Welcome to Ligand's 2025 Investor Day. I'm Melanie Herman, Head of Investor Relations for Ligand, and on behalf of our entire team, I'd like to thank you for taking the time to join us today, whether in person or via webcast. I'd like to touch on a few logistical points. There will be a question-and-answer session immediately following today's formal presentation, and if you're dialing in via webcast, you can submit any questions in the online call manager. For those of you joining us in person, we hope you'll join us for lunch after the presentation. Today, we'll be discussing certain non-GAAP financial measures, and some of those will be forward-looking. We'd like to refer you to the Safe Harbor Statement and these forward-looking statements, which are subject to risk and uncertainties.
Actual results or events may differ from those projected or discussed, and all forward-looking statements are based on all current available information. There's no obligation to update these statements. With that, I'd like to introduce our CEO, Todd Davis.
Thank you, Melanie. Good morning, everyone, and I just want to say thank you for attending. We appreciate the support of our investors. We take that very seriously, and a high priority for us is to deliver to investors as well as patients. Those two things are very synergistic. I want to just mention there's Martine and Jason, two of our board members, made it here live today. There may be a couple others online, and welcome them and thank them for attending as well. In 2022, the board was discussing our strategy, frankly, our lack of results in terms of stock price appreciation, which had been flat for a little over six years, and tasked us with finding a new path and a new strategy that could deliver something that rewards our investors as well as patients.
We felt we were creating value, but that value is not so easily discerned. It's hard to invest in biotech. It's hard to value companies. You're talking about future promise of potential cash flows from highly complex products. And so we set out to devise a business that would deliver current cash flows, much more discernible, as well as the future promise of the biotech has to offer in a diversified way. And we believe that we're on plan. Today, we'll update you on that progress. We're going to talk a little bit about the 2025 results, 2026 guidance, and the plan beyond that, as well as numbers beyond that. We will update our five-year forecast as well, which we do every year. This will take about an hour, so there should be plenty of time for questions at the end for anything that we left out.
And we've come a long way in three years, so let's talk about that. Ligand's position today, if you look at where we are, is we have a strong portfolio that we've added to significantly. That's driven at the top of the iceberg by 12 commercial-stage products that are rapidly driving our financial growth and increasing our financial strength. There's over 80 development-stage programs that some of which will bubble up and be future cash flow for us as well. So we have cash flow and the promise of future cash flow. We also have a very strong team, which is adding high-value assets targeted on high unmet clinical need that we'll continue to add into the portfolio on a regular basis, as you've seen us doing over the last three years.
We believe that that offers the significant opportunity for very visible and high growth going forward, which is our goal. We also have two lean technology platforms where we primarily are licensing and commercializing the intellectual property, so we run those two platforms with very low-cost infrastructure, so we believe we're set up for predictable and profitable growth, and if you look at what's happened since 2022, I think there is evidence of that so far. One, our royalty revenue is approximately doubled since then. Our operating expenses are less than half of what they were, and as a result of that, our profitability or adjusted EPS is up 3x, but we are just getting started. As you know, we have the last three years, this is the third time we've done it. We'll update this chart once a year. We provide five-year guidance. Why?
Because we believe that we have highly predictable and visible future growth. This year, we're raising the long-term five-year guidance from a 22% CAGR on royalty receipts to 23%. Now, Lauren and Tavo are going to cover this chart in detail, but I would just mention a couple things. One is that 15% of that 23% growth is in commercial-stage rapidly growing assets. And so that's as de-risked as you can get in the pharmaceutical industry, and it's diversified. Secondly, a select subset of assets are selected in our development programs, significantly discounted, and that's our farm team, as we call it, which offers an additional 5% growth. And 3% of the growth, as you can see the numbers on the right-hand side of the chart, we're attributing, which we believe is modest, to the investments that are occurring over the next five years.
So that is our five-year plan. We think there's high visibility to that. That's why we're comfortable sharing it. We do not like to overpromise. We like to not underpromise, but we like high assurance in the numbers that we share. I'd just like to remind folks, in our view, there are many structural advantages and differences in royalty investing compared to other forms of investment. One is that royalty investing, royalties in general, are a percentage of the top line. So you're somewhat mitigated from the operating expense risk, operating expense volatility, operating expense misallocation sometimes, because we are a percentage of the top line. Also, this offers a very low infrastructure, therefore high operating leverage model to us and to our investors, because our partners have the sales and marketing infrastructure. Our partners have the development and clinical development infrastructure. They have the manufacturing infrastructure.
We are simply investing with them, cooperating with them, and helping to create the products through our investment activities. So there are many structural advantages to royalties in general. Also, the financing risk is somewhat mitigated. As you know, I mean, you can invest in the right company at the wrong time. That happens all the time. It's one of the challenges of investing in biotech. In our case, we could make that mistake as well, but at least royalties are non-dilutible. A 5% royalty is a 5% royalty, even if there are some twists and turns. So there's some advantage there as well. There are advantages in the general business model as well, which will deliver current cash flows and the future promise. One is the small infrastructure, which I just mentioned. We're also offering diversified exposure to the biotech industry with the products that we carefully curate, select.
This is a compounding strategy. As we reinvest our cash flows, as the value of our portfolio grows, we're going to be investing more rapidly. A greater volume of capital will be invested every year. That mathematically will simply compound. And then we have less concentrated risk, as I mentioned. We're much more diversified. And then finally, just the optionality in this model is, I believe, superior. We need the biotech industry. It's creating a lot of amazing products. We need that business model. I would just point out we do have the advantage, though, of investing our capital when we reinvest and reallocate our capital. We're not limited to the four walls in which we're operating. We have the entire industry. We go out, we find the best teams, the best technologies addressing high unmet clinical need. That is our mission, and that is what we're executing on.
So how do we go about this? Some of you have seen this before, but there's several different tactics to aggregate royalties. One simply is royalty monetization. So we go to individuals or institutions that hold royalty rights, and we will offer them capital in return for those royalty rights. That's a royalty monetization. The second one is project finance. We'll find teams with assets that we have conviction in. We'll approach them, and we'll create a deal. These deals are created. They're not typically banked or found. You have to create them through a discussion. We'll create a project financing with royalties rather than equity or debt securities. As many of you know, we also have a special situations approach. Apeiron is a good example of that. Bought a European company, restructured it, and held on to the Qarziba royalty, which is currently marketed by Recordati.
That was a great deal for us, and more recently, the Pelthos transaction was done. That was acquiring what we viewed as high-value assets out of a bankruptcy for about $12 million, incubating them, bringing in a phenomenal team. You'll hear from Scott Plesha today, our partner at Pelthos, incubating that and then taking that public mid-year here to launch a newly created company, Pelthos, to focus on that pediatric infectious disease segment, and then finally, we have two platforms, as you know. We have the Captisol platform, which we had for a number of years, which continues to perform, and we also have the NITRICIL intellectual property platform, which we think has the promise for future results. To execute on all these different approaches does take a talented and diverse team. We have strong corporate management, we believe, with very strong financial systems.
Tavo did a great job with the convert and the management of the fundraising as well. We have strong legal experience. Andrew has over 20 years of experience in royalty structuring and is our Chief Legal Counsel. We have significant expertise in deal leading and investment activities. Paul and Rich Baxter are both on the investment committee. Michael Vigilante is really doing a fantastic job leading deals, and this year, we've launched a pretty sophisticated portfolio management system to make sure we're getting the most out of our development-stage partnerships that we have in place and that those assets are moving along, and Lauren Hay is leading that activity, so strong investment team, and of course, in this industry, you need to know what you're doing.
And so we have a strong operating team and a strong scientific team with folks like Karen Reeves, Keith Marschke that have a deep knowledge in clinical development. Clinical operations is very important. That's what people often get wrong: CMC, biology, and chemistry. So we have the talent, but you really have to give that talent direction and make it cohesive. And we do that with a very rigorous private equity-style process. We have an investment committee. There are three members: myself, Rich, and Paul. And as the deal leads are taking deals through our deal activity, and our deal progresses from Phase 1 through Phase 2 to Phase 3, which is the final stage of deep diligence and investment decisions, the deal leads are iterating with the investment committee on structure and the risks as the diligence unfolds what those risks are, as well as the opportunity.
So that is our process. We're fairly rigorous. We have business development meetings and investment committees typically on Mondays. Monday's a very busy day. And then we'll follow up with sporadic IC meetings if there's something really urgent going on. This serves a lot of purposes in addition to disciplined investment process. This drives the company culture. It drives our selection criteria. That is all communicated through this process. And when you're doing that with talented people, it's very effective. Here's just a sampling of some of the things that this team has closed recently. Orchestra, as I mentioned, we're going after very high unmet clinical need. Orchestra is focused on hypertension and arterial disease. Castle Creek and Palvella are focused on rare and very severe skin diseases and are making a lot of progress there. Recordati and Agenus are focused on severe diseases in oncology.
Sanofi has a type 1 diabetes drug that we think is very important for type 1 diabetics, could potentially slow the progression. They are actually a recent beneficiary of the new kind of policy orientation, which overlaps very well with our strategy because the new policy orientation with Dr. Makary is focused on very high unmet clinical need. That's where he's putting in place more pragmatic policies or attempting to do so. That's what we're investing in. We think that represents a tailwind. In fact, Sanofi just received one of the new national priority vouchers for that program. Then finally up here, you'll see Pelthos. Scott Plesha will tell you about that today. Our team had the vision to realize the opportunity, Rich in particular, here with this product.
We love strategies where there's a high unmet need and where you're going from zero to one. So there's no therapeutic competition. We're the only one with a take-home therapeutic treatment in our portfolio for molluscum contagiosum. And Scott is leading that company, and the launch is going very well. He will update you on that. So there's significant funding, of course, required in these types of companies. A recent Deloitte survey said there's about $310 billion of development capital raised, our total funding in the biopharmaceutical industry. The significant majority of that is equity, but the royalty financing is less than 10%. And royalty financing, as you can see on the right, is rapidly growing. And I would just point out that the significant majority of royalty capital is actually focused on commercial-stage investing. So it's probably well less than 4% is development-stage investing.
Most of that is focused on large Phase 3s with large pharma, large biotech. We've positioned the company in a place where we're in a growing industry with a rapidly growing finance segment in a place where there's very low competition. We've done that by design and positioned it into an inefficient market. We think we've made a lot of progress since that first investor day in 2022. Financially, we're performing, and we believe we've set up the portfolio in a way where it will continue to perform. We've built the investment team, and we will continue to scale that. As I mentioned, we've got three experienced deal leads, and we're probably adding a fourth this year. Our capacity goes up 33%. There is more to do than we can do. There are more good deals to do than we can possibly do right now.
So the opportunity is significant. And importantly, we've advanced the portfolio. So we've gotten yield out of the portfolio in terms of approvals, and we've added both commercial-stage royalties as well as really high-value development-stage royalties into the portfolio since 2022. So we think the future is bright. We're excited about it. And how is that playing out in terms of evidence and financially? Well, we have evidence of a strong financial track record. The stock's up about 3x since then in 2022. And I've been asked the question, "Are you guys getting ahead of yourselves? The stock's getting hot." Well, I don't think so because our profits are up about 3x as well. So it's directly proportional to the profits as they were in 2022.
But now we have a much more robust, well-set up portfolio, an executing team that will continue to improve that portfolio, and much greater financial strength. So we're excited about where we're headed, and we believe that that provides a very visible model to investors. And with that, I'd like to hand it off to Tavo Espinoza, who will give you a more granular view on our financial update.
Thank you, Todd. Good morning, everybody. Thank you for joining us here today and also those that are online. I'm going to cover three areas today. I'm going to take a quick look at 2025 and where we think the year is going to land. We'll also preview 2026. We'll also get into our longer-term outlook. Let's click over here. Get into the longer-term outlook, which is shaping up to be a very meaningful value creation horizon for the company. We'll also get into the balance sheet and our capital deployment capacity and how that enables us to continue extending the long-term royalty growth trajectory. All taken together, I hope that you get a clear view of how this model scales, not just next year, but through the end of the decade. Since 2022, we've been on a strong upward trajectory.
Earnings have more than tripled as our royalty engine has scaled and operating leverage has kicked in. Core revenue has also grown meaningfully from $108 million in 2022 to an expected $230 million this year, $265 million in 2026, and more than $430 million by 2030, and the catalysts behind this performance are real and are in place. The spinouts of OmniAb and Pelican a couple of years ago increased the operating margins by removing infrastructure-heavy cost structures that those businesses carried. Meanwhile, the Pelthos spinout, the Apeiron acquisition, and the approvals of Filspari, Capvaxive, and Ohtuvayre have all expanded and strengthened the portfolio, and importantly, our business development engine continues to scale, adding new opportunities each year.
We've been investing more in this workstream, and we expect it to remain a very meaningful contributor to our long-term growth. Together, these drivers create a model with increasing leverage, higher margins, and a strong foundation for dependable, compounding royalty growth going forward. Focusing now on this year, the financial picture remains very strong, and we are reiterating the 2025 financial guidance that we shared with you at our third-quarter earnings release in November. We expect $225 million-$235 million in core revenue, with royalty revenue continuing to be the primary engine of growth. Adjusted earnings per share is on track to meet or exceed the guidance range we gave of $7.40-$7.65 per share. Turning to the more detailed guidance for 2025, this chart here shows strong top and bottom line growth. Royalty revenue grows nearly 40%, driven by continued growth in Filspari, Ohtuvayre, and Capvaxive.
We did record meaningful milestones in 2024 from Ohtuvayre and this year in 2025 from ZELSUVMI. We don't expect those to continue into 2026, so contract revenue is expected to normalize next year. Cash operating profits increased roughly 50% year- over- year, reflecting both the scaling royalty base and continued disciplined operating expense management. Adjusted EPS grows 31%, even with some modest dilution there from late 2024 ATM activity and an increase in fully diluted shares outstanding as a result of the higher stock price on outstanding stock options. So across the P&L, 2025 reflects a business with strong visibility, expanding margins, and high-quality growth. So looking ahead to 2026 and beyond, we see several strong tailwinds supporting the continued growth. Filspari, Ohtuvayre, and Capvaxive all continue to scale as the launches progress and market penetration expands.
ZELSUVMI contributes meaningfully in its first full year, and Qarziba remains a key contributor. We also expect meaningful momentum across the rest of the commercial portfolio, driven by continued partner execution, and then while the newer programs added throughout the recent business development activity are still early, they are expanding the portfolio and adding to the overall tailwind as we move forward. Altogether, these drivers set up a highly visible step-up royalty revenue as we move into 2026. Looking at 2026, we expect another strong year of high-quality growth. We expect royalty revenue to grow again, 40%, to $200 million-$225 million. The growth is driven by continued expansion across Filspari, Ohtuvayre, Capvaxive, ZELSUVMI, and Qarziba, the same core programs that are propelling 2025. Total revenue grows to $245 million-$285 million, with royalties making an even higher percentage of the overall mix.
Adjusted core EPS increases to a range of $8-$9 per share, representing mid-teens growth year- over- year. Breaking down the 2026 outlook in more detail, total revenue grows about 15%, driven by the strong royalty growth we just discussed. On cash operating expenses, you'll see an increase here of just over 10%, which is driven primarily by planned investments to further scale our business development and investments function. Despite the increase in cash OpEx, cash operating profit grows meaningfully year- over- year, benefiting from the expanded royalty base, and on the bottom line, adjusted core EPS increases to a range of $8-$9 per share, as I mentioned, representing 15% growth, so at the detailed level, the components of 2026 reflect scaling royalty portfolio, disciplined investment, and strong profitability. Moving on to the next slide, where we break down the components of the 2026 revenue outlook.
As mentioned, royalty revenue grows nearly 40%, with the increase driven by the same core components we've been highlighting as each of these programs continue to scale. And just to name a few here, we assume Filspari grows approximately 75%, reflecting its full-label expansion and expanding market penetration. We see Ohtuvayre growing approximately 150%, driven by Merck's commercial scale and increasing adoption. Capvaxive growing 70%, benefiting from continued uptake following its mid-2024 launch. And ZELSUVMI contributes its first full year of royalty revenue in 2026, and we're assuming that comes in at a 200% growth over the partial year here in 2025. Captisol material sales are expected to contribute $35 million-$40 million, and contract revenue forecasted at $10 million-$20 million, reflecting that normalization that I mentioned earlier.
Overall, the 2026 revenue build is driven by a broad-based growth across the commercial programs, supported by consistent contributions from the rest of the portfolio. Moving on now to our longer-term outlook. When we introduced this for the first time in December of 2023, we projected a royalty compound annual growth rate of 22% through 2028. Since then, performance across the portfolio has exceeded those original expectations. Filspari, Ohtuvayre, Capvaxive, Qarziba have all outperformed, and several key transactions, including the Apeiron acquisition, the Pelthos spinout, the Ohtuvayre investment royalty purchase, have all strengthened the long-term curve. We've also seen continued execution from our partners and meaningful progress across programs that were earlier in development when we published the original outlook. These factors have enabled us to raise our long-term outlook meaningfully.
While we feel the updated curve remains conservative, it clearly shows an improvement over the prior projection and reflects the increased visibility we have today. So this sets up a good, strong foundation for what I'm going to show you here. Here's our updated five-year royalty outlook that Todd previewed, which really anchors the company's long-term financial story. We now expect a 23% compound annual growth rate in royalty receipts from 2025 through 2030. The growth is driven by contributions across the entire portfolio. You'll hear more about many of these from Lauren when she speaks to this in a bit. The stacking chart shows how the components fit together. The commercial programs form the core of the growth profile. These are launch products supported by strong partners, expanding markets, and in several cases, additional label or geographic opportunities.
Captisol-enabled programs contribute meaningfully through the middle years of the outlook, though it does begin to taper after 2027, consistent with our prior commentary. Layered on top of that is the farm team. This is our pre-approval pipeline, which contributes approximately 5 percentage points to the total 23% compound annual growth rate. These include later-stage programs such as Palvella's Qtorin, Castle Creek's D-Fi, Orchestra's Virtue SAB, the FSGS expansion for Filspari, Merck's Ohtuvayre Indication expansion programs, and others. These programs add incremental risk-adjusted growth across the curve. To provide more context behind the long-term curve, the next slide highlights two programs that contribute the most: Filspari and Ohtuvayre. Based on current sell-side consensus estimates, Filspari and Ohtuvayre together are expected to deliver roughly $200 million in annual royalties by 2030.
Starting with Filspari, what you're seeing here reflects both the approved IgA nephropathy indication and the FSGS opportunity, which has a January 13th PDUFA date. Sell-side models today assume a high likelihood of approval, roughly 80%. If FSGS is approved, Filspari becomes an even more meaningful contributor through the end of the decade, driven by expanding prescriber adoption, increasing payer coverage, and a large underserved patient population. On the right side is Ohtuvayre, which continues to build momentum under Merck's commercial execution. Adoption is increasing, payer coverage continues to expand, and Merck's commercial scale gives the product meaningful leverage. The chart reflects only the approved indication, and consensus expectations continue to trend upward as the launch progresses and market penetration builds. So taking a step back, these two programs anchor the long-term model.
They're large, they're growing, they're backed by strong commercial partners, and together they represent the biggest contributors to the 23% compound annual growth rate, and wrapping up with the balance sheet, we now have close to a billion dollars in deployable capital. Earlier this year, we bolstered the balance sheet with a $460 million convertible note financing at a 75 basis point coupon. We paired that with a call spread overlay that lifts the effective conversion premium to the conversion price, excuse me, to $294 per share. It's a very low-cost source of capital that added meaningful flexibility to the model. In terms of capital deployment, we continue to target $150 million-$250 million per year with a typical $20 million-$50 million investment per asset. We feel this cadence is disciplined, it's repeatable, and it's aligned with the scale of our business development function.
Our capital position also gives us the flexibility to go bigger or faster when the right opportunities present themselves, and we expect our capital deployment to increase incrementally as our overall portfolio grows and we scale the BD engine. This capital base supports three pillars. First, the ability to add high-quality royalty programs that extend the growth curve. Second, the strength and strategic optionality of our equity holdings, which you see listed here, and third, the power of our annual cash generation, roughly $175 million on an annualized basis today, which steadily rebuilds and expands our capital base, so taken together to close, these pillars make our model durable, repeatable, and compounding over the long term, so that's the financial picture: strong royalty growth, expanding profitability, and a capital base that positions us to keep compounding value well into the next decade.
With that, I'll pass it over to Paul Hadden, who will cover our investment and BD activities.
Thank you, Tavo. We thought we'd start this section by talking a little bit about our stark pace of growth since 2022. If you look at our investment team, we finished that year with three people. Going into 2026, we anticipate we'll end up with a projected 18 people on the investment team, many of which are already in their seats. So quite a significant amount of growth in the past few years. Tavo talked about deployable capital, which has grown quite substantially. We took obviously some strategic moves this past year to strengthen our balance sheet, and so we're entering next year with quite a different profile than when we finished 2022.
And on the operating cash flow side, decisive moves by our leadership team to control expenses while growing revenue have changed that also significantly, obviously creating a lot of strength going into the future years from a balance sheet perspective. We feel very confident with the team that we've built and all that they've accomplished in a very short time period, and feel that that sets the foundation for growth going forward. In terms of one of our strengths, origination has always been a key facet. It has and continues to be one of our key strengths of our team. Many investors asked us early on, "Are there really these deals out there to do?" And I think the investment activity over the past couple of years has largely answered that question.
If you look at some of the flavor of deals we've closed this past year, they've included project finance, complex royalty monetizations coupled with equity, and even special situations, whole company spinoffs. Each of those requires a team with specialized skills, access to specialized relationships, and a nimble organization that's capable of supporting that. The combination of all of these starts to form our moat as an investment team, which brings us to our investment criteria. The pillars of our investment criteria, which many of you saw at last year's Investor Day event, remain unchanged. Clinical differentiation remains a key facet and pillar of that. It's important to investors, it's important to payers, it's important to regulators, but most important, it's important to patients.
More than a few of our investments include FDA designations like breakthrough designation, which is a key indicator of the potential for a therapy to impact a patient's life. Our team's ability to originate investments that meet these criteria, we think, provides a superior risk-reward profile in terms of our investing style. Let's next talk about our diligence process. Our diligence process remains robust and exhaustive. This has been consistent since we made the pivot in early 2023 at Ligand. As we continue to add experienced team members, we add their experience base to our process, making our diligence process better each year. As you can see, our team conducts M&A-level due diligence, always under confidentiality, meaning we see a lot of things that others will never see. Speaking of CDAs, let's look at a snapshot of 2025. 2025 was another robust year. We reviewed an excess of 175 investments.
We saw an uptick in CDAs signed, which meant an uptick in quality deal flow. We closed six investments, so we remain highly selective, and I'd like to make a couple of observations. First off, this is but a snapshot at the end of 2025. Many of the CDAs we signed remain in our active pipeline in terms of opportunities we're still prosecuting. What does not come to life in this slide is the effort that our team has taken in investments like Pelthos, which oftentimes felt like more than several transactions as opposed to just two, and so that's an important observation when you look at the disproportionate value creation in terms of the 13% ZELSUVMI royalty we will now receive, as well as the Pelthos equity that we now own. Let's turn our attention to some of the accomplishments over the past two years.
Our team has been quite busy. Across the past two years, we've committed an excess of $400 million of investment capital. We've sprinkled that capital across the numerous investment strategies that we have to drive long-term shareholder value. Each full year has brought us one needle-moving immediate deal transaction. 2024 was Apeiron, and for 2025, it was Pelthos. I would also point out that seven of the 11 investments illustrated here have some equity upside component, either warrants, equity, or in some cases, both. Finally, we continue to be able to source globally, illustrating our team's deep ability to source different pools of opportunities, both U.S. and ex-US. Let's talk about some of those recent deals in a little more depth.
The Castle Creek investment was a $50 million project finance investment in a Phase 3 program in dystrophic epidermolysis bullosa, or DEB for short, which I will continue to say is DEB, a serious and debilitating skin condition that can sometimes lead to cancer. Our investment brought us a mid-single-digit royalty in this commercially validated program that is being studied in a market that Krystal Biotech is right now launching and commercializing in. It's important to note that Krystal is a $6 billion market cap company. As part of our investment, we also received warrants in Castle Creek. Castle Creek is led by a management team that we've known for a long time period, and we think is well positioned to develop this promising program.
Our $50 million investment also allowed insiders to come in and participate alongside of us, illustrating our ability to syndicate larger deals than just the initial $50 million. In closing, we were pleased to add this late-stage orphan program to our late-stage portfolio. Orchestra BioMed was also interesting, but for different reasons. We invested a total of $40 million and in the end catalyzed a capital raise of over $110 million, which was the third largest med tech raise of 2025. $35 million of the capital went into monetizing two royalty contracts in breakthrough designated programs that were starting pivotal trials. One partnered with Medtronic, the other partnered with Terumo. We knew the company needed more capital, and so we, alongside Medtronic, anchored a pipe that was required to access our royalty investment.
In the end, we helped the company raise an outsized amount of capital, illustrating our ability to participate in different areas of the company's capital structure and creating win-win situations for counterparties. As we look to 2026, it's important to reflect on what the potential of the future holds. One might ask, what is different from last year? Well, one thing that's unchanged is we were so excited about the coming year. I think what is different is everything is a little bit larger. Our pipeline is a little bit deeper, which means we have a lot more to prosecute. Awareness of what we do and what we're capable of has grown. The team has scaled to meet demand in the market. And importantly, we've scaled the capital base to meet that demand and support the team. And with that, I'll hand it over to Rich Baxter, my esteemed colleague.
[audio distortion] Thank you, Paul. It's the first time he's ever called me esteemed. I'm Rich Baxter. I'm a member of Ligand's investment team and investment committee. I'm delighted to be here today with you. I was here with you last year. We've made a tremendous amount of progress. I'm going to talk about our special situations effort and Pelthos, which I think is probably a perfect case study for our special situations effort. I'm also going to introduce Scott Plesha, the CEO of Pelthos. I've had the pleasure of working with Scott for the past two years very closely. It has been a pleasure, and I'm looking forward to continuing to work with Scott as he takes Pelthos from a very promising investment to the reality of a very exciting company.
And so it's great to have you here and after what we've done over the last two years together. As you can see from this slide, there are four elements to the Ligand special situations business. It's the product, the management team that is attracted to the product, the financing opportunities that come out of getting that product right, and then the results. So let's just take this piece by piece. It all starts with the product. We like differentiated assets as opposed to me-too or commodity-type products. We're not afraid of distressed. Got to have a solid value proposition. Pelthos was the epitome of a very good asset, a great asset trapped in a very bad situation. We bought it out of bankruptcy of Novan, and that was just if we hadn't done that, that product probably would have never seen the light of day.
Why did we step into a bankruptcy, and why did we step in such a difficult situation? We could see the Phase 3 data. They had Phase 3 data, a lot of visibility into what the product did, how it performed. We were able to review that data with FDA people. We were able to review it with specialists in the field. We were very excited by that data. And more importantly, the people that treat patients with molluscum contagiosum, they just absolutely love the product and love the data. Very underappreciated asset, but when you listen and you do your homework, you can figure it out. And we had a lot of visibility, and it's a great product. So what happens when you get a great product like this? It attracts management, people like Scott, people like our board members.
We have some luminary CEOs on the board that have been immensely helpful. What does that do? It mitigates execution risk, obviously, but it also validates the investment hypothesis and what you're doing, and you get more confidence as you get great people involved with it, so you get the product right, you get good management in there. It affords you tremendous financing opportunities. Ligand took advantage of this. We financed the company. We basically, because we had such visibility into that product, were able to do equity, royalty, royalty with debt-like characteristics like a security interest, hybrid structures. You can put it together so it's custom to the situation, custom to the company, and actually gives you risk-adjusted, enhanced returns.
It also, with the Ligand strategy, it balances with that equity component, near-term potential returns with our long-dated strategy, that long-dated cash flow strategy that Todd and Tavo talked about, makes it a very powerful combination. The results, you unlock asset values even in products that are underappreciated or just never see the light of day. We did that. You broaden your investment opportunities so you can go into places where other people can't see it or won't see it or don't do the work to find it. I can't emphasize enough that when you do this and you do it right, you create proprietary deal flow. Competitors can't get into this easily. They can't commoditize the space. They can't cut 100 basis points and win the deal like in a lot of other types of financings. What does that do? You get enhanced risk-adjusted returns.
We're very conscious about the risk that we're buying has to be commensurate with the risk that we're taking. So I'm going to turn here to some real details about Pelthos. Pelthos, this is really what we did over the last 24 months with Scott and our team. It touched every element of Ligand. It checks all the boxes that I mentioned in that overview of the special situations type business. This, as you can see from this, it's not a passive. It's not a hands-off business. You've really got to get in. You got to dig in, and you work very hard, and you have to be very diligent in how you manage this. Again, it was a box one. It was a great asset trapped in a bad situation in a bankruptcy. We were able to figure that out and take it forward.
Box two, it was an incredibly unique, incredibly differentiated asset. It had a technology platform that is very unique, derived from Nobel Prize Science. It had people in the company, and this is another thing I can't emphasize enough. The people at Novan were also trapped in a bad situation that Ligand came in and unlocked. And I'm proud to say that we retained 100% of the people that we thought were essential to this enterprise, and we kept them all, and they're still there. Like our manufacturing guy is world-class. We needed a world-class manufacturing guy. We had one, and we kept him. And that is really, really important in this special situations type investing. Box three and four, the details matter in this type of investing. We got the details right on a lot of things here.
Some of the things that we did, the label. Ligand was intimately involved in the label discussions with FDA. I think if you just pull it up online, you'll see from a sales and marketing and a clinical perspective why that's so great. We also repositioned the product relative to Novan. Instead of being a derm product for a nuisance condition, we figured out very early that this is a pediatric infectious disease product treating a pox virus that can be on your child for up to five years. Very different positioning. We got that right. Scott and team saw that and seized it. Very important part of this. And again, with that product, the positioning, the understanding that you get from the intimate involvement in that product, you're able to bring in great management. Again, Scott put you on the highlight again.
But our board, we brought in two luminary specialty pharma CEOs that were at. They're absolutely terrific and have been a huge help standing up Pelthos and moving it down the path to independence. Again, financings, we're able to do some bespoke financings. We've used all those techniques and all those types of financings at Pelthos. We did a convertible debenture. We did control equity. We've got royalties, the whole nine yards. And we're able to put that together for risk-adjusted returns for our shareholders. And incidentally, this was taking a company out of bankruptcy and standing it up, not an easy task. We did it because we were in this company in a royalty, and we take managing our investors' capital very, very seriously. We protect it. We fight for it. We're not going to just let it go away. And in this circumstance, we turn that into multiples.
What does that mean? Box nine, the culmination. Scott and team announced the first quarter on the market. They delivered $7 million of net sales. An excellent launch, great results, far greater than what we thought we were going to achieve when we started this enterprise together. Truly, Scott's going to go into great detail. It's truly remarkable. What does this all mean for investors? That's a lot of activity. It means we took a company from insolvency to a standalone New York Stock Exchange American listed approximately $300 million market cap on a fully diluted basis company instead of insolvent, $300 million market cap. We've gotten an exciting complementary product. Pelthos is no longer a one-product company. We created immense operating leverage, option value, potential for future capital gains and royalty income in that vehicle under the right leadership.
We structured a 13% royalty on ZELSUVMI at 2.5% royalty on Xepi. We did a convertible financing, potential royalty income. We are monetizing from Japan rights where it's being in clinical trials in Japan. And what does it mean? We own approximately 50% of Pelthos for the future capital gains. We have a two-year mark-to-market MOIC of about two times public traded stock, 46% IRR. And all of that is before receiving $1 of royalty income. So we've taken near-term opportunity, near-term returns, blended it with long-term cash flows, which is the Ligand model. And it's just beginning. So we have 100% of the NITRICIL platform. We're very excited about the future here, both from the product and the company and from that platform. So with that, I'd like to introduce Scott. Scott's the CEO. I can't tell you, can't sing his praises highly enough.
Scott is also probably the perfect guy for the job, the perfect person for this job. He's been in the pharmaceutical industry for 30 years. He's been in practically every commercialization position you can imagine. He had great training in great companies like Solvay, Oclassen. He knows the derm, the PDERM space and the pediatric space. Most importantly, he's a very well-known person to Peter Greenleaf, the Chairman of the Board, and Todd, CEO of the company. He's worked with them. They've seen what he did and how he did it. I can't tell you how they sung his praises in terms of standing up a sales and marketing team. He did it in light speed, very quickly, and I'm happy to say with very, very high-quality people, and I've also really enjoyed working with him.
I don't know if he's enjoyed working with me, but we've had a great time. We've had a great time together. So with that, Scott, I reluctantly hand over the podium to you.
Thanks, Rich.
Sure. You need me up here?
No, you're good.
You don't want me here?
No.
Thank you.
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Yeah, go ahead.
Good morning, everyone. Thank you, Rich. Appreciate all the kind comments. I just want to, before I get started, I wanted to thank Ligand for the opportunity to share a story this morning. So it's been a busy time at Ligand, but the last six months here at Pelthos has been quite crazy to go through all that we had and execute at the high level we have. So I'm going to talk a little bit about Pelthos and our launch and how it's got off the first four or five months here. Exceeded our expectations.
But before I do that, I just want to kind of ground a little bit on the disease state and why we think our product fits so well within this disease state. So ZELSUVMI is a topical nitric oxide releasing product that's indicated for the treatment of molluscum contagiosum in patients one year of age and older for up to 12 weeks. It's really important we start talking about the patient population here because we see about six million new patients a year. Of that, about 80% are 10 years of age or younger, 90%, 20% and under. You do see it in some adults that are immunocompromised. The disease state itself does self-resolve in about 13 months on average, but you can see it lasting up to five years in some patients, as Rich kind of shared earlier.
What's interesting about it, though, is that you get about these lesions that you see in the picture here. On average, it's about 20 in our studies. But you see patients even 70, 80, or 100 of these. So when you look at the disease state itself, it's not going to kill you. It's self-resolving, but there are some serious effects down the line. So autoinoculation, you see patients that may present with 10 lesions. The next thing you know, they have 20. It's highly contagious to others. So when you look at the literature, if there's more than one child in the household and one gets it, 41% chance the other one's going to get it as well. High risk of secondary bacterial infections, worsening of atopic dermatitis eczema. So you see a lot of topical antibiotics and also corticosteroids prescribed.
Don't really treat the virus, but they are treating kind of these secondary sequelae that you see. Really important here, the number one reason that patients are treated is due to parental anxiety. So parents looking at how their child's being ostracized, how they're anxious about these lesions, how they have to cover them up if they go to school, put bandages on, and kind of the social withdrawal you see here. Three factors when they're looking at how they treat this disease state. It's age of patient, location of lesions, and number of lesions. So unfortunately, you see a lot of the patients around six years of age is kind of the sweet spot. But when you look at the number of lesions and locations, they're usually in sensitive areas. So behind the knees, groin, under the arms.
You can imagine a patient presents, a four-year-old, with 40 lesions in the groin, behind the knees. It's really difficult to use some of the treatments that were available prior to our product. Now I'll go into ZELSUVMI a little bit. We believe it has the potential to shift the MC treatment paradigm. Here's why. Talked a little bit about treatments. There is one other product that's approved for the treatment of molluscum, but it has to be done in office every three weeks. It's actually a blistering agent. You actually have to do four to five visits, up to four or five visits to get resolution. Other things that are painful and destructive are curettage, cryotherapy. Importantly, about all those different procedures, they're not one and done. If you have cryotherapy, you may have to go in four, five, six times.
So a lot of absenteeism for the children getting pulled out of school, as well as the parents having to leave work to go in. And there are some other things being used off-label, even some homeopathic natural remedies like tea tree oil and apple cider vinegar. I think they cure everything nowadays. But when you actually look at the data and talk to the thought leaders, they don't believe that there's actually efficacy there. So really an unmet need. And one of the things I'll say is on the last slide, 73% of the children that are 10 and under aren't being treated. And part of it is they can't tolerate these destructive modalities. So with our product, you apply it every day. Again, it's just topical. You dab it on, each light film of it on each lesion. It has a really good safety profile.
It's always important when you're launching to have a safety profile that's great, but especially if you're treating kids down to one year of age. And it's really important here. First approved medication for molluscum that can be applied at home or on the go. So not having to go into the office and also using what we call a more therapeutic effect versus using destructive modalities to get your efficacy. And then we have very good efficacy here. There's one graphic there at 58.1% mean lesion reduction. And these are difficult diseases to treat because as you're treating this pox virus, you may have 20 lesions you present with. You're treating them. Four or five may also pop up. So it's difficult to get to complete clearance.
What we have learned in talking to the HCPs, even parents, that if we can get at least a 50% reduction of this kind of disease state, it's very meaningful clinically. We launched July 10th, right after we had our merger with Channel Therapeutics and raised our $50 million. This is the footprint, 50 sales representatives around the United States calling on about 8,000 targets. We spent about 45% of our time in the derm and pediatric derm space, 55% within pediatricians' office, and a smattering of OB/GYNs and some family practice. We built out also sales training, marketing, commercial ops, market access team. The one thing I'll point out is you can see there's large areas of this map that aren't covered. Large metropolitan areas, specifically 14 of them: Kansas City, St. Louis, Minneapolis, Seattle, Las Vegas, Salt Lake City, to name a few.
We announced at our earnings call that we'll actually be expanding to 64 reps and eight managers. We're at 50 and six right now. What's driven that is we got into market. I've worked, as Rich said, for thirty years in the pharmaceutical industry. I built Salix's sales force and led that until we were acquired by Valeant and then did the same at BioDelivery Sciences. But in nine weeks, we were able to get to break even on our sales force. So nine weeks into launch, we paid for the sales force. We got into market, earned the right to expand. We saw the uptake. We saw the market access uptake also and how we were being treated. Now we're kind of investing behind the drug, and we believe that'll help build our momentum. Importantly also, we hadn't contracted to this point.
We actually just announced last week that we did a contract with a PBM, our first one, that became active on December 1st. So we think that's going to help with our growth as well as this one as well. But again, leading as many teams as I have, I've never seen a Salesforce pay for itself within nine weeks. So just a really nice return and a great job by the team. So the results, early days here, but as you can see, we've had consistent growth every month. We reported 2,716 prescriptions for Q3. You can see October was just a little bit short of that. And as of November 13th, we actually had more business in Q4 than we had all of Q2. I'm sorry, all of Q3. And what's that being driven by? Also prescriber count. So we're seeing prescribers jump on board here as well.
You can see unique prescribers every month going up, over 1,000 in October. Through October, almost 1,800 unique prescribers. As we sit here today, through the end of November, it's well over 2,200 now. So additional doctors coming on board. And just under 50% have actually written for more than one patient. So when you kind of look at the numbers, what does that drive? Rich mentioned $7 million first quarter revenue in Q3, first quarter in market. And right now, if you just look at October, that puts us at a run rate of about $35 million. Actually, it's a little bit over $35 million in net sales run rate at that point in time, just four months into launch.
So again, very excited about where we are with ZELSUVMI, but then also equally excited to be able to provide a synergistic fit and actually leverage our sales force structure and actually all of our commercial infrastructure with the acquisition of Xepi for the treatment of impetigo. And talk a little bit about the disease state and why we think it fits so well. It's a highly contagious bacterial skin infection. It's actually the number one infection you see in pediatric offices. So again, we're spending a lot of time in that space. And you see about 3 million cases annually. We're indicated for patients down to two months of age, which is really important. Great clinical efficacy, safety. And right now, the industry standard is mupirocin is being used to treat this.
So if you look at the derm space and the pediatric space, there's about 4.4 million prescriptions in 2024 for mupirocin within these specialties. But there's this huge issue with mupirocin resistance because of all the use and overuse, just a big number, but about over 14 million prescriptions in 2024 written for this antibiotic. I'm sure a lot of you even have it in your medicine chest at home that you use part of it and that you're saving it for if you have to use it again. So you see that quite often. And that doesn't help with resistance, obviously. Strategic fit. Again, it's a complete overlap with our current call points and our commercial infrastructure. So we can leverage sales force. We will not change our call points, basically.
And the other thing we like about it is it allows us to maybe go a little lower in our ZELSUVMI targets. By putting two products together, the value of a call goes up. So instead of maybe top five deciles for ZELSUVMI, we may be able to go one deeper because we're getting incremental Xepi business as well. So it could be a catalyst for ZELSUVMI. The other thing, we're in the process of getting manufacturing up and running. Anticipate a late 2026 commercial launch. That's really just about getting validated manufacturing done. But we actually like the fact that we have about a year here. So it's going to allow us to really focus on ZELSUVMI, drive that. To get full credit for Xepi, we have to get ZELSUVMI right. So it's critical we do that, get that established. And so again, we're excited about it.
So that kind of summarizes where we are with ZELSUVMI, Xepi. Again, early days, but really excited about how the team's executed and the progress we've made. So thank you for your time today. So with that, I'd like to introduce Lauren Hay to talk about the portfolio.
Thank you, Scott. It's hard to follow such an incredible early launch, but I'll do my best here. Thank you to those of you who are here in person, braving the cold weather that we saw this week in New York, and those of you who are joining us online, we welcome you as well. I'm pleased to provide an update on Ligand's portfolio, so as Todd mentioned in his remarks, let's see, advance. I think Scott broke it. We can go back. We can do the rest of the presentation over again.
[audio distortion] topic button.
Okay. There we go. All right. Round two. So as Todd mentioned, portfolio management has been a big area of emphasis for us at Ligand this year. We have around 100 partnered programs in total across the clinical and commercial domains. And with every new investment that we close, we're adding new assets to the portfolio. So this is becoming an increasingly important objective for us. We've been focused on two main categories. The first is improving the way that we're tracking incoming sales and royalty information, and also how we're capturing and disseminating across the company all of the news and catalysts that come from our partners. We're now leveraging AI to help with some of this, and we're pleased with some of the early results in terms of trying to make this whole process more efficient given the volume of assets that we're working with.
The second area that we've been focused on is more proactively communicating with our partners, and then also identifying new opportunities to provide additional investment or expand the partnerships in other ways. So this has been a big accomplishment for us and something that we're investing a lot to continue to develop. In terms of our commercial portfolio, we have 12 major royalty revenue drivers. You'll see these are nicely diversified across therapeutic categories, across treatment modalities, and then across commercial partners. The largest royalties that we have currently are Amgen's Kyprolis, Recordati's Qarziba, Travere's Filspari, and Jazz's Rylaze. However, I'll emphasize that the portfolio is something that's in constant flux, and so as we see sort of the natural evolution of products launching and other products coming off patent, you can expect this to continue to evolve over time.
I imagine that when we all come together in December of 2026, we'll probably see Merck's Ohtuvayre rise up pretty substantially, and we also expect that Pelthos' ZELSUVMI will grow pretty substantially in the next year. In terms of our key pipeline partnered programs, again, we have nice diversification across therapeutic category. Several of these have been added to the portfolio this year, including Castle Creek's D-Fi and Orchestra's AVIM and Virtue SAB programs, which Paul talked about. And then also, Recordati has recently announced a planned trial in Ewing Sarcoma, which we're really encouraged by, and that could potentially expand the label in a pretty meaningful way, so with that, I'll go through a couple of our products in a little bit more detail. The first of these is Qarziba, which has been commercialized by Recordati since 2017 in Europe and select ex-US jurisdictions.
It's approved to treat high-risk pediatric neuroblastoma, which is a very severe childhood cancer. We acquired the royalty rights to this asset through the Special Situations Investment, acquiring Apeiron last year, a private Austrian company, for $100 million. The product has been on the market since 2017, but Recordati continues to invest a lot in terms of exploiting new geographies and moving the product into new treatment settings, and so we've seen 14% growth in sales year- to-d ate, which is pretty impressive for a more mature product. So we congratulate Recordati, our partner here. They're doing a fantastic job with this product. As I mentioned, very high unmet need indication. It's very well established and supported by treatment guidelines globally, and our royalty interest here, importantly, is very well diversified across more than 35 countries.
In terms of recent news, in addition to the study that is initiating in Ewing Sarcoma, Recordati continues to invest in seeking U.S. approval for this asset. Most recently, they met with FDA, and at that meeting, FDA expressed an interest to see some additional data coming out of Recordati's Beacon 2 study, which is ongoing in Europe. So we'll expect another couple of years before this product might be introduced here. But Recordati has shared that if it were approved in the U.S., it could add another $30 million in annual sales, which are not included in our underwriting projections. Next up is formerly Verona, now Merck's Ohtuvayre, which is approved for COPD and in a couple of new indications as well in terms of new development. It was approved in June of last year. We earn a 3% royalty here. The product is launching really well.
It's the strongest launch in COPD history, and we've seen around $300 million in sales through the third quarter of this year. I think that Ohtuvayre investment history provides a really nice snapshot of the value that we can unlock at Ligand through the flexible investment structures that we have at our disposal. So the original investment here traces back to October of 2018 when we acquired Vernalis for $10 million. And in conjunction with that, we acquired a 2% interest on what was then Ensifentrine, which is now Ohtuvayre. Just two years later, we were able to divest the research operations from Vernalis for $25 million. So we more than recovered our basis in just a very short two-year period of time. And importantly, we held on to that 2% royalty interest.
The product got approved in June of last year, and then we spent 2024 and 2025 pursuing five distinct inventors to monetize their individual royalties, which then aggregated another 1% interest for Ligand. So our total exposure to this asset now is 3%. Merck announced a planned acquisition of Verona this summer. And while the equity investors were cashed out upon the closing of that acquisition, one of the benefits of being a royalty investor is that our royalty now travels to Merck. So we'll continue to benefit from the larger infrastructure that Merck has to continue to exploit the U.S. launch, which Verona has already done a really tremendous job setting Merck up here for success, but then also importantly to invest in some of the pipeline indications. Ohtuvayre is the first novel inhaled program in COPD in over 20 years, strongest launch in COPD history.
The peak sales here are just north of $3 billion, which could translate into nearly $100 million in annual royalty revenue to Ligand. Merck has recently announced the closing of the acquisition of Verona, and they have also announced that they're planning to invest $500 million in this asset in terms of continuing to launch the program in the US, potentially look at new markets, and then also, importantly, new indications, which could include non-CF bronchiectasis, where there are studies ongoing, as well as a fixed-dose combination with LAMA. Moving on, we can talk a little bit about Travere's Filspari, which is approved to treat IgA nephropathy and has an important sNDA coming up in January in FSGS. We earn a 9% royalty here, and the launch is going really well. We're seeing growth of nearly 200% year- over- year through the third quarter.
Filspari was the first non-immunosuppressive drug approved to treat IgA nephropathy, and if it is approved in FSGS, it would be the first FDA-approved treatment for that disease. Both of these are rare, progressive, very serious renal diseases. Each indication consensus forecast is around $1 billion. So collectively, this could be close to a $200 million annual royalty revenue to Ligand. The numbers that you saw in the five-year chart, you have a pretty substantial risk adjustment for the FSGS indication. Travere's had a number of tailwinds recently. Their REMS liver monitoring requirement was relaxed earlier this year, and they've recently announced through their partner, Renalys, who's now Chugai, positive top-line data in Japan where IgA is quite prevalent. So we are very focused on the January 13th PDUFA date for FSGS.
In terms of clinical considerations, Travere ran and executed two really compelling clinical studies showing the benefit of Filspari on proteinuria. They've also been working very closely with this group called the Parasol Working Group, which is comprised of FDA, as well as patient stakeholders, clinical stakeholders, really to kind of try and bring any treatment to patients who are in dire need of anything. In terms of regulatory considerations, the FDA division director was very closely involved with the Parasol Working Group, which we think is very positive. And Travere was recently notified that an adcom would no longer be required for FSGS. This was perceived as a positive development by investors. However, I think this is far from conclusive, and we'll look to the final decision on the 13th. If it is approved, Travere believes that this is at least as large as Ligand, if not larger.
The prevalent population here is around 40,000 patients, whereas in Ligand, it's more like 50,000- 70,000. However, the dosing in FSGS is twice that of Ligand, and there's no competition. So if this is approved, we expect a pretty rapid uptake here. And so we'll be closely watching on the 13th, which coincidentally is also the week of the JP Morgan Conference. And then finally, moving into one of our key partnered pipeline programs. This is Palvella's Qtorin rapamycin. Palvella is a company that's focused on developing treatments for patients with severe rare dermatological conditions, and we have several indications in development for Qtorin rapamycin. Our investment here dates back to our original project finance investment in 2018. And if Qtorin rapamycin is approved, we would earn a tiered 8%-9.8% royalty on this asset. It has breakthrough therapy designation from the FDA.
Consensus peak sales for the two active indications, which include microcystic lymphatic malformations and cutaneous venous malformations, are just north of $1 billion, which would translate into upwards of $100 million in annual royalty revenue to Ligand. Palvella has had a really tremendous year. The team over there is doing an exceptional job. Their stock is up over 400% year- to- date. They've completed enrollment in both the Phase 2 and Phase 3 studies, and they've recently announced a third indication in clinically significant angiokeratomas. In terms of upcoming catalysts, there are a couple of important ones here. Later this month, we expect Phase 2 results in cutaneous venous malformations, which is a fairly heterogeneous and somewhat difficult to treat dermatological disease. In Q1 of next year, we'll be looking for the Phase 3 microcystic lymphatic malformations results. The Phase 2 results in this setting were quite compelling.
Later next year, we'll learn more about the new indication. In terms of commercial opportunity for MLM, it's quite robust. Palvella estimates through claims analysis there are around 30,000 diagnosed patients in the U.S. and 1,500 annual incident patients. They believe they have strong pricing power given the rare and serious nature of this disease, and they believe that they can access this population through a pretty small field force of just 20-40 reps since these patients tend to be congregated at vascular anomaly centers. Finally, Palvella is really looking to Qtorin Rapamycin as a pipeline and a product. In the first quarter, we'll eagerly anticipate the results from the Phase 3 microcystic lymphatic malformation study. Shortly, we should see the Phase 2 results in CVM.
And then moving on beyond clinically significant angiokeratomas, Palvella plans to announce future indications, which could meaningfully expand the footprint for this program. So with that, I will turn things over to Karen for a Captisol up date.
[audio distortion] Thank you, Lauren, and warm welcome to all. Ligand owns and operates the Captisol technology platform with a lean team of world-class solubility experts and commercial operational excellence. Captisol requires only eight full-time equivalents and has an annual operation spend of approximately $5 million. Captisol addresses an enduring industry need for solubility and stability. Approximately 90% of small molecule drug candidates are poorly soluble. The Captisol technology is IP-enabling, and the recurring customer base generates material sales as well as royalties in partnered programs. Royalties range from single digit to low double digits. Captisol is used in 17 approved products, 16 FDA approvals, and one in Japan.
The latest FDA approval is for SQ Innovations Furoscix that was approved October 7th this year. The enormous clinical and regulatory success and large safety database have increased Captisol's visibility and positioned it for growth. Here you can see the 17 approved Captisol products. Furoscix, the latest approved one, is for the treatment of edema and heart failure. It delivers furosemide subcutaneously through a drug-device combination. The Captisol technology platform is highly productive, has a strong breadth of applicability across 17 products, and more are in clinical development. With that, I want to say thank you, and I'm going to hand it back to Todd Davis, our CEO.
Thank you, Karen. Okay, thank you, everybody, again for coming. I want to thank Kelly and Melanie in the back who've been trying to keep us on time. You failed miserably, by the way. We all ran over.
We still have a little over 10 minutes for questions, so I'll be very brief other than to say I think we're on track. We're delivering current profitability, and we think we have a lot of visibility on the profitability going forward. That's our goal from a business model perspective, and I think we're delivering. Also, just real quickly, because we're going to break after this for lunch, if Andrew, Lee, and Michael could stand up just so people know who you are when we're sitting down. I don't know where Andrew went. He was back there. A couple of other team members. Andrew's not on the stage today because he wouldn't shave, so that's where we left it. So that's all we have today. Look forward to mingling during lunch, and now we're going to open it up for Q&A. Yeah, go ahead, Joe.
Hi, thank you for all the details. Joe Pantginis, H.C. Wainwright. So two questions, one on the macro and one on Captisol and one of the lines in your five-year growth plan. So can you talk to any potential cyclicality of your underlying business? Financing windows have opened up in biotech. Last night, we had essentially record amounts of deals announced. So how might that impact your business development opportunities now? And then with regard to the line that's going down in your five-year growth, obviously that's impacted mostly by Kyprolis. However, with regard to Captisol, I appreciate the details. Are there any opportunities for growth there? Thanks.
Yeah, I'll take the cyclicality portion of that question, and perhaps Tavo and Karen can address the Captisol plan going forward. But in terms of cyclicality of the business, the market moves around quite a bit.
There are so many more deals to do than we can do that we don't really notice the cyclicality, to be honest with you. I will say there are some idiosyncrasies, like if the IPO market's been shut for two or three years and it opens up, a lot of the late-stage private companies are going to favor an IPO to provide their investors liquidity, of course, because they need to deliver that regardless of cost of capital and a bunch of other financing considerations. But that said, even in those markets, we're very complementary to equity capital. So they can do both, and they do do both in those markets. So we continue. I've seen multiple cycles as a royalty investor in my life. We continue to invest through all of those cycles and find good deals.
On the Captisol plan going forward, Tavo, in terms of the numbers and if Karen can comment subjectively.
Yeah, so specifically on the five-year outlook chart where you see the drop-off, that's really driven by Kyprolis with Amgen. They've been public with their announcement with the generics coming in in late 2027. So we're taking some pretty conservative assumptions on the drop-off there. And in terms of the longer-term outlook, the Captisol business has been a core to the business, but over the long term, it's going to be the royalty revenue that increases that's going to be the overall increasing mix of the overall royalty line. But we continue to see activity in the business, licensing activity. We continue to see inflow. Obviously, these are earlier-stage, lower-volume consumers of Captisol, but it's a pretty broad portfolio.
LATX is one of those to become the next Kyprolis, and all of a sudden, we're talking about growth back into the mid-teens. But the growth is going to be in the high singles to low double digits over the next handful of years.
Okay, good.
And I can add. We're always looking to enhance our Captisol with additional opportunities.
David Lebowitz at Citigroup. Great presentation, lots of interesting detail. In terms of therapeutic areas, could you just comment broadly? Are you happy with the swim lanes that you're in? Are there areas that you want to be in that you're not in, or is it really just deal-dependent in what you see out there in the market?
And then secondly, just more specifically on Filspari, I noticed that your royalty projections for FSGS, based on some of the comments on the portfolio section, they seemed a little conservative given the fact that you're going to double the dose as well as FSGS being a bigger market. So if you could maybe expand a little bit on that. Thank you.
Sure. Yeah, so I think I'll take the FSGS question, and then I'll let others weigh in. But I think on FSGS, we tend to lean conservative. FSGS is not approved yet. There's high expectations in the market that it will be approved. We have a pretty significant discount on probability of approval, probably relative to the market. That's why in our five-year chart, we've got about 5% in there as a 5% contribution to the 23% growth from our development pipeline. That probably does lean conservative.
You, Gaul, just to add on the contribution in 2026, it's relatively modest. Obviously, it hasn't been approved, so we have risk adjusted, but even if it gets approved, it's a $5 million-$7 million royalty contribution in 2026.
Yeah. And thank you for the new coverage this morning as well.
Hi, Annabel Samimy at Stifel. So everyone can't help but notice that Pelthos was an extremely successful special situations that you launched. And I guess from that perspective, and now with $1 billion in deployable capital, how are you thinking about the balance of the types of deals that you do given the high success rate in some of these special situations? And do you have any expectation to change the deal size, or do you want to stay in this lane because that's a sweet spot in the competitive landscape?
Yeah, I say on the going backwards, on the deal size, per asset, we're in that range. We may go to 60. We have high confidence in a single asset, but we do look at multiple asset deals, and so those can scale proportionately because we view diversification by asset. So that's really the way we view the world. On the special situations, we have a high bar on that because it does consume more resources. It's often very worth it, as you've noted. We have a high success ratio. We're pretty independent thinkers. We've got a lot of industry experience. We don't follow the herd at all. Nobody was interested in rescuing the Novan asset, for example. But 16 million patients, zero take-home prescription treatments. I wouldn't say we're the smartest people in the world, but you see patterns over a period of decades that you start to recognize.
And we will go after the special situations like those when we see them. A lot of times, people are just cautious to step into those, but we've got the experience where we've multiple times bought things out of bankruptcy, restarted them. And if you have that experience, you're comfortable with the process. No process is certain. In a bankruptcy, you're dealing with trustees that have their own interests in mind, in fact. But there are rules around it. We know how to go about that. And with things like Apeiron, it's kind of easy to shoot the gap there.
That was a very saleable asset, but that was simply a tax structure issue for everybody because most of the funds that were bidding on the royalty, which they'd marketed before, were bidding to purchase the royalty, which would have been capital gains for the company, and then a second distribution tax when they distributed that to their investors who had been in this private company for 17 years and wanted liquidity. Furthermore, we're able to align interest a little bit with our flexibility because the management team there wanted to continue to invest in the oncology assets they had, which are pretty early stage. So we simply spun them out with the cash they had on their balance sheet to do that. We see those a lot. We're very selective about where we step in. We've just scaled capital significantly, as you know, and now we're scaling the team.
So our capacity to do more of these will increase over time.
Hi, David Risinger from Leerink Partners. Thanks so much for the detailed presentation today. So my question is on Pelthos's ZELSUVMI. Could you just add some more color on the access and adoption? So if there were no PBM contracts at all, how is the product being reimbursed to generate the $7 million in revenue? And then if you could just provide some more color on prior auths, step edits, things like that. And I guess to conclude, with such a strong launch of $7 million, given the trajectory, why have any PBM contracts at all?
I'm going to have Scott answer this, but this was a bold call that he saw immediately. The instinct is to contract with everybody, and the PBMs ask for very significant discounts. So Scott, go ahead.
Yeah, great question.
The other thing we announced with that $7 million of revenue was a gross-to-net of 25.3%, which we shared that on our earnings call, which is unheard of, especially in a topical derm product. We did a lot of market research early on around this, spoke to a lot of consultants we know, and I'm very fortunate. I have a great team. We've talked about ZELSUVMI a bunch today. My head of market access worked for me for 25 years at different companies, but he set up ZELSUVMI's go-to-market strategy on the market access side. Very strong skills there, but we did market research. It's predominantly pediatric disease. We said that 90% 20 and under, 80% 10 and under. The PBMs pay for pediatric drugs more readily than they do for adults. It's just hard.
It's hard to make a four-year-old with 40 lesions in their groin to step through any kind of procedure. So the steps are very difficult there. There's really not much that has anything prescription that you can write that actually has good efficacy even in secondary studies. Like Aldara, imiquimod was a step-through in some plans, but their label actually says, "Do not use in molluscum." They actually had two failed FDA trials. So you present that to the payer, and they pull back on it, right? So it's that. And the other thing that helps is it is an acute medication. So basically, we're getting at max three units. We might get a few more, but if you're using it as a label, that would be basically 12 weeks, three units. So they know that there's a limited exposure expense-wise.
This isn't like I was in the IBD market forever. So Crohn's, ulcerative colitis, that could be for life, right? So this is kind of almost like an antibiotic when you think about it. So those kind of things helped us as we were formulating our position. Our plan and our strategy from day one was get into market, see what it looks like, because once you contract, you have a contract, and it's almost impossible to pull back. And over time, they'll only go up on your rebates. So get into market, see where friction is, and then contract. So the contract we did was where we thought we'd have the most friction. And we were watching very closely. It's about 20% of commercial lives, but we were only getting about 5% of the business out of there.
As we sit here today, we're at about 25% of commercial lives covered, and that's going to go up. It'll go up in January just because open enrollment is about to start being reflected. They don't change until the beginning of the year. And really, I think importantly, 30% of the patients that we're going through are Medicaid. And right now, we have almost 80% of Medicaid lives covered without any supplemental rebating whatsoever. So again, going through, I think because of the clinical profile. And the other thing I didn't even mention is the first and only at-home treatment. So it's something that is empowering people to treat at home, and there's been nothing like it, so.
Hi there, Matt Hewitt from Craig-Hallum. First off, fantastic presentation. Thank you for all the details. Maybe two separate questions.
First up, regarding Kyprolis, with generics coming in 2027, have you had an opportunity to speak with some of those potential partners, and how are those discussions going? And then separately for Paul, your team has grown three to 18. You've started to expand beyond traditional pharma opportunities with Orchestra BioMed and Castle Creek. The addition that you've been making, is that adding new layers of expertise to kind of go after some of these outside of pharma opportunities, or is it just adding more depth to the bench? Thank you.
Paul, why don't you go ahead?
Yeah, so in terms of the team adds, I mean, you're right, Matt. We've been adding quite substantially to the team. It's mostly adding more depth and execution capabilities. So really, if you look at the DNA of most of the team, it's in biopharma.
There is some med tech, but obviously, the biopharma investments are most of what we've been doing. And so I think to an earlier question about sort of therapeutic areas where we're focused, we like the lanes we're in. I think what we did not like was our bandwidth. And so we're changing that and solving for that. So we're pretty excited about where we start the year off in next year.
Y eah. And we have on the Kyprolis question, Matt, we have one partner on that product, and it's Amgen. Melanie, you have any questions for me? Anyone else?
Quick follow-up. What if the generics still use Captisol? Or what would prevent them from using it? And what do you guys look at there?
Yeah, on material sales side, yes. You're typically not getting royalties on generics, but on the material sales, that's true.
However, sometimes you sign exclusivity with partners, right? They want the Captisol. They want it exclusively. That's with the proprietary company, so it's well worth doing that. And that's your typical arrangement when you're licensing technology, is you'll go exclusive with your partners. So when the generics come around, they want to use you, but they're prohibited from doing it. In most categories, there's stability in order. It's actually solubility, permeability, and then stability is third. So those are the three main drug delivery problems. And usually, they'll find some other way to solubilize. There's DMSO chemicals, which are toxic. You can do nanocrystals, very expensive. I used to license that at Allergan Pharmaceuticals. Manufacturing process there is quite expensive. So at any rate, that's usually what happens in these markets. Yep.
Thank you. Another question for Pelthos and Scott. What do the ex-US opportunities look like for ZELSUVMI? Yeah.
Great. Yeah. So we do have the rights worldwide to ZELSUVMI. We do already have a partner in Japan. I think Rich touched on that, and they're actually wrapping up their Phase 3 trial this year. So when that happens, both Ligand and Pelthos will get a milestone on commercialization and then royalties to Ligand going forward. But we're having active discussions with other countries about the marketing in other countries. But we got to make sure, number one, there's different policy things out there right now that are around most favored nation, pricing, and things like that. We want to make sure whatever we do, it doesn't compromise the U.S. market because that's really what's going to drive ZELSUVMI. But there is an opportunity there.
Any other questions?
All right. Thank you all very much. Everybody's hungry, Melanie, so let's go.