LIGAND PHARMACEUTICALS INC, 424B1, 1996-10-25

LIGAND PHARMACEUTICALS INC
424B1, 1996-10-25
PHARMACEUTICAL PREPARATIONS

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<PAGE> 1

This filing is made pursuant
to Rule 424(b)(1) under
the Securities Act of 1933
in connection with
Registration No. 333-12603

PROSPECTUS

2,750,000 SHARES

LOGO
COMMON STOCK

All of the shares of Common Stock offered hereby (the "Offering") are being
issued and sold by Ligand Pharmaceuticals Incorporated ("Ligand" or the
"Company"). The Common Stock is traded on the Nasdaq National Market under the
symbol "LGND." On October 24, 1996, the last sale price of the Common Stock as
reported on the Nasdaq National Market was $13.437 per share. See "Price Range
of Common Stock."

------------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" STARTING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Per Share............................ $12.00 $0.72 $11.28
- ----------------------------------------------------------------------------------------------
Total(3)............................. $33,000,000 $1,980,000 $31,020,000
============================================================================================
</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of the Offering estimated at $375,000.

(3) The Company has granted the Underwriters an option, exercisable within 30
days after the date hereof, to purchase up to an aggregate of 412,500
additional shares of Common Stock to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $37,950,000,
$2,277,000 and $35,673,000, respectively. See "Underwriting."

------------------------------

The shares of Common Stock offered hereby are offered by the several
Underwriters, subject to prior sale, when, as and if issued to and accepted by
them, subject to approval of certain legal matters by counsel for the
Underwriters and certain other conditions. The Underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
It is expected that delivery of the shares of Common Stock will be made at the
offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York on or
about October 30, 1996.

------------------------------

BEAR, STEARNS & CO. INC.
ROBERTSON, STEPHENS & COMPANY
HAMBRECHT & QUIST

THE DATE OF THIS PROSPECTUS IS OCTOBER 24, 1996.

<PAGE> 2

AVAILABLE INFORMATION

The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files annual and quarterly reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information may be inspected at the
Commission's Public Reference Section, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as at the Commission's regional offices at 7
World Trade Center, 13th Floor, New York, New York 10048; and Northwest Atrium
Center, 500 West Madison Street, Room 1400, Chicago, Illinois 60661-2511. Copies
of such materials can also be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. In addition, the Commission maintains a World Wide Web site on the
Internet at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The Common Stock is traded on the Nasdaq National Market,
and copies of such materials can also be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.

INFORMATION INCORPORATED BY REFERENCE

The following documents filed by the Company with the Commission are hereby
incorporated by reference in this Prospectus: (1) the Annual Report of the
Company on Form 10-K for the fiscal year ended December 31, 1995; (2) the
Quarterly Report of the Company on Form 10-Q for the quarter ended March 31,
1996; (3) the Quarterly Report of the Company on Form 10-Q for the quarter ended
June 30, 1996; and (4) the description of the Common Stock contained in the
Company's Registration Statement on Form 8-A filed on November 21, 1994.

All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the Offering shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
of such reports and documents. Any statement contained in any document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.

The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all of the foregoing documents incorporated by reference herein (other
than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into any such document). Requests for such documents
should be submitted in writing to the Secretary of the Company at the Company's
principal executive offices at 9393 Towne Centre Drive, San Diego, California
92121, telephone number (619) 535-3900.
------------------------------

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF
THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER
THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
------------------------------

Ligand(R) and Targretin(TM) are trademarks of the Company, Galardin(TM) is
a trademark of the Company's wholly-owned subsidiary, Glycomed Incorporated, and
Panretin(TM) is a trademark of Allergan Ligand Retinoid Therapeutics, Inc.
Proleukin(R) is a registered trademark of Cetus Oncology Corporation, a
wholly-owned subsidiary of Chiron Corporation, and PHOTOFRIN(R) is a registered
trademark of QLT Phototherapeutics, Inc. All other brand names or trademarks
appearing in this Prospectus are the property of their respective owners.
------------------------------

The Company was incorporated in Delaware in 1987. The Company's principal
executive offices are located at 9393 Towne Centre Drive, San Diego, California
92121, and its telephone number is (619) 535-3900.

2
<PAGE> 3

PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere and incorporated by reference in this Prospectus, including
the information under "Risk Factors." Except as otherwise noted, all information
in this Prospectus assumes no exercise of the Underwriters' over-allotment
option. Unless the context otherwise requires, references in this Prospectus to
"Ligand" and the "Company" are to Ligand Pharmaceuticals Incorporated and its
wholly-owned subsidiaries, Glycomed Incorporated, a California corporation
("Glycomed"), and Ligand Pharmaceuticals (Canada) Incorporated, a corporation
organized under the laws of the Canadian province of Saskatchewan ("Ligand
Canada"). This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results and the timing of certain events could differ materially from
those discussed in or projected by the forward-looking statements. Factors that
could cause or contribute to such differences include those discussed under
"Risk Factors," as well as those discussed elsewhere in this Prospectus. See
"Special Note Regarding Forward-Looking Statements."

THE COMPANY

Ligand is a leader in the discovery and development of small-molecule drugs
which mimic or block the activities of various hormones and cytokines to
regulate gene activity and the genetic processes affecting many diseases. The
Company's drug discovery and development programs are based on its proprietary
technologies involving two natural mechanisms that regulate gene activity: (i)
hormone-activated Intracellular Receptors ("IRs") and (ii) cytokine-activated
Signal Transducers and Activators of Transcription ("STATs"). IRs play key roles
in many disease processes, including certain cancers, disorders of women's
health, cardiovascular diseases, inflammatory disorders and skin diseases.
Similarly, STATs influence many biological processes, including cancer,
inflammation and blood cell formation. In programs acquired with Glycomed in
1995, Ligand is also seeking to develop orally active drugs to modulate
biological processes involving complex carbohydrates and other cell surface
components for the treatment of inflammation and cancer.
IRs are members of a family of hormone-activated proteins that act inside
the cell to regulate directly gene expression and cellular function. Although
the effectiveness of IRs as drug targets has been demonstrated by drugs acting
through IRs already on the market, such as retinoids (e.g., Retin-A for acne and
psoriasis) and sex steroid modulators (e.g., estrogens and progesterones for
hormone replacement therapy and contraception, tamoxifen for breast cancer,
flutamide for prostate cancer), the utility of these first-generation drugs has
been limited by their often significant side effects. STATs are a recently
discovered family of proteins that act inside cells to regulate gene expression
in response to various cytokines such as interferons, interleukins and
hematopoietic growth factors. Imbalances in the activity of these cytokines can
lead to various pathological conditions, such as inflammation. While certain
recombinant cytokines and other proteins which bind to cell surface receptors
have proven to have clinical utility in the treatment of disease, they must be
administered by injection and can be difficult to manufacture.

Ligand and its exclusive academic collaborators have been leaders in
advancing the understanding of the activities of hormones and hormone-related
drugs and have made major scientific discoveries relating to IR and STATs
technologies. Ligand believes that its expertise in IR and STATs technologies
will enable the Company to develop novel small-molecule pharmaceutical products
acting through IRs or STATs with more target-specific properties than currently
available products, resulting in either improved therapeutic and side effect
profiles and new indications for IRs or novel mechanisms of action and oral
bioavailability for STATs.

Ligand's business strategy is to develop new drugs using its IR and STATs
technologies through both internal and collaborative programs. Ligand's internal
programs focus on the discovery, development and marketing of small-molecule
drugs that address cancer, gynecological diseases and male hormone imbalances,
which are treated by medical specialists. Ligand also seeks to in-license or
acquire products in these medical specialty markets which are in late-stage
clinical development or which have been previously approved by regulatory
authorities. As part of this business strategy, Ligand is building a specialized
commercial sales and marketing organization for North America. In addition,
Ligand Canada currently markets two in-licensed products, Proleukin(R) and
PHOTOFRIN(R), to oncologists in Canada. Ligand's collaborative programs focus on
building a royalty-based business through partnerships with large pharmaceutical
companies that apply Ligand's technologies to discover drugs for primary care
markets, such as markets for certain cardiovascular, inflammatory and other
diseases, as well as broad applications for women's health.

3
<PAGE> 4

Through a combination of internal and partnered programs, supplemented by
selective in-licensing of approved cancer products, Ligand has built a pipeline
of numerous products in advanced preclinical testing, clinical development or
commercialization stages. The most advanced of these products are as follows:

<TABLE>
<CAPTION>
PROGRAM PRODUCT DISEASE INDICATION DEVELOPMENT PHASE(1)
- -------------- ------------------------------------ ------------------------------------------ ---------------------------
<S> <C> <C> <C>
Retinoids Panretin(TM) (ALRT1057) Topical(2) Kaposi's Sarcoma ("KS") III
Panretin(TM) (ALRT1057) Oral(2) Acute Promyelocytic Leukemia ("APL"), IIB
KS, other cancers, psoriasis, eye disease,
AIDS
ALRT1550 Oral(2)(3) Various cancers Preclinical (IND 4Q 96)
Targretin(TM) (LGD1069) Topical Skin lymphoma, other malignancies of skin III(4)
Targretin(TM) (LGD1069) Oral Lung cancer, other cancers, metabolic II/III(4)
diseases
Sex steroids Droloxifene(5) Breast cancer III
Droloxifene(5) Osteoporosis II
CP336,156(6) Osteoporosis Preclinical (IND or foreign
equivalent 4Q 96)
Inflammation Galardin(TM)(7) Eye injury II/III
Oncology Proleukin(8) Kidney cancer Marketed in Canada
PHOTOFRIN(8) Bladder cancer, esophageal cancer Marketed in Canada
</TABLE>

- ---------------
(1) "Development Phase" refers to the current stage of development of the most
advanced indication. See "Business -- Product Development Program" for a
more detailed description of the stages of development for these compounds.
(2) All rights currently owned by Allergan Ligand Retinoid Therapeutics, Inc.,
an off-balance sheet financing entity. See "Business -- Strategic
Alliances -- Allergan, Inc."
(3) The Company intends to file an Investigational New Drug application ("IND")
for ALRT1550 Oral on behalf of ALRT in the fourth quarter of 1996. See "Risk
Factors -- Uncertainties Related to Clinical Trials" and "Special Note
Regarding Forward-Looking Statements."
(4) To date, no patients have been enrolled in the clinical trial for Targretin
(LGD1069) Topical for skin lymphoma or in the clinical trial for Targretin
(LGD1069) Oral for lung cancer.
(5) Droloxifene is a compound owned by Pfizer Inc ("Pfizer"). Ligand performed
work on droloxifene at Pfizer's request. Ligand and Pfizer entered into a
settlement agreement with respect to a lawsuit in April 1996. Under the
terms of the settlement agreement, the Company is entitled to receive
milestone payments if Pfizer continues development and royalties if Pfizer
commercializes the product. See "Business -- Strategic Alliances -- Pfizer
Inc."
(6) A compound discovered through the Company's collaborative relationship with
Pfizer to which Pfizer has retained marketing rights. The Company has been
informed by Pfizer that Pfizer intends to file an IND or foreign equivalent
for CP336,156 in the fourth quarter of 1996. See "Business -- Strategic
Alliances -- Pfizer Inc," "Risk Factors -- Uncertainties Related to Clinical
Trials" and "Special Note Regarding Forward-Looking Statements."
(7) Ligand is seeking a partner to further the development and commercialization
of Galardin for ophthalmic use. See "Business -- Product Development
Program -- Inflammatory Disease."
(8) In-licensed product.

Ligand is conducting human clinical trials with four products. Panretin
(ALRT1057) Oral and Panretin (ALRT1057) Topical are retinoids that may be useful
for the treatment of various cancers, such as KS, and diseases of the skin and
eyes and are being developed by Ligand and Allergan on behalf of Allergan Ligand
Retinoid Therapeutics, Inc. ("ALRT"). See "Business -- Strategic
Alliances -- Allergan, Inc." The Company has initiated pivotal Phase III trials
for Panretin (ALRT1057) Topical in KS. Ligand intends to file a New Drug
Application ("NDA") for this compound in 1997 on behalf of ALRT, in the event
that Phase III trials demonstrate sufficient safety and efficacy. Panretin
(ALRT1057) Oral has entered Phase IIB clinical trials in various cancers. Ligand
is also performing clinical trials for the retinoids Targretin (LGD1069) Oral
and Targretin (LGD1069) Topical, to which Ligand has worldwide exclusive rights.
Interim evaluation of data from a Phase I/II study of Targretin (LGD1069)
Topical in skin lymphoma has demonstrated significant activity, and based on
discussions with the U.S. Food and Drug Administration ("FDA") on trial design,
the Company is launching pivotal Phase III clinical trials in this indication.
The Company is also launching Phase II/III clinical trials with Targretin
(LGD1069) Oral in various forms of cancer, including lung cancer. There can be
no assurance that the clinical trials will proceed as planned or that any drugs
will be successfully developed or commercialized. See "Risk
Factors -- Uncertainties Related to Clinical Trials" and "Special Note Regarding
Forward-Looking Statements."

To date, Ligand has entered into collaborations with seven corporate
partners which include, in addition to ALRT: SmithKline Beecham Corporation (for
hematopoietic growth factor mimetics for use in oncology and treatment of
anemia), the Wyeth-Ayerst Laboratories division of American Home Products
Corporation (for women's health, e.g., hormone replacement therapy,
osteoporosis, fertility control), Abbott Laboratories (for inflammatory
diseases, utilizing selected IR- and STAT-based approaches), Sankyo Company
Limited (for inflammatory diseases, utilizing selected Glycomed technologies),
Glaxo-Wellcome plc (for atherosclerosis and other diseases affecting the
cardiovascular system) and Pfizer (for osteoporosis). These partners provide
discovery resources complementary to those of Ligand and are expected to
facilitate the development and commercialization of potential products for
primary care markets. The collaborative partners have also been an important
funding source for Ligand, contributing approximately two-thirds of its invested
capital to date. In addition to ALRT, which was capitalized with $100.0 million
to accelerate research and development of certain retinoid compounds, Ligand's
research activities have been supported by commitments from its partners of up
to $89.3 million for research funding. Ligand's collaborative partners have also
committed up to $96.5 million of additional equity and convertible notes to
Ligand, of which $81.5 million has been received through June 30, 1996, an
additional $5.0 million is available to Ligand at its option, and the remaining
$10.0 million is subject to Ligand attaining certain milestones.

4
<PAGE> 5

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company.............. 2,750,000 shares
Common Stock to be outstanding after the
Offering....................................... 30,860,700 shares(1)
Use of proceeds.................................. For general corporate purposes, including product
research and development programs, preclinical
testing and clinical trials; the acquisition and
in-licensing of products and complementary
technologies; and capital expenditures and working
capital. See "Use of Proceeds."
Nasdaq National Market symbol.................... LGND
</TABLE>

SUMMARY CONSOLIDATED FINANCIAL DATA

The following summary consolidated financial data should be read in
conjunction with Ligand's consolidated financial statements for each of the five
years in the period ended December 31, 1995 and the notes thereto, Ligand's
unaudited consolidated financial statements and the notes thereto for the six
months ended June 30, 1995 and 1996 and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" which are included elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT NET LOSS PER SHARE)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues:........................... $ 1,526 $ 5,883 $ 16,262 $ 13,309 $ 24,516 $ 9,967 $ 17,258
Costs and expenses:
Research and development.......... 6,228 14,220 24,301 27,205 41,636 16,026 27,081
Selling, general and
administrative................. 1,568 4,144 6,192 6,956 8,181 3,769 5,172
Write-off of acquired in-process
technology..................... -- -- -- -- 19,564 19,869 --
ALRT contribution................. -- -- -- -- 17,500 17,500 --
------- -------- -------- -------- -------- ------- -------
Total operating expenses............ 7,796 18,364 30,493 34,161 86,881 57,164 32,253
Loss from operations................ (6,270) (12,481) (14,231) (20,852) (62,365) (47,197) (14,995)
Interest income (expense), net...... (4) 198 1,652 618 (1,807) (100) (2,125)
Equity in operations of Joint
Venture........................... -- (1,724) (6,879) (6,845) -- -- --
------- -------- -------- -------- -------- ------- -------
Net loss............................ $(6,274) $(14,007) $(19,458) $(27,079) $(64,172) $(47,297) $(17,120)
======= ======== ======== ======== ======== ======= =======
Net loss per share.................. $ (3.04) $ (3.96) $ (1.19) $ (1.57) $ (2.70) $ (2.33) $ (.61)
======= ======== ======== ======== ======== ======= =======
Shares used in computing net loss
per share(2)...................... 2,067 3,537 16,357 17,241 23,792 20,271 27,990
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------
ACTUAL AS ADJUSTED(3)
--------- --------------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments(4)........................ $ 60,447 $ 91,092
Working capital............................................................. 46,837 77,482
Total assets................................................................ 76,673 107,318
Long-term debt.............................................................. 18,714 18,714
Convertible subordinated debentures(5)...................................... 32,616 32,616
Accumulated deficit......................................................... (157,401) (157,401)
Total stockholders' equity.................................................. 12,717 43,362
</TABLE>

- ---------------
(1) As of June 30, 1996. Excludes (a) 3,597,866 shares of Common Stock issuable
upon the exercise of outstanding options under the Company's stock option
plans (at a weighted average exercise price of $8.83 per share), (b) 874,074
shares of Common Stock available for future grants under such plans or
issuance under the Company's stock purchase plan, (c) 6,671,922 shares of
Common Stock issuable upon exercise of outstanding warrants (at a weighted
average exercise price of $7.30 per share), (d) 999,001 shares of Common
Stock issuable upon conversion of the principal amount outstanding under
convertible promissory notes, (e) 1,885,370 shares of Common Stock issuable
upon conversion of the principal amount outstanding under Glycomed's 7 1/2%
Convertible Subordinated Debentures Due 2003 and (f) 35,686 shares of Common
Stock held in treasury stock of which 28,283 shares received from Pfizer
were retired in September 1996. Includes 72,728 shares of Common Stock
received from Pfizer and retired in September 1996. See "Capitalization,"
"Business -- Strategic Alliances" and "Description of Capital Stock."
(2) Net loss per share is computed using the weighted average number of common
shares outstanding (see Note 2 of Notes to Consolidated Financial
Statements).

(3) Adjusted to reflect the sale of the 2,750,000 shares of Common Stock offered
hereby at the public offering price of $12.00 per share and the receipt of
the proceeds therefrom after deducting underwriting discounts and estimated
Offering expenses. See "Use of Proceeds."

(4) Includes restricted cash of $3,746,000.
(5) See Note 6 of Notes to Consolidated Financial Statements.

5
<PAGE> 6

RISK FACTORS

An investment in the Common Stock offered hereby involves a high degree of
risk. In addition to the other information contained in this Prospectus,
prospective investors should carefully consider the following risk factors
before purchasing the Common Stock offered hereby.

EARLY STAGE OF PRODUCT DEVELOPMENT; TECHNOLOGICAL UNCERTAINTY

The Company was founded in 1987 and has not generated any revenues from the
sale of products developed by Ligand or its collaborative partners. To achieve
profitable operations, the Company, alone or with others, must successfully
develop, clinically test, market and sell its products. Any products resulting
from the Company's product development efforts are not expected to be available
for sale for at least several years, if at all.

The development of new pharmaceutical products is highly uncertain and
subject to a number of significant risks. Potential products that appear to be
promising at early stages of development may not reach the market for a number
of reasons. Such reasons include the possibilities that potential products are
found during preclinical testing or clinical trials to be ineffective or to
cause harmful side effects, that they fail to receive necessary regulatory
approvals, are difficult or uneconomical to manufacture on a large scale, fail
to achieve market acceptance or are precluded from commercialization by
proprietary rights of third parties. To date, Ligand's resources have been
substantially dedicated to the research and development of potential
pharmaceutical products based upon its expertise in IR and STATs technologies.
Even though certain pharmaceutical products act through IRs, some aspects of the
Company's IR technologies have not been used to produce commercialized medicine.
In addition, the Company is not aware of any drugs that have been developed and
successfully commercialized that interact directly with STATs. Much remains to
be learned about the location and function of IRs and STATs. Most of the
Company's potential products will require extensive additional development,
including preclinical testing and clinical trials, as well as regulatory
approvals, prior to commercialization. No assurance can be given that the
Company's product development efforts will be successful, that required
regulatory approvals from the FDA or equivalent foreign authorities for any
indication will be obtained or that any products, if introduced, will be capable
of being produced in commercial quantities at reasonable costs or will be
successfully marketed. Further, the Company has no sales and only limited
marketing capabilities outside Canada, and even if the Company's products in
internal development are approved for marketing, there can be no assurance that
the Company will be able to develop such capabilities or successfully market
such products.

HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; FUTURE CAPITAL NEEDS;
UNCERTAINTY OF ADDITIONAL FUNDING

Ligand has experienced significant operating losses since its inception in
1987. As of June 30, 1996, Ligand had an accumulated deficit of approximately
$157.4 million. To date, substantially all of Ligand's revenues have consisted
of amounts received under collaborative arrangements. The Company expects to
incur additional losses at least over the next several years and expects losses
to increase as the Company's research and development efforts and clinical
trials progress.

The discovery and development of products will require the commitment of
substantial resources to conduct research, preclinical testing and clinical
trials, to establish pilot scale and commercial scale manufacturing processes
and facilities, and to establish and develop quality control, regulatory,
marketing, sales and administrative capabilities. The future capital
requirements of the Company will depend on many factors, including the pace of
scientific progress in its research and development programs, the magnitude of
these programs, the scope and results of preclinical testing and clinical
trials, the time and costs involved in obtaining regulatory approvals, the costs
involved in preparing, filing, prosecuting, maintaining and enforcing patent
claims, competing technological and market developments, the ability to
establish additional collaborations, changes in existing collaborations, the
cost of manufacturing scale-up and the effectiveness of the Company's
commercialization activities. To date, Ligand has not generated any revenue from
the sales of products developed by Ligand or its collaborative partners. There
can be no assurance that Ligand

6
<PAGE> 7

independently or through its collaborations will successfully develop,
manufacture or market any products or ever achieve or sustain revenues or
profitability from the commercialization of such products. Moreover, even if
profitability is achieved, the level of that profitability cannot be accurately
predicted. Ligand expects that operating results will fluctuate from quarter to
quarter as a result of differences in the timing of expenses incurred and the
revenues received from collaborative arrangements and other sources. Some of
these fluctuations may be significant. The Company believes that its available
cash, cash equivalents, marketable securities and existing sources of funding,
in addition to the net proceeds of the Offering, will be adequate to satisfy its
anticipated capital requirements through 1999, assuming the Company does not
exercise for cash its options to acquire either the assets related to Panretin
(ALRT1057) Oral and Panretin (ALRT1057) Topical or the outstanding callable
common stock of ALRT. Glycomed's outstanding indebtedness includes $50 million
principal amount of 7 1/2% Convertible Subordinated Debentures Due 2003 (the
"Debentures"). There can be no assurance that Glycomed will have the funds
necessary to pay the interest on and the principal of the Debentures or, if not,
that it will be able to refinance the Debentures. The Company expects that it
will seek any additional capital needed to fund its operations through new
collaborations, the extension of existing collaborations, or through public or
private equity or debt financings. There can be no assurance that additional
financing will be available on acceptable terms, if at all. Any inability of the
Company to obtain additional financing or of Glycomed to service its obligations
under the Debentures could have a material adverse effect on the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

UNCERTAINTIES RELATED TO CLINICAL TRIALS

Before obtaining required regulatory approvals for the commercial sale of
each product under development, the Company and its collaborators must
demonstrate through preclinical studies and clinical trials that such product is
safe and efficacious for use. The results of preclinical studies and initial
clinical trials are not necessarily predictive of results that will be obtained
from large-scale clinical trials, and there can be no assurance that clinical
trials of any product under development will demonstrate the safety and efficacy
of such product or will result in a marketable product. The safety and efficacy
of a therapeutic product under development by the Company must be supported by
extensive data from clinical trials. A number of companies have suffered
significant setbacks in advanced clinical trials, despite promising results in
earlier trials. The failure to demonstrate adequately the safety and efficacy of
a therapeutic drug under development would delay or prevent regulatory approval
of the product and could have a material adverse effect on the Company. In
addition, the FDA may require additional clinical trials, which could result in
increased costs and significant development delays.

The rate of completion of clinical trials of the Company's products is
dependent upon, among other factors, obtaining adequate clinical supplies and
the rate of patient accrual. Patient accrual is a function of many factors,
including the size of the patient population, the proximity of patients to
clinical sites and the eligibility criteria for the trial. Delays in planned
patient enrollment in clinical trials may result in increased costs, program
delays or both, which could have a material adverse effect on the Company. In
addition, some of the Company's current corporate partners have certain rights
to control the planning and execution of product development and clinical
programs, and there can be no assurance that such corporate partners' rights to
control aspects of such programs will not impede the Company's ability to
conduct such programs in accordance with the schedules and in the manner
currently contemplated by the Company for such programs. There can be no
assurance that, if clinical trials are completed, the Company will submit an NDA
with respect to any potential products or that any such application will be
reviewed and approved by the FDA in a timely manner, if at all. See
"Business -- Government Regulation."

RELIANCE ON COLLABORATIVE RELATIONSHIPS

The Company's strategy for the development, clinical testing, manufacturing
and commercialization of certain of its potential products includes entering
into collaborations with corporate partners, licensors, licensees and others. To
date, Ligand has entered into drug discovery and development collaborations with
SmithKline Beecham Corporation ("SmithKline Beecham"), the Wyeth-Ayerst
Laboratories division of

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American Home Products Corporation ("American Home Products"), Abbott
Laboratories ("Abbott"), Sankyo Company Limited ("Sankyo"), Glaxo-Wellcome plc
("Glaxo"), ALRT (which collaboration continues the work previously undertaken
with Allergan, Inc. ("Allergan") through the Allergan Ligand Joint Venture (the
"Joint Venture")), and Pfizer. These collaborations provide Ligand with funding
and research and development resources for potential products for the treatment
or control of hematopoiesis, women's health disorders, inflammation,
cardiovascular disease, cancer, eye and skin diseases and osteoporosis,
respectively. The Company's collaborative agreements allow its collaborative
partners significant discretion in electing to pursue or not to pursue any
development program. There can be no assurance that the Company's collaborations
will continue or that the collaborations will be successful. In addition, there
can be no assurance that Ligand's collaborators will not pursue alternative
technologies either on their own or in collaboration with others as a means of
developing drugs competitive with the types of drugs currently being developed
in collaboration with Ligand, and any such action may result in the withdrawal
of support and increased competition for the Company's programs. In addition, if
products are approved for marketing under these programs, any revenues to Ligand
from these products will be dependent on the manufacturing, marketing and sales
efforts of its collaborators, which generally retain commercialization rights
under the collaborative agreements. Ligand's current collaborators also
generally have the right to terminate their respective collaboration under
certain circumstances. If any of the Company's collaborative partners were to
breach or terminate its agreements with the Company or otherwise fail to conduct
its collaborative activities successfully, the development of the Company's
products under such agreements would be delayed or terminated. The delay or
termination of any of the collaborations could have a material adverse effect on
Ligand.

There can be no assurance that disputes will not arise in the future with
Ligand's collaborators, including with respect to the ownership of rights to any
technology developed. For example, the Company was involved in litigation with
Pfizer, which was settled in April 1996, with respect to Ligand's rights to
receive milestones and royalties based on the development and commercialization
of droloxifene. These and other possible disagreements between collaborators and
the Company could lead to delays in the achievement of milestones or receipt of
milestone payments or research revenue, to delays or interruptions in, or
termination of, collaborative research, development and commercialization of
certain potential products, or could require or result in litigation or
arbitration, which could be time consuming and expensive and could have a
material adverse effect on the Company. See "Business -- Strategic Alliances"
and "Business -- Litigation."

UNCERTAINTY OF PATENT PROTECTION; DEPENDENCE ON PROPRIETARY TECHNOLOGY

The patent positions of pharmaceutical and biopharmaceutical firms,
including Ligand, are uncertain and involve complex legal and technical
questions for which important legal principles are largely unresolved. In
addition, the coverage sought in a patent application can be significantly
reduced before or after a patent is issued. This uncertain situation is also
affected by revisions to the United States patent law adopted in recent years to
give effect to international accords to which the United States has become a
party. The extent to which such changes in law will affect the operations of
Ligand cannot be ascertained. In addition, there is currently pending before
Congress legislation providing for other changes to the patent law which may
adversely affect pharmaceutical and biopharmaceutical firms. If such pending
legislation is adopted, the extent to which such changes would affect the
operations of the Company cannot be ascertained.

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<PAGE> 9

determined to be invalid, it could adversely affect the ability of the Company
to retain existing collaborations beyond their expiration or, where
contractually permitted, encourage their termination. Such a determination could
also adversely affect the Company's ability to enter into new collaborations. If
any disputes should arise in the future with respect to the rights in any
technology developed with a collaborator or with respect to other matters
involving the collaboration, there could be delays in the achievement of
milestones or receipt of milestone payments or research revenues, or
interruptions or termination of collaborative research, development and
commercialization of certain potential products, and litigation or arbitration
could result. Any of the foregoing matters could be time consuming and expensive
and could have a material adverse effect on the Company. See
"Business -- Strategic Alliances," "Business -- Patents and Proprietary Rights"
and "Business -- Litigation."

Ligand owns or has exclusively licensed over 215 currently pending patent
applications in the United States relating to Ligand's technology, as well as
foreign counterparts of certain of these applications in many countries. There
can be no assurance that patents will issue from any of these applications or,
if patents do issue, that claims allowed will be sufficient to protect Ligand's
technology. In addition, Ligand is the owner or exclusive licensee of rights
covered by approximately 80 United States patents issued or allowed to it or to
The Salk Institute of Biological Studies ("The Salk Institute"), Baylor College
of Medicine ("Baylor") and other licensors. Further, there can be no assurance
that any patents issued to Ligand or to licensors of Ligand's technology will
not be challenged, invalidated, circumvented or rendered unenforceable based on,
among other things, subsequently discovered prior art, lack of entitlement to
the priority of an earlier, related application, or failure to comply with the
written description, best mode, enablement or other applicable requirements, or
that the rights granted under any such patents will provide significant
proprietary protection or commercial advantage to Ligand. The invalidation,
circumvention or unenforceability of any of Ligand's patent protection could
have a material adverse effect on the Company.

The commercial success of Ligand will also depend in part on Ligand's not
infringing patents issued to competitors and not breaching technology licenses
that cover technology used in Ligand's products. It is uncertain whether any
third-party patents will require Ligand to develop alternative technology or to
alter its products or processes, obtain licenses or cease certain activities. If
any such licenses are required, there can be no assurance that Ligand will be
able to obtain such licenses on commercially favorable terms, if at all. Failure
by Ligand to obtain a license to any technology that it may require to
commercialize its products could have a material adverse effect on Ligand.
Litigation, which could result in substantial cost to Ligand, may also be
necessary to enforce any patents issued or licensed to Ligand or to determine
the scope and validity of third-party proprietary rights. There can be no
assurance that Ligand's patents or those of its licensors, if issued, would be
held valid by a court or that a competitor's technology or product would be
found to infringe such patents. If any of its competitors have filed patent
applications in the United States which claim technology also invented by
Ligand, Ligand may be required to participate in interference proceedings
declared by the PTO in order to determine priority of invention and, thus, the
right to a patent for the technology, which could result in substantial cost to
Ligand to determine its rights.

Ligand has learned that a United States patent has issued to, and foreign
counterparts have been filed by, Hoffman LaRoche ("Roche") that include claims
to a formulation of 9-cis-Retinoic acid (Panretin (ALRT1057)) and use of that
compound to treat epithelial cancers. Ligand had previously filed an application
which has an earlier filing date than the Roche patent and which has claims that
the Company believes are broader than but overlap in part with claims under the
Roche patent. Ligand's rights under its patent application have been exclusively
licensed to ALRT. Ligand and ALRT are currently investigating the scope and
validity of this patent to determine its impact upon the Panretin (ALRT1057)
Oral and Topical products. The PTO has informed Ligand that the overlapping
claims are patentable to Ligand and stated its intention to initiate an
interference proceeding to determine whether Ligand or Roche is entitled to a
patent by having been first to invent the common subject matter. The Company
cannot be assured of a favorable outcome in the interference proceeding because
of factors not known at this time upon which the outcome may depend. In
addition, the interference proceeding may delay the decision of the PTO
regarding the Company's application for the Panretin (ALRT1057) Oral and Topical
products. While the Company believes that the Roche patent does not cover the
use of Panretin (ALRT1057) Oral and Topical to treat

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<PAGE> 10

leukemias such as Acute Promyelecytic Leukemia ("APL") and sarcomas such as KS,
or the treatment of skin diseases such as psoriasis, if the Company does not
prevail in the interference proceeding, the Roche patent might block the
Company's use of Panretin (ALRT1057) Oral and Topical in certain cancers, and
the Company may not be able to obtain patent protection for the Panretin
(ALRT1057) Oral and Topical products.

Ligand also relies upon trade secrets, know-how, continuing technological
innovations and licensing opportunities to develop and maintain its competitive
position. There can be no assurance that others will not independently develop
substantially equivalent proprietary information or otherwise gain access to or
disclose such information of Ligand. It is Ligand's policy to require its
employees, certain contractors, consultants, members of its Scientific Advisory
Board and parties to collaborative agreements to execute confidentiality
agreements upon the commencement of employment or consulting relationships or a
collaboration with Ligand. There can be no assurance that these agreements will
not be breached, that they will provide meaningful protection of Ligand's trade
secrets or adequate remedies in the event of unauthorized use or disclosure of
such information or that Ligand's trade secrets will not otherwise become known
or be independently discovered by its competitors. See "Business -- Patents and
Proprietary Rights."

LACK OF MANUFACTURING CAPABILITY; RELIANCE ON THIRD-PARTY MANUFACTURERS

Ligand currently has no manufacturing facilities and, accordingly, relies
on third parties, including its collaborative partners, for clinical or
commercial production of any compounds under consideration as products. Ligand
is currently constructing and validating a current Good Manufacturing Practices
("cGMP") pilot manufacturing capability in order to produce sufficient
quantities of products for preclinical testing and initial clinical trials. If
Ligand is unable to develop or contract on acceptable terms for manufacturing
services, Ligand's ability to conduct preclinical testing and human clinical
trials will be adversely affected, resulting in the delay of submission of
products for regulatory approval and delay of initiation of new development
programs, which in turn could materially impair Ligand's competitive position.
Although drugs acting through IRs and STATs have been manufactured on a
commercial scale by other companies, there can be no assurance that Ligand will
be able to manufacture its products on a commercial scale or that such products
can be manufactured by Ligand or any other party on behalf of Ligand at costs or
in quantities to make commercially viable products. See
"Business -- Manufacturing" and "Business -- Government Regulation."

LIMITED SALES AND MARKETING CAPABILITY

The creation of infrastructure to commercialize pharmaceutical products is
a difficult, expensive and time-consuming process. Ligand currently has no sales
and only limited marketing capability outside Canada. In Canada Ligand has been
appointed as the sole distributor of two oncology products, Proleukin, which was
developed by Cetus Oncology Corporation ("Cetus Oncology"), and PHOTOFRIN, which
was developed by QLT PhotoTherapeutics, Inc. ("QLT"). To market any of its
products directly, the Company will need to develop a marketing and sales force
with technical expertise and distribution capability or contract with other
pharmaceutical and/or health care companies with distribution systems and direct
sales forces. There can be no assurance that the Company will be able to
establish direct or indirect sales and distribution capabilities or be
successful in gaining market acceptance for proprietary products or for other
products. To the extent the Company enters into co-promotion or other licensing
arrangements, any revenues received by the Company will be dependent on the
efforts of third parties, and there can be no assurance that any such efforts
will be successful. See "Business -- Sales and Marketing."

SUBSTANTIAL COMPETITION; RISK OF TECHNOLOGICAL OBSOLESCENCE

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extensive experience in preclinical testing and human clinical trials, obtaining
FDA and other regulatory approvals and manufacturing and marketing
pharmaceutical products. Academic institutions, governmental agencies and other
public and private research organizations are conducting research to develop
technologies and products that may compete with those under development by the
Company. These institutions are becoming increasingly aware of the commercial
value of their findings and are becoming more active in seeking patent
protection and licensing arrangements to collect royalties for the use of
technology that they have developed. These institutions also may market
competitive commercial products on their own or through joint ventures and will
compete with the Company in recruiting highly qualified scientific personnel.
Any of these companies, academic institutions, government agencies or research
organizations may develop and introduce products and processes competitive with
or superior to those of Ligand. The development by others of new treatment
methods for those indications for which Ligand is developing products could
render Ligand's products noncompetitive or obsolete.

Ligand's products under development target a broad range of markets.
Ligand's competition will be determined in part by the potential indications for
which Ligand's products are developed and ultimately approved by regulatory
authorities. For certain of Ligand's potential products, an important factor in
competition may be the timing of market introduction of Ligand's or competitors'
products. Accordingly, the relative speed at which Ligand or its existing or
future corporate partners can develop products, complete the clinical trials and
regulatory approval processes, and supply commercial quantities of the products
to the market is expected to be an important competitive factor. Ligand expects
that competition among products approved for sale will be based, among other
things, on product efficacy, safety, reliability, availability, price and patent
position.

Ligand's competitive position also depends upon its ability to attract and
retain qualified personnel, obtain patent protection or otherwise develop
proprietary products or processes, and secure sufficient capital resources. See
"Business -- Competition."

EXTENSIVE GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL

The manufacturing and marketing of Ligand's products and its ongoing
research and development activities are subject to regulation for safety and
efficacy by numerous governmental authorities in the United States and other
countries. Prior to marketing, any drug developed by the Company must undergo
rigorous preclinical and clinical testing and an extensive regulatory approval
process mandated by the FDA and equivalent foreign authorities. These processes
can take a number of years and require the expenditure of substantial resources.

The time required for completing such testing and obtaining such approvals
is uncertain, and there is no assurance that any such approval will be obtained.
The Company or its collaborative partners may decide to replace a compound in
testing with a modified or optimized compound, thus extending the test period.
In addition, delays or rejections may be encountered based upon changes in FDA
policy during the period of product development and FDA review of each submitted
new drug application or product license application. Similar delays may also be
encountered in other countries. There can be no assurance that even after such
time and expenditures, regulatory approval will be obtained for any products
developed by the Company. Moreover, prior to receiving FDA or equivalent foreign
authority approval to market its products, the Company may be required to
demonstrate that its products represent improved forms of treatment over
existing therapies. If regulatory approval of a product is granted, such
approval may entail limitations on the indicated uses for which the product may
be marketed. Further, even if such regulatory approval is obtained, a marketed
product, its manufacturer and its manufacturing facilities are subject to
continual review and periodic inspections, and subsequent discovery of
previously unknown problems with a product, manufacturer or facility may result
in restrictions on such product or manufacturer, including withdrawal of the
product from the market. See "Business -- Government Regulation."

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DEPENDENCE ON THIRD-PARTY REIMBURSEMENT AND HEALTH CARE REFORM

Ligand's commercial success will be heavily dependent upon the availability
of reimbursement for the use of any products developed by the Company. There can
be no assurance that Medicare and third-party payors will authorize or otherwise
budget reimbursement for the prescription of any of Ligand's potential products.
Additionally, third-party payors, including Medicare, are increasingly
challenging the prices charged for medical products and services and may require
additional cost-benefit analysis data from the Company in order to demonstrate
the cost-effectiveness of its products. There can be no assurance that the
Company will be able to provide such data in order to gain market acceptance of
its products with respect to pricing and reimbursement.

In the United States, the Company expects that there will continue to be a
number of federal and state proposals to implement government control of pricing
and profitability of prescription pharmaceuticals. In addition, increasing
emphasis on managed health care will continue to put pressure on such pricing.
Cost control initiatives could decrease the price that the Company or any of its
collaborative partners or other licensees receives for any drugs it may discover
or develop in the future and, by preventing the recovery of development costs,
which could be substantial, and an appropriate profit margin, could have a
material adverse effect on the Company. Further, to the extent that cost control
initiatives have a material adverse effect on the Company's collaborative
partners, the Company's ability to commercialize its products and to realize
royalties may be adversely affected. Furthermore, federal and state regulations
govern or influence the reimbursement to health care providers of fees and
capital equipment costs in connection with medical treatment of certain
patients. If any actions are taken by federal and/or state governments, such
actions could adversely affect the prospects for sales of the Company's
products. There can be no assurance that action taken by federal and/or state
governments, if any, with regard to health care reform will not have a material
adverse effect on the Company. See "Business -- Government Regulation."

PRODUCT LIABILITY AND INSURANCE RISKS

Ligand's business exposes it to potential product liability risks which are
inherent in the testing, manufacturing and marketing of human therapeutic
products. Certain of the compounds the Company is investigating could be
injurious to humans. For example, retinoids as a class are known to contain
compounds which can cause birth defects. Ligand currently has limited product
liability insurance; however, there can be no assurance that Ligand will be able
to maintain such insurance on acceptable terms or that such insurance will
provide adequate coverage against potential liabilities. The Company expects to
procure additional insurance when its products progress to a later stage of
development and if any rights to later-stage products are in-licensed in the
future. To the extent that product liability insurance, if available, does not
cover potential claims, the Company will be required to self-insure the risks
associated with such claims. A successful product liability claim or series of
claims brought against the Company could have a material adverse effect on the
Company. See "Business -- Product Liability and Insurance."

EXERCISE OF PANRETIN (ALRT1057) OPTION AND ALRT STOCK PURCHASE OPTION

As part of the public rights offering to the stockholders of Ligand and
Allergan pursuant to which ALRT was funded (the "ALRT Offering"), all of the
technologies previously developed by the Joint Venture were contributed to ALRT,
an off-balance sheet entity all of the equity of which is owned by the public.
In exchange for Ligand's and Allergan's contributions of cash and technology,
they each received an option to acquire 50% of the assets related to Panretin
(ALRT1057) Oral and Panretin (ALRT1057) Topical (the "ALRT1057 Option"). The
ALRT1057 Option is exercisable at prices ranging from $21.4 million to $36.2
million (of which $18.7 million to $31.7 million is payable by Ligand) at any
time beginning June 1997 and ending the earlier of 90 days after regulatory
approval for the commercial sale of Panretin (ALRT1057) Oral or Panretin
(ALRT1057) Topical and June 2000. The ALRT1057 Option must be exercised by both
Ligand and Allergan. As a result, Ligand can exercise the ALRT1057 Option only
if Ligand and Allergan each conclude that the exercise of the ALRT1057 Option is
in both of their best interests. In addition, Ligand received an option to
acquire all of the outstanding shares of ALRT callable common stock (the "ALRT
Stock Purchase Option"). The ALRT Stock Purchase Option is exercisable at prices
ranging from $71.4

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million to $120.7 million at any time between June 1997 and June 2000. If Ligand
exercises the ALRT Stock Purchase Option, Allergan has an option to purchase an
undivided 50% interest in all of the assets of ALRT at prices ranging from $8.9
million to $15.0 million. The purchase prices for the ALRT1057 Option and the
ALRT Stock Purchase Option may be paid by Ligand and Allergan in shares of
Common Stock, Allergan common stock, cash or any combination thereof. If Ligand
exercises the ALRT1057 Option or the ALRT Stock Purchase Option, it will be
required to make a substantial cash payment or to issue shares of Common Stock,
or both. Any cash payment would reduce Ligand's capital resources. The Company
may not have sufficient capital resources to exercise the ALRT1057 Option or the
ALRT Stock Purchase Option for cash, which will require the Company to issue
shares of Common Stock to exercise either of such options. Any payment in shares
of Common Stock would result in a decrease in the percentage ownership of the
Company held by Ligand's stockholders at that time. The exercise of the ALRT1057
Option may result in, and the exercise of the ALRT Stock Purchase Option will
likely require, the recording of a significant charge to the Company's earnings.
In addition, continuation of development and commercialization of Panretin
(ALRT1057) Oral and Panretin (ALRT1057) Topical and other products under
development by ALRT may require substantial additional expenditures by Ligand.
If Ligand does not exercise the ALRT1057 Option or ALRT Stock Purchase Option
prior to expiration, the Company may lose valuable rights, including rights to
Panretin (ALRT1057) Oral and Panretin (ALRT1057) Topical and other ALRT assets.
Ligand and Allergan also have the option to provide funding for the development
of ALRT products in certain circumstances. In the event that such funding is not
provided and other funds available to ALRT are less than $10.0 million, the
contractual relationship among ALRT, Allergan and Ligand may be terminated by
ALRT. In such an event, ALRT would retain its rights to the products currently
under development by ALRT, which could have a material adverse effect on Ligand.
As of the date of this Prospectus, Ligand has no plans to provide additional
funding to ALRT and has made no determination concerning the exercise of either
the ALRT1057 Option or the ALRT Stock Purchase Option. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Strategic Alliances -- Allergan, Inc."

DEPENDENCE ON KEY EMPLOYEES

Ligand is highly dependent on the principal members of its scientific and
management staff, the loss of whose services might impede the achievement of
development objectives. Furthermore, Ligand is currently experiencing a period
of rapid growth which requires the hiring of significant numbers of scientific,
management and operational personnel. Accordingly, recruiting and retaining
qualified management, operations and scientific personnel to perform research
and development work in the future will also be critical to Ligand's success.
Although Ligand believes it will be successful in attracting and retaining
skilled and experienced management, operational and scientific personnel, there
can be no assurance that Ligand will be able to attract and retain such
personnel on acceptable terms given the competition among numerous
pharmaceutical and biotechnology companies, universities and other research
institutions for such personnel. See "Business -- Human Resources" and
"Management."

USE OF HAZARDOUS MATERIALS

Ligand's research and development involves the controlled use of hazardous
materials, chemicals and various radioactive compounds. For example, retinoids
as a class are known to contain compounds which can cause birth defects.
Although the Company believes that its current safety procedures for handling
and disposing of such materials comply with the standards prescribed by state
and federal regulations, the risk of accidental contamination or injury from
these materials cannot be completely eliminated. In the event of any accident,
the Company could be held liable for any damages that result and any such
liability could be significant. The Company may incur substantial costs to
comply with environmental regulations. Any such event could have a material
adverse effect on the Company.

VOLATILITY OF STOCK PRICE

The market prices and trading volumes for securities of emerging companies,
like Ligand, have historically been highly volatile and have experienced
significant fluctuations unrelated to the operating performance of such
companies. Future announcements concerning the Company or its competitors may
have

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a significant impact on the market price of the Common Stock. Such announcements
might include the results of research, development testing, technological
innovations, new commercial products, government regulation, developments
concerning proprietary rights, litigation or public concern as to the safety of
the products. See "Price Range of Common Stock."

ABSENCE OF CASH DIVIDENDS

No cash dividends have been paid on the Common Stock to date, and Ligand
does not anticipate paying cash dividends in the foreseeable future. See
"Dividend Policy."

EFFECT OF SHAREHOLDER RIGHTS PLAN AND CERTAIN ANTI-TAKEOVER PROVISIONS

In September 1996, the Company's Board of Directors adopted a preferred
shares rights plan (the "Shareholder Rights Plan") which provides for a dividend
distribution of one preferred share purchase right (a "Right") on each
outstanding share of the Common Stock. Each Right entitles stockholders to buy
1/1000th of a share of Ligand Series A Participating Preferred Stock at an
exercise price of $100, subject to adjustment. The Rights will become
exercisable following the tenth day after a person or group announces
acquisition of 20% or more of the Common Stock, or announces commencement of a
tender offer, the consummation of which would result in ownership by the person
or group of 20% or more of the Common Stock. The Company will be entitled to
redeem the Rights at $0.01 per Right at any time on or before the earlier of the
tenth day following acquisition by a person or group of 20% or more of the
Common Stock and September 13, 2006.

Ligand's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") includes a provision that requires the approval
of the holders of 66 2/3% of Ligand's voting stock as a condition to a merger or
certain other business transactions with, or proposed by, a holder of 15% or
more of Ligand's voting stock, except in cases where certain directors approve
the transaction or certain minimum price criteria and other procedural
requirements are met (the "Fair Price Provision"). The Certificate of
Incorporation also requires that any action required or permitted to be taken by
stockholders of Ligand must be effected at a duly called annual or special
meeting of stockholders and may not be effected by any consent in writing. In
addition, special meetings of the stockholders of Ligand may be called only by
the Board of Directors, the Chairman of the Board or the President of Ligand or
by any person or persons holding shares representing at least 10% of the
outstanding Common Stock. The Shareholder Rights Plan, the Fair Price Provision
and other charter provisions may discourage certain types of transactions
involving an actual or potential change in control of Ligand, including
transactions in which the stockholders might otherwise receive a premium for
their shares over then current market prices, and may limit the ability of the
stockholders to approve transactions that they may deem to be in their best
interests. In addition, the Board of Directors has the authority to fix the
rights and preferences of and issue shares of preferred stock, which may have
the effect of delaying or preventing a change in control of Ligand without
action by the stockholders. See "Description of Capital Stock -- Preferred
Stock" and "Description of Capital Stock -- Delaware Law, the Shareholder Rights
Plan and Certain Charter Provisions."

POTENTIAL ADVERSE MARKET IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial number of shares of the Common Stock in the public
market following the Offering could adversely affect the market price of the
Common Stock. Upon completion of the Offering, there will be approximately 30.9
million shares of Common Stock outstanding. Of those shares, approximately 22.8
million, including the 2.75 million shares offered hereby, but excluding shares
subject to contractual restrictions discussed below or held by affiliates of the
Company, will be immediately eligible for resale in the public market without
restriction. In addition, approximately 6.4 million shares are subject to
registration rights that are currently exercisable. The holders of approximately
8.1 million of the shares of Common Stock which will be outstanding after the
Offering (and holders of approximately 1.0 million shares of Common Stock
issuable upon exercise of outstanding options and warrants) have agreed not to
sell any shares of Common Stock for a period of at least 90 days after the date
of this Prospectus pursuant to agreements with the Company or the Underwriters.
The agreements with the Underwriters provide that the holder will not sell any
shares of

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Common Stock without the prior written consent of Bear, Stearns & Co. Inc.,
acting alone, or the representatives of the Underwriters, acting jointly. See
"Underwriting."

POTENTIAL ADVERSE IMPACT OF PROPOSITION 211

If passed by voters and upheld against potential court challenges,
Proposition 211, a pending initiative on the November 1996 California ballot,
(i) would expose corporations and their directors and officers to a broader
array of claims arising in connection with the purchase or sale of securities
than those provided under current law, (ii) could limit the ability of
corporations to indemnify their directors and officers, and (iii) could expose
directors and officers of corporations to increased risk of personal liability.
Proposition 211, if passed and upheld, could also increase litigation expenses
and the cost of related insurance of the Company, which could adversely affect
the financial position and results of operations of the Company. In addition,
the increased risk of personal liability to directors and officers could
interfere with the ability of the Company to attract and retain directors and
officers, which could adversely affect the Company's competitive position.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained or incorporated by reference in this
Prospectus, including without limitation, statements containing the words
"believes," "anticipates," "expects" and words of similar import, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of Ligand, or
industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: early stage of
product development; technological uncertainty; history of operating losses;
accumulated deficit; future capital needs; uncertainty of additional funding;
uncertainties related to clinical trials; reliance on collaborative
relationships; uncertainty of patent protection; dependence on proprietary
technology; lack of manufacturing capability; reliance on third-party
manufacturers; limited sales and marketing capability; substantial competition;
risk of technological obsolescence; extensive government regulation; no
assurance of regulatory approval; dependence on third party reimbursement and
health care reform; product liability and insurance risks; exercise of Panretin
(ALRT 1057) Option and ALRT Stock Purchase Option; dependence on key employees;
use of hazardous materials; volatility of stock price; absence of cash
dividends; effect of Shareholder Rights Plan and certain anti-takeover
provisions; potential adverse market impact of shares eligible for future sale;
potential adverse impact of Proposition 211; and other factors referenced in
this Prospectus. Certain of these factors are discussed in more detail elsewhere
in this Prospectus, including without limitation, under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and "Business." Given these uncertainties,
prospective investors are cautioned not to place undue reliance on such
forward-looking statements. Ligand disclaims any obligation to update any such
factors or to publicly announce the result of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.

15
<PAGE> 16

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,750,000 shares of
Common Stock offered hereby, at the public offering price of $12.00 per share
and after deducting underwriting discounts and estimated Offering expenses, are
estimated to be $30,645,000 ($35,298,000 if the Underwriters' over-allotment
option is exercised in full).

The Company expects to use the net proceeds, including the interest
thereon, for general corporate purposes, including product research and
development programs, preclinical testing and clinical trials, the acquisition
and in-licensing of products and complementary technologies, and capital
expenditures and working capital. The amounts actually expended for each purpose
may vary significantly depending upon numerous factors, including the pace of
scientific progress in the Company's research and development programs, the
magnitude of these programs, the scope and results of preclinical testing and
clinical trials, the time and costs involved in obtaining regulatory approvals,
the costs involved in preparing, filing, prosecuting, maintaining and enforcing
patent claims, competing technological and market developments, the ability to
establish additional collaborations, changes in existing collaborations, the
cost of manufacturing scale-up and the effectiveness of the Company's
commercialization activities. In addition, expenditures will also depend upon
the establishment of collaborative research agreements with other companies, the
availability of additional financing and other factors. The Company believes
that its available cash, cash equivalents, marketable securities and existing
sources of funding, in addition to the net proceeds of the Offering, will be
adequate to satisfy its anticipated capital requirements through 1999, assuming
the Company does not exercise for cash either the ALRT1057 Option or the ALRT
Stock Purchase Option. The Company has made no determination concerning the
exercise of either the ALRT1057 Option or the ALRT Stock Purchase Option.

Pending application of the net proceeds of the Offering as described above,
the Company plans to invest such proceeds principally in United States
government and investment-grade corporate debt securities.

16
<PAGE> 17

PRICE RANGE OF COMMON STOCK

The Company's Class A Common Stock was traded in the over-the-counter
market and prices were quoted on the Nasdaq National Market under the symbol
"LGNDA" from its initial public offering on November 17, 1992 until November 24,
1994. On November 24, 1994, each outstanding share of Class A Common Stock was
automatically converted into 1.33 shares of Class B Common Stock (now designated
"Common Stock"). Since November 24, 1994, the Company has had only one class of
Common Stock outstanding. Prices for the Common Stock are quoted on the Nasdaq
National Market under the symbol "LGND." The following table sets forth the high
and low sales prices for the Class A Common Stock (adjusted to reflect the
automatic 1.33 for 1 share conversion in November 1994) and Common Stock on the
Nasdaq National Market for the periods indicated.

CLASS A COMMON STOCK SALES PRICES(1)

<TABLE>
<CAPTION>
PRICE RANGE
--------------
HIGH LOW
----- -----
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1994:
1st Quarter................................................................ $10 7/8 $ 8 1/4
2nd Quarter................................................................ 10 3/8 7 3/4
3rd Quarter................................................................ 10 7 7/8
4th Quarter (through November 23).......................................... 9 3/4 7 3/4
COMMON STOCK SALES PRICES
YEAR ENDED DECEMBER 31, 1994:
4th Quarter (November 25 through December 31).............................. $10 $ 6
YEAR ENDED DECEMBER 31, 1995:
1st Quarter................................................................ $ 8 1/2 $ 6
2nd Quarter................................................................ 8 3/4 5 1/2
3rd Quarter................................................................ 10 1/4 7 3/4
4th Quarter................................................................ 11 3/8 7 5/8
YEAR ENDING DECEMBER 31, 1996:
1st Quarter................................................................ $13 3/4 $ 9 3/4
2nd Quarter................................................................ 19 3/4 11 1/8
3rd Quarter................................................................ 16 1/8 10 3/8
4th Quarter (through October 24)........................................... 14 1/8 13 1/4
</TABLE>

- ---------------

(1) The 1994 share prices have been restated to reflect the 1.33 for 1
conversion of the Company's Class A Common Stock into Common Stock on
November 24, 1994, and rounded to the nearest 1/8.

On October 24, 1996, the last reported sale price of the Common Stock on
the Nasdaq National Market was $13.437 per share. As of June 30, 1996, there
were approximately 950 holders of record of the Common Stock.

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its capital
stock and does not intend to pay any cash dividends in the foreseeable future.
The Company currently intends to retain its earnings, if any, to finance future
growth.

17
<PAGE> 18

CAPITALIZATION

The following table sets forth the capitalization of the Company at June
30, 1996, and as adjusted to reflect the sale of the 2,750,000 shares of Common
Stock offered hereby at the public offering price of $12.00 per share and the
receipt of the net proceeds of such sale. See "Use of Proceeds." This table
should be read in conjunction with the Company's consolidated financial
statements, including the notes thereto, included elsewhere herein. See "Notes
to Consolidated Financial Statements."

<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------
AS
ACTUAL ADJUSTED
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents, and short-term investments(1).............. $ 60,447 $ 91,092
======== ========
Current portion of obligations under capital leases and equipment
notes payable.................................................... $ 2,551 $ 2,551
======== ========
Long-term debt, less current portion:
Long-term obligations under capital leases and equipment notes
payable....................................................... 8,714 8,714
Convertible subordinated debentures(2)........................... 32,616 32,616
Convertible notes................................................ 10,000 10,000
-------- --------
Total long-term debt.......................................... 51,330 51,330
-------- --------
Stockholders' equity:
Convertible Preferred Stock, $0.001 par value; 5,000,000 shares
authorized; no shares issued or outstanding actual and as
adjusted...................................................... -- --
Common Stock, $0.001 par value; 80,000,000 shares authorized;
28,146,386 shares issued; 30,896,386 shares as adjusted(3).... 28 31
Paid-in capital.................................................. 175,102 205,744
Warrant subscription receivable.................................. (3,718) (3,718)
Adjustment for unrealized losses on available for sale
securities.................................................... (266) (266)
Accumulated deficit.............................................. (157,401) (157,401)
Deferred compensation and consulting fees........................ (565) (565)
Less treasury stock, at cost (35,686 shares)..................... (463) (463)
-------- --------
Total stockholders' equity.................................... 12,717 43,362
-------- --------
Total capitalization........................................ $ 64,047 $ 94,692
======== ========
</TABLE>

- ---------------

(1) Includes restricted cash of $3,746,000.
(2) See Note 6 of Notes to Consolidated Financial Statements.
(3) As of June 30, 1996. Excludes (a) 3,597,866 shares of Common Stock issuable
upon the exercise of outstanding options under the Company's stock option
plans (at a weighted average exercise price of $8.83 per share), (b) 874,074
shares of Common Stock available for future grants under such plans or
issuance under the Company's stock purchase plan, (c) 6,671,922 shares of
Common Stock issuable upon exercise of outstanding warrants (at a weighted
average exercise price of $7.30 per share), (d) 999,001 shares of Common
Stock issuable upon conversion of the principal amount outstanding under
convertible promissory notes and (e) 1,885,370 shares of Common Stock
issuable upon conversion of the principal amount outstanding under
Glycomed's 7 1/2% Convertible Subordinated Debentures Due 2003. Includes
101,011 shares of Common Stock received from Pfizer and retired in September
1996. See "Business -- Strategic Alliances" and "Description of Capital
Stock."

18
<PAGE> 19

SELECTED CONSOLIDATED FINANCIAL DATA

The selected financial data set forth below with respect to the Company's
consolidated statements of operations for each of the years in the three-year
period ended December 31, 1995, and with respect to the consolidated balance
sheets at December 31, 1994 and 1995, are derived from the audited financial
statements that have been examined by Ernst & Young LLP, independent auditors,
which are included elsewhere in this Prospectus and are qualified by reference
to such financial statements. The statements of operations data for the years
ended December 31, 1991 and 1992, and the balance sheet data at December 31,
1991, 1992 and 1993, are derived from audited financial statements not included
in this Prospectus. The management of the Company believes that the unaudited
data at June 30, 1996, and for the six-month periods ended June 30, 1995 and
1996, contains all adjustments, consisting of only normal recurring accruals,
necessary for a fair presentation of the financial position at such date and the
results of operations for such periods. Operating results for the six-month
period ended June 30, 1996, are not necessarily indicative of results to be
expected for the fiscal year ending December 31, 1996 or any other interim
period. The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements and related
notes included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT NET LOSS PER SHARE)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Collaborative research and development
Related parties........................... $ 1,526 $ 2,128 $ 9,974 $ 8,342 $ 11,972 $ 4,455 $ 7,262
Unrelated party........................... -- 3,417 6,138 4,893 12,424 5,476 9,878
Other....................................... -- 338 150 74 120 36 118
------- -------- -------- -------- -------- ------- -------
Total revenues.......................... 1,526 5,883 16,262 13,309 24,516 9,967 17,258
Costs and expenses:
Research and development.................... 6,228 14,220 24,301 27,205 41,636 16,026 27,081
Selling, general and administrative......... 1,568 4,144 6,192 6,956 8,181 3,769 5,172
Write-off of acquired in-process
technology................................ -- -- -- -- 19,564 19,869 --
ALRT contribution........................... -- -- -- -- 17,500 17,500 --
------- -------- -------- -------- -------- ------- -------
Total operating expenses................ 7,796 18,364 30,493 34,161 86,881 57,164 32,253
------- -------- -------- -------- -------- ------- -------
Loss from operations.......................... (6,270) (12,481) (14,231) (20,852) (62,365) (47,197) (14,995)
Interest income............................... 211 523 2,005 1,297 3,603 1,192 1,999
Interest expense.............................. (215) (325) (353) (679) (5,410) (1,292) (4,124)
Equity in operations of Joint Venture......... -- (1,724) (6,879) (6,845) -- -- --
------- -------- -------- -------- -------- ------- -------
Net loss...................................... $(6,274) $(14,007) $(19,458) $(27,079) $(64,172) $(47,297) $(17,120)
======= ======== ======== ======== ======== ======= =======
Net loss per share............................ $ (3.04) $ (3.96) $ (1.19) $ (1.57) $ (2.70) $ (2.33) $ (.61)
======= ======== ======== ======== ======== ======= =======
Shares used in computing net loss per share... 2,067 3,537 16,357 17,241 23,792 20,271 27,990
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments(1)..................................... $ 4,111 $ 55,605 $ 42,354 $ 38,403 $ 76,903 $ 60,447
Working capital...................................... 3,124 55,117 40,588 33,567 57,349 46,837
Total assets......................................... 6,607 62,261 50,790 46,696 93,594 76,673
Long-term debt....................................... 1,180 1,750 2,324 12,285 18,585 18,714
Convertible subordinated debentures.................. -- -- -- -- 31,279 32,616
Accumulated deficit.................................. (15,564) (29,571) (49,029) (76,108) (140,281) (157,401)
Total stockholders' equity........................... 4,033 57,250 42,934 26,335 28,071 12,717
</TABLE>

- ---------------
(1) Includes restricted cash of $6,759,000 and $3,746,000 at December 31, 1995
and June 30, 1996, respectively.

19
<PAGE> 20

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20
<PAGE> 21

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Since January 1989, the Company has devoted substantially all of its
resources to its IR and STATs drug discovery and development programs. The
Company has been unprofitable since its inception and expects to incur
substantial additional operating losses for the next several years, due to
continued requirements for research and development, preclinical testing,
regulatory activities, and establishment of manufacturing processes and sales
and marketing capabilities. The Company expects that losses will fluctuate from
quarter to quarter as a result of differences in the timing of expenses incurred
and the revenues earned from collaborative arrangements. Some of these
fluctuations may be significant. As of June 30, 1996, the Company's accumulated
deficit was approximately $157.4 million.

In May 1995, Glycomed became a wholly-owned subsidiary of the Company
pursuant to the merger of a subsidiary of the Company with and into Glycomed
("the Merger"). Glycomed is a biopharmaceutical company conducting research and
development of pharmaceuticals based on biological activities of complex
carbohydrates. Each outstanding share of Glycomed Common Stock was converted
into 0.5301 shares of Common Stock, resulting in the issuance of 6,942,911
shares of the Common Stock to Glycomed shareholders. The Merger was accounted
for using the purchase method of accounting. The excess of the purchase price
over the fair value of the net assets acquired was allocated to in-process
technology and was written off, resulting in a one-time non-cash charge to
operations of approximately $20.0 million. The results of operations of Glycomed
are included in the Company's results of operations from the date of the Merger.

In December 1994, the Company and Allergan formed ALRT to continue the
research and development activities previously conducted by the Joint Venture.
In June 1995, the Company and ALRT completed the ALRT Offering of 3,250,000
units (the "Units") with aggregate proceeds of $32.5 million and cash
contributions by Allergan and the Company of $50.0 million and $17.5 million,
respectively, providing for net proceeds of $94.3 million for retinoid product
research and development. Each Unit consisted of one share of ALRT's callable
common stock and two warrants, each warrant entitling the holder to purchase one
share of Common Stock of the Company. Immediately prior to the consummation of
the ALRT Offering, Allergan Pharmaceuticals (Ireland) Ltd., Inc. ("Allergan
Ireland") made a $6.0 million investment in the Common Stock. The Company's
$17.5 million cash contribution resulted in a one-time charge to operations. The
Company also recorded a warrant subscription receivable and corresponding
increase in paid-in capital of $5.9 million pursuant to the ALRT Offering. In
1995 and for the first six months of 1996, $1.3 million and $806,000,
respectively, of the proceeds received from ALRT were applied to the warrant
subscription receivable. In conjunction with the consummation of the ALRT
Offering, all rights held by the Joint Venture were licensed to ALRT. The
Company, Allergan and ALRT entered into various agreements in connection with
the funding of ALRT. After June 3, 1995, cash received from ALRT pursuant to the
agreement was prorated between contract revenue and the warrant subscription
receivable based on their respective values. Contributions made by the Company
to the Joint Venture related to the period from January 1, 1995, through June
30, 1995 were retroactively reimbursed by ALRT, and previous equity losses
recognized for the six month period from the Joint Venture operations were
reversed. See "Business -- Strategic Alliances -- Allergan, Inc." and Note 9 of
Notes to Consolidated Financial Statements.

RESULTS OF OPERATIONS

Six months ended June 30, 1996, as compared to the six months ended June
30, 1995

The Company had revenues of $17.3 million for the six months ended June 30,
1996 compared to revenues of $10.0 million for the same period in 1995. The
increase in revenues is due to an expanded and amended research and development
agreement entered into in January 1996 with American Home Products (which began
in September 1994), a full six-month effect of the collaborative research
agreement with Sankyo (which became effective the date of the Merger), a full
six-month effect of the collaboration with SmithKline Beecham (which began in
February 1995), and increased revenue from ALRT. Revenues for the

21
<PAGE> 22

six months ended June 30, 1996 were derived from the Company's research and
development agreements with (i) ALRT of $7.3 million, (ii) American Home
Products of $4.4 million, (iii) Abbott of $1.4 million, (iv) Sankyo of $1.4
million, (v) SmithKline Beecham of $1.2 million, (vi) Glaxo of $1.1 million, as
well as from milestone revenue from Pfizer of $438,000, and product sales of
Ligand Canada in-licensed products of $118,000. Revenues for the six months
ended June 30, 1995 were derived from the Company's research and development
agreements with (i) ALRT of $4.4 million, (ii) American Home Products of $2.0
million, (iii) Glaxo of $1.1 million, (iv) Abbott of $1.2 million, (v)
SmithKline Beecham of $910,000, (vi) Sankyo of $311,000 and from products sales
of Ligand Canada in-licensed product of $36,000.

For the six months ended June 30, 1996, research and development expenses
increased to $27.1 million from $16.0 million for the same period in 1995. These
expenses increased primarily due to expansion of the Company's research and
development programs, additions of research and development personnel, and
inclusion of the cost of Glycomed's operations for a full six months in 1996.
Selling, general and administrative expenses increased to $5.2 million for the
six months ended June 30, 1996 from $3.8 million for the same period in 1995.
The increase was primarily attributable to legal expenses related to the
litigation with Pfizer, expansion of the Company's sales and marketing
activities, and additions to personnel to support expanded research and
development programs. Interest income increased to $2.0 million for the six
months ended June 30, 1996 from $1.2 million for the same period in 1995. The
increase in interest income was a result of an increase in cash balances due to
the Merger, increased research revenues and additional equity investments,
offset by net usage of cash to support expansion activities. Interest expense
increased to $4.1 million for the six months ended June 30, 1996 from $1.3
million for the same period in 1995. The increase was primarily due to interest
required under the Debentures, accretion of debt discount of the Debentures and
additional capital lease obligations used to finance equipment.

One time charges of $19.9 million and $17.5 million were incurred for the
six months ended June 30, 1995 due to the Merger and the ALRT Offering,
respectively.

Year ended December 31, 1995, as compared to the year ended December 31,
1994

The Company had revenues of $24.5 million for 1995 compared to revenues of
$13.3 million for 1994. The increase is due to the full year effect of new
collaborative research agreements with American Home Products (which began in
September 1994), SmithKline Beecham (which began in February 1995), Abbott
(which began in July 1994), Sankyo (which became effective on the date of the
Merger), as well as increased revenue from ALRT. Revenues in 1995 were derived
from the Company's research and development agreements with (i) ALRT of $12.0
million, (ii) American Home Products of $4.0 million, (iii) Abbott of $2.6
million, (iv) SmithKline Beecham of $2.1 million, (v) Glaxo of $2.1 million,
(vi) Sankyo of $1.7 million, and (vii) product sales of Ligand Canada
in-licensed products of $120,000. Revenues in 1994 were derived from the
Company's research and development agreements with (i) the Joint Venture of $8.3
million, (ii) American Home Products of $1.7 million, (iii) Glaxo of $2.0
million, (iv) Abbott of $1.2 million and (v) other research grants of $74,000.

For 1995, research and development expenses increased to $41.6 million from
$27.2 million in 1994. These expenses increased primarily due to additions of
research and development personnel, expansion of the Company's research and
development programs, and inclusion of the cost of Glycomed's operations from
the date of the Merger. Selling, general and administrative expenses increased
to $8.2 million in 1995 from $7.0 million in 1994. The increase was attributable
to additions to personnel to support expanded research and development programs
and expansion of the Company's sales and marketing activities. Interest income
increased to $3.6 million in 1995 from $1.3 million in 1994. The increase in
interest income was a result of an increase in cash balances due to the Glycomed
Merger, increased research revenues, additional purchases of Common Stock and
convertible notes by collaborators, offset by net usage of cash to support
expansion activities. Interest expense increased to $5.4 million in 1995 from
$679,000 in 1994. The increase was primarily due to interest required under the
Debentures, accretion of debt discount of the Debentures as well as interest
required under a convertible note issued in connection with the American Home
Products collaborative agreement. The 1994 equity loss in the Joint Venture of
$6.8 million was the Company's share of the losses of the Joint Venture.

22
<PAGE> 23

One-time charges of $19.6 million and $17.5 million were incurred in 1995
due to the Merger and the ALRT Offering, respectively.

Year ended December 31, 1994, as compared to the year ended December 31,
1993

The Company had revenues of $13.3 million for 1994 compared to revenues of
$16.3 million for 1993. The decrease is due to revenue fluctuations from
collaborative research agreements, including wind up of the agreement with
Pfizer, the research phase of which was completed in December of 1993 due to
early success in meeting research stage objectives for drug candidates. Revenues
in 1994 were derived from the Company's (i) research and development agreement
with the Joint Venture of $8.3 million, (ii) collaborative research and
development agreement with Glaxo of $2.0 million, (iii) research and development
agreement with Abbott (which began in July 1994) of $1.2 million, (iv) research
and development agreement with American Home Products (which began in September
1994) of $1.7 million and (v) other income of $74,000. Revenues in 1993 were
derived from the Company's (i) research and development agreement with the Joint
Venture of $10.0 million, (ii) research agreement with Pfizer, of which the
research phase of the agreement was completed in December of 1993, of $4.9
million, (iii) collaborative research and development agreement with Glaxo of
$1.2 million and (iv) other research grants of $150,000.

For 1994, research and development expenses increased to $27.2 million from
$24.3 million in 1993. These expenses increased primarily due to additions to
research and development personnel and expansion of the Company's research and
development programs. General and administrative expenses increased to $7.0
million in 1994 from $6.2 million in 1993. This increase was primarily
attributable to increases in staffing to support increased research and
development programs as well as to expand investor relations and business
development activities in 1994. Interest income decreased to $1.3 million in
1994 from $2.0 million in 1993. The decrease in interest income was a result of
a reduction in available cash for investment due to the net usage of cash to
support expansion activities offset by an increase in cash from new
collaborative research agreements, which commenced in the third quarter of 1994.
Interest expense increased to $679,000 in 1994 from $353,000 in 1993. The
increase was due to additional capital lease obligations used to finance
equipment in addition to interest on the American Home Products convertible
note. The Company's losses for its share of the Joint Venture's operations for
1994 and 1993 were $6.8 million and $6.9 million, respectively.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations through private and public
offerings of its equity securities, collaborative research revenues, capital and
operating lease transactions, issuance of convertible notes, product sales and
investment income. From inception through June 1996, the Company has raised
$121.2 million from sales of equity securities: $43.0 million from the Company's
initial public offering in November 1992 (of which $7.5 million was provided by
the Company's collaborators) and an aggregate of $78.2 million from private
placements (of which $64.0 million was provided by the Company's collaborators,
$11.4 million was provided through venture capital financing and $2.8 million
was provided by other investors).

As of June 30, 1996, the Company had acquired an aggregate of $17.1 million
in laboratory and office equipment and $3.8 million in tenant improvements,
substantially all of which has been funded through capital lease and equipment
note obligations and which includes laboratory and office equipment acquired in
the Merger. In addition, the Company leases its office and laboratory facilities
under operating leases. In July 1994, the Company entered into a 20-year lease
related to the construction of a new laboratory facility, which was completed
and occupied in August 1995. In May 1996, the Company signed a master lease
agreement to finance future capital equipment up to $2.5 million.

Working capital decreased to $46.8 million as of June 30, 1996, from $57.3
million at the end of 1995. The decrease in working capital resulted from an
increase in cash from collaborative research agreements, offset by an increase
in research and development program expenses, the related increase in selling,
general and administrative expenses as described above, semi-annual interest
payments due on the Debentures and interest paid on the convertible note. For
the same reasons, cash and cash equivalents, short-term investments, and
restricted cash decreased to $60.4 million at June 30, 1996 from $76.9 million
at December 31, 1995. The

23
<PAGE> 24

Company invests its cash principally in United States government debt securities
and investment-grade corporate debt securities.

The Company believes that its available cash, cash equivalents, marketable
securities and existing sources of funding, in addition to the net proceeds of
the Offering, will be adequate to satisfy its anticipated capital requirements
through 1999, assuming the Company does not exercise either the ALRT1057 Option
or the ALRT Stock Purchase Option for cash. The Company has made no
determination concerning the exercise of either the ALRT1057 Option or the ALRT
Stock Purchase Option. The Company's future capital requirements will depend on
many factors, including the pace of scientific progress in its research and
development programs, the magnitude of these programs, the scope and results of
preclinical testing and clinical trials, the time and costs involved in
obtaining regulatory approvals, the costs involved in preparing, filing,
prosecuting, maintaining and enforcing patent claims, competing technological
and market developments, the ability to establish additional collaborations,
changes in existing collaborations, the cost of manufacturing scale-up and the
effectiveness of the Company's commercialization activities.

24
<PAGE> 25

BUSINESS

OVERVIEW

IRs are members of a family of hormone-activated proteins that act inside
the cell to regulate directly gene expression and cellular function. Although
the effectiveness of IRs as drug targets has been demonstrated by drugs acting
through IRs already on the market, such as retinoids (e.g., Retin-A for acne and
psoriasis) and sex steroid modulators (e.g., estrogens and progesterones for
hormone replacement therapy and contraception, tamoxifen for breast cancer,
flutamide for prostate cancer), the utility of these first-generation drugs has
been limited by their often significant side effects. STATs are a recently
discovered family of proteins that act inside cells to regulate gene expression
in response to various cytokines such as interferons, interleukins and
hematopoietic growth factors. Imbalances in the activity of these cytokines can
lead to various pathological conditions, such as inflamation. While certain
recombinant cytokines and other proteins which bind to cell surface receptors
have proven to have clinical utility in the treatment of disease, they must be
administered by injection and can be difficult to manufacture.

BUSINESS STRATEGY

Ligand's business strategy is to develop new drugs using its IR and STATs
technologies through both internal and collaborative programs. Ligand's internal
programs focus on the discovery, development and marketing of small-molecule
drugs that address cancer, gynecological diseases and male hormonal imbalances,
which are treated by medical specialists. Ligand also seeks to in-license or
acquire products in these medical specialty markets which are in late-stage
clinical development or which have been previously approved by regulatory
authorities. Ligand's collaborative programs focus on building a royalty-based
business through partnerships with large pharmaceutical companies that apply
Ligand's technologies to discover drugs for primary care markets, such as
markets for certain cardiovascular, inflammatory and other diseases, as well as
broad applications for women's health.

Ligand's internal efforts have been focused primarily on the discovery and
development of improved retinoids, sex steroid receptor agonists and antagonists
and cytokine agonists for use in specialty market applications, principally
cancer, gynecological disorders and male hormonal imbalances. Products for these
specialty markets typically require less resource-intensive clinical trials and
can be marketed by a targeted sales force. Ligand is conducting human clinical
trials with four products, the retinoids Panretin (ALRT1057) Oral and Panretin
(ALRT1057) Topical, on behalf of ALRT, and Ligand's first products, Targretin
(LGD1069) Oral and Targretin (LGD1069) Topical. Glycomed internal programs focus
on the development of small molecules for the treatment of inflammation and
cancer.

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<PAGE> 26

The Company has utilized collaborative arrangements with leading
pharmaceutical companies to leverage the application of its IR and STATs
technologies in disease categories treated by primary care physicians. Ligand
believes its collaborators have the significant resources, including clinical
and regulatory experience, manufacturing capabilities and marketing
infrastructure, needed to develop and commercialize drugs for these markets.
Ligand's partners include, in addition to ALRT, SmithKline Beecham, American
Home Products, Abbott, Sankyo, Glaxo and Pfizer. In general, drugs resulting
from these collaborations will be developed, manufactured and marketed by the
corporate partners, with Ligand receiving research revenue during the drug
discovery stage, additional milestone revenue as compounds move through clinical
development and royalty revenue on sales of drugs marketed by its collaborators.
Ligand has retained certain product rights for its niche markets within several
of these collaborations.

SCIENTIFIC BACKGROUND AND DRUG DISCOVERY OPPORTUNITIES

INTRACELLULAR RECEPTORS ("IRS")

Hormones are natural chemicals within the body that control important
physiological processes, including reproduction and cell growth and
differentiation. The known non-peptide hormones are the retinoids, the sex
steroids (estrogens, progesterones, and androgens), the adrenal steroids
(glucocorticoids and mineralocorticoids), vitamin D and thyroid hormone. The
understanding of hormones and their actions has increased substantially in the
last 10 years. Driving this rapid expansion of knowledge has been the discovery
of the family of IRs through which all the known small-molecule (i.e.,
non-peptide) hormones act. Dr. Ronald Evans at The Salk Institute, Ligand's
scientific co-founder and exclusive consultant, was the first to clone and
characterize an IR in 1985. Since that time, approximately 75 IRs have been
defined and characterized, many by Ligand's scientists or its exclusive
collaborators. IRs play key roles in a variety of diseases, including certain
cancers, gynecological disorders, and cardiovascular, inflammatory, and skin
diseases.

Hormones act by binding to their corresponding IRs to regulate the
expression of genes in order to maintain and restore balanced cellular function
within the body. Hormonal imbalances can lead to a variety of diseases. The
hormones themselves and drugs which mimic or block hormone action may be useful
in the treatment of these diseases. Furthermore, hormone mimics (agonists) or
blockers (antagonists) can be used in the treatment of diseases in which the
underlying cause is not hormonal imbalance.

The effectiveness of the IRs as drug targets has been demonstrated by
currently available drugs acting through IRs for many of these diseases.
However, the use of most of these drugs has been limited by their often
significant side effects. Examples of currently marketed hormone-related drugs
acting on IRs are glucocorticoids (steroids used to treat inflammation),
estrogens and progesterones (used for hormone replacement therapy and
contraception), tamoxifen (an estrogen antagonist used in the treatment of
breast cancer), and various retinoids such as Accutane and Retin-A (used to
treat acne and psoriasis).

Ligand's early recognition of the drug discovery opportunities inherent in
emerging IR research has enabled it to build a strong proprietary position and
accumulate substantial expertise in IRs applicable to drug discovery and
development. Building on its recent scientific findings about the molecular
basis of hormone action, Ligand has created proprietary new tools to explore and
manipulate non-peptide hormone action for potential therapeutic benefit. The
Company has exclusive relationships in the field of IRs with Dr. Ronald Evans, a
professor in the Gene Expression Laboratory of The Salk Institute, and Dr. Bert
O'Malley, Professor and Chairman of the Center for Reproductive Biology at
Baylor, where many of the core discoveries in IR research have been made. The
Company has exclusively licensed most of these discoveries. Ligand has also
developed proprietary IR assays that it believes can rapidly and accurately
predict the probable therapeutic and side effect profiles of compounds with
potential as drugs. The Company believes that its IR expertise will enable it to
discover and develop drugs that have equal or greater therapeutic efficacy and
reduced incidence and severity of side effects compared to existing drugs acting
through IRs. The Company also believes these drugs will be orally bioavailable.

Ligand and its collaborators have made major discoveries pertaining to IRs
and small molecule hormones and compounds which interact with these IRs. These
discoveries include: (i) the identification of the IR

26
<PAGE> 27

superfamily, (ii) the recognition of IR subtypes and (iii) the discovery of
orphan IRs. Ligand believes that each of these broad areas of knowledge provides
important opportunities for drug discovery.

IR Superfamily. The receptors for all the non-peptide hormones are closely
related members of a superfamily of proteins known as IRs. The IRs are similar
in both structure and mechanisms of action. Human IRs for all of the known
non-peptide hormones have now been cloned, primarily by Ligand's scientists or
its collaborators, building an understanding of the similar underlying
mechanisms of action shared by the non-peptide hormones.

Ligand believes that the relatedness of the IRs for the non-peptide
hormones has major implications for drug discovery. IRs share a common mechanism
of action, which often enables drug discovery insights about one IR to be
directly applied to other members of the IR superfamily, bringing synergy to
Ligand's IR-focused drug discovery efforts. First generation drugs were
developed and commercialized for their therapeutic benefits prior to the
discovery of IRs and often cross-react with the IRs for hormones other than the
intended target, resulting in often significant side effects. The understanding
that the IRs are structurally similar has enabled Ligand to determine the basis
for the side effects of some first generation drugs and to discover improved
drug candidates.

IR Subtypes. For some of the non-peptide hormones, several closely related
but non-identical IRs, known as IR subtypes, have been discovered. These include
six subtypes of the IRs for retinoids and four subtypes of the IRs for thyroid
hormone. Patent applications covering most of these IR subtypes have been
exclusively licensed by Ligand. Ligand believes that drugs that activate a
subset of IR subtypes will allow more specific pharmacological intervention
better matched to therapeutic need. Ligand's clinical candidate Targretin
(LGD1069) was discovered as a result of Ligand's understanding of retinoid
receptor subtypes.

Orphan IRs. Over 50 additional members of the IR superfamily which do not
interact with the known non-peptide hormones or vitamin derivatives have been
discovered. Ligand has an exclusive license to many of these orphan IRs. Ligand
believes that among the orphan IRs may be receptors for uncharacterized small
molecule hormones and that the physiological roles of the various orphan IRs are
likely to be diverse. Ligand has devised strategies to isolate small molecules
that interact with orphan IRs and is working to identify new orphan IRs as drug
targets and to identify their natural and synthetic modulators as possible drug
candidates. For example, the Retinoid X Receptors ("RXRs"), one subfamily of IRs
activated by certain retinoids, were orphan IRs when initially discovered.
Panretin (ALRT1057), a compound being developed on behalf of ALRT, was
discovered by virtue of its activation of the RXR retinoid receptors.

SIGNAL TRANSDUCERS AND ACTIVATORS OF TRANSCRIPTION ("STATS")

STATs are a recently discovered family of proteins that are a key part of
the signal transduction pathway for a variety of biologically important peptide
hormones (e.g., interferons, interleukins, leptin and hematopoietic growth
factors) collectively termed Extracellular Signaling Proteins ("ESPs"). STATs
play a role in the biology of ESPs functionally analogous to that played by IRs
in the biology of the non-peptide hormones: both STATs and IRs are families of
transcription factors which change cell function by selectively turning on
particular genes in response to circulating signals which impinge on cells. When
various cytokines bind to their receptors on the cell surface, this triggers the
activation of specific members of the Janus Kinase family of tyrosine protein
kinases ("JAKs"), which in turn activate specific STATs. The activated STATs
enter the cell nucleus and bind to the control regions of specific target genes
and increase their expression, thereby modulating physiologic or
pathophysiologic processes.

In many diseases, there is an imbalance of cytokine action. For example,
some inflammatory conditions may represent excessive actions of certain
interleukins or interferons. In these conditions it may prove beneficial to
block the actions of specific cytokines. In other pathological states there is
insufficient activity of specific cytokines. For example, in patients with
chronic renal failure, diminished erythropoietin ("EPO") release by the damaged
kidneys results in the inadequate production of red blood cells, causing anemia.
Recombinant human EPO protein (Epogen) can be administered to correct this
anemia effectively, but must be injected. Many other cytokines are useful as
injected protein medicines, including interferons (Intron-A, Roferon,
Betaseron), interleukins (e.g., Proleukin, which Ligand markets in Canada),
hematopoietic growth

27
<PAGE> 28

factors (Epogen, Neupogen) and others. Each of these and many other cytokines
appear to exert their actions through STAT/JAK signal transduction pathways.

Ligand believes that its STAT/JAK technologies may lead to the discovery of
low molecular weight compounds able to mimic or block the actions of medically
relevant cytokines for uses in various pathological conditions, including
cancer, inflammation, and disorders of blood cell formation. Because these
compounds are small molecules, whereas the cytokines themselves are proteins,
they offer potentially significant advantages, including oral bioavailability,
greater ease of manufacture and improved stability.

The discovery of STATs, the elucidation of their roles in interferon signal
transduction, and the first cloning of genes encoding STATs were all
accomplished by Ligand's exclusive collaborators Dr. James Darnell at
Rockefeller University and Dr. David Levy at New York University ("NYU"), and
were described initially in August 1992. Since then, over half a dozen members
of the STAT family have been identified and a large number of ESPs in addition
to interferons have also been shown to utilize STAT signal transduction. Among
the ESPs which have been shown to use STAT signaling pathways are the
interferons (alpha, beta and gamma), the hematopoietic colony stimulating
factors (interleukin-3, erythropoietin, G-CSF, GM-CSF and thrombopoietin), many
of the interleukins (including IL-2, IL-4, IL-6, IL-12 and IL-13, the related
ESPs Oncostatin M and Leukemia Inhibitory Factor), the cytokine leptin and
several protein hormones (growth hormone and prolactin).

Based on insights into STAT/JAK signal transduction and the generation of
the necessary reagents, Ligand has developed STAT technologies for drug
discovery which include cell culture-based high throughput screens to identify
small molecule drugs and biochemical assays that define where in the STAT/JAK
signal transduction pathways the small molecules act. Ligand believes that its
STAT/JAK drug discovery technology can produce drug candidates to control gene
expression to address a broad range of uses, including treating cancer,
providing hematopoietic support for cancer patients undergoing chemotherapy or
bone marrow transplantation, combating inflammation and viral or other
infections, treating anemia in chronically ill patients (e.g., those with renal
failure), treating dwarfism and related disorders of stature and enhancing
immune function.

Ligand is using its high throughput screening assays to discover small
molecule drugs to act as interferon agonists for potential application in
various cancers and viral diseases. Ligand has also established collaborations
with Abbott using its STAT/JAK technology to discover small molecule antagonists
of interferons for the treatment of inflammation and with SmithKline Beecham to
discover and characterize small molecule drugs to modulate specific STAT/JAK
pathways to control the formation of red and white blood cells for treating
patients with cancer or anemia. Ligand has additional assays under development
to allow high throughput screening for and subsequent optimization of small
molecule drugs to act through STAT/JAK signaling pathways to block or mimic
other medically significant ESPs. See "-- Strategic Alliances."

GLYCOMED'S COMPLEX CARBOHYDRATES PROGRAMS

Ligand, through its wholly-owned subsidiary Glycomed, is seeking drugs that
modulate processes involving complex carbohydrates and other components of the
extracellular matrix. The cells in the body are in many cases embedded in
various gelatinous or fibrous background substances such as proteins (e.g.,
collagen) or glycoproteins and mucopolysaccharides (various complex biological
polymers containing amino acid and sugar building blocks). This background
substance, termed extracellular matrix, can exert important effects on cells,
modifying their function and controlling their migration. Additionally, related
complex carbohydrates, glycoproteins and mucopolysaccharides are located on the
surfaces of cells, where they can play important roles in controlling
interactions among various cells, including for example, the attachment of white
blood cells to the inner linings of blood vessels, a necessary part of some
inflammatory responses.

Glycomed has expertise and core technology relating to the biology and
chemistry of complex carbohydrates and related components of the extracellular
matrix. Ligand is focusing Glycomed's expertise and core technologies to seek
small molecule, potentially orally active drugs to modulate the biological
processes involving complex carbohydrates and other cell surface and
extracellular matrix components for the treatment of inflammation and cancer.
Since the Merger, Glycomed's research has been focused on two programs: (1)
selectin antagonists for the treatment of inflammation in a collaboration with
Sankyo and

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<PAGE> 29

(2) matrix metalloproteinase inhibitors ("MMPIs") for the treatment of
inflammation and cancer. See "-- Product Development Program."

LIGAND'S PROPRIETARY DRUG DISCOVERY ASSAYS

Ligand has developed a proprietary cell-culture based assay system for
IR-modulating small molecules, referred to as the co-transfection assay, that
simulates the actual cellular processes controlled by IRs. The system is (i)
fast, compared to animal models; (ii) capable of cost-effective, high throughput
screening of thousands of compounds per week; (iii) highly predictive of in vivo
pharmacology of both agonists and antagonists; (iv) able to separate complex
targets, such as receptor subtypes; and (v) conducted using the actual human
receptors which are the ultimate drug targets. Ligand's co-transfection assay is
a key component of Ligand's IR drug discovery and development programs, and
facilitates both the identification of lead compounds and their optimization as
clinical candidates.

The co-transfection assay is able to preclinically detect both agonists and
antagonists of specific IRs. It determines not only whether a compound interacts
with a particular human IR, but also whether this interaction mimics or blocks
the effects of the natural regulatory molecules on target gene expression. The
Company's assays also enable the Company to detect useful lead compounds which
could be missed by alternative biochemical screens or animal models. Ligand has
successfully automated its co-transfection assays for high throughput screening
of thousands of compounds per week. Ligand's screening in co-transfection assays
has resulted in the identification of lead compounds for novel estrogen
agonists, non-steroidal progestins and antiprogestins, non-steroidal
antiandrogens, non-steroidal glucocorticoid agonists, new retinoid analogues and
PPAR agonists that are now undergoing further investigation.

Ligand has developed similar automated high throughput assays to identify
lead compounds acting as agonists or antagonists of selected STAT/JAK signaling
pathways for particular ESPs such as interferons, certain interleukins and
selected hematopoietic growth factors. Additional STAT-based screening assays
are under development.

Ligand believes that its combination of modern molecular and traditional
approaches to drug discovery will accelerate its progress to develop new drug
candidates. To that end, Ligand has built a strong multidisciplinary team,
consisting of molecular biologists, medicinal chemists, pharmacologists and
specialists in drug metabolism and distribution, and other pharmaceutical
scientists. Ligand believes the similarities between hormone and cytokine
mechanisms of action allow it to leverage its drug discovery resources
efficiently in the IR and STATs areas.

PRODUCT DEVELOPMENT PROGRAM

Ligand is currently pursuing seven major internally-funded and
collaborative drug discovery programs: two are based on specific IRs (the
retinoid and sex steroid receptor programs for cancer, skin and eye disease, and
women's health); two are based on a combination of disease indications and
transcription factor targets (cardiovascular and inflammatory diseases); one is
based on STATs; and two are based on Glycomed technologies -- MMPIs and
inhibitors of cell adhesion. Additionally, Ligand has in-licensed and is
distributing two anti-cancer products in Canada.

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<PAGE> 30

The following table summarizes the current status of Ligand's product
research, development and marketing programs, either alone or through its
collaborations, and is qualified in its entirety by reference to the more
detailed descriptions elsewhere in this Prospectus:

<TABLE>
<CAPTION>
DEVELOPMENT
PROGRAM DISEASE INDICATION PHASE(1) MARKETING RIGHTS
- ------------------------------------ --------------------------- ---------------- ---------------------
<S> <C> <C> <C>
ALRT RETINOIDS(2)
Panretin (ALRT1057) Topical(3) KS Phase III ALRT
Panretin (ALRT1057) Oral(3) Cancers, including, APL, Phase IIB ALRT
kidney cancer,
non-Hodgkin's lymphoma, KS
Psoriasis Phase II ALRT
Proliferative Phase II ALRT
vitreo-retinopathy
ALRT1550 Oral(3)(4) Cancer Preclinical ALRT
(IND 4Q 96)
ALRT1109 & analogues(3) Skin diseases and cancer Preclinical ALRT
ALRT1455 & analogues(3) Leukemia, lymphoma, breast Preclinical ALRT
cancer
ALRT620(3) Cancer, skin and metabolic Preclinical ALRT
diseases
LIGAND RETINOIDS
Targretin (LGD1069) Topical Cutaneous T-cell lymphoma Phase III Ligand worldwide
and other malignancies of
skin
Skin disease Preclinical Ligand worldwide
Targretin (LGD1069) Oral Lung cancer PhaseII/III Ligand worldwide
Cancers, including Phase IIB Ligand worldwide
cutaneous T-cell lymphoma,
kidney, head and neck, KS
Skin and metabolic diseases Preclinical Ligand worldwide
(diabetes)
SEX STEROIDS
Droloxifene (5) Breast Cancer Phase III Pfizer
Osteoporosis Phase II Pfizer
Estrogen agonist Osteoporosis Preclinical Pfizer
(CP336,156) (6) (IND or foreign
equivalent 4Q
96)
Progesterone antagonists Cancer, endometriosis, Lead compounds American Home
(LG1447 series) uterine fibroids selected Products/Ligand(7)
Progesterone agonists Breast cancer, hormone Lead compounds American Home
(LG2527/2716 series) replacement therapy selected Products/Ligand(7)
Estrogen agonists Osteoporosis Lead compounds American Home
selected Products
Tissue selective estrogen or Gynecological disease, Lead compounds American Home
progesterone agonists and cardiovascular disease, selected Products/Ligand(7)
antagonists hormone replacement therapy
Androgen antagonists Prostate cancer, skin Lead compounds Ligand worldwide
(LG2293 series) disease selected
Androgen agonists Male hormone replacement Lead compounds Ligand worldwide
therapy, identified
osteoporosis
CARDIOVASCULAR/METABOLIC
DISEASE
Lipid regulators - LDL lowering Atherosclerosis Lead compounds Glaxo
selected
PPAR modulators Atherosclerosis and other Lead compounds Glaxo
disorders affecting the selected
cardiovascular system
Lipid regulators - HDL elevation Atherosclerosis Research Glaxo
INFLAMMATORY DISEASE
Glucocorticoid agonists Rheumatoid arthritis, Lead compounds Abbott/Ligand(7)
inflammatory bowel disease, selected
asthma, dermatitis
Interferon antagonists Rheumatoid arthritis, Lead compounds Abbott/Ligand(7)
inflammatory bowel disease, selected
asthma, dermatitis
</TABLE>

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<PAGE> 31

<TABLE>
<CAPTION>
DEVELOPMENT
PROGRAM DISEASE INDICATION PHASE(1) MARKETING RIGHTS
- ------------------------------------ --------------------------- ---------------- ---------------------
<S> <C> <C> <C>
GLYCOMED INFLAMMATORY
DISEASE
Galardin MMPI (GM6001) Ophthalmic inflammation Phase II/III Ligand; Sankyo in Far
Matrix metalloproteinase completed East (ophthalmic
inhibitor(8) indications)
GM1998 Acute and chronic Lead compounds Ligand; Sankyo in Far
Cell adhesion inhibitor inflammation selected East
GM1925, GM2296, GM1380 & analogues Acute and chronic Lead compounds Ligand; Sankyo in Far
Cell adhesion inhibitors inflammation selected East
GM1892 Reperfusion injury Lead compounds Ligand worldwide
Endothelial protective agent selected
GLYCOMED CANCER
GM1474, GM1306 Cancer Lead compounds Ligand worldwide
Growth factor modulators selected
GM6001 & analogues Cancer Lead compounds Ligand worldwide
Matrix metalloproteinase selected
inhibitors
GM1603 & analogues Cancer Lead compounds Ligand worldwide
Heparinase inhibitors selected
STATS
Interferon agonists Cancer, infectious disease Lead compounds Ligand worldwide
selected
Hematopoietic growth factors Oncological uses, anemia Lead compounds SmithKline
selected Beecham/Ligand(7)
Other cytokine agonists and Cancer, immunology, growth Research Ligand worldwide
antagonists control
IN-LICENSED
PHOTOFRIN Esophageal cancer, Market Ligand
superficial bladder cancer (Canada only)
Proleukin Kidney cancer Market Ligand
(Canada only)
</TABLE>

- ---------------
(1) "Development Phase" refers to the current stage of development of the most
advanced indication. "Research" activities include research related to
specific IR and STATs targets and the identification of lead compounds.
"Lead compounds" are chemicals that have been identified that meet
preselected criteria in cell culture models for activity and potency against
IR or STATs targets. More extensive evaluation is then undertaken to
determine if the compound should be selected to enter into preclinical
development. Once a lead compound is selected, chemical modification of the
compound is then undertaken to create an optimal drug candidate.
"Preclinical" includes pharmacology and toxicology testing in preclinical
models (in vitro and animal), formulation work and manufacturing scale-up to
gather necessary data to comply with applicable regulations prior to
commencement of human clinical trials. "IND/foreign equivalent" means the
initial regulatory filing required prior to commencement of human clinical
trials. Clinical trials are typically conducted in three sequential phases
that may overlap. In "Phase I," the initial introduction of the
pharmaceutical into healthy human volunteers, the emphasis is on testing for
safety (adverse effects), dosage tolerance, metabolism, distribution,
excretion and clinical pharmacology. "Phase II" involves studies in a
limited patient population to determine the efficacy of the pharmaceutical
for specific targeted indications, to determine dosage tolerance and optimal
dosage and to identify possible adverse side effects and safety risks. In
the development of drugs for the treatment of cancer, the initial studies
are often conducted in patients with otherwise untreatable cancers rather
than in healthy volunteers. These trials are referred to as "Phase I/II"
trials and are primarily intended to determine side effects, human
pharmacokinetics and maximum tolerated dose. Once a suitable dose is
established, limited trials in specific types of cancer to evaluate efficacy
are conducted. These are referred to as "Phase IIB" trials. Once a compound
is found to be effective and to have an acceptable safety profile in Phase
II evaluations, "Phase III" trials (or "Phase II/III" trials for certain
life-threatening indications) are undertaken to evaluate clinical efficacy
further and to test further for safety within an expanded patient population
at multiple clinical study sites. The FDA reviews both the clinical plans
and the results of the trials and may discontinue the trials at any time if
there are significant safety issues.

(2) Ligand and Allergan are engaged by ALRT to discover and develop
retinoid-related drugs. If Ligand and Allergan repurchase Panretin
(ALRT1057) or all of the outstanding callable common stock of ALRT, the
parties will share profits, if any, from any products commercialized
resulting from their activities.

(3) All rights currently owned by ALRT.

(4) The Company intends to file an IND for ALRT1550 Oral on behalf of ALRT in
the fourth quarter of 1996. There can be no assurance that the clinical
trials will proceed as planned or that any new drugs will be successfully
developed. See "-- Government Regulation."

(5) Droloxifene is a Pfizer compound. Ligand performed work on droloxifene at
Pfizer's request. Ligand and Pfizer entered into a settlement agreement with
respect to a lawsuit in April 1996. Under the terms of the settlement
agreement, the Company is entitled to receive milestones if Pfizer continues
development and royalties if Pfizer commercializes the product. See
"-- Strategic Alliances -- Pfizer Inc."

(6) A compound discovered through the Company's collaborative relationship with
Pfizer to which Pfizer has retained marketing rights. The Company has been
informed by Pfizer that Pfizer intends to file an IND or foreign equivalent
for CP336,156 in the fourth quarter of 1996. There can be no assurance that
clinical trials will proceed as planned or that any new drugs will be
successfully developed. See "-- Government Regulation."

(7) Ligand has retained certain compound rights. See "-- Strategic Alliances."

(8) Ligand is seeking a partner to further the development and commercialization
of Galardin for ophthalmic use. See "-- Inflammatory Disease."

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<PAGE> 32

RETINOIDS

Retinoic acid, a derivative of Vitamin A, is one of the body's natural
regulatory hormones and has a broad range of biological actions, influencing
cell growth, differentiation, apoptosis and embryonic development. Many chemical
analogues of retinoic acid, also called retinoids, also have biological
activity. Specific retinoids have been approved by the FDA for the treatment of
psoriasis and certain severe forms of acne. Evidence also suggests that
retinoids can be used to arrest and, to an extent, reverse the effects of skin
damage arising from prolonged exposure to the sun. Other evidence suggests that
retinoids are useful in the treatment of a variety of cancers, including kidney
cancer and certain forms of leukemia. For example, all-trans-Retinoic-acid
("ATRA") has been approved by the FDA for the treatment of APL. Retinoids have
also shown an ability to reverse precancerous (premalignant) changes in tissues,
reducing the risk of development of cancer, and have potential as preventive
agents for a variety of epithelial malignancies, including skin, head and neck,
bladder and prostate cancer.

Despite the therapeutic benefits of currently-marketed retinoids, their use
to date has been limited by their propensity to cause significant side effects,
such as severe birth defects if fetal exposure occurs, severe irritation of the
skin and mucosal surfaces, elevation of plasma lipids, headache and skeletal
abnormalities. Currently-marketed retinoids were developed and commercialized
for their therapeutic benefits prior to the discovery of retinoid-responsive IRs
("RRs"), and were developed with suboptimal tools.

The six RRs that have been identified to date can be grouped in two
subfamilies: Retinoic Acid Receptors ("RARs") and RXRs. Patent applications
covering members of both families of RRs have been licensed exclusively to
Ligand primarily from The Salk Institute, and have been further sublicensed to
ALRT as part of the ALRT Offering. The RR subtypes appear to have different
functions, based on their distribution in the various tissues within the body
and data arising from in vitro studies and from studies of transgenic mice.

Several of the retinoids currently in commercial use are either
non-selective in their pattern of RR subtype activation or are not ideal drugs
for other reasons. Ligand, on its own and on behalf of ALRT, is developing
chemically synthesized retinoids which, by selectively activating RR subtypes,
may preserve desired therapeutic effects while reducing side effects. Because of
their subtype selectivity or other desirable activities, Ligand's and ALRT's
retinoid agonists are expected to have more specific pharmacological effects and
less side effects, thus providing a better therapeutic index than currently used
retinoids, many of which are not RR subtype specific or are suboptimal for other
reasons.

Ligand, on behalf of ALRT, has two retinoid products in clinical trials,
Panretin (ALRT1057) Topical and Panretin (ALRT1057) Oral, and six retinoid
compounds in preclinical evaluation. In addition, Ligand has two retinoid
products in clinical trials, Targretin (LGD1069) Topical and Targretin (LGD1069)
Oral, which are the sole property of Ligand and have not been licensed to ALRT.

Panretin (ALRT1057) Topical. 9-cis-Retinoic acid (Panretin (ALRT1057)) is
a non-peptide hormone isolated and characterized by Ligand in 1992 in
collaboration with scientists at The Salk Institute and Baylor. This is the
first non-peptide hormone discovered in over 25 years and appears to be a
natural ligand for the RAR and RXR subfamilies of retinoid receptors.
9-cis-Retinoic acid has pharmacological properties which ALRT and Ligand believe
give it therapeutic utility.

In June 1994, prior to the formation of ALRT, Ligand initiated a Phase I/II
human clinical trial for Panretin (ALRT1057) Topical in AIDS-related, cutaneous
KS. Interim results of this Phase I/II clinical trial reported in January 1996
showed that, when evaluated at 12 weeks after the start of each patient's
therapy, Panretin (ALRT1057) Topical induced a partial or complete clinical
response in 30% of 43 patients with AIDS-related, cutaneous KS evaluated by AIDS
Clinical Trial Group ("ACTG") criteria as applied to topical therapy, compared
with 9% of patients with untreated control lesions. This interim assessment
supports results of an earlier assessment reported in September 1995. Following
a meeting with the FDA in November 1995, ALRT launched in the second quarter of
1996 a pivotal Phase III study to evaluate Panretin (ALRT1057) Topical in over
200 patients with AIDS-related, cutaneous KS. In addition, Panretin (ALRT1057)
Topical is scheduled to begin Phase III trials for KS in Europe in the fourth
quarter of 1996. The Company intends to file an NDA for Panretin (ALRT1057)
Topical on behalf of ALRT for treating KS in 1997 in the event that Phase III
trials demonstrate sufficient safety and efficacy.

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<PAGE> 33

Panretin (ALRT1057) Oral. In completed Phase I/IIA human clinical trials,
Panretin (ALRT1057) Oral was well tolerated at doses as high as 140 mg/m(2)/day
(milligram per square meter of body surface, per day), the maximum tolerated
dose ("MTD"). At the MTD level, side effects, including headaches, elevated
triglyceride levels, hypercalcemia and mucocutaneous irritation, were dose
limiting toxicities. Memorial Sloan-Kettering Cancer Center ("Sloan-Kettering")
interim data indicate that nine of 39 patients with advanced or otherwise
untreatable cancer treated with Panretin (ALRT1057) Oral experienced no disease
progression for periods ranging from 14 to 28 weeks. The Phase I/IIA clinical
data also indicate that Panretin (ALRT1057) Oral has good bioavailability.
Patient exposure to Panretin (ALRT1057) Oral is proportional to the administered
dose of the compound over a broad range of doses. Clinical results to date show
that, unlike ATRA, Panretin (ALRT1057) Oral at doses up to 83 mg/m(2)/day does
not induce its own inactivating metabolism, indicating that it may be more
suitable than ATRA for chronic administration for the treatment of certain
cancers, including APL.

United States and international Phase IIB trials have been launched with
Panretin (ALRT1057) Oral in a number of cancer indications, including kidney
cancer (in combination with interferon alpha), KS, prostate cancer,
non-Hodgkin's lymphoma and multiple myeloma. In addition, a Phase III trial with
Panretin (ALRT1057) Oral in APL is scheduled to begin in the fourth quarter of
1996. In a Phase I/IIA trial, six out of 15 patients with APL treated with
Panretin (ALRT1057) Oral had complete remissions, of which three had relapsed
from previous ATRA treatment and/or chemotherapy and three were newly diagnosed.
Cell culture based analysis of leukemia cells from some of the patients in this
study indicated that resistance to ATRA was not overcome by Panretin (ALRT1057)
Oral. Additional Phase IIB trials of Panretin (ALRT1057) Oral in other
indications including ovarian cancer (with cis-platin) are scheduled to be
launched in the fourth quarter of 1996. Panretin (ALRT1057) Oral entered a Phase
II trial for psoriasis in the United States in September 1995, a Phase IIB trial
for myelodysplastic syndrome in Europe in the second quarter of 1996 and a Phase
II trial for proliferative vitreo-retinopathy, a serious complication of retinal
detachment which can lead to blindness, in the United States in the third
quarter of 1996. The FDA has approved an application by Ligand, on behalf of
ALRT, to have Panretin (ALRT1057) Oral designated an "Orphan Drug" for the
treatment of APL.

There is currently substantial interest among oncologists in the potential
of retinoids, as evidenced by the existence of over 60 open protocols at the
National Cancer Institute ("NCI") to examine the effects of retinoids on a
variety of cancers. Additionally, a protocol for Panretin (ALRT1057) Oral in KS
has been accepted by the newly-formed AIDS-Related Malignancy Consortium under
the sponsorship of the NCI and patient accrual under this protocol is expected
in the fourth quarter of 1996. In addition, Panretin (ALRT1057) Oral will be
evaluated in HIV-positive patients in a trial planned by the NCI to examine its
ability to help sustain helper T-cell (CD4) levels. A Phase I/II study is
currently being conducted by the NCI to evaluate the safety and efficacy of
Panretin (ALRT1057) Oral in children with malignancies, and trials are underway
sponsored by the NCI to evaluate Panretin (ALRT1057) Oral in patients with
cervical cancer and those with breast cancer.

ALRT1550 Oral and Other ALRT Compounds. ALRT's drug development pipeline
includes six additional retinoid compounds in preclinical evaluation. One of
these, ALRT1550, is a very potent and selective RAR agonist which strongly
inhibits growth of several human cancer cell lines. Animal studies and
formulation work are underway in preparation for an IND submission in the fourth
quarter of 1996. ALRT has several additional retinoid compound series in
advanced preclinical evaluation to identify suitable development candidates.
These include: (i) ALRT1109 and analogues, RAR antagonists for topical use to
ameliorate mucocutaneous irritation accompanying therapy for cancer or skin
disease with systemic retinoids such as Accutane, Vesanoid, and Panretin
(ALRT1057) Oral, and (ii) ALRT1455 and analogues, RAR-alpha-selective retinoids
for possible use in treating leukemias, lymphoma, and breast cancer. Preclinical
studies with RXR-selective retinoids such as ALRT620 indicate possible utilities
in various metabolic disorders such as diabetes mellitus.

Targretin (LGD1069) Topical and Targetin (LGD1069) Oral. Ligand has
created synthetic retinoids that show distinctive patterns of RR subtype
selectivity. Ligand's research indicates that one of these retinoids, Targretin
(LGD1069), has a beneficial effect in squamous epithelial growth, showing
activity with human

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skin cells in culture and in a preclinical model of psoriasis. Targretin
(LGD1069), which is the first RXR-selective retinoid in clinical development,
has shown anti-cancer activity in vitro and in vivo preclinically. Because
Targretin (LGD1069) has attractive preclinical effects to induce programmed cell
death (apoptosis) in cancer cell lines, Ligand believes it may have utility in
solid tumors, such as breast, colon or lung cancer, which grow relatively slowly
and therefore respond poorly to conventional cytotoxic chemotherapeutic agents.
In vivo preclinical data indicate that Targretin (LGD1069) is orally and
topically active and well tolerated. Ligand's research indicates that Targretin
(LGD1069) has a pattern of RR subtype activation distinct from that of ALRT1057.

Preclinical studies with RXR-selective retinoids such as Targretin
(LGD1069) Oral indicate possible utilities in breast cancer and metabolic
disorders such as diabetes mellitus. Preclinical studies in mouse models of
human type II diabetes, a subset of diabetes mellitus, and obesity demonstrated
the ability of Targretin (LGD1069) to decrease blood glucose, triglyceride and
insulin levels. In a rat model of breast cancer prevention, Targretin (LGD1069)
reduced incidence and tumor frequency at least as well as an estrogen antagonist
compared to control, without the undesirable reduction in mean body weight
produced by the estrogen antagonist.

In June 1994, Ligand initiated Phase I/II clinical trials in patients with
a form of skin lymphoma or with cutaneous KS with Targretin (LGD1069) Topical.
In interim data presented by the Company in September 1996, Targretin (LGD1069)
Topical induced responses in 37% of 30 patients with cutaneous T-cell lymphoma
("CTCL"). In January 1996, the Company presented interim data which showed that
Targretin (LGD1069) Topical induced responses in 15% of 46 patients with
AIDS-related KS, a result which confirmed earlier interim results presented in
September 1995. The Company has met with the FDA on trial design and is
launching a pivotal Phase III clinical trial in CTCL. All rights to Targretin
(LGD1069) Topical are the sole property of Ligand and have not been licensed to
ALRT.

Ligand initiated clinical trials for Targretin (LGD1069) Oral for cancer
indications in January 1994. Phase I/IIA trials in patients with advanced cancer
were conducted at centers including Sloan-Kettering and the Lombardi
Comprehensive Cancer Center at Georgetown University. These studies were
designed to gather human safety data and to determine the maximum tolerated dose
of Targretin (LGD1069) Oral to facilitate design of Phase IIB and later studies.
Phase I/IIA interim trial results of Targretin (LGD1069) Oral were presented by
Sloan-Kettering investigators at ASCO in May 1995. The Sloan-Kettering team
reported on 33 patients with various cancers treated at oral daily doses up to
140 mg/m(2)/day. No dose limiting toxicities were reported in the study and
investigators reported that the bioavailability of the drug is excellent. To
date, in three Phase I/IIA trials over 115 patients with advanced cancers have
been treated at doses up to 1000 mg/m(2)/day. Fifteen lung cancer patients have
been treated for over 90 days (the longest for 56 weeks) and one head and neck
cancer patient has continued treatment for over 80 weeks and remains on
treatment with stable disease. The safety profile of Targretin (LGD1069) Oral
remains favorable. The drug also has displayed milder side effects than those
often seen with other retinoids, and it appears to be well-tolerated at doses
which are clinically active. Phase I/IIA studies are continuing. A Phase II/III
clinical trial has begun in lung cancer, Phase IIB clinical trials have begun in
KS and prostate cancer, a Phase II clinical trial has begun in kidney cancer (in
combination therapy with interferon alpha), a Phase I/II clinical trial has
begun in head and neck cancer and a Phase II/III clinical trial in CTCL is
expected to begin in the fourth quarter of 1996. All rights to Targretin
(LGD1069) Oral are the sole property of Ligand and have not been licensed to
ALRT.

SEX STEROIDS

The primary objective of Ligand's sex steroid program is to define
agonists, partial agonists and antagonists of the sex steroid receptors as drugs
for hormonally-responsive cancers of men and women, hormone replacement
therapies and the treatment and prevention of diseases affecting women's health
as well as hormonal disorders prevalent in men. Ligand's programs in the sex
steroid areas target (i) development of tissue-selective modulators of the
progesterone receptor ("PR") and estrogen receptor ("ER") for uses including
various chronic disease indications and (ii) the development of androgen
receptor ("AR") agonists and antagonists for use in cancer and other
indications. Lead compounds have been identified in each of these project areas.
Substantial medicinal chemistry efforts have yielded compounds active in animals
as PR and AR modulators. Ligand is pursuing these programs alone and in
collaboration with certain partners. In the

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research phase of a collaboration with Pfizer, potentially attractive ER
modulators were identified as development candidates and backup candidates. In a
collaboration with American Home Products, several advanced sex hormone receptor
modulators are advancing in preclinical evaluation. Ligand has filed a patent
application on fundamental advances made in understanding sex steroid receptor
function with significant drug discovery implications.

Progesterone Receptor Antagonists and Agonists. The objective of this
program is to develop novel PR antagonists, partial agonists and agonists for
chronic therapies. As part of this program, Ligand is also pursuing PR agonists
and partial agonists with related chemical structures for use in hormone
replacement therapy, breast cancer, contraception and other applications in
women's health.

Exploratory clinical research indicates that PR antagonists may have
utility in a variety of chronic diseases, including endometriosis and cancer.
Although PR antagonists currently are used clinically for acute indications,
their use in chronic diseases is likely to be limited by their cross-reaction
with the glucocorticoid receptor, which is anticipated to produce adverse side
effects with chronic administration. Ligand believes that more selective PR
antagonists will be useful in the treatment of many hormone responsive diseases,
including gynecological and malignant disorders, such as breast and uterine
cancer, uterine fibroids (benign smooth muscle tumors) and endometriosis.
Because of the very close structural similarity of the IRs for progesterone and
glucocorticoids, it has proven difficult to find noncross-reactive compounds.
This has been made more difficult because medicinal chemists have been largely
constrained to steroid structures as lead compounds.

Ligand believes that it has an excellent opportunity, based on its
proprietary tools and approaches, to develop a specific PR antagonist that does
not cross-react with the IR for glucocorticoids. Ligand has discovered several
non-steroidal lead compounds that are PR antagonists. Ligand has also discovered
closely related compounds that are full agonists of the PR, which may be useful
in breast cancer, contraception and hormone replacement therapy. These lead
compounds were detected in Ligand's natural product and defined chemical
screening programs using the co-transfection assay and the cloned human PR.
Medicinal chemistry efforts at Ligand based on one of these non-steroidal
antiprogestin leads have yielded potent, selective compounds with demonstrable
antiprogestin pharmacological effects both in vitro in human breast cancer cells
and in vivo in rodents.

In January 1996, American Home Products exercised its option to include
compounds that Ligand had discovered that modulate PRs and to expand the
collaboration to encompass the treatment or prevention of osteoporosis through
the ER. Ligand's proprietary PR modulators added to the collaboration include
three series: LG1447 PR antagonists, and LG2527 and LG2716 PR agonists. In May
1996, American Home Products expanded the collaboration further to include four
advanced chemical compound series from the Wyeth-Ayerst internal ER-osteoporosis
program. See "-- Tissue Selective Estrogen and Progesterone Agonists."

Estrogen Agonists. Osteoporosis is a disease characterized by significant
loss of bone mass. The disease, which predominantly affects post-menopausal
women, leads to a greater susceptibility to traumatic bone fractures and can
lead to curved spine ("dowager's hump") or hip fractures in elderly women. The
disease is ordinarily treated by giving women therapeutic doses of estrogen or
other steroidal analogues of estrogen. Estrogen therapy is a suboptimal
treatment of the disease because of significant side effects, including an
increased risk of developing uterine cancer. Estrogen therapy is not well
tolerated, and over 60% of women abandon the therapy within the first year.
Nevertheless, the market for estrogen therapy in the United States alone exceeds
$850 million annually and is estimated by Ligand to approximate $1.4 billion
worldwide.

The objective of the collaboration between Ligand and Pfizer was to
discover and develop novel therapies for osteoporosis acting through IRs. The
program focused on estrogen agonists that have greater tissue specificity for
bone than current forms of estrogen replacement therapy. In November 1993,
Ligand and Pfizer announced the successful completion of the research phase of
their alliance with the identification of a development candidate and backups
for the prevention and treatment of osteoporosis. In preclinical studies, the
candidates from the program mimic the beneficial effects of estrogen on bone
(stabilization of bone mineral density and skeletal integrity) and have an
impact on serum lipids often associated with cardioprotec-

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tion without increasing uterine or breast tissue proliferation. Ligand has been
informed that Pfizer intends to file an IND or foreign equivalent for CP336,156
in the fourth quarter of 1996.

Tissue Selective Estrogen and Progesterone Agonists. In addition to the
effects of estrogens and progesterones on the reproductive system, estrogens
exert a number of other influences in the body, including beneficial effects on
the cardiovascular and skeletal systems. After menopause, replacement of lost
estrogens is effective but not well tolerated due to adverse side effects.
Building on insights emerging from its research, Ligand believes that it has
developed a novel approach to achieving tissue selective estrogen or
progesterone agonist action. Ligand's approach is not dependent on the existence
of receptor subtypes, although subtypes have been demonstrated for the ER and PR
which may offer other drug discovery opportunities. Ligand has designed and
implemented novel screens which Ligand believes will detect sex steroid receptor
agonists with desirable pharmacological profiles. Ligand believes that these
compounds will be useful in treating a variety of hormone-responsive diseases,
such as endometriosis, uterine fibroids and cancers of the uterus and breast.
Additionally, Ligand believes that the compounds emerging from this program can
be used in reproductive medicine and hormone replacement therapy.

In September 1994, Ligand entered into a collaboration with American Home
Products in the area of ER and PR modulators for use in women's health. The
objective of this collaborative program is to discover and develop drugs which
interact with the ER or PR to produce tissue-selective actions. An important
additional aspect of this collaboration is Ligand's right to assay American Home
Products' extensive chemical library for activity against a selected set of
targets of Ligand's internal programs. Ligand may select up to 24 lead compounds
for internal development to which Ligand has worldwide rights. American Home
Products has agreed to provide up to $21.5 million in research funding to
support up to 18 Ligand scientists during the term of the collaboration.

Androgen Receptor Agonists and Antagonists. The primary objective of this
project is to develop novel AR agonists or antagonists for male hormone
replacement therapy and the treatment of skin disorders, osteoporosis, prostate
cancer and other diseases. The growth of most prostate cancers appears to be
stimulated by or dependent upon androgens. The use of androgen antagonists has
shown efficacy in the treatment of prostate cancer. Currently, the FDA has
approved two androgen antagonists for use in the treatment of prostate cancer
and a third is in clinical development. None of these are Ligand compounds.
These agents appear to have significant side effects. Ligand believes that there
is a substantial medical need for improved androgen modulators for use in the
treatment of prostate cancer.

AR agonists and antagonists with an improved side effect profile may also
provide utility in the treatment of benign prostatic hypertrophy, acne,
hirsutism, male-pattern baldness and cachexia associated with chronic disease
(e.g., cancer, auto-immune disorders and AIDS). Ligand has exclusively licensed
patent applications for the cloned human AR and is employing it to identify
novel AR agonists and antagonists. Ligand has identified non-steroidal lead
compounds from its internal screening programs. An internally directed medicinal
chemistry effort has produced potent, selective, patentable AR agonists and
antagonists which show pharmacological activity in vivo in rodents. Compounds
from these series are being optimized and will be further evaluated as potential
preclinical candidates. Ligand intends to pursue the specialty applications
emerging from these projects internally, but may seek a collaboration with a
pharmaceutical company to exploit broader clinical applications.

CARDIOVASCULAR/METABOLIC DISEASE

Ligand scientists are exploring the role of certain orphan IRs in disorders
affecting the cardiovascular system. Data suggest that these receptors regulate
the expression of apolipoprotein A1 ("ApoA1"). ApoA1 is the major protein
constituent of high-density lipoprotein ("HDL"), and recent data link increased
levels of ApoA1 to prevention of atherosclerosis.

Another subfamily of orphan IRs, Peroxisome Proliferator Activated
Receptors ("PPARs"), have been implicated in lowering plasma levels of very low
density lipoproteins and triglycerides. Data implicate PPARs in the mechanism of
action of lipid lowering drugs such as Lopid. Ligand has discovered three
subtypes of this PPAR class and defined novel aspects of their action. The
subtype PPAR alpha appears to regulate the

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metabolism of certain lipids. PPAR alpha agonists may be useful to treat
atherosclerosis and diabetes mellitus. PPAR gamma plays roles in fat cell
differentiation and cellular responses to insulin. Modulators of PPAR gamma
activity (e.g., the glitazone class of insulin sensitizers) may have utilities
in the management of diabetes mellitus and/or obesity.

PPARs function in cells with RXRs as partner proteins. In addition to
compounds that act directly on PPARs, which may have utility in various
cardiovascular and metabolic disorders, certain retinoids able to activate RXRs
(e.g., Targretin (LGD1069) Oral and ALRT620) and indirectly activate PPARs may
also have utilities in these disorders. Preclinical animal studies have
demonstrated that Targretin (LGD1069) has beneficial effects in animal models of
diabetes.

Ligand has established sophisticated high throughput assays to screen for
drug selectivity associated with structural classes of thyroid hormone receptors
to identify compounds which could selectively mimic thyroid hormone's
cardioprotective lipid lowering effects without its impact on heart rate and
nervous system activity.

In September 1992, Ligand entered into a collaboration with Glaxo to
discover and develop drugs for the prevention or treatment of atherosclerosis
and other disorders affecting the cardiovascular system. In collaboration with
Glaxo, Ligand is working to discover drugs which produce beneficial alterations
in lipid and lipoprotein metabolism in projects focused on (i) regulation of
cholesterol biosynthesis and expression of a receptor which removes cholesterol
from the blood stream, (ii) the IRs influencing circulating HDL levels and (iii)
PPARs, the subfamily of IRs activated by the clofibrate class of lipid lowering
drugs, Lopid and Atromid-S. The collaboration with Glaxo has also identified a
novel lead structure that activates selected PPAR subfamily members.

The collaboration with Glaxo significantly enhances Ligand's
pharmacological, medicinal chemistry and clinical development resources related
to cardiovascular disease. Ligand and Glaxo have screened compounds to identify
potential lead compounds. A lead compound showing in vivo activity in rodents
has been selected for lowering low-density lipoprotein ("LDL") cholesterol by
up-regulating LDL receptor gene expression in liver cells. Once leads are
identified, Glaxo has primary responsibility for pharmacology, medicinal
chemistry to optimize the drug candidates, preclinical testing and for
conducting clinical trials of the drug candidates for marketing approval by the
FDA and certain other regulatory agencies.

INFLAMMATORY DISEASE

Ligand is utilizing four innovative approaches to discover drugs for the
treatment of inflammation. Two approaches are being pursued in partnership with
Abbott, a third approach is being pursued in collaboration with Sankyo, and a
fourth approach uses Glycomed technology. These programs and approaches target
diseases such as rheumatoid arthritis, asthma, and reperfusion injury.

In collaboration with Abbott, Ligand is seeking novel small molecule
anti-inflammatory drugs. The collaborative program includes (i) several
approaches to discovering modulators of glucocorticoid receptor activity that
are better than currently known anti-inflammatory steroids such as
hydrocortisone and dexamethasone and (ii) approaches to the discovery of
blockers of the actions of the inflammation-promoting cytokines, interferon
alpha and interferon gamma, through inhibition of their STAT-mediated signal
transduction. A number of lead compounds have been identified and are currently
being optimized for further drug development.

In collaboration with Sankyo, Glycomed scientists are synthesizing and
testing compounds that block the adhesion of white blood cells to tissue. Some
forms of inflammation are thought to be maintained by continued accumulation of
white blood cells at sites of tissue injury. This accumulation is caused by
adhesion of the white cells to the endothelial linings of blood vessels in the
injured tissue. Research suggests the inflammatory process can be blocked by
interfering with white blood cell adhesion, thus reducing tissue localization of
the white cells. Inhibiting this process at its early stages by blocking the
action of selectins (cell surface proteins mediating adhesion) may provide
potent treatments for a variety of acute and chronic inflammatory diseases such
as rheumatoid arthritis and asthma. Two lead compound series show improved
potency over the natural adhesion ligands and a potential third lead series is
currently under evaluation.

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Glycomed is also conducting a research program directed toward the
discovery of MMPIs, orally available molecules which inhibit the action of
enzymes that facilitate the spread of tumor or inflammatory cells. Evaluation of
defined structural analogues which may enhance oral availability is in progress.
Several analogues demonstrate improved oral availability and current efforts are
directed at optimizing this characteristic. Glycomed has begun in vivo tests of
selected MMPIs in models of arthritis and cancer.

Galardin (GM6001). MMPIs are also potent inhibitors of a class of enzymes
involved in the degradation of proteoglycans and collagen. Galardin, a
metalloproteinase inhibitor, is a small, easily-synthesizable molecule that has
demonstrated effectiveness at very low concentrations in the prevention of
corneal ulceration in animals following alkali injury to the eye. The MMPI
Galardin was the first compound for which Glycomed filed an IND. Glycomed
received Orphan Drug designation for Galardin in December 1991 and completed
enrollment for the Phase II/III clinical trials in July 1994. The study,
involving over 500 patients with corneal injury, produced the statistically
significant finding that Galardin treatment reduced the number of patients in
which perforation of the cornea developed in the period after injury. In
contrast, the results of this Phase II/III study of Galardin in corneal injury
did not demonstrate a statistically significant impact of Galardin, applied
topically in the eye, on the rate of healing of corneal ulcers, the principal
intended study endpoint. Perforation is caused by destruction of the full
thickness of the cornea. It is one of the most serious complications associated
with corneal ulcers and can lead to blindness. Corneal perforation is a
significant risk for an estimated 120,000 of the patients with corneal ulcers in
the United States each year. Ligand is seeking a partner to further the
development and commercialization of Galardin for ophthalmic use. Composition of
matter and use patents (in corneal ulceration) have been issued in the United
States.

In February 1994, Glycomed signed a License Agreement with Sankyo for all
ophthalmic indications in the Far East for Galardin and analogues, while
Glycomed has retained rights in the rest of the world.

STATS

The recent discovery of the role of STATs and JAKs explains the mechanism
through which many cytokines modulate gene expression and cellular function. The
cytokines that produce cellular responses through the STAT/JAK pathway include
the interferons, most of the interleukins, the hematopoietic growth factors,
growth hormone and leptin.

Ligand's STAT/JAK signaling programs are focused on applications for
inflammation, infection, transplant rejection, allergy and blood cell
deficiencies induced in patients receiving chemotherapy. Ligand's first
collaborative effort to utilize the STAT/JAK approach to drug discovery is with
Abbott in the field of inflammation. Ongoing screening in this program has led
to the selection of a lead compound for interferon antagonist activity.

Ligand's second collaboration in the STAT/JAK area is with SmithKline
Beecham to discover and characterize small molecule, orally bioavailable drugs
to enhance the formation and development of blood cells (hematopoiesis). Working
together, Ligand and SmithKline Beecham scientists were able to validate a
STAT/JAK-based high throughput screen for hematopoietic growth factors, thus
achieving the first milestone of the collaboration in under nine months. Based
on this and additional collaborative work, the research teams of SmithKline
Beecham and Ligand are exploiting recent insights into the roles of JAKs and
STATs in mediating hematopoietic growth factor signal transduction and blood
cell formation. The Company's goal is to discover orally active compounds that
effectively enhance blood cell formation in a variety of anemias and after
cancer therapy. Several lead compounds have been identified.

Ligand's internal STATs research group is focused on the discovery of new
leads with potential utility as cancer therapeutics, and the development of high
throughput screens for agonists and/or antagonists of therapeutically relevant
cytokines that use the STAT/JAK pathway. Current efforts have allowed the
Company to identify the components required for high throughput screening for
thrombopoietin agonists to stimulate blood platelet production and IL-4
antagonists to treat allergy and asthma.

IN-LICENSED PRODUCTS

PHOTOFRIN. In March 1995, Ligand acquired from QLT exclusive Canadian
marketing rights to PHOTOFRIN, porfimer sodium, a laser-activated drug for use
in photodynamic therapy for esophageal and

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superficial bladder cancer. In July 1995, Ligand, through its wholly-owned
Canadian subsidiary Ligand Canada, began distribution of PHOTOFRIN. There are
over 3,500 new cases of superficial bladder cancer and 1,200 new cases of
esophageal cancer diagnosed each year in Canada. Ligand Canada also has rights
to sell the product for any other approved indications in Canada. PHOTOFRIN has
been approved in the United States in esophageal cancer, in the Netherlands for
lung and esophageal cancers and in Japan for early-stage lung, esophageal,
gastric and cervical cancers.

Proleukin. In September 1994, Ligand entered into an agreement with Cetus
Oncology to exclusively market in Canada Proleukin, its recombinant human
Interleukin-2 (aldesleukin) for the treatment of kidney cancer. In April 1995,
Ligand Canada began distribution of Proleukin. It is also being tested with
alpha interferon to determine if additional indications are feasible. There are
nearly 5,000 new cases of kidney cancer reported in Canada each year.

The Company has initiated Phase IV trials in Canada with both Proleukin and
PHOTOFRIN to further characterize the drugs clinically and facilitate broader
acceptance of both products.

STRATEGIC ALLIANCES

SmithKline Beecham Corporation. In February 1995, Ligand entered into a
collaborative agreement with SmithKline Beecham providing for a three-year
research program (with an option to extend the program for two years at
SmithKline Beecham's election) to utilize Ligand's proprietary STATs technology
to discover and characterize small molecule, orally bioavailable drugs to
control hematopoiesis (the formation and development of blood cells). Under the
terms of the agreement, SmithKline Beecham has been granted exclusive worldwide
rights for products resulting from the collaboration in certain targeted areas.
In exchange, SmithKline Beecham has agreed to provide Ligand up to $9.0 million
in research funding and up to $12.5 million in equity investments. This amount
includes an initial equity investment of $5.0 million in Common Stock. In
November 1995, a second installment of equity investment of $2.5 million was
provided to Ligand upon the achievement of certain milestones. The final two
installments of $2.5 million each will be provided, the third as an equity
investment and the final at SmithKline Beecham's option as a convertible note or
an equity investment, if SmithKline Beecham elects to further expand the scope
of research as defined or elects to extend the collaboration. SmithKline Beecham
will make additional milestone payments to Ligand as compounds progress in
clinical development and will also make royalty payments on product sales.
Ligand has the right to select up to three compounds related to hematopoietic
targets for development as anti-cancer products other than those compounds
selected for development by SmithKline Beecham. SmithKline Beecham has the
option to co-promote these products with Ligand in North America and to develop
and market them outside North America. SmithKline Beecham can terminate the
research program upon 60 days notice in the event of any breach by Ligand or
upon six months notice at any time after August 1996. As of June 30, 1996,
SmithKline Beecham had funded approximately $3.3 million of the total of $9.0
million in potential research funding under the agreement.

American Home Products Corporation. In September 1994, Ligand entered into
a collaborative agreement with American Home Products providing for a three-year
research program (with an option to extend the program for two years at American
Home Product's election) to discover and develop drugs which interact with
estrogen or progesterone receptors for use in hormone replacement therapy,
anti-cancer therapy, gynecological diseases, central nervous system disorders
associated with menopause and fertility control. American Home Products has been
granted exclusive worldwide rights to all products discovered in the
collaboration that are agonists or antagonists to the PRs and ERs for
application in the fields of women's health and cancer therapy. Under the
agreement, American Home Products agreed to provide up to $19.0 million in
research funding and up to $25.0 million in equity and convertible notes, in
addition to milestone and royalty payments to Ligand for such products. An
important additional aspect of this collaboration is Ligand's right to assay
American Home Products' extensive chemical library for activity against a
selected set of targets of Ligand's internal programs. Ligand may select up to
24 lead compounds for internal development to which Ligand has worldwide rights.
American Home Products made a $5.0 million equity investment in Ligand and
provided $10.0 million to Ligand in the form of a convertible note. A second
convertible note installment of $5.0 million is also available to Ligand due to
the achievement of certain

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milestones in the second quarter of 1995. A final convertible note installment
of $5.0 million will be provided if American Home Products exercises its option
to extend the period of collaboration from three to five years. The notes issued
to American Home Products are convertible into Common Stock at $10.01 per share
for the first two installments and at $10.88 per share for the final
installment. The conversion prices are subject to adjustment if certain dilutive
events occur to outstanding Common Stock. In August 1996, Ligand elected to
convert an aggregate of $3.8 million of the $10.0 million convertible note into
374,626 shares of Common Stock at the $10.01 conversion price.

In January 1996, American Home Products exercised its option to include
compounds discovered by Ligand that modulate PRs and to expand the collaboration
to encompass the treatment or prevention of osteoporosis through the ER. In
connection with the exercise of the option, the Company received $2.5 million in
additional research revenue and funding commitments. Ligand's proprietary PR
modulators added to the collaboration include three series: LG1447 PR
antagonists, LG2527 and LG2716 PR agonists. In May 1996, American Home Products
expanded the collaboration to include four advanced chemical compound series
from its internal ER-osteoporosis program. As of June 30, 1996, American Home
Products had funded approximately $10.1 million of the total of $21.5 million in
potential research funding under the agreement.

Abbott Laboratories. In July 1994, Ligand entered into a collaborative
agreement with Abbott providing for a five-year research program to discover and
develop small molecule compounds for the prevention or treatment of inflammatory
diseases. Under the agreement, research funding provided by Abbott may total up
to approximately $16.0 million. Abbott has also committed significant internal
resources to the collaboration. Abbott was granted exclusive worldwide rights
for all products discovered in the collaboration for use in inflammation. Ligand
was granted exclusive worldwide rights for all anti-cancer products discovered
in the collaboration. Abbott will make milestone and royalty payments on
products targeted at inflammation resulting from the collaboration, while Ligand
will make milestone and royalty payments on products targeted at anti-cancer
resulting from the collaboration. Each party will be responsible for the
development, registration and commercialization of the products in its
respective field. Abbott made an initial $5.0 million equity investment in
Ligand and purchased an additional $5.0 million of equity in August 1995. Abbott
can terminate the research program at any time upon 90 days notice in the event
of any breach by Ligand or upon four months notice at any time. As of June 30,
1996, Abbott had funded approximately $5.2 million of the total of $16.0 million
in potential research funding under the agreement.

Sankyo Company Limited. As part of the Glycomed merger, the Company
acquired a collaborative research agreement with Sankyo which Glycomed had
entered into in June 1994 providing for a three-year research program. Under the
agreement, Sankyo reimburses a portion of the Company's research expenses
related to the collaboration up to an aggregate of $8.0 million. The agreement
also provides that upon being presented with a target compound arising from the
research collaboration with the Company, Sankyo will notify the Company whether
it wishes to pursue development of the compound. If Sankyo exercises its option
to develop the compound, the Company and Sankyo will negotiate in good faith the
terms and conditions for an option and license agreement and Sankyo will make
additional milestone payments. In connection with the collaborative research
agreement, in September 1995, Sankyo made an equity investment of $1.5 million
in the Company. Sankyo can terminate the research program at any time upon 30
days notice in the event of any breach by Glycomed. As of June 30, 1996, Sankyo
had funded approximately $5.4 million, of which $3.1 million has been funded
since the Merger, of the total of $8.0 million in potential research funding
under the agreement.

Glaxo-Wellcome plc. In September 1992, Ligand entered into a collaborative
agreement with Glaxo providing for a five-year research program to discover and
develop drugs for the prevention or treatment of cardiovascular disease. The
collaboration significantly enhances Ligand's pharmacological, medicinal
chemistry and clinical development resources related to cardiovascular disease.
Glaxo has committed significant internal resources to the collaboration and will
fund one-half of Ligand's research expenses to support 18 Ligand scientists
assigned to the collaboration. Ligand and Glaxo will screen compounds to
identify potential lead compounds. Once leads have been identified, Glaxo will
have primary responsibility for pharmacology, medicinal chemistry to optimize
the drug candidates and preclinical testing. Glaxo also has responsibility for
conducting clinical trials of the drug candidates for marketing approval by the
FDA and certain other regulatory agencies. Ligand will receive milestone
payments as compounds progress through the development cycle and a royalty on
any commercialized products. Ligand has retained the right to develop and

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commercialize products arising from the collaboration in markets not exploited
by Glaxo or where Glaxo is not developing a product for the same indication.
Glaxo has made a total of $10.0 million in equity investments in Ligand. Glaxo
can terminate the research program at any time upon 180 days notice in the event
of any breach by Ligand. As of June 30, 1996, Glaxo had funded approximately
$6.9 million of the total of $10.0 million in potential research funding under
the agreement.

Allergan, Inc. In June 1992, Ligand and Allergan formed the Joint Venture,
owned 50 percent by each party, to discover, develop and commercialize retinoid
drugs. As of December 31, 1994, Ligand and Allergan had each contributed $14.625
million in research funding to the Joint Venture. Allergan and Ligand shared
losses equally from the Joint Venture. In December 1994, the Company and
Allergan formed ALRT to continue the research and development activities
previously conducted by the Joint Venture. In June 1995, the Company and ALRT
completed the ALRT Offering of 3,250,000 Units with aggregate proceeds of $32.5
million and cash contributions by Allergan and Ligand of $50.0 million and $17.5
million, respectively, providing for net proceeds of $94.3 million for retinoid
product research and development. Each Unit consisted of one share of ALRT's
callable common stock and two warrants, each warrant entitling the holder to
purchase one share of Common Stock. Immediately prior to the consummation of the
ALRT Offering, Allergan Ireland made a $6.0 million investment in Common Stock.
As part of the ALRT Offering, all rights held by the Joint Venture were licensed
to ALRT. The Company, Allergan and ALRT entered into certain agreements,
including a Technology License Agreement, a Research and Development Agreement,
a Commercialization Agreement, a 1057 Purchase Option Agreement, an Asset
Purchase Option Agreement and Services and Administrative Agreements in
connection with the funding of ALRT and pursuant to which Ligand and Allergan
perform development work on certain retinoid compounds. ALRT can terminate the
Research and Development Agreement at any time after a breach by Ligand or
Allergan, subject to the right of the nonbreaching party to assume the
obligations of the breaching party within 20 days of receipt of notice of the
breach. The ALRT1057 Option is exercisable at prices ranging from $21.4 million
to $36.2 million (of which $18.7 million to $31.7 million is payable by Ligand)
at any time beginning June 1997 and ending the earlier of 90 days after
regulatory approval for the commercial sale of Panretin (ALRT1057) Oral or
Panretin (ALRT1057) Topical and June 2000. The ALRT1057 Option must be exercised
by both Ligand and Allergan. As a result, Ligand can exercise the ALRT1057
Option only if Ligand and Allergan each conclude that the exercise of the
ALRT1057 Option is in both of their best interests. In addition, pursuant to the
ALRT Stock Purchase Option Ligand is entitled to purchase all ALRT callable
common stock at prices ranging from $71.4 million to $120.7 million at any time
between June 1997 and June 2000. If Ligand exercises the ALRT Stock Purchase
Option, Allergan has an option to purchase an undivided 50% interest in all of
the assets of ALRT at prices ranging from $8.9 million to $15.0 million. Since
1992, Allergan Ireland, a wholly owned subsidiary of Allergan, has made $30.0
million in equity investments in Ligand. As of June 30, 1996, ALRT had provided
approximately $19.3 million in research funding to Ligand under the Research and
Development Agreement.

Pfizer Inc. In May 1991, Ligand entered into a five-year collaborative
agreement with Pfizer to develop better alternative therapies for osteoporosis.
Pfizer agreed to provide up to $3.0 million per year in research funding to
Ligand in addition to committing significant internal resources. In November
1993, Ligand and Pfizer announced the successful completion of the research
phase of their alliance with the identification of development candidates for
the prevention and treatment of osteoporosis. In preclinical studies, the
candidates from the program mimic the beneficial effects of estrogen on bone and
have an impact on blood serum lipids often associated with cardiac benefits
without increasing uterine or breast tissue proliferation. Under the terms of
the collaboration, Pfizer has primary responsibility for pharmacology, medicinal
chemistry to optimize the drug candidates, preclinical testing, and clinical
trials of drug candidates for marketing approval by the FDA and certain other
regulatory agencies. Ligand has granted Pfizer exclusive worldwide rights to
manufacture and market any compounds jointly developed for osteoporosis. Ligand
is to receive up to $7.5 million in milestone payments as development objectives
are achieved, in addition to royalties on sales of successful drugs that emerge
from the alliance. As of December 31, 1993, Pfizer had made a total of $7.5
million of equity investments in Ligand and had funded approximately $9.4
million in research funding.

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<PAGE> 42

develop drugs in the field of osteoporosis. Droloxifene is an estrogen
antagonist/partial agonist with potential indications in the treatment of
osteoporosis and breast cancer as well as other applications. Ligand and Pfizer
entered into a settlement agreement with respect to the lawsuit in April 1996.
Under the terms of the settlement agreement, Ligand is entitled to receive
milestone payments if Pfizer continues development and royalties if Pfizer
commercializes droloxifene. At the option of either party, milestone and royalty
payments owed Ligand can be satisfied by Pfizer transferring to Ligand shares of
Common Stock at an exchange ratio of $12.375 per share. To date, Ligand has
received approximately $1.3 million in milestone payments from Pfizer as a
result of the continued development of droloxifene. These milestones were paid
in the form of an aggregate of 101,011 shares of Common Stock, which were
subsequently retired from treasury stock in September 1996. According to recent
announcements by Pfizer, droloxifene has entered Phase II clinical trials for
osteoporosis and Phase III clinical trials for breast cancer.

The Salk Institute of Biological Studies. In October 1988, Ligand
established an exclusive relationship with The Salk Institute which is one of
the leading research centers in the area of IR technology. Dr. Ronald Evans, who
cloned and characterized the first IR in 1985 and who invented the
co-transfection assay used by Ligand, is a professor in the Gene Expression
Laboratory of The Salk Institute and an Investigator of the Howard Hughes
Medical Institute. Under the agreement, Ligand has an exclusive, worldwide
license to the intracellular receptor technology developed by Dr. Evans'
laboratory at The Salk Institute. Subject to compliance with the terms of the
agreement, the term of the license extends for the life of the patents covering
such developments.

Under the agreement, Ligand made an initial payment to The Salk Institute
and issued shares of Common Stock as partial consideration for the license.
Ligand is also obligated to make certain royalty payments based on sales of
certain products developed using the licensed technology, as well as certain
minimum annual royalty payments.

Ligand also entered into exclusive consulting agreements with Dr. Evans
that continue through July 1998. Under these agreements, Dr. Evans has purchased
Common Stock and has been granted options to purchase Common Stock. As a
consultant, Dr. Evans meets on a regular basis with Company personnel to review
ongoing research and to assist Ligand in defining the technical objectives of
future research. Dr. Evans is also involved in identifying new developments made
in other leading academic laboratories which relate to Ligand's research
interests. Dr. Evans serves as Chairman of Ligand's Scientific Advisory Board

Baylor College of Medicine. In January 1990, Ligand established an
exclusive relationship with Baylor, which is a leading center of IR technology.
Dr. Bert W. O'Malley is a professor and the Chairman of the Center for
Reproductive Biology at Baylor and leads IR research at that institution.
Important features of Ligand's co-transfection assay were developed in Dr.
O'Malley's laboratory and are exclusively licensed by Ligand. Ligand has entered
into a series of agreements with Baylor under which it has an exclusive,
worldwide license to IR technology developed at Baylor and to future
improvements made in Dr. O'Malley's laboratory through October 1996. Subject to
compliance with the terms of the agreements, the term of the license may extend
for the life of the patents covering such developments.

Ligand works closely with Dr. O'Malley and Baylor in scientific IR
research, particularly in the area of sex steroids and orphan IRs. Under the
agreement, Ligand is obligated to make payments to Baylor College of Medicine in
support of research done in Dr. O'Malley's laboratory for the period from April
1992 through March 1997. Ligand is also obligated to make certain royalty
payments based on the sales of products developed using the licensed technology.
Ligand has also entered into an exclusive consulting agreement with Dr. O'Malley
that continues through September 1996. Dr. O'Malley is a member of Ligand's
Scientific Advisory Board. Dr. O'Malley has purchased Common Stock and has been
granted options to purchase Common Stock.

Rockefeller University. In September 1992, Ligand entered into a
worldwide, exclusive license agreement with Rockefeller University and exclusive
consulting agreements with Dr. James Darnell of Rockefeller University and Dr.
David Levy of NYU to develop and commercialize certain technology involving
STATs to control gene expression. Dr. Darnell is one of the leading
investigators of the control of gene expression by STATs. Rockefeller University
will receive (i) payments upon the transfer of the technology to Ligand and

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<PAGE> 43

upon the first four anniversary dates of the agreement, (ii) a royalty on any
commercialized products and (iii) subject to a vesting schedule, shares of
Common Stock and warrants to purchase shares of Common Stock. In consideration
of related technology assigned by NYU to Rockefeller University and covered by
the license agreement with Ligand, NYU received, subject to a vesting schedule,
shares of Common Stock and warrants to purchase shares of Common Stock. Subject
to a vesting schedule tied to their consulting agreements, Dr. Darnell and Dr.
Levy received shares of Common Stock. In addition, in October 1994 Ligand
granted Dr. Darnell options to purchase shares of Common Stock.

In addition to the collaborations discussed above, the Company also has a
number of other consulting, licensing, development and academic agreements by
which it strives to advance its technology.

PATENTS AND PROPRIETARY RIGHTS

Ligand believes that patents and other proprietary rights are important to
its business. Ligand's policy is to file patent applications to protect
technology, inventions and improvements to its inventions that are considered
important to the development of its business.

Ligand's success will depend in part on its ability to obtain patent
protection for its technology both in the United States and other countries. A
number of pharmaceutical companies and research and academic institutions have
developed technologies, filed patent applications or received patents on various
technologies that may be related to Ligand's business. Some of these patent
applications, patents or technologies may conflict with Ligand's technologies or
patent applications. Any such conflict could limit the scope of the patents, if
any, that Ligand may be able to obtain or result in the denial of Ligand's
patent applications. In addition, if patents that cover Ligand's activities are
issued to other companies, there can be no assurance that Ligand would be able
to obtain licenses to such patents at a reasonable cost, if at all, or be able
to develop or obtain alternative technology. The Company has from time to time
had, continues to have and may have in the future, discussions with its current
and potential collaborators regarding the scope and validity of the Company's
patent and other proprietary rights to its technologies, including the Company's
co-transfection assay. If a collaborator or other party were successful in
having substantial patent rights of the Company determined to be invalid, it
could adversely affect the ability of the Company to retain existing
collaborations beyond their expiration or, where contractually permitted,
encourage their termination. Such a determination could also adversely affect
the Company's ability to enter into new collaborations. If any disputes should
arise in the future with respect to the rights in any technology developed with
a collaborator or with respect to other matters involving the collaboration,
there could be delays in the achievement of milestones or receipt of milestone
payments or research revenues, or interruptions or termination of collaborative
research, development and commercialization of certain potential products, and
litigation or arbitration could result. Any of the foregoing matters could be
time consuming and expensive and could have a material adverse effect on the
Company.

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or to licensors of Ligand's technology will not be challenged, invalidated,
circumvented or rendered unenforceable based on, among other things,
subsequently discovered prior art, lack of entitlement to the priority of an
earlier, related application, or failure to comply with the written description,
best mode, enablement or other applicable requirements, or that the rights
granted under any such patents will provide significant proprietary protection
or commercial advantage to Ligand. The invalidation, circumvention or
unenforceability of any of Ligand's patent protection could have a material
adverse effect on the Company.

Ligand has learned that a United States patent has issued to, and foreign
counterparts have been filed by, Roche that include claims to a formulation of
9-cis-Retinoic acid (Panretin (ALRT1057)) and use of that compound to treat
epithelial cancers. Ligand had previously filed an application which has an
earlier filing date than the Roche patent and which has claims that the Company
believes are broader than but overlap in part with claims under the Roche
patent. Ligand's rights under its patent application have been exclusively
licensed to ALRT. Ligand and ALRT are currently investigating the scope and
validity of this patent to determine its impact upon the Panretin (ALRT1057)
Oral and Topical products. The PTO has informed Ligand that the overlapping
claims are patentable to Ligand and stated its intention to initiate an
interference proceeding to determine whether Ligand or Roche is entitled to a
patent by having been first to invent the common subject matter. The Company
cannot be assured of a favorable outcome in the interference proceeding because
of factors not known at this time upon which the outcome may depend. In
addition, the interference proceeding may delay the decision of the PTO
regarding the Company's application for the Panretin (ALRT1057) Oral and Topical
products. While the Company believes that the Roche patent does not cover the
use of Panretin (ALRT1057) Oral and Topical to treat leukemias such as APL and
sarcomas such as KS, or the treatment of skin diseases such as psoriasis, if the
Company does not prevail in the interference proceeding, the Roche patent might
block the Company's use of Panretin (ALRT1057) Oral and Topical in certain
cancers, and the Company may not be able to obtain patent protection for the
Panretin (ALRT1057) Oral and Topical products.

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SALES AND MARKETING

The creation of infrastructure to commercialize products is a difficult,
expensive and time-consuming process. Ligand currently has no sales and only
limited marketing capability outside Canada. To market any of its products
directly, the Company will need to develop a marketing and sales force with
technical expertise and distribution capability or contract with other
pharmaceutical and/or health care companies with distributions systems and
direct sales forces. There can be no assurance that the Company will be able to
establish direct or indirect sales and distribution capabilities or be
successful in gaining market acceptance for proprietary products or for other
products. To the extent the Company enters into co-promotion or other licensing
arrangements, any revenues received by the Company will be dependent on the
efforts of third parties, and there can be no assurance that any such efforts
will be successful.

In September 1994, Ligand was appointed by Cetus Oncology as the sole
distributor of Proleukin, an oncology product, within Canada for a five-year
period beginning on the date of the first sale of Proleukin by Ligand in Canada.
Ligand paid Cetus Oncology $250,000 upon execution of the agreement and made an
additional milestone payment to Cetus Oncology upon the receipt of government
approval for the sale of Proleukin in Canada. In accordance with the agreement,
Ligand initially hired three sales representatives to market Proleukin in
Canada.

In March 1995, Ligand was also appointed by QLT as the sole distributor
within Canada of PHOTOFRIN, a product for the treatment of esophageal and
superficial bladder cancer. The agreement covers an initial 10-year period
beginning on the date of the first sale of PHOTOFRIN by Ligand in Canada. Ligand
paid QLT $180,800 upon execution of the agreement with future payments based on
sales volume.

MANUFACTURING

Ligand currently has no manufacturing facilities, and accordingly relies on
third parties, including its collaborative partners, for clinical or commercial
production of any compounds under consideration as products. Ligand is currently
constructing and validating a cGMP pilot manufacturing capability in order to
produce sufficient quantities of products for preclinical testing and initial
clinical trials. If Ligand is unable to develop or contract on acceptable terms
for manufacturing services, Ligand's ability to conduct preclinical testing and
human clinical trials will be adversely affected, resulting in the delay of
submission of products for regulatory approval and delay of initiation of new
development programs, which in turn could materially impair Ligand's competitive
position. Although drugs acting through IRs and STATs have been manufactured on
a commercial scale by other companies, there can be no assurance that Ligand
will be able to manufacture its products on a commercial scale or that such
products can be manufactured by Ligand or any other party on behalf of Ligand at
costs or in quantities to make commercially viable products.

GOVERNMENT REGULATION

The manufacturing and marketing of Ligand's products and its ongoing
research and development activities are subject to regulation for safety and
efficacy by numerous governmental authorities in the United States and other
countries. In the United States, pharmaceuticals are subject to rigorous FDA
regulation. The Federal Food, Drug and Cosmetic Act and the Public Health
Service Act govern the testing, manufacture, safety, efficacy, labeling,
storage, record keeping, approval, advertising and promotion of Ligand's
products. Product development and approval within this regulatory framework
takes a number of years and involves the expenditure of substantial resources.

The steps required before a pharmaceutical agent may be marketed in the
United States include (i) preclinical laboratory and animal tests, (ii) the
submission to the FDA of an IND, which must become effective before human
clinical trials may commence, (iii) adequate and well-controlled human clinical
trials to establish the safety and efficacy of the drug, (iv) the submission of
a NDA to the FDA and (v) the FDA approval of the NDA prior to any commercial
sale or shipment of the drug. A company must pay a one-time user fee for NDA
submissions, and annually pay user fees for each approved product and
manufacturing establishment. In addition to obtaining FDA approval for each
product, each domestic drug manufacturing establishment must be registered with
the FDA. Domestic manufacturing establishments are subject to preapproved
inspections by the FDA prior to marketing approval and then to biennial
inspections and must

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comply with cGMP. To supply products for use in the United States, foreign
manufacturing establishments must comply with cGMP and are subject to periodic
inspection by the FDA or by regulatory authorities in such countries under
reciprocal agreements with the FDA.

Preclinical tests include laboratory evaluation of product chemistry and
animal studies to assess the safety and efficacy of the product and its
formulation. The results of the preclinical tests are submitted to the FDA as
part of an IND, and unless the FDA objects, the IND will become effective 30
days following its receipt by the FDA.

Clinical trials involve the administration of the pharmaceutical product to
healthy volunteers or to patients identified as having the condition for which
the pharmaceutical is being tested. The pharmaceutical is administered under the
supervision of a qualified principal investigator. Clinical trials are conducted
in accordance with protocols previously submitted to the FDA as part of the IND
that detail the objectives of the study, the parameters used to monitor safety
and the efficacy criteria that are being evaluated. Each clinical study is
conducted under the auspices of an Institutional Review Board ("IRB") at the
institution at which the study is conducted. The IRB considers, among other
things, ethical factors, the safety of the human subjects and the possible
liability risk for the institution.

Clinical trials are typically conducted in three sequential phases that may
overlap. In Phase I, the initial introduction of the pharmaceutical into healthy
human volunteers, the emphasis is on testing for safety (adverse effects),
dosage tolerance, metabolism, distribution, excretion and clinical pharmacology.
Phase II involves studies in a limited patient population to determine the
efficacy of the pharmaceutical for specific targeted indications, to determine
dosage tolerance and optimal dosage, and to identify possible adverse side
effects and safety risks. Once a compound is found to be effective and to have
an acceptable safety profile in Phase II evaluations, Phase III trials are
undertaken to evaluate clinical efficacy further and to further test for safety
within an expanded patient population at multiple clinical study sites. The FDA
reviews both the clinical plans and the results of the trials and may
discontinue the trials at any time if there are significant safety issues.

The results of the preclinical and clinical trials are submitted to the FDA
in the form of an NDA for marketing approval. The testing and approval process
is likely to require substantial time and effort and there can be no assurance
that any approval will be granted on a timely basis, if at all. The approval
process is affected by a number of factors, including the severity of the
disease, the availability of alternative treatments and the risks and benefits
demonstrated in clinical trials. Additional animal studies or clinical trials
may be requested during the FDA review process and may delay marketing approval.
After FDA approval for the initial indications, further clinical trials would be
necessary to gain approval for the use of the product for any additional
indications. The FDA may also require postmarketing testing to monitor for
adverse effects, which can involve significant expense.

The results of preclinical studies and initial clinical trials are not
necessarily predictive of results that will be obtained from large-scale
clinical trials, and there can be no assurance that clinical trials of any
product under development will demonstrate the safety and efficacy of such
product or will result in a marketable product. The safety and efficacy of a
therapeutic product under development by the Company must be supported by
extensive data from clinical trials. A number of companies have suffered
significant setbacks in advanced clinical trials, despite promising results in
earlier trials. The failure to demonstrate adequately the safety and efficacy of
a therapeutic drug under development would delay or prevent regulatory approval
of the product and could have a material adverse effect on the Company. In
addition, the FDA may require additional clinical trials, which could result in
increased costs and significant development delays.

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of the Company's current corporate partners have certain rights to control the
planning and execution of product development and clinical programs, and there
can be no assurance that such corporate partners' rights to control aspects of
such programs will not impede the Company's ability to conduct such programs in
accordance with the schedules and in the manner currently contemplated by the
Company for such programs. There can be no assurance that, if clinical trials
are completed, the Company will submit a NDA with respect to any potential
products or that any such application will be reviewed and approved by the FDA
in a timely manner, if at all.

For both currently marketed and future products, failure to comply with
applicable regulatory requirements after obtaining regulatory approval can,
among other things, result in the suspension of regulatory approval, as well as
possible civil and criminal sanctions. In addition, changes in regulations could
have a material adverse effect on Ligand.

A drug that receives Orphan Drug designation by the FDA and is the first
product to receive FDA marketing approval for its product claim is currently
entitled to a seven-year exclusive marketing period in the United States for
that product claim. A drug that is considered by the FDA to be different than a
particular Orphan Drug, however, is not barred from sale in the United States
during such seven-year exclusive marketing period. The FDA has approved an
application by Ligand on behalf of ALRT to have ALRT1057 Oral designated an
"Orphan Drug" for the treatment of APL. Ligand is preparing additional
applications for Orphan Drug designations in other indications. Congress is
currently considering significant changes to the Orphan Drug Act, including a
reduction in the exclusive marketing period from seven years to four years, with
the possibility of a three-year extension for certain drugs.

For marketing outside the United States before FDA approval to market, the
Company must submit an export permit application to the FDA. The Company also
will be subject to foreign regulatory requirements governing human clinical
trials and marketing approval for drugs. The requirements relating to the
conduct of clinical trials, product licensing, pricing and reimbursement vary
widely from country to country and there can be no assurance that the Company or
any of its partners will meet and sustain any such requirements.

COMPETITION

Some of the drugs which Ligand is developing will compete with existing
therapies. In addition, a number of companies are pursuing the development of
novel pharmaceuticals which target the same diseases that Ligand is targeting as
well as IR-related, STAT-related and complex carbohydrate-related approaches to
drug discovery and development. Many of Ligand's existing or potential
competitors, particularly large pharmaceutical companies, have substantially
greater financial, technical and human resources than Ligand and may be better
equipped to develop, manufacture and market products. In addition, many of these
companies have extensive experience in preclinical testing and human clinical
trials, obtaining FDA and other regulatory approvals and manufacturing and
marketing pharmaceutical products. Academic institutions, governmental agencies
and other public and private research organizations are conducting research to
develop technologies and products that may compete with those under development
by the Company. These institutions are becoming increasingly aware of the
commercial value of their findings and are becoming more active in seeking
patent protection and licensing arrangements to collect royalties for the use of
technology that they have developed. These institutions also may market
competitive commercial products on their own or through joint ventures and will
compete with the Company in recruiting highly qualified scientific personnel.
Any of these companies, academic institutions, government agencies or research
organizations may develop and introduce products and processes competitive with
or superior to those of Ligand. The development by others of new treatment
methods for those indications for which Ligand is developing products could
render Ligand's products noncompetitive or obsolete.

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<PAGE> 48

relative speed at which Ligand or its existing or future corporate partners can
develop products, complete the clinical trials and regulatory approval
processes, and supply commercial quantities of the products to the market is
expected to be an important competitive factor. Ligand expects that competition
among products approved for sale will be based, among other things, on product
efficacy, safety, reliability, availability, price and patent position.

PRODUCT LIABILITY AND INSURANCE

Ligand's business exposes it to potential product liability risks which are
inherent in the testing, manufacturing and marketing of human therapeutic
products. Ligand currently has limited product liability insurance; however,
there can be no assurance that Ligand will be able to maintain such insurance on
acceptable terms or that such insurance will provide adequate coverage against
potential liabilities. The Company expects to procure additional insurance when
its products progress to a later stage of development and if any rights to
later-stage products are in-licensed in the future. To the extent that product
liability insurance, if available, does not cover potential claims, the Company
will be required to self-insure the risks associated with such claims. A
successful product liability claim or series of claims brought against the
Company could have a material adverse effect on the Company.

HUMAN RESOURCES

As of August 31, 1996, Ligand had 323 full-time employees, of whom 246 were
involved directly in scientific research and development activities. Of these
employees, approximately 80 hold Ph.D. or M.D. degrees.

FACILITIES

Ligand currently leases and occupies five facilities: three in San Diego,
California, and two in Alameda, California. In San Diego, the Company leases an
approximately 42,000 square foot laboratory and administrative office space
pursuant to a lease that continues through September 1997 and contains a renewal
option of five years. In July 1994, the Company entered into a 20 year lease
related to the construction of a new laboratory facility. This 52,800 square
foot facility was completed and occupied in August 1995. The third facility in
San Diego is for administrative office space pursuant to a sublease of
approximately 7,400 square feet which was entered into in March 1995. In
Alameda, Glycomed leases two buildings totalling approximately 56,000 square
feet, for laboratory and administrative office usage. The leases expire in
September 1997 and contain a renewal option of five years. As of May 1996,
Glycomed had sublet approximately 12,750 square feet in one of these buildings.
The Company believes these facilities will be adequate to meet the Company's
near-term space requirements. The Company is currently undertaking to
consolidate its San Diego facilities by means of a build-to-suit facility.

LITIGATION

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$12.375 per share. To date, Ligand has received approximately $1.3 million in
milestones payments from Pfizer as a result of the continued development of
droloxifene. These milestones were paid in the form of an aggregate of 101,011
shares of Common Stock, which were subsequently retired from treasury stock in
September 1996. According to recent announcements by Pfizer, droloxifene has
entered Phase II clinical trials for osteoporosis and Phase III clinical trials
for breast cancer.

From time to time, Ligand may be involved in litigation relating to claims
arising out of its operations in the normal course of business. As of the date
of this Prospectus, the Company is not a party to any material legal
proceedings.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of Ligand as of September 20, 1996 are
as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
David E. Robinson.......................... 47 Chairman of the Board, President and
Chief Executive Officer
Lloyd E. Flanders, Ph.D.................... 56 Senior Vice President, Pre-Clinical
Development and R&D Administration
Andres Negro-Vilar, M.D., Ph.D. ........... 56 Senior Vice President, Research, Chief
Scientific Officer
Steven D. Reich, M.D....................... 51 Senior Vice President, Clinical Research
William L. Respess, J.D., Ph.D............. 57 Senior Vice President, General Counsel,
Government Affairs and Secretary
George M. Gill, M.D........................ 63 Vice President, Medical Affairs
Howard T. Holden, Ph.D..................... 51 Vice President, Regulatory Affairs and
Compliance
Paul V. Maier.............................. 48 Vice President, Chief Financial Officer
Henry F. Blissenbach(1).................... 50 Director
Alexander D. Cross, Ph.D.(2)............... 63 Director
John Groom(1)(2)........................... 58 Director
Irving S. Johnson, Ph.D.................... 71 Director
William C. Shepherd........................ 58 Director
</TABLE>

- ---------------
(1) Members of the Compensation Committee of the Board of Directors.
(2) Members of the Audit Committee of the Board of Directors.

DAVID E. ROBINSON has served as President and Chief Executive Officer and a
Director of Ligand since 1991. Mr. Robinson was appointed Chairman of the Board
in May 1996. Prior to joining Ligand, he was Chief Operating Officer at
Erbamont, a pharmaceutical company. Prior to that, Mr. Robinson was President of
Adria Laboratories, Erbamont's North American Subsidiary. He also was employed
in various executive positions for more than 10 years by Abbott Laboratories,
most recently as Regional Director of Abbott Europe. Mr. Robinson received his
B.A. in political science and history from MacQuaire University and his M.B.A.
from the University of South Wales, Australia. Mr. Robinson is a Director of the
Cancer Center Foundation of the University of California at San Diego, the
California Healthcare Institute (CHI), Neurocrine Biosciences Inc., a public
biotechnology company, as well as several private health care companies.

LLOYD E. FLANDERS, PH.D. joined Ligand in September 1992 as Vice President,
R&D Planning, Administration, Project Management, became Vice President,
Pre-Clinical Development and R&D Administration in August 1993 and became Senior
Vice President, Pre-Clinical Development and R&D Administration in March 1995.
Prior to joining Ligand, Dr. Flanders was Vice President, New Product
Development -- Cardiovascular Projects at Parke-Davis Research Division of the
Warner-Lambert Company where he also previously served as Director, Research
Planning and Administrative Services. From 1971 to 1985, he served in various
positions with G.D. Searle and Company, including Director, Department of
Project Management. Dr. Flanders received a Ph.D. in comparative biochemistry
and biophysics from University of California, Davis, an M.B.A. from Lake Forest
College and a B.S. in biology from DePauw University.

ANDRES NEGRO-VILAR, M.D., PH.D. joined Ligand in September 1996 as Senior
Vice President, Research, and Chief Scientific Officer. Prior to joining Ligand,
Dr. Negro-Vilar was Vice President of Research and Head of the Women's Health
Research Institute for Wyeth-Ayerst Laboratories, a division of American Home
Products, from 1993 to 1996. From 1983 to 1993, Dr. Negro-Vilar served at the
National Institute of Environmental Health Sciences of the National Institutes
of Health as the Director of Clinical Programs and Chief of the Laboratory of
Molecular and Integrative Neurosciences. Dr. Negro-Vilar received a Ph.D. in
physiology from University of Sao Paulo, Brazil, an M.D. from
University of Buenos Aires, Argentina, and a B.S. in science from Belgrano
College.

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<PAGE> 51

STEVEN D. REICH, M.D. joined Ligand in December 1995 as the Senior Vice
President, Clinical Research. Prior to joining Ligand, Dr. Reich was at the
clinical contract research organization PAREXEL International Corporation, from
1987 to 1995, where he served as Senior Vice President, Medical Affairs
responsible for worldwide medical and clinical affairs services including
clinical trials management, medical consulting and medical writing. From 1986 to
1987, Dr. Reich served as worldwide Medical Research Director of Biogen, Inc.
("Biogen"), and held various positions at Biogen from 1983 to 1986. Earlier in
his career Dr. Reich served as Associate Director of Clinical Cancer Research
for Bristol Laboratories from 1978 to 1979. He is a Board certified Medical
Oncologist and has held academic positions as a clinical pharmacologist at
Northwestern University, SUNY-Upstate Medical School, and University of
Massachusetts Medical Center. Dr. Reich received an M.D. from the New Jersey
College of Medicine and an A.B. from Princeton University.

WILLIAM L. RESPESS, J.D., PH.D. joined Ligand in December 1988 as Vice
President and General Counsel, became Senior Vice President and General Counsel
in August 1993 and assumed responsibility for Government Affairs in March 1995.
Prior to joining Ligand, Dr. Respess was Vice President and General Counsel at
Gen-Probe, Inc., a biotechnology company, from 1987 to 1988. From 1983 to 1986,
he served as Vice President and General Counsel at Hybritech, Inc., a
biotechnology company. From 1974 to 1983, he was an attorney with the patent law
firm of Lyon & Lyon of Los Angeles, serving as Partner from 1980 to 1983. Dr.
Respess received a J.D. from George Washington University, a Ph.D. in organic
chemistry from the Massachusetts Institute of Technology and a B.S. in chemistry
from the Virginia Military Institute.

GEORGE M. GILL, M.D. joined Ligand in September 1992 as Vice President,
Clinical Research and became Vice President, Medical Affairs in January 1996.
Prior to joining Ligand, Dr. Gill was Senior Director, Clinical Research at ICI
Pharmaceutical Research and Development where he also served as Director of
Clinical Research, Clinical and Medical Affairs from 1990 to 1992. From 1984 to
1990, Dr. Gill served in various positions at Bristol-Myers Company (now
Bristol-Myers Squibb Company), including Vice President, Worldwide Regulatory
Affairs. Dr. Gill received an M.D. from the University of Pennsylvania and a
B.S. in chemistry from Dickinson College and is Board certified in pediatrics.

HOWARD T. HOLDEN, PH.D. joined Ligand in September 1992 as Vice President,
Regulatory Affairs and Compliance. Prior to joining Ligand, Dr. Holden was
Senior Director, Worldwide Regulatory Affairs at Parke-Davis Pharmaceutical
Research Division of the Warner-Lambert Company. From 1986 to 1988, Dr. Holden
served as Director, Regulatory Affairs and Compliance at Centocor Inc., a
pharmaceutical company. Dr. Holden received a Ph.D. in microbiology from the
University of Miami and a B.A. in zoology from Drew University.

PAUL V. MAIER joined Ligand in October 1992 as Vice President and Chief
Financial Officer. Prior to joining Ligand, Mr. Maier served as Vice President,
Finance at DFS West, a division of DFS Group, L.P., a private multinational
retailer. From February 1990 to October 1990, Mr. Maier served as Vice President
and Treasurer of ICN Pharmaceuticals, Inc. Mr. Maier held various positions in
finance and administration at SPI Pharmaceuticals, Inc., a publicly held
subsidiary of ICN Pharmaceuticals Group, from 1984 to 1988, including Vice
President, Finance from February 1984 to February 1987. Mr. Maier received an
M.B.A. from Harvard Graduate School of Business and a B.S. from Pennsylvania
State University.

HENRY F. BLISSENBACH has served as a Director since May 1995 and currently
serves as a member of Ligand's Compensation Committee. Mr. Blissenbach joined
Diversified Pharmaceutical Services, a subsidiary company of SmithKline Beecham,
in August 1986 and has served as President since March 1993. He earned his
Doctor of Pharmacy (Pharm.D.) degree at the University of Minnesota, College of
Pharmacy. He has held an academic appointment in the College of Pharmacy,
University of Minnesota, since 1981. He has vast experience in managed health
care, and has served in numerous advisory capacities with pharmaceutical
manufacturers and managed care entities for many years. Dr. Blissenbach
currently serves on the Board of Directors for Chronimed, Inc.

ALEXANDER D. CROSS, PH.D. has served as a Director of Ligand since March
1991 and currently serves as a member of Ligand's Audit Committee. Dr. Cross has
been an independent consultant in the fields of pharmaceuticals and
biotechnology since January 1986. Dr. Cross was President and Chief Executive
Officer of Zoecon Corporation, a biotechnology company, from April 1983 to
December 1985, and Executive Vice President and Chief Operating Officer from
1979 to 1983. Dr. Cross currently serves as Chairman of the Board

51
<PAGE> 52

of Directors and Chief Executive Officer for Cytopharm, Inc. He is a member of
the Boards of Directors of Failure Group, Inc. and Myelos Neurosciences Corp.

JOHN GROOM has served as a Director since May 1995 and currently serves as
a member of Ligand's Audit and Compensation Committees. Mr. Groom has acted as
President, Chief Executive Officer, and a director on the Board of Directors of
Athena Neurosciences, Inc. ("Athena") since 1987. Following the merger of Athena
with Elan Corporation, plc ("Elan"), Mr. Groom has additionally been appointed a
Director and Chief Operating Officer of Elan. From 1960 until 1985, Mr. Groom
was employed by Smith Kline & French Laboratories ("SK&F"), the pharmaceutical
division of the then SmithKline Beecham Corporation. He held a number of
positions at SK&F including President of SK&F International from 1980 to 1985.
Mr. Groom also serves as a director on the Board of Directors of IDEC
Pharmaceuticals Corporation, a biotechnology company, and the California
Healthcare Institute and is a public trustee on the Board of Trustees of the
American Academy of Neurology Education and Research Foundation. Mr. Groom is
Fellow of the Association of Certified Accountants (UK).

IRVING S. JOHNSON, PH.D. has served as a Director of Ligand since March
1989. Dr. Johnson is currently an independent consultant in biomedical research.
From 1953 until his retirement in November 1988, Dr. Johnson held various
positions with Eli Lilly & Company, a pharmaceutical company, including Vice
President of Research from 1973 until 1988. He has served on numerous advisory
committees of the National Institute of Health including the Recombinant DNA
Advisory Committee and was the recipient of the First Annual Congressional Award
in Science and Technology. Dr. Johnson is a member of the Board of Directors of
Agouron Pharmaceuticals, Inc. and Allelix Biopharmaceuticals, both biotechnology
companies, and was a member of the Board of Directors of Glycomed from 1990 to
1994 prior to its merger with Ligand. He also serves on the Scientific Advisory
Board of Ligand and other companies.

WILLIAM C. SHEPHERD has served as a Director of Ligand since July 1992. Mr.
Shepherd has been President and Chief Executive of specialty health care company
Allergan since January 1992, before assuming the additional title of Chairman in
January 1996. He has held many other executive positions at Allergan during the
past 30 years, including President of Allergan U.S., Senior Vice President, U.S.
Operations, and Chief Operating Officer. Mr. Shepherd has been a Director of
Allergan since 1984.

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<PAGE> 53

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the ownership
of the Common Stock as of August 31, 1996, and as adjusted to reflect the sale
of the shares of the Common Stock offered hereby by the Company, by (i) all
those known by the Company to be beneficial owners of more than five percent of
its outstanding Common Stock, (ii) each director and the five most highly
compensated executive officers of the Company and (iii) all executive officers
and directors of the Company as a group. "Number of Shares Beneficially Owned"
does not include warrants received in the ALRT Offering, which are not currently
exercisable.

<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING SHARES(2)
---------------------
NUMBER OF SHARES BEFORE AFTER
BENEFICIAL OWNER BENEFICIALLY OWNED(1) OFFERING OFFERING
- --------------------------------------------------------- --------------------- -------- --------
<S> <C> <C> <C>
Allergan Pharmaceuticals (Ireland) Ltd., Inc.(3)......... 3,411,873 12.0% 10.9%
David E. Robinson(4)..................................... 382,343 1.3 1.2
Henry F. Blissenbach(5).................................. 16,237 * *
Alexander D. Cross(6).................................... 33,911 * *
John Groom(7)............................................ 16,237 * *
Irving S. Johnson(7)..................................... 39,137 * *
William C. Shepherd(8)................................... 3,428,110 12.0 11.0
Robert B. Stein(9)....................................... 198,042 * *
William L. Respess(10)................................... 250,575 * *
Paul V. Maier(11)........................................ 115,057 * *
Lloyd E. Flanders(12).................................... 146,770 * *
All directors and executive officers as a group
(14 persons)(13)....................................... 4,885,078 16.6 15.2
</TABLE>

- ---------------

* Less than 1%

(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them, subject to community
property laws, where applicable. Share ownership in each case includes
shares issuable upon exercise of certain outstanding options and warrants
as described in the footnotes below.
(2) Percentage of ownership is based on 28,493,277 shares of Common Stock
outstanding on August 31, 1996 and is calculated pursuant to Rule
13d-3(d)(1) under the Exchange Act.
(3) Allergan Ireland's address is Castlebar Road, Westport, County Mayo,
Ireland.
(4) Includes 141,643 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days.
(5) Includes 16,237 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days.
(6) Includes 16,237 shares of Common Stock issuable upon the exercise of
options and 149 shares of Common Stock issuable upon the exercise of
warrants owned beneficially by Mr. Cross or his successor Trustee, U.A.
dated July 8, 1992.
(7) Includes 16,237 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days.
(8) Includes 3,411,873 shares owned beneficially by Allergan Ireland. Mr.
Shepherd is the Chairman, President and Chief Executive Officer of
Allergan, the parent company of Allergan Ireland and 16,237 shares of
Common Stock issuable upon the exercise of options that are exercisable
within 60 days. Mr. Shepherd, a director of Ligand, may be deemed to be the
beneficial owner of the shares owned beneficially by Allergan Ireland as
that term is defined under the Exchange Act. Mr. Shepherd disclaims
beneficial ownership of the shares owned beneficially by Allergan Ireland.
Mr. Shepherd's address is 9393 Towne Centre Drive, San Diego, California
92121.
(9) Includes 89,214 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days. Dr. Stein served as Senior
Vice President, Chief Scientific Officer until August 1996 and is no longer
employed by the Company.
(10) Includes 129,249 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days.
(11) Includes 111,156 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days.
(12) Includes 146,770 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days.
(13) Includes 952,255 shares of Common Stock issuable upon the exercise of
options and warrants held by certain officers and directors of Ligand that
are exercisable within 60 days.

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<PAGE> 54

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of Ligand consists of 80,000,000 shares of
Common Stock, $0.001 par value per share, and 5,000,000 shares of Preferred
Stock, $0.001 par value per share ("Preferred Stock"). On November 24, 1994,
each share of Ligand Class A Common Stock was automatically converted into 1.33
shares of Ligand Class B Common Stock, which was then designated Common Stock.

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding Preferred Stock, holders
of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors of Ligand out of funds legally available. See
"Price Range of Common Stock" and "Dividend Policy." In the event of
liquidation, dissolution or winding up of Ligand, holders of Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preference of any outstanding Preferred Stock. Holders of
Common Stock have no preemptive rights and no right to cumulate votes in the
election of directors. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and nonassessable.

At June 30, 1996, there were 28,110,700 shares of Common Stock outstanding
and held of record by approximately 950 stockholders.

PREFERRED STOCK

The Board of Directors of Ligand has the authority to issue the Preferred
Stock in one or more series and to fix the designation, powers, preferences,
rights, qualifications, limitations and restrictions of the shares of each such
series, including the dividend rights, dividend rate, conversion rights, voting
rights, rights and terms of redemption (including sinking fund provisions),
liquidation preferences and the number of shares constituting any such series,
without any further vote or action by the stockholders. The rights and
preferences of Preferred Stock may in all respects be superior and prior to the
rights of the Common Stock. The issuance of the Preferred Stock could decrease
the amount of earnings and assets available for distribution to holders of
Common Stock or adversely affect the rights and powers, including voting rights,
of the holders of the Common Stock and could have the effect of delaying,
deferring or preventing a change in control of Ligand.

In connection with the adoption of the Shareholder Rights Plan, the
Company's Board of Directors designated 80,000 shares of Series A Participating
Preferred Stock, none of which are outstanding as of the date of this
Prospectus.

WARRANTS TO PURCHASE COMMON STOCK

At June 30, 1996, there were outstanding warrants to purchase 6,671,922
shares of Common Stock, at exercise prices ranging from $1.80 to $22.41 per
share (subject to certain adjustments), of which warrants to purchase 6,500,000
shares of Common Stock were issued in connection with the ALRT Offering at an
exercise price of $7.12 per share. Each warrant contains provisions for the
adjustment of the exercise price and the aggregate number of shares issuable
upon exercise of the warrant under certain circumstances, including stock
dividends, stock splits, reorganizations, reclassifications or consolidations.
Holders of certain of the warrants are entitled to certain registration rights
with respect to the Common Stock issued or issuable upon exercise thereof. See
"-- Registration Rights."

REGISTRATION RIGHTS

As of September 15, 1996, pursuant to the Amended Registration Rights
Agreement, dated as of June 24, 1994, the First Addendum to Amended Registration
Rights Agreement, dated as of July 6, 1994, the Second Addendum to Amended
Registration Rights Agreement, dated as of September 2, 1994, the Third Addendum
to Amended Registration Rights Agreement, dated as of February 3, 1995, the
Fourth Addendum to Amended Registration Rights Agreement, dated as of May 18,
1995, the Fifth Addendum to Amended Registration Rights Agreement, dated as of
June 24, 1994 and effective as of September 11, 1995, the Sixth Addendum to
Amended Registration Rights Agreement, dated as of June 24, 1994 and effective
as of August 31, 1995, and the Seventh Addendum to Amended Registration Rights
Agreement, dated as of November 10, 1995 (collectively, the "Registration Rights
Agreement"), the holders of 6,440,344 shares of Common Stock, warrants to
purchase 135,965 shares of Common Stock and 624,375 shares of Common

54
<PAGE> 55

Stock issuable upon conversion of $6,250,000 in principal amount of outstanding
convertible promissory notes (collectively, the "Holders") are entitled to
certain rights with respect to the registration of the outstanding shares of
Common Stock and the shares of Common Stock issuable upon exercise of such
warrants or conversion of such notes (the "Registrable Securities"). Under the
Registration Rights Agreement, subject to certain exceptions, each Holder of
Registrable Securities may cause Ligand to register such Holder's Registrable
Securities on Form S-3 ("Form S-3 Registration") provided the Registrable
Securities the Holder proposes to sell have an aggregate market value of at
least $500,000. Ligand is not obligated to effect more than two Form S-3
Registrations within any 12-month period. In the case where a Form S-3
Registration is not available to Ligand, a Holder may cause Ligand, subject to
certain exceptions, to use its best efforts to register the Holder's Registrable
Securities for public resale ("Public Resale Registration"), subject to the
underwriter's marketing limitation, if any; provided however, that the shares of
Registrable Securities the Holder proposes to sell must have an anticipated
aggregate offering price of more than $1,500,000 net of underwriting discounts
and commissions. Ligand is not obligated to effect more than one Public Resale
Registration within any six month period. In addition, whenever Ligand proposes
to register any of its securities under the Securities Act (a "Company
Registration"), or any Holder of Registrable Securities causes Ligand to
register its shares, whether in a S-3 Registration or in a Public Resale
Registration, all Holders of Registrable Securities are entitled to notice of
such registration and to include their Registrable Securities in such
registration, subject to certain restrictions, including any proposed
underwriter's right to limit the number of shares included in such registration.
Ligand is required to bear all registration expenses in connection with the
first S-3 Registration and Public Resale Registration requested by a Holder and
all Company Registrations. All selling expenses related to securities registered
by the Holders are required to be paid by the Holders on a pro rata basis.
Ligand is required to indemnify certain of the Holders of such Registrable
Securities and the underwriters for such Holders, if any, under certain
circumstances.

Under certain conditions, registration rights may be transferred to a
transferee of Registrable Securities who, after such transfer, holds at least
50,000 shares of the Registrable Securities. Registration rights granted under
the Registration Rights Agreement may be amended or waived (either generally or
in a particular instance and either retroactively or prospectively) only with
the written consent of Ligand and the Holders of a majority of the Registrable
Securities then outstanding.

Registration rights granted to each Holder under the Registration Rights
Agreement, subject to certain exceptions, terminate on the earlier of December
31, 1999 or the date after which all shares of Registrable Securities held by
such Holder may be immediately sold under Rule 144(k) promulgated pursuant to
the Securities Act.

DELAWARE LAW, THE SHAREHOLDER RIGHTS PLAN AND CERTAIN CHARTER PROVISIONS

Ligand is subject to the provisions of Section 203 of the Delaware General
Corporate Law, an anti-takeover law. In general, the statute prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. For purposes of Section
203, a "business combination" includes a merger, asset sale, or other
transaction resulting in a financial benefit to the interested stockholder, and
an "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.

The holders of Common Stock are currently entitled to one vote for each
share held of record on all matters submitted to a vote of the stockholders
other than the election of directors and are not entitled to demand cumulative
voting. The absence of cumulative voting may have the effect of limiting the
ability of minority stockholders to effect changes in the Board of Directors
and, as a result, may have the effect of deterring hostile takeovers or delaying
or preventing changes in control or management of Ligand.

In September 1996, the Company's Board of Directors adopted the Shareholder
Rights Plan which provides for a dividend distribution of one Right on each
outstanding share of the Common Stock. Each Right entitles stockholders to buy
1/1000th of a share of Ligand Series A Participating Preferred Stock at an
exercise price of $100, subject to adjustment. The Rights will become
exercisable following the tenth day after a person or group announces
acquisition of 20% or more of the Common Stock, or announces commencement

55
<PAGE> 56

of a tender offer, the consummation of which would result in ownership by the
person or group of 20% or more of the Common Stock. The Company will be entitled
to redeem the Rights at $0.01 per Right at any time on or before the earlier of
the tenth day following acquisition by a person or group of 20% or more of the
Common Stock and September 13, 2006.

Ligand's Certificate of Incorporation contains the Fair Price Provision
that requires the approval of the holders of 66 2/3% of Ligand's voting stock as
a condition to a merger or certain other business transactions with, or proposed
by, a holder of 15% or more of Ligand's voting stock (an "Interested
Stockholder"), except in cases where a majority of the Continuing Directors (as
defined below) approve the transaction or certain minimum price criteria and
other procedural requirements are met. A "Continuing Director" is a director
originally elected upon incorporation of Ligand or a director who is not an
Interested Stockholder or affiliated with an Interested Stockholder or whose
nomination or election to the Board of Directors of Ligand is recommended or
approved by a majority of the Continuing Directors. The minimum price criteria
are recommended or approved by a majority of the Continuing Directors. The
minimum price criteria generally require that, in a transaction in which
stockholders are to receive payments, holders of Common Stock must receive a
value equal to the highest price paid by the Interested Stockholder for Common
Stock during the prior two years, and that such payment be made in cash or in
the type of consideration paid by the Interested Stockholder for the greatest
portion of its shares. Ligand's Board of Directors believes that the Fair Price
Provision helps assure that all of Ligand's stockholders will be treated
similarly if certain kinds of business combinations are effected. However, the
Fair Price Provision may make it more difficult to accomplish certain
transactions that are opposed by the incumbent Board of Directors and that could
be beneficial to stockholders.

The Certificate of Incorporation also requires that any action required or
permitted to be taken by stockholders of Ligand must be effected at a duly
called annual or special meeting of stockholders and may not be effected by a
consent in writing. In addition, Ligand's Bylaws provide that special meetings
of the stockholders may be called by the president and shall be called by the
president or secretary at the written request of a majority of the Board of
Directors, or at the written request of stockholders owning at least 10% of
Ligand's capital stock. The Bylaws also provide that the authorized number of
directors may be changed by resolution of the Board of Directors or by the
stockholders at the annual meeting of the stockholders. These provisions may
have the effect of deterring hostile takeovers or delaying changes in control or
management of Ligand.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is Chase Mellon
Shareholder Services L.L.C.

56
<PAGE> 57

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement between
the Company and Bear, Stearns & Co. Inc., Robertson, Stephens & Company LLC and
Hambrecht & Quist LLC, as Representatives of the Underwriters, each of the
Underwriters named below has severally agreed to purchase from the Company, and
the Company has agreed to sell to each Underwriter, the respective number of
shares of Common Stock set forth opposite its name below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
---------------------------------------------------------------------- ---------------
<S> <C>
Bear, Stearns & Co. Inc............................................... 1,154,000
Robertson, Stephens & Company LLC..................................... 692,000
Hambrecht & Quist LLC................................................. 462,000
Cowen & Company....................................................... 55,000
Dillon, Read & Co. Inc................................................ 55,000
Lehman Brothers Inc................................................... 55,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated.................... 55,000
Montgomery Securities................................................. 55,000
UBS Securities LLC.................................................... 55,000
Furman Selz LLC....................................................... 28,000
Pacific Growth Equities, Inc.......................................... 28,000
Raymond James & Associates, Inc....................................... 28,000
Vector Securities International, Inc.................................. 28,000
---------
Total....................................................... 2,750,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to approval of
certain legal matters by counsel and to certain other conditions precedent. If
any of the shares of Common Stock are purchased by the Underwriters pursuant to
the Underwriting Agreement, all such shares of Common Stock (other than shares
of Common Stock covered by the over-allotment option described below) must be so
purchased.

The Underwriters propose to offer the shares of Common Stock directly to
the public at the public offering price set forth on the cover page of this
Prospectus, and at such price less a concession not in excess of $0.42 per share
of Common Stock to certain other dealers who are members of the National
Association of Securities Dealers, Inc. The Underwriters may allow, and such
dealers may reallow, concessions not in excess of $0.10 per share to certain
other dealers. After the public offering, the offering price and other selling
terms may be changed by the Underwriters. The Common Stock is quoted on the
Nasdaq National Market.

The Underwriters have been granted a 30-day over-allotment option by the
Company to purchase up to 412,500 additional shares of Common Stock, exercisable
at the public offering price less the underwriting discount. If the Underwriters
exercise such over-allotment option, then each of the Underwriters will have a
firm commitment, subject to certain conditions, to purchase from the Company
approximately the same percentage thereof as the number of shares of Common
Stock to be purchased by it as shown in the above table bears to the 2,750,000
shares of Common Stock offered hereby. The Underwriters may exercise such option
only to cover over-allotments made in connection with the sale of the shares of
Common Stock offered hereby.

The officers and directors of the Company and certain holders of the Common
Stock have agreed not to offer for sale, sell, distribute, contract to sell,
pledge, grant any option for the sale of or otherwise dispose of or transfer any
of the Common Stock owned by them prior to the expiration of 90 days from the
date of this Prospectus without the prior written consent of Bear, Stearns & Co.
Inc., acting alone, or the Representatives, acting jointly. After such 90-day
period, such persons will be entitled to sell, distribute or otherwise dispose
of the Common Stock that they hold subject to the provisions of applicable
securities laws.

57
<PAGE> 58

The Company has agreed that it will not issue, sell or grant options to
purchase or otherwise dispose of any shares of its Common Stock or securities
convertible into or exchangeable for its Common Stock, except with respect to
options or other rights outstanding on the date of this Prospectus or pursuant
to the Company's stock plans or in connection with transactions involving the
Company and other entities or individuals such as joint ventures, acquisitions,
mergers or similar transactions, for a period of 90 days after the date of this
Prospectus without the prior written consent of the representatives of the
Underwriters.

The Underwriting Agreement provides that the Company will indemnify the
Underwriters and controlling persons, if any, against certain liabilities,
including liabilities under the Securities Act, or will contribute to payments
which the Underwriters or any such controlling persons may be required to make
in respect thereof.

In connection with the Offering, certain Underwriters and selling group
members, if any, who are qualifying registered market makers on the Nasdaq
National Market may engage in passive market making transactions in the Common
Stock on the Nasdaq National Market in accordance with Rule 10b-6A under the
Exchange Act, during the two business day period before commencement of sales in
the Offering. The passive market making transactions must comply with applicable
price and volume limits and be identified as such. In general, a passive market
maker may display its bid at a price not in excess of the highest independent
bid for the security. If all independent bids are lowered below the passive
market maker's bid, however, such bid must then be lowered when certain purchase
limits are exceeded. Net purchases by a passive market maker on each day are
generally limited to a specified percentage of the passive market maker's
average daily trading volume in the Common Stock during a prior period and must
be discontinued when such limit is reached. Passive market making may stabilize
the market price of the Common Stock at a level above that which might otherwise
prevail and, if commenced, may be discontinued at any time.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison LLP, San Diego, California. Certain legal
matters relating to the Offering will be passed upon for the Underwriters by
Skadden, Arps, Slate, Meagher & Flom, Los Angeles, California.

EXPERTS

The consolidated financial statements of Ligand Pharmaceuticals
Incorporated at December 31, 1994 and 1995, and for each of the three years in
the period ended December 31, 1995, appearing in this Prospectus and
Registration Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon, appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended,
with respect to the Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement and to the exhibits and schedules thereto. Statements
contained in this Prospectus regarding the contents of any contract or other
document are not necessarily complete, and in each instance reference is made to
the copy of such contract or document filed as an exhibit to the Registration
Statement or the documents incorporated into the Prospectus by reference, each
such statement being qualified in all respects by such reference. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected without charge at the principal office of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies of all or any part thereof may
be obtained from such office upon payment of the prescribed fees. In addition,
the Commission maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The Common Stock is traded on the Nasdaq National Market, and copies
of such materials can also be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.

58
<PAGE> 59

(This page intentionally left blank)

59
<PAGE> 60

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996
(unaudited)......................................................................... F-3
Consolidated Statements of Operations for each of the three years in the period ended
December 31, 1995 and for the six months ended June 30, 1995 (unaudited) and June
30, 1996 (unaudited)................................................................ F-4
Consolidated Statements of Stockholders' Equity for each of the three years in the
period ended December 31, 1995 and for the six months ended June 30, 1996
(unaudited)......................................................................... F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 1995 and for the six months ended June 30, 1995 (unaudited) and June
30, 1996 (unaudited)................................................................ F-7
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>

F-1
<PAGE> 61

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Ligand Pharmaceuticals Incorporated

We have audited the accompanying consolidated balance sheets of Ligand
Pharmaceuticals Incorporated as of December 31, 1994 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Ligand
Pharmaceuticals Incorporated at December 31, 1994 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.

ERNST & YOUNG LLP

San Diego, California
January 19, 1996

F-2
<PAGE> 62

LIGAND PHARMACEUTICALS INCORPORATED

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JUNE 30,
1994 1995 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 7,627,894 $ 15,962,477 $ 11,227,388
Short-term investments.......................... 30,775,300 54,181,893 45,473,363
Receivable from a related party................. 1,158,401 2,286,117 1,978,571
Other current assets............................ 2,081,307 577,098 783,528
------------ ------------- -------------
Total current assets....................... 41,642,902 73,007,585 59,462,850
Restricted short-term investments.................. -- 6,758,586 3,746,326
Property and equipment, net........................ 3,863,413 12,272,010 11,921,743
Notes receivable from officers and employees....... 623,659 485,355 535,868
Other assets....................................... 565,888 1,070,079 1,006,554
------------ ------------- -------------
$ 46,695,862 $ 93,593,615 $ 76,673,341
============ ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 2,258,337 $ 3,939,896 $ 2,425,201
Accrued liabilities............................. 2,494,493 6,705,495 5,636,054
Deferred revenue................................ 1,165,620 2,607,573 2,013,925
Current portion of obligations under capital
leases........................................ 1,335,192 2,405,686 2,550,509
Deficit in joint venture........................ 822,256 -- --
------------ ------------- -------------
Total current liabilities.................. 8,075,898 15,658,650 12,625,689
Long-term obligations under capital leases......... 2,284,861 8,585,485 8,713,804
Convertible subordinated debentures................ -- 31,278,752 32,615,984
Convertible note................................... 10,000,000 10,000,000 10,000,000
Commitments
Stockholders' equity :
Convertible preferred stock, $0.001 par value,
5,000,000 shares authorized; none issued...... -- -- --
Common stock, $0.001 par value; 80,000,000
shares authorized, 17,954,064 shares,
27,800,597 shares and 28,146,386 shares issued
at December 31, 1994 and 1995 and June 30,
1996, respectively............................ 17,954 27,800 28,147
Paid-in capital................................. 104,683,368 173,450,517 175,101,850
Warrant subscription receivable................. -- (4,524,387) (3,717,514)
Adjustment for unrealized gains (losses) on
available-for-sale securities................. (726,820) 217,469 (265,553)
Accumulated deficit............................. (76,108,281) (140,280,514) (157,400,801)
Deferred compensation and consulting fees....... (1,529,538) (818,568) (564,895)
------------ ------------- -------------
26,336,683 28,072,317 13,181,234
Less treasury stock, at cost.................... (1,580) (1,589) (463,370)
------------ ------------- -------------
Total stockholders' equity................. 26,335,103 28,070,728 12,717,864
------------ ------------- -------------
$ 46,695,862 $ 93,593,615 $ 76,673,341
============ ============= =============
</TABLE>

See accompanying notes.

F-3
<PAGE> 63

LIGAND PHARMACEUTICALS INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------ ---------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Collaborative research
and development:
Related parties....... $ 9,974,361 $ 8,341,829 $ 11,972,253 $ 4,454,908 $ 7,261,849
Unrelated parties..... 6,137,982 4,893,257 12,423,677 5,476,188 9,878,893
Other.................... 150,044 73,597 120,103 36,300 117,601
------------ ------------ ------------ ------------ ------------
16,262,387 13,308,683 24,516,033 9,967,396 17,258,343
Costs and expenses:
Research and
development........... 24,301,128 27,205,309 41,635,765 16,025,726 27,081,848
Selling, general and
administrative........ 6,192,175 6,956,465 8,181,367 3,768,664 5,171,751
Write-off of acquired
in-process
technology............ -- -- 19,564,494 19,869,396 --
ALRT contribution........ -- -- 17,500,000 17,500,000 --
------------ ------------ ------------ ------------ ------------
Total operating
expenses............ 30,493,303 34,161,774 86,881,626 57,163,786 32,253,599
------------ ------------ ------------ ------------ ------------
Loss from operations....... (14,230,916) (20,853,091) (62,365,593) (47,196,390) (14,995,256)
Interest income............ 2,005,074 1,297,882 3,603,378 1,192,195 1,998,794
Interest expense........... (353,820) (679,282) (5,410,018) (1,292,802) (4,123,825)
Equity in operations of
joint venture............ (6,878,779) (6,844,740) -- -- --
------------ ------------ ------------ ------------ ------------
Net loss................... $(19,458,441) $(27,079,231) $(64,172,233) $(47,296,997) $(17,120,287)
============ ============ ============ ============ ============
Net loss per share......... $ (1.19) $ (1.57) $ (2.70) $ (2.33) $ (.61)
============ ============ ============ ============ ============
Shares used in computing
loss per share........... 16,356,656 17,240,535 23,791,542 20,271,040 27,990,368
============ ============ ============ ============ ============
</TABLE>

See accompanying notes.

F-4
<PAGE> 64

LIGAND PHARMACEUTICALS INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
-------------------- -------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- ------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992....................... 6,780,683 $ 6,781 7,404,546 $7,405 $ 89,525,727
Issuance of Common Stock........................... 119,212 119 300,946 301 4,195,505
Amortization of deferred compensation and
consulting
fees............................................. -- -- -- -- --
Issuance of Common Stock for services rendered..... 5,000 5 15,000 15 431,710
Purchases of treasury stock........................ -- -- -- -- --
Retirement of treasury stock....................... (32,739) (33) (98,217) (99) (4,629)
Net loss........................................... -- -- -- -- --
--------- -------- ---------- ------- ------------
Balance at December 31, 1993....................... 6,872,156 6,872 7,622,275 7,622 94,148,313
Issuance of Common Stock........................... 885,463 885 14,156 14 10,537,616
Amortization of deferred compensation and
consulting
fees............................................. -- -- -- -- --
Cumulative effect of adjustment for unrealized
losses on available-for-sale securities.......... -- -- -- -- --
Adjustment for unrealized losses on
available-for-sale securities.................... -- -- -- -- --
Purchase of treasury stock......................... -- -- -- -- --
Conversion of Class A Common Stock to Class B
Common Stock..................................... (7,757,619) (7,757) 10,317,633 10,318 (2,561)
Net loss........................................... -- -- -- -- --
--------- -------- ---------- ------- ------------
Balance at December 31, 1994....................... -- -- 17,954,064 17,954 104,683,368
Issuance of Common Stock........................... -- -- 2,903,622 2,903 20,965,584
Issuance of Common Stock for merger net of
transaction costs of $1,235,000.................. -- -- 6,942,911 6,943 41,951,565
Amortization of deferred compensation and
consulting
fees............................................. -- -- -- -- --
Adjustment to unrealized gain (losses) on available
for sale securities.............................. -- -- -- -- --
Purchase of treasury stock......................... -- -- -- -- --
Warrant subscription receivable.................... -- -- -- -- 5,850,000
Cash received from ALRT and applied to warrant
subscription receivable.......................... -- -- -- -- --
Net loss........................................... -- -- -- -- --
--------- -------- ---------- ------- ------------
Balance at December 31, 1995....................... -- -- 27,800,597 27,800 173,450,517
Issuance of Common Stock (unaudited)............... -- -- 345,789 347 1,651,333
Amortization of deferred compensation and
consulting
fees (unaudited)................................. -- -- -- -- --
Adjustment for unrealized gain (losses) on
available-for-sale securities (unaudited)........ -- -- -- -- --
Purchase of treasury stock (unaudited)............. -- -- -- -- --
Receipt of Common Stock for milestone revenues
(unaudited)...................................... -- -- -- -- --
Cash received from ALRT and applied to subscription
receivable (unaudited)........................... -- -- -- -- --
Net loss (unaudited)............................... -- -- -- -- --
--------- -------- ---------- ------- ------------
Balance at June 30, 1996 (unaudited)............... -- $ -- 28,146,386 $28,147 $175,101,850
========= ======== ========== ======= ============
</TABLE>

See accompanying notes.

F-5
<PAGE> 65

LIGAND PHARMACEUTICALS INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADJUSTMENTS FOR
UNREALIZED GAINS
(LOSSES) ON DEFERRED
AVAILABLE- COMPENSATION WARRANT TREASURY STOCK TOTAL
FOR-SALE ACCUMULATED AND CONSULTING SUBSCRIPTION ---------------------- STOCKHOLDERS'
SECURITIES DEFICIT FEES RECEIVABLE SHARES AMOUNT EQUITY
---------------- ------------- -------------- ----------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ (29,570,609) $ (2,715,298) $ -- (126,826) $(4,474) $57,249,532
-- -- -- -- -- -- 4,195,925
-- -- 692,459 -- -- -- 692,459
-- -- (175,480) -- -- -- 256,250
-- -- -- -- (7,914) (1,620) (1,620)
-- -- -- -- 130,956 4,761 --
-- (19,458,441) -- -- -- -- (19,458,441)
--------- ------------- ----------- ----------- -------- ------- ------------
-- (49,029,050) (2,198,319) -- (3,784) (1,333) 42,934,105
-- -- -- -- -- -- 10,538,515
-- -- 668,781 -- -- -- 668,781
(111,921) -- -- -- -- -- (111,921)
(614,899) -- -- -- -- -- (614,899)
-- -- -- -- (1,168) (247) (247)
-- -- -- -- -- -- --
-- (27,079,231) -- -- -- -- (27,079,231)
--------- ------------- ----------- ----------- -------- ------- ------------
(726,820) (76,108,281) (1,529,538) -- (4,952) (1,580) 26,335,103
-- -- -- -- -- -- 20,968,487
-- -- -- -- -- -- 41,958,508
-- -- 710,970 -- -- -- 710,970
944,289 -- -- -- -- -- 944,289
-- -- -- -- (34) (9) (9)
-- -- -- (5,850,000) -- -- --
-- -- -- 1,325,613 -- -- 1,325,613
-- (64,172,233) -- -- -- -- (64,172,233)
--------- ------------- ----------- ----------- -------- ------- ------------
217,469 (140,280,514) (818,568) (4,524,387) (4,986) (1,589) 28,070,728
-- -- -- -- -- -- 1,651,680
-- -- 253,673 -- -- -- 253,673
(483,022) -- -- -- -- -- (483,022)
-- -- -- -- (2,417) (23,565) (23,565)
-- -- -- -- (28,283) (438,216) (438,216)
-- -- -- 806,873 -- -- 806,873
-- (17,120,287) -- -- -- -- (17,120,287)
--------- ------------- ----------- ----------- -------- ------- ------------
$ (265,553) $(157,400,801) $ (564,895) $(3,717,514) (35,686) $(463,370) $12,717,864
========= ============= =========== =========== ======== ======= ============
</TABLE>

See accompanying notes.

F-6
<PAGE> 66

LIGAND PHARMACEUTICALS INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------ ---------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss........................................... $(19,458,441) $(27,079,231) $(64,172,233) $(47,296,997) $(17,120,287)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization.................... 1,269,324... 1,536,415 2,687,394 945,235 1,915,622
Equity in operations of joint venture............ 6,878,779... 6,844,740 -- -- --
Amortization of notes receivable from officers
and employees.................................. 199,578..... 264,716 338,819 131,157 129,487
Write-off of in process technology............... -- -- 19,564,494 19,869,396 --
Research and development and consulting fees paid
through issuance of stock...................... 256,250 242,475 -- -- --
Amortization of deferred compensation and
consulting fees................................ 692,459..... 668,781 710,970 364,740 253,673
Accretion of debt discount....................... -- -- 1,653,752 316,520 1,337,232
Receipt of Company stock received for milestone
revenue........................................ -- -- -- -- (438,216)
Change in operating assets and liabilities, net
of Glycomed merger:
Other current assets......................... (530,032) (905,886) 1,626,334 801,496 (206,430)
Receivable from a related party.............. (462,631) 1,432,327 (1,127,716) (363,174) 307,546
Accounts payable and accrued liabilities..... 695,937 2,019,796 379,336 19,714 (2,584,136)
Deferred revenue............................. 49,245 666,375 465,063..... (311,022) (593,648)
----------- ----------- ----------- ---------- -----------
Net cash used in operating activities.............. (10,409,532) (14,309,492) (37,873,787) (25,522,935) (16,999,157)
INVESTING ACTIVITIES:
Purchases of short-term investments................ (68,684,596) (18,336,286) (17,684,078) (1,342,019) (35,127,390)
Proceeds from short-term investments............... 30,922,979 27,546,175 37,204,888 16,560,562 43,352,898
Purchase of property and equipment................. (465,036) (587,331) (174,693) (272,300) (252,404)
Net increase in note receivable from officers and
employees........................................ (552,000) (20,000) (135,000) (110,000) (180,000)
Increases in deposits and other assets............. (27,410) (540,047) (32,897) (210,577) --
Decreases in deposits and other assets............. 58,807 125,615 59,549 31,520 63,525
Investment in joint venture........................ (5,000,000) (7,125,000) (822,256) (814,968) --
Net cash acquired in Glycomed acquisition.......... -- -- 10,225,109 10,225,109 --
----------- ----------- ----------- ---------- -----------
Net cash (used in) provided by investing
activities....................................... (43,747,256) 1,063,126 28,640,622 24,067,327 7,856,629
FINANCING ACTIVITIES:
Principal payments on obligations under capital
leases........................................... (1,049,878) (1,063,618) (1,448,176) (688,820) (1,039,808)
Net change in restricted short-term investment..... -- -- (2,043,241) (1,795,261) 3,012,260
Net proceeds from the issuance of convertible
note............................................. -- 10,000,000 -- -- --
Net proceeds from sale of Common Stock and warrant
receivable....................................... 4,194,305 10,295,793 21,059,165 10,211,859 2,434,987
----------- ----------- ----------- ---------- -----------
Net cash provided by financing activities.......... 3,144,427 19,232,175 17,567,748 7,727,778 4,407,439
----------- ----------- ----------- ---------- -----------
Net (decrease) increase in cash and cash
equivalents...................................... (51,012,361) 5,985,809 8,334,583 6,272,170 (4,735,089)
Cash and cash equivalents at beginning of period... 52,654,446 1,642,085 7,627,894 7,627,894 15,962,477
----------- ----------- ----------- ---------- -----------
Cash and cash equivalents at end of period......... $ 1,642,085 $ 7,627,894 $ 15,962,477 $ 13,900,064 $ 11,227,388
=========== =========== =========== ========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid...................................... $ 353,820 $ 420,948 $ 3,178,041 $ 503,713 $ 2,742,456
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Additions to obligations under capital leases...... $ 2,047,084 $ 1,162,111 $ 8,414,973 $ 2,780,940 $ 1,312,951
Warrant subscription receivable issued with ALRT
offering......................................... $ -- $ -- $ 5,850,000 $ 5,850,000 --
</TABLE>

See accompanying notes.

F-7
<PAGE> 67

LIGAND PHARMACEUTICALS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)

1. ORGANIZATION

Ligand Pharmaceuticals Incorporated, a Delaware corporation (the
"Company"), is a biopharmaceutical company primarily committed to the discovery
and development of new drugs that regulate hormone activated intracellular
receptors and Signal Transducers and Activators of Transcription.

The Company's potential products are in various stages of development.
Substantially all of the Company's revenues to date have been derived from its
research and development agreements with major pharmaceutical collaborators.
Prior to generating product revenues, the Company must complete the development
of its products, including several years of human clinical testing, and receive
regulatory approvals prior to selling these products in the human health care
market. No assurance can be given that the Company's products will be
successfully developed, regulatory approvals will be granted, or patient and
physician acceptance of these products will be achieved. There can be no
assurance that Ligand will successfully commercialize, manufacture or market its
products or ever achieve or sustain product revenues or profitability.

The Company faces those risks associated with companies whose products are
in various stages of development. These risks include, among others, the
Company's need for additional financing to complete its research and development
programs and commercialize its technologies. The Company expects to incur
substantial additional research and development expenses, including continued
increases in personnel and costs related to preclinical testing, clinical trials
and sales and marketing expenses related to the product sales in Ligand
Pharmaceuticals (Canada) Incorporated. The Company intends to seek additional
funding sources of capital and liquidity through collaborative arrangements,
collaborative research or through public or private financing. No assurance can
be given that such financing will be available to the Company when required or
under favorable terms.

The Company believes that patents and other proprietary rights are
important to its business. The Company's policy is to file patent applications
to protect technology, inventions and improvements to its inventions that are
considered important to the development of its business. The patent positions of
pharmaceutical and biotechnology firms, including the Company, are uncertain and
involve complex legal and factual questions for which important legal principles
are largely unresolved.

2. SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
disclosures made in the accompanying notes to the consolidated financial
statements. Actual results could differ from those estimates.

Interim Financial Information

The financial statements at June 30, 1996 and the six months ended June 30,
1995 and 1996 are unaudited. These financial statements reflect all adjustments,
consisting only of normal recurring adjustments

F-8
<PAGE> 68

LIGAND PHARMACEUTICALS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)

which, in the opinion of management, are necessary to fairly present the
financial position as of June 30, 1996, and the results of operations for the
six months ended June 30, 1995 and 1996. The results of operations for the six
months ended June 30, 1996 are not necessarily indicative of the results to be
expected for the year ending December 31, 1996.

Cash, Cash Equivalents and Short-term Investments

Cash and cash equivalents consist primarily of cash, certificates of
deposits, treasury securities and repurchase agreements with original maturities
at the date of acquisition of less than three months.

The Company invests its excess cash principally in United States government
debt securities, investment-grade corporate debt securities and certificates of
deposit. The Company has established guidelines relative to diversification and
maturities that maintain safety and liquidity. These guidelines are periodically
reviewed and modified to take advantage of trends in yields and interest rates.

Common Stock and Net Loss Per Share

On November 24, 1994, each share of the Company's Class A Common Stock
automatically converted into 1.33 shares of Class B Common Stock (which was
thereafter designated "Common Stock"). All references in the accompanying notes
and consolidated financial statements referring to the number of shares and per
share amounts have been retroactively restated to reflect the conversion of the
Company's Class A Common Stock into Common Stock. Net loss per share is computed
using the weighted average number of shares of Common Stock outstanding.

Research and Development Revenues and Expenses

Collaborative research and development revenues are recorded as earned
based on the performance criteria of each contract. Payments received which have
not met the appropriate criteria are recorded as deferred revenue. Research and
development costs are expensed as incurred.

For the years ended December 31, 1993, 1994 and 1995, and for the six
months ended June 30, 1995 and 1996, costs and expenses related to collaborative
research and development agreements were $16.1 million, $13.2 million, $24.4
million, $9.9 million and $17.1 million, respectively.

Property and Equipment

Property and equipment is stated at cost and consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Equipment and leasehold improvements.............................. $ 8,290,929 $19,386,920
Less accumulated depreciation and amortization.................... (4,427,516) (7,114,910)
----------- -----------
Net property and equipment........................................ $ 3,863,413 $12,272,010
=========== ===========
</TABLE>

Depreciation of property and equipment is computed using the straight-line
method over the estimated useful lives of the assets which range from five to
fifteen years. Assets acquired pursuant to capital lease arrangements and
leasehold improvements are amortized over the estimated useful lives or the
related lease term, whichever is shorter.

F-9
<PAGE> 69

LIGAND PHARMACEUTICALS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)

New Accounting Standards

In October 1995, the Financial Accounting Standards Board issued SFAS 123,
"Accounting for Stock-Based Compensation", effective for fiscal years beginning
after December 15, 1995. SFAS 123 establishes and encourages the use of the fair
value based method of accounting for stock-based compensation arrangements,
under which compensation cost is determined using the fair value of stock-based
compensation determined as of the grant date, and is recognized over the periods
in which the related services are rendered. The statement also permits companies
to elect to continue using the current implicit value accounting method
specified in Accounting Principles Board (APB) Opinion No. 25 to account for
stock-based compensation. The Company has decided to retain its current implicit
value based method, and will be required to disclose the pro forma effect of
using the fair value based method to account for its stock based compensation.
Pro forma disclosures reflecting the effects of the fair value based method of
accounting are not required for interim reporting purposes.

3. INVESTMENTS

Investments are recorded at estimated fair market value at December 31,
1995 and 1994, and consist principally of United States government debt
securities, investment-grade corporate debt securities and certificates of
deposit with maturities at the date of acquisition of three months or longer.
The Company has classified all of its investments as available-for-sale
securities. The following table summarizes the various investment categories at:

<TABLE>
<CAPTION>
DECEMBER 31, 1994
-------------------------------------------
GROSS
UNREALIZED
GAINS ESTIMATED
COST (LOSSES) FAIR VALUE
----------- ----------- -----------
<S> <C> <C> <C>
Available-for-Sale:
U.S. Government Securities........................ $21,323,125 $ (415,442) $20,907,683
Corporate Obligations............................. 8,700,433 (273,853) 8,426,580
Certificates of Deposit........................... 1,478,562 (37,525) 1,441,037
----------- ----------- -----------
$31,502,120 $ (726,820) $30,775,300
=========== =========== ===========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------
GROSS
UNREALIZED
GAINS ESTIMATED
COST (LOSSES) FAIR VALUE
----------- ----------- -----------
<S> <C> <C> <C>
Available-for-Sale:
U.S. Government Securities........................ $37,073,232 $ 208,798 $37,282,030
Corporate Obligations............................. 14,054,668 13,580 14,068,248
Certificates of Deposit........................... 2,836,524 (4,909) 2,831,615
----------- ----------- -----------
53,964,424 217,469 54,181,893
Certificates of Deposit-restricted................ 4,057,586 -- 4,057,586
U.S. Government Securities-restricted............. 2,701,000 -- 2,701,000
Equity securities................................. 440,000 -- 440,000
----------- ----------- -----------
$61,163,010 $ 217,469 $61,380,479
========== ========== ==========
</TABLE>

F-10
<PAGE> 70

LIGAND PHARMACEUTICALS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)

The realized gains (losses) on sales of available-for-sale securities for
the years ended December 31, 1994 and 1995 have not been material.

The amortized cost and estimated fair value of debt and marketable
securities at December 31, 1994 and 1995, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because the
issuers of the securities may have the right to prepay obligations without
prepayment penalties.

<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995
--------------------------- ---------------------------
ESTIMATED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less............... $13,724,390 $13,450,132 $57,509,400 $57,692,058
Due after one year through three
years............................... 17,686,262 17,236,044 3,117,610 3,155,364
Due after three years................. 91,468 89,124 96,000 93,057
----------- ----------- ----------- -----------
31,502,120 30,775,300 60,723,010 60,940,479
Equity securities..................... -- -- 440,000 440,000
----------- ----------- ----------- -----------
$31,502,120 $30,775,300 $61,163,010 $61,380,479
=========== =========== =========== ===========
</TABLE>

4. MERGER WITH GLYCOMED

In May 1995, Glycomed Incorporated ("Glycomed") was merged into a
wholly-owned subsidiary of the Company ("the Merger"). Glycomed is a
biopharmaceutical company conducting research and development of pharmaceuticals
based on biological activities of complex carbohydrates. The results of
operations of Glycomed are included in the Company's consolidated results of
operations with effect from the date of the Merger. Each outstanding share of
Glycomed Common Stock was converted into 0.5301 shares of the Common Stock,
resulting in the issuance of 6,942,911 shares of the Common Stock to Glycomed
shareholders. The Merger was accounted for using the purchase method of
accounting. The excess of the purchase price over the fair value of the net
assets acquired was allocated to in-process technology and was written off,
resulting in a one time non-cash charge to results of operations of $19.6
million.

Details of the merger are as follows:

<TABLE>
<S> <C>
Total consideration:
Common Stock.................................................. $43,193,560
Convertible debentures assumed................................ 29,625,000
Other liabilities assumed..................................... 6,896,576
-----------
79,715,136
Less:
Fair value of assets acquired, including cash, restricted cash
and short term investments of $46,698,462.................. 49,925,533
Write off of in-process technology............................ 19,564,494
-----------
Net cash acquired............................................. $10,225,109
===========
</TABLE>

F-11
<PAGE> 71

LIGAND PHARMACEUTICALS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)

The following unaudited pro forma data reflects the Company's results of
operations as if the Glycomed acquisition occurred on January 1, 1994.

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------------------
1994 1995
------------ ------------
<S> <C> <C>
Revenues........................................ $ 19,918,683 $ 25,711,477
Net loss........................................ (68,569,065) (51,689,676)
Loss per share.................................. $ (2.84) $ (1.96)
</TABLE>

5. ACCRUED LIABILITIES

Accrued liabilities at December 31, 1994 and 1995 comprised the following:

<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Accrued legal....................................... $ 574,571 $1,463,599
Accrued interest.................................... 258,333 2,291,820
Accrued compensation................................ 725,608 1,099,615
Other............................................... 935,981 1,850,461
---------- ----------
$2,494,493 $6,705,495
========= =========
</TABLE>

6. CONVERTIBLE SUBORDINATED DEBENTURES

In conjunction with the Glycomed acquisition, the Company adjusted the
carrying value of the Glycomed 7 1/2% Convertible Subordinated Debentures Due
2003 (the "Debentures") issued by Glycomed in 1992 in the original principal
amount of $50.0 million to $29.6 million, which was their fair market value at
the date of the Merger. The Company has entered into a supplemental indenture
which provides for conversion of the Debentures into the Common Stock at $26.52
per share. The Debentures pay interest semi-annually at 7.5% per annum and are
due in 2003. The difference between the face value and the fair market value at
the acquisition date will be accreted up to the face value over the remaining
term of the Debentures and will be charged to interest expense. In accordance
with terms of the indenture, a trustee held U.S. Government Securities of
approximately $2.7 million in escrow until January 1, 1996 for future interest
payments. This amount is included in restricted short-term investments at
December 31, 1995.

7. COMMITMENTS

Leases and Equipment Notes Payable

The Company has entered into capital lease and equipment note payable
agreements which require monthly payments through January 2003. Equipment under
these agreements at December 31, 1994 and 1995 and June 30, 1996 was $7.7
million, $16.1 million and $17.4 million, respectively. At December 31, 1994 and
1995 and June 30, 1996 accumulated amortization was $4.2 million, $6.9 million
and $8.7 million, respectively.

The Company has also entered into operating lease agreements for office and
research facilities with varying terms through August 2015. The agreements also
provide for increases in annual rentals based on changes in the Consumer Price
Index or fixed percentage increases varying from three to six percent. One of
these leases requires an irrevocable standby letter of credit of $1.3 million to
secure the performance of the Company's lease obligations.

F-12
<PAGE> 72

LIGAND PHARMACEUTICALS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)

Rent expense for the years ended December 31, 1993, 1994 and 1995 and for
the six months ended June 30, 1995 and 1996 was $1.3 million, $1.7 million, $2.5
million, $1.0 million and $1.5 million, respectively.

At December 31, 1995, annual minimum rental payments due under the
Company's leases and equipment notes payable are as follows:

<TABLE>
<CAPTION>
OBLIGATIONS
UNDER
CAPITAL
LEASES AND
EQUIPMENT
NOTES OPERATING
PAYABLE LEASES
----------- -----------
<S> <C> <C>
1996.............................................. $ 3,200,623 $ 3,084,924
1997.............................................. 2,790,533 2,510,310
1998.............................................. 2,198,540 1,351,027
1999.............................................. 1,871,363 1,391,558
2000.............................................. 1,871,363 1,433,305
Thereafter........................................ 1,683,583 24,691,225
----------- -----------
Total minimum lease payments...................... 13,616,005 $34,462,349
===========
Less amounts representing interest................ 2,624,834
-----------
Present value of minimum lease payments........... 10,991,171
Less current portion.............................. 2,405,686
-----------
$ 8,585,485
===========
</TABLE>

Royalty Agreements

The Company has entered into royalty agreements requiring payments by the
Company ranging from 8% to 12% of net sales and 10% to 20% of license and other
income for certain products developed by the Company. Currently, the Company is
making minimum royalty payments under two agreements. These payments increase
annually to a maximum of $200,000 per year and aggregate $1.5 million through
2001. Royalty expense under the agreements for the years ended December 31,
1993, 1994 and 1995 and for the six months ended June 30, 1995 and 1996 were
$150,000, $160,000, $195,000, $95,000 and $90,000, respectively.

No royalty payments have been received by the Company.

8. STOCKHOLDERS' EQUITY

Warrants

At December 31, 1995 and June 30, 1996, the Company had outstanding
warrants to purchase 6,696,646 shares and 6,671,922 shares, respectively, of
Common Stock, of which 6,500,000 warrants issued in the ALRT offering (see Note
9). The warrants have exercise prices ranging from $1.80 to $22.41 per share and
expire at various dates through June 3, 2000.

Stock Plans

The Company's 1992 stock option/issuance plan incorporates all outstanding
stock options and unvested share issuances under a prior plan along with
amendments in May 1993, 1994, 1995 and 1996 to increase the aggregate shares
available for grant or issuance to 6,428,457 shares of Common Stock. The
employee stock purchase plan provides for the sale of 166,500 shares of Common
Stock. In addition to these plans, on the date of the Merger, all outstanding
in-the-money stock options from Glycomed's stock option plan were converted

F-13
<PAGE> 73

LIGAND PHARMACEUTICALS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)

into options to purchase 470,008 shares of Common Stock. Following is a summary
of the activity for the Company's stock option plans:

<TABLE>
<CAPTION>
SHARES PRICE RANGE
--------- ---------------
<S> <C> <C>
Balance at December 31, 1992..................................... 888,717 $ 0.22 - $ 9.60
Granted........................................................ 546,851 7.30 - 8.64
Exercised...................................................... (1,465) 6.00 - 9.60
Cancelled...................................................... (24,126) 6.00 - 9.60
--------- ---------------
Balance at December 31, 1993..................................... 1,409,977 0.22 - 9.50
Granted........................................................ 1,046,217 8.62 - 11.59
Exercised...................................................... (1,782) 7.70 - 7.90
Cancelled...................................................... (35,508) 0.22 - 10.55
--------- ---------------
Balance at December 31, 1994..................................... 2,418,904 0.22 - 11.59
Merger options granted......................................... 470,008 0.68 - 6.37
Granted........................................................ 1,077,540 4.68 - 10.00
Exercised...................................................... (215,530) 0.29 - 7.97
Cancelled...................................................... (146,816) 3.89 - 11.59
--------- ---------------
Balance at December 31, 1995..................................... 3,604,106 0.22 - 11.59
Granted........................................................ 357,518 12.75 - 16.38
Exercised...................................................... (305,688) 0.22 - 11.59
Cancelled...................................................... (58,070) 3.77 - 12.75
--------- ---------------
Balance at June 30, 1996......................................... 3,597,866 $ 0.22 - $16.38
========= ===============
Options exercisable at December 31, 1995......................... 1,697,031 $ 0.22 - $11.59
========= ===============
Options exercisable at June 30, 1996............................. 1,726,251 $ 0.22 - $11.59
========= ===============
</TABLE>

At December 31, 1995 and June 30, 1996, 381,631 and 874,074 shares,
respectively, were available under the plans for future grants of stock options
or sale of stock.

For certain shares issued under these plans and certain other issuances of
stock, the Company has recognized as compensation and consulting fees expense
the excess of the deemed value for accounting purposes over the aggregate issue
price for such shares. The compensation expense is amortized ratably over the
vesting period of each share. Amortization of deferred compensation and
consulting fees for the years ended December 31, 1993, 1994 and 1995 and for the
six months ended June 30, 1995 and 1996 was $692,000, $669,000, $711,000,
$365,000 and $254,000, respectively.

9. COLLABORATIVE RESEARCH AGREEMENTS

SmithKline Beecham Corporation

In February 1995 the Company entered into a research collaboration with
SmithKline Beecham Corporation ("SB") to discover and characterize small
molecule drugs to control hematopoiesis. Revenues under the agreement are
recognized ratably over the term of the agreement. The revenue recognized under
the agreement for the year ended December 31, 1995 and for the six months ended
June 30, 1995 and 1996 was $2.1 million, $910,000 and $1.2 million,
respectively. SB has agreed to provide the Company up to $21.5 million in
research funding and equity investments. SB made an investment of $5.0 million
in the Company's Common Stock at the inception of the agreement. In November
1995, a second equity investment

F-14
<PAGE> 74

LIGAND PHARMACEUTICALS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)

of $2.5 million in the Company's Common Stock was provided to the Company upon
the achievement of certain milestones. A third installment of equity investment
of $2.5 million will be provided to the Company upon SB's election to expand the
scope of research as defined. The final installment of $2.5 million will be
provided at SB's option as a convertible note or an equity investment if SB
elects to further expand the scope of research as defined.

American Home Products Corporation

In September 1994 the Company entered into a collaborative research
agreement with the Wyeth-Ayerst division of American Home Products ("AHP"), to
discover and develop drugs which interact with the estrogen or progesterone
receptors. AHP agreed to support up to $19.0 million of the Company's research
activities, to purchase $5.0 million of the Company's Common Stock, and to
provide, in three installments, up to $20.0 million in convertible notes over
the life of the agreement. Revenues under the agreement are recognized ratably
over the term of the agreement.

Revenue recognized under the agreement for the years ended December 31,
1994 and 1995 and for the six months ended June 30, 1995 and 1996 was $1.7
million, $4.0 million, $2.0 million and $4.4 million, respectively. The $5.0
million equity investment plus the initial $10.0 million convertible note was
provided to the Company upon inception of the agreement. The second convertible
note installment of $5.0 million will be provided upon the achievement of
certain milestones. In the second quarter of 1995, the Company achieved the
milestone, which allowed the Company to qualify for an additional $5.0 million
convertible note. The Company decided that it will not draw down the note at
this time and the parties have agreed to extend the period for Ligand to draw
down the note up to the 27th month of the agreement. The final convertible note
installment of $5.0 million will be provided if the collaboration agreement is
extended from three to five years. The first two notes are convertible into
Common Stock at $10.01 per share and the final note is convertible at $10.88 per
share. The conversion prices are subject to adjustment if certain dilutive
events occur to outstanding Common Stock. In August 1996 Ligand elected to
convert an aggregate of $3.8 million of the $10.0 million convertible note into
374,626 shares of Common Stock at the $10.01 conversion price. The notes bear
interest at 7.75% payable semi-annually and are due September 1999 unless
converted into the Company's Common Stock. If conversion has not occurred by
September 1999 the Company may extend the due date of the notes to September
2001.

In January 1996 the Company and AHP expanded and amended the research and
development collaboration. The Company received $1.5 million in additional
research revenue from AHP, AHP expanded the research funding by $1.0 million in
years two and three of the agreement, the contract-specified milestone payments
increased, AHP granted rights to the Company to cause the conversion of the
convertible note into Ligand Common Stock, and the parties agreed to extend the
period for Ligand to draw down the loan until December 1996.

Abbott Laboratories

In July 1994 the Company entered into a long-term collaborative research
agreement with Abbott Laboratories ("Abbott") to discover and develop drugs for
the prevention or treatment of inflammatory diseases. Abbott agreed to support
up to $16.0 million of the Company's research activities over a five-year period
in connection with the agreement.

Revenues under the agreement are recognized ratably over the term of the
agreement and for the years ended December 31, 1994 and 1995 and for the six
months ended June 30, 1995 and 1996 revenues were $1.2 million, $2.6 million,
$1.2 million and $1.4 million, respectively. Abbott made an equity investment of

F-15
<PAGE> 75

LIGAND PHARMACEUTICALS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)

$5.0 million by purchasing shares of the Company's Common Stock at the inception
of the agreement and in August 1995, Abbott made another equity investment of
$5.0 million in the Company's Common Stock, which was stipulated in the July
1994 agreement.

Sankyo Company Limited

As part of the Glycomed acquisition, the Company acquired a collaborative
research agreement with Sankyo Company Limited ("Sankyo") which Glycomed had
entered into in June 1994. Under the agreement, Sankyo reimburses a portion of
the Company's research expenses related to the collaboration up to an aggregate
of $8.0 million. Revenues under the agreement are recognized ratably over the
term of the agreement. The revenue recognized under the agreement since the date
of Merger through December 31, 1995 and for the six months ended June 30, 1995
and 1996 was $1.7 million, $311,000 and $1.4 million, respectively. The
agreement also provides that upon being presented with a target compound arising
from the research collaboration by the Company, Sankyo shall notify the Company
whether it wishes to pursue development of the compound. If Sankyo exercises its
option to develop the compound, the Company and Sankyo shall negotiate in good
faith the terms and conditions for an option and license agreement within 180
days of Sankyo's exercise. Sankyo shall pay the Company an initial payment of
$1.0 million within 30 days after execution of each option and license agreement
as a license fee. Sankyo shall make additional payments of license fees as
follows: $1.0 million within 30 days after Sankyo decides to initiate Phase II
clinical trials of the approved compound in Japan; $1.0 million within 30 days
after the filing of an NDA for the approved compound in Japan; and $2.0 million
within 30 days after the date of approval of an NDA for the approved compound in
Japan.

In connection with the collaborative research agreement, in September 1995,
Sankyo purchased $1.5 million of the Company's Common Stock.

Glaxo-Wellcome plc

In September 1992 the Company entered into a five-year collaborative
research agreement with Glaxo-Wellcome plc ("Glaxo") to develop drugs for the
treatment of cardiovascular disease. Under the agreement, Glaxo reimburses a
portion of the Company's research expenses related to the collaboration to a
maximum of approximately $2.0 million annually. Revenues under the agreement are
recognized ratably over the term of the agreement. The revenue recognized under
the agreement for the years ended December 31, 1993, 1994 and 1995 and for the
six months ended June 30, 1995 and 1996 was $1.2 million, $2.0 million, $2.1
million, $1.1 million and $1.1 million, respectively. In connection with the
agreement, Glaxo purchased $7.5 million of the Company's Common Stock. Glaxo
also purchased $2.5 million of the Company's Common Stock as part of the
Company's initial public offering.

Allergan Retinoid Therapeutics, Inc.

On June 30, 1992 the Company entered into agreements with Allergan, Inc.
("Allergan") whereby Allergan-Ligand Joint Venture ("the Joint Venture") was
established to research, develop, license and commercialize products related to
the use of intercellular receptors in the treatment of certain diseases and
disorders.

From inception through December 31, 1994, the Company and Allergan invested
$14.6 million each to provide funding for the Joint Venture's operations.
Following is the summarized balance sheet of the Joint

F-16
<PAGE> 76

LIGAND PHARMACEUTICALS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)

Venture as of December 31, 1994 and the summarized statements of operations for
the years ended December 31, 1993 and 1994, and for the period from July 1, 1992
(inception) through December 31, 1994:

ALLERGAN LIGAND JOINT VENTURE

BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
ASSETS
Cash and cash equivalents.................................... $ 70,356
Interest receivable and other current assets................. --
Property and equipment, net.................................. 2,284
----------
$ 72,640
==========
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable to Ligand................................... $1,158,400
Accounts payable to Allergan................................. 522,362
Other accounts payable and accrued expenses.................. 36,388
Partners' deficit:
The Company................................................ (822,255)
Allergan................................................... (822,255)
----------
$ 72,640
==========
</TABLE>

ALLERGAN LIGAND JOINT VENTURE

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
JULY 1, 1992
YEARS ENDED (INCEPTION)
DECEMBER 31, THROUGH
----------------------------- DECEMBER 31,
1993 1994 1994
------------ ------------ ------------
<S> <C> <C> <C>
Interest income.................................. $ 129,933 $ 4,552 $ 174,867
Contract research expense........................ 13,887,491 13,694,032 31,069,375
------------ ------------ ------------
Net loss....................................... $(13,757,558) $(13,689,480) $(30,894,508)
============ ============ ============
</TABLE>

In December 1994, the Company and Allergan formed Allergan Ligand Retinoid
Therapeutics, Inc. ("ALRT") to continue the research and development activities
previously conducted by the Joint Venture. In June 1995, the Company and ALRT
completed a public offering of 3,250,000 Units with aggregate proceeds of $32.5
million (the "ALRT Offering") and cash contributions by Allergan and Ligand of
$50.0 million and $17.5 million respectively, providing for net proceeds of
$94.3 million for retinoid product research and development. Each Unit consisted
of one share of ALRT's callable common stock and two warrants, each warrant
entitling the holder to purchase one share of the Common Stock of the Company.
Immediately prior to the consummation of the ALRT Offering, Allergan
Pharmaceuticals (Ireland) Ltd., Inc. made a $6.0 million investment in the
Company's Common Stock. The Company's $17.5 million cash contribution resulted
in a one-time charge to operations. The Company also recorded a warrant
subscription receivable and corresponding increase in paid-in capital of $5.9
million (6,500,000 warrants valued at $0.90 per warrant) pursuant to the ALRT
Offering. In 1995 and for the first six months of 1996, $1.3 million and
$806,000, respectively, of the proceeds received from ALRT were applied to the
warrant subscription receivable. In conjunction with the consummation of the
ALRT Offering, all rights held by the Joint Venture were licensed to ALRT. The
Company, Allergan and ALRT entered into certain agreements including a
Technology License Agreement, a Research and Development Agreement, a
Commercialization Agreement, a 1057

F-17
<PAGE> 77

LIGAND PHARMACEUTICALS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)

Purchase Option Agreement, an Asset Purchase Option Agreement and Services and
Administrative Agreements in connection with the funding of ALRT. The Company
has an option to purchase all ALRT callable common stock. If Ligand exercises
the option, Allergan has an option to purchase an undivided 50% interest in all
of the assets of ALRT. After June 3, 1995, cash received from ALRT pursuant to
the agreements was prorated between contract revenue and the warrant
subscription receivable based on their respective values.

Contributions made by the Company to the Joint Venture related to the
period from January 1, 1995, through June 30, 1995 were retroactively reimbursed
by ALRT and previous equity losses recognized for the six month period from the
Joint Venture operations were reversed.

Pfizer Inc

In 1991 the Company entered into a collaborative research and development
and license agreement with Pfizer Inc ("Pfizer") to perform services related to
the joint development of pharmaceuticals for the treatment of osteoporosis. Due
to the early success in meeting research-stage objectives for drug candidates,
the two companies phased out the ongoing research collaboration by July 1, 1994.
The Company received and recorded $4.9 million of revenue for the year ended
December 31, 1993. In connection with the collaborative research agreement,
Pfizer purchased $7.5 million of Common Stock.

In December 1994, Ligand filed suit against Pfizer in the Superior Court of
California in San Diego County for breach of contract and for a declaration of
future rights as they relate to droloxifene, a compound upon which Ligand
performed work at Pfizer's request during a collaboration between Pfizer and
Ligand to develop drugs in the field of osteoporosis. Droloxifene is an estrogen
antagonist/partial agonist with potential indications in the treatment of
osteoporosis and breast cancer as well as other applications. Ligand and Pfizer
entered into a settlement agreement with respect to the lawsuit in April 1996.
Under the terms of the settlement agreement, Ligand is entitled to receive
milestone payments if Pfizer continues development and royalties if Pfizer
commercializes droloxifene. At the option of either party, milestone and royalty
payments owed Ligand can be satisfied by Pfizer transferring to Ligand shares of
Common Stock at an exchange ratio of $12.375 per share. To date, Ligand has
received approximately $1.3 million in milestone payments from Pfizer as a
result of the continued development of droloxifene. These milestones were paid
in the form of an aggregate of 101,011 shares of Common Stock, which were
subsequently retired from treasury stock in September 1996. According to recent
announcements by Pfizer, droloxifene has entered Phase II clinical trials for
osteoporosis and Phase III clinical trials for breast cancer.

10. LICENSE AGREEMENT

In September 1992, the Company acquired certain licenses and technology
rights from Rockefeller University and New York University in exchange for an
initial cash payment, shares of Common Stock and warrants to purchase Common
Stock of the Company. Under the terms of the agreements the Company acquired
worldwide licensing rights to certain transcription technology developed by
Rockefeller University. The agreements also provide for certain additional
payments if certain milestones are achieved. In connection with these agreements
the Company entered into consulting agreements whereby two scientists received
shares of Common Stock from the Company's restricted stock plan. These shares
were issued at par value and resulted in deferred consulting fees of $2.2
million which are being recognized over the five-year vesting period.

F-18
<PAGE> 78

LIGAND PHARMACEUTICALS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)

11. NOTES RECEIVABLE FROM OFFICERS AND EMPLOYEES

The Company has advanced funds to certain officers and employees in
connection with various employment agreements. The agreements provide for
forgiveness of the advances over four and five-year periods. If an individual
terminates the relationship with the Company, the unforgiven portion of the
advances and any accrued interest are due and payable upon termination. The
notes are secured by shares of the Company's Common Stock owned by the
individual or second trust deeds on the personal residences of the respective
employees.

12. INCOME TAXES

The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes," in January 1993. SFAS 109 is an asset
and liability approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. The adoption of
SFAS 109 had no impact on 1993 or prior results.

At December 31, 1995, the Company had consolidated federal and combined
California income tax net operating loss carryforwards of approximately $148
million and $16 million, respectively. The difference between the federal and
California tax loss carryforwards is primarily attributable to the
capitalization of research and development expenses for California income tax
purposes and the fifty percent limitation on California loss carryforwards.

The federal and California tax loss carryforwards will begin to expire in
2002 and 1996, respectively, unless previously utilized. The Company also had
consolidated federal and combined California research tax credit carryforwards
of approximately $3.8 million and $2.3 million respectively, which will begin to
expire in 2002 unless previously utilized.

Pursuant to Internal Revenue Code Sections 382 and 383, use of a portion of
net operating loss and credit carryforwards will be limited because of
cumulative changes in ownership of more than 50% which the Company believes will
occur as a result of the sale of Common Stock contemplated by this offering and
which previously occurred within three year periods during 1989 and 1992.
However, the Company does not believe the limitations will have a material
impact upon its ability to utilize these carryforwards. Future sales of Common
Stock may, depending on the timing of such sales, further restrict the
utilization of the carryforward. In addition, use of Glycomed's preacquisition
tax net operating and credit carryforwards will also be limited because the
acquisition by the Company represents a change in ownership of more than 50%.
Such tax net operating losses and credit carryforwards of Glycomed have been
reduced, including the related deferred tax assets.

F-19
<PAGE> 79

LIGAND PHARMACEUTICALS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)

Significant components of the Company's deferred tax assets as of December
31, 1994 and 1995 are shown below. A valuation allowance has been recognized to
fully offset the deferred tax assets as of December 31, 1994 and 1995 as
realization of such assets is uncertain.

<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Deferred tax liability:
Acquired subordinated debt...................... $ -- $ 7,676,000
Deferred tax assets:
Net operating loss carryforwards................ 23,913,000 53,191,000
Research and development credits................ 4,088,000 5,284,000
Capitalized research and development............ 3,841,000 7,556,000
Other -- net.................................... 2,214,000 3,651,000
------------ ------------
Total deferred tax assets......................... 34,056,000 69,682,000
Valuation allowance for deferred tax assets....... (34,056,000) (62,006,000)
------------ ------------
Net deferred tax assets........................... -- 7,676,000
------------ ------------
Net deferred taxes................................ $ -- $ --
============ ============
</TABLE>

13. SUBSEQUENT EVENT

F-20
<PAGE> 80

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NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A
SOLICITATION OF ANY OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information............................ 2
Information Incorporated by Reference............ 2
Prospectus Summary............................... 3
Risk Factors..................................... 6
Special Note Regarding Forward-Looking
Statements..................................... 15
Use of Proceeds.................................. 16
Price Range of Common Stock...................... 17
Dividend Policy.................................. 17
Capitalization................................... 18
Selected Consolidated Financial Data............. 19
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 21
Business......................................... 25
Management....................................... 50
Principal Stockholders........................... 53
Description of Capital Stock..................... 54
Underwriting..................................... 57
Legal Matters.................................... 58
Experts.......................................... 58
Additional Information........................... 58
Index to Consolidated Financial Statements....... F-1
</TABLE>

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2,750,000 SHARES

LOGO

COMMON STOCK

------------------------------
PROSPECTUS
------------------------------
BEAR, STEARNS & CO. INC.

ROBERTSON, STEPHENS & COMPANY

HAMBRECHT & QUIST

OCTOBER 24, 1996

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