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 September 30, 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 September 30, 1996 the registrant had
28,476,394 shares of Common Stock outstanding.
<PAGE>
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 September 30, 1996
and December 31, 1995 3
Consolidated Statements of Operations for the three
and nine months ended September 30, l996 and 1995 4
Consolidated Statements of Cash Flows for the nine
months ended September 30, l996 and 1995 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 13
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 13
SIGNATURE 14
* No information provided due to inapplicability of item.
2
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<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
LIGAND PHARMACEUTICALS INCORPORATED
Consolidated Balance Sheets
(in thousands, except share data)
<CAPTION>
September 30, December 31,
1996 1995
(Unaudited)
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,014 $ 15,963
Short-term investments 38,775 54,182
Receivable from a related party 2,670 2,286
Other current assets 2,407 577
________ __________
Total current assets 50,866 73,008
Restricted short-term investments 3,526 6,759
Property and equipment, net 11,804 12,272
Notes receivable from officers and employees 428 485
Other assets 984 1,070
_________ __________
$ 67,608 $ 93,594
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,734 $ 3,940
Accrued liabilities 4,204 6,705
Deferred revenue 2,486 2,608
Current portion of obligations under
capital leases 2,651 2,406
_________ __________
Total current liabilities 11,075 15,659
Long-term obligations under capital leases 8,542 8,585
Convertible subordinated debentures 33,285 31,279
Convertible note 6,250 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; 28,483,797 shares and
27,800,597 shares issued at September 30,
l996 and December 31, 1995, respectively 28 28
Paid-in capital 177,979 173,452
Warrant subscription receivable (3,104) (4,524)
Adjustment for unrealized gains (losses)
on available-for-sale securities (167) 217
Accumulated deficit (165,814) (140,281)
Deferred compensation and consulting fees (441) (819)
_________ __________
8,481 28,073
Less treasury stock, at cost (7,403 shares) (25) (2)
_________ __________
Total stockholders' equity 8,456 28,071
_________ __________
$ 67,608 $ 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 Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
__________ __________ _________ _________
<S> <C> <C> <C> <C>
Revenues:
Collaborative research and development:
Related parties $ 5,522 $ 3,270 $ 12,784 $ 7,725
Unrelated parties 4,529 3,355 14,407 8,832
Other 43 16 161 52
___________ ___________ __________ ____________
10,094 6,641 27,352 16,609
Costs and expenses:
Research and development 15,093 12,075 42,174 28,101
Selling, general and
administrative 2,106 2,218 7,278 5,987
Write-off of in-process
technology -- -- -- -- -- -- 19,869
ALRT contribution -- -- -- -- -- -- 17,500
__________ __________ _________ _________
Total operating expenses 17,199 14,293 49,452 71,457
__________ ___________ _________ __________
Loss from operations (7,105) (7,652) (22,100) (54,848)
Interest income 730 1,181 2,729 2,373
Interest expense (2,039) (2,040) (6,162) (3,333)
--------- ----------- --------- ----------
Net loss $ (8,414) $ (8,511) $ (25,533) $ (55,808)
========== ========== =========== ==========
Net loss per share $ (.30) $ (.32) $ (.91) $ (2.49)
=========== ========== =========== ==========
Shares used in computing loss
per share 28,236,688 26,897,430 28,073,231 22,451,336
============ ============ ============ ============
<FN>
SEE ACCOMPANYING NOTES.
4
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<TABLE>
LIGAND PHARMACEUTICALS INCORPORATED
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
<CAPTION>
Nine Months Ended
September 30,
1996 1995
___________ __________
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (25,533) $ (55,808)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 2,907 1,693
Amortization of notes receivable from officers
and employees 174 247
Write-off of in process technology -- -- 19,869
Amortization of deferred compensation
and consulting fees 378 547
Amortization of warrant subscription
receivable 1,420 854
Accretion of debt discount 2,006 985
Company stock received for milestone revenue (1,320) -- --
Change in operating assets and liabilities:
Other current assets (1,830) 1,185
Receivable from a related party (384) (181)
Accounts payable and accrued liabilities (4,707) (2,268)
Deferred revenue (122) 315
___________ __________
Net cash used in operating activities (27,011) (32,562)
INVESTING ACTIVITIES
Purchase of short-term investments (37,486) (1,746)
Proceeds from short-term investments 52,508 16,029
Increase in notes receivable from officers
and employees (180) (110)
Payment of notes receivable from officers
and employees 63 -- --
Increase in deposits and other assets (2) (211)
Decrease in deposits and other assets 88 168
Purchase of property and equipment (511) (19)
Investment in joint venture -- -- (822)
Net cash acquired in Glycomed acquisition -- -- 10,225
___________ __________
Net cash provided by investing activities 14,480 23,514
FINANCING ACTIVITIES
Principal payments on obligations under
capital leases (1,726) (1,085)
Net change in restricted cash 3,233 (1,904)
Net proceeds from sale of common stock 2,075 16,618
___________ __________
Net cash provided by financing activities 3,582 13,629
___________ __________
Net increase (decrease) in cash and
cash equivalents (8,949) 4,581
Cash and cash equivalents at beginning
of period 15,963 7,628
___________ __________
Cash and cash equivalents at end of period $ 7,014 $ 12,209
=========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 5,292 $ 2,984
Acquisition of short-term investments
from Glycomed merger -- -- 41,983
Acquisition of restricted cash from
Glycomed merger -- -- 4,715
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Additions to obligations under
capital leases $ 1,928 $ 7,334
Warrant subscription receivable issued
with ALRT offering $ -- -- $ 5,850
Stock issued from Glycomed merger $ -- -- $ 41,959
Conversion of note to common stock $ 3,750 $ -- --
Retirement of treasury stock $ 1,320 $ -- --
5
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LIGAND PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 1996
1. BASIS OF PRESENTATION
The consolidated financial statements of Ligand
Pharmaceuticals Incorporated (the "Company") for the nine
months ended September 30, 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
September 30, 1996 and the consolidated results of
operations for the three and nine months ended September
30, 1996 and 1995. The results of operations for the
periods ended September 30, 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 audited
consolidated 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
("FASB") 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 (ABP) 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 employee stock-
based compensation. Pro forma disclosures reflecting the
effects of the fair value method are not required for
interim reporting purposes.
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 such adoption has had no effect
on the Company's financial position and results of
operations.
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
intracellular receptors 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. In June 1995,
the Company and ALRT completed a public offering of
3,250,000 units (the "Units") with aggregate proceeds of
$32.5 million (the "ALRT Offering") and cash
contributions by Allergan and the Company of $50.0
million and $17.5 million, respectively, providing 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 on June 3, 1995,
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 pursuant to
the ALRT Offering. 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. For the year ended
1995 and for the first nine months of 1996, $1.3 million
and $1.4 million, respectively, of the revenue 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.
6
<PAGE>
3. 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.
Each outstanding share of Glycomed common stock was
converted into 0.5301 shares of the Company's 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 approximately
$20.0 million. The results of operations of Glycomed are
included in the Company's consolidated results of
operations from the date of the Merger.
4. PFIZER INC. LITIGATION
In December 1994, the Company 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 the Company performed
work at Pfizer's request during a collaboration between
Pfizer and the Company 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. The Company and Pfizer entered
into a settlement agreement with respect to the 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 droloxifene. At the option of
either party, milestone and royalty payments owed to the
Company can be satisfied by Pfizer transferring to the
Company shares of the Company's common stock previously
purchased by Pfizer, at an exchange rate 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.
5. CONVERSION OF CONVERTIBLE NOTE
In August 1996, the Company elected to convert an
aggregate of $3.8 million of the $10.0 million
convertible note with Wyeth-Ayerst Laboratories, the
pharmaceutical division of American Home Products
Corporation, into 374,626 shares of common stock at a
conversion price of $10.01 per share.
6. SHAREHOLDER'S RIGHTS PLAN
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 an 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.
7
<PAGE>
7. SUBSEQUENT EVENT
In October 1996, the Company completed a public offering
of 3,162,500 shares of common stock at a price of $12.00
per share, for net proceeds of approximately $35.3
million. The following pro forma condensed consolidated
balance sheet reflects the net proceeds of approximately
$35.3 million from the public offering completed on
October 24, 1996 as if it was completed as of September
30, 1996.
<TABLE>
Condensed Consolidated Balance Sheet
<CAPTION>
As Reported Pro Forma
___________ ___________
<S> <C> <C>
ASSETS
Cash, short-term investments
and restricted cash $ 49,315 $ 84,613
Other assets 18,293 18,293
___________ ___________
$ 67,608 $ 102,906
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities 25,867 25,867
Convertible subordinated
debentures 33,285 33,285
Stockholder equity 8,456 43,754
___________ ___________
$ 67,608 $ 102,906
=========== ===========
</TABLE>
8
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PART I. FINANCIAL INFORMATION
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This quarterly report contains predictions, estimates and
other forward-looking statements that involve a number of
risks and uncertainties, including those discussed below
at "Risks and Uncertainties." While this outlook
represents management's current judgment on the future
direction of the business, such risks and uncertainties
could cause actual results to differ materially from any
future performance suggested below. The Company
undertakes no obligation to release publicly the results
of any revisions to these forward-looking statements to
reflect events or circumstances arising after the date
hereof.
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
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
September 30, 1996, the Company's accumulated deficit was
approximately $165.8 million.
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.
Each outstanding share of Glycomed common stock was
converted into 0.5301 shares of the Company's common
stock, resulting in the issuance of 6,942,911 shares of
the Company's 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
approximately $20.0 million. The results of operations
of Glycomed are included in the Company's consolidated
results of operations from the date of the Merger.
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"). In
June 1995, the Company and ALRT completed a public
offering of 3,250,000 units (the "Units") with aggregate
proceeds of $32.5 million ( the "ALRT Offering") and cash
contributions by Allergan and the Company of $50.0
million and $17.5 million, respectively, providing 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 on June 3, 1995,
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 pursuant to
the ALRT Offering. 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. For the year ended
1995 and for the first nine months of 1996, $1.3 million
and $1.4 million, respectively, of the revenue 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.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 ("1996"), Compared
with Three Months Ended September 30, 1995 ("1995")
The Company had revenues of $10.1 million for 1996
compared to revenues of $6.6 million for 1995. The
increase in revenues is primarily due to increased
revenues from ALRT, milestone revenues from Pfizer Inc.
("Pfizer"), and increased revenues under an expanded and
amended research and development agreement entered into
in January 1996 (which began in September 1994) with
Wyeth-Ayerst Laboratories, the pharmaceutical division of
American Home Products Corporation
9
<PAGE>
("AHP"). Revenues in 1996
were derived from the Company's research and
development agreements with (i) ALRT of $5.5 million,
(ii) AHP of $1.2 million, (iii) Sankyo Company Ltd.
("Sankyo") of $692,000, (iv) SmithKline Beecham
Corporation ("SmithKline Beecham") of $588,000, (v)
Abbott Laboratories ("Abbott") of $540,000, (vi) Glaxo-
Wellcome plc ("Glaxo") of $518,000, as well as from
milestone revenues from Pfizer of $883,000, product sales
of Ligand (Canada) in-licensed products of $43,000 and
revenues from a National Institute of Health ("NIH")
grant of $99,000. Revenues in 1995 were derived from the
Company's research and development agreements with (i)
ALRT of $3.2 million, (ii) AHP of $958,000, (iii) Abbott
of $666,000, (iv) Sankyo of $666,000, (v) SmithKline
Beecham of $576,000, (vi) Glaxo $490,000, and from
product sales of Ligand (Canada) in-licensed products of
$16,000.
For 1996, research and development expenses increased to
$15.1 million from $12.1 million in 1995. These expenses
increased primarily due to expansion of the Company's
clinical and development programs, and related additions
of clinical and development personnel. Selling, general
and administrative expenses decreased to $2.1 million in
1996 from $2.2 million in 1995. The decrease was
primarily due to the reduction of legal expenses in 1996
related to the Pfizer litigation, offset by additions to
personnel to support expanded sales and marketing
activities and development programs. Interest income
decreased to $730,000 in 1996 from $1.2 million in 1995.
The decrease in interest income was a result of a
reduction in cash available for investment due to the
usage of cash to support expanded clinical and
development activities offset by increased research
revenues. Interest expense was $2.0 million in 1996 and
in 1995, and consisted of interest required under
Glycomed's Convertible Subordinated Debentures
("Debentures"), accretion of debt discount under the
Debentures, and capital lease obligations used to finance
equipment.
Nine Months Ended September 30, 1996 ("1996"), Compared
with Nine Months Ended September 30, 1995 ("1995")
The Company had revenues of $27.4 million for 1996
compared to revenues of $16.6 million for 1995. The
increase in revenues is due to increased revenues from
ALRT, milestone revenues from Pfizer, increased revenues
under a new expanded and amended collaborative agreement
previously discussed and a full nine-month effect of the
collaboration with Sankyo (which became effective the
date of the Merger). Revenues in 1996 were derived from
the Company's research and development agreements with
(i) ALRT of $12.8 million, (ii) AHP of $5.6 million,
(iii) Sankyo of $2.1 million, (iv) Abbott of $2.0
million, (v) SmithKline Beecham of $1.8 million, (vi)
Glaxo of $1.6 million, as well as from milestone revenues
from Pfizer of $1.3 million, product sales of Ligand
(Canada) in-licensed products, of $161,000, and revenues
from an NIH Grant of $99,000. Revenues in 1995 were
derived from the Company's research and development
agreements with (i) ALRT of $7.7 million, (ii) AHP of
$3.0 million, (iii) Abbott of $1.8 million, (iv) Glaxo of
$1.6 million, (v) SmithKline Beecham of $1.5 million,
(vi) Sankyo of $978,000 and from products sales of Ligand
(Canada) in-licensed products of $52,000.
For 1996, research and development expenses increased to
$42.2 million from $28.1 million in 1995. These expenses
increased due to expansion of the Company's clinical and
development programs, additions of research, clinical and
development personnel, and inclusion of the cost of
Glycomed's operations for a full nine months in 1996.
Selling, general and administrative expenses increased to
$7.3 million in 1996 from $6.0 million in 1995. The
increase was due to expansion of the Company's sales and
marketing activities and additions to personnel to
support expanded clinical and development programs.
Interest income increased to $2.7 million in 1996 from
$2.4 million in 1995. The increase in interest income was
a result of a full nine month effect of increased cash
due to the Merger with Glycomed and increased research
revenues offset by net usage of cash to support expansion
activities. Interest expense increased to $6.2 million in
1996 from $3.3 million 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 in 1995 due to the Merger and the ALRT Offering
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 September 1996, the Company has raised $121.6
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 $78.6 million from
private placements (of which $64 million was provided
10
<PAGE>
by
the Company's collaborators, $11.4 million was provided
through venture capital financing and $3.2 million was
provided by other investors and the exercise of options
and warrants).
In October 1996, the Company completed a public offering
of 3,162,500 shares of common stock at a price of $12.00
per share for net proceeds of approximately $35.3
million.
As of September 30, 1996, the Company had acquired an
aggregate of $18.0 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
also 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 May
1996, the Company signed a master lease agreement to
finance future capital equipment up to $2.5 million.
Working capital decreased to $39.8 million as of
September 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 inclusion of the cost of Glycomed's
operations for the full nine months of 1996, 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 $49.3
million at September 30, 1996 from $76.9 million at
December 31, 1995. The Company primarily invests its
cash in United States government 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 completed in October 1996, will be adequate to
satisfy its anticipated capital requirements through
1999, assuming the Company does not exercise either an
option to acquire certain assets related to Panretin
(ALRT1057) Oral and Panretin (ALRT1057) Topical or an
option to acquire all of the outstanding shares of ALRT
callable common stock (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. The Company's future capital
requirements will depend on many factors, including the
pace of scientific progress in 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 the existing collaborations, the cost of manufacturing
scale-up and the effectiveness of the Company's
commercialization activities.
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. Prior to generating product revenues from
these potential products, 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.
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.
11
<PAGE>
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 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 technical questions for
which important legal principles are largely unresolved.
While the Company 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.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
For more complete information regarding legal
proceedings, see June 30, 1996 Form 10Q filed with the
Securities and Exchange Commission.
ITEM 6 (A) EXHIBITS
Exhibit 3.1(1) Certificate of Designation of Rights,
Preferences and Privileges of Series A
Participating Preferred Stock of Ligand
Pharmaceuticals Incorporated.
Exhibit 10.1(1) Preferred Shares Rights Agreement,
dated as of September 13, 1996 by and between
Ligand Pharmaceuticals Incorporated and Wells
Fargo Bank, N.A.
Exhibit 10.153 Letter Agreement, dated August 8, 1996
between the Company and Dr. Andres Negro-Vilar.
ITEM 6 (B) REPORTS ON FORMS 8-K
None.
(1)These exhibits were previously filed as part of, and
are hereby incorporated by reference to, the same
numbered exhibit filed with the Registration Statement
on Form S-3 (No. 333-12603) filed on September 25, 1996
as amended.
13
<PAGE>
LIGAND PHARMACEUTICALS INCORPORATED
September 30, 1996
SIGNATURE
Pursuant to the requirements of the Securities 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: November 13, 1996 By /s/Paul V. Maier
______________________ _____________________________
Paul V. Maier
Vice President and
Chief Financial Officer
14
<PAGE> 1
EXHIBIT 10.153
[LIGAND David E.Robinson
PHARMACEUTICALS Chairman, President
LETTERHEAD] and Chief Executive Officer
8 August 1996
Dr. Andres Negro-Vilar
955 Lafayette Street
Bryn Mawr, PA 19010
Dear Andres:
I am pleased to extend to you an offer to become Senior
Vice President,
Research and Chief Scientific Officer and a corporate
officer of Ligand
Pharmaceuticals, Inc. reporting to me, commencing
September 1, 1996 or
sooner. The particulars of our offer are as follows:
COMPENSATION
1. You initial base salary will be $270,000 per year.
2. You will participate in the 1997 Impact Goal
Incentive Plan of corporate
officers based upon achievement of pre-agreed
goals (a target maximum
currently of $30,000.)
3. You will be granted an option to purchase, at your
election 100,000
shares of the Company's common stock at its "fair
market price" under
our current Employee Stock Option Plan.
The grant will be subject to your execution of the
Company's Incentive Stock
Option Agreement and to final approval by the Compensation
Committee of the
Board of Directors and any regulatory authority.
RELOCATION PACKAGE
1. The costs associated with relocating your family
and
household goods to
the San Diego area will be paid by the Company as
outlined in Ligand's
Employee Relocation Policy. We hereby agree to
waive the $25,000 cap on
expenses on sale of former house and to extend
temporary lodging period
for up to 120 days. (Relocation Policy copy
enclosed.)
2. The Company will also loan you $150,000 towards
the
purchase of a
primary residence in the San Diego area. The loan
will be secured by a
five year promissory note secured by a Deed of
Trust and will bear
interest at the market rate
<PAGE> 2
[LIGAND PHARMACEUTICALS
LETTERHEAD]
Dr. Negro-Vilar
8 August 1996
Page Two
then prevailing. The loan and accrued interest
will be forgiven in five
(5) annual increments if you continue to be
employed by the Company. You
will be responsible for all taxes related to this
loan forgiveness.
3. The Company will provide further housing
assistance
to you as follows:
During the first two years of employment, the
Company will pay you
$15,000 per year in twelve (12) equal monthly
installments.
SPECIAL CONSIDERATIONS
1. In order to facilitate your transition from your
current employer and to
offset part of your 1996 bonus potential, the
Company will pay you a
one-time up-front bonus of $40,000 upon
commencement of employment. You
will be responsible for all taxes related to that
bonus.
2. In order to cover any miscellaneous relocation
expenses not covered
under current Ligand policy, we will pay you
$20,000 up front allowance.
You will be responsible for all taxes related to
that bonus.
SEVERANCE
1. If you are terminated without cause by the Company
during your
employment, you will be paid an amount equal to
one (1) year of your
base salary.
As used in this letter, "termination for cause"
means termination for
malfeasance, misfeasance, or negligence.
Termination because of adverse
financial circumstances affecting the Company not
due to your
performance is not termination for cause. If you
voluntarily leave the
Company's employment, this specifically does not
constitute termination
without cause.
As a regular employee and officer of Ligand, you will
become eligible to
participate in Company sponsored benefits which are
described in the Company's
Employee Handbook, a copy of which will be sent under
separate cover. If you
have any questions related to these, please feel free to
contact me, or, for
more detailed discussion, Cindy Thomas, our Executive
Director of Human
Resources.
Employment at Ligand is not for a specific term and can
be terminated by you or
by the Company at any time for any reason, with or
without cause. If you are
terminated for cause, any loan made to you by the
Company will become due and
payable immediately.
<PAGE> 3
[LIGAND PHARMACEUTICALS
LETTERHEAD]
Dr. Negro-Vilar
8 August 1996
Page Three
If you accept this offer, the terms and conditions in this
letter shall be the
terms of your employment. Any modifications or additions
to these terms would
have to be in writing and signed by you and me.
Your employment pursuant to this offer is contingent on
your
executing the
Consent Form, Proprietary Information and Inventions
Agreement and upon your
providing the Company with the legally required proof of
your identity and
authorization to work in the United States. (To follow.)
Andres, all of us at Ligand are excited about having you
join the growing team
at Ligand and are very much looking forward to working
with you in building an
exciting new pharmaceutical company. We believe the
professional association
will be mutually rewarding for all parties.
Sincerely,
/s/ David E. Robinson
---------------------
David E. Robinson
Chairman, President and CEO
DER/jdb
Attachments
Agreed and Accepted
/s/ Andres Negro-Vilar 8/14/96
- ------------------------------- ----------------------------
NAME DATE
3
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Financial Condition at September 30,
1996 (Unaudited) and the Condensed Consolidated Statement of Income for
the Nine Months ended September 30, 1996 (Unaudited) and is qualified in
its entirety by reference to such financial statements (in thousands
except earnings per share).
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1.
<CASH> 7014
<SECURITIES> 38775
<RECEIVABLES> 2670
<ALLOWANCES> 0
<INVENTORY> 89
<CURRENT-ASSETS> 50866
<PP&E> 21826
<DEPRECIATION> 10022
<TOTAL-ASSETS> 67608
<CURRENT-LIABILITIES> 11075
<BONDS> 48077
0
0
<COMMON> 28
<OTHER-SE> 12165
<TOTAL-LIABILITY-AND-EQUITY> 67608
<SALES> 161
<TOTAL-REVENUES> 27352
<CGS> 133
<TOTAL-COSTS> 27197
<OTHER-EXPENSES> 14977
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6162)
<INCOME-PRETAX> (25533)
<INCOME-TAX> 0
<INCOME-CONTINUING> (25533)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25533)
<EPS-PRIMARY> (.91)
<EPS-DILUTED> (.91)
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