UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Mark One
[ X ] Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, l996 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period From _____ to _____. Commission File Number: 0-20720
LIGAND PHARMACEUTICALS INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
Delaware 77-0160744
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
9393 Towne Centre Drive 92121
San Diego, CA (Zip Code)
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (619)535-3900
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No ___
As of April 12, 1996 the registrant had 28,017,136 shares of
Common Stock outstanding.
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LIGAND PHARMACEUTICALS INCORPORATED
QUARTERLY REPORT
FORM 10-Q
TABLE OF CONTENTS
COVER PAGE....................................................................1
TABLE OF
CONTENTS......................................................................2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1996 and December 31, 1995....3
Consolidated Statements of Operations for the three months ended
March 31, l996 and 1995...................................................4
Consolidated Statements of Cash Flows for the three months ended
March 31, l996 and 1995...................................................5
Notes to Consolidated Financial Statements................................6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................8
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings...............................................10
ITEM 2. Changes in Securities............................................*
ITEM 3. Defaults upon Senior Securities..................................*
ITEM 4. Submission of Matters to a Vote of Security Holders..............*
ITEM 5. Other Information................................................*
ITEM 6. Exhibits and Reports on Form 8-K................................10
SIGNATURE....................................................................11
* No information provided due to inapplicability of item.
2
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PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
LIGAND PHARMACEUTICALS INCORPORATED
Consolidated Balance Sheets
(in thousands, except share data)
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 16,503 $ 15,963
Short-term investments
(cost $48,867 at March 31, l996) 48,716 54,182
Receivable from a related party 1,908 2,286
Other current assets 721 577
------------ ------------
Total current assets 67,848 73,008
Restricted short-term investments 3,747 6,759
Property and equipment, net 12,579 12,272
Notes receivable from officers and employees 424 485
Other assets 1,036 1,070
------------ ------------
$ 85,634 $ 93,594
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,657 $ 3,940
Accrued liabilities 5,911 6,705
Deferred revenue 2,533 2,608
Current portion of obligations under
capital leases 2,662 2,406
------------ ------------
Total current liabilities 12,763 15,659
Long-term obligations under capital leases 8,677 8,585
Convertible subordinated debentures 31,947 31,279
Convertible note 10,000 10,000
Stockholders' equity:
Convertible preferred stock,
$.001 par value; 5,000,000 shares authorized;
none issued -- -- -- --
Common stock, $.001 par value;
80,000,000 shares authorized 28,017,136 shares
and 27,800,597 shares issued at March 31, l996
and December 31, 1995, respectively 28 28
Paid-in capital 174,589 173,452
Warrant subscription receivable (4,165) (4,524)
Adjustment for unrealized gains (losses) on
available-for-sale securities (151) 217
Accumulated deficit (147,361) (140,281)
Deferred compensation and consulting fees (691) (819)
------------ ------------
22,249 28,073
Less treasury stock, at cost (2) (2)
------------ ------------
Total stockholders' equity 22,247 28,071
------------ ------------
$ 85,634 $ 93,594
============ ============
<FN>
SEE ACCOMPANYING NOTES.
3
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<TABLE>
LIGAND PHARMACEUTICALS INCORPORATED
Consolidated Statements of Operations
(Unaudited)
(in thousands, except share data)
<CAPTION>
Three Months Ended
March 31,
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Collaborative research and development:
Related parties $ 3,236 $ 2,131
Unrelated parties 5,475 2,483
Other 57 -- --
------------ ------------
8,768 4,614
Costs and expenses:
Research and development 12,270 6,961
Selling, general and administrative 2,618 1,700
------------ ------------
Total operating expenses 14,888 8,661
------------ ------------
Loss from operations (6,120) (4,047)
Interest income 1,097 466
Interest expense (2,057) (367)
Equity in operations of joint venture -- -- (1,805)
------------ ------------
Net loss $ (7,080) $ (5,753)
============ ============
Net loss per share $ (.25) $ (.31)
============ ============
Shares used in computing loss per share 27,916,200 18,346,335
============ ============
<FN>
SEE ACCOMPANYING NOTES.
4
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<TABLE>
LIGAND PHARMACEUTICALS INCORPORATED
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
<CAPTION>
Three Months Ended
March 31,
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (7,080) $ (5,753)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 942 423
Equity in operations of joint venture -- -- 1,805
Amortization of notes receivable
from officers and employees 61 68
Amortization of deferred compensation
and consulting fees 127 182
Accretion of debt discount 669 -- --
Change in operating assets and liabilities:
Other current assets (144) 613
Receivable from a related party 378 444
Accounts payable and accrued liabilities (3,078) (1,209)
Deferred revenue (74) 532
------------ ------------
Net cash used in operating activities (8,199) (2,895)
INVESTING ACTIVITIES
Purchase of short-term investments (23,020) (1,838)
Proceeds from short-term investments 28,118 8,562
Increase in notes receivable from officers and employees -- -- (110)
Increase in deposits and other assets -- -- (369)
Decrease in deposits and other assets 34 43
Purchase of property and equipment (443) (335)
Investment in joint venture -- -- (2,025)
------------ ------------
Net cash provided by investing activities 4,689 3,928
FINANCING ACTIVITIES
Principal payments on obligations under capital
leases and equipment notes payable (459) (346)
Net change in restricted cash 3,011 -- --
Net proceeds from sale of common stock 1,498 4,969
------------ ------------
Net cash provided by financing activities 4,050 4,623
------------ ------------
Net increase in cash and cash equivalents 540 5,656
Cash and cash equivalents at beginning of period 15,963 7,628
------------ ------------
Cash and cash equivalents at end of period $ 16,503 $ 13,284
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 2,520 $ 386
SUPPLEMENTAL SCHEDULE OF
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Additions to obligations under capital leases $ 807 $ -- --
5
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LIGAND PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 1996
1. BASIS OF PRESENTATION
The consolidated financial statements of Ligand Pharmaceuticals
Incorporated (the "Company") for the three months ended March 31, 1996
and 1995 are unaudited. These financial statements reflect all
adjustments, consisting of only normal recurring adjustments which, in
the opinion of management, are necessary to fairly present the
consolidated financial position as of March 31, 1996 and the
consolidated results of operations for the three months ended March
31, 1996 and 1995. The results of operations for the three months
ended March 31, 1996 are not necessarily indicative of the results to
be expected for the year ending December 31, 1996. For more complete
financial information, these financial statements, and the notes
thereto, should be read in conjunction with the consolidated audited
financial statements for the year ended December 31, 1995 included in
the Ligand Pharmaceuticals Incorporated Form 10-K filed with the
Securities and Exchange Commission.
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 APBO No. 25 to account for stock-based
compensation. The Company has elected 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. Disclosure of pro-forma effects of the fair value
method are not required for interim financial statements.
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of", which requires impairment losses to be recorded on long-
lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by
those assets are less than the assets' carrying amount. Statement 121
also addresses the accounting for long-lived assets that are expected
to be disposed of. The Company adopted Statement 121 in the first
quarter of 1996 and, based on current circumstances, the effect of
adoption is immaterial.
2. ALLERGAN LIGAND RETINOID THERAPEUTICS, INC.
On June 30, 1992, the Company entered into agreements with Allergan,
Inc. ("Allergan") whereby the Allergan Ligand Joint Venture (the
"Joint Venture") was established to research, develop, license and
commercialize products related to the use of retinoids in the
treatment of certain diseases and disorders.
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. The
Company and ALRT filed registration statements with the Securities and
Exchange Commission which became effective in May 1995. 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.
3. MERGER WITH GLYCOMED
On May 18, 1995 ("date of Merger"), Glycomed Incorporated ("Glycomed") was
merged into a wholly-owned subsidiary of the Company. The results of
operations of Glycomed are included with the Company's 1996 results of
operations. The merger was accounted for using the purchase method of
accounting.
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4. SUBSEQUENT EVENTS
In December 1994, Ligand filed suit against Pfizer Inc. ("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.
According to recent announcements by Pfizer, droloxifene has entered
phase II clinical trials for osteoporosis and phase III clinical
trials for breast cancer. Effective April 19, 1996, Pfizer and Ligand
announced that they have settled the lawsuit. Under the terms of the
settlement agreement, Ligand will receive certain milestone and
royalty payments upon the successful development and sales of
droloxifene by Pfizer. At the option of either party, milestone and
royalty payments owed Ligand can be satisfied by Pfizer transferring
to Ligand shares of Ligand Common Stock at an exchange ratio of
$12.375 per share.
7
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PART I. FINANCIAL INFORMATION
ITEM 2 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 intracellular receptor and Signal Transducers and
Activators of Transcription 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, establishment of
manufacturing processes and a sales and marketing organization. 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 research arrangements. Some of
these fluctuations may be significant. As of March 31, 1996, the
Company's accumulated deficit was $147 million.
On May 18, 1995 ("date of Merger"), Glycomed Incorporated ("Glycomed") was
merged into a wholly-owned subsidiary of the Company ("the Merger").
The results of operations of Glycomed are included with the Company's
1996 results of operations. The merger was accounted for using the
purchase method of accounting.
In December 1994, the Company and Allergan, Inc. ("Allergan") formed
Allergan Ligand Retinoid Therapeutics, Inc. ("ALRT") to continue the
research and development activities previously conducted by the
Allergan Ligand Joint Venture (the "Joint Venture"). The Company and
ALRT filed registration statements with the Securities and Exchange
Commission which became effective in May 1995. 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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 ("1996"), COMPARED WITH THREE MONTHS
ENDED MARCH 31, 1995 ("1995")
The Company had revenues of $8.8 million for 1996 compared to revenues
of $4.6 million for 1995. The increase in revenues is due to, an
expanded and amended research and development agreement in January
1996, with Wyeth-Ayerst Laboratories, the pharmaceutical division of
American Home Products Corporation ("AHP") originally entered into in
September 1994, a collaborative research agreement with Sankyo Ltd.,
("Sankyo") acquired in the Merger, a full quarter effect of the
collaboration with SmithKline Beecham Corporation ("SB") (which began in
February 1995), and increased revenue from ALRT (the Joint Venture in
1995). Revenues in 1996 were derived from the Company's research and
development agreements with (i) ALRT of $3.2 million, (ii) AHP of $2.9
million, (iii) Abbott Laboratories ("Abbott") of $725,000, (iv)
Sankyo of $703,000, (v) SB of $575,000, (vi) Glaxo Wellcome of
$538,000, and (vii) product sales of Ligand (Canada) in-licensed
products, of $57,000. Revenues in 1995 were derived from the
Company's research and development agreements with (i) the Joint
Venture of $2.1 million, (ii) AHP of $1.0 million, (iii) Glaxo
Wellcome of $606,000, (iv) Abbott of $575,000, and (v) SB of $302,000.
For 1996, research and development expenses increased to $12.3 million
from $7.0 million in 1995. 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 in 1996. Selling, general and administrative
expenses increased to $2.6 million in 1996 from $1.7 million in 1995.
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 $1.1 million in 1996 from $466,000 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 $2.1 million in 1996 from
$367,000 in 1995. The increase was primarily due to the acquisition
of convertible subordinated debentures in the Merger and additional
capital lease obligations used to finance equipment. The 1995 equity
loss in Joint Venture of $1.8 million was the Company's share of the
losses of the Joint Venture prior to the formation of ALRT.
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, convertible notes, product
sales and investment income. From inception,
8
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through March 1996, the Company has raised $120.6 million from sales of
equity securities: $43.0 million from the Company's initial public offering
in November 1992 and an aggregate of $77.6 million from private placements.
As of March 31, 1996, the Company had acquired an aggregate of $16.8
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 twenty
year lease related to the construction of a new laboratory facility,
which was completed and occupied in August 1995. In April 1996, the
Company accepted a proposal to finance future capital equipment up to
$4.0 million.
Working capital decreased to $55.1 million as of March 31, 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 and semi-annual interest payments due on
convertible subordinated debentures. For the same reasons, cash and
cash equivalents, short-term investments, and restricted cash
decreased to $69.0 million at March 31, 1996 from $76.9 million at
December 31, 1995. The Company invests its cash in United States
government and other highly-rated liquid debt investments.
The Company anticipates that its available cash and existing sources
of funding will be adequate to satisfy its capital requirements
through 1998. The Company's future capital requirements will depend
on many factors, including continued 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,
changes in the existing collaborative research relationships, the
ability of the Company to establish development arrangements, the cost
of manufacturing scale-up and effective commercialization activities
and arrangements.
RISKS AND UNCERTAINTIES
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. While Ligand believes that its current collaborators
have sufficient economic motivation to continue their funding and
development efforts under these collaborations, there can be no
assurance that these collaborations will continue or be performed by
the parties or that they will be successful. 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 Canada. The
Company intends to seek additional funding sources of capital and
liquidity through collaborative arrangements, collaborative research
or through public or private financing. There is no assurance such
financing will be available to the Company when required or that such
financing would be available 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.
9
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PART II. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
In December 1994, Ligand filed suit against Pfizer Inc. ("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.
According to recent announcements by Pfizer, droloxifene has entered
phase II clinical trials for osteoporosis and phase III clinical
trials for breast cancer. Effective April 19, 1996, Pfizer and Ligand
announced that they have settled the lawsuit. Under the terms of the
settlement agreement, Ligand will receive certain milestone and
royalty payments upon the successful development and sales of
droloxifene by Pfizer. At the option of either party, milestone and
royalty payments owed Ligand can be satisfied by Pfizer transferring
to Ligand shares of Ligand Common Stock at an exchange ratio of
$12.375 per share.
ITEM 6 (A) EXHIBITS
Exhibit 27.0 Financial Data Schedule.
ITEM 6 (B) REPORTS ON FORMS 8-K
None.
10
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LIGAND PHARMACEUTICALS INCORPORATED
March 31, 1996
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Ligand Pharmaceuticals Incorporated
Date: May 9, 1996 By: Paul V. Maier
------------------------------
Paul V. Maier
Vice President and Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains finanical information extracted from the Condensed
Consolidated Statement of Financial Condition at March 31, 1996 (Unaudited) and
the Condensed Consolidated Statement of Income for the Three Months Ended March
31, 1996 (Unaudited) and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 16,503
<SECURITIES> 48,716
<RECEIVABLES> 1,908
<ALLOWANCES> 0
<INVENTORY> 104
<CURRENT-ASSETS> 67,848
<PP&E> 20,637
<DEPRECIATION> (8,058)
<TOTAL-ASSETS> 85,634
<CURRENT-LIABILITIES> 12,763
<BONDS> 50,624
0
0
<COMMON> 28
<OTHER-SE> 27,228
<TOTAL-LIABILITY-AND-EQUITY> 85,634
<SALES> 57
<TOTAL-REVENUES> 8,711
<CGS> 46
<TOTAL-COSTS> 6,327
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,057)
<INCOME-PRETAX> (7,080)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,080)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,080)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
