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Ligand Pharmaceuticals Inc  (NASDAQ:LGND)
Q3 2018 Earnings Conference Call
Nov. 08, 2018, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, everyone, and welcome to the Ligand's Third Quarter Earnings Call. My name is Lalaine, I will be facilitating the audio portion of today's interactive broadcast. All lines have been placed on mute to prevent any background noise. For those of you on the stream, please take note of the options available in your event console.

At this time, I would like to turn the show over to Mr. Todd Pettingill. You may begin, sir.

Todd Pettingill -- Director of Corporate Development, Investor Relations

Welcome to Ligand's third quarter of 2018 financial results and business update conference call. Speaking today for Ligand are John Higgins, CEO; Matt Foehr, COO; and Matt Korenberg, CFO.

As a reminder, today's call will contain forward-looking statements within the meaning of federal securities laws. These may include, but are not limited to, statements regarding intent, belief or current expectations of the Company and its management regarding its internal and partnered programs. These statements involve risks and uncertainties and actual events or results may differ materially from the projections described in today's press release and this conference call. Additional information concerning risk factors and other matters concerning Ligand can be found in Ligand's earnings press release and public periodic filings with the Securities and Exchange Commission, which are available at www.sec.gov.

The information in this conference call related to projections or other forward-looking statements represents the Company's best judgment based on information available and reviewed by the Company as of today, November 8, 2018, and do not necessarily represent the views of any other party. Ligand undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

At this time, I'll turn the call over to John Higgins.

John Higgins -- Chief Executive Officer

Good morning, and thanks for joining our earnings call. Q3 was an outstanding quarter for Ligand. We exceeded our expectations and we are raising financial guidance for the rest of the full year.

Ligand is enjoying significant revenue growth, a very high gross margins, strong returns from investments and our partners, robust cash flows and a strong cash position. 2018 is winding up to be a fantastic year and we have good momentum on all fronts as we move toward 2019.

A few comments about Promacta and Kyprolis first. In our view, both drugs are on track to exceed $1 billion in revenue in 2018, in turn, driving higher royalty revenue for Ligand. What is notable about both drugs is that, after sales data were posted for this past quarter, there are research analysts who cover Novartis and Amgen with models that now show each product exceeding $2 billion in peak annual revenue in a few years. The analysts that cover the products have a range of projections, some higher, some lower but given sales trends, this is the first time we have seen both products with Street estimates of peak sales over $2 billion, suggesting there remains considerable growth potential for both drugs.

First with Promacta. Novartis reported the highest quarterly revenue ever at $295 million, up 30%, or $68 million over Q3 2017. The product is one of Novartis' top growth brand in their Innovative Medicines division. Promacta continues to do well, given long-term safety data that is building for the product, label expansion and increased utilization in countries around the world. Its performance is particularly impressive, given there have been updates from competitive drugs that have had trial results announced or have launched for other indications. It has a strong safety and efficacy profile, as I mentioned, and also more than 10 years of established experience and used by physicians. In addition, Novartis is a world-class commercial organization that continues to grow Promacta as a blockbuster based on the product attractive therapeutic profile.

Novartis will be presenting important new data on Promacta at the ASH conference in early December. This is impressive to know that more new data is still coming out even after the drug has been on the market over 10 years.

Now, as for Kyprolis, Amgen reported $232 million in Q3 sales and Ono reported sales of $11 million for Q3. So combined, third quarter sales were $243 million. Q3 sales were up over 10%, or $23 million compared with Q3 of last year.

Now, of note, just last month, Amgen announced that the FDA approved the application to expand the prescribing information for Kyprolis to include a once-weekly dosing option in combination with dexamethasone for patients with relapsed or refractory multiple myeloma. We see this as a positive development, potentially making the drug more convenient for some patients.

As investors know, we highlight our key pipeline assets and provide continual updates. Over the past couple of months, we have seen major data in regulatory events that are worth calling out. Ligand has a highly valuable pipeline driving our future potential. These assets have strong and diverse IP, potentially address very large markets and are tied to lucrative economics and royalties due to Ligand.

Now, Matt Foehr will be talking about more of our assets, but here are updates on two product candidates under license with Ligand. The first is brexanolone, which uses our Captisol technology in its IV formulation and is in development by Sage Therapeutics for the treatment of postpartum depression or PPD. Brexanolone was the subject of an FDA Advisory Committee last Friday and received a favorable vote. In fact, it was a robust 17 to 1 vote in favor of recommending approval for the drug. There was highly supportive commentary by the Advisory Board reviewers and one person remarked and I quote "This is what hope looks like."

It's a promising development as PPD is a major underserved market. Now, referred to by Sage by the trade name Zulresso, the drug successfully completed Phase 3 clinical development for postpartum depression and its NDA is under review with the FDA with an action date of December 19. Zulresso was granted breakthrough therapy designation by the FDA in priority medicines or a "prime designation from the EMA." Evidence of the unmet medical need for the drug, which was also very clear from the presentations and discussions at the AdCom Meeting last week. If approved and commercialized, Ligand will receive royalties on product sales.

Now, the other program I'll highlight is with our partners at Viking Therapeutics. They have experienced an active flow of data events in news in recent months announcing positive top line results from a 12-week Phase 2 study of VK2809 in patients with non-alcoholic fatty liver disease or NASH. That study demonstrated statistically significant reductions in low-density lipoprotein cholesterol and statistically significant reductions in liver fat content. Post-study results are scheduled to be presented in an oral late-breaker at The Liver Meeting this weekend in San Francisco.

Also, positive results from a Phase 2 study of Viking's VK5211 in patients recovering from hip fracture were presented at the American Society for Bone and Mineral Research Meeting.

Viking noted just yesterday on their earnings call that the presentation was awarded the 2018 Most Outstanding Clinical Abstract Award by the conference organizers, further confirming the important and transformative nature of the dataset. Ligand is entitled to milestones and royalties on both of these drugs.

Just last month, we closed the acquisition of Vernalis. Quite simply, this is a great acquisition. The purchase price was $43 million, but after offsetting the substantial net cash they had of $32 million, the transaction only cost Ligand about $11 million. In the deal, we acquired a world-class R&D team focused on structure-based drug discovery that will continue to serve existing customers and will be a platform for potential new deals. The company brought Ligand a substantial portfolio of partnered and unpartnered programs. Notably, the deal brought to Ligand several high-quality shots on goal with partners such as Verona and Corvus, with their programs targeting large indications.

This deal is important as it shows our ability to continue to execute on disciplined deep value M&A that has important strategic benefits to Ligand. We've shown with Captisol and OmniAb an ability to source and close platform acquisitions that can add tremendous value to the Company. OmniAb is a platform in the early days of its life cycle and we expect it will continue to generate significant value for major partnered assets. Now, with Vernalis, we have a new research technology, European operations and high-value partners to continue to drive the business.

As we look toward 2019, we anticipate a very big year of development and value drivers for the business. We anticipate hosting an Analyst Day event in early 2019 where we will provide pipeline updates and operational and financial outlooks. We have the largest portfolio and most robust business ever. Next year, we anticipate multiple product approvals and launches, major clinical data announced from several of our higher profile portfolio assets, substantial events from our OmniAb and Captisol technology platforms and from Vernalis, and continued growth from Promacta and Kyprolis, as well as contribution from other products too.

I will now turn the call over to Matt Foehr to provide a more detailed review of our portfolio.

Matthew Foehr -- President and Chief Operating Officer

Thanks, John. I'll start off this morning with a review of some recent developments for select programs from our growing partnership portfolio, that's the largest it's ever been at over 178 shots on goal. I'll also discuss Ligand's technology platforms and highlight some recent and upcoming clinical and regulatory events of our partners. And I'll comment on the integration of Vernalis and our internal R&D activities.

Starting now with partnered program. We observed recent developments in progress on many of the programs we've highlighted previously as higher profile assets within our portfolio. Our partner Retrophin recently highlighted sparsentan at the ASN Kidney Week conference here in San Diego. At the meeting, they presented positive longer-term data from the open-label extension portion of the Phase 2 DUET study of sparsentan for the treatment of focal segmental glomerulosclerosis or FSGS, showing increased achievement of FSGS partial remission of proteinuria and stable eGFR observed out to 84 weeks.

As background, sparsentan has a dual mechanism of action that combines angiotensin receptor blockade with endothelin receptor type A blockade. Retrophin is developing sparsentan both for the treatment of FSGS, as well as for the treatment of IgA nephropathy, which is a rare kidney disorder that also often leads to end-stage renal disease. Sparsentan has been granted orphan designation for the treatment of FSGS both by the FDA and EMA.

Following positive Phase 2 DUET study results in FSGS, Retrophin initiated the pivotal Phase 3 DUPLEX Study of sparsentan for the treatment of FSGS. DUPLEX Study includes an interim efficacy endpoint based on proteinuria to serve as the basis of an NDA filing for Subpart H accelerated approval of sparsentan in the US and conditional marketing authorization consideration in Europe. Additionally, Retrophin expect to initiate the pivotal Phase 3 PROTECT Study evaluating sparsentan in the treatment of IgA nephropathy before the end of this year. If approved, sparsentan could potentially be the first approved pharmacologic treatment for FSGS and IgA nephropathy.

Last month, our partners at Sermonix Pharmaceuticals announced the launch of a Phase 2 trial of oral lasofoxifene for the treatment of metastatic breast cancer. The study is an open-label, randomized, multicenter trial evaluating the activity of oral lasofoxifene versus intramuscular fulvestrant for the treatment of postmenopausal woman with locally advanced or metastatic ER positive HER2 negative breast cancer with an ESR1 mutation.

As background, I'll note that previous clinical data have shown a significant reduction in the incidence of ER positive breast cancer in postmenopausal woman with osteoporosis, who were treated with oral lasofoxifene. And given that previous data, we've been looking forward to the initiation of this trial.

Given that they are privately held, Sermonix may not be a company that many investors are familiar with. We've been able to get to know their expanding executive team of world-class individuals with specific experience in the serum space, which is an area where Ligand has a rich drug discovery heritage, and we continue to be encouraged by the development progress they're making.

The week before last, our partners at Bristol-Myers Squibb highlighted the nitroxyl donor agent Captisol-enabled BMS986231 as they discussed the diversification of their R&D portfolio and recent clinical progress. They disclosed that they expect Phase 2 data next year in patients who are hospitalized with heart failure, and that the data they obtained will inform a potential registrational trial start.

Our partners, the Eli Lilly have also reported on progress with Captisol-enabled prexasertib, which they have indicated is a "priority internal development program" there.

We currently count eight oncology trials that are enrolling on ClinicalTrials.gov and look forward to data from some trials that have a recently completed enrollment.

We're pleased to report that our partners at Metavant are efficiently progressing the development of RVT-1502, which was formerly known as LGD-6972. It's a novel, orally bioavailable, small molecule, glucagon receptor antagonist or GRA that's been successfully tested at Ligand in multiple Phase 1 and Phase 2 studies in patients with type 2 diabetes. Metavant recently disclosed that they intend to commence proof-of-concept studies for RVT-1502 in type 1 diabetes before the end of this year, and we're very pleased with this expansion of the therapeutic opportunity for the drug. As a reminder, this is a drug we licensed out earlier this year and we're eligible to receive over $0.5 billion in milestone payments and potential royalties ranging from low-double digits to the mid-teens.

Switching now to our technology platforms and touching on Captisol just briefly. We continue to invest in our type 4 and type 5 Drug Master Files in the US, Canada and Japan, and also expand our geographic footprint of Drug Master Files and of safety database information. In September, we submitted a DMF in China and received our formal registration number for Captisol there. We did this in coordination with multiple partners and we're expecting approvals and launches in that market over the next year or so.

We continue to invest in the global intellectual property portfolio for Captisol as represented now by nearly 200 patents that are issued globally for the Captisol technology. Our team has processed more Captisol samples so far this year than in any other full year, which illustrates to us that prospective partners in the industry continue to recognize the potential of Captisol to solve their formulation challenges related to solubility and stability.

I'll briefly mention our Captisol partnership with Vireo Health, which is focused around cannabinoid-based medication. Since the time of entering the commercial Captisol agreement with them about three years ago, our partners at Vireo have continued to generate positive data with Captisol to overcome some of the major formulation hurdles that exist for cannabinoid-based medicine.

Based on that, while they've also been expanding their business and completing significant and transformative financing events and acquisitions. We look forward to discussing the program more in 2019 as Vireo continues to progress in development toward trials and potential registration. Cannabinoid-based medicines have substantial potential in a variety of indications with significant unmet needs, including multiple serious CNS diseases, chronic pain and others.

Our OmniAb antibody discovery platform continued to build significant momentum, feeding our business for the long-term. We're pleased to report that there are now nine OmniAb-derived clinical stage antibodies and we expect that number to continue to grow with more partners preparing to start new clinical trials in the coming months.

We monitored the delivery patterns of Omni animals to our partners so that we can -- as they can be a general indicator of the breadth and the depth of the use of the technology at some partners. Year-to-date, we've seen a near doubling of animals delivered as we compare with just a couple of years ago. That's driven not only by the use of Omni animals by new partners because of our licensing efforts but also from increasing use by our existing partners as they have positive experiences with OmniAb and began using it for additional therapeutic targets.

We continue to be active in licensing OmniAb and recently disclosed an agreement with the Fred Hutchinson Cancer Research Center. We're pleased that an organization like the Hutch which is at the footprint of cancer research, it has an established track record in corporate formation is utilizing the technology. We're eligible to receive a share of revenues received by the Hutch from companies that develop and commercialize products incorporating any OmniAb-derived antibody.

This year's Antibody Engineering and Therapeutic conference is approaching in about a months' time and it'll be held here in San Diego. Ligand and the OmniAb technology will have a significant presence at the Meeting as will many of our OmniAb partners.

Turning now to Vernalis. The integration is going very well. We were happy to welcome new colleagues at the Cambridge, England site, which will become the sole Vernalis site going forward. And we've been impressed with the focus and dedication of the Vernalis team and the administration office outside of London as we transition activities and facilitate that site's closure in Q1 of this year -- of next year.

The Vernalis research team in Cambridge has a rich history of successful structure-based drug discovery and a broad pipeline of partnered programs. The acquisition has added exciting new shots on goal, existing collaborations with major pharma companies that we look to expand upon and additional assets that present potential out-licensing and new corporate formation opportunities.

Now, a month in post-acquisition, we're confident in the ability of the Vernalis team to create additional shots on goal for Ligand to efficiently service and expand current relationships and provide additional internal scientific expertise that can be leveraged as we evaluate future company or technology acquisitions.

In the time since the deal closed, the team at Vernalis earned two success and progression milestones from global collaboration partners for two oncology assets. As I mentioned, the Vernalis deal brought us new shots on goal and I'd like to direct investor attention to two of them, one at Corvus Pharmaceuticals and one at Verona Pharma.

CPI-444 is the lead product candidate at Corvus and it's currently being evaluated in clinical trials in patients with various solid tumors as a single agent and in combination with Genentech's atezolizumab, which is an anti-PD-L1 antibody. CPI-444 is a small molecule oral checkpoint inhibitor designed to disable a tumor's ability to subvert attack by the immune system by blocking the binding of adenosine in the tumor microenvironment to the A2A receptor. Adenosine, a metabolite of adenosine triphosphate or ATP is produced within the tumor microenvironment where it may bind to the adenosine A2A receptor present on immune cells and block their activity.

In vitro and preclinical studies have shown that dual blockade of CD73 and the A2A receptor may be synergistic, and the clinical trials are in progress in renal cancer -- renal cell cancer and small non-small cell lung cancer as well.

Verona's RPL554 is a first-in-class, inhaled, dual inhibitor of the enzymes phosphodiesterase 3 and 4 that acts as both a bronchodilator and an anti-inflammatory agent. Verona is developing RPL554 for the treatment of chronic obstructive pulmonary disease or COPD, for cystic fibrosis and potentially for asthma.

In previous clinical trials, RPL554 has been observed to result in bronchodilator affect when used alone or as an add-on treatment to other COPD bronchodilators. It has shown clinically meaningful and statistically significant improvements in lung function when administered in addition to frequently used short and long-acting bronchodilators, such as Spiriva, compared with those as a single agent. RPL554 improved FEV1 over four weeks in patients with moderate-to-severe COPD when compared to placebo and improved COPD symptoms and quality of life in a Phase 2b multicenter European study involving over 400 patients.

For those that may not be familiar with an FEV1, it is the amount of air you can forcefully blow out of your lungs in one second, and it's an important number for people with COPD because it shows lung capacity.

In addition, RPL554 has shown anti-inflammatory effects in a standard challenge study with COPD-like inflammation in human subjects. RPL544 has been well tolerated in these studies with a favorable safety profile and has been administered to more than 700 subjects in a dozen clinical trials.

And I'll wrap up my comments this morning with some brief updates on activities with our internal pipeline, starting with Captisol-enabled iohexol. Our team is rapidly progressing with simultaneous US IND and Canadian CTA filings as we obtained a broaden, pre-clinical dataset and complete the manufacturing of our clinical trial materials.

We had a successful and very productive guidance meeting with the FDA recently, and agreed to a 505(b)(2) path with a plan for label inclusion of potentially differentiating safety information. We also hosted an Advisory Board Meeting recently that brought together globally recognized key opinion leaders and relevant subject matter experts to review our plans and the market dynamics in the imaging space.

We reviewed some recently completed primary market research for the program that clearly established and confirmed our view of the significant market need for Captisol-enabled iohexol. In that research, we learned that interventional cardiologists see safety as the most important contrast selection factor and the greatest area for improvement in the contrast imaging space. We look forward to updating you further as we progress to the clinic with the plan of having clinical data in 2019.

As disclosed recently, we've also initiated five new antibody-related programs, leveraging the capabilities and expertise of our OmniAb team earlier this year. Those programs are progressing very well and we look forward to talking more about the programs at scientific conferences next year.

And with that, I'll turn the call over to Matt Korenberg to discuss the financials.

Matthew Korenberg -- Chief Financial Officer

Thanks, Matt. I'm delighted to be reporting strong third quarter financial results this morning which continue our excellent year-to-date results for Ligand across the board.

Before I discuss the specifics of Q3, I'd like to once again remind investors that as of January 1 we began reporting revenue under the new ASC 606 guidelines. The principal place this impacts Ligand is on the royalty revenue line. When discussing royalties, I'll mention the appropriate comparable prior year period that provides investors a roadmap to evaluate the growth of that line item. The tables in our earnings news release contain only the 2017 period. The numbers that were reported at the time. We plan to provide information to describe the differences and aid investors in their analysis of the business in our 10-Q.

Turning now to some of the financial highlights. Total revenues for the quarter ended September 30, 2018, were $45.7 million, up from $33.4 million a year ago. Royalty revenue in Q3 2018 was $36.1 million, which was a 28% increase compared with the royalty revenue of $28.3 million in Q4 2017, which is the appropriate comparable period. The growth in royalty revenue largely reflected higher Promacta and Kyprolis royalties. Q3 2017 royalty revenue, as reported, was $21.9 million, but as I mentioned, this is not the appropriate comparable number to the Q3 2018 period. Milestone and license revenues were $2.5 million in Q3 2018 versus $3.8 million for the year ago period.

Material sales in Q3 2018 were $7 million compared with $7.7 million in Q3 2017. For both of these line items, any differences between this quarter and the year ago period are simply due to fluctuations in timing of milestone and license fee achievement, customer ordering patterns and the general variable pattern that we see in each of these two line items.

Gross margin on material sales was higher in Q3 2018 than a year ago period due to the sales mix that favored higher margin clinical sales, and our material sales cost translated to an overall corporate gross margin of 97%.

On the expense side, R&D and G&A cash operating expenses were in line with our expectations for Q3. The core business remains on track for our previous guidance of $36 million to $38 million of cash operating expenses for the full year. However, given the addition of the Vernalis operating business to Ligand and the associated increases in R&D and G&A costs, which are largely offset by Vernalis revenue, I thought it would be useful to investors if we begin discussing these two line items independently and with a little bit more detail.

First on the R&D line. Excluding non-cash charges, principally the stock-based comp, we expect this line to be between $20 million and $22 million for the year. This number includes a $2 million charge for the acquisition of Verrow Pharmaceuticals in Q1 2018, and R&D expense in Q3 on that basis, excluding stock comp and other non-cash charges, was approximately $3.1 million. In Q4 2018, this number will most likely increase based on some one-time increased project spend and a large portion of the costs associated with the new Vernalis team. More specifically, we expect R&D excluding stock comp and other non-cash charges in Q4 to be $7 million to $9 million.

On the G&A line, excluding stock-based comp and other non-cash charges, we expect this line to be $21 million to $23 million for the year. For Q3 2018, G&A excluding stock comp and other non-cash charges was approximately $6.3 million, and for Q4 2018, we expect this number to remain relatively stable and to be above $6 million.

Turning to GAAP net income. For Q3 2018, GAAP net income was $67.4 million, or $2.80 a share. Similar to Q2 2018, in Q3, there was a significant non-cash gain related to the positive performance of the Viking Therapeutics share price.

As mentioned last quarter, due to the change in accounting for financial instruments prescribed by ASU 2016-01 beginning January 1, 2018, we accounted for the value of our ownership in common stocks, such as Viking and Retrophin by making the value -- marking the value of our shares to current market prices with a resulting unrealized gain or loss running through the P&L each quarter rather than at the time of selling the stock. Prior to the new accounting standard, the changes in value would impact the balance sheet but not the P&L.

We don't believe these fluctuations in value whether they're positive or negative are reflective of our core operating business. And as such, these gains and losses will be excluded from our adjusted earnings calculations. So for the quarter, we reported adjusted net income of $31.7 million, or $1.32 per share, and this compares with $15.3 million, or $0.69 per share for the same period last year.

And a quick reminder, investors, our adjusted net income is reported on an after-tax basis, although we continue to utilize our NOLs and other tax assets, which results in a cash tax rate of less than 1%.

With respect to cash flow, in Q3, we generated $27.1 million in cash flow from operations.

And then on the balance sheet, we finished the quarter with cash, cash equivalents and short-term investments of approximately $1 billion. As will be detailed in our 10-Q, just after the end of the quarter, we settle just under $200 million of our 2019 convertible bonds. We currently have approximately $27 million of remaining bonds outstanding from our 2019's convertible notes. As of today, we have cash, cash equivalents and short-term investments of just under $800 million in addition to our $105 million of Viking stock and warrants.

Turning now to guidance. As outlined in today's press release, we're raising our full year 2018 financial guidance. Royalty and milestone performance continues to outperform our expectation and we're now seeing material sales exceeding our expectations as well. Therefore, for the year, we now expect royalty revenue of about $122 million, which is up from $120 million previously; Captisol sales of $25 million, which is up from $23 million previously; and milestones and license fees of about $93 million, up from $89 million previously. In addition, we currently see upside potential of up to an additional $5 million from milestones and license fees. These components translate to expected full year 2018 revenues of $240 million, up from $232 million previously and expected adjusted earnings per diluted share of $6.52, which is up from prior guidance of $6.30 per diluted share. This guidance now fully incorporates our best estimates for the newly acquired Vernalis business.

As a reminder to investors, as a result of ASC 606, in our tiered royalty structures, our royalty revenue recognition pattern will be changed from previous years such that we now expect royalty revenue to increase in each successive quarter throughout the year with Q1 being the lowest quarter and Q4 being the highest quarter in each year.

And lastly, please recall that our adjusted diluted EPS guidance excludes stock-based compensation expense, non-cash debt-related costs, amortization-related to acquisition, changes in contingent liabilities and CVRs, non-cash unrealized gains and losses associated with our investment in Viking Therapeutics, mark-to-market adjustments for amounts owed to licensors, excess tax benefit from stock-based compensation and the excess convert shares covered by the bond hedge and certain other one-time non-recurring item.

With that, I'll turn the call back over to the operator and open it up for questions. Operator?

Questions and Answers:

Operator

Thank you, presenters. (Operator Instructions) Your first question comes from the line of Dana Flanders. Your line is open.

Dana Flanders -- Goldman Sachs -- Analyst

Hi, thanks for the questions, and congratulations on the good quarter. And my first one here and I appreciate this is not your product. But can you just speak on the Sage asset potentially launching soon and just how you are thinking about the commercial opportunity for the IV, recognizing it's a long infusion but also just high unmet need? And then, how you think that will evolve assuming the oral gets to market and what you think the ultimate split there could be? And then I have a quick follow-up.

Matthew Foehr -- President and Chief Operating Officer

Yeah. Thanks, Dana. This is Matt Foehr. Obviously, we were encouraged and really pleased with the outcome of the AdCom on Friday. One of the things that really comes out of that, as you're listening to the -- not only the physicians but the patients who had the courage to kind of present their experiences with the disease is really the substantial unmet medical need, and how urgent the need is for something that can treat these patients. What Sage has been doing, as we see it is, really quite transformational in the CNS space, really treating a disease in a way where you can kind of treat it in a one-time setting rather than in a chronic way. So we were pleased with the outcome of it.

In terms of how they'll position it. Obviously, they see a significant opportunity in the IV, we've been, as I said, pleased with the work they've done over the last few years. They are developing a different drug that has an oral form that I think is awaiting some clinical data early next year. But they have, in general terms, kind of described how they've positioned it. We, obviously, direct you to them on kind of exactly how they're going to market and position the drug. But we're very pleased with the work they've done and all of their preparations for commercialization as well, I think they've commented that they've got a sales organization now of over 180 who will be focused on Zulresso. So we are pleased to hear that too.

Dana Flanders -- Goldman Sachs -- Analyst

Okay. And then my follow-up is just, I know you have about $1 billion of cash on the balance sheet and I know some of that's kind of coming out next year for the conver (ph). But can you just talk about the priorities for M&A? And I know it's been a few years since OMT. How should we just think about another large kind of platform technology deal being on the table heading into next year? Thanks.

John Higgins -- Chief Executive Officer

Dana, thanks. Its, John. And Matt can add -- Matt Korenberg can add some color too. Generally, our outlook today, frankly, is most exciting M&A outlook we've had in the last few years, partly based on it's the largest cash balance we've had ever, and substantially higher than it was even five months ago.

Secondly, obviously, we're aware the markets, the BTK, the biotech and pharma indices have pulled back a bit. In many ways, we think Ligand is a recession-proof stock. We don't rely on the stock market to finance our business. We've got very good payers. We've got a very well-funded partner to assets. And so, we really can use our cash to focus on opportunistic M&A. We are a very disciplined team, as I used the word, deep value in my prepared remarks. We look at a lot of ideas.

What's interesting about Ligand is that, we have our own drug discovery capabilities and platform technologies which fuel licensing, and we've shown over the last 10 years we have a very, very strong track record of perpetually, continually doing new licenses at a rate faster than programs failed or terminated. So we are constantly building our portfolio even without M&A. So, we have the benefit of that internal growth engine to drive our portfolio. But now, we think a more attractive investment environment for M&A, and a very large balance sheet, we have opportunities. But again, we will stay focused on our discipline and on strategic acquisitions that could expand the business.

Matthew Korenberg -- Chief Financial Officer

Yeah. I'd echo everything John just said. But, I think, in particular, as I say to investors frequently with our 178 shots on goal today, and the very attractive profile of that portfolio and the ability to add to that portfolio without any M&A, we always have the luxury of being extremely selective when we're doing these acquisitions. So, despite having an extremely attractive shopping list, so to speak, as we look at it today, we can continue to be selective and really find one that is a good fit and perfect fit with Ligand.

Dana Flanders -- Goldman Sachs -- Analyst

All right. Thank you.

Operator

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

Joseph Pantginis -- H.C. Wainwright & Co. -- Analyst

Hey, guys. Good morning. Thanks for taking the question. Maybe two questions, first for Matt Korenberg. Just curious if you have any color right now about the existing buyback.

And then second, wanted to see if you can provide any color for long-term or, say, let's just call it the next couple of years with regard to your milestone revenue line and is it in any way analogous to the choppiness of the Captisol line? Thanks.

Matthew Korenberg -- Chief Financial Officer

Thanks, Joe. So, yeah, first on share buyback. I think as most investors know, we have had a $200 million share repurchase plan in place to be used opportunistically for several years now. There was a plan that was put in place in 2015, and then again replaced in September of this year. And so, we've got our repurchase plan in place. We bought back shares pretty aggressively at a couple of different points in time over the last five or six years in 2014, and again, in 2018 this year -- earlier this year.

As people are probably aware, the recent pullback in our stock has all occurred post the blackout window or our closed window period, so we were not able to buy back any shares since October 1. And so, we're certainly evaluating that internally and we will continue to think about how to best deploy our cash as we see fit under the share repurchase plan.

On the milestone side, very good question. I think most investors know, but we have over $3 billion of potential milestones that are owed to us under the 178 shots on goal today, not all of those will be realized, but many will. As we look at that line and model it out over time, we see that we'll realize those milestones on average $30 million to $40 million a year for the next 10 years to 15 years at least. And so, when we model it internally long-term, we do it on sort of that basis. But each year, as investors know, I've given guidance, the last two years a core amount of milestones and then a potential upside from there, this year, at the start of the year, guidance was $25 million plus potential for $20 million upside. Our current guidance now implies that we'll receive about $30 million out of that bucket, $25 million plus about $5 million of the upside.

Obviously, when we give our guidance at the beginning of each year, it excludes any new deals. We only talk about the 178 products and potential milestones coming out of that. So, this year there were two new deals on the outlicensing of our glucagon receptor antagonist diabetes program, the Metavant and then a OmniAb partner that wanted to amend their deal and paid us a large milestone to do so.

So, there will always be those sort of upsides and in that sense, there will always be the potential for a lumpy realization. But even within that 178 shots on goal and $3 billion milestones and $30 million to $40 million on average per year, I also always careful to say that, some years that number might be $15 million, in some years it might be $60 million or $70 million or it could be sort of all over the map just depending on timing of clinical trials, timing of approvals, commercial success of the partners programs. And so, we'll each year give very specific guidance and forward-looking basis, and then in the long-term, I think the way to think about it is as I just went through. So, yeah.

Joseph Pantginis -- H.C. Wainwright & Co. -- Analyst

No, that's very helpful. Thanks for that color. And then, wanted to see if I could get just sort of a broader view on the OmniAb platform. I guess, I want to approach it from this angle, sort of how many deals have you been looking at, say, per year? The number of inbounds you kind of get, and -- versus the actual number that you might sign?

Matthew Foehr -- President and Chief Operating Officer

Yeah. Thanks, Joe. It's Matt Foehr. At any one time we're in multiple -- I'll say multiple term sheet negotiations with partners. The visibility around OmniAb, we've noticed a continuous increase with the addition of Crystal Bioscience and the OmniChicken, that increased the value proposition for partners substantially where we now have three species of -- with fully human immune systems producing fully human antibodies.

So, we continue to see a kind of growing interest of partners who understand the value of the technology. It helps a lot that many of our partners present at these antibody discovery conferences that now there are nine clinical stage antibodies. We have a couple in Phase 2. So, multiple progressing with partners and many of those partners are ones that smaller or emerging players in the industry really look up to for their kind of the example they set and the tools that they use. So, I hope that gives you a little more color.

Joseph Pantginis -- H.C. Wainwright & Co. -- Analyst

No, absolutely. Thanks a lot, guys.

Operator

Our next question comes from the line of Matt Hewitt. Your line is open.

Matt Hewitt -- Craig-Hallum Capital Group -- Analyst

Good morning. Congratulations on the progress.

John Higgins -- Chief Executive Officer

Thanks, Matt.

Matthew Foehr -- President and Chief Operating Officer

Thanks, Matt.

Matt Hewitt -- Craig-Hallum Capital Group -- Analyst

First about the material sales, you spoke about this in your prepared remarks a little bit, but you're seeing strong demand from both sample requests, as well as the incremental orders from existing customers. Do you have a split on that or could you provide us with a little bit of a sense on what the breakdown was for that line item?

John Higgins -- Chief Executive Officer

Hey, Matt. Thanks for the question. Annually we give a split in our 10-K that breaks out the clinical from commercial orders. And typically in quarterly we haven't given the split. On an annual basis, it's tends to be 60-40 on the clinical side versus -- sorry, commercial side versus clinical in the last year or two. And then this quarter is a little bit heavier on the clinical side, as you saw from the margin side. So, the higher the margins usually the higher the clinical mix. But we don't sort of give quarterly specific guidance on that.

Matt Hewitt -- Craig-Hallum Capital Group -- Analyst

Understood. Okay. And then I wanted to, I guess, dig in on the iohexol opportunity a little bit. And thank you for providing the update. As we think about some of the discussions and meetings that you've recently had, I think you mentioned maybe getting into the clinic in 2019. How is that timeline likely to shake out, I guess, in relation to like GRE (ph)? And how should we be thinking about potential partnerships and those types of opportunities?

Matthew Foehr -- President and Chief Operating Officer

Yeah. Thanks, Matt. It is Matt Foehr. Obviously, the team's been working -- doing some great work around Captisol-enabled iohexol and a key part of our business model, as you and others know is that, we do focus R&D investment with the sole intent of answering a couple of key questions and then partnering, right, using that data to then drive better partnering events or larger partnering events. That was the case with the GRA as you referenced, and iohexol a different space, obviously, the imaging space, which has some significant need, but we're following that similar path.

So, the team's been doing great work. We'll be filing both the IND and Canadian CTA simultaneously. Expect to have clinical data in 2019 and then from there would look at a partnering process. We've done some very encouraging primary market research that we're excited about and really validated and kind of further broadened our understanding of the needs within this area. And, obviously, we mapped out the development path with the FDA. Those are, obviously, value driving events but then expect to have clinical data in 2019 and pursue partnering.

Matt Hewitt -- Craig-Hallum Capital Group -- Analyst

Okay, great. I think that's it from me for now. Thank you.

John Higgins -- Chief Executive Officer

Thanks, Matt.

Operator

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

Lawrence Solow -- CJS Securities -- Analyst

Great, thanks. Great quarter. Great outlook. Thanks. Thanks again. Just had a few follow-ups, since most of my questions has been answered. On the Vernalis, on the good opportunistic acquisition there. Could you just walk through the effects or is it dilutive or nearly breakeven in the first -- for the remainder of 2019? Obviously, you're acquiring a 70% R&D team, so I assume there are some expenses there.

Matthew Korenberg -- Chief Financial Officer

Yeah. Thanks, Larry. We'll, obviously, give detailed 2019 guidance later, next year -- or earlier next year. And then on 2018, the guidance I gave already fully incorporates everything from Vernalis. But specifically what we've said at the time of the deal was that, it would be largely neutral. The revenue that the team generates from service revenue, fee for service revenue is offset by the expense of maintaining the team. We still see that being the case. And that's largely what we expect for both Q4 of 2018, as well as of all of 2019. Annually approximately it's $8 million or so of revenue -- $8 million to $10 million of revenue and $8 million to $10 million of costs. So it is on that order of magnitude.

Lawrence Solow -- CJS Securities -- Analyst

Got it. And the service revenue, I assume that that's at least for 2018, is that going into licenses -- that's go into license revenue, I guess, on your line item and is that part of the reason why you bumped up your numbers a little bit on the (multiple speakers)?

Matthew Korenberg -- Chief Financial Officer

Correct. Yeah. So it will end in the milestone license fee and other revenue line. It's the same place that our Crystal OmniAb revenue hits from -- for the same sort of work. And then, yeah, it was a portion of the bump on the milestone side was related to that.

Lawrence Solow -- CJS Securities -- Analyst

Got it. And could you give any update on the progress on LTP TECHNOLOGY? I haven't heard too much about that.

Matthew Foehr -- President and Chief Operating Officer

Yeah. Larry, thanks. This is Matt Foehr. Yeah. We have a couple of partnerships centered around LTP. I'll highlight one a company called Nucorion, that's generated some positive data that was presented at one of the liver health meetings earlier this year, showing better targeting of cancer drugs using the LTP TECHNOLOGY. Our team also has continued to do work internally around LTP-enabling some of the large lipid-lowering agents where increased liver targeting would be thought to help certain patients who right now can't tolerate lipid-lowering agents or certain lipid-lowering agents tolerate them. Some of that data has been presented at meetings, but we'd expect to present more data in 2019.

So, yeah, it's an exciting platform. A smaller number of partnerships than we have for our larger platforms, but it's definitely progressing well and generating positive data for us.

Lawrence Solow -- CJS Securities -- Analyst

Great. Thanks, guys. Appreciate it.

John Higgins -- Chief Executive Officer

Thanks, Larry.

Operator

(Operator Instructions) We have another question here coming from the line of Scott Henry. Your line is open

Scott Henry -- ROTH Capital Partners -- Analyst

Thank you, and good morning. Most of my questions have been asked, but just a couple. First with regards to Zulresso, and brexanolone, I would assume there would be a small milestone upon FDA approval. I guess, the question is, is that a reasonable assumption? And if so, would that be upside to your milestone forecast?

Matthew Korenberg -- Chief Financial Officer

Thanks, Scott. Yeah. If you scan through the Sage public disclosure, you'll see that they disclosed clinical milestones associated with the program of about $800,000 and regulatory milestones associated with the program of $3.8 million, which you can imagine would be split between a filing and an approval milestone. And so, the bulk of that is probably on the approval, and yeah, that would be part of some of the upside.

Scott Henry -- ROTH Capital Partners -- Analyst

Okay. Great. Thank you for that clarity. And then just the other question with regards to LGD-6972, the Roivant partner product. Do you have any color on what's next for that compound and how we should think about upcoming visibility?

Matthew Foehr -- President and Chief Operating Officer

Yeah. Thanks, Scott. This is Matt Foehr. Yeah. So, well, we used to call LGD-6972. Obviously, during the period where Ligand was doing the Phase 1 studies and the Phase 2 study. Roivant now refers to as RVT-1502, did the deal with them earlier this year and one of the things that we liked about how Metavant, I should say, Metavant was thinking about the asset was that they saw opportunity, not only in type 2 diabetes, but in type 1 diabetes as well. They've disclosed they're going to start a trial in type 1 diabetes before the end of this year. So we're, obviously, keeping an eye out for that. And we think type 1 is a really exciting expansion beyond type 2 of the therapeutic potential for the drug.

Obviously, there are 1.5 million adults in the US with type 1 diabetes, and really there are -- the only approved drugs are -- have limitations, really the therapies -- there's really an unmet need for therapies to improve glycemic control without increasing risk of hypoglycemia or diabetic ketoacidosis and therapies that would allow a reduction in insulin requirements could -- and also prevent weight gain and incur (ph) hypoglycemic risk could really see a nice spot eventually in the market. So, we're excited with the progress they're making. They've been moving very efficiently, not only with the large kind of scale up activities, but also other activities to support their disclosed plan of starting the type 1 diabetes trial this year.

Scott Henry -- ROTH Capital Partners -- Analyst

Okay. And I don't know if you have this color, but that type 1 trial, when would we expect to see data? And, I guess, is that a proof-of-concept or is that a Phase 2 trial? Just trying to think about that.

Matthew Foehr -- President and Chief Operating Officer

Yeah. I'd have to direct you -- on data and the details of the trial, I'd want to direct you to the Metavant team to comment there.

Scott Henry -- ROTH Capital Partners -- Analyst

Okay, great. Thank you for taking the questions.

Matthew Korenberg -- Chief Financial Officer

Thanks, Scott.

Operator

(Operator Instructions)

John Higgins -- Chief Executive Officer

Thanks, Scott. So that concludes our call. We appreciate you're tuning in. Clearly, a very busy year, a very successful year and our outlook into 2019 is building with good momentum across all fronts. Thank you. We will be on the road with a number of conference events that we'll be announcing, invitations that we've received. And again, we're looking forward to an Analyst Day event in the early part of 2019. Thank you very much.

Operator

This concludes today's conference call. You may now disconnect. Thank you for your participation.

Duration: 54 minutes

Call participants:

Todd Pettingill -- Director of Corporate Development, Investor Relations

John Higgins -- Chief Executive Officer

Matthew Foehr -- President and Chief Operating Officer

Matthew Korenberg -- Chief Financial Officer

Dana Flanders -- Goldman Sachs -- Analyst

Joseph Pantginis -- H.C. Wainwright & Co. -- Analyst

Matt Hewitt -- Craig-Hallum Capital Group -- Analyst

Lawrence Solow -- CJS Securities -- Analyst

Scott Henry -- ROTH Capital Partners -- Analyst

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