Ligand Pharmaceuticals Inc

NASDAQ:LGND

Earnings Call Analysis

Ligand's Exceptional Growth and Promising Pipeline

Ligand reported a remarkable 58% rise in total revenue to $51.8 million in Q3 2024, driven by a 33% increase in royalty revenue. The company has increased its 2024 revenue guidance to $100-$165 million, with adjusted EPS projected at $5.50-$5.70. Key contributors include the successful launches of Ohtuvayre and CAPVAXIVE, alongside continued growth from FILSPARI, a treatment for IgA nephropathy. With a robust balance sheet and access to over $300 million for strategic investments, Ligand aims for continued royalty growth exceeding 20% CAGR through 2028, reflecting confidence in its expanding pipeline.

Exceptional Revenue Growth

In the third quarter of 2024, Ligand achieved remarkable financial results with total revenues reaching $51.8 million, marking a surge of 58% compared to the same quarter last year. A significant driver of this growth was a 33% increase in royalty revenues, which reached $31.7 million, up from $23.9 million. This strong performance allowed the company to revise its guidance upward for the second time in 2024, demonstrating sustained momentum across its business segments.

Strong Earnings and Capital Position

The company reported adjusted earnings per share of $1.84, reflecting an impressive 80% increase year-over-year. As of the end of Q3 2024, Ligand boasted a robust balance sheet with nearly $350 million in available investable capital, highlighting its capacity to continue executing on its growth strategy.

Strategic Acquisitions and Pipeline Expansion

Ligand's recent acquisitions, including QARZIBA from the acquisition of APEIRON Biologics, have been pivotal in expanding its royalty portfolio. Furthermore, the company has increased its royalty rate for the drug Ohtuvayre to nearly 3%. These strategic moves have bolstered their pipeline, allowing Ligand to target high-value royalty-generating assets as it seeks to capitalize on industry trends.

Promising Product Launches and Market Potential

The launches of Verona Pharma's Ohtuvayre and Merck's CAPVAXIVE are expected to contribute notably to Ligand's royalty revenue. Ohtuvayre has shown strong sales performance, achieving $5.6 million in quarterly net sales, with projections indicating a blockbuster potential. Similarly, CAPVAXIVE's ACIP recommendation to expand the vaccine's market to adults 50 and older is likely to increase its adoption and revenue potential significantly.

Projected Revenue Growth and Long-Term Outlook

Ligand has raised its full-year revenue guidance to a range of $100 million to $165 million, with adjusted EPS expected between $5.50 and $5.70, reflecting a 38% increase over the previous year. This updated guidance is driven by robust revenue across its primary streams: royalties, Captisol material sales, and contract revenue. Looking ahead, the company projects an 18% compound annual growth rate (CAGR) for royalty revenues and faster growth for adjusted EPS over the next several years, emphasizing the strength and scalability of its business model.

Investments and Future Developments

Ligand has identified over 20 investment opportunities worth more than $800 million, highlighting a strong deal pipeline. The firm remains focused on high-growth, low-operating-expense assets, further indicating its commitment to expanding into areas with significant unmet clinical needs.

Robust Financial Management

In terms of financial structuring, Ligand has successfully utilized its ATM facility, which generated $35 million to support its investment strategies. This disciplined financial approach has enabled the company to sustain growth while maintaining operational efficiency and a streamlined workforce.

Summary of Market Position

Ligand is strategically positioned in the biopharmaceutical market with a focus on profitable, diversified compounding growth. Its strong revenue performance, comprehensive product portfolio, and prudent financial management provide a solid foundation for continued success and expansion. Investors can be encouraged by the company's upward guidance and robust long-term projections based on its growing royalty revenue and strategic acquisitions.

Earnings Call Transcript 2024-Q3

[Operator]

Good morning. My name is Aaron, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Ligand's Third Quarter 2024 Earnings Call. [Operator Instructions]

Thank you. With that, I would like to turn our call over to Melanie Herman, Senior Director of Financial Planning and Analysis. Melanie, you may begin.

[Melanie Herman, executive]

Good morning, everyone, and welcome to Ligand's Third Quarter Earnings Call. During the call today, we will review the financial results we released before today's market open and offer 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, Senior Vice President of Investments and Head of Clinical Strategy, Dr. Karen Reeves; and Chief Financial Officer, Tavo Espinoza. This call is being recorded, and the audio portion will be archived in the Investors section of our website.

On today's call, we will make forward-looking statements regarding our financial results and other matters related to the company's business. Please refer to the safe harbor statement related to these forward-looking statements, which are subject to risks and uncertainties. We remind you that actual events or results may differ materially from those projected or discussed and that all forward-looking statements are based upon current available information. Ligand assumes no obligation to update these statements.

To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Ligand filed with the Securities and Exchange Commission, or SEC, that can be found on Ligand's website ligand.com or on the SEC's website at sec.gov.

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

[Todd Davis, executive]

Thank you, Melanie, and welcome to everyone on the call. I'm delighted to report one of the best quarters of performance in Ligand's history.

Slide 3 summarizes our strong business momentum in the third quarter. We grew total revenue by 58% over the prior year, and we increased guidance for the second time this year. We are well capitalized with access to over $300 million in capital to continue to execute on our strategy of acquiring high-value royalty generating assets. Our growing roster of major commercial programs gives us predictable and growing royalty revenue that is the foundation for our strong financial performance this quarter. Tavo will delve more into our financial performance later on the call.

I'm extremely proud of our team and the many accomplishments we've achieved in the last 18 months. We have invested almost $300 million since last fall and have added several programs to our pipeline, including QARZIBA that came from our immediately accretive acquisition of [indiscernible] Biologics this summer; and our transaction with the Ohtuvayre inventors, increasing our royalty rate on that drug to nearly 3%. Additionally, our efforts to incubate [indiscernible] and ready Zelsuvmi for commercial launch continued in earnest, and we aim to select a partner that can launch Zelsuvmi the first half of 2025. This drug addresses significant unmet need in [indiscernible] as the first at-home prescription product for this condition.

On our second quarter earnings call, we talked about 2 important FDA approvals within our portfolio: Verona Pharma's Ohtuvayre and Merck's CAPVAXIVE. We are pleased to report that both products were successfully launched during the third quarter. Additionally, Merck announced in October that the CDC's Advisory Committee on Immunization Practices, or ACIP, has recommended CAPVAXIVE for adult pneumococcal vaccination in adults 50 years of age and older. The ACIP's recommendation lowers the current age-based recommendation from 65 and, as stated by Merck, has the potential to be a practice-changing milestone that may improve vaccination rates.

[ 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 few years. Dr. Karen Reeves will provide more details on these and other programs later in the call.

Another important milestone this quarter was the full FDA approval and label expansion of Travere's FILSPARI. This therapy has the potential to become foundational care in IgA nephropathy, a rare kidney disease that affects up to 150,000 people in the U.S. and is one of the most common [ glomerular ] diseases in Europe and Japan. We continue to see more widespread adoption of this groundbreaking therapy, as evidenced by the recent Swiss approval of FILSPARI and look forward to the continued European launch in the coming months.

We are also excited about FILSPARI's potential indication expansion in new focal segmental glomerulosclerosis, or FSGS. FSGS is a rare kidney disease that has a high risk of progression to kidney failure. There are no FDA-approved therapies for FSGS. Dr. Karen Reeves attended the PARASOL scientific workshop meeting last month, which convened various stakeholder groups, including the FDA to discuss endpoints for the FSGS clinical trials. We are encouraged by the outcomes from this meeting and Travere is planning to reengage with the FDA later this year about a potential path forward for FILSPARI in FSGS.

All of these recent developments reinforce what we believe FILSPARI will be a significant driver of revenue for us over the next several years. Ligand has a 9% royalty on all indications of FILSPARI.

Turning to Slide 4. I would like to remind our listeners about Ligand's strategic differentiation. We are a biopharmaceutical company that seeks to generate profitable, diversified compounding growth. We target late-stage development assets and commercial assets with superior risk reward profiles. Our highly qualified team brings decades of investing experience along with clinical, operational and regulatory expertise as well as strong origination networks throughout the industry. We continue to execute on our strategy of acquiring high-growth, low-OpEx assets, a plan we outlined nearly 2 years ago.

There is a sizable demand for royalty capital in the life science industry, which allows us to invest selectively as we offer a differentiated capital solution that traditional investors do not typically provide. Our capable team originates, diligences and negotiates proprietary investments with customized investment structures and novel tactics to create investment opportunities. Our acquisition of [indiscernible] is a prime example of this. It is also important to emphasize that we do this while maintaining low operating expenses. Our structural approach to investing is a very small percentage of the total capital that has invested in life science companies today. Therefore, we believe our model is differentiated, scalable and offers immense growth potential for years to come.

Turning to Slide 5 for our royalty revenue outlook. We've made substantial progress towards meeting or exceeding the longer-term growth goals we outlined at our Analyst Day in December of 2023. Our investment origination seeks and identifies high-value clinical products that will offer significant positive clinical impact. Looking at the third quarter, we see the results of this focus as we saw an increase in Wall Street consensus estimates on several of our partnered products, including Travere's FILSPARI which, as I mentioned earlier, has received full approval by the FDA and has been granted conditional approval by the European Commission and Swiss authorities.

We also added several major new commercial products to our portfolio, including QARZIBA, CAPVAXIVE and Ohtuvayre, which will positively impact our royalty revenues over the coming years. We will provide an updated long-term view that incorporates these recent events at our Investor Day on December 10.

As I've shared previously, we believe our long-term royalty revenue growth is on pace to exceed the 22% compounded annual growth rate we outlined last December. The existing portfolio alone supports a royalty revenue CAGR of 18%, which is above our previous estimate of 16%. Further investments should add at least 4% to this with potential upside on top of the current outlook. Our business development team is constantly searching for attractive new investments.

In conclusion, we are all proud of what we've accomplished since we began restructuring and executing on this new strategy in the fourth quarter of 2022, and we are very optimistic about our future prospects. Ligand's pipeline remains robust. We are currently reviewing over 20 investment opportunities representing in excess of $800 million of investment potential. The operating leverage [ came from our main ] corporate cost structure is expected to result in adjusted EPS of greater than $10 per share in 2028.

I'll now turn it over to Dr. Karen Reeves for our portfolio update. Karen?

[Karen Reeves, executive]

Thank you, Todd. Today, we'd like to highlight a few key commercial products in our portfolio.

Turning to Slide 6. I would like to go into more detail on Traverse's FILSPARI, where we are entitled to a 9% royalty on global net product sales. In September this year, the FDA granted full approval for Travere's FILSPARI, an endothelin and angiotensin II receptor antagonist to slow kidney function decline in adults with primary immunoglobulin A nephropathy, IgAN, for at risk for disease progression. This is the first and only nonimmunosuppressive therapy approved for the treatment of IgAN, a rare kidney disease that leads to diminished kidney filtering, proteinuria and progressive kidney function loss.

The FDA's full approval for FILSPARI expands the indication to include, without qualifiers, patients with IgAN at risk for disease progression. Moreover, with full approval, FILSPARI is now indicated to slow kidney function decline from the previous only reduced proteinuria. Importantly, the full approval label details the long-term durable benefit of FILSPARI on proteinuria and kidney function in the 2-year PROTECT study, which compares FILSPARI with irbesartan and angiotensin II receptor blocker.

Travere estimates that this broader label means that the addressable FILSPARI IgAN population could nearly double. We believe full approval will allow for more detailed physician communications regarding FILSPARI, and its sustained proteinuria reduction as well as long-term kidney function presentation should give physicians greater confidence to prescribe the drug. FILSPARI was also recently recommended as a foundational kidney targeted therapy for IgAN in the draft kidney disease including global outcomes, KDIGO, 2024 guidelines, which is a very important positive development that should drive further adoption of the drug.

Outside the U.S., the European Commission granted conditional marketing authorization for FILSPARI for IgAN in April. During the third quarter, Travere announced that their European commercial partner, CSL Vifor, launch FILSPARI in Germany and Austria, and then Switzerland achieved temporary marketing approval in October. Additionally, Travere reported that they have submitted and supplemental NDA requesting modification to the REMS liver monitoring requirements. We are also excited about initial data shared by Travere showing that FILSPARI induced further proteinuria reduction when used with SGLT2 inhibitors, supportive of the flexibility to be used in combination with other medicines.

Turning to Slide 7. FILSPARI is also being evaluated in a second important indication, focal segmental glomerulosclerosis, or FSGS. FSGS is a rare complex kidney disorder and leading cause of kidney failure affecting children and adults. There are currently no FDA-approved pharmacologic treatments for FSGS. [indiscernible] by the urgency of no approved drugs and the need to develop FSGS treatments with alternative proteinuria-based endpoints, a group known as the PARASOL Initiative was formed as an international collaboration of NextCure and other global kidney foundations, patients, nephrologists, academia, scientists and regulators, including the FDA.

The PARASOL team reported at a scientific workshop with the FDA, [indiscernible] of existing global databases for more than 1,600 children in adults with FSGS. A key finding was that the reduction of proteinuria over 24 months is associated with the reduction in the risk of kidney failure. The goal of PARASOL is to define quantitative relationship between biomarkers and long-term outcomes to support proteinuria endpoint as a basis for accelerated and traditional approval.

On their recent earnings call, Travere stated that they have scheduled a Type C meeting with the FDA to discuss a regulatory pathway for FILSPARI in FSGS and that they are preparing a supplemental NDA. There are estimated to be more than 40,000 FSGS patients in the United States and a similar number in Europe. Approximately half of these will be candidates for FILSPARI. Approval of FILSPARI for FSGS would represent the first FDA-approved treatment, an important milestone for the long waiting FSGS community.

Turning to Slide 8, I would like to talk about Merck's CAPVAXIVE vaccine. As Tom noted earlier, Merck launched CAPVAXIVE during the third quarter of 2024. CAPVAXIVE is a 21 valent pneumococcal conjugate vaccine for the prevention of invasive pneumococcal disease and pneumococcal pneumonia in the adult population that was approved by the FDA in June. We are entitled to a low single-digit royalty on worldwide net sales of CAPVAXIVE. Merck in the early stages of the commercial launch. They mentioned on their third quarter earnings call that CAPVAXIVE's launch is off to an encouraging start and that they expect to get a majority share of the market over time.

The other recent and exciting development with CAPVAXIVE is that in October, the CDC's ACIP's voted to expand the age-based recommendation for CAPVAXIVE to 50 years of age and older from the previous 65 and older. This will significantly expand the patient population to this vaccine and should accelerate the adoption of CAPVAXIVE fees over time.

Turning to Slide 9. Let's look at Verona's Ohtuvayre, which was granted FDA approval in June. Ohtuvayre is dual inhibitor of PD3 and PD4 enzymes that combines bronchodilator and nonsteroidal anti-inflammatory effects for the broad indication of maintenance of chronic obstructive pulmonary disease, COPD. Ohtuvayre is the first inhaled product with a novel mechanism of action for the maintenance treatment of COPD in more than 20 years. and we believe it has blockbuster commercial potential. We are entitled to a royalty rate of approximately 3% on worldwide sales of Ohtuvayre.

From the perspective of product reimbursement, following the end of third quarter, Verona received notification from the Centers for Medicare and Medicaid Services, CMS, that its permanent product-specific J code for Ohtuvayre has been accepted and will be effective January 1, 2025. There is also significant pipeline value in Ohtuvayre to be realized. Verona's development partner in Greater China, [ Nuance Pharma ], continues to make great progress and completed enrollment in its pivotal Phase III clinical trial evaluating Ohtuvayre for the maintenance treatment of COPD in China. Results from that trial are expected in 2025.

At the recent CHEST Annual Meeting in late October, there were presentations and posters on analysis from Verona's successful Phase III ENHANCE studies with Ohtuvayre for the treatment of COPD. The analysis summarized the efficacy and safety of Ohtuvayre in subgroups of COPD patients, including data supporting improvements in lung function, symptoms and quality of life as well as reductions in the rate of exacerbation, regardless of COPD severity, smoking status and whether or not the patients with chronic bronchitis.

Furthermore, in an analysis of Ohtuvayre's impact on reducing exacerbation rates and COPD-related health care resource utilization over 48 weeks showed Ohtuvayre decrease the exacerbation rate and health care utilization in patients with moderate to severe COPD. Therefore, Ohtuvayre may help decrease the burden of disease for patients and the health care system, an estimated cost of $24 billion annually.

With that, I will now turn the call over to Tavo for the financial update.

[Octavio Espinoza, executive]

Thanks, Karen. First, I want to highlight that I will be discussing non-GAAP results which exclude certain items, including stock-based compensation, amortization of intangible assets, amortization or impairment of financial assets or derivatives and expenses incurred to incubate [indiscernible] business amongst 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. We believe that the adjusted measures can assist investors in analyzing and assessing our past and future core operating performance.

The third quarter of 2024 delivered exceptional financial results with continued growth in royalty revenue and an increasingly positive outlook for the year. This strength allowed us to revise our guidance upwards for the second time this year, underscoring our confidence in sustained momentum. Total revenues for the third quarter reached $51.8 million, representing a 58% increase over Q3 '23. This growth was driven by a 33% increase in royalty revenue, which reached $31.7 million, up from $23.9 million in the same period last year. We reported adjusted earnings per share of $1.84, which is an 80% increase over Q3, and we ended the quarter with a strong balance sheet with almost $350 million in available investable capital when you consider our cash and investments in our credit facility.

Turning to Slide 11. Key drivers in royalty revenue growth were the addition of QARZIBA to our royalty revenue portfolio in July, coupled with strong performance from Amgen's Kyropolis and Travere's FILSPARI. While we are contractually limited from disclosing QARZIBA sales, I can confirm that Q3 sales and the corresponding earned royalties were in line with our July guidance of approximately $1 in annualized EPS contribution.

Amgen reported $378 million in Kyropolis sales this quarter, marking an 8% increase year-over-year, largely attributed to robust volume growth outside the United States. We receive [ a tiered ] royalty on Kyropolis sales from Amgen, ranging between 1.5% and 3%. Given Kyropolis' current annual sales level of approximately $1.5 billion, we achieved the maximum 3% royalty rate in the second half of the year.

Travere reported $35.6 million in FILSPARI sales, including 505 new patient start forms, which represented strong sequential growth of 31%. Sell-side research analysts are projecting peak global FILSPARI sales in the range of $500 million to $700 million in IgA nephropathy alone, reinforcing our view that this product could be a significant driver of royalty revenue for us over the coming years.

Turning to the two recently approved programs that have expanded our major commercial portfolio. Verona reported a robust start to the U.S. launch of Ohtuvayre, achieving quarterly net sales of $5.6 million, with October sales alone exceeding the entire third quarter. Merck also highlighted a promising launch for CAPVAXIVE during their third quarter earnings call. We earn a low single-digit royalty on both programs and expect it to contribute more meaningfully to our royalty revenue in 2025.

Captisol sales came in at $6.3 million, down from $8.6 million in Q3 '23, primarily due to the timing of customer orders. Contract revenue for the quarter was $13.5 million, driven mainly by a milestone payment from Verona following the commercial launch of Ohtuvayre.

Operating expenses increased this quarter with G&A expenses at $24.5 million and R&D expenses at $5.7 million compared to $14.7 million and $5.5 million, respectively, in Q3 '23. This increase in operating expenses was primarily due to an increase in personnel-related costs as well as continued investments made to incubate the Pelthos business. This quarter's operating expenses also included a $7.8 million noncash expense stemming primarily from a fair value adjustment on several partner programs from Agenus that we'll return to them in Q3. On our income statement, this adjustment is reflected as fair value adjustment to partner program derivatives.

GAAP net loss in the third quarter of 2024 was $7.2 million or $0.39 per diluted share compared to a GAAP net loss of $10.3 million or $0.59 per diluted share in Q3 '23. This quarter's GAAP net loss was primarily impacted by several noncash items, including a $7.4 million stock award modification expense related to the departure of our former President and COO, an $8 million fair value reduction of Agenus warrants and the previously mentioned $7.8 million fair value adjustment on our partner program derivatives.

Adjusted diluted EPS for the third quarter of 2024 was $1.84, up from $1.02 in Q3 '23. This increase reflects growth in royalty revenue and a $13.5 million milestone earned from the commercial launch of Ohtuvayre, partially offset by an increase in shares outstanding.

Turning to the balance sheet. In July, we invested $100 million to acquire APEIRON Biologics. To partially offset this outlay, we accessed our ATM facility, issuing 334,000 shares of common stock at an average price of $105 per share, which contributed $35 million to our cash position. As of September 30, 2024, our cash and short-term investments totaled $220 million, including $63 million in holdings of Viking common stock.

Turning to Slide 12 and turning to guidance. We are raising our 2024 total revenue forecast to a range of $100 million to $165 million with adjusted earnings per share now expected to be between $5.50 and $5.70, a 38% increase over last year's adjusted EPS of $4.06. This upward revision reflects robust performance across our 3 primary revenue streams: royalty revenue, Captisol material sales and contract revenue. For the full year 2024, we now expect total royalty revenue to be in the range of $105 million to $108 million, up from prior guidance of $100 million to $105 million; Captisol material sales between $27 million and $29 million, previously $25 million to $27 million; and contract revenues to come in at $28 million, previously $15 million to $25 million.

Year-to-date, we've recorded total revenue of $124 million and core adjusted EPS of $4.46. We feel confident that we're on track to meet or exceed our updated 2024 financial guidance. We also continue to feel confident about the longer-term outlook we shared which goes out to 2028 and calls for royalty revenue growing at a compound annual growth rate above 20% and adjusted core EPS growing even faster at a compound annual growth rate above 25%.

Finally, I'd like to direct listeners to our second quarter earnings press release issued earlier today, including a reconciliation of GAAP results to adjusted financial results, which is available on our website.

Before we open it up for questions, I'd like to remind everyone that we'll be hosting our Annual Investor Day on December 10 in Boston, where we plan to provide you with an update to our financial guidance and long-term outlook.

With that, I'd like to turn the call over to the operator to open up to for questions

[Operator]

[Operator Instructions] Our first question from today comes from the line of Matt Hewitt with Craig-Hallum.

[Matthew Hewitt, analyst]

Congratulations on a strong quarter, guys. Can you hear me okay?

[Todd Davis, executive]

We can hear you. Thank you.

[Matthew Hewitt, analyst]

Maybe first question is, you still have a very strong balance sheet, and I'm just curious what the pipeline looks like. Do the election results this week have any impact on that on how you think about the market from an investment standpoint? Any update basically on your thoughts regarding adding more shots on goal?

[Todd Davis, executive]

Yes. I think the pipeline remains very robust. There's still very high demand for capital regardless of the election results one way or the other. And the pharmaceutical industry performance in terms of revenue is generally uncorrelated with market volatility even around elections. That's kind of one of the beauties of -- and royalties in pharmaceutical products is just noncorrelated with capital markets volatility typically. So the demand for capital continues on, Matt. And we continue to look at each asset that's presented to us in the form of a deal opportunity and analyze those the best we can, and we're constantly culling that pipeline to pursue what we think are the very best opportunities. And that activity is now pretty continuously at a very high level. And I think the business development machine is pretty well honed here at this point.

[Operator]

Our next question is from the line of Douglas Miehm with RBC Capital Markets.

[Douglas Miehm, analyst]

My first question just has to do -- delve a little deeper into those '25 potential investments that you are looking at. When you think about whether they're -- well, the size, number one, is there a range that you can provide? What's the mix of, let's say, royalties versus structured deals versus any acquisitions at this point?

[Todd Davis, executive]

Okay. That's a great question, Doug. I think that about half of what we're looking at right now is what we call the project finance that's often also called synthetic royalties. That's where you're providing capital to small and mid-cap companies that need capital to develop their assets. And in return for that, you're creating a royalty as a form of financing. Those deals are really created. They're not made, they're not shopped. You proactively are identifying companies and products you're interested in, approaching them and making those deals happen as an alternative form of capital that's available to them.

On the M&A front, we continue to scour opportunities on that front as well. In fact, a little chunk here. We've got one of those we're looking at now amongst the many deals we're looking at. And on the passive royalty front we are actively engaged in the academic and venture community as well as the corporate community looking at royalties that are currently held in the form of license agreements by those institutions, and that's probably another 1/3 of our pipeline that we're looking at any given time.

Oh, yes, excuse me, on the size, Doug. I didn't answer that. But right now, in our current size, to maintain kind of our diversity limits that we're trying to achieve, we're targeting $30 million to $40 million or so per product if it's on the development side. Something that's significantly lower risk for commercial, for example, we will size up. And we view diversification by product, not necessarily investments. So if we're doing a basket of products, those deals may be sized up, too.

But at our current size, we think that $30 million to $40 million per asset is appropriate for us, and that's how we're structuring most of the deals in that range. As we grow over time, we will inevitably kind of size that up a little bit on a proportionate basis.

[Douglas Miehm, analyst]

Great. Okay. then a follow-up question has to do with FILSPARI, which is going to be an important backbone of the company going forward. And I was just wondering if you'd be able to talk a little bit about how you see that competitive environment. I know you touched on...

[Technical Difficulty]

[Operator]

Bear with me one second.

[Todd Davis, executive]

Go ahead with your question, sorry.

[Douglas Miehm, analyst]

Yes, I just wanted to expand a little bit on the competitive environment you see for FILSPARI. It seems to be quite attractive, but maybe you could provide a bit more context

[Todd Davis, executive]

Sure. Why don't we have Karen address this, I think, in IgAN as a monotherapy in combination and then, of course, in FSGS where there's currently no other treatment.

[Karen Reeves, executive]

Yes. Thank you for the question. We believe that FILSPARI will be a foundational treatment for the treatment of IgAN and the guidelines that are -- and the draft guidelines have recently come out really talk about hitting two aspects of this disease. So it's going to be important that FILSPARI can be seen as a primary treatment and, in addition, along with other concomitant therapies. And recently, Travere actually showed some very good data, which I mentioned regarding SGLT2 inhibitors, that they are doing a study of using both of them. And you can see that when you add to FILSPARI, the reduction of proteinuria goes up. which is good news.

Because the guidelines now are saying, you should be lowering your proteinuria, at the best mark, would be less than 0.3 grams per day. So that is good news. In addition, some initial data was shown using FILSPARI as the primary drug in patients who have no treatment. And that also is showing excellent results. So we're confident that FILSPARI is going to really only grow in what it's able to do in IgAN. And in addition, we just reported on the outcome from the PARASOL Initiative in FSGS. This is a huge area of unmet need. There's never been an FDA-approved drug for this illness. And Travere is going to the FDA to discuss what is needed now to submit an sNDA for that drug now that the PARASOL Initiative has come up with proteinuria related endpoints.

[Operator]

Our next question comes from the line of Dr. Joseph Pantginis with Wainwright .

[Joseph Pantginis, analyst]

First, a couple of logistical questions, if you don't mind. So Todd, when you look at obviously the number of opportunities that you're currently looking at, how do we view that with regard to your ability to look at even more? And it really correlates to my question of is Ligand rightsized right now?

[Todd Davis, executive]

I think, yes, we're -- if I understand your question, Joe, when you say rightsized, do you mean in terms of excess of capital relative to our current market cap? Or how are you thinking about that?

[Joseph Pantginis, analyst]

The employee base and the number of people to...

[Lawrence Solow, analyst]

Yes. I think we've made a number of senior hires over the past 1.5 years as we put this strategy in place. We have this year kind of tweaked that with executives at the Vice President level that come in with significant skill sets to back that up as well. And I think we're pretty set on the team. And that's kind of one of the things about this business model, is that it offers very high operating leverage on the investment side. And we don't really need to add a lot to our team at this point even if the size of the company grows dramatically over the next 2 to 4 years. So we're just under 40 employees now. I'd be surprised if we're over 50 employees 3 years from now. That's just the way this business model works, and we like it that way.

[Joseph Pantginis, analyst]

No, that's very helpful. And then just a quick logistical question before I ask my usual question is, what is the status -- don't think you'd really be doing it right now, but what's the status of your buyback program?

[Todd Davis, executive]

Well, we just have that in place as a matter of general, I would say, corporate hygiene. If there are any significant dislocations in the markets, they have nothing to do with what we view as the inherent value of our business. We may take advantage of that. We have no immediate plans to use it right now.

[Joseph Pantginis, analyst]

No, that's helpful. And then as I alluded to, my usual question focuses on Captisol. It's typical volatility that you alluded to earlier with regard to the timing of payments and customer orders. So I guess the concept I want to look at is the mix here. Obviously, you have growing revenues from -- I'm sorry, from Captisol-used products or Captisol-formulated products. So I guess, how should we view the mix right now and view it going forward with regard to, say, research, requests versus, say, early clinical study requests?

[Octavio Espinoza, executive]

Yes, Joe, Tavo here. Thanks for the question. The similar answer, nothing has really changed here. It's the 80-20 rule, we get 80% of our revenue from 20% of our customer base, the commercial customers, and then a long tail of smaller research, clinical use only customers. And that tail, we're encouraged by the activity there. We expect that some of those smaller customers will be successful in their development and eventually become some of the -- join the roster of the larger commercial. But the business is doing well. And like implied with our updated guidance, we exceeded our guidance for the year. So the business continues to perform.

[Operator]

Our next question is from the line of Dr. Balaji Prasad with Barclays.

[Unknown Analyst]

This is a [indiscernible] for Balaji. Just a follow-up question on FILSPARI so as Travere is preparing a supplemental NDA for FSGS, wondering if FSGS is already factored into the 18% CAGR that you highlighted earlier, or only like the current indication, IgAN, is already factored in

[Octavio Espinoza, executive]

Yes, no, this is Tavo. Good question. So when we came out with our long-term outlook at Investor Day last December '23, we have significantly discounted very small contribution allocated to the pipeline from FSGS. We will update our view here coming up in December 10.

[Operator]

Our next question comes from the line of Trevor Allred with Oppenheimer.

[Trevor Allred, analyst]

Can you guys talk about some of the recent changes with the Agenus royalty assets? Have you had any interactions with them? And do you have any expectations for those royalties going forward?

[Todd Davis, executive]

Yes. I think for the Agenus acquisition overall, I think that they did have some programs return. The BMS was a bit of a surprise to us. As you know, just for the general audience here, there were 7 assets overall. The main asset underlying the deal is Agenus [indiscernible]. Our investment thesis around that is primarily driven by the [indiscernible] asset. And that particular asset, we reviewed the 6-month data in an ongoing study that they have underway, which we viewed as very promising.

And in the next few months, there should be 12-month data available, which is what we are really focused on. And if that is consistent with the 6-month data, I think we're in good shape and Agenus is in good shape in that regard. So that's what's kind of driving our thinking around the Agenus deal, and we will wait for that data to unfold.

[Trevor Allred, analyst]

Okay. And can you also talk about some of the things that give you confidence on the commercial launch for Pelthos in first quarter 2025?

[Todd Davis, executive]

Yes. We would be happy to. So Pelthos is a company we formed to commercialize Zelsuvmi. Zelsuvmi Is the first approved take-home treatment for molluscum contagiosum. The only other treatments that have been available historically has been in-office procedures that are, I would just say, relatively inconvenient and can be painful. There's cryo. And then there's the use of [indiscernible] oil as well. Some companies have reformulated that and has a presentation of that, but [indiscernible] can has been around for quite a while.

So we're competing in a prescription market for take-home medications when that drug is launched. And there is very high demand for this product, we believe. We're, I think, conservatively estimating that this is $150 million to $200 million of net sales potential in the U.S. market. We have global rights to the product. And so we're pretty optimistic about what can be achieved here. And that's the lead asset around the platform that we purchased, if you recall. We're very focused on that because it is now FDA approved, and we are engaged with potential marketing partners to launch it. And so that is our #1 priority around that.

But I would just remind people, we're pretty enthusiastic about the platform overall. We have clinical data on 4 other assets that we will start to look for partners to further develop and then potentially commercialize if successful. And nitric oxide in general as a platform has wide applicability and why there's lot of antiviral or an antibiotic definitionally. It has those characteristics broadly as promising clinical data and other products. So long term, we think we could end up with a few royalties around this platform and leading off with Zelsuvmi. We think that the numbers in that investment look very positive overall in the long term.

[Operator]

[Operator Instructions] Our next call is from the line of Zack -- I'm sorry, John Vandermosten with Zacks Small Capital Research. .

[Unknown Analyst]

So we like to look at M&A to get a sense of where things are going. And I took a quick look at some of the over $1 billion transactions that have taken place, and they've been in neuro, cancer and dermatology. Do you look at these at all to get a sense of kind of where the next trend will be in terms of good investments and where products may have a good end market?

[Todd Davis, executive]

We do. But our primary driver, because we're very product focused, is high unmet clinical need. And so even on the commercial side, when we come across commercial products, we're looking at things like QARZIBA in neuroblastoma. We don't specifically have a strategy around certain therapeutic areas which the market can tend to group around. Market moves around various therapeutic areas and come in and out of favor. We're very just focused on the products and the high unmet clinical need and whether they're addressing something that's really important clinically to patients.

And the reason we're focused on that is, one, I think that's important in general in terms of what we do with our [ day to day ] lives. But that's your best defense also against payer pressure. And so ultimately, all of these products are going to have to sit down when and if the development is successful and have discussions with payers around reimbursement. And the best positioned companies are getting drugs approved that make big clinical differences in the lives of patients. And so that's why we're focused on that just as a matter of business strategy,

And that just drives us into different quarters. Sometimes we'll make contrarian investments. I would say that right now, something like Zelsuvmi, which is a topically applied medication, may be viewed as contrarian because it's more of a specialty pharma product, it's topically applied. I think dermatology is a little out of favor right now. But the reality is there's very high unmet clinical need. These patients present primarily to pediatricians. They can't really do much for these patients other than refer them to pediatric dermatologists. The waiting lists are very long to get in to see those types of physicians.

And so we just think that this offers a really key solution in this clinical arena for patients and are confident in it. And so that's kind of how we think about our investing and our choices. Because in the long term, various therapeutic areas will come in and out of favor even if they remain relatively underserved. That just happens as a matter of investing strategies. So that's how we view it, if that's helpful.

[Unknown Analyst]

Okay. And a couple of questions on Captisol. I think that the company had indicated that there might be some life cycle management type of efforts that could take place. And then secondly, what is the competitive environment like for solubility and stability agent out there? And do you guys control -- I guess I'm just wondering how much of the market do you have a handle on there? And who are some of the others that might come up when somebody is looking for an agent like that?

[Todd Davis, executive]

Sure. Yes. Look, there remains very high demand for solubility-enhancing molecules or excipients that can enhance the solubility of the chemical entities that are active. Solubility and permeability are the two biggest drug delivery issues stability being the third. And Captisol itself is probably the strongest position in most solubilizers. There are other ways to do that, obviously, with nanocrystals and things like that. So there are different technological approaches.

So why is Captisol, -- why does it have 16 approved products historically? That's probably -- I don't know because I haven't done a historical analysis, that's probably the most prolific single drug delivery platform in history, have 16 approved products on one. Maybe there's a [indiscernible] technology or something that's similar. But in terms of solubilization, that's pretty dominant. And the reason why it's dominant is because it works so well and works broadly and is very easy to work with.

So our customers can basically get samples from us. They can -- any chemist in the pharmaceutical industry can work with it very easily. If it works on their molecules, they come back to us and they take a license. So we make it easy to work with. And it solves a lot of the solubility problems that our customers face with the chemicals and they're trying to formulate. So I hope that helps to answer that question.

[Operator]

And with that, ladies and gentlemen, that will conclude our Q&A session for today. And to wrap up, I'd like to turn the call back over to Todd.

[Todd Davis, executive]

Thank you. We are confident and optimistic. We believe we have the right strategy, we have the right team, and we are executing with discipline on the right market segment to deliver lasting, predictable and compounding growth. Thank you all for attending the earnings call today.