Q3 2023 Ligand Pharmaceuticals Inc Earnings Call

Participants

Matthew E. Korenberg; President & COO; Ligand Pharmaceuticals Incorporated

Octavio Espinoza; CFO; Ligand Pharmaceuticals Incorporated

Paul Hadden

Simon Latimer; Head of IR; Ligand Pharmaceuticals Incorporated

Todd C. Davis; CEO & Director; Ligand Pharmaceuticals Incorporated

Lawrence Scott Solow; MD of Research; CJS Securities, Inc.

Presentation

Operator

Thank you for standing by. My name is Danica, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Ligand Third Quarter 2023 Earnings Webcast. (Operator Instructions) I would now like to turn the call over to Simon Latimer, Head of Investor Relations. Please go ahead.

Simon Latimer

Thanks, Danica. Welcome to Ligand's Third Quarter of 2023 Financial Results and Business Update Conference Call. Speaking today for Ligand will be Todd Davis, CEO; Paul Hadden, Senior Vice President of Investments; Matt Korenberg, President and COO; and Tavo Espinoza, CFO. Please note that there are slides accompanying today's call. These can be accessed by going to the Investors section of our corporate website where you can find the link to the webcast and presentation on the IR calendar page.
We'll use non-GAAP financial measures, and some of our statements will be forward looking, including those related to our financial conditions, results of operations and financial guidance. Additional information concerning risk factors and other matters concerning Ligand can be found on slide 2 as well as in our earnings press release and our periodic filings with the SEC. We undertake no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. A reconciliation between the non-GAAP financial measures we discuss and the closest GAAP financial measure can be found in our earnings release issued earlier today.
Before we get started, I'd like to highlight that earlier today we announced that we'll be hosting an in-person Investor and Analyst Day on December 12 in New York. Our senior management team will provide an in-depth update on our business strategy, an overview of our portfolio, financial outlook and other developments. We look forward to seeing many of you there and we'll provide more details on the event in the future.
I'd now like to turn the call over to Todd Davis. Rob?

Todd C. Davis

Thank you, Simon, and good afternoon, everyone. Thanks for joining our third quarter 2023 earnings call. I'm pleased to have the opportunity to speak with you today and provide an update on the company's performance and recent developments. We are approaching the 1-year anniversary of my appointment as CEO, and I am very pleased with the strong execution by my colleagues and our partners over the last 12 months. By every measure, we've had a terrific year, a great quarter and are poised to accelerate our momentum as a business in 2024.
Adjusted earnings per share is growing. We've closed a number of exciting and diverse types of investments to execute on our strategy, which our team will detail in this presentation, we've cut costs and streamlined our business and made a number of additions to the team who have already made a significant impact on our business. In short, we have achieved everything we set out to do this year and are very well positioned for 2024. There are three drivers to our current performance and future growth. One, the commercial portfolio continues to generate growing revenues. Two, we are seeing continued progress across our existing development-stage partnered portfolio.
This existing portfolio offers us significant future growth on a stand-alone basis. Three, we have implemented a strategy to scale our business development and investment capabilities. This allows us to build upon the existing asset portfolio, adding new late-stage development and commercial assets to achieve more sustainable long-term growth. We are now seeing tangible results of this effort with several notable recent transactions that contribute to our goal of adding in high-growth risk-mitigated programs into our existing portfolio.
We have a strong debt-free balance sheet, and we have also improved our P&L by reducing overall expenses. The growth in our commercial portfolio, together with these initiatives is having a direct impact on our earnings. Today, we are raising our adjusted EPS guidance to $5.25 to $5.40 per share, up $0.15 per share from our prior guidance of $5.10 to $5.25. When compared to guidance introduced at the beginning of the year of $3.10 to $3.30. This increase is driven by $0.60 to $0.65 in EPS from the strength of our operating business and an additional $1.50 from the sale of Viking Therapeutics stock.
Revenues for the third quarter of 2023 were $32.9 million, including $23.9 million in royalty revenue. We ended the quarter with cash and short-term investments of $191 million. Tavo will go into greater detail on our financial performance and developments. Moving to slide 4, we will discuss business development and the investment team scale up. One of our key priorities over the last 12 months has been to scale our investment capabilities, including origination, diligence and deal making to bring more institutional process to the way we originate, negotiate and execute on investments.
This requires the best available talent in pharmaceutical investing and deal-making. Earlier in the year, we hired Paul Hadden as Senior Vice President of Investments and Business Development. We've also added Lauren Hay as VP of Strategic Planning and Investment Analytics as well as several key additional members to our investment analysis team. Internally, we have added Keith Marschke, one of our most experienced scientific leaders to our [deal] diligence and sourcing teams. These additions are complementary to our corporate team that is highly capable with regard to public company administration, operations and execution.
In September, we appointed Martine Zimmermann to our Board of Directors. Dr. Zimmermann brings considerable experience in development and regulatory affairs at the global level, having held senior roles at small and large pharmaceutical organizations in the U.S., Europe and Asia-Pacific. Her skills are very valuable and complementary to the existing science, clinical and business expertise that we already have on the board. As we continue to source and execute on investments, we look forward to the strategic contributions that she will make.
These new hires and a fortified process have enabled us to execute on a portfolio investment strategy, which will build our portfolio of partnered assets and accelerate our growth trajectory over the coming years. Additionally, we have emphasized significant focus on portfolio management. With our extensive portfolio of partnerships, we believe that this will maximize results from the existing portfolio and generate new opportunities. This year, we also opened up an office in Boston. This is helping raise awareness of Ligand in Boston and Cambridge, a major life sciences hub.
As a result, we now have greater access to the academic community, scientific centers of excellence and the talented biopharmaceutical business executives in that region. Moving to slide 5, we will discuss our strategy. This slide summarizes the multiple tactical approaches by which we add late-stage programs into our portfolio. These are royalty monetization, where we purchased existing royalty rights on existing royalty contracts that are owned by inventors, university or companies, and they are in later stages of development. Number two would be M&A, where we buy companies with valuable assets or partnerships, realizing the value of the assets while restructuring operations, partnering the assets and cutting costs.
The currently challenging financing environment for biotech companies is favorable for this leg of our strategy. Ligand has a history of doing this successfully with deals like Viking Therapeutics and the Pelican/Primordial Genetics merger. Project finance is where we provide development capital to fund late-stage clinical programs in return for royalty contracts that we draft, create and those royalties are on future sales of those products. And finally, the platform technology acquisitions, that is where we look for technology platforms with high operating margins and existing licensing contracts where we seek to generate new royalties by operating those platforms as well as harvesting the existing royalties.
The ideal platform will be scalable and have broad applicability. An excellent example of this is our current Captisol business. Now Paul Hadden will provide additional comments on our investment strategy as well as specific comments on our recent Ovid, Tolerance and Pelican transactions. Following Paul, our President, Matt Korenberg will provide an overview of progress made in our portfolio operations, near-term growth drivers and the Novan follow-on investment. Tavo, our CFO, will follow that and will provide details on the third quarter financial update.
Paul?

Paul Hadden

Thank you, Todd, and good afternoon, everyone. It's a pleasure to be able to address you in my first earnings call. I've been in the seat for a little over 8 months now, and our team is very pleased with the progress we have made to-date. We are excited about what we are building at Ligand, and we hope to provide a small glimpse of things to come on today's call. We recently entered into four separate investments in which Ligand invested a total of $77 million. These illustrate some of the different approaches we have in our team's toolkit.
I will review three of our most recent investments, Tolerance, Ovid and Pelican transactions. By way of background, I joined the company in late Q1 this year. What attracted me to Ligand was an opportunity set that remains unprecedented. Specifically, the company has had a very important pivot point in both our own history, but also within our industry. During one of its first earnings call, Todd laid out a significant imbalance between the supply of alternative capital and the demand for it. That imbalance continues and if anything, has grown.
We also stated our goal was to accumulate more royalty interest, specifically focused on driving sustainable high profit growth. We will review some of our recent investments to demonstrate how we are executing against that goal. Moving to slide 7 with a touch on our business development process; perhaps the most important change we made at Ligand in the last 6 months was to build up a highly proactive outbound global sourcing effort, capable of identifying attractive risk-reward investment opportunities to acquire royalty interests. This requires experience, relationships and discipline.
Creating a global business development pipeline and execution capability is something many of our senior team has done before. We are in the early innings of this effort and look forward to continued progress in adding these internally sourced opportunities to our transaction funnel. In terms of our target investments, we are looking for royalty interest in products that are no more than a few years from market, products that have strong clinical differentiation, which address significant unmet medical needs, have solid patent protection and strong alignment with the products marketer. Beyond that, we are agnostic as a therapeutic area.
Our Q4 pipeline today has over 25 actionable opportunities, representing in excess of $800 million of potential transaction value. Origination is clearly a strength of our team. Collectively, our existing investment team has a decade-long track record of executing on the four key approaches to royalty aggregation. In my first three months at Ligand, we were laser-focused on adding to our team, specifically, individuals with skills that spans sourcing, underwriting and execution that could complement the strong foundation we already have. This required us to assess our internal capabilities, recruit and hire top talent, build a bench of expert external consultants and establish best-in-class investment processes.
We knew this would enable our team to effectively invest and acquire new royalty interests while allowing us to scale the business at the same time. Our most recent investments in Ovid and Tolerance are evidence of those capabilities being established and matured. As providers of not just technology but also alternative capital to emerging biopharma companies, our broad mandate is exciting, but it also requires discipline as there is no shortage of opportunities to look at. And that is where our senior team's experience and judgment plays an important role.
I also want to highlight a critical element of our investment strategy, thorough and process-driven diligence. Today, we have a lot of in-house investing and scientific experience. While M&A as a tool may leverage from time to time, when underwriting new royalty in interesting transactions, we are always conducting private equity level due diligence. Our investment teams and consultants analyze many aspects of the product ranging from clinical trial design, pipeline competition, manufacturing, intellectual property, commercial sales potential and licenses to name a few.
Furthermore, we executed on this process under confidentiality agreement, which provides us with significant informational advantages in our decision-making. Every investment goes through the same rigorous process before being added to our portfolio. Turning now to two specific transactions; I'll next cover Ovid. On slide 8, you can see that in October, we announced a deal with Ovid Therapeutics in which we invested $30 million to acquire a 13% portion of the royalties and milestones that are owed to Ovid related to the potential approval and commercialization of soticlestat, a Phase III first-in-class novel mechanism of action molecule for epilepsy.
It is being studied by Takeda in two rare pediatric epilepsy indications, Lennox-Gastaut Syndrome, or LGS and Dravet syndrome. Takeda is one of the world's leading pharmaceutical companies in neurology and rare diseases. LGS and Dravet are two very difficult [trade] conditions where despite having a few products that have been recently approved, they remain high unmet clinical needs. After Ovid successfully completed a Phase II trial, Takeda bought back the rights in 2021 for $196 million upfront, up to $660 million in milestones and if approved, tiered royalties up to 20%.
We purchased 13% of that license from Ovid for $30 million, which means Ligand will be eligible to receive up to $86 million in milestones and up to a 2.6% royalty on global net sales of soticlestat. Takeda is now conducting a global Phase III clinical program. Takeda has also stated that it anticipates regulatory filings for the product in its fiscal year 2024. So we expect royalties to Ligand could begin a year later. This is a great example of a royalty monetization. Aside from our upfront investment, we are not taking on any incremental expense or overhead, which is attractive to Ligand, and there is no requirement for Ligand to build supporting infrastructure or get involved in the product development.
We have very capable partners that are doing that for us. For Ovid, in this transaction, they successfully raised non-dilutive capital to further invest in their own pipeline while keeping the majority of the license economics. We believe there are other biotech companies with products in late-stage development, and we'll find non-dilutive investments like this one to be highly attractive relative to other financing alternatives in today's equity marketplace. Our goal is to pursue many future investments like this, which offer Ligand investors the potential for high-margin growth over many years. This transaction is noteworthy as it was the first under our new investment process, where our investment team sourced, performed diligence and negotiated terms of the entire investment.
Moving on to slide 9; the second deal we closed this quarter was a $20 million acquisition of Tolerance Therapeutics, a holding company owned by the inventors of TZIELD or teplizumab. Tolerance is owed a royalty of less than 1% of worldwide net sales of Sanofi's TZIELD. TZIELD was the first disease-modifying therapy in Type 1 diabetes or T1D. It is a CD3 direct antibody indicated to delay the onset of Stage 3 T1D in adults and children aged 8 years in over with Stage 2 T1D. TZIELD was granted breakthrough therapy designation by the FDA in 2019 and was approved by the FDA in November 2022.
TZIELD is marketed by Sanofi following a $2.9 billion acquisition of Provention Bio earlier this year. Sanofi recently announced new data from TZIELD PROTECT III Phase III trial, which showed TZIELD potential to slow the progression of Stage 3 T1D in newly diagnosed children and adolescents. This data was published last month in the New England Journal of Medicine. Sanofi described the acquisition of Provention Bio as a strategic fit, paying at the intersection of the company's growth in immune-mediated diseases and disease-modifying therapies in areas of high unmet need. Sanofi has a robust history within the diabetes space.
Sanofi has been featuring TZIELD as one of their key launches with significant blockbuster potential on recent Q3 earnings described TZIELD as having a multibillion-dollar potential. Coincidentally, the day we announced the acquisition, Sanofi press release announced their 1 Pledge campaign. This is a program to help boost awareness of Type 1 diabetes early screening and detection so that families can be more prepared for a diagnosis. The campaigns have singer and actor Usher, Head Instructor and VP of Fitness Programming at Peloton, Robin Arzon; and Journalist Adam Schefter, to tell their stories about Type 1 diabetes.
Because TZIELD is already FDA approved, the Tolerance acquisition will be immediately accretive to Ligand's royalty revenue and is an example of what Ligand believes will be many future transactions with inventors and academic institutions. Moving on to slide 10; in September, we announced that we were spinning off our Pelican business and merging it with Primordial Genetics to form a new company, Primrose Bio. As part of the deal, Ligand is retaining the existing commercial royalties related to the Pelican platform, and will own 49.9% of Primrose Bio.
We also entered into a purchase and sale agreement with Primrose, whereby we invested $15 million in exchange for a portion of the economic rights from two existing contracts of Primordial Genetics and an economic interest in potential future revenues generated from the Pelican business. As background, we acquired the Pelican business through the acquisition of Phoenix in 2020. After incubating Phoenix for three years, we now have 5 commercial royalty streams from the technology platform.
And with the spin-off and merger, we also retain a significant equity stake in an exciting new company with capabilities in synthetic biology. This process is very similar to other transactions in the past, including Viking Therapeutics and the OmniAb spin-off. The acquisition of Phoenix was a very successful transaction for Ligand and one that we expect will continue to generate revenues. The recent spin-off is consistent with our strategy to streamline the company's operations and focus on accretive high-margin businesses and royalties. We wish the Primrose team well as they continue to advance technologies that enable the development of next-generation therapeutics as a standalone company.
I will now pass it over to Matt who will cover our portfolio updates. Matt?

Matthew E. Korenberg

Thanks, Paul. It's been an exciting period for the portfolio over the last three months, and today, I'm pleased to be able to provide investors an update on the developments across the commercial programs and the progress and additions to the partner development portfolio. Slide 12 shows our key commercial and late-stage pipeline assets, including two new recent additions through portfolio investment. I'll touch on our new programs in a moment, but I always like to remind investors that our broader portfolio includes more than 75 additional partner programs beyond the 12 that are highlighted on this slide.
The products listed here are a subset of our programs that are currently approved are in Phase III development. Our current commercial portfolio includes over 25 different royalty streams and 30 commercial drivers overall. With the addition of TZIELD, there are now 8 royalty-bearing programs that we believe are significant enough that investors should focus on them in the near term, and I'll provide updates from Q3 on a few of those commercial programs now. Kyprolis, which is an important drug for multiple myeloma, continued its strong 2023 with another solid quarter.
Kyprolis is marketed by Amgen in the majority of the countries around the world as well as by Ono in Japan and BeiGene in China. In Q3 2023, these companies are again expected to report combined quarterly revenue exceeding $370 million. Year-over-year growth for the product has been driven by strong volume growth and the product is on track to exceed $1.4 billion of global sales this year. After receiving approval in February, this is now the second full quarter of Travere marketing FILSPARI in IgA nephropathy. We earn a 9% royalty on sales, and we expect that this will be a significant driver of long-term growth for our royalty.
Travere reported sales of $8 million for Q3 and Travere also disclosed that the momentum on new patient recruitment continued in Q3. Travere had 430 new patient forms submitted in Q3 and 990 total since the launch. The continued growth in potential new patients provides good evidence of the successful product launch and ramp. Sell-side analyst estimates for peak sales in IgA nephropathy are between $500 million and $1 billion. Sales anywhere in that range would make FILSPARI Ligand's most significant royalty generator. Rylaze marketed by Jazz is a component of a multi-agent chemotherapeutic regimen for the treatment of children with -- children or adults with [ALL] or LDL.
This product continues to do extremely well in a market that was historically constrained by supply issues. In Q2 of 2023, Rylaze reached a record level with $101.7 million in sales. And just before we got on this call, we saw that Jazz reported Q3 sales of Rylaze increasing quarter-over-quarter to $104.9 million. Q3 2023 as compared to Q3 2022 was an increase of over 42%. Vaxneuvance is a 15-valent pneumococcal vaccine utilizing Ligand's CRM197 vaccine carrier protein produced using the Pelican Expression Technology platform. Merck is now marketing Vaxneuvance in both the adult population and the pediatric population. Merck announced $214 million in Vaxneuvance sales in Q3 2023.
Third quarter results show that Vaxneuvance is on its way to blockbuster status and that 2023 sales for the product are now on track to exceed $700 million. Paul already covered the details of our recently acquired rights to Sanofi's TZIELD program. And as Paul mentioned, expectations for TZIELD are clearly in a blockbuster range, and we're thrilled to add this premier product to our royalty portfolio. Lastly, I wanted to provide a quick update on our Captisol business. Core Captisol sales have continued to outperform our expectations for the year as reflected by another increase in guidance for this revenue item. We reported Captisol sales on a separate line from our royalties, but this business is another of our major drivers of revenue and profitability.
The gross profit from Captisol should equate to about $17 million, which would exceed our largest current royalty other than Kyprolis. Over the next two slides, I'll provide some updates on the portfolio progress we've seen so far in 2023. First, on slide 13, you can see that some of the key programs we highlighted at the beginning of the year and the progress that those programs have made for each. On the approval front, we saw a Travere obtain U.S. approval for FILSPARI and Jazz win EU approval for Rylaze, which is marketed as Enrylaze in Europe.
Both Verona and Novan submitted NDAs to the FDA for key programs, and I'll touch more on our Novan strategy in just a moment. Merck reported favorable data for V116, a product that expects to use to broaden the Merck offering in pneumococcal. And existing partners Palvella and Viking supported positive Phase II data in their respective disease areas. On slide 14, we lay out some of the broader portfolio progress in Captisol licensing that has occurred this year. While these products were not previously highlighted as key programs, we wanted to provide a quick update on these additional growth drivers.
On the portfolio front, our Chinese partner, Xintong, submitted an NDA for pradefovir to the Chinese FDA in late 2022 and then in May of 2023 received Notice of Acceptance and Priority Review status. The Hepatitis B market in China remains significant. And with a 9% royalty to Ligand, we expect pradefovir to be a solid contributor to the royalty line over the longer term. Our partner Anebulo reported positive Phase II data in acute cannabinoid intoxication, which is a significant new market opportunity as regulation shifts throughout the country. Novartis received pediatric approval for this year for its combination program of TAFINLAR and MEKINIST.
MEKINIST as a Captisol formulated product and the newly approved combination is indicated for pediatric patients with certain solid tumors. While this program is not expected to be a huge contributor given the population size, it's an important product for patients, and it should provide a growing royalty stream over the next decade or more. The bottom portion of this slide provides an update on our Captisol licensing efforts. Table on the left shows the history of our licensing deals since our acquisition of CyDex in early 2011. Continued strong interest in our technology provides an organic source for new royalty deals that do not require deploying new investment capital, and of course, will drive our Captisol sales over the longer term as well.
The table on the right lists the new Captisol agreements we put in place so far this year to give investors a sense of the types of programs that we see when we're initially signing up partners to Captisol use agreements. Over time, assuming program success, these programs will move into our later-stage pipeline and drive a portion of our longer-term growth. Turning now to slide 15; I'll cover the Novan business. This follow-on investment is an example of one of the tools we can utilize to capture additional economics on program.
We already had a royalty interest in Novan for Berdazimer Gel, which has a PDUFA date of January 5, 2024. The product is in development to treat infections from a virus called molluscum. If approved, the product would be the first at-home treatment for this condition. For $12.2 million, Ligand acquired Berdazimer Gel, all the assets related to the NITRICIL Technology platform as well as the rights to Novan's Sitavig program. We were able to execute on this transaction quickly as a direct result of our fortified business development team that has capabilities in reorganization and operations. As we incubate this newly acquired business, the Novan team continues to progress the program towards approval and is preparing for commercialization.
Consistent with our business model, we'll intend to seek marketing and development partners for the acquired assets to maximize the value for Ligand shareholders. Alternatively, we're evaluating the opportunity to create a standalone company to develop and commercialize the Novan technology and program. We've had a significant success incubating and creating new standalone companies through our Viking, OmniAb and Pelican transactions and will consider the same for Novan. Slide 16 lists some of the programs that we currently view as key pipeline programs that will drive revenue growth in the wave following our currently approved program.
We've updated this list to show upcoming catalysts and move the successful 2023 events for the previous slides. Of course, we made the new addition to the list with Takeda's soticlestat program that Paul discussed previously. Of particular notes on the slide are upcoming events for Travere, Verona, Ovid and Viking. With FILSPARI and Travere, the recently reported data from the Phase III PROTECT study showed that the improvement in eGFR chronic slope was statistically significant with respect to the confirmatory endpoint for the EU.
This data is expected to support the EU decision on approval in IgA nephropathy in the first half of 2024. Verona submitted its NDA to the FDA for approval of ensifentrine for the maintenance treatment of patients with COPD. The PDUFA date for the product has been established at June 26, 2024, and Verona is building its commercial infrastructure as we speak. Soticlestat is a first-in-class novel compound with the potential to reduce seizure susceptibility. The product targets the main neurotransmitters in the brain and has been shown to play a role in the initiation and spread of seizure activity.
Takeda is currently running a Phase III trial and expect data in the fiscal year -- its fiscal year 2024. Ligand earned a tiered royalty of about 2.6% on the drug is successfully commercialized as well as up to $86 million of milestones. Finally, during the second quarter of 2023, Viking announced positive topline results from the Phase IIb VOYAGE study evaluating VK-2809 in patients with biopsy-confirmed NASH. The company expects to report data from the secondary and exploratory objectives of the study in the first half of 2024, and we expect that following these results, liking will move forward into Phase III with this program.
With that, I can turn the call back over to Tavo for the financial update. Tavo?

Octavio Espinoza

Thanks, Matt. The third quarter of 2023 was an exceptional quarter financially, with continued impressive performance in royalty revenue, strong Captisol sales, lower overall operating expenses and an improved outlook for the year, resulting in our fourth upward guidance revision this year. Total revenues for the quarter were $32.9 million, which represents a 22% increase when excluding last year's contribution from COVID Captisol sales. Total revenues for the third quarter of 2022, including COVID-19-related sales were $59.2 million.
Royalty revenue increased 24% to $23.9 million from $19.3 million a year ago, with the growth driven by strength in Amgen's Kyprolis and growth in sales of drugs using the Pelican platform, namely Pneumosil, Rylaze and Vaxneuvance. Captisol sales were $8.6 million this quarter versus Core Captisol sales of $3.6 million in Q3 of 2022 with the increase due to timing of customer orders. Total Captisol sales in Q3 of 2022 were $35.9 million with $32.4 million of that related to COVID-19. We did not have any COVID-19-related Captisol sales this quarter.
Contract revenue this quarter was $0.4 million versus $4 million in last year's third quarter. The decrease is driven primarily to the timing of partner milestone events. We continue to focus on managing cost to maximize our operating margins. In Q3, total R&D and G&A operating expenses decreased 17% when compared to the prior year quarter, primarily due to a decrease in head count-related expenses associated with the spin-out of the Pelican business. The decrease in operating expenses was offset by an increase in transaction-related expenses associated with the Novan transaction.
G&A and R&D expenses were $14.7 million and $5.5 million in Q3 2023 versus $14.9 million and $9.2 million in Q2 2022, respectively. GAAP net loss from continuing operations in the third quarter of 2023 was $12.8 million or $0.74 per share, and this compares with GAAP net income from continuing operations of $9.6 million or $0.56 per diluted share in Q3 2022. The decrease in GAAP net income this quarter as compared to the same quarter last year is due largely to unrealized losses on our remaining holdings of Viking Therapeutic stock and the COVID-Captisol sales in the third quarter of 2022.
Adjusted diluted EPS for the third quarter of 2023 was $1.02 versus $0.60 in the third quarter of 2022, which excludes COVID-19-related Captisol gross profit. The increase in adjusted EPS is primarily due to an increase in core Captisol sales and a decrease in operating expenses. Our future operating costs are expected to decrease as a result of the Pelican spinout as those costs will now be absorbed by Primrose Bio. We will account for our 49.9% ownership interest in Primrose under the equity method. As a result, Ligand will absorb its share of Primrose Bio net losses, which will be presented separately as a noncash items and adjusted out for purposes of reporting adjusted non-GAAP earnings.
Additionally, in the fourth quarter, we expect to incur incremental operating costs associated with our acquisition of Novan. Our intent is to spin out and/or out-license the Novan business, and therefore, we will be adjusting out these expenses for purposes of reporting adjusted non-GAAP earnings. Turning to the balance sheet; as of September 30, 2023, we had cash and short-term investments of $191 million, which includes $25 million of our holdings in Viking common stock. In October, we deployed $50 million to acquire the Tolerance and Ovid assets that Paul described earlier.
We are a cash flow positive company that generates over $75 million of cash annually from our existing business. Our current cash plus annual cash flow generation will be sufficient to fund the investment activity we anticipate over the foreseeable future. Turning now to guidance; we are raising total 2023 revenue to be in the range of $126 million to $129 million and adjusted earnings per share in the range of $5.25 to $5.40. The increase in guidance is attributable primarily to an increase in Captisol sales as well as a decrease in operating expenses.
Approximately $1.50 of adjusted earnings per share is attributable to realized gain from sales of Viking Therapeutics stock earlier this year. Adjusted for the Viking stock gains, our core '23 adjusted EPS guidance of $3.75 to $3.90 or approximately 55% above last year's adjusted EPS of $2.44. As a reminder, due to the unpredictable nature of the pandemic, we exclude Captisol for COVID-19-related sales from guidance and will update investors as orders are received and shift each quarter. Finally, I'd like to direct listeners to our third quarter earnings press release issued earlier today, which is available on our website for a reconciliation of our adjusted financial results to GAAP results I talked about today.
I'll turn the call over now to Todd for closing comments.

Todd C. Davis

Thank you, Tavo. Our unique business model means that we have a lot of portfolio activity and a significant amount of new deal activity to follow. All of this activity is focused through the filter of our main objective, which is achieving superior reward relative to the risk we take on and delivering substantial predictable growth of earnings per share. We're very pleased with this quarter's results as well as the progress we've made over the last 12 months. We've improved our investment in business development capabilities and have grown our asset portfolio.
Comparing where we are now to December of last year, in the last year, we have grown commercial product drivers up to 8 plus Captisol. In the last year, royalty revenue has grown from $73 million to our current guidance of $82 million to $84 million. We expect growth to continue for years off of this existing portfolio. In the last year, cost management efforts have reduced our operating expenses from approximately $92 million a year ago prior to the OmniAb spinout and other restructuring activities to today's annual cash operating expense run rate in the mid-$30 million range.
As a result, in the last year, adjusted EPS has grown from $2.44 per share last year to an annual EPS run rate of approximately $4 per share, excluding gains from the sale of equity holdings. Meanwhile, the investment team has added three new assets to our growth portfolio over the last several months and is actively pursuing additional growth opportunities. Thank you, everyone, for joining us for today's earnings call. I want to remind you that Ligand will be hosting an in-person Investor Day on December 12 in New York, where we will go into significant detail.
I'd like to now open it up for Q&A.

Question and Answer Session

Operator

(Operator Instructions) Your first question comes from Matt Hewitt with Craig Holmes.

This is [Jack] on for Matt. The recent $20 million acquisition of Tolerance, how did that come about? And to be clear, there's no milestones related to TZIELD, correct?

Matthew E. Korenberg

Hey Jack, it's Matt. I'll just confirm that there are no milestones remaining in the deal that we are entitled to. And then I'll ask Paul to give a little color on how the transaction came about.

Paul Hadden

Matt, this is Paul. (technical difficulty) our proprietary intermediary relationships is a very focused sale, and we have some existing relationships with the inventor group. So that's all I can say for that question, but hopefully that answers that.

Yeah. That's helpful. And then for a follow-up with the $30 million investment of Ovid Therapeutics, you've obtained 13% interest in milestones and royalties. First on the milestones could you please walk us through how much of the original $660 million regulatory and commercial milestones is still available? And then second, are they structured similar to most of your existing milestones and that you received upon trial starts, not completions.

Paul Hadden

Yes. So we can't comment on the structure of the milestones when they get paid. But I can tell you is that $660 million is still on the comp. So none of that has been paid yet. What we bought into was that milestone waterfall and then obviously, the tiered royalties behind that that we mentioned on the call up to the 20%.

Operator

Our next question comes from Larry Solow with CJS Securities.

Lawrence Scott Solow

Lot of color tonight. I'm not going to ask too many specific questions on the products because I guess we'll get -- some of these new products you acquired because I guess we'll get an update at the Analyst Day. So just a few -- on the guidance, the little bump up for the rest of the year. If I do my math, it looks like it's like a couple of million on the comp as a way you said and then a couple of million on the operating expense side, total comp go up to probably a $2.5 million after-tax savings somewhere around there. Am I in the ballpark there?

Octavio Espinoza

Yes, that's about right. I would say the majority of the increase to the guidance was driven by the Captisol sales this quarter and certainly the operating expense savings contributed most of that has already been accounted for.

Lawrence Scott Solow

Got it. And in terms of Travere, I didn't read their transcript, I guess I did say the $8 million, and it sounds like the funnel of sales opportunity is growing there. Is there anywhere (technical difficulty) FDA yet? I know the PROTECT study came out. It was (technical difficulty) but obviously, it didn't meet (inaudible) significance. I know it's still published by the Lancet. So obviously, it's getting pretty high praise and (inaudible) get into Lancet. I'm just trying to -- has the outlook changed at all? Has anything get pushed to the right? Any thoughts -- I know, I guess the rights are for the year. But any thoughts that you guys could share on that would be great.

Todd C. Davis

Yeah. Thanks, Larry. So just to remind everyone, the FILSPARI product was approved on an accelerated approval, and they were running a confirmatory trial or running the trial to the end to get to confirmatory end points. And the endpoints did slightly miss statistical significance for the U.S. version of the endpoint. What I would do is direct all investors definitely to listen to everything that Travere is saying and listen closely to what they're saying.
But I think the company has high confidence that the product will remain on the market and that a robust package of data that they've generated over the Phase II and Phase III program clearly is supporting evidence for the benefit to patients and that it would be a very surprising outcome for the product to be pulled off the market. The company hasn't commented on exactly what their conversations have been with the FDA so far, but they have said that they are in conversation with the FDA. And so we'll look to them to provide any more details, but we're pretty optimistic internally based on the public info that we've seen.

Lawrence Scott Solow

I appreciate that color. Just a couple on Pelican assets on Rylaze. You mentioned Jazz, I think, reported that they are at a run rate now over $400 million in the U.S. Does that -- with the European approval, I know it's not a simple double, but the European market inevitably similar size and just actually being $1 billion potential drug at some point?

Todd C. Davis

Yes. Thanks, Larry. The market for Rylaze and Enrylaze historically, prior to this product and the predecessor product that was supply constraint was a worldwide product and Jazz marketed it around the world, and they are certainly pursuing additional territories. The EU approval does add some potential for the product. But we point investors to Jazz' public comments as well on this. I think they reiterate frequently that in the U.S., it's a product without significant competition and in Europe and some of the other markets around the world there is competition for the product. And so if you can't comment -- I can't comment on the potential size, but I would be surprised if it's as big as you suggested, turning into a $1 billion product worldwide. I don't think that's the opportunity.

Lawrence Scott Solow

Okay. To me that's a -- it's a little bit too big. Okay. That's it. I'm all set.

Operator

(Operator Instructions) If we do not have any other questions, then that concludes our question-and-answer session and today's call. Thank you all for joining. You may now disconnect.