you're doing development-stage assets, you don't have a label yet. You really kind of have to forecast the probability of success in that arena by the value that you're adding to patients and clinical treatment. That's how we view it. So far, I would say it's been around 40, 40, and 20 if I had to divide it up. 40% royalty monetizations, 40% project finance, and about 20% special situations.

Doug Miehm (Analyst)

Great. Thank you.

Operator (participant)

Your next question comes to the line of Trevor Allred from Oppenheimer. Your line is open.

Trevor Allred (Analyst)

Hey, good morning, everybody. My congrats on the great quarter as well. Just looking for some additional color around D-Fi. I mean, can you guys tell us a little bit about how large the population is, maybe how readily identifiable the condition is? And given it's a cell therapy, are you expecting any limitations to scale?

Paul Hadden (SVP of Investments and Business Development)

Yeah. So Trevor, it's Paul again. Great questions. Estimates in the U.S. are a few thousand patients. I think if you go globally, it's going to be a multiple of that. In terms of readily identifiable, I think if you look up this condition, DEB on the World Wide Web, you'll see the pictures of these patients, and you'll understand how devastating and debilitating this condition is. I mean, literally, these patients are missing a gene that codes for the collagen that connects the skin tissues. So you really have what looks like second- and third-degree burns on these patients. So they are readily identifiable, especially in the severe populations. And then in terms of scale, all I can tell you is because we were dealing directly with Castle Creek, we went very deep from a diligence perspective, which included the CMC.

We got very comfortable with their ability to supply the product. And obviously, that's one of the benefits of dealing with synthetic royalties. You have the ability to go under confidentiality, do site visits, work with a company directly to see everything that they know, and ultimately get comfortable around an investment from the multitude of areas where you do M&A-level due diligence. So hopefully, that answers your questions. But if I missed anything, just please let me know.

Doug Miehm (Analyst)

Yeah. No, that's helpful. And can you also give us a sense of how much revenue VYJUVEK is generating and any potential population differences between the two of those?

Paul Hadden (SVP of Investments and Business Development)

Yeah. So I think VYJUVEK last year clocked in at just shy of $300 million. And obviously, that's about 18 months into the launch, so on a really good ramp rate. And from a more global perspective, that should continue to grow. As I mentioned on the earlier question, there is a complementary factor in terms of what D-Fi could do. And so from that perspective, we're pretty bullish about the opportunity overall.

Joe Pantginis (Managing Director and Analyst)

Okay. Great. Thanks. Thanks for taking the questions.

Operator (participant)

Your next question comes to the line of Balaji Prasad from Barclays, please. The line is open.

Michelle Allen (Analyst)

Good morning. This is Michelle Allen for Barclays. Thanks for taking our question. So just a quick one on our Ohtuvayre. Seems like the uptake has been nicely in the first two quarters of the product launch, even without the J-code. And the equity market was reacting positively towards the initial traction. So can you discuss some of your expectations you have around ensifentrine growth and your view of the overall maintenance therapy for COPD, and what's your view of the impact of the overall COPD market in the times of the biologic entrance, such as Dupixent? Thank you so much.

Lauren Hay (VP of Strategic Planning and Investment Analytics)

Yeah. So this is Lauren Hay. We're really pleased to see the very early success of Ohtuvayre. The launch trajectory looks to be very strong. We haven't even yet seen the impact from the permanent J-code, which became effective, to your point, January 1st. So that should further catalyze a strong Q1 of sales in our view. As I shared during my prepared remarks, the COPD market is quite large. There are 8.6 million maintenance-treated patients, according to Verona, half of whom remain symptomatic despite treatment. And so there's a very large addressable population for Verona. They've shared that about half of the treated population at this point has been on triple therapy, so LAMA, LABA, ICS. So if you look kind of at the total addressable population, it's much larger than the eligible population for Dupixent, and they probably kind of target a different type of patient.

So we continue to be very optimistic about the launch. Verona is doing a fantastic job, and we'll look forward to continued progress later this year.

Michelle Allen (Analyst)

Great. Thank you so much.

Todd Davis (CEO)

Thank you.

Operator (participant)

Your next question comes to the line of Larry Solow from CJS Securities. Your line is open.

Larry Solow (Managing Director)

Great. Thanks. Good morning. Congrats on an exciting year. Lots of business development and things moving forward. I guess question for Tavo. First question would just be I know on the guidance you provided, the analyst that you spoke about, just some increased investment in the cash expenses and the business development team in 2025. Can you just give us a little more color on how 2024 kind of shook out on the expense line and what you're looking for, what's incorporated into your outlook in 2025?

Tavo Espinoza (CFO)

Yeah. No, like we said previously at Investor Day, 2024 was a year of investment largely in building up the investment business development team and standing up our Boston office there. We closed out the year with approximately $38 million in cash operating expenses. And going into 2025, we're growing that at about 4%, and we expect that to be kind of the steady state going forward is what we've kind of signaled to investors roughly at the rate of inflation.

Larry Solow (Managing Director)

Okay, so it's like a $40 million plus or minus number in 2025.

Tavo Espinoza (CFO)

That's correct. That's correct.

Larry Solow (Managing Director)

And it sounds like the funnel opportunities continues to expand, Todd. It doesn't feel like you I know you don't time exactly how much you're going to spend per year. Of course, now it's more opportunistic, but it doesn't feel like there's any hesitancy there. It sounds like we could have another big year after 2024.

Todd Davis (CEO)

Larry, I think that's right. I mean, the number of opportunities that are out there far exceed what we can execute on. So kind of the supply-demand relationship, if you will, between capital and the types of things we're looking for is very favorable. The key issue, therefore, is what we spend our time on. And we've really never been busier, so we really have to triage to what we think are the highest clinical value products, and that's really what we're focused on seeking out.

Larry Solow (Managing Director)

Gotcha. And just last follow-up, just on ZELSUVMI and FILSPARI. So it sounds like you guys are doing a lot of strategic planning and stuff ahead of actually announcing a partner. So it feels like you'll be able to hit the ground running at some point once that partner comes in. I'm just trying to figure out this partner, is it just going to be an investment partner, or is it someone who's going to be the marketer? Just trying to know how that shakes out and the launch plans. Thanks.

Todd Davis (CEO)

Yeah. I mean, I can only go into a certain level of detail right now, Larry. However, yes, as you know, we've put kind of the brains of a commercial operation in place with a head of marketing, potential CEO, etc. They've been making significant launch preparations so that we will be ready to go. There was a significant amount to do in terms of things like running validation batches and preparing the manufacturing, which they've been executing on. And so all of that is on schedule. It is still our intent to launch the product in the first half of the year. There is some risk there. These things are not easy, and you want to do them right, not fast, but we think the bones of a deal in sight here, and the key is that we finance this.

We're not going to forward integrate and become a sales and marketing company. We need partners to do that. That's why we created Pelto. And we need to get Pelto financed through a strategic transaction. And that's what we're focused on right now.

Larry Solow (Managing Director)

Got it. Great. Thanks, Todd. I appreciate that call.

Todd Davis (CEO)

You bet.

Operator (participant)

The next question comes to the line of John Vandermosten from Zacks. The line is open.

John Vandermosten (Analyst)

Thank you. Good morning. Regarding D-Fi and Castle Creek, does the opportunity here assume similar pricing and penetration as VYJUVEK does?

Paul Hadden (SVP of Investments and Business Development)

Yeah, John, great question, as well. I think it's fair to use that as an analog given that it's out there. Obviously, per my earlier comments, there is some opportunity to be complementary in terms of being used in the same patient. So from a penetration perspective, there can be some overlap, but we feel comfortable with the analogs that are out there and also with the opportunity that we invested in. So it's a fair assumption.

John Vandermosten (Analyst)

Okay. And what's the expected financial impact of that termination letter to CASI on Ligand?

Tavo Espinoza (CFO)

Hey, John, I'll take that one. Tavo here. So it's a two-year termination term. We don't expect it to have a material impact for 2025. The generic implications to the China market do not change. That's been in place. We've talked about that in the past. But Acrotech, who we have the direct license agreement with, our understanding is that they intend to have a marketing partner in China, and our license agreement with them will continue. So short answer is no short-term impact in 2025, but longer term, we expect to still benefit from the China market via our direct licensing arrangement with Acrotech.

John Vandermosten (Analyst)

Okay. And on your opportunity set, I seem to remember at one of the events that 200 opportunities were mentioned. I guess they're kind of there waiting to be acted upon. How has that changed in terms of new additions and then ones that you said will pass out? I guess I'm wondering about kind of the flow rate there. And has it increased since that last update? I think that was possibly at the Investor Day when you had given that number.

Todd Davis (CEO)

Go ahead, Paul.

Paul Hadden (SVP of Investments and Business Development)

Yeah. So great question, John. I would say that we've seen an uptick in our pipeline. There is some week-to-week and month-to-month churn. To Todd's earlier point, we're constantly trying to assess where we want to apply our team's time and resources. But his comment is spot on earlier about how we've never been busier. So we're excited about the opportunity set. Obviously, we have to maintain a very disciplined approach and be judicious about where we spend our time. But we're excited about what we're seeing. And I think this call is evidence of being off to a good start, if you will. So we're excited.

John Vandermosten (Analyst)

Okay. Thank you.

Operator (participant)

As there are no further questions, I would like to thank our speakers for today's presentation and thank you all for joining us. This now concludes today's conference. You may now disconnect.