<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 17, 1997
REGISTRATION NO. 333-36535
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
LIGAND PHARMACEUTICALS INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 8731 77-0160744
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) INDUSTRIAL CLASSIFICATION CODE) IDENTIFICATION NO.)
</TABLE>
------------------------------
9393 TOWNE CENTRE DRIVE, SAN DIEGO, CALIFORNIA 92121 (619) 535-3900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------------
DAVID E. ROBINSON
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
LIGAND PHARMACEUTICALS INCORPORATED
9393 TOWNE CENTRE DRIVE, SAN DIEGO, CALIFORNIA 92121
(619) 535-3900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------------
COPIES TO:
FAYE H. RUSSELL, ESQ.
MARIA P. SENDRA, ESQ.
BROBECK, PHLEGER & HARRISON LLP
550 WEST C STREET, SUITE 1300
SAN DIEGO, CALIFORNIA 92101
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ] ____________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ] ____________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ] ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 17, 1997
PROSPECTUS
3,107,596 SHARES
LIGAND PHARMACEUTICALS
INCORPORATED
Common Stock
(par value $.001 per share)
This Prospectus relates to the public offering, which is not being
underwritten, of up to 3,107,596 shares of Common Stock, par value $.001 per
share (the "Shares"), of Ligand Pharmaceuticals Incorporated ("Ligand" or the
"Company"), with an aggregate value of $46,410,000. All of these Shares will be
issued to the stockholders of Allergan Ligand Retinoid Therapeutics, Inc.
("ALRT") who will receive such Shares in connection with the exercise by Ligand
of its option (the "Stock Purchase Option") to acquire all of the outstanding
shares of ALRT Callable Common Stock, $0.001 par value per share ("the "Callable
Common Stock"). The number of Shares to be delivered in payment of a portion of
the Stock Purchase Option Exercise Price (as defined herein) is determined by
dividing $46,410,000 by the average of the closing price of a Share on the
Nasdaq National Market for the 20 trading days immediately preceding the day
prior to the closing of the exercise of the Stock Purchase Option. The shares of
Callable Common Stock were originally issued pursuant to a subscription offering
of rights to purchase units consisting of one share of the Callable Common Stock
and two warrants to purchase the Common Stock of Ligand (the "Subscription
Offering"), which subscription offering was completed on June 3, 1995. The
issuance of the Shares is being registered by the Company pursuant to
obligations of Ligand, set forth in Article V of the Amended and Restated
Certificate of Incorporation of ALRT (the "ALRT Certificate"), to provide the
holders of Callable Common Stock with shares of Ligand Common Stock covered by
an effective registration statement upon exercise of the Stock Purchase Option.
See "Business -- Strategic Alliances -- Allergan, Inc." and "Business -- Recent
Developments."
A formal Notice of Exercise and a Letter of Transmittal for use in
surrendering the certificates representing the shares of Callable Common Stock
for payment in the form of cash and certificates representing the Shares has
previously been delivered to all stockholders of ALRT. The Letter of Transmittal
contains instructions that should be read carefully. No fractional Shares shall
be issued by the Company. Any holder of Callable Common Stock entitled to
receive a fraction of a Share will be paid in cash an amount equal to such
fraction of a Share multiplied by the value of a Share determined in accordance
with the provisions described herein.
The Shares are being issued in partial consideration of the per-share
exercise price of $21.97 (the "Stock Purchase Option Exercise Price"). Pursuant
to the formal Notice of Exercise, Ligand has notified the Callable Common
Stockholders it intends to pay $7.69 per share of Callable Common Stock in cash
and $14.28 per share of Callable Common Stock in the Shares. Notwithstanding the
foregoing, and in accordance with the terms of Article V of the ALRT
Certificate, Ligand reserves the right, at any time prior to the closing of the
exercise of the Stock Purchase Option, to make payment of a greater amount of
the Stock Purchase Option Exercise Price in cash than set forth in the formal
Notice of Exercise. On September 24, 1997, Allergan, Inc. ("Allergan") gave
notice to Ligand and ALRT of Allergan's election to exercise its option to
purchase certain assets of ALRT (the "Asset Purchase Option"), pursuant to
Section 1.5 of the Asset Purchase Agreement. In accordance with the terms of the
Asset Purchase Agreement, Allergan's exercise price is $8,900,000, all of which
will be paid to ALRT in cash. See "Certain Transactions -- Relationship Among
Allergan Ligand Retinoid Therapeutics, Inc., Ligand and Allergan -- Asset
Purchase Agreement."
Ligand Common Stock is traded on the Nasdaq National Market ("Nasdaq
National Market") under the symbol "LGND." On November 17, 1997, the last sale
price of Ligand Common Stock as reported on the Nasdaq National Market was
$14 1/16 per share. The Callable Common Stock is traded on the Nasdaq National
Market under the symbol "ALRI" and, as of October 31, 1997, the number of shares
of outstanding Callable Common Stock was 3,250,000.
------------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES
A HIGH DEGREE OF RISK. SEE "RISK FACTORS."
------------------------------
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.
------------------------------
THE DATE OF THIS PROSPECTUS IS NOVEMBER 19, 1997.
<PAGE> 3
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 Company's 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.
------------------------------
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> 4
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." 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"), Ligand Pharmaceuticals
(Canada) Incorporated, a corporation organized under the laws of the Canadian
province of Saskatchewan ("Ligand Canada") and, following the closing of the
exercise of the Stock Purchase Option, ALRT. This Prospectus may contain, 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, a Delaware corporation, is a biopharmaceutical company engaged 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 the Glycomed Incorporated
("Glycomed") and Ligand merger in May 1995 (the "Merger"), 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.
Ligand is developing new drugs through a combination of internal and
collaborative programs, including the formation of a research and development
company, ALRT with Allergan, Inc. ("Allergan") and substantial collaborations
with SmithKline Beecham Corporation ("SmithKline Beecham"), the Wyeth-Ayerst
Laboratories Division of American Home Products Corporation ("AHP"), Abbott
Laboratories ("Abbott"), Glaxo-Wellcome plc (formerly Glaxo, Inc.) ("Glaxo") and
Sankyo Company, Ltd. ("Sankyo"). Following the closing of the exercise of the
Stock Purchase Option, ALRT will be a wholly owned subsidiary of the Company and
research, development, commercialization and sublicense rights for the ALRT
compounds will subsequently be restructured. See "-- Recent Developments."
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. Ligand is conducting human clinical trials with five
products. Oral Panretin (ALRT1057), Topical Panretin (ALRT1057) and Oral ALRT
1550 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 ALRT. See "Business -- Strategic Alliances -- Allergan,
Inc." The Company has initiated Phase III trials for Topical Panretin (ALRT1057)
in Kaposi's Sarcoma ("KS") intended to support a New Drug Application ("NDA").
Ligand intends to file an NDA for this compound in early 1998 on behalf of ALRT,
in the event that Phase III trials demonstrate sufficient safety and efficacy.
Oral Panretin (ALRT1057) has entered Phase III clinical trials in APL and IIB
clinical trials in various cancers.
Ligand is also performing clinical trials for the retinoids Oral Targretin
(LGD1069) and Topical Targretin (LGD1069), to which Ligand has worldwide
exclusive rights. Interim data from a Phase I/II study of Topical Targretin
(LGD1069) in skin lymphoma have demonstrated significant activity, and based on
discussions with the U.S. Food and Drug Administration ("FDA") on trial design,
the Company has launched Phase III clinical trials in this indication with
Topical Targretin (LGD1069) and Phase II/III trials
3
<PAGE> 5
in this indication with Oral Targretin (LGD1069), each intended to support an
NDA. The Company has received reports on interim findings from the University of
Texas M.D. Anderson Cancer Center with respect to certain Phase II/III trials of
Oral Targretin (LGD1069) intended to support an NDA in CTCL. See
"Business -- Product Development Program -- Retinoids -- Topical Targretin
(LGD1069) and Oral Targretin (LGD1069)." The Company has launched Phase II/III
clinical trials with Oral Targretin (LGD1069) 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.
To date, Ligand has entered into collaborations with seven corporate
partners which include, in addition to ALRT: SmithKline Beecham (for
hematopoietic growth factor mimetics for use in oncology and treatment of
anemia), AHP (for women's health, e.g., hormone replacement therapy,
osteoporosis, fertility control), Abbott (for inflammatory diseases), Sankyo
(for inflammatory diseases, utilizing selected Glycomed technologies), Glaxo
(for atherosclerosis and other diseases affecting the cardiovascular system) and
Pfizer Inc. ("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 (including
cash contributions of $50.0 million and $17.5 million by Allergan and Ligand,
respectively), Ligand's research activities have been supported by commitments
from its partners of up to $90.2 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 $89.0 million has been received
through September 30, 1997, and the remaining $7.5 million is subject to Ligand
attaining certain milestones.
RECENT DEVELOPMENTS
ALRT. On September 24, 1997, Ligand and Allergan announced that they had
exercised their respective options to purchase the Callable Common Stock and
certain assets of ALRT. Ligand's notice of exercise of the Stock Purchase Option
included a stock purchase option exercise price of $21.97 per share of
outstanding Callable Common Stock, the original exercise price designated for
the exercise of the Stock Purchase Option at any time prior to June 3, 1998.
Allergan's notice of exercise of its Asset Purchase Option included an aggregate
asset purchase price of $8.9 million (the "Asset Purchase Option Exercise
Price"), the original exercise price designated for the exercise of the Asset
Purchase Option at any time prior to June 3, 1998 under the governing asset
purchase agreement (the "Asset Purchase Agreement"). The Asset Purchase Option
Exercise Price will be paid in cash to ALRT concurrently with the payment to
holders of ALRT Callable Common Stock of the Stock Purchase Option Exercise
Price and may be used to pay a portion of such Stock Purchase Option Exercise
Price.
Ligand and Allergan also agreed to restructure the terms and conditions
relating to research, development, commercialization and sublicense rights for
the ALRT compounds in the period following the closing of the exercise of
Ligand's Stock Purchase Option and Allergan's Asset Purchase Option. See
"Business -- Strategic Alliances -- Allergan, Inc." Prior to the restructuring
and following the exercise of the Stock Purchase Option and Asset Purchase
Option, Ligand and Allergan would have had equal, co-exclusive development,
commercialization and sublicense rights in the compounds and assets developed by
ALRT and a 50% interest in ALRT's liabilities. See "Certain
Transactions -- Relationship Among Allergan Ligand Retinoid Therapeutics, Inc.,
Ligand and Allergan -- Stock Purchase Option" and "-- Asset Purchase Agreement."
Under the restructured arrangement, however, Ligand will receive exclusive,
worldwide development, commercialization and sublicense rights to Oral and
Topical Panretin (ALRT1057) (currently in pivotal Phase III clinical trials),
ALRT1550 (currently in Phase I/IIa clinical trials for oncology applications)
and ALRT268 and ALRT324 (two advanced preclinical Retinoid X Receptor ("RXR")
selective compounds); Allergan will receive exclusive, worldwide development,
commercialization and sublicense rights to ALRT4310, an RAR antagonist being
developed for topical application against mucocutaneous toxicity associated with
currently marketed retinoids as well as for psoriasis. Allergan will also
receive ALRT326 and ALRT4204 (two advanced preclinical RXR selective compounds).
In addition, Ligand and Allergan have participated in a lottery for each of the
approximately 2,000 retinoid compounds existing in
4
<PAGE> 6
the ALRT compound library as of the closing date (the "Lottery"), with each
party to acquire exclusive, worldwide development, commercialization and
sublicense rights to the compounds which they selected. Ligand and Allergan will
each pay the other a royalty based on net sales of products developed from (i)
the compounds selected by each in the Lottery and (ii) the other ALRT compounds
to which each acquires exclusive rights. Ligand will also pay to Allergan a
royalty based on Ligand's net sales of Targretin for uses other than oncology
and dermatology indications; in the event that Ligand licenses commercialization
rights to Targretin to a third party, Ligand will pay to Allergan a percentage
of royalties payable to Ligand with respect to sales of Targretin other than in
oncology and dermatology indications. Under the restructured arrangement, on the
closing of the exercise of the Stock Purchase Option and the Asset Purchase
Option Ligand will pay to Allergan a non-refundable cash payment in the amount
of $4.5 million.
Glycomed. On October 2, 1997, the Company announced the closure of the
Alameda facility housing Glycomed at the expiration of the leases in October
1997. In connection with this closure, Glycomed's assets and programs will be
transferred for integration with the Company's San Diego operations.
Eli Lilly and Company. On October 20, 1997, the Company and Eli Lilly and
Company ("Lilly") announced that they intend to enter into a strategic alliance
for the discovery and development of products based upon Ligand's IR technology.
The collaboration will focus on products with broad applications across
metabolic diseases, including diabetes, obesity, dislipidemia, insulin
resistance and cardiovascular diseases associated with insulin resistance and
obesity. The transaction is subject to receipt of necessary regulatory approvals
and is contingent upon Ligand successfully closing the exercise of the Stock
Purchase Option and successfully closing the restructure of the terms and
conditions relating to research, development, commercialization and sublicense
rights for the ALRT compounds as described above. As a result, no assurance can
be given that the transaction will close or that the strategic alliance will be
consummated until all appropriate requirements have been met.
Under the proposed alliance:
- Lilly will receive worldwide, exclusive rights to Targretin (LGD1069) and
other Ligand compounds and technology associated with the RXR receptor.
Lilly will receive additional rights to use Ligand technology to develop
an RXR compound in combination with a Selective Estrogen Receptor
Modulator ("SERM") in cancer. Ligand retains exclusive rights to
independently research, develop and commercialize Targretin (LGD1069) and
other RXR compounds in the fields of cancer and dermatology.
- Lilly will also receive worldwide, exclusive rights in certain areas to
Ligand's peroxisome proliferator activated receptor ("PPAR") technology,
along with rights to use PPAR research technology with the RXR
technology. Lilly and Ligand also intend to begin research programs aimed
at discovering novel compounds which therapeutically activate PPAR
subtypes for treatment of cardiovascular disease. Finally, Lilly will
receive exclusive rights to Ligand's hepatic nuclear factor 4 ("HNF4")
receptor and the obesity gene promoter technology.
- Ligand has the option to obtain selected rights to one Lilly specialty
pharmaceutical product. The product would fit into a current area of
strategic focus for Ligand. Should Ligand elect to obtain selected rights
to the product, Lilly could receive milestones of up to $20 million in
Ligand stock. In the event that Ligand does not exercise this product
option during the first 90 days after the effective date of the
agreements, currently anticipated to occur one business day following the
closing of the exercise of the Stock Purchase Option, Ligand will sell an
additional $20 million in equity to Lilly at a 20% premium to the then
market price, and Ligand will qualify for certain additional royalties of
up to 1.5% on net sales of Ligand's choice of Targretin (LGD1069),
ALRT268 (LGD1268) or ALRT324 (LGD1324).
- Ligand will receive double-digit royalties on net sales of the most
advanced products and single-digit royalties on net sales of earlier
compounds. Ligand will also receive milestones, royalties and options to
obtain certain co-development and co-promotion rights for the
Lilly-selected RXR compound in combination with a SERM.
- Lilly will make a $37.5 million equity investment in Ligand upon the
closing of the transaction and will, thereafter, pay to Ligand $12.5
million in upfront milestones.
5
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock to be issued by the Company......... 3,107,596 shares
Common Stock to be outstanding after the
Offering....................................... 36,085,534 shares(1)
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 included elsewhere
herein and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" which are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT NET LOSS PER SHARE)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:.......................... $ 5,883 $ 16,262 $ 13,309 $ 24,516 $ 36,842 $ 27,352 $ 29,900
Costs and expenses:
Research and development......... 14,220 24,301 27,205 41,636 59,494 42,174 51,353
Selling, general and
administrative................ 4,144 6,192 6,957 8,181 10,205 7,278 7,379
Write-off of acquired in-process
technology.................... -- -- -- 19,564 -- -- --
ALRT contribution................ -- -- -- 17,500 -- -- --
------- -------- -------- -------- -------- ------- -------
Total operating expenses........... 18,364 30,493 34,162 86,881 69,699 49,452 58,732
Loss from operations............... (12,481) (14,231) (20,853) (62,365) (32,857) (22,100) (28,832)
Interest income (expense), net..... 198 1,652 619 (1,807) (4,456) (3,433) (3,285)
Equity in operations of Joint
Venture.......................... (1,724) (6,879) (6,845) -- -- -- --
------- -------- -------- -------- -------- ------- -------
Net loss........................... $(14,007) $(19,458) $(27,079) $(64,172) $(37,313) $(25,533) $(32,117)
======= ======== ======== ======== ======== ======= =======
Net loss per share................. $ (3.96) $ (1.19) $ (1.57) $ (2.70) $ (1.30) $ (.91) $ (.99)
======= ======== ======== ======== ======== ======= =======
Shares used in computing net loss
per share(2)..................... 3,537 16,357 17,241 23,792 28,781 28,073 32,484
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------
PRO FORMA
ACTUAL AS ADJUSTED(3)
--------- --------------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments(4)........................ $ 53,614 $ 44,005
Working capital............................................................. 42,647 30,962
Total assets................................................................ 77,939 68,404
Long-term debt.............................................................. 13,711 13,711
Convertible subordinated debentures(5)...................................... 35,959 35,959
Accumulated deficit......................................................... (209,711) (273,946)
Total stockholders' equity.................................................. 16,110 4,425
</TABLE>
- ---------------
(1) As of September 30, 1997. Excludes (a) 4,001,104 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 $9.99 per share), (b)
767,063 shares of Common Stock available for future grants under such plans
or issuance under the Company's stock purchase plan, (c) 6,615,719 shares of
Common Stock issuable upon exercise of outstanding warrants (at a weighted
average exercise price of $7.21 per share), (d) 499,500 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. 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) Pro forma as adjusted to reflect the issuance of shares of Common Stock
offered hereby, the payment of that portion of the Stock Purchase Option
exercise price to be paid in cash and the cash payments by Allergan and the
Company for the exercise of Allergan's Asset Purchase Option and the
Company's payment to Allergan for selected product rights, respectively. See
"Ligand Pharmaceuticals Incorporated Pro Forma Condensed Consolidated
Financial Statements."
(4) Includes restricted cash of $3,056,000.
(5) See Note 6 of Notes to Consolidated Financial Statements.
6
<PAGE> 8
RISK FACTORS
An investment in the Company's 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.
Ligand 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 or its collaborative partners' 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 marketed products. 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 September 30, 1997, Ligand had an accumulated deficit of
approximately $209.7 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
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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
will be adequate to satisfy its anticipated capital requirements through 1999,
assuming the Company does not increase the amount of cash payable in connection
with its exercise of the Stock Purchase Option.
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.
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 collaborative 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 or its
collaborative partners 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.
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, AHP, Abbott, Sankyo, Glaxo, ALRT (which collaboration
continues the work
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<PAGE> 10
previously undertaken with Allergan through the Allergan Ligand 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 and skin disease, 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 collaborations 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.
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.
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 and biotechnology 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
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<PAGE> 11
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.
Ligand owns or has exclusively licensed over 190 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 150 worldwide 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 U.S. Patent and Trademark Office ("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 been 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. In connection with the exercise of the Stock
Purchase Option and the exclusive licensing arrangement with Allergan described
in "Recent Developments," Ligand will acquire the exclusive right to develop and
commercialize Oral and Topical Panretin (ALRT1057). Ligand and ALRT are
currently investigating the scope and validity of this patent to determine its
impact upon the Oral and Topical Panretin (ALRT1057) 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 with claims covering the
Oral and
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Topical Panretin (ALRT1057) products. While the Company believes that the Roche
patent does not cover the use of Oral and Topical Panretin (ALRT1057) to treat
leukemias such as APL and sarcomas such as KS, or the treatment of skin diseases
such as psoriasis, if the Company and ALRT do not prevail in the interference
proceeding, the Roche patent might block the Company's use of Oral and Topical
Panretin (ALRT1057) in certain cancers, and the Company may not be able to
obtain patent protection for the Oral and Topical Panretin (ALRT1057) 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 regarding 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.
EXERCISE OF STOCK PURCHASE OPTION.
If Ligand does not successfully complete the Stock Purchase Option,
Allergan will have the right to acquire all of the outstanding Callable Common
Stock and Ligand will have no further rights in the compounds or assets
developed by ALRT. In addition, the proposed strategic alliance with Lilly is
contingent upon Ligand successfully closing the exercise of the Stock Purchase
Option and successfully closing the restructure with Allergan of the terms and
conditions relating to research, development, commercialization and sublicense
rights for the ALRT compounds.
The number of Shares to be delivered in payment of a portion of the Stock
Purchase Option Exercise Price shall be determined by dividing the portion of
the Stock Purchase Option Exercise Price to be paid in Shares by the average of
the closing price of a Share on the Nasdaq National Market for the 20 trading
days immediately preceding the day prior to the closing of the Stock Purchase
Option Exercise (the "Average Value"). If the Stock Purchase Option Exercise
closed on November 19, 1997, the Average Value of the Ligand Common Stock would
be $14.934375 resulting in a total of 3,107,596 shares of Ligand Common Stock
being issued in connection with the Stock Purchase Option Exercise. Ligand has
the ability to increase the amount of cash paid in connection with the Stock
Purchase Option from the amount contained in the notice of Ligand's exercise of
the Stock Purchase Option. Any such increase in cash would reduce Ligand's
capital resources.
Upon the closing of the exercise of the Stock Purchase Option, Ligand will
record a one-time charge to operations for the write-off of in-process
technology currently estimated at approximately $63.3 million, related to the
excess of the aggregate of the Stock Purchase Option Exercise Price over the
fair value of the assets acquired.
In addition, continuation of development and commercialization of Oral and
Topical Panretin (ALRT1057) and other products under development by ALRT to
which Ligand will acquire exclusive rights under its exclusive licensing
arrangement with Allergan will require substantial additional expenditures by
Ligand. If Ligand does not successfully complete its exercise of the Stock
Purchase Option prior to expiration, the Company may lose valuable rights,
including rights to Oral and Topical Panretin (ALRT1057) and other ALRT assets.
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 cGMP pilot manufacturing capability
in order to produce sufficient quantities of products for preclinical testing
and initial clinical trials. If Ligand is unable to
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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.
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 and PHOTOFRIN, which was developed by
QLT PhotoTherapeutics, Inc. 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.
SUBSTANTIAL COMPETITION; RISK OF TECHNOLOGICAL OBSOLESCENCE.
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.
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.
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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 and 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.
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 or its
collaborative partners. 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 or they 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.
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
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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.
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.
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, chemicals and compounds, 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 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.
ABSENCE OF CASH DIVIDENDS.
No cash dividends have been paid on the Company's Common Stock to date, and
Ligand does not anticipate paying cash dividends in the foreseeable future.
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 Company's 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
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acquisition of 20% or more of the Company's 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 Company's 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 Company's 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 of the Company. 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.
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, may 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 the 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> 17
PRICE RANGE OF COMMON STOCK
The Company's Common Stock trades on the Nasdaq National Market tier of the
Nasdaq Stock Market under the symbol "LGND." The following table sets forth the
high and low sales prices for the Company's Common Stock on the Nasdaq National
Market for the periods indicated.
COMMON STOCK SALES PRICES
<TABLE>
<CAPTION>
PRICE RANGE
----------------
HIGH LOW
----- ----
<S> <C> <C>
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 ENDED 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.............................................................. 1511/16 11 1/4
YEAR ENDING DECEMBER 31, 1997:
1st Quarter.............................................................. $17 $10 1/4
2nd Quarter.............................................................. 14 1/2 9 1/8
3rd Quarter.............................................................. 17 3/4 11 5/8
4th Quarter (through November 17)........................................ 18 3/8 13 5/16
</TABLE>
On November 17, 1997, the last reported sale price of the Company's Common
Stock on the Nasdaq National Market was $14 1/16 per share. As of September 30,
1997, there were approximately 1,000 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.
16
<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1997, and Pro forma as adjusted to reflect the issuance of shares
of Common Stock offered hereby, the payment of that portion of the Stock
Purchase Option exercise price to be paid in cash and the cash payments by
Allergan and the Company for the exercise of Allergan's Asset Purchase Option
and the Company's payment to Allergan for selected product rights, respectively.
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" and "Pro Forma Condensed
Consolidated Financial Statements."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------
PRO FORMA
AS
ACTUAL ADJUSTED
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents, and short-term investments(1).............. $ 53,614 $ 44,005
======== ========
Current portion of obligations under capital leases and equipment
notes payable.................................................... $ 2,917 $ 2,917
======== ========
Long-term debt, less current portion:
Long-term obligations under capital leases and equipment notes
payable....................................................... 8,711 8,711
Convertible subordinated debentures(2)........................... 35,959 35,959
Convertible notes................................................ 5,000 5,000
-------- --------
Total long-term debt.......................................... 49,670 49,670
-------- --------
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;
32,977,938 shares issued; shares as adjusted(3)............... 33 36
Paid-in capital.................................................. 226,719 278,342
Warrant subscription receivable.................................. (924) --
Adjustment for unrealized gains on available-for-sale
securities.................................................... 4 4
Accumulated deficit.............................................. (209,711) (273,946)
Less treasury stock, at cost (1,114 shares)...................... (11) (11)
-------- --------
Total stockholders' equity.................................... 16,110 4,425
-------- --------
Total capitalization........................................ $ 65,780 $ 54,095
======== ========
</TABLE>
- ---------------
(1) Includes restricted cash of $3,056,000.
(2) See Note 6 of Notes to Consolidated Financial Statements.
(3) As of September 30, 1997. Excludes (a) 4,001,104 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 $9.99 per share), (b)
767,063 shares of Common Stock available for future grants under such plans
or issuance under the Company's stock purchase plan, (c) 6,615,719 shares of
Common Stock issuable upon exercise of outstanding warrants (at a weighted
average exercise price of $7.21 per share), (d) 499,500 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. See
"Business -- Strategic Alliances" and "Description of Capital Stock."
17
<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, 1996, and with respect to the consolidated balance
sheets at December 31, 1995 and 1996, 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 consolidated statement of operations data for
the years ended December 31, 1992 and 1993, and the consolidated balance sheet
data at December 31, 1992, 1993 and 1994, are derived from audited financial
statements not included in this Prospectus. The management of the Company
believes that the unaudited data at September 30, 1997, and for the nine-month
periods ended September 30, 1996 and 1997, 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 nine-month period ended September 30, 1997, are not
necessarily indicative of results to be expected for the fiscal year ending
December 31, 1997 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>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(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.......................... $ 2,128 $ 9,974 $ 8,342 $ 11,972 $ 18,641 $ 12,784 $ 18,923
Unrelated party.......................... 3,417 6,138 4,893 12,424 17,994 14,407 10,652
Other...................................... 338 150 74 120 207 161 325
-------- -------- -------- -------- -------- -------- --------
Total revenues......................... 5,883 16,262 13,309 24,516 36,842 27,352 29,900
Costs and expenses:
Research and development................... 14,220 24,301 27,205 41,636 59,494 42,174 51,353
Selling, general and administrative........ 4,144 6,192 6,957 8,181 10,205 7,278 7,379
Write-off of acquired in-process
technology............................... -- -- -- 19,564 -- -- --
ALRT contribution.......................... -- -- -- 17,500 -- -- --
-------- -------- -------- -------- -------- -------- --------
Total operating expenses............... 18,364 30,493 34,162 86,881 69,699 49,452 58,732
-------- -------- -------- -------- -------- -------- --------
Loss from operations......................... (12,481) (14,231) (20,853) (62,365) (32,857) (22,100) (28,832)
Interest income.............................. 523 2,005 1,298 3,603 3,704 2,729 2,800
Interest expense............................. (325) (353) (679) (5,410) (8,160) (6,162) (6,085)
Equity in operations of Joint Venture........ (1,724) (6,879) (6,845) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net loss..................................... $(14,007) $(19,458) $(27,079) $(64,172) $(37,313) $(25,533) $(32,117)
======== ======== ======== ======== ======== ======== ========
Net loss per share........................... $ (3.96) $ (1.19) $ (1.57) $ (2.70) $ (1.30) $ (.91) $ (.99)
======== ======== ======== ======== ======== ======== ========
Shares used in computing net loss per
share...................................... 3,537 16,357 17,241 23,792 28,781 28,073 32,484
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------ SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
-------- -------- -------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments(1)................................. $ 55,605 $ 42,354 $ 38,403 $ 76,903 $ 84,179 $ 53,614
Working capital.................................. 55,117 40,588 33,567 57,349 71,680 42,647
Total assets..................................... 62,261 50,790 46,696 93,594 102,140 77,939
Long-term debt................................... 1,750 2,324 12,285 18,585 19,961 13,711
Convertible subordinated debentures.............. -- -- -- 31,279 33,953 35,959
Accumulated deficit.............................. (29,571) (49,029) (76,108) (140,281) (177,594) (209,711)
Total stockholders' equity....................... 57,250 42,934 26,335 28,071 34,461 16,110
</TABLE>
- ---------------
(1) Includes restricted cash of $6,759,000, $3,527,000 and $3,056,000 at
December 31, 1995, December 31, 1996 and September 30, 1997, respectively.
18
<PAGE> 20
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,
clinical trials, 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, 1997, the
Company's accumulated deficit was approximately $209.7 million.
Upon the closing of the exercise of the Stock Purchase Option, Ligand will
record a one-time charge to operations for the write-off of in-process
technology currently estimated at approximately $63.3 million, related to the
excess of the aggregate of the Stock Purchase Option Exercise Price over the
fair value of the assets acquired. In addition, continuation of development and
commercialization of products previously under development by ALRT, to which
Ligand will acquire exclusive rights, will require substantive additional
expenditures by Ligand. The Company believes that its available cash, cash
equivalents, marketable securities and existing sources of funding will be
adequate to satisfy anticipated capital requirements through 1999, assuming the
Company exercises the Stock Purchase Option for the combination of stock and
cash as contemplated in this Prospectus. Any increase in cash paid in connection
with the Stock Purchase Option would reduce Ligand's capital resources. Ligand
reserves the right, at any time prior to the closing of the exercise of the
Stock Purchase Option, to make payment of a greater amount of the Stock Purchase
Option Exercise Price in cash than set forth in the formal Notice of Exercise.
RESULTS OF OPERATIONS
Nine months ended September 30, 1997, compared to the nine months ended
September 30, 1996
The Company had revenues of $29.9 million for the nine months ended
September 30, 1997 compared to revenues of $27.4 million for the same period for
1996. The increase in revenues is primarily due to a $6.1 million increase in
contract research and development revenues from ALRT, offset by decreased
revenues from the research and development agreement with AHP, due to a one time
payment of $1.5 million in 1996, which expanded and amended the research and
development agreement, as well as a $1.3 million milestone payment received from
Pfizer in 1996. Revenues for the nine months ended September 30, 1997 were
derived from the Company's research and development agreements with (i) ALRT of
$18.9 million, (ii) AHP of $3.4 million, (iii) SmithKline Beecham of $2.5
million, (iv) Sankyo of $2.1 million, (v) Abbott of $1.4 million, (vi) Glaxo of
$1.3 million and product sales of Ligand (Canada) in-licensed products of
$325,000. Revenues for the nine months ended September 30, 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) Abbott of $2.0 million, (iv) Sankyo of
$2.1 million, (v) SmithKline Beecham of $1.8 million, (vi) Glaxo of $1.6
million, as well as from milestone payment received from Pfizer of $1.3 million,
products sales of Ligand (Canada) in-licensed products of $161,000 and revenues
from an NIH grant of $99,000.
For the nine months ended September 30, 1997, research and development
expenses increased to $51.4 million from $42.2 million for the same period in
1996. These expenses increased primarily due to expansion of the Company's
clinical and development retinoid program activities, as well as related
additions of clinical and development personnel. Selling, general and
administrative expenses increased to $7.4 million for the nine months ended
September 30, 1997 from $7.3 million for the same period in 1996. The increase
was primarily attributable to additions to personnel in 1997 to support expanded
clinical and development retinoid program activities, offset by higher legal
expenses incurred in 1996 related to the settlement of future product rights
litigation. Interest income increased to $2.8 million for the nine months ended
September 30, 1997, from $2.7 million for the same period in 1996. The slight
increase was due to the completion of a public
19
<PAGE> 21
offering in October 1996, offset by usage of cash to support expansion of the
clinical and development retinoid program activities. Interest expense decreased
slightly to $6.1 million for the nine months ended September 30, 1997, from $6.2
million for the same period in 1996, due to conversion of the AHP convertible
notes to equity in 1997.
Year ended December 31, 1996 ("1996"), as compared to the year ended
December 31, 1995 ("1995")
The Company had revenues of $36.8 million for 1996 compared to revenues of
$24.5 million for 1995. The increase in revenues is primarily due to increased
collaborative research and development revenues from ALRT, milestone revenues
from Pfizer, increased revenues under an expanded and amended research and
development agreement entered into in January 1996 (which began in September
1994) with AHP, and a full year effect of the collaborative research agreement
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 $18.6 million, (ii) AHP of $6.9 million, (iii) Sankyo of $2.7 million,
(iv) Abbott of $2.5 million, (v) SmithKline Beecham of $2.4 million, (vi) Glaxo
of $2.1 million, as well as from milestone revenues from Pfizer of $1.3 million,
product sales of Ligand (Canada) in-licensed products of $207,000 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 $12.0 million, (ii) AHP of $4.0 million, (iii) Abbott of $2.6 million,
(iv) Glaxo of $2.1 million, (v) SmithKline Beecham of $2.1 million, (vi) Sankyo
of $1.7 million, and from product sales of Ligand (Canada) in-licensed products
of $120,000.
For 1996, research and development expenses increased to $59.5 million from
$41.6 million in 1995. These expenses increased due to expansion of the
Company's clinical and development retinoid program activities, and expanded
collaborative research programs, related additions of clinical, development and
research personnel and inclusion of the cost of Glycomed's operations for a full
year in 1996. Selling, general and administrative expenses increased to $10.2
million in 1996 from $8.2 million in 1995. The increase was primarily due to
additions to personnel to support clinical, development and research programs,
as well as expanded sales and marketing activities. Interest income increased
slightly to $3.7 million in 1996 from $3.6 million in 1995. Increases in
interest income were a result of the completion of a public offering of
approximately $35.3 million in October 1996, and increased research revenues,
offset by usage of cash to support expansion activities. Interest expense
increased to $8.2 million in 1996 from $5.4 million in 1995. The increase was
primarily due to interest required under the Debentures, accretion of debt
discount under the Debentures and capital lease obligations used to finance
equipment.
A one-time charge of $19.6 million was incurred in 1995 for the write-off
of in-process technology acquired in the merger with Glycomed. Another one-time
charge of $17.5 million was incurred in 1995 for the Company's cash contribution
for the formation of ALRT concurrent with the public offering in June 1995 by
the Company and ALRT of 3,250,000 units with aggregate proceeds of $32.5 million
(the "ALRT Offering").
Year ended December 31, 1995 ("1995"), as compared to the year ended
December 31, 1994 ("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 AHP (which began in September 1994),
SmithKline Beecham (which began in February 1995), Abbott (which began in July
1994), Sankyo (with effect from 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) AHP of $4.0 million,
(iii) Abbott of $2.6 million, (iv) SmithKline Beecham of $2.1 million, (v) Glaxo
of $2.1 million and (vi) Sankyo of $1.7 million, and product sales of Ligand
Pharmaceuticals (Canada), Inc., in-licensed products of $120,000. Revenues in
1994 were derived from the Company's research and development agreements with
(i) the Allergan-Ligand Joint Venture, formed and owned 50 percent by each of
Ligand and Allergan, and which developed technologies exclusively licensed to
ALRT from 1992 (the "Joint Venture") of $8.3 million, (ii) AHP of $1.7 million,
(iii) Glaxo of $2.0 million and (iv) Abbott of $1.2 million and other research
grants of $74,000.
20
<PAGE> 22
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 $8.1 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 Merger,
increased research revenues, additional equity investments, and convertible
notes from 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 the acquisition of the Debentures, and
accretion of debt discount under the Debentures, as well as interest required
under a convertible note issued in connection with the AHP 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.
One-time charges of $19.6 million and $17.5 million were incurred in 1995
as described above due to the Merger and 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, investment income
and product sales. From inception through June 1997, the Company has raised
$162.5 million from sales of equity securities: $78.2 million from the Company's
public offerings and an aggregate of $84.3 million from private placements and
the exercise of options and warrants.
In March 1997 and again in July 1997, the Company converted $3.8 million
and $2.5 million, respectively, of the convertible notes outstanding to AHP into
374,626 and 249,749 shares, respectively, of the Company's Common Stock at a
$10.01 conversion price, resulting in an outstanding balance of convertible
notes to AHP of $5.0 million.
In February 1997, SmithKline Beecham provided a third installment equity
investment of $2.5 million by purchasing 164,474 shares of the Company's Common
Stock as a result of their election to expand the scope of research under its
research agreement with the Company. The final installment of $2.5 million was
provided in October 1997 to the Company as a convertible note as a result of
SmithKline Beecham's election to extend the collaboration. The note is
convertible into the Company's Common Stock at $13.56 per share and is due
October 2002 unless converted into the Company's Common Stock earlier. The
interest rate on the note is payable semi-annually at prime.
As of September 30, 1997, the Company had acquired an aggregate of $24.2 million
in property, laboratory and office equipment, and $4.7 million in tenant
leasehold 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 long-term lease related to the construction of a new
laboratory facility, which was completed and occupied in August 1995. Prior to
the end of 1997, the Company will close its Alameda facility at the expiration
of its lease. Such closure will have no material effect on the Company's
financial position. At the end of 1997, one of the Company's main operating
lease agreements for office and research facilities expires, at which time the
Company plans to move into its second build-to-suit facility. In March 1997, the
Company entered into a long-term lease, related to the build-to-suit facility
and loaned the construction partnership $3.7 million which will be paid back
monthly at an interest rate of 8.5% over a 10-year period. In February 1997, the
Company signed a master lease agreement to finance future capital equipment up
to $1.5 million, and in July 1997, the master lease agreement was extended to
December 1998 to include up to an additional $4.5 million. Each individual
schedule under the extended master lease agreement will be paid back monthly
with interest over a five-year period. As of September 30, 1997, the Company had
$4.1 million available to finance future capital equipment.
21
<PAGE> 23
Working capital decreased to $42.6 million as of September 30, 1997, from
$71.7 million at the end of 1996. The decrease in working capital resulted from
an increase in cash from collaborative research agreements and equity
investments, offset by an increase in operating expenses, as described above,
semi-annual interest payments due on the Debentures and interest paid on
convertible notes. For the same reasons, cash and cash equivalents, short-term
investments, and restricted cash decreased to $53.6 million at September 30,
1997 from $84.2 million at December 31, 1996. 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 will be adequate to satisfy its
anticipated capital requirements through 1999, assuming the Company exercises
the Stock Purchase Option for the combination of stock and cash as contemplated
in the Prospectus. Ligand has the ability to increase the amount of cash paid in
connection with the Stock Purchase Option from the amount contained in the
notice of Ligand's exercise of the Stock Purchase Option. Any such increase in
cash would reduce Ligand's capital resources.
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.
22
<PAGE> 24
BUSINESS
OVERVIEW
Ligand is a biopharmaceutical company engaged 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 IRs and (ii)
cytokine-activated STATs. IRs play key roles in many disease processes,
including certain cancers, disorders of women's health, cardiovascular diseases,
metabolic diseases, inflammatory disorders and skin diseases. Similarly, STATs
influence many biological processes, including cancer, metabolic diseases,
inflammation and blood cell formation. In programs acquired with the Merger,
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.
Ligand is developing new drugs through a combination of internal and
collaborative programs, including the formation of ALRT with Allergan and
substantial collaborations with SmithKline Beecham, AHP, Abbott, Glaxo and
Sankyo. Following the closing of the exercise of the Stock Purchase Option, ALRT
will be a wholly-owned subsidiary of the Company and research, development,
commercialization and sublicense rights for the ALRT compounds will subsequently
be restructured. See "-- Recent Developments." Ligand has initiated human
clinical trials for five products: the retinoids Oral Panretin (ALRT1057),
Topical Panretin (ALRT1057) and Oral ALRT1550 on behalf of ALRT, and Oral
Targretin (LGD1069) and Topical Targretin (LGD1069), which are Ligand's first
products. Ligand also has 24 non-retinoid lead compounds in various stages of
development, including a three compound series being developed by AHP, as well
as two compounds which are now under development by Pfizer. One is an early
clinical compound for osteoporosis development candidate; the other is an
advanced clinical compound for breast cancer and osteoporosis.
IRs are members of a family of hormone-activated proteins that act inside
the cell to directly regulate 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(R) 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 advanced the
understanding of the activities of hormones and hormone-related drugs and have
made scientific discoveries relating to IR and STATs technologies. Ligand
believes that its expertise in these 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 is conducting human clinical trials with five products. Oral
Panretin (ALRT1057), Topical Panretin (ALRT1057) and Oral ALRT1550 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 ALRT. See "Business -- Strategic Alliances -- Allergan, Inc." The
Company has initiated Phase III trials for Topical Panretin (ALRT1057) in KS
intended to support an NDA. Ligand intends to file an NDA for this compound in
early 1998 on behalf of ALRT, in the event that Phase III trials demonstrate
sufficient safety and efficacy. Oral Panretin (ALRT1057) has entered Phase III
clinical trials in APL and IIB clinical trials in various cancers. Ligand is
also performing clinical trials for the retinoids Oral Targretin (LGD1069) and
Topical Targretin (LGD1069), to which Ligand has worldwide exclusive rights.
Interim data from a Phase I/II study of Topical Targretin (LGD1069) in skin
lymphoma have demonstrated
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significant activity, and based on discussions with the FDA on trial design, the
Company has launched Phase III clinical trials in this indication with Topical
Targretin (LGD1069) and Phase II/III trials in this indication with Oral
Targretin (LGD1069), each intended to support an NDA. The Company has received
reports on interim findings from the University of Texas M.D. Anderson Cancer
Center with respect to certain Phase II/III trials of Oral Targretin (LGD1069)
intended to support an NDA in CTCL. See "Business -- Product Development
Program -- Retinoids -- Topical Targretin (LGD1069) and Oral Targretin
(LGD1069)." The Company has launched Phase II/III clinical trials with Oral
Targretin (LGD1069) 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.
To date, Ligand has entered into collaborations with seven corporate
partners which include, in addition to ALRT: SmithKline Beecham (for
hematopoietic growth factor mimetics for use in oncology and treatment of
anemia), AHP (for women's health, e.g., hormone replacement therapy,
osteoporosis, fertility control), Abbott (for inflammatory diseases, utilizing
selected IR-based approaches), Sankyo (for inflammatory diseases, utilizing
selected Glycomed technologies), Glaxo (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 (including cash contributions of $50.0 million and $17.5 million, by
Allergan and Ligand, respectively), Ligand's research activities have been
supported by commitments from its partners of up to $90.2 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 $89.0 million has
been received through September 30, 1997, and the remaining $7.5 million is
subject to Ligand attaining certain milestones.
RECENT DEVELOPMENTS
ALRT. On September 24, 1997, Ligand and Allergan announced that they had
exercised their respective options to purchase the Callable Common Stock and
certain assets of ALRT. Ligand's notice of exercise of its Stock Purchase Option
included a stock purchase option exercise price of $21.97 per share of
outstanding Callable Common Stock, the original exercise price designated for
the exercise of the Stock Purchase Option at any time prior to June 3, 1998.
Allergan's notice of exercise of its Asset Purchase Option included an Asset
Purchase Option Exercise Price of $8.9 million, the original exercise price
designated for the exercise of the Asset Purchase Option at any time prior to
June 3, 1998 under the Asset Purchase Agreement. The Asset Purchase Option
Exercise Price will be paid in cash to ALRT concurrently with the payment to
holders of ALRT Callable Common Stock of the Stock Purchase Option Exercise
Price and may be used to pay a portion of such Stock Purchase Option Exercise
Price.
Ligand and Allergan also agreed to restructure the terms and conditions
relating to research, development, commercialization and sublicense rights for
the ALRT compounds in the period following the closing of the exercise of
Ligand's Stock Purchase Option and Allergan's Asset Purchase Option. Prior to
the restructuring and following the exercise of the Stock Purchase Option and
Asset Purchase Option, Ligand and Allergan would have had equal, co-exclusive
development, commercialization and sublicense rights in the compounds and assets
developed by ALRT and a 50% interest in ALRT's liabilities. See "Certain
Transactions -- Relationship Among Allergan Ligand Retinoid Therapeutics, Inc.,
Ligand and Allergan -- Stock Purchase Option" and "-- Asset Purchase Agreement."
Under the restructured arrangement, however, Ligand will receive exclusive,
worldwide development, commercialization and sublicense rights to Oral and
Topical Panretin (ALRT1057) (currently in pivotal Phase III clinical trials),
ALRT1550 (currently in Phase I/IIa clinical trials for oncology applications)
and ALRT268 and ALRT324 (two advanced preclinical RXR selective compounds);
Allergan will receive exclusive, worldwide development, commercialization and
sublicense rights to ALRT4310, an RAR antagonist being developed for topical
application against mucocutaneous toxicity associated with currently marketed
retinoids as well as for psoriasis. Allergan will also receive ALRT326 and
ALRT4204 (two advanced preclinical RXR selective compounds). In addition, Ligand
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and Allergan have participated in the Lottery for each of the approximately
2,000 retinoid compounds existing in the ALRT compound library as of the closing
date, with each party to acquire exclusive, worldwide development,
commercialization and sublicense rights to the compounds which they select.
Ligand and Allergan will each pay the other a royalty based on net sales of
products developed from (i) the compounds selected by each in the Lottery and
(ii) the other ALRT compounds to which each acquires exclusive rights. Following
commercialization of Targretin, Ligand will also pay to Allergan a royalty based
on Ligand's net sales of Targretin for uses other than oncology and dermatology
indications; in the event that Ligand licenses commercialization rights to
Targretin to a third party, Ligand will pay to Allergan a percentage of
royalties payable to Ligand with respect to sales of Targretin other than in
oncology and dermatology indications. Under the restructured arrangement, on the
closing of the exercise of the Stock Purchase Option and the Asset Purchase
Option, Ligand will pay to Allergan a non-refundable cash payment in the amount
of $4.5 million.
Glycomed. On October 2, 1997, the Company announced the closure of the
Alameda facility housing Glycomed at the expiration of the leases. In connection
with this closure, Glycomed's assets and programs will be transferred for
integration with the Company's San Diego operations.
Eli Lilly and Company. On October 20, 1997, the Company and Lilly announced
that they intend to enter into a strategic alliance for the discovery and
development of products based upon Ligand's IR technology. The collaboration
will focus on products with broad applications across metabolic diseases,
including diabetes, obesity, dislipidemia, insulin resistance and cardiovascular
diseases associated with insulin resistance and obesity. The transaction is
subject to receipt of necessary regulatory approvals and is contingent upon
Ligand successfully closing the exercise of the Stock Purchase Option and
successfully closing the restructure of the terms and conditions relating to
research, development, commercialization and sublicense rights for the ALRT
compounds as described above. As a result, no assurance can be given that the
transaction will close or that the strategic alliance will be consummated until
all appropriate requirements have been met.
Under the proposed alliance:
- Lilly will receive worldwide, exclusive rights to Targretin (LGD1069) and
other Ligand compounds and technology associated with the RXR receptor.
Lilly will receive additional rights to use Ligand technology to develop
an RXR compound in combination with a SERM in cancer. Ligand retains
exclusive rights to independently research, develop and commercialize
Targretin (LGD1069) and other RXR compounds in the fields of cancer and
dermatology.
- Lilly will also receive worldwide, exclusive rights in certain areas to
Ligand's PPAR technology, along with rights to use PPAR research
technology with the RXR technology. Lilly and Ligand also intend to begin
research programs aimed at discovering novel compounds which
therapeutically activate PPAR subtypes for treatment of cardiovascular
disease. Finally, Lilly will receive exclusive rights to Ligand's HNF4
receptor and the obesity gene promoter technology.
- Ligand has the option to obtain selected rights to one Lilly specialty
pharmaceutical product. The product would fit into a current area of
strategic focus for Ligand. Should Ligand elect to obtain selected rights
to the product, Lilly could receive milestones of up to $20 million in
Ligand stock. In the event that Ligand does not exercise this product
option during the first 90 days after the effective date of the
agreements, currently anticipated to occur one business day following the
closing of the exercise of the Stock Purchase Option, Ligand will sell an
additional $20 million in equity to Lilly at a 20% premium to the then
market price, and Ligand will qualify for certain additional royalties of
up to 1.5% on net sales of Ligand's choice of Targretin (LGD1069),
ALRT268 (LGD1268) or ALRT324 (LGD1324).
- Ligand will receive double-digit royalties on net sales of the most
advanced products and single-digit royalties on net sales of earlier
compounds. Ligand will also receive milestones, royalties and options to
obtain certain co-development and co-promotion rights for the
Lilly-selected RXR compound in combination with a SERM.
- Lilly will make a $37.5 million equity investment in Ligand upon the
closing of the transaction and will, thereafter, pay to Ligand $12.5
million in upfront milestones.
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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. An outgrowth of these programs has led
to a development program in metabolic disease. 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, metabolic and other diseases,
as well as broad applications for women's and men'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 has initiated human clinical
trials for five products: the retinoids Oral Panretin (ALRT1057), Topical
Panretin (ALRT1057) and Oral ALRT1550 on behalf of ALRT, and Oral Targretin
(LGD1069) and Topical Targretin (LGD1069), which are Ligand's first products. In
connection with the exercise of the Stock Purchase Option and the exclusive
licensing arrangement with Allergan described in "Recent Developments," Ligand
will acquire the exclusive right to develop and commercialize Oral and Topical
Panretin (ALRT1057), ALRT1550, ALRT268 and ALRT324. Glycomed internal programs
focus on the development of orally active drugs to modulate biological processes
involving complex carbohydrates and other cell surface components for the
treatment of inflammation and cancer.
Externally, Ligand is collaborating with large pharmaceutical companies,
with the goal of building a royalty-based business through the application of
its technologies to primary care markets, such as cardiovascular, inflammatory,
broad aspects of women's and men's health and other diseases. In addition to
ALRT, Ligand has established six major collaborative arrangements to discover
and develop drugs that address disorders principally treated by primary care
physicians, specifically hematopoiesis with SmithKline Beecham, female health
disorders with AHP, inflammatory disease with Abbott, cardiovascular disease
with Glaxo, osteoporosis with Pfizer and has inherited a collaboration through
the Merger, with Sankyo in inflammation based on cell adhesion research. 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.
Each of these arrangements provides for collaborative discovery programs funded
largely by the corporate partners aimed at discovering new therapies for
diseases treated by primary care physicians. 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 for successful compounds moving
through clinical development and milestone revenue as well as royalty revenue on
sales of drugs marketed by its collaborators.
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
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by Ligand's scientists or its exclusive collaborators. IRs play key roles in a
variety of diseases, including certain cancers, gynecological disorders, and
cardiovascular, metabolic 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(R) 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.
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, resulting in
anemia. Recombinant human EPO protein (Epogen(R)) can be administered to
effectively correct this anemia, but must be injected. Many other cytokines are
useful as injected protein medicines, including interferons (Intron-A(R),
Roferon(R), Betaseron(R)), interleukins (Proleukin which Ligand markets in
Canada), hematopoietic growth factors (Epogen(R), Neupogen(R)) and others. Each
of these and many other cytokines appears to exert their actions through
STAT/JAK signal transduction pathways. Ligand is utilizing STAT/JAK technology
to seek low molecular weight compounds which can 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 are small molecules, whereas the cytokines themselves are proteins, they
offer potential significant advantages, including oral activity and greater ease
of manufacture and stability. Ligand's STAT/JAK technology forms the basis for
the Company's collaboration with SmithKline seeking small molecule mimetics of
EPO, Granulocyte-Colony Stimulating Factor ("G-CSF"), and thrombopoietin.
LIGAND'S IR DRUG DISCOVERY OPPORTUNITIES
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 superfamily, (ii) the
recognition of IR subtypes, (iii) the discovery of orphan IRs and (iv) the
heterodimer biology of RXR selective compounds. Ligand believes that each of
these broad areas of knowledge provides important opportunities for drug
discovery.
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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 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.
RXR Heterodimer Biology. Retinoids that bind to the RXR family deliver
their therapeutic effects through partnered IRs. Recently scientists have
discovered that RXRs are obligate partners in these IR pairs through all
tissues. These IR pairs consist of one RXR and one of a variety of other IRs,
such as RARs, PPARs or thyroid hormone receptors. While RXRs are widely
expressed, their IR partners are more discreet, being expressed in selective
tissues, such as liver, fat or muscle. As a result, compounds that bind RXRs
offer the unique potential to be broadly active compounds that can treat a
variety of diseases, including metabolic diseases.
In animal models of type II diabetes, RXR agonists appear to stimulate the
physiological pathways responsive to RXR-PPAR receptor partners expressed in key
target tissues that are involved in glucose metabolism. As a result, a discrete
set of genes is activated in these tissues resulting in a decrease in serum
glucose levels, triglycerides and insulin.
LIGAND'S STAT DRUG DISCOVERY OPPORTUNITIES
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
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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 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, EPO, 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 a collaboration
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
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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.
Glycomed's research is currently focused on selectin antagonists for the
treatment of inflammation in a collaboration with Sankyo. One Glycomed compound
is Galardin(TM), a matrix metaloproteinase inhibitor in-licensed by Glycomed
prior to the Merger. In Phase II/III trials, Galardin(TM) treated patients had
significantly lower incidence of corneal perforation. Since the Merger, the
Company has sought a partner to further develop the product. Sankyo has
Galardin(TM) under development in Phase II trials in Japan for opthalmic
indications.
LIGAND'S DRUG DISCOVERY AND DEVELOPMENT PROCESS
Ligand's advanced molecular-based IR research focuses on analyzing the
biological systems regulated by IRs to choose the most promising molecular
targets for drug discovery. After selecting a target, the next critical step in
drug discovery is the identification of suitable lead compounds (chemical
structures suitable as starting points for optimization as drugs by the
application of medicinal chemistry). Traditional drug discovery generally uses
animal models or biochemical screening systems for lead compound identification.
Animal models are relatively slow, complicated and expensive; and results in
animals do not always correlate to those obtained in humans. Biochemical assays
are fast and inexpensive, but give limited information and frequently identify
poor lead compounds. Ligand has developed a hybrid approach to lead compound
identification that retains the best features and avoids the pitfalls of
traditional methods to discover leads.
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.
Once Ligand verifies a lead compound for a particular target, the next
critical process is optimization of the compound to achieve specificity and
appropriate properties as a drug. Specificity is achieved when the compound
interacts only with the intended target molecule and not with related but
unintended molecules.
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Ligand's unique and comprehensive ability to assess compounds preclinically for
interactions with all the known human IRs or in various STAT pathways is a
significant advantage in obtaining specificity in a lead compound. Optimization
of a lead compound is an iterative process in which analogues of the lead
compound, designed and synthesized by medicinal chemists, are assayed for
activity. The results obtained with each set of analogues guide the medicinal
chemists in the design of compounds with greater specificity. The co-
transfection assay produces results which enhance the accuracy and efficiency of
this iterative optimization process. Ligand believes the STAT-based assays may
have similar advantages.
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, as part of its overall business strategy, is developing new drugs
through a combination of internal and collaborative programs: (i) internally, by
focusing on the discovery, development and marketing of small-molecule drugs
that address diseases, such as cancer and gynecological disease, treated by
medical specialists, and by seeking to in-license or acquire later-stage
products in these medical specialties; and (ii) by collaborating with large
pharmaceutical companies, with the goal of building a royalty-based business
through the application of its technologies to primary care markets, such as
cardiovascular, inflammatory and other diseases, and broad aspects of women's
health.
Ligand is currently pursuing five 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);
one is based on a combination of disease indications and transcription factor
targets (inflammatory diseases); one is based on STATs; and one is based on
Glycomed's inhibitors of cell adhesion technology. Additionally, Ligand has
in-licensed and is distributing two anti-cancer products in Canada.
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<PAGE> 33
The following table summarizes the current status of Ligand's product
research, development and marketing programs:
<TABLE>
<CAPTION>
DEVELOPMENT
PROGRAM DISEASE INDICATION PHASE(1) MARKETING RIGHTS
- ------------------------------------ -------------------------------- ---------------- ---------------------
<S> <C> <C> <C>
ALRT RETINOIDS(2)
Topical Panretin (ALRT1057)(3) KS Phase III ALRT
Oral Panretin (ALRT1057)(3) APL Phase III ALRT
Cancers, including, KS, MDS, Phase IIB ALRT
ovarian, prostate
Psoriasis Phase II ALRT
Oral ALRT 1550(3) Cancer Phase I/IIA ALRT
ALRT4310 & analogues(3) Skin diseases and cancer Preclinical ALRT
ALRT RAR(LOGO) agonists(3) Leukemia, lymphoma, breast Preclinical ALRT
cancer
ALRT268, ALRT324 & analogues(3)(4) Cancer, skin and metabolic Preclinical ALRT
diseases (type II diabetes)
LIGAND RETINOIDS(2)
Topical Targretin (LGD1069)(4) Cutaneous T-cell lymphoma and Phase III Ligand worldwide
other malignancies of skin
Actinic keratoses Phase II Ligand worldwide
Oral Targretin (LGD1069)(5) Cutaneous T-cell lymphoma Phase II/III Ligand worldwide
Lung cancer PhaseII/III Ligand worldwide
Cancers, including ovarian, head Phase IIB Ligand worldwide
and neck, KS
Skin and metabolic diseases Phase II Ligand worldwide
(type II diabetes)
SEX STEROIDS
Droloxifene(6) Breast Cancer Phase III Pfizer
Osteoporosis Phase II Pfizer
Estrogen agonist Osteoporosis Phase I Pfizer
(CP336,156)(7)
Progesterone antagonists Cancer, endometriosis, uterine Lead compounds AHP/Ligand(8)
(LG1447 series) fibroids selected
Progesterone agonists Breast cancer, hormone Lead compounds AHP/Ligand(8)
(LG2527/2716 series) replacement therapy selected
Estrogen agonists Osteoporosis Development AHP/Ligand(8)
(TSE424)(9) candidate
Tissue selective estrogen or Gynecological disease, Lead compounds AHP/Ligand(8)
progesterone agonists and cardiovascular disease, hormone selected
antagonists replacement therapy
Androgen antagonists Prostate cancer, skin disease Lead compounds Ligand worldwide
(LG2293 series) selected
Androgen agonists Male hormone replacement Lead compounds Ligand worldwide
therapy, osteoporosis identified
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(8)
inflammatory bowel disease, selected
asthma, dermatitis
GLYCOMED INFLAMMATORY
DISEASE
Galardin(TM) MMPI (GM6001) Ophthalmic inflammation Phase II/III Ligand; Sankyo in Far
Matrix metalloproteinase completed East (ophthalmic
inhibitor ("MMPI")(10) Phase II(11) indications)
GM1998 Acute and chronic inflammation Lead compounds Ligand; Sankyo in Far
Cell adhesion inhibitors selected East
GM1925, GM2296, GM1380 & analogues Acute and chronic inflammation Lead compounds Ligand; Sankyo in Far
selected East
GM1892 Reperfusion injury Lead compounds Ligand worldwide
Endothelial protective agent selected
</TABLE>
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<PAGE> 34
<TABLE>
<CAPTION>
DEVELOPMENT
PROGRAM DISEASE INDICATION PHASE(1) MARKETING RIGHTS
- ------------------------------------ -------------------------------- ---------------- ---------------------
<S> <C> <C> <C>
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
Interferon antagonists Rheumatoid arthritis, Lead compounds Ligand Worldwide
inflammatory bowel disease, selected
asthma, dermatitis
Hematopoietic growth factors Oncological uses, anemia Lead compounds SmithKline
selected Beecham/Ligand(8)
Other cytokine agonists and Cancer, immunology, growth Research Ligand worldwide
antagonists control
IN-LICENSED
PHOTOFRIN(TM) Esophageal cancer, superficial Market Ligand
bladder cancer (Canada only)
Proleukin(TM) 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 intracellular
receptor 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 lead compound is selected, chemical modification of the
compound is then undertaken to create the best drug candidate.
"Preclinical" includes pharmacology and toxicology testing in
preclinical models (in vitro and in vivo), formulation work and
manufacturing scale-up to gather necessary data to comply with applicable
regulations prior to commencement of human clinical trials.
"Development candidates" are lead compounds that have successfully
undergone in vitro and in vivo evaluation to demonstrate that they have an
acceptable profile which justifies taking them through preclinical
development with the intention of filing an IND and initiating human
clinical testing.
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 sometimes Phase I and II trials
or Phase II and III trials are combined. 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 have exercised their respective options to purchase the
Callable Common Stock and assets of ALRT, and Ligand and Allergan have also
agreed to restructure the terms and conditions relating to the research,
development, commercialization and sublicense rights for the ALRT compounds.
See " -- Recent Developments."
(3) All rights currently owned by ALRT. In connection with the exercise of the
Stock Purchase Option and the exclusive licensing arrangement with Allergan
described in "-- Recent Developments," Ligand will acquire the exclusive
right to develop and commercialize Oral and Topical Panretin (ALRT1057),
ALRT1550, ALRT268 and ALRT324. In addition, Ligand and Allergan have
participated in the Lottery for each of the approximately 2,000 retinoid
compounds existing in the ALRT compound library as of the closing date, with
each party to acquire exclusive, worldwide development, commercialization
and sublicense rights to the compounds which they select. Allergan will
acquire rights to ALRT4310 and may acquire rights to selected RAR(LOGO)
agonists in the Lottery. See "Strategic Alliances -- Allergan, Inc." for a
more complete description of the mechanics of the Lottery.
(4) In connection with the strategic alliance with Lilly described in "-- Recent
Developments," Lilly will receive worldwide, exclusive rights to Targretin
(LGD1069) and other Ligand compounds and technology associated with the RXR
receptor in all fields other than cancer and dermatology.
(5) Oral Targretin (LGD1069) has entered Phase II human clinical trials in
diabetes in March 1997 in Europe.
(6) 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."
(7) 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 intended to complete Phase I trials in Europe
and intended to file an IND in the U.S. for CP336,156 in June 1997. Ligand
is awaiting confirmation from Pfizer. There can be no assurance that
clinical trials will proceed as planned or that any new drugs will be
successfully developed. See "-- Government Regulation."
(8) Ligand has retained certain compound rights. See "-- Strategic Alliances."
(9) IND filing expected by first quarter of 1998.
(10) Ligand is seeking a partner to further the development and
commercialization of Galardin for ophthalmic use. See "-- Inflammatory
Disease."
(11) Phase II trials ongoing in Japan.
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<PAGE> 35
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 may 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. See "-- Recent Developments." 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 three retinoid products in clinical trials,
Topical Panretin (ALRT1057), Oral Panretin (ALRT1057) and Oral ALRT1550, and
three retinoid compounds in advanced preclinical evaluation. In connection with
the exercise of the Stock Purchase Option and the exclusive licensing
arrangement with Allergan described in "-- Recent Developments," Ligand will
acquire the exclusive right to develop and commercialize Oral and Topical
Panretin (ALRT1057) and ALRT1550. In addition, Ligand and Allergan will
participate in a lottery for each of the approximately 2,000 retinoid compounds
existing in the ALRT compound library as of the closing date, with each party
acquiring exclusive, worldwide development, commercialization and sublicense
rights to the compounds which they select. In addition, Ligand has two retinoid
products in clinical trials, Topical Targretin (LGD1069) and Oral Targretin
(LGD1069), which are the sole property of Ligand and have not been licensed to
ALRT. There were 45 clinical trials conducted with Panretin and Targretin in
1996 and early 1997. On September 24, 1997, Ligand and Allergan agreed to
restructure the terms and conditions relating to research, development,
commercialization and sublicense rights for the ALRT compounds in the period
following the closing of the exercise of Ligand's Stock Purchase Option and
Allergan's Asset Purchase Option. On October 20, 1997, Ligand and Lilly
announced that they intend to enter into a strategic alliance for the discovery
and development of products based on Ligand's IR technology. See "-- Strategic
Alliances."
Topical Panretin (ALRT1057). 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 nonpeptide hormone discovered in over 25 years and appears to be a natural
ligand for the
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<PAGE> 36
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 Topical Panretin (ALRT1057) 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, Topical Panretin (ALRT1057) 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. Final
results of this Phase I/II clinical trial involving 115 patients were reported
in December 1996 and were consistent with the interim data. Following a meeting
with the FDA in November 1995, ALRT launched in the second quarter of 1996, a
pivotal Phase III study to evaluate Topical Panretin (ALRT1057) in over 200
patients with AIDS-related, cutaneous KS. In addition, Topical Panretin
(ALRT1057) began international Phase III trials for KS in the third quarter of
1996. In January 1997, the Company reported an interim assessment of the control
(placebo) response. Based on the first 100 patients, the control response was
equal to or below 10% which would permit the statistical power of the study to
be maintained without expanding the patient sample size. However, the Company
decided to enroll an additional 35 patients which will add time to the accrual
process but should not impact the targeted NDA filing date.
In August 1997, the Company reported an interim analysis of the first 82
patients in the international Phase III trial showing that 42% of KS patients
treated with Panretin had complete or partial responses compared with 7% treated
with placebo. The Company intends to file an NDA for Topical Panretin (ALRT1057)
on behalf of ALRT for treating KS in early 1998 in the event that Phase III
trials demonstrate sufficient safety and efficacy.
Oral Panretin (ALRT1057). In completed Phase I/IIA human clinical trials,
Oral Panretin (ALRT1057) 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 Oral Panretin (ALRT1057) experienced no disease
progression for periods ranging from 14 to 28 weeks. The Phase I/IIA clinical
data also indicate that Oral Panretin (ALRT1057) has good bioavailability.
Patient exposure to Oral Panretin (ALRT1057) is proportional to the administered
dose of the compound over a broad range of doses.
United States and international Phase IIB trials have been launched on
behalf of ALRT with Oral Panretin (ALRT1057) in a number of cancer indications,
including kidney cancer (in combination with interferon alpha), ovarian cancer
(with cis-platin), KS, prostate cancer, non-Hodgkin's lymphoma and multiple
myeloma. In June 1997, kidney cancer, non-Hodgkin's lymphoma and multiple
myeloma trials were discontinued due to insufficient activity. In addition, a
Phase III trial with Oral Panretin (ALRT1057) at a dose of 140 mg/m(2)/day in
APL was initiated in the fourth quarter of 1996. In September 1997, the final
analysis of a Phase I/IIA trial of Oral Panretin in APL showed that 4 of 5 newly
diagnosed patients achieved complete remission and 4 of 12 relapsed patients
also experienced complete remission. The FDA has approved an application by
Ligand, on behalf of ALRT, to have Oral Panretin (ALRT1057) designated an
"Orphan Drug" for the treatment of APL. Oral Panretin (ALRT1057) 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, which was discontinued in July
1997 due to inability to accrue patients in this small patient population. In
July 1997, the Company reported interim results of a Phase II study for Oral
Panretin in KS showing that Oral Panretin has an acceptable safety profile and a
sufficient number of positive responders to continue full accrual of the trial
by the Aids Malignancy Consortium. In an ongoing 50 patient Phase II trial of
Oral Panretin in psoriasis, Oral Panretin appears to be well-tolerated in
patients with moderate to severe plaque psoriasis. In this study, 50% (5 of 10
patients) who received the optimal dose level of 0.9 mg/kg administered daily,
achieved a 50% or greater improvement based on the Physician's Global
Evaluation.
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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. A Phase I/II study is currently being conducted by the NCI
to evaluate the safety and efficacy of Oral Panretin (ALRT1057) in children with
malignancies, and trials are underway sponsored by the NCI to evaluate the
safety and efficacy of Oral Panretin (ALRT1057) in patients with lung cancer,
cervical cancer and those with breast cancer. There were 25 clinical trials
conducted with Panretin in 1996 and early 1997.
Oral ALRT1550. A very potent RAR agonist, ALRT1550 strongly inhibits growth
of several human cancer cell lines. In the fourth quarter of 1996, an IND was
submitted and was cleared with no regulatory delay to begin human testing. Phase
I/IIA Clinical Trials in advanced cancer began at Sloan-Kettering and Lombardi
Comprehensive Cancer Center at Georgetown University in the first quarter of
1997.
Other ALRT Compounds. ALRT's drug development pipeline includes seven
additional retinoid compounds in preclinical evaluation. These include: (i)
ALRT4310 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 Oral Panretin (ALRT1057);
(ii) ALRT1455 and analogues, RAR-alpha-selective retinoids for possible use in
treating leukemias, lymphoma, and breast cancer; (iii) RXR-selective retinoids
including ALRT268 and ALRT324 with possible utilities in various metabolic
disorders such as diabetes mellitus; and (iv) four additional retinoid receptor
selective compounds with possible utilities in various cancers and skin disease.
Topical Targretin (LGD1069) and Oral Targretin (LGD1069). 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 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 Panretin (ALRT1057).
In June 1994, Ligand initiated Phase I/II clinical trials in patients with
a form of skin lymphoma or with cutaneous KS with Topical Targretin (LGD1069).
In interim data presented by investigations from the University of Cincinnati in
March 1997, Topical Targretin (LGD1069) induced responses in 43% of 48 evaluable
patients with cutaneous T-cell lymphoma ("CTCL"). In January 1996, the Company
presented interim data which showed that Topical Targretin (LGD1069) induced
responses in 15% of 46 patients with AIDS-related KS, a result which confirmed
earlier interim results presented in September 1995. The Company met with the
FDA on trial design and in late 1996 and early 1997 initiated three Phase II/III
and pivotal Phase III clinical trials in CTCL; two studies with Oral Targretin
(LGD1069) and one with Topical Targretin (LGD1069). In September 1997,
researchers from the University of Texas M.D. Anderson Cancer Center reported on
interim findings with respect to two Phase II/III pivotal trials of Oral
Targretin (LGD1069). Forty-one percent of early and advanced stage cutaneous
T-Cell lymphoma patients who had been refractory or intolerant to prior therapy
and then received higher dose Targretin capsules achieved a complete or partial
response compared to none of a group of early stage patients who received a
lower dose of Targretin capsules. All rights to Topical Targretin (LGD1069) are
the sole property of Ligand and have not been licensed to ALRT.
Ligand initiated clinical trials for Oral Targretin (LGD1069) 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 Oral Targretin (LGD1069) to facilitate design of Phase IIB and later studies.
Phase I/IIA interim trial results of Oral Targretin
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(LGD1069) 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. In April 1996, clinical investigators reported stabilization
of disease in many of their patients with non-small lung cancer (NSCLC).
Investigators from the Lombardi Comprehensive Cancer Center at Georgetown
University reported eight of 15 lung cancer patients with stable disease in
excess of three months. Investigators at Memorial Sloan-Kettering Cancer Center
reported that eight of 20 lung patients demonstrated stabilization of disease
for three to eight-plus months. Georgetown investigators reported results of an
ongoing Phase I-IIa human clinical trial on Oral Targretin (LGD 1069) at the
annual meeting of the American Association for Cancer Research and investigators
from Sloan-Kettering reported results of a close Phase I-IIa human clinical
trial of Oral Targretin (LGD1069) at the Cancer Institute (NCI) and European
Organization for Research and Treatment of Cancer (EORETC) Symposium on New
Drugs in Cancer Therapy. The safety profile of Oral Targretin (LGD1069) 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,
ovarian cancer, head and neck and prostate cancer, and a Phase II clinical trial
has begun in kidney cancer (in combination therapy with interferon alpha). There
were nearly 20 trials conducted with Targretin in 1996 and early 1997. All
rights to Oral Targretin (LGD1069) are the sole property of Ligand and have not
been licensed to ALRT.
Preclinical studies conducted in 1996 with RXR-selective retinoids such as
Oral Targretin (LGD1069) indicate possible utilities in breast cancer and
metabolic disorders such as diabetes mellitus. Preclinical studies conducted in
1996 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 conducted in 1996, 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.
A Phase II multicenter trial in type II diabetes in Europe was initiated
with Oral Targretin in the first quarter of 1997. U.S. trials are expected to
begin in 1998. The clinical studies have two main objectives: to study the
safety and tolerability of different dose levels of Targretin in type II
diabetic patients, and to determine the potential for this RXR agonist to have
positive metabolic effects on carbohydrate and /or lipid metabolism in this
population. If Phase II studies are successful Ligand expects to enter full
development on a registration tract during 1998. Ligand's goal is to initiate a
significant pharmaceutical partnership in type II diabetes in 1997 to conduct
the development.
Ligand will pay to Allergan a royalty based on Ligand's net sales of
Targretin for uses other than oncology and dermatology indications; in the event
that Ligand licenses commercialization rights to Targretin to a third party,
Ligand will pay to Allergan a percentage of royalties payable to Ligand with
respect to sales of Targretin other than in oncology and dermatology
indications.
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 research phase of a collaboration
with Pfizer, an advanced clinical compound in breast cancer and osteoporosis was
evaluated and potentially attractive ER modulators were identified as
development candidates and backup candidates. In a collaboration with AHP,
several advanced sex hormone receptor modulators are progressing
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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
nonsteroidal 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, AHP 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, AHP expanded the
collaboration further to include four advanced chemical compound series from the
WyethAyerst 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 cardioprotection without increasing
uterine or breast tissue proliferation. Ligand has been informed that Pfizer
intended to file an IND in the U.S. for CP336,156 in June 1997. Ligand is
awaiting confirmation from Pfizer.
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
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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 AHP 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 AHP's 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. AHP 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, 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(R).
Ligand has discovered three subtypes of this PPAR class and defined novel
aspects of their action. The subtype PPAR alpha appears to regulate the
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
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activate RXRs (e.g., Oral Targretin (LGD1069) and ALRT268) and indirectly
activate PPARs may also have utilities in these disorders. Preclinical animal
studies have demonstrated that Oral 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 the 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 ADL 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.
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. The collaborative research agreement was completed in September 1997.
In October 1997, the Company and Lilly announced that they intend to enter
into a strategic alliance for the discovery and development of products based
upon Ligand's IR technology. The collaboration will focus on products with broad
application across metabolic diseases, including diabetes, obesity,
dislipidemia, insulin resistance and cardiovascular diseases associated with
insulin resistance and obesity.
INFLAMMATORY DISEASE
Ligand is utilizing three innovative approaches to discover drugs for the
treatment of inflammation. One approach is being pursued in partnership with
Abbott, one approach is being pursued internally and a third approach is being
pursued in collaboration with Sankyo. 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 several approaches
to discovering modulators of glucocorticoid receptor activity that are better
than currently known anti-inflammatory steroids such as hydrocortisone and
dexamethasone. Internally, Ligand scientists are pursuing 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.
Galardin(TM) (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-
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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. Sankyo has Galardin in Phase II
trials in Japan and 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 was with
Abbott in the field of inflammation. Screening in this program led to the
selection of a lead compound for interferon antagonist activity which Ligand is
developing internally.
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. In January 1997,
SmithKline Beecham and Ligand expanded the collaboration to include screens
aimed at discovering small molecule mimics of thrombopoietin to stimulate blood
platelet production.
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. Additional screening efforts have led
to the selection of a lead compound for interferon activity in inflammation.
Current efforts have allowed the Company to identify the components required for
high throughput screening for IL-4 antagonists to treat allergy and asthma and
IL-12 antagonists to treat transplant rejections and autoimmine diseases such as
rheumatoid arthritis.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were $27.2 million, $41.6 million, $59.5
million, $42.2 million and $51.4 million in fiscal 1994, 1995, 1996, and for the
nine months ended September 30, 1996 and 1997, respectively, of which
approximately 51%, 41%, 38%, 36% and 42%, respectively, was sponsored by the
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Company and the remainder of which was funded pursuant to product development
collaboration arrangements. See "Strategic Alliances."
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 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. In August
1997, QLT filed a supplemental new drug submission with the Canadian Health
Protection Branch for PHOTOFRIN in renal cell carcinoma.
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. In August
1997, Chiron Corporation filed a supplemental new drug submission with the
Canadian Health Protection Branch for Proleukin in malignant mellanoma.
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
Eli Lilly and Company. On October 20, 1997, the Company and Lilly announced
that they intend to enter into a strategic alliance for the discovery and
development of products based upon Ligand's IR technology. The collaboration
will focus on products with broad applications across metabolic diseases,
including diabetes, obesity, dislipidemia, insulin resistance and cardiovascular
diseases associated with insulin resistance and obesity. The transaction is
subject to receipt of necessary regulatory approvals and is contingent upon
Ligand successfully closing the exercise of the Stock Purchase Option and
successfully closing the restructure of the terms and conditions relating to
research, development, commercialization and sublicense rights for the ALRT
compounds as described above. As a result, no assurance can be given that the
transaction will close or that the strategic alliance will be consummated until
all appropriate requirements have been met.
Under the proposed alliance:
- Lilly will receive worldwide, exclusive rights to Targretin (LGD1069) and
other Ligand compounds and technology associated with the RXR receptor.
Lilly will receive additional rights to use Ligand technology to develop
an RXR compound in combination with a SERM in cancer. Ligand retains
exclusive rights to independently research, develop and commercialize
Targretin (LGD1069) and other RXR compounds in the fields of cancer and
dermatology.
- Lilly will also receive worldwide, exclusive rights in certain areas to
Ligand's PPAR technology, along with rights to use PPAR research
technology with the RXR technology. Lilly and Ligand also intend to begin
research programs aimed at discovering novel compounds which
therapeutically activate PPAR subtypes for treatment of cardiovascular
disease. Finally, Lilly will receive exclusive rights to Ligand's HNF4
receptor and the obesity gene promoter technology.
- Ligand has the option to obtain selected rights to one Lilly specialty
pharmaceutical product. The product would fit into a current area of
strategic focus for Ligand. Should Ligand elect to obtain selected rights
to the product, Lilly could receive milestones of up to $20 million in
Ligand stock. In the event that Ligand does not exercise this product
option during the first 90 days after the effective date of the
agreements, currently anticipated to occur one business day following the
closing of the exercise of the Stock Purchase Option, Ligand will sell an
additional $20 million in equity to Lilly at a
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20% premium to the then market price, and Ligand will qualify for certain
additional royalties of up to 1.5% on net sales of Ligand's choice of
Targretin (LGD1069), ALRT268 (LGD1268) or ALRT324 (LGD1324).
- Ligand will receive double-digit royalties on net sales of the most
advanced products and single-digit royalties on net sales of earlier
compounds. Ligand will also receive milestones, royalties and options to
obtain certain co-development and co-promotion rights for the
Lilly-selected RXR compound in combination with a SERM.
- Lilly will make a $37.5 million equity investment in Ligand upon the
closing of the transaction and will, thereafter, pay to Ligand $12.5
million in upfront milestones.
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 equity investment of $2.5 million in Ligand's Common
Stock was provided to Ligand upon the achievement of certain milestones. A third
equity investment of $2.5 million would be provided to Ligand upon SmithKline
Beecham's election to expand the scope of research as defined. This election was
exercised by SmithKline Beecham in January 1997 to include screens aimed at
discovering small molecule mimics of thrombopoietin. The final installment of
$2.5 million was provided in October 1997 as a convertible note as a result of
SmithKline Beecham's election 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 September 30, 1997,
SmithKline Beecham had funded approximately $6.9 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 research agreement with AHP providing for a three-year research
program (with an option to extend the program for two years at AHP'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. AHP 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, AHP agreed to provide up to $21.5 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
AHP's 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. AHP made a $5.0
million equity investment in Ligand and provided $10.0 million to Ligand in the
form of a convertible note. In the second quarter of 1995, Ligand had achieved
certain milestones which qualified the Company to receive the second installment
of a $5.0 million convertible note which the Company elected to receive in
December 1996. A final convertible note installment of $5.0 million will be
provided if AHP exercises its option to extend the period of collaboration from
three to five years. The first two notes issued to AHP are convertible into the
Company's 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, February 1997
and again in July
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1997, the Company converted $3.8 million, $3.8 million and $2.5 million,
respectively of the convertible notes outstanding into 374,626, 374,626 and
249,749 shares of Common Stock at a $10.01 conversion price.
In January 1996, AHP 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, AHP expanded the collaboration to include four advanced
chemical compound series from its internal ER-osteoporosis program. As of
September 30, 1997, AHP had funded approximately $15.9 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
research 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 September 30, 1997, Abbott had funded approximately $7.7 million of
the total of $16.0 million in potential research funding under the agreement.
Sankyo Company Limited. As part of the Glycomed acquisition, 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 $8.9 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 purchased $1.5 million of the Company's
Common Stock. Sankyo can terminate the research program at any time upon 30 days
notice in the event of any breach by Glycomed. In June 1997, the collaborative
research agreement was extended through October 1997. No further extension of
the research agreement is anticipated. As of September 30, 1997, Sankyo had
funded approximately $8.8 million, of which $6.5 million has been funded since
the Merger, of the total of $8.9 million in potential research funding under the
agreement.
Glaxo-Wellcome plc. In September 1992, Ligand entered into a five-year
collaborative research agreement with Glaxo to 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 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
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research program at any time upon 180 days notice in the event of any breach by
Ligand. 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. As of September
30, 1997, Glaxo had funded approximately $9.2 million of the total of $10.0
million in potential research funding under the agreement. The collaborative
research agreement was completed in September 1997.
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. 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 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 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 Company's 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 other various
agreements in connection with the funding of ALRT, including, a Technology
License Agreement, a Research and Development Agreement, a Commercialization
Agreement, Services and Administrative Agreements, an option to acquire certain
assets related to Oral and Topical Panretin (ALRT1057) (the "ALRT1057 Option")
and the Stock Purchase Option, 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. Pursuant to
the 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 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 September 30, 1997, ALRT had provided
approximately $50.0 million in research funding to Ligand under the Research and
Development Agreement.
On September 24, 1997, Ligand and Allergan announced that they had
exercised their respective Stock Purchase Option and Asset Purchase Option at
the original price provided by the agreements. Ligand's notice of exercise price
of the Stock Purchase Option including a stock purchase option exercise price of
$21.97 per share of outstanding Callable Common Stock, the original exercise
price designated for the exercise of the Stock Purchase Option at any time prior
to June 3, 1998. Allergan's notice of exercise of its Asset Purchase Option
included the aggregate Asset Purchase Option Exercise Price of $8.9 million, the
original exercise price designated for the exercise of the Asset Purchase Option
at any time prior to June 3, 1998 under the governing Asset Purchase Agreement.
The Asset Purchase Option Exercise Price will be paid in cash to ALRT
concurrently with the payment to holders of ALRT Callable Common Stock of the
Stock Purchase Option Exercise Price and may be used to pay a portion of such
Stock Purchase Option Exercise Price.
Ligand and Allergan also agreed to restructure the terms and conditions
relating to research, development, commercialization and sublicense rights for
the ALRT compounds in the period following the closing of the exercise of
Ligand's Stock Purchase Option and Allergan's Asset Purchase Option. Prior to
the restructuring and following the exercise of the Stock Purchase Option and
Asset Purchase Option, Ligand and Allergan would have had equal, co-exclusive
development, commercialization and sublicense rights in the compounds and assets
developed by ALRT. Ligand would have owned all of the outstanding Callable
Common Stock of ALRT and Allergan would have acquired (i) a co-exclusive (with
ALRT) right to ALRT technology as of the date of the acquisition and (ii) 50% of
all tangible assets related to ALRT's activities in the retinoid program. See
"Certain Transactions -- Relationship Among Allergan Ligand Retinoid
Therapeutics, Inc., Ligand and Allergan -- Stock Purchase Option" and "-- Asset
Purchase Agreement." Under the restructured arrangement, however, Ligand will
receive exclusive, worldwide development, commercialization
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and sublicense rights to Oral and Topical Panretin (ALRT1057) (currently in
pivotal Phase III clinical trials), ALRT1550 (currently in Phase I/IIa clinical
trials for oncology applications) and ALRT268 and ALRT324 (two advanced
preclinical RXR selective compounds); Allergan will receive exclusive, worldwide
development, commercialization and sublicense rights to ALRT4310, an RAR
antagonist being developed for topical application against mucocutaneous
toxicity associated with currently marketed retinoids as well as for psoriasis.
Allergan will also receive ALRT326 and ALRT4204 (two advanced preclinical RXR
selective compounds). In addition, Ligand and Allergan have participated in the
Lottery for each of the approximately 2,000 retinoid compounds existing in the
ALRT compound library as of the closing date, with each party to acquire
exclusive, worldwide development, commercialization and sublicense rights to the
compounds which they select.
The purpose of the Lottery is to divide between Ligand and ALRT on the one
hand and Allergan on the other all compounds developed by ALRT and existing as
of the closing of the Stock Purchase Option. Allergan and Ligand shared all
information regarding ALRT compounds and developed a list of such compounds
organized into the following categories: RXR compounds, RAR alpha selective
compounds, RAR antagonist compounds, RAR beta selective compounds, RAR
panagonist compounds, RAR/RXR panagonist compounds and other compounds. Allergan
initially selected two ALRT compounds from the RXR category, followed by Ligand
and Allergan alternative selections (with Ligand selecting first) of the
remaining ALRT compounds in the RXR category on a single compound for single
compound basis. Allergan then had the initial selection of one ALRT compound
from each of the RAR alpha selective and RAR antagonist category. Ligand then
had the right to select two ALRT compounds in each of the RAR alpha selective
and RAR antagonist categories and thereafter, Allergan and Ligand alternated
selecting single ALRT compounds in each of these categories. Ligand then had the
right to select the next category of ALRT compounds to be subject to the Lottery
and had the first selection of a single ALRT compound in such category; Allergan
then had the right to select two ALRT compounds in such category and thereafter,
Ligand and Allergan alternated selecting single ALRT compounds in such category.
The process described in the immediately preceding sentence continued with each
of Ligand and Allergan alternating selection of a category of ALRT compounds
(with Allergan selecting first). The party selecting the category selected the
first compound in the category, the other party selected the second and third
compounds in the category and the parties thereafter alternated single
selections.
Ligand and Allergan will each pay the other a royalty based on net sales of
products developed from (i) the compounds selected by each in the Lottery and
(ii) the other ALRT compounds to which each acquires exclusive rights. Ligand
will also pay to Allergan a royalty based on Ligand's net sales of Targretin for
uses other than oncology and dermatology indications; in the event that Ligand
licenses commercialization rights to Targretin to a third party, Ligand will pay
to Allergan a percentage of royalties payable to Ligand with respect to sales of
Targretin other than in oncology and dermatology indications. Under the
restructured arrangement, on the closing of the exercise of the Stock Purchase
Option and the Asset Purchase Option Ligand will pay Allergan a non-refundable
cash payment in the amount of $4.5 million.
Pfizer Inc. In May 1991, Ligand entered into a five-year collaborative
research and development and license 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 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 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
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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.
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 the 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
announcements by Pfizer, droloxifene has entered Phase II clinical trials for
osteoporosis and Phase III clinical trials for breast cancer. Ligand has been
informed by Pfizer that CP336,156 was to complete Phase I trials in Europe and
an IND was planned in the U.S. for June 1997.
The Salk Institute of Biological Studies. In October 1988, Ligand
established an exclusive relationship with The Salk Institute which is one of
the 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 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 September 1999. 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 also entered into an exclusive consulting agreement with Dr. O'Malley
through September 1997. Discussions are under way to extend such agreement;
there can be no assurance such an extension will be negotiated. Dr. O'Malley is
a member of Ligand's Scientific Advisory
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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 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 also relies upon trade
secrets, know-how, continuing technological innovations and licensing
opportunities to develop and maintain its competitive position.
To date, Ligand has filed or participated as licensee in the filing of over
190 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. In addition, Ligand is the exclusive licensee to
rights covered by 150 patents issued or allowed worldwide to The Salk Institute,
Baylor and other licensors. Subject to compliance with the terms of the
respective agreements, Ligand's rights under its license with The Salk
Institute, and other exclusive licensors, extend for the life of the patents
covering such developments.
The patent positions of pharmaceutical and biotechnology firms, including
Ligand, are uncertain and involve complex legal and factual questions for which
important legal principles are largely unresolved. In addition, the coverage
claimed in a patent application can be significantly reduced before or after a
patent is issued. The situation is also affected by the fact that the patent law
of the United States is changed from time to time. For example, during 1995, the
patent term was changed from 17 years from patent grant to 20 years from the
filing date of the application for patent. Since a patent has no effect until
granted, and because the time during which a patent application spends before
the Patent Office cannot be predicted, the actual term of a patent cannot be
known until it is granted and that term may be substantially less than the 17
years allowed under former law. Also during 1995, certain advantages of U.S.
inventors over foreign inventors were eliminated from the patent law. There are
currently pending before the Congress other changes to the patent law which may
adversely affect pharmaceutical and biotechnology firms. The extent to which the
changes made in 1995 and changes which might occur if pending legislation is
adopted would affect the operations of Ligand cannot be ascertained. There can
be no assurance that any patent applications will result in the issuance of
patents or, if any patents are issued, that they will provide significant
proprietary protection or, instead, will be circumvented or invalidated. Since
under current law patent applications in the United States are maintained in
secrecy until foreign counterparts, if any, publish or patents issue and since
publication of discoveries in the scientific or patent literature often lag
behind actual discoveries, Ligand cannot be certain that it or any licensor was
the first creator of inventions covered by pending patent applications or that
it or such licensor was the first to file patent applications for such
inventions. Moreover, Ligand might have to participate in interference
proceedings declared by the U.S. Patent and Trademark Office to determine
priority of invention, which could result in substantial cost to Ligand, even if
the eventual outcome were
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favorable to Ligand. 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.
A number of pharmaceutical and biotechnology 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 technologies, applications or patents may conflict with
Ligand's technologies or patent applications. 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 these patents at a reasonable
cost or be able to develop or obtain alternative technology.
Ligand also relies upon trade secret protection for its confidential and
proprietary information. There can be no assurance that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to Ligand's trade secrets or disclose such
technology or that Ligand can meaningfully protect its trade secrets.
It is Ligand's policy to require its employees, consultants, members of the
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. These agreements provide that all
confidential information developed or made known during the course of the
relationship with Ligand is to be kept confidential and not disclosed to third
parties except in specific circumstances. In the case of employees, the
agreements provide that all inventions resulting from work performed for Ligand,
utilizing property of Ligand or relating to Ligand's business and conceived or
completed by the individual during employment shall be the exclusive property of
Ligand to the extent permitted by applicable law. There can be no assurance,
however, that these agreements will provide meaningful protection of Ligand's
trade secrets or adequate remedies in the event of unauthorized use or
disclosure of such information.
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(R), an oncology product, within Canada for a five-year
period beginning on the date of the first sale of Proleukin(R) by Ligand in
Canada. Ligand paid Cetus Oncology $250,000 upon execution of the agreement and
made an additional milestone payment of $250,000 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 current Good Manufacturing Practices ("cGMP")
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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
regulation by federal and various state authorities, including FDA. 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. There are often
comparable regulations which apply at the state level. 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
an 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 and in California, with the Food and Drug Branch of California. Domestic
manufacturing establishments are subject to preapproved inspections by the FDA
prior to marketing approval and then to biennial inspections and must 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
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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 post-marketing 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.
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.
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 existing
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 Oral Panretin (ALRT1057)
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
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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 be competing 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. A number of pharmaceutical and biotechnology companies are
pursuing IR-related or STAT-related approaches to drug discovery and
development. Furthermore, academic institutions, government agencies, and other
public and private organizations conducting research may seek patent protection
with respect to potentially competing products or technologies and may establish
collaborative arrangements with competitors of Ligand.
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. These companies 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 pharmaceuticals could render these
pharmaceuticals noncompetitive or obsolete.
Ligand's products under development are expected to address 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 its future corporate partners can develop products, complete the
clinical trials and regulatory approval processes, and supply commercial
quantities of the products to the market are expected to be important
competitive factors. 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 for
the often substantial period between technological conception and commercial
sales.
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 October 31, 1997, Ligand had 368 full-time employees, of whom 278
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 six facilities: four in San Diego,
California, and two in Alameda, California.
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In San Diego, the Company leased 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 10,000 square feet which
continues through December 1997. The fourth facility in San Diego is a lease of
approximately 7,500 square feet of laboratory space which continues through
February 1999.
In Alameda, Glycomed leases two buildings totaling approximately 56,000
square feet, for laboratory and administrative office usage. The leases expired
in October 1997 and contained a renewal option of five years. As of December
1996, Glycomed had sub-let approximately 25,800 square feet in one of these
buildings. The Company recently announced the closure of the Alameda facility
housing Glycomed at the expiration of the leases.
The Company believes these facilities will be adequate to meet the
Company's near-term space requirements. At the end of 1997, two of the Company's
San Diego lease agreements for office and research facilities expire. The
Company plans to occupy a build-to-suit facility prior to the termination of
those leases. In March 1997, the Company entered into a long-term lease related
to the build-to-suit facility.
LITIGATION
From time to time the Company is a party to other litigation arising in the
normal course of business. As of the date of the filing, the Company is not a
party to any litigation which would have a material effect on its financial
position or business operations taken as a whole.
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<PAGE> 55
MANAGEMENT
The directors and executive officers of the Company as of October 15, 1997
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------- --- ---------------------------------------------------
<S> <C> <C>
David E. Robinson................. 48 Chairman of the Board, President, Chief Executive
Officer and Director
Lloyd E. Flanders, Ph.D........... 57 Senior Vice President, Pre-Clinical Development and
R&D Project Management
Paul V. Maier..................... 49 Senior Vice President, Chief Financial Officer and
Treasurer
Andres Negro-Vilar, M.D., Ph.D.... 57 Senior Vice President, Research and Chief
Scientific Officer
William A. Pettit................. 48 Senior Vice President, Human Resources and
Administration
Steven D. Reich, M.D.............. 52 Senior Vice President, Clinical Research
William L. Respess, J.D., Ph.D.... 58 Senior Vice President, General Counsel, Government
Affairs and Secretary
Russell L. Allen.................. 51 Vice President, Corporate Development and Strategic
Planning
Susan E. Atkins................... 50 Vice President, Investor Relations and Corporate
Communications
George M. Gill, M.D............... 64 Vice President, Medical Affairs
Howard T. Holden, Ph.D............ 52 Vice President, Regulatory Affairs and Compliance
Henry F. Blissenbach.............. 55 Director
Alexander D. Cross, Ph.D.......... 65 Director
John Groom........................ 59 Director
Irving S. Johnson, Ph.D........... 72 Director
Carl C. Peck, M.D................. 55 Director
</TABLE>
BUSINESS EXPERIENCE OF DIRECTORS AND EXECUTIVE OFFICERS
DAVID E. ROBINSON has served as President and Chief Executive Officer and a
Director of Ligand since 1991. Since May 1996, Mr. Robinson has also served as
Chairman of the Company. 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 and the California Healthcare Institute (CHI), as well as Neurocrine
Biosciences Inc. and 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 Project Management in March
1995. Prior to joining Ligand, Dr. Flanders was Vice President, New Product
Development -- Cardiovascular Projects at Parke-David 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.
PAUL V. MAIER joined Ligand in October 1992 as Vice President and Chief
Financial Officer and became Senior Vice President and Chief Financial Officer
in November 1996. Prior to joining Ligand, Mr. Maier
54
<PAGE> 56
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.
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 Clinical Programs and Chief of the Laboratory of
Molecular and Integrative Neurosciences. Dr. Negro-Vilar received a Ph.D. in
physiology from the University of Sao Paulo, Brazil, an M.D. from the University
of Buenos Aires, Argentina, and a B.S. in science from Belgrano College.
WILLIAM A. PETTIT joined Ligand in November 1996 as Senior Vice President,
Human Resources and Administration. Prior to joining Ligand, Mr. Pettit was
Senior Vice President, Human Resources at Pharmacia and Upjohn, Inc. where he
was employed from 1986 to 1996. From 1984 to 1986, Mr. Pettit served as
Corporate Director, Human Resources at Browning Ferris Industries. From 1975 to
1984, Mr. Pettit served in various positions at Bristol-Myers Company (now
Bristol-Myers Squibb Company) including Director, Human Resources. Mr. Pettit
received a B.A. in English from Amherst College.
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, form
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 (1978-1979). 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.
RUSSELL L. ALLEN joined Ligand in February 1997 as Vice President,
Corporate Development and Strategic Planning. Prior to joining Ligand, Mr. Allen
was General Manager, Central America, Sanofi Winthrop Inc. and previously served
as Vice President, Business Development Strategic Analysis at Sterling Winthrop
Inc. where he was employed from 1985 to 1996. From 1980 to 1985, Mr. Allen
served in various positions at Bristol-Myers Company (now Bristol-Myers Squibb
Company) and from 1973 to 1980, held various positions at Procter & Gamble. Mr.
Allen received an M.B.A. from Harvard Graduate School of Business and a B.A.
from Amherst College.
SUSAN E. ATKINS joined Ligand in June 1993 as Vice President, Investor
Relations and Corporate Communications. Prior to joining Ligand, Ms. Atkins
served as Vice President of Public Affairs at Rorer Group Inc. (now
Rhone-Poulenc Rorer), an international pharmaceutical firm from 1986 to 1988.
From 1985 to 1986, Ms. Atkins served as Director of Corporate Communications at
Genentech, Inc. ("Genentech").
55
<PAGE> 57
Ms. Atkins received an M.B.A. from Pepperdine University and received both an
M.A. in mass communications and B.A. in journalism from the University of
Oklahoma.
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.
HENRY F. BLISSENBACH has served as a Director since May 1995 and currently
serves as a member of Ligand's Compensation Committee. Dr. Blissenbach joined
Diversified Pharmaceutical Services, a subsidiary company of SmithKline Beecham,
in August 1986 and served as President until March 1997. Dr. Blissenbach was
recently named Chief Pharmacy Officer for SmithKline Beecham's Health Care
Services. 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 over the past many years.
Dr. Blissenbach currently serves on the Board of Directors for Chronimed, Inc.
ALEXANDER D. CROSS, PH.D. has served as a Director 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 of Directors and Chief Executive
Officer for Cytopharm, Inc. He is a member of the Boards of Directors of Myelos
Neurosciences and Failure Group, Inc.
JOHN GROOM has served as a Director since May 1995 and currently serves as
a member of Ligand's Audit Committee and Compensation Committees. Mr. Groom has
served as President and Chief Operating Officer of Elan Corporation, plc
("Elan") since January 1997, having previously served from July 1996 to January
1997 as Chief Operating Officer and a director on the Board of Directors of
Elan. Previously, he was President, Chief Executive Officer, and a director on
the Board of Directors of Athena Neurosciences, Inc. from 1987 until its
acquisition by Elan in July 1996. From 1960 until 1985, Mr. Groom was employed
by Smith Kline & French Laboratories ("SK&F"), the pharmaceutical division of
the then SmithKline Beechman Corporation. He held a number of positions at SK&F
including President of SK&F International, Vice President, Europe, and Managing
Director, United Kingdom. Mr. Groom has also served as Chairman of the
International Section of the Pharmaceutical Manufacturers Association. Mr. Groom
also serves as a director on the Board of Directors of IDEC Pharmaceuticals
Corporation 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 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
Lilly, a pharmaceutical company, including Vice President of Research from 1973
until 1988. He has published almost 90 scientific articles, contributed to over
30 books and has served on numerous editorial boards, society committees and
advisory committees of the National Academy of Sciences and the National
Institutes of Health including the Recombinant DNA Advisory
56
<PAGE> 58
Committee (RAC), 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. He served on the
Board of Directors of Glycomed, Inc. (1990 to 1991) until its merger with Ligand
and on the Board of Directors of Athena Neurosciences (1989 to 1996) until its
merger with Elan. He currently serves on the Scientific Advisory Boards of both
Ligand and Elan.
CARL C. PECK, M.D. has served as a Director since May 1997. Dr. Peck is
currently Professor of Pharmacology and Medicine and Director of the Center for
Drug Development Science at Georgetown University Medical Center. Dr. Peck was
Boerhaave Professor of Clinical Drug Research at Leiden University from November
1993 to July 1995. From October 1987 to November 1993, Dr. Peck was Director,
Center for Drug Evaluation and Research of the Food and Drug Administration. He
has held many academic positions prior to October 1987, including Professor of
Medicine and Pharmacology, Uniformed Services University, from 1982 to October
1987. He is author of more than 100 original research papers, chapters and books
with regard to his area of expertise.
Member of the Board of Directors currently hold office and serve until the
next annual meeting of the stockholders of the Company or until their respective
successors have been elected. The Board of Directors is currently comprised of
seven directors. All executive officers are appointed annually by and serve at
the discretion of the Board of Directors. Certain of the executive officers are
employed by the Company pursuant to employment arrangements. See "-- Employment
Contracts and Change of Control Arrangements."
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has an Audit Committee and a Compensation Committee of the
Board of Directors. The Company does not have a Nominating Committee or a
committee that performs the functions of a Nominating Committee. The Audit
Committee was established in March 1992 and is primarily responsible for
reviewing the financial reporting process and the Company's internal accounting
controls, and approving the services performed by, and the independence of, the
Company's auditors. This Committee currently consists of Dr. Cross and Mr.
Groom. The Compensation Committee was established in March 1992 and reviews and
approves the Company's compensation policy. This committee currently consists of
Messrs. Henry F. Blissenbach and John Groom.
57
<PAGE> 59
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary of Cash and Certain Other Compensation
The following table provides certain summary information concerning the
compensation earned by the Company's Named Executive Officers for services
rendered in all capacities to the Company for the fiscal years ended December
31, 1996, 1995 and 1994:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS(3)
ANNUAL COMPENSATION -------------------
----------------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING OPTIONS/
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) COMPENSATION($)(2) SARS(#)
- ------------------------------- ---- ------------ -------- ------------------ -------------------
<S> <C> <C> <C> <C> <C>
David E. Robinson.............. 1996 486,295 80,000 68,292 100,000
Chairman of the Board 1995 457,393 75,000 62,576 68,082
President and CEO 1994 439,167 70,000 95,946 55,208
William L. Respess............. 1996 268,625 124,000 (4) 3,465 6,750
Senior Vice President, 1995 254,625 -- 3,465 36,400
General Counsel, Government 1994 223,646 -- 433 105,951
Affairs and Secretary
Lloyd E. Flanders.............. 1996 231,693 24,000 20,664 48,750
Senior Vice President, 1995 213,963 27,000 29,348 21,400
Pre-Clinical
Development and R&D Project 1994 192,340 -- 32,627 64,680
Management
Steven D. Reich(5)............. 1996 227,500 22,500 38,510 --
Senior Vice President, 1995 18,958 -- 40,939 90,000
Clinical Research 1994 -- -- -- --
Paul V. Maier.................. 1996 212,627 22,500 17,379 58,563
Senior Vice President, 1995 201,449 14,250 18,090 5,700
Chief Financial Officer and 1994 190,398 14,250 34,230 43,572
Treasurer
</TABLE>
- ---------------
(1) Compensation deferred at the election of the executive, pursuant to the
Ligand Pharmaceuticals 401(k) Plan, is included in the year earned.
(2) For 1996: Mr. Robinson, includes $10,876 relocation reimbursements and
$55,230 loan forgiveness; for Dr. Flanders, includes $17,394 loan
forgiveness; for Mr. Maier, includes $16,596 loan forgiveness; and for Dr.
Reich, includes $25,358 relocation reimbursements and $12,000 housing
allowance. For 1995: Mr. Robinson, includes $57,980 loan forgiveness; for
Dr. Flanders, includes $8,250 housing allowance and $18,172 loan
forgiveness; for Mr. Maier, includes $17,394 loan forgiveness; and for Dr.
Reich, includes $35,000 sign-on bonus and $4,843 for relocation
reimbursements. For 1994: Mr. Robinson, includes $11,000 housing allowance,
$19,800 relocation reimbursements and $60,640 loan forgiveness; for Dr.
Flanders, includes $12,000 housing allowance and $20,163 loan forgiveness;
and for Mr. Maier, includes $15,082 relocation reimbursement and $18,460
loan forgiveness. See "-- Employment Contracts and Change of Control
Arrangements."
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<PAGE> 60
(3) As of the last day of the 1996 fiscal year, the Named Executive Officers
held the following aggregate restricted stock shares, including shares
granted prior to fiscal 1994 (valued at market at December 31, 1996):
<TABLE>
<CAPTION>
TOTAL # OF SHARES GRANT DATE VALUE($)
----------------- ---------- ---------
<S> <C> <C> <C>
David E. Robinson.................... 240,700 11/01/91 3,580,413
William L. Respess................... 121,326 * 1,804,724
Lloyd E. Flanders.................... 0 -- 0
Steven D. Reich...................... 0 -- 0
Paul V. Maier........................ 0 -- 0
</TABLE>
- ---------------
* Various grant dates ranging from 5-01-88 through 5-17-91.
The shares of restricted stock are fully vested for the Named Executive
Officers. See "-- Employment Contracts, Termination of Employment and Change
of Control Arrangements."
(4) Includes $100,000 extraordinary one-time bonus based on the successful
management of litigation.
(5) Dr. Reich joined Ligand in December 1995.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following table contains information concerning the grant of stock
options and tandem limited stock appreciation rights ("SARs") under the
Company's 1992 Stock Option/Stock Issuance Plan to the Named Executive Officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS/SARS STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION FOR
OPTIONS/SARS EMPLOYEES IN EXERCISE OR OPTION TEAM
GRANTED FISCAL BASE PRICE EXPIRATION -------------------
NAME (#)(1)(2) YEAR ($/SH)(3) DATE 5%($)(4) 10%($)(4)
- ------------------------------ ------------ ------------ ----------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
David E. Robinson............. 100,000 10.27 13.31 04/25/06 837,216 2,121,670
William L. Respess............ 6,750 0.69 13.31 04/25/06 56,512 143,213
Lloyd E. Flanders............. 48,750 5.01 12.13 12/05/06 371,736 942,051
Steven D. Reich............... 0 N/A N/A N/A N/A N/A
Paul V. Maier................. 3,563 0.37 13.31 04/25/06 29,830 75,595
55,000 5.65 12.13 12/05/06 19,394 1,062,827
</TABLE>
(1) Options listed under Column (A) below are exercisable as to 25 percent of
the aggregate shares granted on each of the first, second, third and fourth
anniversaries of the grant date, so long as employment with the Company
continues. Options listed under Column (B) below were granted in 1996 and
are
59
<PAGE> 61
100 percent exercisable on January 1, 1997. The grant dates of the options
listed in the above table are as follows:
<TABLE>
<CAPTION>
(A) (B)
----------------------- -----------------------
OPTIONS OPTIONS
NAME GRANTED(#) GRANT DATE GRANTED(#) GRANT DATE
----------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
David E. Robinson.................. 100,000 04/25/96 0 --
William L. Respess................. 0 -- 6,750 04/25/96
Lloyd E. Flanders.................. 48,750 12/5/96 0 --
Steven D. Reich.................... 0 -- 0 --
Paul V. Maier...................... 55,000 12/5/96 3,563 04/25/96
</TABLE>
The options granted to each of the individuals listed above apart from Mr.
Robinson are subject to acceleration upon a change of control. The options
granted to Mr. Robinson are subject to acceleration upon a change of control
in the circumstances described below under "-- Employment Contracts,
Termination of Employment and Change of Control Arrangements." Each option
has a maximum term of 10 years, subject to earlier termination in the event
of the optionee's cessation of service with the Company.
(2) The Plan Administrator may grant tandem stock appreciation rights in
connection with option grants which require the holder to elect between the
exercise of the underlying option for shares of Common Stock and the
surrender of such option for a distribution from the Company, payable in
cash or shares of Common Stock, based upon the appreciated value of the
option shares. To date the Plan Administrator has not granted any tandem
stock appreciation rights to the Company's executive officers.
(3) The exercise price may be paid in cash, in shares of Common Stock valued at
fair market value on the exercise date or through a cashless exercise
procedure involving a same-day sale of the purchased shares. The Company may
also finance the option exercise by loaning the optionee sufficient funds to
pay the exercise price for the purchased shares and the federal and state
tax liability incurred in connection with such exercise. The optionee may be
permitted, subject to the approval of the Plan Administrator, to apply a
portion of the shares purchased under the option (or to deliver existing
shares of Common Stock) in satisfaction of such tax liability. The Plan
Administrator also has the authority to reprice outstanding options through
the cancellation of those options and the grant of replacement options with
a exercise price equal to the lower fair market value of the option shares
on the regrant date.
(4) There is no assurance provided to any executive officer or any other holder
of the Company's securities that the actual stock price appreciation over
the 10-year option term will be at the assumed 5% and 10% levels or at any
other defined level. Unless the market price of the Common Stock does in
fact appreciate over the option term, no value will be realized from the
option grants made to the executive officers.
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<PAGE> 62
Option/SAR Exercises and Holdings
The following table provides information, with respect to the Named
Executive Officers, concerning the exercise of options and/or SARs during the
last fiscal year and unexercised options and SARs held as of the end of the
fiscal year:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
SHARES AT DECEMBER 31, 1996 AT DECEMBER 31, 1996
ACQUIRED ON VALUE ----------------------------- -----------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($)(1) ($)(1)
- -------------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David E. Robinson............... -- -- 152,088 125,327 960,345 423,220
William L. Respess.............. -- -- 129,819 40,932 815,226 233,563
Lloyd E. Flanders............... -- -- 149,579 77,264 912,092 308,806
Steven D. Reich................. -- -- 22,500 67,500 143,438 430,313
Paul V. Maier................... -- -- 116,433 72,590 691,330 253,324
</TABLE>
- ---------------
(1) Value of unexercised, in the money, options at December 31, 1996 was
determined by taking (a) the fair market value at December 31, 1996 less (b)
the option exercise price times the number of shares.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
In May 1996, Ligand entered into an employment agreement with David E.
Robinson pursuant to which Mr. Robinson is employed as President and Chief
Executive Officer and which is the successor employment agreement to an
agreement entered into in October 1991. The current employment term ends on May
1, 1999 and is automatically renewed for successive, additional three year
terms, unless terminated by Ligand or Mr. Robinson. During the employment term,
Mr. Robinson will receive a base salary of $490,000 subject to increase by
Ligand's Board of Directors. Mr. Robinson's base salary, as of December 31,
1996, was $490,000 per annum. In addition, the Board may award Mr. Robinson a
bonus payment of up to $100,000 annually. In 1991, Ligand loaned Mr. Robinson
$200,000 which, with the accrued interest, was forgiven in equal annual
installments over four years so long as Mr. Robinson was employed by Ligand. At
September 30, 1997, no principal or interest remained outstanding. In the event
of termination of employment by Ligand without cause, or in the event of
resignation of employment by Mr. Robinson for specified reasons, Ligand is
obligated to pay Mr. Robinson 24 months base salary. Mr. Robinson may terminate
this employment agreement in connection with, among other things, a change in
control of the Company, at which time all of his outstanding stock options shall
immediately vest so as to be immediately exercisable by him at his election;
provided, however, that in the event that the Company has agreed to a merger
that is intended to be treated as a pooling of interests for accounting purposes
and Mr. Robinson terminates this agreement prior to May 1, 1997, then such
outstanding stock options shall not become exercisable on an accelerated basis
if the Company's independent auditors determine that accelerated vesting of such
options would preclude the treatment of such merger as a pooling of interests.
In September 1992, Ligand entered into an employment agreement with Lloyd
E. Flanders pursuant to which Dr. Flanders is employed as Senior Vice President,
Pre-Clinical Development and R&D Project Management. Dr. Flanders' base salary,
as of December 31, 1996, was $231,693 per annum. In connection with the
agreement, Ligand loaned Dr. Flanders $75,000 which, with the accrued interest,
will be forgiven in equal annual installments over five years, so long as Dr.
Flanders is employed by Ligand. The note will be due in the event Dr. Flanders
resigns or is terminated by Ligand, except that if Dr. Flanders is terminated
without cause, the loan will be forgiven. At September 30, 1997, $15,266
principal and interest remained outstanding. Dr. Flanders was granted options to
purchase 92,013 shares of Ligand Common Stock at an average price of $8.87 per
share which shares vest over four years. Vesting of the shares will be
accelerated if he is terminated
61
<PAGE> 63
without cause. If Dr. Flanders is terminated without cause, Ligand has agreed to
pay him 12 months base salary.
In December 1996, Ligand entered into an employment agreement with Steven
D. Reich, M.D. pursuant to which Dr. Reich is employed as Senior Vice President,
Clinical Research. Dr. Reich's base salary as of December 31, 1996 was $227,500
per annum. In connection with the agreement, Ligand loaned Dr. Reich $100,000
which, with the accrued interest, will be forgiven in equal annual installments
over five years, so long as Dr. Reich is employed by Ligand. At September 30,
1997, $82,120 principal and interest remained outstanding. In connection with
the agreement, Dr. Reich was granted an option to purchase 90,000 shares of
Ligand Common Stock at an average price of $8.50 per share. If Dr. Reich is
terminated without cause, Ligand has agreed to pay him six months base salary.
In September 1992, Ligand entered into an employment agreement with Paul V.
Maier pursuant to which Mr. Maier is employed as Senior Vice President and Chief
Financial Officer. Mr. Maier's base salary, as of December 31, 1996, was
$216,794 per annum. In connection with the agreement, Ligand loaned Mr. Maier
$75,000 which, with the accrued interest, will be forgiven in equal annual
installments over five years, so long as Mr. Maier is employed by Ligand. At
September 30, 1997, $15,732 principal and interest remained outstanding. In
connection with the agreement, Mr. Maier was granted an option to purchase
81,188 shares of Ligand Common Stock, which shares vest over four years, at an
average price of $8.87 per share. If Mr. Maier is terminated without cause,
Ligand has agreed to pay him six months base salary.
Ligand has entered into agreements with its employees, including each of
the Named Executive Officers apart from Mr. Robinson, holding outstanding
options under the Plan, pursuant to which such options will automatically
accelerate in the event that such individual's employment is terminated in
connection with a change in control of Ligand. The change in control events
under these agreements include transactions in addition to those in effect for
Plan purposes. These agreements assure such individuals that either their
outstanding options under the Plan will be assumed by the successor entity in
connection with such a change in control or that such options shall become fully
exercisable immediately prior to the effective date of the change in control so
that such individuals will have the opportunity to receive the appreciated value
of their outstanding options despite the change in control. Mr. Robinson's
outstanding options are subject to acceleration upon a change of control in the
circumstances set forth in his employment agreement with Ligand effective May
1996, as described above.
DIRECTOR COMPENSATION
Certain non-employee outside Directors are paid fees for serving on the
Board of Directors, plus reimbursement of expenses incurred in connection with
such service. All Directors are elected annually and hold office until the next
annual meeting of the stockholders and until their successors are duly elected
and qualified. Officers serve at the discretion of the Board of Directors.
Certain directors have commitments from Ligand pursuant to which they are paid
consulting fees for each Board meeting as well as for certain other activities.
See "Certain Relationships and Related Transactions." Each individual who first
becomes a non-employee Board member at or after this Annual Meeting, whether
through election by the stockholders or appointment by the Board, will
automatically be granted, at the time of such initial election or appointment, a
non-statutory stock option to purchase 16,237 shares of Common Stock. In
addition, each non-employee Board member who is re-elected will automatically be
granted a non-statutory stock option to purchase 8,118 shares of Common Stock.
Each automatic grant will have an exercise price per share equal to the fair
market value of the Common Stock on the grant date. The option will become
exercisable beginning one year after the grant date. The option will have a term
of 10 years measured from the grant date, subject to earlier termination upon
the optionee's cessation of Board service.
1992 STOCK OPTION/STOCK ISSUANCE PLAN
Ligand's 1992 Stock Option/Stock Issuance Plan (the "Plan") was originally
adopted by the Board and was approved by the stockholders in 1992. Certain
amendments to the Plan were subsequently approved by the Board and by the
stockholders, the most recent occurring in 1997.
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The following is a summary of all the material terms and provisions of the
Plan. The summary, however, does not purport to be a complete description of all
the provisions of the Plan. Copies of the actual plan document may be obtained
by any stockholder upon written request to the Secretary of Ligand at the
corporate offices in San Diego, California.
Plan Structure
The Plan is divided into three separate parts: (a) the Discretionary Grant
Program, under which employees and consultants of Ligand and its wholly-owned
subsidiaries (other than non-employee Board members) may, at the discretion of
the Plan Administrator, be granted options to purchase shares of Common Stock at
an exercise price not less than 85% of the fair market value of each such share
on the grant date. The granted options may be either incentive stock options
which are designed to meet the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or nonstatutory options not
intended to satisfy such requirements; (b) the Automatic Grant Program, under
which an option grant will be made to each individual upon first joining the
Board of Directors as a nonemployee member and subsequent annual automatic
option grants will be made to each individual who is re-elected as a nonemployee
director of Ligand; and (c) the Stock Issuance Program, under which eligible
individuals will be allowed to effect immediate purchases of Common Stock at the
fair market value of each such share, or at discounts of up to 15% from the fair
market value of any such share, including shares which may be issued in
consideration for past or future services without any cash payment required of
the participant.
As of October 31, 1997, approximately 360 officers and employees of Ligand
and its wholly-owned subsidiaries were eligible to participate in the
Discretionary Grant Program and the Stock Issuance Program. There are currently
five nonemployee directors who are eligible to receive automatic grants under
the Automatic Grant Program.
Plan Administration
Option grants under the Discretionary Grant Program and stock issuances
under the Stock Issuance Program are to be made by a committee of two or more
nonemployee Board members (the "Plan Administrator") appointed by the Board.
Members of the committee will be ineligible to participate in the Plan or in any
stock option, stock issuance or other stock plan of Ligand, except to the extent
such individuals become entitled to a special option grant under the Automatic
Grant Program. The selected committee members will serve for such period of time
as the Board may determine and will be subject to removal by the Board at any
time.
The Committee will have the sole and exclusive authority, subject to the
provisions of the Plan, to determine the eligible individuals who are to receive
options under the Discretionary Grant Program or the Stock Issuance Program, the
number of shares to be covered by each granted option or issuance, the date or
dates on which the option is to become exercisable and the maximum term for
which the option is to remain outstanding. The Committee will also have the
authority to determine whether the granted option is to be an incentive stock
option ("Incentive Option") under the Federal tax laws and to establish rules
and regulations for proper plan administration. Options grants under the
Automatic Grant Program will be made in strict compliance with the express
provisions of that program, and the Committee will not have any discretionary
authority with respect to those option grants.
Issuable Shares
Shares of Common Stock will be available for issuance under the Plan. The
maximum number of shares of Common Stock reserved for issuance over the 10-year
term of the Plan, measured from the Effective Date of the Plan, will not exceed
7,303,457 shares. The share reserve available for issuance under the Plan will
be subject to periodic adjustment for changes in the Common Stock occasioned by
stock splits, stock dividends, recapitalizations, conversions or other changes
affecting the outstanding Common Stock as a class without Ligand's receipt of
consideration. To the extent any of the incorporated options are subsequently
exercised, the
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number of shares issued under those options will reduce, on a share-for-share
basis, the number of shares available for issuance under the Plan.
Should an option expire or terminate for any reason prior to exercise in
full (including options canceled in accordance with the cancellation-regrant
provisions described below), the shares subject to the portion of the option not
so exercised will be available for subsequent option grants or share issuances
under the Plan. Shares subject to any option surrendered or canceled in
accordance with the stock appreciation right provisions of the Plan and all
shares issued under the Plan, whether or not such shares are subsequently
reacquired by Ligand pursuant to its repurchase rights under the Plan, will
reduce on a share-for-share basis the number of shares of Common Stock available
for subsequent grants.
No more than 1,000,000 shares may be granted to any one optionee over the
lifetime of the Plan.
Terms of Discretionary Grant Program
Option Price and Term. The option price per share for incentive stock
options will not be less than 100% of the fair market value of each share of
Common Stock issuable under the option on the grant date of such option. The
option price per share for nonstatutory stock options may not be less than 85%
of the fair market value per share of each share of Common Stock issuable under
the option on the grant date of such option. No option will have a term in
excess of 10 years measured from the grant date.
Valuation. For purposes of establishing the option exercise price for
Common Stock, the "Fair Market Value" per share of the stock on any relevant
date will be the closing selling price per share on such date, as quoted on the
Nasdaq National Market. If there is no reported selling price for such date,
then the closing selling price for the last previous date for which such
quotation exists will be determinative of Fair Market Value.
Vesting of Options. The vesting schedule for each granted option will be
determined by the Plan Administrator and will be set forth in the instrument
evidencing such grant. The granted option may be (i) immediately exercisable for
vested shares, (ii) immediately exercisable for unvested shares subject to
Ligand's repurchase rights or (iii) exercisable in installments for vested
shares over the optionee's period of service. At a minimum, options must vest at
a rate of at least 20% each year and must be fully vested at the end of five
years.
Payment. Upon exercise of the option, the option price for the purchased
shares will become immediately payable in cash or in shares of common stock
valued at fair market value on the date of exercise. The option may also be
exercised through a cashless exercise procedure pursuant to which the optionee
provides irrevocable written instructions to a designated brokerage firm to
effect the immediate sale of the purchased shares and remit to Ligand, out of
the sale proceeds, an amount equal to the aggregate option price payable for the
purchased shares plus all applicable withholding taxes.
Financial Assistance. The Plan Administrator may assist any optionee
(including an officer) in the exercise of one or more outstanding options under
the Plan by (i) authorizing a loan from Ligand or (ii) permitting the optionee
to pay the option price in installments over a period of years. The terms and
conditions of any such loan or installment payment will be established by the
Plan Administrator in its sole discretion, but in no event will the maximum
credit extended to the optionee exceed the aggregate option price for the
purchased shares plus any Federal or State tax liability incurred in connection
with the option exercise.
Termination of Service. Should the optionee cease to remain in Ligand's
service while holding one or more options under the Plan, then those options
will not remain exercisable beyond the limited post-service period designated by
the Plan Administrator at the time of the option grant, subject to certain
minimum post-service periods. Under no circumstances, however, may any option be
exercised after the specified expiration date of the option term. Each such
option will, during such limited period, be exercisable only to the extent of
the number of shares for which the option is exercisable on the date of the
optionee's cessation of service.
Should the optionee die while holding one or more outstanding options, then
the personal representative of the optionee's estate or the person or persons to
whom each such option is transferred pursuant to the
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optionee's will or in accordance with the laws of inheritance will have the
right to exercise such option for any or all of the shares for which the option
is exercisable on the date of the optionee's cessation of service, less any
option shares subsequently purchased by the optionee prior to death. Such right
will lapse, and the option will terminate, upon the earlier of (i) the end of
the limited post-service period designated by the Plan Administrator at the time
of the option grant or (ii) the specified expiration date of the option term.
The Plan Administrator will have complete discretion to extend the period
following the optionee's termination of service during which his or her
outstanding options may be exercised and/or to accelerate the exercisability of
such options in whole or in part. Such discretion may be exercised at any time
while the options remain outstanding, whether before or after the optionee's
actual cessation of service.
Stockholder Rights and Option Assignability. No optionee is to have any
stockholder rights with respect to the option shares until such optionee has
exercised the option, paid the option price for the purchased shares and been
issued a stock certificate for such shares. Options are not assignable or
transferable other than by will or by the laws of inheritance following the
optionee's death, and the option may, during the optionee's lifetime, be
exercised only by the optionee.
Special Acceleration Agreements. In addition to the acceleration provisions
of the Plan, Ligand has entered into agreements with its employees, including
each of the Named Executive Officers apart from David E. Robinson, holding
outstanding options under the Plan, pursuant to which such options will
automatically accelerate in the event that such individual's employment is
terminated in connection with a change in control of Ligand. The change in
control events under these agreements include transactions in addition to those
in effect for Plan purposes. These agreements assure such individuals that
either their outstanding options under the Plan will be assumed by the successor
entity in connection with such a change in control or that such options shall
become fully exercisable immediately prior to the effective date of the change
in control so that such individuals will have the opportunity to receive the
appreciated value of their outstanding options despite the change in control.
Mr. Robinson has entered into an employment agreement with Ligand that provides
for the immediate acceleration, except under certain limited circumstances, of
Mr. Robinson's outstanding options in the event that he elects to terminate this
agreement in connection with certain events, including, without limitation, a
change in control. See "-- Employment Contracts, Termination of Employment and
Change of Control Arrangements."
The acceleration of options in the event of a Corporate Transaction or
Change in Control may be seen as an anti-takeover provision and may have the
effect of discouraging a merger proposal, a takeover attempt or other efforts to
gain control of Ligand.
Stock Appreciation Rights. At the discretion of the Plan Administrator,
options may be granted with stock appreciation rights. The stock appreciation
rights which are authorized for issuance under the Plan are tandem rights which
require the option holder to elect between the exercise of the underlying option
for shares of common stock and the surrender of such option for an appreciation
distribution.
These tandem stock appreciation rights provide the holders with the right
to receive an appreciation distribution from Ligand equal in amount to the
excess of (i) the fair market value (on the date of exercise) of the shares of
common stock for which the underlying option is at the time exercisable over
(ii) the aggregate exercise price payable for such shares. Such appreciation
distribution may, at the discretion of the Plan Administrator, be made in cash
or in common stock.
Cancellation/Regrant. The Plan Administrator will have the authority to
effect, on one or more separate occasions, the cancellation of outstanding
options under the Discretionary Grant Program which have exercise prices in
excess of the then current market price of the common stock and to issue
replacement options with an exercise price based on the lower market price of
the common stock at the time of grant.
Terms of Automatic Grant Program
Each individual who first becomes a nonemployee Board member, whether
through election by the stockholders or appointment by the Ligand Board, and who
was not otherwise in the prior employ of Ligand will automatically be granted,
at the time of such initial election or appointment, a non-statutory stock
option
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to purchase 16,237 shares of Common Stock. Further, at each annual Stockholders
Meeting, each individual who is at that time reelected as a non-employee Board
member will automatically be granted a non-statutory stock option under the new
Automatic Grant Program to purchase an additional 8,118 shares of Common Stock.
There is no limit on the number of such 8,118-share option grants the
non-employee Ligand Board member may receive over his or her period of Board
service.
Each such option grant will be subject to the following terms and
conditions: (i) the option price per share will be equal to 100% of the Fair
Market Value per share of Common Stock on the grant date; (ii) each option is to
have a term of 10 years measured from the grant date; (iii) each automatic grant
will become exercisable in full one year from the automatic grant date; (iv) the
option will remain exercisable for a three-month period following the optionee's
cessation of Ligand Board membership for any reason other than death. Should the
optionee die while any option is still exercisable, then such option will remain
exercisable for a 36-month period following such optionee's death and may be
exercised by the personal representative of the optionee's estate or the person
to whom the grant is transferred by the optionee's will or the laws of
inheritance. In no event, however, may the option be exercised after the
expiration date of the maximum option term. During the applicable exercise
period, the option may not be exercised for more than the number of shares (if
any) for which it was exercisable at the time of the optionee's cessation of
membership on the Ligand Board. To the extent the option was not exercisable for
one or more option shares at the time of the optionee's cessation of membership
on the Ligand Board, the option will immediately terminate and cease to be
outstanding with respect to those shares; (v) the remaining terms and conditions
of the option will in general conform to the terms described above for option
grants made under the Discretionary Grant Program and will be incorporated into
the option agreement evidencing the automatic grant; (vi) the terms and
provisions of the Automatic Grant Program and the outstanding options thereunder
may not be amended or modified at intervals more frequently than once every six
months, except as otherwise required to comply with applicable Federal tax laws
and regulations.
Terms of Stock Issuance Program
Issue Price. The purchase price per share will not be less than 85% of the
fair market value of any share of Common Stock being issued on the date the Plan
Administrator authorizes the issuance.
Vesting of Shares. The vesting schedule for each share issued will be
determined by the Plan Administrator and set forth in the issuance agreement.
The shares may be fully and immediately vested upon issuance or may vest in one
or more installments, subject to Ligand's repurchase right, over the
participant's period of service. At a minimum, shares must vest at a rate of at
lest 20% per year and must be fully vested at the end of five years.
Stockholder Rights. The recipient of the share issuance will have full
stockholder rights, including voting and dividend rights, with respect to the
issued shares, whether or not the shares are vested. However, the recipient may
not sell, transfer or assign any unvested shares issued under the Plan, except
for certain limited family transfers.
Repurchase Rights. Should the recipient of unvested shares cease to remain
in Ligand's service before vesting in such shares, then those unvested shares
are to be immediately surrendered to Ligand for cancellation, and the recipient
will have no further stockholder rights with respect to those shares. To the
extent the surrendered shares were previously issued to the recipient for
consideration paid in cash or promissory note, Ligand will refund the cash
consideration paid for the surrendered shares and cancel the principal balance
of the note to the extent attributable to such surrendered shares.
Payment. Upon issuance of the shares, the issue price for the purchased
shares will become immediately payable in cash, in shares of Common Stock valued
at fair market value on the date of issuance, or by promissory note payable to
Ligand's order. The promissory note may, at the discretion of the Plan
Administrator, be subject to cancellation over the participant's period of
service. Shares may also be issued for past or future services, without any cash
or other payment required of the participant.
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Changes in Capitalization
In the event any change is made to the Common Stock issuable under the Plan
by reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares, or other change in corporate structure effected
without Ligand's receipt of consideration, appropriate adjustments will be made
to (i) the maximum number and/or class of securities issuable under the Plan,
(ii) the number and/or class of securities and price per share in effect under
each outstanding option (including all discretionary and automatic option grants
under the Plan and all option grants incorporated from the 1988 Stock Option
Plan), and (iii) the number and/or class of securities per nonemployee member of
the Ligand Board for which the special option grants will subsequently be made
under the Automatic Grant Program.
Each outstanding option which is assumed or is otherwise to continue in
effect after a Corporate Transaction will be appropriately adjusted to apply and
pertain to the number and class of securities which would have been issuable, in
connection with such Corporate Transaction, to an actual holder of the same
number of shares of Common Stock as are subject to such option immediately prior
to such Corporate Transaction. Appropriate adjustments will also be made to the
option price payable per share and to number and class of securities available
for issuance under the Plan.
Option grants under the Plan will not affect the right of Ligand to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
Special Tax Withholding Election
The Plan Administrator may provide one or more participants in the Plan
with the election to have Ligand withhold, from the shares of Common Stock
otherwise issuable upon the exercise of nonqualified options or the vesting of
unvested shares, a portion of those shares in satisfaction of the tax liability
incurred in connection with their acquisition or vesting. Any election so made
will be subject to the approval of the Plan Administrator, and no shares will be
accepted in satisfaction of such tax liability except to the extent the Plan
Administrator approves the election. Alternatively, one or more participants may
be granted the right, subject to Plan Administrator approval, to deliver
existing shares of Common Stock in satisfaction of such tax liability. The
withheld or delivered shares will be valued at their then current fair market
value.
Amendment and Termination
The Board of Directors may amend or modify the Plan in any or all respects
whatsoever, subject, however, to the limitation on plan amendments to the
Automatic Grant Program. However, no such amendment may adversely affect the
rights of existing optionees without their consent and unless otherwise
necessary to comply with applicable tax laws and regulations. In addition, the
Board may not (i) materially increase the maximum number of shares issuable
under the Plan or the number of shares for which automatic grants may be made to
nonemployee Board members, except in the event of certain changes to Ligand's
capital structure as indicated above, (ii) materially modify the eligibility
requirements for option grants or (iii) otherwise materially increase the
benefits accruing to participants under the Plan without the approval of
Ligand's stockholders.
The Board may terminate the Plan at any time, and the Plan will in all
events terminate on the tenth anniversary of the Effective Date. Each stock
option outstanding at the time of such termination will remain in force in
accordance with the provisions of the instruments evidencing such grant.
Federal Tax Consequences
Options granted under the Plan may be either incentive stock options which
satisfy the requirements of Section 422 of the Code or nonqualified options
which are not intended to meet such requirements. The Federal income tax
treatment for the two types of options differs as described below:
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised (other than for alternative
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minimum tax purposes as discussed below). The optionee will, however, recognize
taxable income in the year in which the purchased shares are sold or otherwise
made the subject of disposition.
For Federal tax purposes, dispositions are divided into two categories: (i)
qualifying and (ii) disqualifying. The optionee will make a qualifying
disposition of the purchased shares if the sale or other disposition of such
shares is made after the optionee has held the shares for more than two years
after the grant date of the option and more than one year after the exercise
date. If the optionee fails to satisfy either of these two holding periods prior
to the sale or other disposition of the purchased shares, then a disqualifying
disposition will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for such shares. If there is a disqualifying disposition
of the shares, then the excess of (i) the fair market value of those shares on
the date the option was exercised over (ii) the exercise price paid for the
shares will be taxable as ordinary income. Any additional gain recognized upon
the disposition will be a capital gain.
If the optionee makes a disqualifying disposition of the purchased shares,
then Ligand will be entitled to an income tax deduction, for the taxable year in
which such disposition occurs, equal to the excess of (i) the fair market value
of such shares on the date the option was exercised over (ii) the exercise price
paid for the shares. In no other instance will Ligand be allowed a deduction
with respect to the optionee's disposition of the purchased shares.
While taxable income is generally not recognized upon the exercise of an
incentive option, the excess of (i) the value of the shares purchased as of the
date of service over (ii) the exercise price paid for such shares is included as
"alternative minimum taxable income" for purposes of calculating alternative
minimum tax.
Nonqualified Options. No taxable income is recognized by an optionee upon
the grant of a nonqualified option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the date of exercise
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
Special provisions of the Code apply to the acquisition of Common Stock
under a nonqualified option, if the purchased shares are subject to repurchase
by Ligand. These special provisions may be summarized as follows:
A. If the shares acquired upon exercise of the nonqualified option are
subject to repurchase by Ligand at the original exercise price in the event
of the optionee's termination of service prior to vesting in such shares,
the optionee will not recognize any taxable income at the time of exercise
but will have to report as ordinary income, as and when Ligand's repurchase
right lapses, an amount equal to the excess of (i) the fair market value of
the shares on the date Ligand's repurchase right lapses with respect to
such shares over (ii) the exercise price paid for the shares.
B. The optionee may, however, elect under Section 83(b) of the Code to
include as ordinary income in the year of exercise of the nonqualified
option an amount equal to the excess of (i) the fair market value of the
purchased shares on the date of exercise (determined as if the shares were
not subject to Ligand's repurchase right) over (ii) the exercise price paid
for such shares. If the Section 83(b) election is made, the optionee will
not recognize any additional income as and when Ligand's repurchase right
lapses.
Ligand will be entitled to a business expense deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
nonqualified option. The deduction will in general be allowed for the taxable
year of Ligand in which such ordinary income is recognized by the optionee.
Stock Appreciation Rights. An optionee who is granted a stock appreciation
right will recognize ordinary income in the year of exercise equal to the amount
of the appreciation distribution. Ligand will be entitled to a
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business expense deduction equal to the appreciation distribution for the
taxable year of Ligand in which the ordinary income is recognized by the
optionee.
Direct Stock Issuances. The tax consequences of individuals who receive
direct stock issuances under the Plan will be substantially the same as the
treatment described above for the exercise of nonqualified stock options.
Accounting Treatment
Option grants with exercise prices less than the fair market value of the
option shares on the grant date and direct stock issuances at purchase prices
less than the fair market value of the issued shares will result in a
compensation expense to Ligand's earnings equal to the difference between such
exercise or purchase prices and the fair market value of the shares on the
option grant date or (for direct stock issuances) the fair market value on the
issue date. Such expense will be accrued by Ligand over the period the optionee
or share recipient vests in the option shares or directly-issued shares. Option
grants and direct stock issuances at 100% of fair market value will not result
in any charge to Ligand's earnings. In October 1994, 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 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 decided to retain the current implicit value based
method, and disclosed the pro forma effect of using the fair value based method
to account for its stock-based compensation.
Should one or more optionees be granted stock appreciation rights which
have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to be
charged against Ligand's earnings. Accordingly, at the end of each fiscal
quarter, the amount (if any) by which the fair market value of the shares of
Common Stock subject to such outstanding stock appreciation rights has increased
from the prior quarter-end will be accrued as compensation expense, to the
extent such amount is in excess of the aggregate exercise price in effect for
such rights.
1992 EMPLOYEE STOCK PURCHASE PLAN
Ligand's 1992 Employee Stock Purchase Plan (the "Purchase Plan") was
initially adopted by the Board and was approved by the stockholders in 1992.
Certain amendments to the Plan were subsequently approved by the Board and by
the stockholders, the most recent occurring in 1997.
The following is a summary of all the material terms and provisions of the
Purchase Plan. This summary, however, does not purport to be a complete
description of the Purchase Plan. Copies of the actual plan document may be
obtained by any stockholder upon written request to the Secretary of Ligand at
the corporate offices in San Diego, California.
Share Reserve and Plan Administration
The maximum number of shares that may be sold to participants over the term
of the Purchase Plan may not exceed 206,500 shares of Common Stock. As of
October 31, 1997, 184,267 shares of Common Stock had been issued under the
Purchase Plan and 22,233 shares will be available for future issuance.
Appropriate adjustments will be made to (i) the class and maximum number of
securities purchasable under the Purchase Plan, (ii) the class and maximum
number of securities purchasable per participant during any one purchase period
and (iii) the class and number of securities and the price per share in effect
under each outstanding purchase right in order to preserve participant rights
should any change be made to the outstanding Common Stock by reason of any stock
dividend, stock split, combination of shares or other similar change affecting
the outstanding Common Stock as a class without Ligand's receipt of
consideration.
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The Purchase Plan is administered by the Compensation Committee of the
Board of Directors. The committee as Plan Administrator has full authority to
adopt administrative rules and procedures and to interpret the provisions of the
Purchase Plan and any outstanding purchase rights.
Eligibility
Each individual customarily employed by Ligand or a participating
subsidiary for more than 20 hours per week and more than five months per
calendar year is eligible to participate in the Purchase Plan upon completion of
five months of continuous service. As of October 31, 1997, approximately 300
employees (including eleven officers of Ligand) were eligible to participate
under the Purchase Plan.
Plan Operation
Shares of Common Stock will be made available to participants through a
series of offering periods coincidental with the calendar year, and accordingly
commencing on the first business day in January. The participant will be granted
a separate purchase right for each offering period in which he or she
participates. The purchase right will be granted on the first day of the
offering period and will be automatically exercised in successive quarterly
installments on the last business day of March, June, September and December
during the offering period.
Each participant may, through authorized payroll deductions, contribute up
to 10% of base pay (in one percent multiples) during each offering period.
However, no participant may purchase more than 1,330 shares of Common Stock
during any one offering period nor more than $25,000 worth of Common Stock
(based upon the value of the Common Stock at the time the offering period
begins) for each calendar year the purchase right remains outstanding.
The purchase price will be equal to the lesser of (i) 85% of the fair
market value per share of Common Stock on the last business day immediately
preceding the start date of the offering period or (ii) 85% of the fair market
value per share of Common Stock on each quarterly date the purchase right is
exercised during that offering period.
The fair market value of the Common Stock on any relevant date will be the
closing selling price per share on such date as reported on the Nasdaq National
Market. As of October 31, 1997 the fair market value per share of Common Stock
was $14.625, based on the closing selling price per share on such date on the
Nasdaq National Market.
No participant will have any stockholder rights with respect to the shares
covered by his or her outstanding purchase right until the shares are actually
purchased on his or her behalf. No purchase right will be assignable or
transferable except by will or by the laws of descent and distribution following
the participant's death. Accordingly, during the participant's lifetime, the
purchase right will be exercisable only by the participant.
In the event all or substantially all of the assets or outstanding capital
stock of Ligand is sold by means of a sale, merger or other reorganization in
which Ligand will not be the surviving corporation, all outstanding purchase
rights will automatically be exercised immediately prior to the effective date
of such transaction.
The purchase right of a participant will cease to accrue automatically in
the event the participant ceases to be an employee of Ligand, and any payroll
deductions collected from such individual during the fiscal quarter in which
such termination occurs will, at such participant's election, either (i) be
refunded to the participant or (ii) held for the purchase of shares on the
quarterly purchase date immediately following the cessation of employment. A
participant may also terminate his or her outstanding purchase right at any time
prior to the last five business days of a quarterly period and receive a refund
of all payroll deductions not yet applied to the purchase of Common Stock on his
or her behalf.
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<PAGE> 72
Amendment and Termination
The Purchase Plan will terminate upon the earlier of (i) December 31, 2002
or (ii) the date on which all shares available for issuance thereunder are sold
pursuant to exercised purchase rights. However, Ligand has specifically reserved
the right, exercisable in the sole discretion of the Plan Administrator, to
terminate all outstanding purchase rights under the Purchase Plan immediately
following any quarterly purchase date. If such right is exercised by Ligand,
then the Purchase Plan will terminate in its entirety, and no further purchase
rights will be granted or exercised thereunder.
The Board may amend or modify the provisions of the Purchase Plan at any
time. However, the Board may not, without stockholder approval, (i) materially
increase the number of shares issuable under the Purchase Plan or the maximum
number of shares which any one participant may purchase during a single offering
period, (ii) alter the purchase price formula so as to reduce the purchase
price, (iii) materially increase the benefits accruing to participants or (iv)
materially modify the requirements for eligibility to participate in the
Purchase Plan.
Federal Tax Consequences
The Purchase Plan is intended to be a qualified employee stock purchase
plan under Section 422 of the Code. Accordingly, the Participant will not
recognize any taxable income at the time one or more shares of Common Stock are
purchased on his/her behalf on any quarterly purchase date under the Purchase
Plan.
Accounting Treatment
Option grants with exercise prices less than the fair market value of the
option shares on the grant date and direct stock issuances at purchase prices
less than the fair market value of the issued shares will result in a
compensation expense to Ligand's earnings equal to the difference between such
exercise or purchase prices and the fair market value of the shares on the
option grant date or (for direct stock issuances) the fair market value on the
issue date. Such expense will be accrued by Ligand over the period the optionee
or share recipient vests in the option shares or directly-issued shares. Option
grants and direct stock issuances at 100% of fair market value will not result
in any charge to Ligand's earnings. In October 1994, 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 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 decided to retain the current implicit value based
method, and disclosed the pro forma effect of using the fair value based method
to account for its stock-based compensation.
CERTAIN TRANSACTIONS
RELATIONSHIP AMONG ALLERGAN LIGAND RETINOID THERAPEUTICS, INC., LIGAND AND
ALLERGAN
William C. Shepherd is a Director of ALRT and is also the President, Chief
Executive Officer and a Director of Allergan. Mr. Shepherd resigned from the
Board of Directors of Ligand effective October 3, 1997. David E. Robinson is a
Director of ALRT and is also the President, Chief Executive Officer and a
Director of Ligand. In December 1994, Ligand and Allergan formed ALRT to
continue the research and development activities previously conducted by the
Joint Venture. In June 1995, Ligand and ALRT completed the ALRT Offering. Each
Unit consisted of one share of Callable Common Stock and two warrants, each
warrant entitling the holder to purchase one share of the Common Stock of
Ligand. Immediately prior to the consummation of the Offering, Allergan
(Ireland) made a $6.0 million investment in Common Stock, Ligand then
contributed $17.5 million in cash and Allergan contributed $50.0 million in cash
to ALRT. Ligand's contribution resulted in a one-time charge to operations.
Ligand also recorded a warrant subscription receivable and corresponding
increase in paid-in capital of $5.85 million (6,500,000 warrants valued at $.90
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<PAGE> 73
per warrant) pursuant to the ALRT Offering. In conjunction with the consummation
of the ALRT Offering, the existing Joint Venture was dissolved and all rights
held by the Joint Venture were licensed to ALRT.
In connection with the ALRT Offering, ALRT, Ligand and Allergan entered
into the following agreements:
Technology License Agreement. ALRT, Ligand and Allergan entered into a
technology license agreement (the "Technology License Agreement") under which
Allergan and Ligand granted ALRT a worldwide, exclusive (even as to Allergan and
Ligand) right and license, terminable only as set forth therein, to use the
retinoid technologies developed by Allergan and Ligand (both separately and
through the Allergan Ligand Joint Venture formed in June 1992 to develop drugs
based on retinoids) in research, development and commercialization of ALRT
products (the "Products"). The licenses granted by Allergan and Ligand are
subject in each case to certain exceptions that allow Allergan and Ligand to
pursue limited research activities, to pursue development and commercialization
of the 1057 products (following exercise of the 1057 Purchase Option, as defined
below), to pursue development and commercialization of, with respect to Ligand,
LGD 1069 and, with respect to Allergan, tazarotene (AGN 190168), to pursue
development and commercialization of Acquired Products (as defined below) and to
pursue development and commercialization of Independent Products (as defined
below) (collectively, the "Permitted Activities"). See "-- Development
Agreement" and "-- 1057 Purchase Option." In consideration of the license grants
and in recognition of Allergan's and Ligand's expertise which they developed
over a period of years through the Joint Venture and otherwise, ALRT agreed to
pay to Allergan and Ligand a royalty, to be divided equally between them, of 3%
of net sales of Products during the life of applicable patents or, in certain
circumstances, for 10 years.
Development Agreement. ALRT, Ligand and Allergan also entered into a
research and development agreement (the "Development Agreement") under which
Ligand and Allergan perform research and development for ALRT on retinoid
compounds and products in accordance with annual budgets and development plans
jointly proposed by Ligand and Allergan. The budgets and research and
development plans are subject to approval and acceptance by ALRT's Board of
Directors, including members of the Board of Directors affiliated with Ligand
and Allergan. Although ALRT believes that, in general, the terms of the
Development Agreement are consistent with customary practices in the
pharmaceutical industry, the Development Agreement was not negotiated on an
arm's-length basis.
Payments to Ligand and Allergan under the Development Agreement for
research and development of potential products are made out of Available Funds
(as defined below) for the full amount of all Development Costs (as defined in
the Development Agreement) incurred by Ligand and Allergan in performing these
activities plus 10%, up to the maximum amount of funds available to ALRT, which
includes substantially all of the net proceeds raised in the Offering, plus the
Contributions, the Additional Contributions (as defined below), if any, and, if
designated by ALRT, any licensing or marketing income earned by ALRT, plus
interest earned on such funds, less amounts paid pursuant to the Services
Agreement (as defined below) and the Technology License Agreement, Development
Agreement and Commercialization Agreement (the "Major Agreements") and less $1
million to be retained by ALRT as working capital (the "Available Funds"). Any
funds received by ALRT from Allergan and Ligand upon exercise of the 1057
Purchase Option will be excluded from Available Funds. Development Costs will be
charged in a manner consistent with industry practices. Development Costs paid
by ALRT to Ligand under the Development Agreement totaled $18.6 million during
1996. Each of Ligand and Allergan has agreed, subject to customary business
constraints and limitations, to provide appropriate scientific and technical
personnel, necessary laboratories and equipment and administration of research
and development operations. Under the Development Agreement, however, neither
Ligand nor Allergan is required to allocate any specified amount of time or
resources to perform its obligations thereunder.
Prior to June 3, 1998, if Ligand and Allergan receive quarterly financial
statements of ALRT which show Available Funds of less than $10 million (the
"Statement Date"), Ligand and Allergan, at their option, may jointly provide, on
a quarterly basis, cash advances (the "Quarterly Contributions") to ALRT, in an
amount which the Board of Directors of ALRT determines will be sufficient to
permit ALRT to continue its research and development of Products for the quarter
following the date of such financial statements. Additionally, prior to June 3,
1999, Ligand and Allergan, at their option, may jointly provide, on a one-time
basis, a cash
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<PAGE> 74
advance of $10 million or more (such amount, together with the Quarterly
Contributions, the "Additional Contributions") to ALRT for use in research,
development and commercialization of Products. Any advances provided by Allergan
and Ligand may be made pursuant to loans on terms reasonably acceptable to a
majority of the independent directors of ALRT.
If ALRT determines not to proceed with or to discontinue development of a
program compound after such compound has entered clinical trials, or after
sufficient data to file an Investigational New Drug Application ("IND") on such
compound has been gathered (an "Independent Product"), then Allergan and Ligand,
either jointly or alone, are entitled to develop and commercialize such compound
using their own funds, so long as (i) the Board of Directors of ALRT has first
made a reasonable determination that continued work on such compound would not
materially conflict or interfere with the interests of the ALRT retinoid program
or impair a party's ability to perform its obligations under the Major
Agreements and (ii) at least $1 million per year is committed to development of
such compound during each of the first two years of development of such
compound. ALRT will receive a royalty equal to 6% of net sales of any
Independent Product. ALRT has retained the right to reacquire any Independent
Product prior to the earlier of the commencement of Phase III clinical trials
for such product or the exercise or expiration of the Stock Purchase Option,
exercisable by reimbursing Ligand and/or Allergan, as the case may be, for all
research, development and commercialization costs expended on such product,
together with an amount representing interest (in an amount which will provide
an internal rate of return of 25% to the developing party on such reimbursed
costs). Additionally, with respect to any Independent Product which ALRT
reacquires, ALRT will pay a royalty equal to 4% of net sales to the developing
party. In addition, any retinoid product licensed or acquired by Ligand or
Allergan (an "Acquired Product") may be commercialized by Ligand or Allergan
separate from ALRT, as the case may be, so long as such product was being
commercially sold or is a product for which an application to market has been
filed in the United States or other major market country at the time of its
licensing or acquisition.
Commercialization Agreement. ALRT, Ligand and Allergan also entered into a
commercialization agreement (the "Commercialization Agreement") which provides
for the marketing, manufacture and sale by Ligand and/or Allergan of the
Products developed under the Development Agreement which have received
regulatory approval for commercial sale. The developed compounds will be
marketed in a manner determined by Ligand and Allergan, except that generally in
marketing such compounds (i) Allergan will have the worldwide exclusive right to
market drugs for eye and skin indications (other than cancer indications), (ii)
Ligand will have the exclusive right to market drugs to oncologists in North
America for use in eye and skin cancer, (iii) Allergan will have the exclusive
right to market drugs to dermatologists and eye specialists in North America for
use in eye and skin cancer, (iv) Ligand will have the exclusive right to market
drugs for cancer indications in North America (other than eye and skin cancer),
and (v) Allergan will have the exclusive right to market drugs for cancer
indications outside of North America. Additional marketing responsibilities for
compounds for indications other than those set forth above will be allocated
between Ligand and Allergan in accordance with a determination by ALRT,
following a recommendation by Ligand and Allergan, as to which company is best
suited to carry out the work. Ligand, Allergan or other third parties will
manufacture Products based on a determination by ALRT, following a
recommendation by Ligand and Allergan, of relative quality and cost
effectiveness, except with respect to drugs for eye and skin indications which
will be manufactured by Allergan. Products manufactured and marketed by Ligand
and/or Allergan will be done so at cost plus a margin to be negotiated, with all
remaining profit being retained by ALRT. If the Stock Purchase Option expires
unexercised, the obligations of Ligand and Allergan to manufacture and market
products for ALRT will continue until terminated on 12-months' advance written
notice from ALRT, Ligand or Allergan, as the case may be.
Stock Purchase Option. Ligand and, in the event not exercised by Ligand,
Allergan, has an irrevocable option to purchase all, but not less than all, of
the Callable Common Stock outstanding at the time such option is exercised.
Subject to acceleration of the exercise of the Stock Purchase Option as
described below, the Stock Purchase Option is exercisable at any time beginning
on the earlier of (i) June 3, 1997, and (ii) the Statement Date, and ending on
the date (the "Stock Purchase Option Expiration Date") which is the earliest to
occur of (a) June 3, 2000, (b) the 90th day after the Statement Date, and (c)
subject to the inability of the
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<PAGE> 75
non-breaching party to perform the breaching party's obligations under the Major
Agreements, the date ALRT terminates a Major Agreement due to an event of
default by either Allergan or Ligand. The Stock Purchase Option is not
exercisable prior to June 3, 1998 unless the Available Funds are less than $60
million at the date of exercise. If Ligand exercises the Stock Purchase Option,
Ligand must provide notice (the "Stock Purchase Option Exercise Notice") to
ALRT, each holder of record of Callable Common Stock and any other holder of
shares of Special Common Stock on or before 20 days prior to the Stock Purchase
Option Expiration Date (the "Ligand Expiration Date"). See "-- Special Stock."
If no such notice is given by Ligand, and Allergan exercises the Stock Purchase
Option, Allergan will provide notice to ALRT after the Ligand Expiration Date
and on or before the Stock Purchase Option Expiration Date.
If the Stock Purchase Option is exercised, the purchase price per share
(the "Stock Purchase Option Exercise Price") for the period before June 3, 1998
and the last quarter of each of the fourth and fifth years from June 3, 1995
will be as follows:
<TABLE>
<CAPTION>
STOCK PURCHASE OPTION
IF THE STOCK PURCHASE OPTION IS EXERCISED EXERCISE PRICE PER SHARE
------------------------------------------------ ------------------------
<S> <C>
Before June 3, 1998............................. $21.97
During the last quarter of the fourth year...... $28.56
During the last quarter of the fifth year....... $37.13
</TABLE>
The Stock Purchase Option Exercise Price is adjusted on a straight-line
basis at quarterly intervals beginning on June 3, 1998, through the Stock
Purchase Option Expiration Date. The Stock Purchase Option Exercise Price was
determined based on a number of factors and was not determined on an
arms'-length basis. Subject to certain limitations, the Stock Purchase Option
Exercise Price may be paid (i) by Ligand, in its sole discretion, in cash, in
shares of Ligand Common Stock, in shares of Allergan Common Stock or in any
combination thereof, or (ii) by Allergan, in its sole discretion, in cash, in
shares of Ligand Common Stock, in shares of Allergan Common Stock, or in any
combination thereof.
Under its Certificate of Incorporation, ALRT is prohibited, until the
expiration of the Stock Purchase Option, from taking or permitting certain
actions inconsistent with Ligand's and Allergan's rights under the Stock
Purchase Option. For example, until the expiration of the Stock Purchase Option,
ALRT is not able, among other things, without the consent of each of Ligand and
Allergan to pay any dividends, issue additional shares of capital stock, borrow
money in excess of $1 million in the aggregate outstanding at any one time,
merge, liquidate or sell all or substantially all of its assets or amend its
Certificate of Incorporation to change the Stock Purchase Option. See
"-- Special Stock."
Asset Purchase Agreement. ALRT, Ligand and Allergan also entered into the
Asset Purchase Agreement whereby, if Ligand exercises the Stock Purchase Option,
Allergan has the right to acquire certain assets from ALRT. Upon exercise of the
Asset Purchase Option, Allergan will acquire (i) a co-exclusive (with ALRT)
right to ALRT technology as of the date of the acquisition, (ii) 50% of all
tangible assets related to ALRT's activities in the retinoid program, (iii) 50%
of any remaining Available Funds, and (iv) the consideration, cash, Allergan
Common Stock and/or Ligand Common Stock, paid by Allergan to ALRT in connection
with the exercise, if any, by Ligand and Allergan of the 1057 Purchase Option,
subject to Allergan's assumption of 50% of the liabilities of ALRT. The Asset
Purchase Option is exercisable upon notice given prior to the record date for
the exercise of the Stock Purchase Option and will close concurrently with the
Stock Purchase Option.
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<PAGE> 76
If the Asset Purchase Option is exercised, the exercise price for the Asset
Purchase Option (the "Asset Purchase Exercise Price"), which will be paid to
ALRT concurrently with the payment to holders of ALRT Callable Common Stock of
the Stock Purchase Option Exercise Price and may be used to pay a portion of
such Stock Purchase Option Exercise Price, for the period before June 3, 1998
and the last quarter of each of the fourth and fifth years from June 3, 1995,
will be as follows:
<TABLE>
<CAPTION>
AGGREGATE
ASSET
PURCHASE
EXERCISE
IF THE ASSET PURCHASE OPTION IS EXERCISED PRICE
----------------------------------------------------------------- -------------
(IN MILLIONS)
<S> <C>
Before June 3, 1998.............................................. $ 8.9
During the last quarter of the fourth year....................... $11.5
During the last quarter of the fifth year........................ $15.0
</TABLE>
The Asset Purchase Exercise Price is adjusted on a straight-line basis at
quarterly intervals beginning on June 3, 1998, through the Stock Purchase Option
Expiration Date. The Asset Purchase Exercise Price was determined based on a
number of factors and was not determined on an arms'-length basis. The Asset
Purchase Exercise Price may be paid by Allergan, in its sole discretion, in
cash, in shares of Allergan Common Stock, in shares of Ligand Common Stock, or
in any combination of the foregoing. Ligand may cause any such cash or stock to
be distributed as a credit against the Stock Purchase Option Exercise Price.
1057 Purchase Option. ALRT, Ligand and Allergan also entered into an
agreement (the "1057 Purchase Option Agreement") pursuant to which ALRT has
granted to Ligand and Allergan an option (the "1057 Purchase Option") to acquire
the Compound 1057 Program Assets (as defined below). Ligand and Allergan,
jointly, may exercise the 1057 Purchase Option beginning on the earlier of (i)
June 3, 1997 and (ii) the receipt of regulatory approval for commercial sale of
any Compound 1057 Product in the United States or in certain other major
countries and ending on the earlier of (a) 90 days after receipt of such
regulatory approval and (b) June 3, 2000. Additionally, the 1057 Purchase Option
will terminate on the date the Stock Purchase Option terminates as to both
Allergan and Ligand, whether by exercise or otherwise.
If the 1057 Purchase Option is exercised, the purchase price (the "1057
Purchase Option Exercise Price") for the period before June 3, 1998 and the last
quarter of each of the fourth and fifth years from June 3, 1995 will be as
follows:
<TABLE>
<CAPTION>
AGGREGATE
1057
PURCHASE
OPTION
EXERCISE
IF THE 1057 PURCHASE OPTION IS EXERCISED PRICE
----------------------------------------------------------------- -------------
(IN MILLIONS)
<S> <C>
Before June 3, 1998.............................................. $21.4
During the last quarter of the fourth year....................... $27.8
During the last quarter of the fifth year........................ $36.2
</TABLE>
The 1057 Purchase Option Exercise Price is adjusted on a straight-line
basis at quarterly intervals beginning on June 3, 1998, through the termination
of the 1057 Purchase Option. The 1057 Purchase Option Exercise Price was
determined based on a number of factors and was not determined on an
arms'-length basis. Subject to certain limitations, the 1057 Purchase Option
Exercise Price may be paid in cash, in shares of Ligand Common Stock, in shares
of Allergan Common Stock or in any combination thereof. ALRT may not distribute
or otherwise expend any proceeds received upon the exercise of the 1057 Purchase
Option until the earlier of the closing of the Stock Purchase Option or the date
the Stock Purchase Option terminates or expires unexercised.
Services Agreement. ALRT also entered into a services agreement with Ligand
and Allergan (the "Services Agreement") under which Ligand and Allergan provide
management and administrative services to ALRT at 110% of direct and indirect
costs for services performed internally by Ligand and Allergan and on a cost
reimbursement basis for services performed by third parties for Ligand and
Allergan on ALRT's behalf.
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The Services Agreement terminates on the earlier of (i) the closing of the
exercise of the Stock Purchase Option or (ii) 12 months after expiration or
termination of the Stock Purchase Option (other than by exercise).
Special Stock. As part of the Offering, ALRT issued 200 shares of Special
Common Stock, 50% of which are held by Ligand and 50% of which are held by
Allergan. The holders of shares of Special Common Stock are not entitled to
vote, except: (i) as required by law and (ii) the holders of Special Common
Stock, voting as a separate class, are entitled to elect two directors of ALRT.
When entitled to vote, each holder of Special Common Stock has one vote for each
share standing in his or her name.
The holders of shares of Special Common Stock do not have the right to any
profits of ALRT as a result of the ownership of such shares. In the event of the
liquidation, dissolution or winding up of ALRT, holders of the Callable Common
Stock have a priority over the holders of the Special Common Stock with respect
to return of capital, and the holders of the shares of Special Common Stock will
not otherwise be entitled to participate in any way in the profits or assets of
ALRT. ALRT does not presently intend to issue any additional shares of Special
Common Stock.
Until the Stock Purchase Option is exercised or terminates unexercised,
ALRT cannot without the affirmative vote of the holders of a majority of the
issued and outstanding shares of Special Common Stock, voting separately and as
a class: (i) issue any additional shares of capital stock through a stock split,
sale, reorganization or otherwise, (ii) alter, change or amend the rights,
powers, preferences and restrictions of the Special Common Stock, (iii) alter or
change the provisions of ALRT's Certificate of Incorporation relating to ALRT's
capital stock and the Stock Purchase Option, (iv) merge, consolidate or
reorganize ALRT with or into any other corporation, (v) sell, liquidate or
otherwise dispose of all or substantially all of the assets of ALRT, (vi) borrow
an aggregate of in excess of $1 million outstanding at any one time; (vii)
declare or pay dividends or make any other distributions to stockholders; or
(viii) adopt, amend or repeal the Bylaws of ALRT. Thus, each of Ligand and
Allergan, as a result of their ownership of 50% of the outstanding shares of
Special Common Stock, could preclude the holders of a majority of the
outstanding Callable Common Stock and the Board of Directors of ALRT from taking
any of the foregoing actions during such period.
ALRT may, from time to time on and after the termination of the Stock
Purchase Option, redeem all of the outstanding shares of Special Common Stock by
paying in cash $1.00 per share on each redeemed share. No other preemptive
rights, conversion rights, redemption rights or sinking fund provisions are
applicable to the Special Common Stock.
OTHER RELATIONSHIPS AND TRANSACTIONS
Certain holders of Ligand Common Stock (and Ligand Common Stock issuable
upon exercise of warrants) are entitled to certain registration rights with
respect to such stock.
Russell L. Allen, Vice President, Corporate Development and Strategic
Planning entered into an Employment Agreement with Ligand in February 1997. In
connection therewith, Ligand provided a relocation loan to Mr. Allen for $75,000
and granted an option to purchase 75,000 shares of Ligand Common Stock at an
average price of $13.00 per share. The loan, with accrued interest at 6.74% per
annum, will be forgiven in equal installments over five years, so long as Mr.
Allen is employed by Ligand. At September 30, 1997, $76,685 principal and
interest remained outstanding.
Susan E. Atkins, Vice President, Investor Relations and Corporate
Communications, entered into an Employment Agreement with Ligand in June 1993.
In connection therewith, Ligand provided a relocation loan to Ms. Atkins for
$62,000 and granted an option to purchase 43,300 shares of Ligand Common Stock
at an average price of $7.89 per share. The loan, with accrued interest at 5.35%
per annum, will be forgiven in equal installments over five years, so long as
Ms. Atkins is employed by Ligand. At September 30, 1997, $12,455 principal and
interest remained outstanding.
George M. Gill, M.D., Vice President, Medical Affairs, entered into an
Employment Agreement with Ligand in August 1992. In connection therewith, Ligand
provided a relocation loan to Dr. Gill for $85,000 and was granted options to
purchase 108,250 shares of Ligand Common Stock at an average price of $8.87 per
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<PAGE> 78
share. The loan, with accrued interest at 5.32% per annum, will be forgiven in
equal installments over four years, so long as Dr. Gill is employed by Ligand.
At September 30, 1997, $17,829 principal and interest remained outstanding.
Howard T. Holden, Ph.D., Vice President, Regulatory Affairs, Compliance,
entered into an Employment Agreement with Ligand in August 1992. In connection
therewith, Ligand provided a relocation loan to Dr. Holden for $75,000 and
granted options to purchase 81,188 shares of Ligand Common Stock at an average
price of $8.87 per share. The loan, with accrued interest at 5.32% per annum,
will be forgiven in equal installments over five years, so long as Dr. Holden is
employed by Ligand. At September 30, 1997, $15,131 principal and interest
remained outstanding.
Andres Negro-Vilar, M.D., Ph.D., Senior Vice President, Research and Chief
Scientific Officer entered into an Employment Agreement with Ligand in September
1996. In connection therewith, Ligand provided a relocation loan to Dr.
Negro-Vilar for $150,000 and was granted an option to purchase 100,000 shares of
Ligand Common Stock at an average price of $12.13 per share. The loan, with
accrued interest at 6.60% per annum, will be forgiven in equal installments over
five years, so long as Dr. Negro-Vilar is employed by Ligand. At September 30,
1997, $159,075 principal and interest remained outstanding.
William A. Pettit, Senior Vice President, Human Resources and
Administration entered into an Employment Agreement with Ligand in November
1996. In connection therewith, Ligand provided a relocation loan to Mr. Pettit
for $75,000 and granted an option to purchase 75,000 shares of Ligand Common
Stock at an average price of $12.13 per share. The loan, with accrued interest
at 6.39% per annum, will be forgiven in equal installments over five years, so
long as Mr. Pettit is employed by Ligand. At September 30, 1997, $75,799
principal and interest remained outstanding.
Pursuant to a commitment with Dr. Alexander D. Cross, Ligand will pay
consulting fees to Dr. Cross at a rate of $2,000 for each Board meeting attended
and $500 for each Board meeting in which Dr. Cross participates by telephone.
Ligand will also reimburse Dr. Cross for all reasonable and necessary travel and
other incidental expenses. Pursuant to a prior consulting agreement, in March
1991 Dr. Cross purchased 6,766 shares of Ligand Common Stock for $625 subject to
the terms and conditions of Ligand's Restricted Stock Purchase Agreement.
Pursuant to a commitment with Dr. Irving Johnson, Ligand will pay
consulting fees to Dr. Johnson at a rate of $2,000 for each Board meeting
attended, $500 for each board meeting in which Dr. Johnson participates by
telephone and $1,000 for each day of service beyond four days as a member of the
SAB. Ligand will also reimburse Dr. Johnson for all reasonable and necessary
travel and other incidental expenses. Pursuant to a prior agreement for
consulting services and for services on Ligand's SAB, in May 1989 Dr. Johnson
purchased 18,042 shares of Ligand Common Stock for $334 subject to the terms and
conditions of Ligand's Restricted Stock Purchase Agreement.
Ligand believes that the foregoing transactions were in the best interests
of Ligand and its stockholders.
Ligand will not currently extend or guarantee loans to officers, directors
or affiliates of Ligand unless such loans are approved by a majority of the
disinterested, outside directors of Ligand and may reasonably be expected to
benefit Ligand. As of September 30, 1997, there were outstanding loans with an
aggregate balance (principal and interest) of $470,091 to certain of Ligand's
officers and directors. In addition, all future transactions between Ligand and
its officers, directors or principal stockholders will be on terms no less
favorable to Ligand than could be obtained from unaffiliated parties, as
determined by a majority of Ligand's disinterested directors.
Ligand's Bylaws provide that Ligand will indemnify its directors and
executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by the Delaware General Corporation Law
(the "Delaware Law"). Ligand is also empowered under its Bylaws to enter into
indemnification contracts with its directors and officers and to purchase
insurance on behalf of any person whom it is required or permitted to indemnify.
Pursuant to this provision, Ligand has entered into indemnity agreements with
each of its directors and officers.
77
<PAGE> 79
In addition, Ligand's Certificate of Incorporation provides that to the
fullest extent permitted by Delaware Law, Ligand's directors will not be liable
for monetary damages for breach of the directors' fiduciary duty of care to
Ligand and its stockholders. This provision in the Certificate of Incorporation
does not eliminate the duty of care, and in appropriate circumstances equitable
remedies such as an injunction or other forms of nonmonetary relief would remain
available under Delaware Law. Each director will continue to be subject to
liability for breach of the director's duty of loyalty to Ligand, for acts or
omissions not in good faith or involving intentional misconduct or knowing
violations of law, for acts or omissions that the director believes to be
contrary to the best interests of Ligand or its stockholders, for any
transaction from which the director derived an improper personal benefit, for
acts or omissions involving a reckless disregard for the director's duty to
Ligand or its stockholders when the director was aware or should have been aware
of a risk of serious injury to Ligand or its stockholders, for acts or omissions
that constitute an unexcused pattern of inattention that amounts to an
abdication of the director's duty to Ligand or its stockholders, for improper
transactions between the director and Ligand, and for improper distributions to
stockholders and loans to directors and officers. This provision also does not
affect a director's responsibilities under any other laws, such as the federal
securities laws or state or federal environmental laws.
There is no pending material litigation or proceeding involving a director,
officer, employee, or other agent of Ligand as to which indemnification is being
sought, nor is Ligand aware of any pending or threatened material litigation
that may result in claims for indemnification by any director, officer,
employee, or other agent.
78
<PAGE> 80
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of the Common Stock as of October 31, 1997, and as adjusted to reflect the
issuance 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.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
BENEFICIALLY OWNED(1) OUTSTANDING SHARES(2)
------------------------- ---------------------
PRIOR TO AFTER PRIOR TO AFTER
BENEFICIAL OWNER OFFERING OFFERING OFFERING OFFERING
- ---------------------------------------------------------- --------- --------- -------- --------
<S> <C> <C> <C> <C>
Allergan Pharmaceuticals (Ireland) Ltd., Inc.(3).......... 3,411,873 3,411,873 10.3% 9.5%
David E. Robinson......................................... 461,519(4) 466,363(5) 1.4 1.3
Henry F. Blissenbach(6)................................... 24,355 24,355 * *
Alexander D. Cross........................................ 38,862(7) 39,575(8) * *
John Groom(9)............................................. 24,355 24,355 * *
Irving S. Johnson......................................... 47,275(10) 47,284(11) * *
Carl C. Peck.............................................. 0 0 * *
William L. Respess........................................ 314,192(12) 321,930(13) * *
Paul V. Maier............................................. 153,018(14) 156,137(15) * *
Lloyd E. Flanders(16)..................................... 178,409 178,409 * *
Steven D. Reich(17)....................................... 45,000 45,000 * *
All directors and executive officers as a group
(16 persons)............................................ 1,698,262(18) 1,716,036(19) 5.0 4.6
</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. Except as indicated herein, share
ownership in each case includes shares issuable upon exercise of certain
outstanding options and warrants as described in the footnotes below. Share
ownership prior to the Offering does not include Shares issuable in
connection with the exercise of the Stock Purchase Option by Ligand since
the number of Shares to be issued is not determinable until the close of
this Offering. However, such Shares are specifically accounted for under
the heading "Share Ownership After the Offering" and the respective
footnotes below.
(2) Percentage of ownership is based on 32,994,999 shares of Common Stock prior
to Offering, 36,102,595 shares of Common Stock outstanding after Offering,
and except as noted in footnote (1) above, 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 210,685 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days and 10,134 shares of Common
Stock issuable upon the exercise of Warrants.
(5) Includes the shares specified in footnote (4) above and 4,844 Shares issued
in connection with the Company's purchase of 5,067 shares of Callable
Common Stock held by Mr. Robinson.
(6) Includes 24,355 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days.
(7) Includes 24,355 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days and 1,492 shares of Common
Stock issuable upon the exercise of Warrants.
(8) Includes the shares specified in footnote (7) above and 713 Shares issued
in connection with the Company's purchase of 746 shares of Callable Common
Stock held by Dr. Cross.
(9) Includes 24,355 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days.
(10) Includes 24,355 shares of Common Stock issuable upon exercise of options
that are exercisable within 60 days and 20 shares of Common Stock issuable
upon the exercise of Warrants.
(11) Includes the shares specified in footnote (10) above and 9 Shares issued in
connection with the Company's purchase of 10 shares of Callable Common
Stock held by Dr. Johnson.
(12) Includes 176,680 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days and 16,186 shares of Common
Stock issuable upon the exercise of Warrants.
(13) Includes the shares specified in footnote (14) above and 7,738 Shares
issued by the Company in connection with the purchase of 8,093 shares of
Callable Common Stock held by Dr. Respess.
(14) Includes 140,466 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days and 6,526 shares of Common
Stock issuable upon the exercise of Warrants.
79
<PAGE> 81
(15) Includes the shares specified in footnote (16) above and 3,119 Shares
issued by the Company in connection with the purchase of 3,263 shares of
Callable Common Stock held by Mr. Maier. 1,535 of such shares were held by
Mr. Maier's spouse, and 153 of such shares were held by Mr. Maier's spouse
with Mr. Maier as Tenants in Common.
(16) Includes 178,409 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days.
(17) Includes 45,000 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days.
(18) Includes 1,282,610 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.
(19) Includes the shares specified in footnote (20) above and 17,774 Shares
issued by the Company in connection with the purchase of an aggregate of
18,594 shares of Callable Common Stock held by certain officers and
directors of Ligand.
80
<PAGE> 82
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").
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 September 30, 1997, there were 32,977,938 shares of Common Stock
outstanding and held of record by approximately 1,000 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 September 30, 1997, there were outstanding warrants to purchase
6,615,719 shares of Common Stock, at exercise prices ranging from $1.80 to
$14.00 per share, of which warrants to purchase 6,499,350 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 30, 1997, 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
81
<PAGE> 83
August 31, 1995, the Seventh Addendum to Amended Registration Rights Agreement,
dated as of November 10, 1995 and the Eighth Addendum to Amended Registration
Rights Agreement, dated as of February 10, 1997 (collectively, the "Registration
Rights Agreement"), the holders of 7,229,193 shares of Common Stock, warrants to
purchase 116,369 shares of Common Stock and 499,500 shares of Common Stock
issuable upon conversion of $5,000,000 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.
82
<PAGE> 84
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 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.
PLAN OF DISTRIBUTION
The Shares offered hereunder will be issued by the Company directly to the
stockholders of ALRT.
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.
83
<PAGE> 85
EXPERTS
The consolidated financial statements of Ligand Pharmaceuticals
Incorporated at December 31, 1995 and 1996, and for each of the three years in
the period ended December 31, 1996, and the financial statements of the Allergan
Ligand Joint Venture at December 31, 1994 and for the year then ended and from
July 1, 1992 (inception) through December 31, 1994, appearing in this Prospectus
and Registration Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon, appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
The financial statements of Allergan Ligand Retinoid Therapeutics, Inc. at
December 31, 1995 and 1996, and for the periods then ended, 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-1 (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.
84
<PAGE> 86
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Ligand Pharmaceuticals Incorporated
Report of Ernst & Young LLP, Independent Auditors................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997
(unaudited)...................................................................... F-3
Consolidated Statements of Operations for each of the three years in the period
ended December 31, 1996 and for the nine months ended September 30, 1996
(unaudited) and September 30, 1997 (unaudited)................................... F-4
Consolidated Statements of Stockholders' Equity for each of the three years in the
period ended December 31, 1996 and for the nine months ended September 30, 1997
(unaudited)...................................................................... F-5
Consolidated Statements of Cash Flows for each of the three years in the period
ended December 31, 1996 and for the nine months ended September 30, 1996
(unaudited) and September 30, 1997 (unaudited)................................... F-7
Notes to Consolidated Financial Statements.......................................... F-8
Allergan Ligand Retinoid Therapeutics, Inc.
Report of Ernst & Young LLP, Independent Auditors................................... F-22
Balance Sheets as of December 31, 1995 and 1996..................................... F-23
Statements of Operations for the period June 3, 1995 (date operations commenced) to
December 31, 1995 and for the year ended December 31, 1996....................... F-24
Statements of Stockholders' Equity for the period December 16, 1994 (date of
incorporation) to December 31, 1995 and the year ended December 31, 1996......... F-25
Statements of Cash Flows for the period December 16, 1994 (date of incorporation) to
December 31, 1995 and the year ended December 31, 1996........................... F-26
Notes to Financial Statements....................................................... F-27
Condensed Balance Sheet as of September 30, 1997 (unaudited)........................ F-32
Statements of Operations for the nine months ended September 30, 1996 (unaudited)
and 1997 (unaudited)............................................................. F-33
Statements of Cash Flows for the nine months ended September 30, 1996 (unaudited)
and 1997 (unaudited)............................................................. F-34
Notes to Financial Statements....................................................... F-35
Ligand Pharmaceuticals Incorporated Pro Forma Condensed Consolidated Financial
Statements (unaudited).............................................................. F-37
Allergan Ligand Joint Venture
Report of Ernst & Young LLP, Independent Auditors................................... F-43
Balance Sheet as of December 31, 1994............................................... F-44
Statements of Operations for the year ended December 31, 1994 and for the period
July 1, 1992 (inception) through December 31, 1994............................... F-45
Statement of Partners' Deficit for the year ended December 31, 1994................. F-46
Statements of Cash Flows for the year ended December 31, 1994 and for the period
July 1, 1992 (inception) through December 31, 1994............................... F-47
Notes to Financial Statements....................................................... F-48
</TABLE>
F-1
<PAGE> 87
REPORT OF ERNST & YOUNG LLP, 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, 1995 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. 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, 1995 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
San Diego, California
January 29, 1997
F-2
<PAGE> 88
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
--------------------- 30,
1995 1996 1997
--------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 15,963 $ 34,830 $ 13,437
Short-term investments................................ 54,182 45,822 37,121
Receivable from a related party....................... 2,286 3,087 3,146
Other current assets.................................. 577 1,706 1,102
--------- --------- ---------
Total current assets............................. 73,008 85,445 54,806
Restricted short-term investments........................ 6,759 3,527 3,056
Property and equipment, net.............................. 12,272 11,680 14,991
Notes receivable from officers and employees............. 485 534 553
Other assets............................................. 1,070 954 4,533
--------- --------- ---------
$ 93,594 $ 102,140 $ 77,939
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 3,940 $ 4,137 $ 3,601
Accrued liabilities................................... 6,705 4,870 4,732
Deferred revenue...................................... 2,608 2,151 909
Current portion of obligations under capital leases... 2,406 2,607 2,917
--------- --------- ---------
Total current liabilities........................ 15,659 13,765 12,159
Long-term obligations under capital leases............... 8,585 8,711 8,711
Convertible subordinated debentures...................... 31,279 33,953 35,959
Convertible note......................................... 10,000 11,250 5,000
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, 27,800,597 shares, 31,799,617 shares and
32,977,938 shares issued at December 31, 1995 and
1996 and September 30, 1997, respectively........... 28 32 33
Paid-in capital....................................... 173,452 214,887 226,719
Warrant subscription receivable....................... (4,524) (2,453) (924)
Adjustment for unrealized gains (losses) on
available-for-sale securities....................... 217 (78) 4
Accumulated deficit................................... (140,281) (177,594) (209,711)
Deferred compensation and consulting.................. (819) (322) --
--------- --------- ---------
28,073 34,472 16,121
Less treasury stock, at cost (4,986 shares, 1,114
shares and 1,114 shares in 1995, 1996 and September
30, 1997, respectively)............................. (2) (11) (11)
--------- --------- ---------
Total stockholders' equity....................... 28,071 34,461 16,110
--------- --------- ---------
$ 93,594 $ 102,140 $ 77,939
========= ========= =========
</TABLE>
See accompanying notes.
F-3
<PAGE> 89
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- --------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Collaborative research and
development:
Related parties......... $ 8,342 $ 11,972 $ 18,641 $ 12,784 $ 18,923
Unrelated parties....... 4,893 12,424 17,994 14,407 10,652
Other...................... 74 120 207 161 325
---------- ---------- ---------- ---------- ----------
13,309 24,516 36,842 27,352 29,900
Costs and expenses:
Research and development... 27,205 41,636 59,494 42,174 51,353
Selling, general and
administrative.......... 6,957 8,181 10,205 7,278 7,379
Write-off of acquired in-
process technology...... -- 19,564 -- -- --
ALRT contribution.......... -- 17,500 -- -- --
---------- ---------- ---------- ---------- ----------
Total operating
expenses......... 34,162 86,881 69,699 49,452 58,732
---------- ---------- ---------- ---------- ----------
Loss from operations......... (20,853) (62,365) (32,857) (22,100) (28,832)
Interest income.............. 1,298 3,603 3,704 2,729 2,800
Interest expense............. (679) (5,410) (8,160) (6,162) (6,085)
Equity in operations of joint
venture.................... (6,845) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net loss..................... $ (27,079) $ (64,172) $ (37,313) $ (25,533) $ (32,117)
========== ========== ========== ========== ==========
Net loss per share........... $ (1.57) $ (2.70) $ (1.30) $ (.91) $ (.99)
========== ========== ========== ========== ==========
Shares used in computing net
loss per share............. 17,240,535 23,791,542 28,780,914 28,073,231 32,484,344
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 90
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENT
FOR UNREALIZED
GAINS
CLASS A CLASS B (LOSSES) ON
COMMON STOCK COMMON STOCK WARRANT AVAILABLE-
------------------- ------------------- PAID-IN SUBSCRIPTION FOR-SALE ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE SECURITIES DEFICIT
---------- ------ ---------- ------ -------- ------------ -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993...................... 6,872,156 $ 7 7,622,275 $ 8 $ 94,148 $ -- $ -- $ (49,030)
Issuance of Common Stock.... 885,463 1 14,156 -- 10,538 -- -- --
Amortization of deferred
compensation and
consulting fees........... -- -- -- -- -- -- -- --
Cumulative effect of
adjustment for unrealized
losses on
available-for-sale
securities................ -- -- -- -- -- -- (112) --
Adjustment for unrealized
losses on
available-for-sale
securities................ -- -- -- -- -- -- (615) --
Purchase of treasury
stock..................... -- -- -- -- -- -- -- --
Conversion of Class A Common
Stock to Class B Common
Stock..................... (7,757,619) (8) 10,317,633 10 (2) -- -- --
Net loss.................... -- -- -- -- -- -- -- (27,079)
---------- --- ---------- --- ------- --- ---- --------
Balance at December 31,
1994...................... -- -- 17,954,064 18 104,684 -- (727) (76,109)
Issuance of Common Stock.... -- -- 2,903,622 3 20,966 -- -- --
Issuance of Common Stock for
merger net of transaction
costs of $1,235,000....... -- -- 6,942,911 7 41,952 -- -- --
Amortization of deferred
compensation and
consulting fees........... -- -- -- -- -- -- -- --
<CAPTION>
DEFERRED
COMPENSATION TREASURY STOCK TOTAL
AND CONSULTING --------------- STOCKHOLDERS'
FEES SHARES AMOUNT EQUITY
-------------- ------ ------ -------------
<S> <C> <C> <C> <C>
Balance at December 31,
1993...................... $ (2,198) (3,784) $ (1) $ 42,934
Issuance of Common Stock.... -- -- -- 10,539
Amortization of deferred
compensation and
consulting fees........... 668 -- -- 668
Cumulative effect of
adjustment for unrealized
losses on
available-for-sale
securities................ -- -- -- (112)
Adjustment for unrealized
losses on
available-for-sale
securities................ -- -- -- (615)
Purchase of treasury
stock..................... -- (1,168) (1) (1)
Conversion of Class A Common
Stock to Class B Common
Stock..................... -- -- --
Net loss.................... -- -- -- (27,079)
------- ------ --- ------
Balance at December 31,
1994...................... (1,530) (4,952) (2) 26,334
Issuance of Common Stock.... -- -- -- 20,969
Issuance of Common Stock for
merger net of transaction
costs of $1,235,000....... -- -- -- 41,959
Amortization of deferred
compensation and
consulting fees........... 711 -- -- 711
</TABLE>
F-5
<PAGE> 91
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENT
FOR UNREALIZED
GAINS
CLASS A CLASS B (LOSSES) ON
COMMON STOCK COMMON STOCK WARRANT AVAILABLE-
------------------- ------------------- PAID-IN SUBSCRIPTION FOR-SALE
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE SECURITIES
---------- ------ ---------- ------ -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Adjustment for unrealized gains
(losses) on available-for-sale
securities...................... -- -- -- -- -- -- 944
Purchase of treasury stock........ -- -- -- -- -- -- --
Warrant subscription receivable... -- -- -- -- 5,850 (5,850) --
Cash received from ALRT and
applied to warrant subscription
receivable...................... -- -- -- -- -- 1,326 --
Net loss.......................... -- -- -- -- -- -- --
---------- --- ---------- --- ------- --- ----
Balance at December 31, 1995...... -- -- 27,800,597 28 173,452 (4,524) 217
Issuance of common stock.......... -- -- 3,999,020 4 41,082 -- --
Amortization of deferred
compensation and consulting
fees............................ -- -- -- -- -- -- --
Adjustment for unrealized gains
(losses) on available-for-sale
securities...................... -- -- -- -- -- -- (295)
Receipt of common stock for
milestone revenue............... -- -- -- -- -- -- --
Retirement of shares.............. -- -- -- -- -- -- --
Purchase of treasury shares....... -- -- -- -- -- -- --
Issuance of common stock held in
treasury........................ -- -- -- -- -- -- --
Option term extension............. -- -- -- -- 353 -- --
Amortization of warrant
subscription.................... -- -- -- -- -- 2,071 --
Net loss.......................... -- -- -- -- -- -- --
---------- --- ---------- --- ------- --- ----
Balance at December 31, 1996...... -- -- 31,799,617 32 214,887 (2,453) (78)
Issuance of common stock
(unaudited)..................... -- -- 1,178,321 1 11,832 -- --
Amortization of deferred
compensation and consulting fees
(unaudited)..................... -- -- -- -- -- -- --
Adjustment for unrealized gains
(losses) on available-for-sale
securities (unaudited).......... -- -- -- -- -- -- 82
Amortization of warrant
subscription (unaudited)........ -- -- -- -- -- 1,529 --
Net loss (unaudited).............. -- -- -- -- -- -- --
---------- --- ---------- --- ------- --- ----
Balance at September 30, 1997
(unaudited)..................... -- $ -- 32,977,938 $ 33 $226,719 $ (924) $ 4
========== === ========== === ======= === ====
<CAPTION>
DEFERRED
COMPENSATION TREASURY STOCK TOTAL
ACCUMULATED AND CONSULTING ------------------ STOCKHOLDERS'
DEFICIT FEES SHARES AMOUNT EQUITY
----------- -------------- -------- ------- -------------
<S> <C> <C> <C> <C> <C>
Adjustment for unrealized gains
(losses) on available-for-sale
securities...................... -- -- -- -- 944
Purchase of treasury stock........ -- -- (34) -- --
Warrant subscription receivable... -- -- -- -- --
Cash received from ALRT and
applied to warrant subscription
receivable...................... -- -- -- -- 1,326
Net loss.......................... (64,172) -- -- -- (64,172)
-------- ------- ------ --- ------
Balance at December 31, 1995...... (140,281) (819) (4,986) (2) 28,071
Issuance of common stock.......... -- -- -- -- 41,086
Amortization of deferred
compensation and consulting
fees............................ -- 497 -- -- 497
Adjustment for unrealized gains
(losses) on available-for-sale
securities...................... -- -- -- -- (295)
Receipt of common stock for
milestone revenue............... -- -- (101,011) (1,320) (1,320)
Retirement of shares.............. -- -- 101,011 1,320 1,320
Purchase of treasury shares....... -- -- (3,164) (23) (23)
Issuance of common stock held in
treasury........................ -- -- 7,036 14 14
Option term extension............. -- -- -- -- 353
Amortization of warrant
subscription.................... -- -- -- -- 2,071
Net loss.......................... (37,313) -- -- -- (37,313)
-------- ------- ------ --- ------
Balance at December 31, 1996...... (177,594) (322) (1,114) (11) 34,461
Issuance of common stock
(unaudited)..................... -- -- -- -- 11,833
Amortization of deferred
compensation and consulting fees
(unaudited)..................... -- 322 -- -- 322
Adjustment for unrealized gains
(losses) on available-for-sale
securities (unaudited).......... -- -- -- -- 82
Amortization of warrant
subscription (unaudited)........ -- -- -- -- 1,529
Net loss (unaudited).............. (32,117) -- -- -- (32,117)
-------- ------- ------ --- ------
Balance at September 30, 1997
(unaudited)..................... $(209,711) $ -- (1,114) $ (11) $ 16,110
======== ======= ====== === ======
</TABLE>
F-6
<PAGE> 92
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................................................. $(27,079) $(64,172) $(37,313) $(25,533) $(32,117)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization.......................................... 1,536 2,687 3,879 2,907 3,037
Equity in operations of joint venture.................................. 6,845 -- -- -- --
Amortization of notes receivable from officers and employees........... 265 339 235 174 185
Amortization of warrant subscription receivable........................ -- 1,326 2,071 1,420 1,529
Write-off of acquired in-process technology............................ -- 19,564 -- -- --
Research and development and consulting fees paid through issuance of
stock................................................................ 242 -- -- -- --
Amortization of deferred compensation and consulting fees.............. 669 711 497 378 322
Accretion of debt discount............................................. -- 1,654 2,674 2,006 2,006
Company stock received for milestone revenue........................... -- -- (1,320) (1,320) --
Gain on sale of property and equipment................................. -- (69)
Change in operating assets and liabilities, net of Glycomed merger:
Other current assets................................................. (905) 1,626 (1,129) (1,830) 696
Receivable from a related party...................................... 1,432 (1,128) (801) (384) (59)
Accounts payable and accrued liabilities............................. 2,020 380 (1,638) (4,707) (674)
Deferred revenue..................................................... 666 465 (457) (122) (1,242)
-------- -------- -------- -------- --------
Net cash used in operating activities.................................... (14,309) (36,548) (33,302) (27,011) (26,386)
INVESTING ACTIVITIES
Purchases of short-term investments...................................... (18,336) (17,684) (53,123) (37,486) (18,584)
Proceeds from short-term investments..................................... 27,546 37,205 61,188 52,508 27,367
Purchase of property and equipment....................................... (587) (175) (399) (511) (3,727)
Proceeds from sale of property and equipment............................. 32
Increase in note receivable from officers and employees.................. (20) (135) (350) (180) (220)
Payment of notes receivable from officers and employees.................. -- -- 66 63 16
Increases in deposits and other assets................................... (540) (33) (2) (2) (3,668)
Decreases in deposits and other assets................................... 125 60 118 88 89
Investment in joint venture.............................................. (7,125) (822) -- -- --
Net cash acquired in Glycomed acquisition................................ -- 10,225 -- -- --
-------- -------- -------- -------- --------
Net cash provided by (used in) investing activities...................... 1,063 28,641 7,498 14,480 1,305
FINANCING ACTIVITIES
Principal payments on obligations under capital leases................... (1,064) (1,448) (2,561) (1,726) (2,366)
Net change in restricted short-term investment........................... -- (2,043) 3,232 3,233 471
Net proceeds from the issuance of convertible note....................... 10,000 -- 5,000 -- --
Net proceeds from sale of common stock................................... 10,296 19,733 39,000 2,075 5,583
-------- -------- -------- -------- --------
Net cash provided by financing activities................................ 19,232 16,242 44,671 3,582 3,688
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents..................... 5,986 8,335 18,867 (8,949) (21,393)
Cash and cash equivalents at beginning of period......................... 1,642 7,628 15,963 15,963 34,830
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period............................... $ 7,628 $ 15,963 $ 34,830 $ 7,014 $ 13,437
======== ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid............................................................ $ 421 $ 3,178 $ 5,559 $ 5,292 $ 5,142
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Additions to obligations under capital leases............................ $ 1,162 $ 8,415 $ 2,888 $ 1,928 $ 2,676
Warrant subscription receivable issued with ALRT offering................ $ -- $ 5,850 $ -- $ -- $ --
Conversion of note to common stock....................................... $ -- $ -- $ 3,750 $ 3,750 $ 6,250
Retirement of treasury stock............................................. $ -- $ -- $ 1,320 $ 1,320 $ --
</TABLE>
See accompanying notes.
F-7
<PAGE> 93
LIGAND PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1997 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
includes its wholly-owned subsidiaries, Glycomed Incorporated ("Glycomed"), and
Ligand Pharmaceuticals (Canada) Incorporated.
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.
F-8
<PAGE> 94
LIGAND PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Interim Financial Information
The financial statements at September 30, 1997 and the nine months ended
September 30, 1996 and 1997 are unaudited. These financial statements reflect
all adjustments, consisting only of normal recurring adjustments which, in the
opinion of management, are necessary to fairly present the financial position as
of September 30, 1997, and the results of operations for the nine months ended
September 30, 1996 and 1997. The results of operations for the nine months ended
September 30, 1997 are not necessarily indicative of the results to be expected
for the year ending December 31, 1997.
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.
Net Loss Per Share
Net loss per share is computed using the weighted average number of common
shares 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, 1994, 1995 and 1996, and for the nine
months ended September 30, 1996 and 1997, costs and expenses related to
collaborative research and development agreements were $13.2 million, $24.4
million, $36.6 million, $27.2 million and $29.6 million, respectively.
Property and Equipment
Property and equipment is stated at cost and consists of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- -------
<S> <C> <C>
Equipment and leasehold improvements..................... $ 19,387 $22,674
Less accumulated depreciation and amortization........... (7,115) (10,994)
-------- -------
Net property and equipment............................... $ 12,272 $11,680
======== =======
</TABLE>
Depreciation of equipment and leasehold improvements is computed using the
straight-line method over the estimated useful lives of the assets which range
from three to fifteen years. Assets acquired pursuant to capital lease
arrangements and leasehold improvements are amortized over their estimated
useful lives or their related lease term, whichever is shorter.
Stock Compensation
In October 1994, 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 the
F-9
<PAGE> 95
LIGAND PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
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 the
current implicit value based method, and has disclosed the pro forma effect of
using the fair value based method to account for its stock-based compensation
(see Note 8).
Long-Lived Assets
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.
3. INVESTMENTS
Investments are recorded at estimated fair market value at December 31,
1995 and 1996, 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
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------
GROSS UNREALIZED ESTIMATED
COST GAINS (LOSSES) FAIR VALUE
------- ---------------- ----------
<S> <C> <C> <C>
Available-for-Sale:
U.S. Government Securities.................... $37,073 $209 $ 37,282
Corporate Obligations......................... 14,055 13 14,068
Certificates of Deposit....................... 2,837 (5) 2,832
------- ---- --------
53,965 217 54,182
Certificates of Deposit -- restricted......... 4,058 -- 4,058
U.S. Government Securities -- restricted...... 2,701 -- 2,701
Equity securities............................. 440 -- 440
------- ---- --------
$61,164 $217 $ 61,381
======= ==== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------
GROSS
UNREALIZED ESTIMATED
COST GAINS (LOSSES) FAIR VALUE
------- ---------------- ----------
<S> <C> <C> <C>
Available-for-Sale:
U.S. Government Securities.................... $18,541 $(52) $ 18,489
Corporate Obligations......................... 22,005 (16) 21,989
Certificates of Deposit....................... 5,354 (10) 5,344
------- ---- --------
45,900 (78) 45,822
Certificates of Deposit- restricted........... 3,527 -- 3,527
Equity securities............................. 440 -- 440
------- ---- --------
$49,867 $(78) $ 49,789
======= ==== ========
</TABLE>
F-10
<PAGE> 96
LIGAND PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
The realized gains (losses) on sales of available-for-sale securities for
the years ended December 31, 1995 and 1996 have not been material.
The amortized cost and estimated fair value of debt and marketable
securities at December 31, 1995 and 1996, by contractual maturity, are shown
below (in thousands). 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, 1995 DECEMBER 31, 1996
---------------------- ----------------------
ESTIMATED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Due in one year or less........... $57,509 $ 57,692 $15,941 $ 15,938
Due after one year through three
years........................... 3,119 3,156 33,388 33,315
Due after three years............. 96 93 98 96
------- -------- ------- --------
60,724 60,941 49,427 49,349
Equity securities................. 440 440 440 440
------- -------- ------- --------
$61,164 $ 61,381 $49,867 $ 49,789
======= ======== ======= ========
</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 .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 $19.6
million.
Details of the merger are as follows (in thousands):
<TABLE>
<S> <C>
Total consideration:
Common stock............................................. $43,193
Convertible debentures assumed........................... 29,625
Other liabilities assumed................................ 6,897
-------
79,715
Less:
Fair value of assets acquired, including cash, restricted
cash and short-term investments of $46,698............... 49,926
Write-off of in-process technology......................... 19,564
-------
Net cash acquired.......................................... $10,225
=======
</TABLE>
The common stock issued as consideration was valued at the market price on
the date the transaction was consummated.
F-11
<PAGE> 97
LIGAND PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
The following unaudited pro forma data reflects the Company's 1995 results
of operations as if the Glycomed acquisition occurred on January 1, 1995 (in
thousands, except per share data):
<TABLE>
<S> <C>
Revenues.................................................. $ 25,711
Net loss.................................................. (51,690)
Loss per share............................................ $ (1.96)
</TABLE>
5. ACCRUED LIABILITIES
Accrued liabilities are comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------ ------
<S> <C> <C>
Accrued legal.............................................. $1,463 $ 463
Accrued interest........................................... 2,292 2,116
Accrued compensation....................................... 1,100 925
Other...................................................... 1,850 1,366
------ ------
$6,705 $4,870
====== ======
</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 amount of $50
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 Company's 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 December 2002. Equipment under
these agreements at December 31, 1996 and 1995 was $19.0 million and $16.1
million, respectively. At December 31, 1995 and 1996, accumulated amortization
was $6.9 million and $9.7 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.
Rent expense for the years ended December 31, 1994, 1995 and 1996 was $1.7
million, $2.5 million and $3.1 million, respectively.
F-12
<PAGE> 98
LIGAND PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
At December 31, 1996, annual minimum rental payments due under the
Company's leases and equipment notes payable are as follows (in thousands):
<TABLE>
<CAPTION>
OBLIGATIONS
UNDER CAPITAL
LEASES AND
EQUIPMENT
NOTES OPERATING
PAYABLE LEASES
------------- ---------
<S> <C> <C>
1997.................................................. $ 3,515 $ 2,778
1998.................................................. 2,930 1,582
1999.................................................. 2,613 1,430
2000.................................................. 2,583 1,433
2001.................................................. 1,491 1,476
Thereafter............................................ 624 22,742
------- -------
Total minimum lease payments.......................... 13,756 $31,441
=======
Less amounts representing interest.................... 2,438
-------
Present value of minimum lease payments............... 11,318
Less current portion.................................. 2,607
-------
$ 8,711
=======
</TABLE>
At the end of 1997, one of the Company's main operating lease agreements
for office and research facilities expires, at which time the Company plans to
move into a build-to-suit facility. In March 1997, the Company entered into a
fifteen-year lease, with a five year extension option, related to the
build-to-suit facility, and loaned the construction partnership $3.7 million
which will be paid back with interest over a ten year period.
Royalty Agreements
The Company has entered into royalty agreements requiring payments ranging
from 2% to 10% of net sales and 10% to 30% of license and other income for
certain products developed by the Company. Currently, the Company is making
minimum royalty payments under three agreements, which increase annually to a
maximum of $235,000 per year and aggregate $1.2 million through 2001. Royalty
expense under the agreements for the years ended December 31, 1994, 1995 and
1996 and for the nine months ended September 30, 1996 and 1997 were $160,000,
$195,000, $261,000, $135,000 and $207,000, respectively.
No royalty payments have been received by the Company.
8. STOCKHOLDERS' EQUITY
Public Offering
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.
Warrants
At December 31, 1996 and September 30, 1997, the Company had outstanding
warrants to purchase 6,635,965 shares and 6,615,719 shares, respectively of the
Company's Common Stock, of which 6,499,350 warrants relate to the ALRT
transaction (see Note 9). The ALRT warrants have an exercise price
F-13
<PAGE> 99
LIGAND PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
of $7.12 per share, the additional warrants have exercise prices ranging from
$1.80 to $14.00 per share and expire at various dates through September 30,
2001.
Stock Plans
The Company's 1992 Stock Option/Stock Issuance Plan incorporates all
outstanding stock options and unvested share issuances under a prior plan. In
May of years 1993 through 1997 inclusive, this Plan was amended to increase the
aggregate shares available for grant or issuance to 7,303,457 shares of common
stock. The large majority of the options granted have 10 year terms and vest and
become fully exercisable at the end of 4 years of continued employment. In
addition to this Plan, on the date of the Merger, all outstanding in-the-money
stock options from Glycomed's stock option plan were converted into options to
purchase 470,008 shares of the Company's Common Stock based on the Exchange
Ratio in effect. The Company's employee stock purchase plan also provides for
the sale of up to 206,500 shares of the Company's Common Stock.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the dates of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995:
<TABLE>
<S> <C> <C>
Risk free interest rates............................ 5.3%-6.6% 5.7%-7.6%
Dividend yields..................................... -- --
Volatility.......................................... 44.40% 44.40%
Weighted average expected life...................... 5 or 7 years 5 or 7 years
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows (in thousands, except for earnings per share
information):
<TABLE>
<S> <C> <C>
Net loss as reported..................................... $(37,313) $(64,172)
Net loss pro forma....................................... (39,210) (65,082)
Net loss per share as reported........................... (1.30) (2.70)
Net loss per share pro forma............................. (1.36) (2.74)
</TABLE>
The pro forma effect on net loss for 1996 and 1995 is not representative of
the pro forma effect on net loss in future years because it does not take into
consideration pro forma compensation expense related to grants made prior to
1995.
F-14
<PAGE> 100
LIGAND PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Following is a summary of the Company's stock option plans activity and
related information:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES PRICE RANGE EXERCISE PRICE
--------- ------------- --------------
<S> <C> <C> <C>
Balance at December 31, 1993................ 1,409,977 $ .22-$ 9.60 $ 8.05
Granted................................... 1,046,217 8.62- 11.59 9.69
Exercised................................. (1,782) 7.70- 7.90 4.52
Cancelled................................. (35,508) .22- 10.55 8.52
--------- ------------- ------
Balance at December 31, 1994................ 2,418,904 .22- 11.59 8.75
Merger options granted.................... 470,008 .68- 6.37 3.37
Granted................................... 1,077,540 4.68- 10.00 7.36
Exercised................................. (215,530) .29- 7.97 4.10
Cancelled................................. (146,816) 3.89- 11.59 7.57
--------- ------------- ------
Balance at December 31, 1995................ 3,604,106 .29- 11.59 7.33
Granted................................... 974,015 10.31- 16.38 12.85
Exercised................................. (498,456) .22- 12.75 5.61
Cancelled................................. (282,783) 3.89- 13.31 7.91
--------- ------------- ------
Balance at December 31, 1996................ 3,796,882 .68- 16.38 9.55
Granted................................... 699,697 9.50- 13.00 11.91
Exercised................................. (351,470) .68- 14.50 8.86
Cancelled................................. (144,005) 3.89- 14.50 11.41
--------- ------------- ------
Balance at September 30, 1997............... 4,001,104 $.68-$16.38 $ 9.99
========= ============= ======
Options exercisable at September 30, 1997... 2,279,123 $.68-$16.38
========= =============
</TABLE>
Of the total options granted from 1994 through 1996, 3,509,018 were granted
at a price equal to the fair value of the options at the time of grant, and
58,762 were granted at a price below the fair value of the options at the time
of grant.
Following is a further breakdown of the options outstanding as of December
31, 1996:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
OPTIONS REMAINING LIFE AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING IN YEARS EXERCISE PRICE
------------------------------- ----------- -------------- --------------
<S> <C> <C> <C>
Glycomed Plan:
$ .68-$ .79................ 19,846 3.21 $ .73
$ 3.77-$ 5.31................ 61,357 7.75 $ 4.07
Ligand Plan:
$ 4.51-$ 6.75................ 420,541 8.23 $ 6.08
$ 7.14-$10.67................ 2,241,982 6.17 $ 8.90
$11.26-$16.38................ 1,053,156 9.40 $12.82
--------- ------
3,796,882 $ 9.55
========= ======
</TABLE>
F-15
<PAGE> 101
LIGAND PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
At December 31, 1996 and September 30, 1997, 447,589 and 767,063 shares,
respectively were available under all 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, 1994, 1995 and 1996 and for the nine months ended 1996 and
1997 was $669,000, $711,000, $497,000, $378,000 and $322,000, respectively.
Shareholder's Rights Plan
In September 1996, the Company's Board of Directors adopted a preferred
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.
9. COLLABORATIVE RESEARCH AGREEMENTS
SmithKline Beecham Corporation
In February 1995, the Company entered into a research collaboration with
SmithKline Beecham Corporation ("SmithKline Beecham") 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 years ended December 31, 1995, 1996 and
for the nine months ended September 30, 1996 and 1997 was $2.1 million, $2.4
million, $1.8 million and $2.5 million, respectively. SmithKline Beecham has
agreed to provide the Company up to $21.5 million in research funding and equity
investments. SmithKline Beecham made an investment of $5.0 million by purchasing
674,127 shares of the Company's Common Stock at $7.41 per share at the inception
of the agreement. In November 1995, a second equity investment of $2.5 million
by purchasing 260,200 shares of the Company's Common Stock at $9.60 per share,
was provided to the Company upon the achievement of certain milestones. A third
installment of equity investment of $2.5 million would be provided to the
Company upon SmithKline Beecham's election to expand the scope of research as
defined. This election was exercised in January 1997 when SmithKline Beecham
purchased 164,474 shares of the Company's Common Stock at $15.20 per share. The
final installment of $2.5 million was provided in October 1997 as a convertible
note as a result of SmithKline Beecham's election to extend the collaboration.
The note is convertible into the Company's Common Stock at $13.56 per share and
is due October 2002 unless converted into the Company's Common Stock earlier.
The interest rate on the note is payable semi-annually at prime.
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
F-16
<PAGE> 102
LIGAND PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
activities, to invest $5.0 million by purchasing 574,513 shares of the Company's
Common Stock at $8.70 per share, and to provide, in three installments, up to
$20.0 million in convertible notes over the life of the agreement.
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 second convertible note installment until
December 1996.
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, 1994, 1995, 1996 and for the nine months ended September 30, 1996
and 1997 was $1.7 million, $4.0 million, $6.9 million, $5.6 million and $3.4
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. In the second quarter of 1995, the Company achieved certain
milestones which qualified the Company to receive the second installment of a
$5.0 million convertible note, which the Company elected to receive in December
1996. 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 the Company's 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 the Company's
outstanding Common Stock. In August 1996, March 1997 and again in July 1997 the
Company converted $3.8 million, $3.8 million and $2.5 million, respectively of
the convertible notes outstanding into 374,626, 374,626 and 249,749 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.
Abbott Laboratories
In July 1994, the Company entered into a 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, 1995 and 1996 and for the
nine months ended September 30, 1996 and 1997 revenues were $1.2 million, $2.6
million, $2.5 million, $2.0 million and $1.4 million, respectively. Abbott made
an equity investment of $5.0 million by purchasing 571,305 shares of the
Company's Common Stock at $8.75 per share at the inception of the agreement, and
in August 1995 Abbott made another equity investment of $5.0 million by
purchasing 516,129 shares of the Company's Common Stock at $9.68 per share,
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 $8.9 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,
F-17
<PAGE> 103
LIGAND PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
1995 and for the year ended December 31, 1996 and for the nine months ended
September 30, 1996 and 1997 was $1.7 million, $2.7 million, $2.1 million and
$2.1 million, respectively. The agreement also provides that upon being
presented by the Company with a target compound arising from the research
collaboration, 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 189,274 shares of the Company's Common Stock at $7.92 per share
for net proceeds of $1.5 million.
In June 1997, the collaborative research agreement was extended through
October 1997.
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 up 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, 1994, 1995 and 1996 and for the
nine months ended September 30, 1996 and 1997 was $2.0 million, $2.1 million,
$2.1 million, $1.6 million and $1.3 million, respectively. In connection with
the agreement, Glaxo purchased 662,755 shares of Common Stock at $11.31 per
share for net proceeds of $7.5 million. Glaxo also purchased 315,465 shares of
Common Stock at $7.92 per share as part of the Company's initial public offering
for net proceeds of $2.5 million.
Allergan Ligand 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 discover, develop and commercialize retinoid drugs. In connection
with the establishment of the Joint Venture, the Company sold 1,353,125 shares
of Common Stock for $11.08 per share for net proceeds of approximately $15.0
million and warrants to purchase an additional 433,000 shares of the Company's
Common Stock to Allergan Pharmaceuticals (Ireland) Ltd., Inc. which was
exercised in November 1993. Allergan also purchased 630,929 shares of Common
Stock, at $7.92 per share for $5.0 million as part of the Company's initial
public offering, in November 1992.
From inception through December 31, 1994, the Company and Allergan invested
$14.6 million each to provide funding for the Joint Venture's operations. The
following is the summarized balance sheet of the
F-18
<PAGE> 104
LIGAND PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Joint Venture as of December 31, 1994, and the summarized statements of
operations for the year ended December 31, 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
YEAR ENDED (INCEPTION)
DECEMBER 31, THROUGH
1994 DECEMBER 31, 1994
------------ -----------------
<S> <C> <C>
Interest income............................. $ 4,552 $ 174,867
Contract research expense................... 13,694,032 31,069,375
Net Loss.......................... $(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 ( the "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
Company's Common Stock. Immediately prior to the consummation of the ALRT
Offering, Allergan Pharmaceuticals (Ireland) Ltd., Inc. made a $6.0 million
investment by purchasing 994,819 shares of the Company's Common Stock at $6.03
per share. 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 $.90 per warrant) pursuant to the ALRT Offering.
Since June 3, 1995, cash received from ALRT pursuant to a Research and
Development Agreement was prorated between contract revenue and the warrant
subscription receivable based on their respective values. In 1995 and 1996 and
for the first nine months of 1996 and 1997, $1.3 million, $2.1 million, $1.4
million and $1.5 million, 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 other
agreements in connection with the funding of ALRT, including, a Technology
License Agreement, a Commercialization Agreement and Services and Administrative
Agreements, and ALRT granted to Ligand and Allergan an option to acquire certain
F-19
<PAGE> 105
LIGAND PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
assets related to Oral and Topical Panretin (ALRT1057) and an option to acquire
all the outstanding shares of ALRT callable common stock. If Ligand exercises
the option, to acquire all ALRT callable common stock, Allergan has an option to
purchase an undivided 50% interest in all of the assets of ALRT.
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. 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. 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.
In connection with the collaborative research agreement, Pfizer purchased
1,353,125 shares of the Company's Common Stock for $5.54 per share for net
proceeds of $7.5 million.
In December 1994, the Company 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 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 the Company can be
satisfied by Pfizer transferring to the Company shares of Common Stock at an
exchange ratio of $12.375 per share. To date, the Company 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.
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
F-20
<PAGE> 106
LIGAND PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Company's Common Stock owned by the individual or second trust deeds on the
personal residences of the respective employees.
12. INCOME TAXES
At December 31, 1996, the Company had consolidated federal and combined
California income tax net operating loss carryforwards of approximately $173
million and $21 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 tax loss carryforward will begin to expire in 2002, unless
previously utilized. The California tax loss carryforwards began expiring in
1996 (approximately $465,000 expired in 1996). The Company also had consolidated
federal and combined California research tax credit carryforwards of
approximately $6.2 million and $3.1 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 occurred within three
year periods during 1989, 1992 and 1996. However, the Company does not believe
the limitations will have a material impact upon the future utilization of these
carryforwards. 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 have been reduced, including the
related deferred tax assets.
Significant components of the Company's deferred tax assets as of December
31, 1995 and 1996 are shown below (in thousands). A valuation allowance has been
recognized to fully offset the deferred tax assets as of December 31, 1995 and
1996 as realization of such assets is uncertain.
<TABLE>
<CAPTION>
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liability:
Acquired subordinated debt............................ $ 7,676 $ 6,579
Deferred tax assets:
Net operating loss carryforwards...................... 53,191 62,615
Research and development credits...................... 5,284 8,260
Capitalized research and development.................. 7,556 8,655
Other -- net.......................................... 3,651 5,100
-------- --------
Total deferred tax assets............................... 69,682 84,630
Valuation allowance for deferred tax assets............. (62,006) (78,051)
-------- --------
Net deferred tax assets................................. 7,676 6,579
-------- --------
Net deferred taxes...................................... $ -- $ --
======== ========
</TABLE>
Approximately $1.7 million of the valuation allowance for deferred tax
assets relates to benefits of stock option deductions which, when recognized
will be allocated directly to paid-in capital.
F-21
<PAGE> 107
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Allergan Ligand Retinoid Therapeutics, Inc.
We have audited the accompanying balance sheets of Allergan Ligand Retinoid
Therapeutics, Inc. as of December 31, 1995 and 1996, the related statements of
operations for the period June 3, 1995 (date operations commenced) to December
31, 1995 and the year ended December 31, 1996, and the statements of
stockholders' equity, and cash flows for the period December 16, 1994 (date of
incorporation) to December 31, 1995 and the year ended December 31, 1996 . 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 financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements 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 financial position of Allergan Ligand Retinoid
Therapeutics, Inc. at December 31, 1995 and 1996, and the results of its
operations for the period June 3, 1995 (date operations commenced) to December
31, 1995 and the year ended December 31, 1996, and its cash flows for the period
June 3, 1995 (date operations commenced) to December 31, 1995 and the year ended
December 31, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Orange County, California
March 25, 1997
F-22
<PAGE> 108
ALLERGAN LIGAND RETINOID THERAPEUTICS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $79,792,554 $29,897,327
Marketable securities........................................... -- 20,394,182
Interest receivable and other current assets.................... 335,001 720,009
----------- -----------
Total current assets.............................................. $80,127,555 $51,011,518
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable to Allergan, Inc............................... $ 1,038,409 $ 812,710
Accounts payable to Ligand Pharmaceuticals Incorporated......... 1,847,825 3,076,478
Accrued offering costs.......................................... 434,759 --
Other accounts payable and accrued liabilities.................. 330,611 260,733
----------- -----------
Total current liabilities......................................... 3,651,604 4,149,921
Stockholders' equity:
Callable Common Stock, $.001 par value, 3,250,000 shares
authorized, issued and outstanding........................... 3,250 3,250
Special Common Stock, $1 par value, 1,000 shares authorized, 200
shares issued and outstanding................................ 200 200
Additional paid-in capital...................................... 94,256,046 94,256,046
Unrealized holding loss on marketable securities................ -- (169,753)
Accumulated deficit............................................. (17,783,545) (47,228,146)
----------- -----------
Total stockholders' equity........................................ 76,475,951 46,861,597
----------- -----------
$80,127,555 $51,011,518
=========== ===========
</TABLE>
See accompanying notes.
F-23
<PAGE> 109
ALLERGAN LIGAND RETINOID THERAPEUTICS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
JUNE 3, 1995 (DATE
OPERATIONS COMMENCED) YEAR ENDED
--------------------- DECEMBER 31,
TO DECEMBER 31, 1995 1996
--------------------- ------------
<S> <C> <C>
Interest income........................................... $ 2,863,989 $ 3,626,713
Costs and expenses:
Research and development expenses....................... 19,495,346 31,726,438
General and administrative expenses..................... 1,152,188 1,344,876
------------ ------------
Total costs and expenses............................. 20,647,534 33,071,314
------------ ------------
Net loss.................................................. $ (17,783,545) $(29,444,601)
============ ============
Net loss per callable common share........................ $(5.47) $(9.06)
============ ============
Weighted average callable common shares outstanding....... 3,250,000 3,250,000
============ ============
</TABLE>
See accompanying notes.
F-24
<PAGE> 110
ALLERGAN LIGAND RETINOID THERAPEUTICS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
DECEMBER 16, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
CALLABLE SPECIAL UNREALIZED
COMMON STOCK COMMON STOCK ADDITIONAL HOLDING LOSS TOTAL
------------------ --------------- PAID-IN ON MARKETABLE ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL SECURITIES DEFICIT EQUITY
--------- ------ ------ ------ ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares issued upon
incorporation --
December 16, 1994 (date
of incorporation)....... -- $ -- 200 $200 $ -- $ -- $ -- $ 200
--------- ------ --- ---- ----------- --------- ------------ -----------
Balance at December 31,
1994.................... -- -- 200 200 -- -- -- 200
Issuance of callable
common stock in initial
public offering, net of
offering costs of
$5,740,704.............. 3,250,000 3,250 -- -- 26,756,046 -- -- 26,759,296
Contribution from
Allergan, Inc........... -- -- -- -- 50,000,000 -- -- 50,000,000
Contribution from Ligand
Pharmaceuticals
Incorporated............ -- -- -- -- 17,500,000 -- -- 17,500,000
Net loss.................. -- -- -- -- -- -- (17,783,545) (17,783,545)
--------- ------ --- ---- ----------- --------- ------------ -----------
Balance at December 31,
1995.................... 3,250,000 3,250 200 200 94,256,046 -- (17,783,545) 76,475,951
Net loss.................. -- -- -- -- -- -- (29,444,601) (29,444,601)
Unrealized holding loss on
marketable securities... -- -- -- -- (169,753) -- (169,753)
--------- ------ --- ---- ----------- --------- ------------ -----------
Balance at December 31,
1996.................... 3,250,000 $3,250 200 $200 $94,256,046 $(169,753) $(47,228,146) $ 46,861,597
========= ====== === ==== =========== ========= ============ ===========
</TABLE>
See accompanying notes.
F-25
<PAGE> 111
ALLERGAN LIGAND RETINOID THERAPEUTICS, INC.
STATEMENTS OF CASH FLOWS
DECEMBER 16, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
DECEMBER 16,
1994
(DATE OF
INCORPORATION)
TO DECEMBER YEAR ENDED
31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Operating activities:
Net loss...................................................... $(17,783,545) $(29,444,601)
Adjustments to reconcile net loss to net cash used in
operating activities:
Changes in operating assets and liabilities:
Interest receivable and other current assets............... (335,001) (385,008)
Accounts payable to Allergan, Inc.......................... 1,038,409 (225,699)
Accounts payable to Ligand Pharmaceuticals Incorporated.... 1,847,825 1,228,653
Accrued offering costs..................................... 434,759 (434,759)
Other accounts payable and accrued liabilities............. 330,611 (69,878)
------------ ------------
Net cash used in operating activities........................... (14,466,942) (29,331,292)
Investing activities:
Purchase of marketable securities............................. -- (20,563,935)
Financing activities:
Proceeds from issuance of callable common stock in initial
public offering, net....................................... 26,759,296 --
Proceeds from issuance of special common stock................ 200 --
Contribution from Allergan, Inc............................... 50,000,000 --
Contribution from Ligand Pharmaceuticals Incorporated......... 17,500,000 --
------------ ------------
Net cash provided by financing activities..................... 94,259,496 --
------------ ------------
Net increase (decrease) in cash and cash equivalents............ 79,792,554 (49,895,227)
Cash and cash equivalents at beginning of period................ -- 79,792,554
------------ ------------
Cash and cash equivalents at end of period...................... $ 79,792,554 $ 29,897,327
============ ============
</TABLE>
See accompanying notes.
F-26
<PAGE> 112
ALLERGAN LIGAND RETINOID THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND BUSINESS OPERATIONS
Business
Allergan Ligand Retinoid Therapeutics, Inc. (the Company) was incorporated
in Delaware in 1994 and commenced operations on June 3, 1995 to continue the
efforts of the Allergan Ligand Joint Venture (Joint Venture), established by
Allergan, Inc. (Allergan) and Ligand Pharmaceuticals Incorporated (Ligand) in
June 1992, to discover, develop and commercialize drugs based on retinoids (the
Products).
On June 3, 1995, the Company and Ligand completed a public offering (the
Offering) of 3.25 million units, each unit consisting of one share of the
Company's callable common stock and two warrants, each to purchase one share of
Ligand common stock. The Offering raised net proceeds for the Company of $26.8
million. At the completion of the Offering, Ligand contributed $17.5 million in
cash, as well as warrants in exchange for (i) a right to acquire all of the
Callable Common Stock at specified future dates and amounts and (ii) a right to
acquire all rights to the Panretin (ALRT1057) products, jointly with Allergan,
currently under development by the Company. At the same time, Allergan
contributed $50.0 million in cash to the Company in exchange for (i) the right
to acquire one-half of all technologies and other assets in the event Ligand
exercises its right to acquire all of the Callable Common Stock, (ii) a similar
right to acquire all of the Callable Common Stock if Ligand does not exercise
its right and (iii) a right to acquire all rights to the Panretin (ALRT1057)
products, jointly with Ligand.
ALRT's Board of Directors recently approved a research and development plan
for the year ending December 31, 1997 which represents an acceleration in
spending on ALRT's retinoid programs. The accelerated spending is the result of
more rapid discovery and development of a significantly larger library of viable
retinoid compounds than anticipated at the time of formation of ALRT. ALRT
anticipates the acceleration in spending could result in the use of
substantially all of the funds available for research and development remaining
in ALRT in late 1997 or early 1998. Ligand and Allergan have certain purchase
options over the Callable Common Stock and the assets of ALRT which could be
triggered by the use of substantially all of ALRT's funds. There can be no
assurance that Ligand or Allergan will exercise these options.
2. SIGNIFICANT ACCOUNTING POLICIES
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 accompanying financial
statements. Actual results could differ from those estimates.
Concentrations of Business Risk
The Company conducts research and development for the purpose of
identifying and developing retinoid drugs for therapeutic uses and is subject to
intense competition and technological changes in the biotechnology industry. The
Company is also dependent upon Allergan and Ligand who are primarily responsible
for research, development, marketing and manufacturing on behalf of the Company.
Cash and Cash Equivalents
Cash and cash equivalents consists of demand deposits and bank certificates
of deposit carried at cost which approximates fair value.
F-27
<PAGE> 113
ALLERGAN LIGAND RETINOID THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Marketable Securities
Marketable securities consist of United States Treasury Bills and debt
instruments of financial institutions and corporations with strong credit
ratings. The Company determines the fair value of marketable securities based
upon quoted market values. At December 31, 1996, the fair value of marketable
securities was $169,753 less than cost. Such reduction in value was recorded as
a charge in stockholders' equity as the marketable securities are available for
sale.
Concentration of Credit Risks
The Company invests its excess cash in certificates of deposit and
marketable securities. The Company has established guidelines with respect to
diversification and maturities designed to maintain safety and liquidity.
Research and Development Expenses
The Company contracts with Allergan and Ligand to conduct research,
development and initial clinical testing. The costs of such work are expensed as
incurred.
Income Taxes
The Company utilizes the liability method of accounting for income taxes.
Under the liability method, deferred taxes are determined based on the
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates.
Net Loss Per Callable Common Share
Net loss per callable common share is calculated by dividing the net loss
by the number of callable common shares outstanding, which was 3,250,000 at all
times during the period from commencement of operations following the closing of
the initial public offering on June 3, 1995 to December 31, 1996.
3. RELATIONSHIP WITH ALLERGAN AND LIGAND
Technology License Agreement
Under a technology license agreement (the License), the Company has an
exclusive license to use the retinoid technologies developed first by Allergan
and Ligand and subsequently by the Joint Venture. The License granted is subject
to certain exceptions that allow Allergan and Ligand to pursue limited research
activities and development and commercialization of certain products. In
consideration for the License, the Company will pay to Allergan and Ligand a
royalty aggregating 3% of net sales of Products under the License during the
life of applicable patents or, in certain circumstances, for 10 years.
Research and Development Agreement
The Company entered into a research and development agreement (the
Development Agreement) under which Allergan and Ligand perform research and
development for the Company on retinoid compounds and products in accordance
with annual budgets and development plans jointly proposed by Allergan and
Ligand and approved by the Company's Board of Directors. Under the Development
Agreement, the Company has agreed to reimburse Allergan and Ligand for their
internal costs plus 10% and the cost of services performed
F-28
<PAGE> 114
ALLERGAN LIGAND RETINOID THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
3. RELATIONSHIP WITH ALLERGAN AND LIGAND (CONTINUED)
by third parties. Total amounts charged to the Company during 1995 and 1996 by
Allergan and Ligand under the Development Agreement were (in millions):
<TABLE>
<CAPTION>
1995 1996
----- -----
<S> <C> <C>
Allergan $ 6.6 $10.6
Ligand 12.7 21.8
</TABLE>
If the Company discontinues development of compounds meeting certain
criteria, Allergan and Ligand are entitled to develop and commercialize such
compounds using their own funds. The Company is entitled to receive a royalty
equal to 6% of net sales of any such independently developed products. The
Company also has the right to reacquire any such product prior to the earlier of
the commencement of Phase III clinical trials for such product or the exercise
or expiration of the Stock Purchase Option, for an amount equal to costs
incurred by Allergan and/or Ligand plus interest at 25% per year. Additionally,
with respect to any reacquired product, the Company will pay a royalty equal to
4% of net sales to the developing party.
COMMERCIALIZATION AGREEMENT
The Company also entered into a commercialization agreement (the
Commercialization Agreement) which provides for the marketing, manufacture and
sale by Allergan and/or Ligand of the Products developed under the Development
Agreement which have received regulatory approval for commercial sale.
SERVICES AGREEMENT
The Company also entered into a services agreement (the Services Agreement)
under which Allergan and Ligand provide management and administrative services
to the Company at 110% of direct and indirect costs for services performed
internally by Allergan and Ligand and on a cost reimbursement basis for services
performed by third parties. Total amounts charged to the Company during 1995 and
1996 by Allergan and Ligand for these services under the Services Agreement were
(in millions):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Allergan................................... $0.1 $0.1
Ligand..................................... 0.1 0.1
</TABLE>
PANRETIN (ALRT1057) PURCHASE OPTION
The Company has granted Allergan and Ligand an option (the Panretin
(ALRT1057) Purchase Option) to acquire the Company's Panretin (ALRT1057)
Products. Unless the Panretin (ALRT1057) Purchase Option has been terminated as
to either Allergan or Ligand as a result of default under the agreement (in
which case the Panretin (ALRT1057) Purchase Option will only be exercisable by
the party for which such option has not been terminated), Allergan and Ligand,
jointly, may exercise the Panretin (ALRT1057) Purchase Option beginning on the
earlier of (i) June 3, 1997 or (ii) the receipt of regulatory approval for
commercial sale of any Panretin (ALRT1057) Product in the United States or in
certain other major countries and ending on the earlier of (a) 90 days after
receipt of such regulatory approval or (b) June 3, 2000. Additionally, the
Panretin (ALRT1057) Purchase Option will terminate on the date the Stock
Purchase Option is exercised or expires.
The Panretin (ALRT1057) Purchase Option exercise price is $21.4 million
prior to June 3, 1998 and increases in equal amounts on a quarterly basis to
$27.8 million on March 3, 1999 and to $36.2 million on March 3, 2000. The
exercise price may be paid in cash, shares of Allergan or Ligand, or any
combination thereof.
F-29
<PAGE> 115
ALLERGAN LIGAND RETINOID THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
3. RELATIONSHIP WITH ALLERGAN AND LIGAND (CONTINUED)
The Company may not distribute or otherwise expend any proceeds received upon
the exercise of the Panretin (ALRT1057) Purchase Option until the earlier of the
exercise or expiration of the Stock Purchase Option.
4. STOCKHOLDERS' EQUITY
Stock Purchase Option
The Company's Callable Common Stock is subject to a Stock Purchase Option
agreement pursuant to which Ligand and, in the event not exercised by Ligand,
Allergan may purchase all, but not less than all, of the Callable Common Stock
outstanding at specified prices, subject to adjustment. The option becomes
exercisable on the earlier of (i) June 3, 1997 or (ii) the quarter in which the
Company's available funds, as defined, decline below $10 million and expires on
the earlier of (a) June 3, 2000 or (b) 90 days subsequent to such a decline in
cash. The option is not exercisable prior to June 3, 1998 unless the available
funds are less than $60 million at the date of exercise.
The Stock Purchase Option exercise price is $21.97 per share prior to June
3, 1998 and increases in equal amounts on a quarterly basis to $28.56 per share
on March 3, 1999 and to $37.13 per share on March 3, 2000. The exercise price
may be paid in cash, shares of Allergan or Ligand, or any combination thereof.
The Company may not, until the expiration of the Stock Purchase Option, pay
any dividends, issue additional shares of capital stock, borrow money in excess
of $1 million, merge, liquidate or sell all or substantially all of its assets.
WARRANTS
Each unit sold by the Company in its initial public offering includes two
warrants, each warrant giving the holder the right to purchase one share of
Ligand common stock at a price of $7.12 per share. The warrants are exercisable
at any time from June 3, 1997 through June 2, 2000, subject to certain
acceleration provisions including the exercise or expiration of the Stock
Purchase Option. The warrants will trade with the Company's Callable Common
Stock as units until they become exerciseable on June 3, 1997. After such date,
the warrants will separate from the Company's common stock and become
independently tradable.
Special Stock
The Company has issued 200 shares of Special Stock to Allergan and Ligand.
The Special Stock does not entitle Allergan and Ligand to vote, except in
certain circumstances, or have the right to any profits of the Company. The
Special Stock, however, entitles Allergan and Ligand to elect two directors to
the Company's Board.
F-30
<PAGE> 116
ALLERGAN LIGAND RETINOID THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
5. INCOME TAXES
Valuation allowances of $7.6 million at December 31, 1995 and $21 million
at December 31, 1996 have been recognized as offsets to the deferred tax assets
as realization of such assets is uncertain. Significant components of the
Company's deferred tax assets as of December 31, 1995 and 1996 are (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................. $ 6,777 $ 16,076
Research and development credits................. 327 2,440
Capitalized costs and other...................... 482 2,470
-------- -------
Total deferred tax assets.......................... 7,586 20,986
Valuation allowance for deferred tax assets........ (7,586) (20,986)
-------- -------
Net deferred tax assets............................ $ -- $ --
======== =======
</TABLE>
At December 31, 1996, the Company had federal and California net operating
loss carryforwards of approximately $45.5 million and $2.4 million,
respectively. The federal and California tax loss carryforwards will expire in
2010 and 2003, respectively, unless previously utilized. The Company also has
federal and California research and development tax credit carryforwards
totaling $1.5 million and $1.3 million, respectively, which will begin to expire
in 2010 unless previously utilized.
F-31
<PAGE> 117
ALLERGAN LIGAND RETINOID THERAPEUTICS, INC.
CONDENSED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C>
Current assets:
Cash and cash equivalents.................................................. $ 21,969
Other current assets....................................................... 148
---------
Total current assets.................................................. $ 22,117
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Payable to Allergan, Inc. and Ligand Pharmaceuticals Incorporated.......... $ 3,911
Accounts payable and accrued liabilities................................... 389
---------
Total current liabilities............................................. 4,300
---------
Stockholders' equity:
Callable Common stock, $.001 par value; 3,250,000 shares authorized, issued
and outstanding........................................................... 3
Additional paid-in capital................................................. 94,256
Accumulated deficit........................................................ (76,442)
---------
Total stockholders' equity............................................ 17,817
---------
$ 22,117
=========
</TABLE>
See accompanying notes.
F-32
<PAGE> 118
ALLERGAN LIGAND RETINOID THERAPEUTICS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
---------------------
1996 1997
-------- --------
(UNAUDITED)
<S> <C> <C>
Interest income........................................................ $ 3,014 $ 1,323
Costs and expenses:
Research and development expenses.................................... 22,089 29,426
General and administrative expenses.................................. 1,192 1,111
-------- --------
Total costs and expenses..................................... 23,281 30,537
-------- --------
Net loss............................................................... $(20,267) $(29,214)
======== ========
Net loss per callable common share..................................... $ (6.24) $ (8.99)
======== ========
Weighted average callable common shares outstanding.................... 3,250 3,250
======== ========
</TABLE>
See accompanying notes.
F-33
<PAGE> 119
ALLERGAN LIGAND RETINOID THERAPEUTICS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
---------------------
1996 1997
-------- --------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss............................................................. $(20,267) $(29,214)
Changes in operating assets and liabilities:
Other assets...................................................... (547) 572
Payable to Allergan, Inc. and Ligand Pharmaceuticals
Incorporated..................................................... 1,101 22
Accounts payable and accrued liabilities.......................... (563) 128
-------- --------
Net cash used in operating activities............................. (20,276) (28,492)
INVESTING ACTIVITIES:
Sale(purchase) of marketable securities.............................. (20,564) 20,564
-------- --------
Net decrease in cash and equivalents................................... (40,840) (7,928)
Cash and equivalents at beginning of period............................ 79,793 29,897
-------- --------
Cash and equivalents at end of period.................................. $ 38,953 $ 21,969
======== ========
</TABLE>
See accompanying notes.
F-34
<PAGE> 120
ALLERGAN LIGAND RETINOID THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1977 (UNAUDITED)
1. Allergan Ligand Retinoid Therapeutics, Inc. (the Company) was
incorporated in Delaware in 1994 and commenced operations on June 3, 1995 to
continue the efforts of the Allergan Ligand Joint Venture (Joint Venture),
established by Allergan, Inc. (Allergan) and Ligand Pharmaceuticals Incorporated
(Ligand) in June 1992, to discover, develop and commercialize drugs based on
retinoids.
On June 3, 1995, the Company and Ligand completed a public offering (the
Offering) of 3.25 million units (the Units), each Unit consisting of one share
of the Company's callable common stock (Callable Common Stock) and two warrants
(the Warrants), each to purchase one share of Ligand common stock. The Offering
raised net proceeds for the Company of $26.8 million. At the completion of the
Offering, Ligand contributed $17.5 million in cash, as well as warrants in
exchange for (i) a right to acquire all of the Callable Common Stock at
specified future dates and amounts and (ii) a right to acquire all rights to the
Panretin (ALRT1057) product, jointly with Allergan, currently under development
by the Company. At the same time, Allergan contributed $50.0 million in cash to
the Company in exchange for (i) the right to acquire one-half of technologies
and other assets in the event Ligand exercises its right to acquire all of the
Callable Common Stock, (ii) a similar right to acquire all of the Callable
Common Stock if Ligand does not exercise its right and (iii) a right to acquire
all rights to the Panretin (ALRT1057) product, jointly with Ligand.
On June 3, 1997, the Units separated and the Callable Common Stock and
Warrants currently trade separately.
During the nine month period ended September 30, 1997 there were no changes
in the number of issued and outstanding shares of Callable Common Stock or
Special Common Stock.
ALRT's Board of Directors approved a research and development plan for the
year ending December 31, 1997 which represents an acceleration in spending on
ALRT's retinoid programs. The accelerated spending is the result of more rapid
discovery and development of a significantly larger library of viable retinoid
compounds than anticipated at the time of formation of ALRT. ALRT anticipates
the acceleration in spending could result in the use of substantially all of the
funds available for research and development remaining in ALRT in late 1997 or
early 1998.
On September 24, 1997, Ligand and Allergan announced that they had
exercised their respective options to purchase the Callable Common Stock and
certain assets of ALRT. Ligand's notice of exercise of the Stock Purchase Option
included a stock purchase option exercise price of $21.97 per share of
outstanding Callable Common Stock (in the aggregate, "Stock Purchase Option
Exercise Price"), the original exercise price designated for the exercise of the
Stock Purchase Option at any time prior to June 3, 1998. Ligand has filed a
registration statement with the Securities and Exchange Commission registering
the issuance of up to $46,410,000 in Ligand Common Stock as partial payment of
the Stock Purchase Option Exercise Price. Ligand has reserved the right, at any
time prior to the closing of the exercise of the Stock Purchase Option, to make
payment of a greater amount of the Stock Purchase Option Exercise Price in cash
than set forth in its notice of exercise.
Allergan's notice of exercise of its Asset Purchase Option included an
aggregate asset purchase price of $8.9 million (Asset Purchase Option Exercise
Price), the original exercise price designated for the exercise of the Asset
Purchase Option at any time prior to June 3, 1998 under the governing asset
purchase agreement. The Asset Purchase Option Exercise Price will be paid in
cash to ALRT concurrently with the payment to holders of Callable Common Stock
of the Stock Purchase Option Exercise Price and may be used to pay a portion of
such Stock Purchase Option Exercise Price.
The record date for the purchase of the Callable Common Stock is October
14, 1997, and the scheduled closing date was November 3, 1997, pending an
effective registration statement.
2. In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial information
F-35
<PAGE> 121
ALLERGAN LIGAND RETINOID THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1977 (UNAUDITED)
contained therein. These statements do not include all disclosures required by
generally accepted accounting principles. The results of operations for the nine
months ended September 30, 1997 are not necessarily indicative of the results to
be expected for the year ending December 31, 1997. Net loss per callable common
share is computed by dividing the net loss by the number of callable common
shares outstanding, which was 3,250,000 at all times during the periods
reported.
3. The Company invests its excess cash in money market funds and debt
instruments of financial institutions and corporations with strong credit
ratings. The Company has established guidelines with respect to the
diversification and maturities in order to maintain safety and liquidity.
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. The Company's
investments are classified as available-for-sale and are carried at fair value,
with unrealized gains and losses reported as a separate component of
stockholders' equity. The investments are adjusted for amortization of premiums
and discounts to maturity and such amortization is included in interest income.
F-36
<PAGE> 122
LIGAND PHARMACEUTICALS INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma condensed consolidated balance sheet as
of September 30, 1997 and the unaudited pro forma condensed consolidated
statements of operations for the year ended December 31, 1996 and the nine
months ended September 30, 1997 give effect to (i) Ligand's exercise of the
Stock Purchase Option for $71.4 million, (ii) Allergan's exercise of the Asset
Purchase Option for $8.9 million and (iii) Ligand's payment to Allergan of $4.5
million as an up-front payment under the Amended and Restated Technology Cross
License Agreement among Ligand, Allergan and ALRT (the "Technology Cross License
Agreement") which will occur immediately upon consummation of the closing of
Ligand's exercise of the Stock Purchase Option ("the ALRT Buyback"), as of
September 30, 1997 for the condensed consolidated balance sheet and as of
January 1, 1996 for the condensed consolidated statements of operations.
The pro forma condensed consolidated financial statements are based on
historical financial statements of Ligand and ALRT, giving effect to the
proposed ALRT Buyback applying the purchase method of accounting and the
assumptions and adjustments as discussed in the accompanying notes to the pro
forma condensed consolidated financial statements. These pro forma condensed
consolidated financial statements have been prepared by the management of Ligand
based upon the consolidated financial statements of Ligand and ALRT as of
September 30, 1997 (unaudited) and for the year ended December 31, 1996 and the
nine months ended September 30, 1997 (unaudited). The unaudited pro forma
condensed consolidated financial statements should be read in conjunction with
the historical financial statements and notes thereto and narrative sections
included elsewhere herein. The pro forma condensed consolidated financial
statements are not necessarily indicative of what actual results of operations
would have been for the periods had the transaction occurred on the dates
indicated, do not purport to indicate the results of future operations,
including any allocation of ALRT expenses between Ligand and Allergan.
F-37
<PAGE> 123
LIGAND PHARMACEUTICALS INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
ALLERGAN ALRT
LIGAND BUYBACK
RETINOID PRO FORMA
THERAPEUTICS, INC. ADJUSTMENTS PRO FORMA
LIGAND (ALRT) (NOTE B) AS ADJUSTED
--------- ------------------ ------------ ------------
<S> <C> <C> <C> <C>
Current Assets:
Cash, cash equivalents and short-term
investments........................... $ 50,558 $ 21,969 $ (24,993)(a) $ 40,949
8,900(b)
(10,985)(f)
(4,500)(c)
Other current assets..................... 4,248 148 (74)(f) 4,322
--------- -------- ------- --------
Total current assets............. 54,806 22,117 (31,652) 45,271
Restricted long-term investments........... 3,056 -- -- 3,056
Property, plant and equipment, net......... 14,991 -- -- 14,991
Other non-current assets................... 5,086 -- -- 5,086
--------- -------- ------- --------
$ 77,939 $ 22,117 $ (31,652) $ 68,404
========= ======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and other liabilities... $ 8,333 $ 4,300 $ (2,150)(f) $ 10,483
Deferred revenue......................... 909 -- -- 909
Current portion of obligations under
capital leases........................ 2,917 -- -- 2,917
--------- -------- ------- --------
Total current liabilities........ 12,159 4,300 (2,150) 14,309
Long-term obligations under capital
leases................................... 8,711 -- -- 8,711
Convertible subordinated debentures........ 35,959 -- -- 35,959
Convertible note........................... 5,000 -- -- 5,000
--------- -------- ------- --------
61,829 4,300 (2,150) 63,979
--------- -------- ------- --------
Stockholders' equity:
Paid-in capital.......................... 226,741 94,259 (94,259)(g) 278,367
51,626(g)
Warrant subscription receivable.......... (924) -- 924(d) --
Adjustment for unrealized losses on
available for sales securities........ 4 -- --(g) 4
Accumulated deficit........................ (209,711) (76,442) 76,442(g) (273,946)
(924)(d)
(63,311)(e)
--------- -------- ------- --------
Total stockholders' equity....... 16,110 17,817 (29,502) 4,425
--------- -------- ------- --------
$ 77,939 $ 22,117 $ (31,652) $ 68,404
========= ======== ======= ========
</TABLE>
See accompanying notes to Pro Forma Condensed Consolidated Financial Statements.
F-38
<PAGE> 124
LIGAND PHARMACEUTICALS INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS(1)
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ALLERGAN ALRT
LIGAND BUYBACK
RETINOID PRO FORMA
THERAPEUTICS, INC. ADJUSTMENTS PRO FORMA
LIGAND (ALRT) (NOTE C) AS ADJUSTED
-------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Collaborative research and development:
Related parties..................... $ 18,641 $ -- $ (18,641)(a) $ --
Unrelated parties................... 17,994 -- -- 17,994
Other............................... 207 -- -- 207
-------- -------- -------- --------
Total Revenues.................... 36,842 -- (18,641) 18,201
-------- -------- -------- --------
Costs and expenses:
Research and development............... 59,494 31,727 (31,727)(b) 59,494
Selling, general and administrative.... 10,205 1,345 (1,345)(b) 10,205
-------- -------- -------- --------
Total costs and expenses............ 69,699 33,072 (33,072) 69,699
-------- -------- -------- --------
Loss from operations.............. (32,857) (33,072) 14,431 (51,498)
Other income (expenses), net............. (4,456) 3,627 (1,737)(c) (2,566)
-------- -------- -------- --------
Net loss............................... $(37,313) $(29,445) $ 12,694 $ (54,064)
======== ======== ======== ========
Net loss per share..................... $ (1.30) $ (1.70)
======== ========
Shares used in computing loss per
share.................................. 28,781 31,889
======== ========
</TABLE>
- ---------------
(1) Due to their non-recurring nature, the above pro forma condensed
consolidated statement of operations does not reflect $63.3 million
in-process technology charge to be recorded by Ligand in conjunction with
the ALRT Buyback for the estimated fair value of the in-process technology
of ALRT and the $4.5 million up-front payment under the Technology Cross
License Agreement.
See accompanying notes to Pro Forma Condensed Consolidated Financial Statements.
F-39
<PAGE> 125
LIGAND PHARMACEUTICALS INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS(1)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ALLERGAN ALRT
LIGAND BUYBACK
RETINOID PRO FORMA
THERAPEUTICS, INC. ADJUSTMENTS PRO FORMA
LIGAND (ALRT) (NOTE C) AS ADJUSTED
--------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Collaborative research and
development:
Related parties.................... $ 18,923 $ -- $ (18,923)(a) $ --
Unrelated parties.................. 10,652 -- -- 10,652
Other.............................. 325 -- -- 325
-------- -------- -------- --------
Total Revenues................ 29,900 -- (18,923) 10,977
-------- -------- -------- --------
Costs and expenses:
Research and development........... 51,353 29,426 (29,426)(b) 51,353
Selling, general and
administrative................... 7,379 1,111 (1,111)(b) 7,379
-------- -------- -------- --------
Total costs and expenses...... 58,732 30,537 (30,537) 58,732
-------- -------- -------- --------
Loss from operations.................. (28,832) (30,537) 11,614 (47,755)
Other income (expense), net........... (3,285) 1,323 (1,303)(c) (3,265)
-------- -------- -------- --------
Net loss...................... $ (32,117) $(29,214) $ 10,311 $ (51,020)
======== ======== ======== ========
Net loss per share.................... $ (0.99) $ (1.43)
======== ========
Shares used in computing loss per
share.............................. 32,484 35,592
======== ========
</TABLE>
- ---------------
(1) Due to their non-recurring nature, the above pro forma condensed
consolidated statement of operations does not reflect $63.3 million
in-process technology charge to be recorded by Ligand in conjunction with
the ALRT Buyback for the estimated fair value of the in-process technology
of ALRT and the $4.5 million up-front payment under the Technology Cross
License Agreement.
See accompanying notes to Pro Forma Condensed Consolidated Financial Statements.
F-40
<PAGE> 126
LIGAND PHARMACEUTICALS INCORPORATED
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A
As of September 24, 1997 Ligand notified ALRT that it intends to exercise
its Stock Purchase Option for $71.4 million for all of the outstanding ALRT
Callable Common Stock for approximately $25 million in cash and $46.4 million of
Ligand Common Stock (estimated to be 3,107,596 shares at an estimated price of
$14.934375 per share) except for fractional shares which will be acquired for
cash. The number of shares were determined based on the terms of the Stock
Purchase Agreement, which allows for a portion of the Stock Purchase Option to
be paid in Ligand Common Stock based upon the average of the closing price for
the 20 trading days immediately preceding the day before the closing date of the
Stock Purchase Option. The price per share for valuing the equity consideration
of the shares issued was determined in accordance with EITF 95-19, which
requires that the market price of the shares be based on the average market
price over a reasonable period before and after the companies involved reached
an agreement and announced the transaction. Ligand has the ability to increase
the amount of cash paid in connection with the Stock Purchase Option. In
conjunction with the closing of the ALRT Buyback, Allergan will exercise its
Asset Purchase Option for $8.9 million in cash to acquire an undivided one-half
interest in the assets and technologies of ALRT. Ligand and Allergan agreed to
restructure the terms and conditions of the research, development and
commercialization and sub-license rights for the ALRT compounds in the period
following the closing of the exercise of Ligand's Stock Purchase Option and
Allergan's Asset Purchase Option. A component of the restructured terms and
conditions will result in a cash payment of $4.5 million from Ligand to Allergan
as an up front payment under the Technology Cross License Agreement. Ligand has
initially assigned the estimated aggregate excess of cost over fair value of net
assets acquired, aggregating $63.3 million, to in-process technology and does
not expect that other tangible or intangible assets will be identified. Ligand
will record the charge to operations for the amount of the in-process technology
immediately following the closing of the ALRT Buyback. This charge has not been
reflected in the pro forma condensed consolidated statements of operations.
NOTE B
The pro forma condensed consolidated balance sheet includes the adjustments
necessary as if the ALRT Buyback had occurred on September 30, 1997 to reflect
the (i) allocation of the cost of the acquisition to the fair value of net
assets acquired, (ii) Ligand's Stock Purchase Option consideration in cash and
issuance of Ligand Common Stock, (iii) Allergan's Asset Purchase Option, (iv)
Ligand's up front cash payment under the Technology Cross License Agreement as
discussed in Note A, and elimination of ALRT's equity accounts.
These adjustments are summarized as follows:
<TABLE>
<S> <C> <C>
(a) Cash consideration for Ligand's exercise of Stock Purchase Option............ $(24,993)
(b) Proceeds of Allergan's exercise of the Asset Purchase Option................. 8,900
(c) Ligand up front cash payment to Allergan under the Technology Cross License
Agreement.................................................................... (4,500)
(d) Elimination of net carrying amount of Warrant Subscription Receivable........ (924)
(e) Estimated charge to operations for in-process technology..................... (63,311)
(f) Allergan's acquisition of 50% of Available Funds and tangible assets and
assumed liabilities.......................................................... 8,909
(g) Issuance of Ligand Common Stock as discussed in Note A and elimination of
ALRT's equity accounts, including an adjustment to reduce the carrying value
of the ALRT investments to fair market value, as required by generally
accepted accounting principles. The value for the estimated shares of Ligand
Common Stock issued is computed as follows: Estimated as 3,107,596 shares at
an estimated price of $16.6125 per share.
</TABLE>
F-41
<PAGE> 127
LIGAND PHARMACEUTICALS INCORPORATED
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
NOTE C
The pro forma condensed consolidated statement of operations includes the
adjustments necessary to reflect the ALRT Buyback as if it had occurred on
January 1, 1996.
The pro forma adjustments are summarized as follows:
For the period ended December 31, 1996:
<TABLE>
<S> <C> <C>
(a) Elimination of related parties revenue recognition of R&D activities
conducted by Ligand on behalf of ALRT........................................ $(18,641)
(b) Elimination of operating expenses related to R&D and administrative
activities conducted by either Ligand or Allergan on behalf of ALRT.......... (33,072)
(c) Elimination of interest income as a result of the disbursements and
distributions of cash in the ALRT acquisition based on an average rate of
return of 5.50%.............................................................. (1,737)
</TABLE>
For the nine months ended September 30, 1997:
<TABLE>
<S> <C> <C>
(a) Elimination of related parties revenue recognition of R&D activities
conducted by Ligand on behalf of ALRT........................................ $(18,923)
(b) Elimination of operating expenses related to R&D and administrative
activities conducted by either Ligand or Allergan on behalf of ALRT.......... (30,537)
(c) Elimination of interest income as a result of the disbursements and
distributions of cash in the ALRT acquisition based on an average rate of
return of 5.50%.............................................................. (1,303)
</TABLE>
The net loss per share and the shares used in computing the net loss per
share for the nine months ended September 30, 1997 are based upon the historical
weighted average common shares outstanding for the respective periods adjusted
to reflect as of January 1, 1997, the issuance of an estimated 3,107,596 shares
of Ligand Common Stock as described in Note A.
NOTE D
The issuance of the shares by Ligand will not result in a limitation on the
use of its net operating loss carryforwards pursuant to the Internal Revenue
Code Sections 382 and 383.
The purchase of the ALRT shares by Ligand will result in an ownership
change pursuant to Internal Revenue Code Sections 382 and 383 and the
utilization of net operating loss carryforwards of ALRT will be limited to
approximately $4 million per year. Total net operating loss carryforwards of
ALRT are estimated to be approximately $76 million.
F-42
<PAGE> 128
REPORT OF ERNST & YOUNG, LLP INDEPENDENT AUDITORS
The Partners
Allergan Ligand Joint Venture
We have audited the accompanying balance sheets of Allergan Ligand Joint
Venture (A Development Stage Joint Venture) as of December 31, 1994, and the
related statements of operations, partners' deficit and cash flows for the year
ended December 31, 1994 and for the period from July 1, 1992 (inception) through
December 31, 1994, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Joint Venture'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 financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial presentation. We believe
that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the financial statements, immediately prior to
the consummation of the proposed offering of callable common stock of Allergan
Ligand Retinoid Therapeutics, Inc. ("ALRT") and warrants to purchase common
stock of Ligand, the Joint Venture will be dissolved and all rights currently
held by the Joint Venture will be granted to ALRT. If the proposed offering is
not completed, the partners have also agreed to fund additional development
expenses of the Joint Venture.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Allergan Ligand Joint
Venture (A development Stage Joint Venture) at December 31, 1994, and the
results of its operations and its cash flows for the year ended December 31,
1994 and for the period from July 1, 1992 (inception) through December 31, 1994,
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
January 20, 1995
F-43
<PAGE> 129
ALLERGAN LIGAND JOINT VENTURE
(A DEVELOPMENT STAGE JOINT VENTURE)
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 70,356
Interest receivable and other current assets................................. --
------------
Total current assets........................................................... 70,356
Equipment, net of accumulated depreciation of $1,141 at December 31, 1994...... 2,284
------------
$ 72,640
============
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities:
Amounts payable to the partners.............................................. $ 1,680,762
Other accrued liabilities.................................................... 36,388
------------
Total current liabilities...................................................... 1,717,150
Partners' deficit:
Capital contributions........................................................ 29,250,000
Deficit accumulated during the development stage............................. (30,894,510)
------------
Total partners' deficit........................................................ (1,644,510)
------------
$ 72,640
============
</TABLE>
See accompanying note.
F-44
<PAGE> 130
ALLERGAN LIGAND JOINT VENTURE
(A DEVELOPMENT STAGE JOINT VENTURE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
JULY 1, 1992
(INCEPTION)
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1994 1994
------------ ------------
<S> <C> <C>
Interest income............................................... $ 4,552 $ 174,867
Research and development expenses:
Allergan, Inc............................................... 4,643,786 9,789,086
Ligand Pharmaceuticals Incorporated......................... 8,344,423 20,431,397
------------ ------------
12,988,209 30,220,483
General and administrative expenses........................... 705,823 848,894
------------ ------------
Total costs and expenses...................................... 13,694,032 31,069,377
------------ ------------
Net loss...................................................... $(13,689,480) $(30,894,510)
============ ============
</TABLE>
See accompanying note.
F-45
<PAGE> 131
ALLERGAN LIGAND JOINT VENTURE
(A DEVELOPMENT STAGE JOINT VENTURE)
STATEMENT OF PARTNERS' DEFICIT
<TABLE>
<CAPTION>
ALLERGAN
RETINOID
LIGAND JVR, INC. CORPORATION TOTAL
----------------- ----------- -----------
<S> <C> <C> <C>
Balance at December 31, 1993................... $(1,102,515) $(1,102,515) $(2,205,030)
Capital contributions.......................... 7,125,000 7,125,000 14,250,000
Net loss....................................... (6,844,740) (6,844,740) (13,689,480)
----------- ----------- -----------
Balance at December 31, 1994................... $ (822,255) $ (822,255) $(1,644,510)
=========== =========== ===========
</TABLE>
See accompanying note.
F-46
<PAGE> 132
ALLERGAN LIGAND JOINT VENTURE
(A DEVELOPMENT STAGE JOINT VENTURE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JULY 1, 1992
(INCEPTION)
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1994 1994
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss........................................................ $(13,689,480) $(30,894,510)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation.................................................. 1,141 1,141
Changes in operating assets and liabilities:
Interest receivable and other current assets............... 2,933 --
Amounts payable to partners and other accrued
liabilities.............................................. (1,605,514) 1,717,150
------------ ------------
Net cash provided by (used in) operating activities............. (15,290,920) (29,176,219)
INVESTING ACTIVITIES
Purchase of equipment........................................... -- (3,425)
------------ ------------
Net cash used in investing activities........................... -- (3,425)
FINANCING ACTIVITIES
Capital contributions to the joint venture...................... 14,250,000 29,250,000
------------ ------------
Net cash provided by financing activities....................... 14,250,000 29,250,000
------------ ------------
Net increase (decrease) in cash and cash equivalents............ (1,040,920) 70,356
------------ ------------
Cash and cash equivalents at beginning of period................ 1,111,276 --
------------ ------------
Cash and cash equivalents at end of period...................... $ 70,356 $ 70,356
============ ============
</TABLE>
See accompanying note.
F-47
<PAGE> 133
ALLERGAN LIGAND JOINT VENTURE
(A DEVELOPMENT STAGE JOINT VENTURE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Allergan Ligand Joint Venture (the "Joint Venture") was formed by Ligand
JVR, Inc., a wholly owned subsidiary of Ligand Pharmaceuticals Incorporated
("Ligand") and Allergan Retinoid Corporation ("Allergan"), a wholly owned
subsidiary of Allergan, Inc. Since inception in 1992, each partner has invested
$14.6 million.
The Joint Venture was formed to develop, manufacture and market in the
United States and world-wide certain products related to the diagnosis and
treatment of eye and skin disorders. The Joint Venture has not commenced planned
commercial operations and is considered to be in the development stage.
The Joint Venture has entered into a research and development agreement
with Ligand and Allergan to perform research and development services related to
eye and skin problems. Similarly, the Joint Venture has entered into an
agreement with Ligand and Allergan to assist in the regulatory approval process
and to market developed products upon commencement of commercial operations. The
Joint Venture reimburses both parties for actual costs incurred, as defined in
the Joint Venture agreement.
The entity is treated as a Joint Venture for tax purposes. Accordingly, the
Joint Venture's loss is included in the tax returns of the partners. Therefore,
no provision for income taxes has been made in the accompanying financial
statements.
From inception revenues and expenses have been shared equally by the
partners.
In December 1994, Allergan and Ligand formed Allergan Ligand Retinoid
Therapeutics, Inc. ("ALRT") to continue the research and development activity
currently conducted by the Joint Venture. ALRT and Ligand have filed a
registration statement with the Securities and Exchange Commission to sell up to
$32.5 million of units consisting of ALRT Callable Common Stock and Warrants to
acquire common stock of Ligand. Immediately prior to the consummation of this
offering, Ligand will contribute from $17.5 million to $18.5 million depending
upon the proceeds of the offering, and Allergan will contribute $50 million to
ALRT and the Joint Venture will be dissolved and all rights currently held by
the Joint Venture will be granted to ALRT. If the proposed offering is not
completed, the partners have agreed to fund additional development expenses as
approved by the Joint Venture's management committee.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term investments with
original maturities of less than three months.
Concentration of Credit Risk
The Joint Venture invests its excess cash in commercial paper. The Joint
Venture 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. The Joint
Venture has not experienced any losses on its cash and cash equivalents.
Equipment
Equipment is stated at cost and is being depreciated over its estimated
useful life which is five years.
F-48
<PAGE> 134
============================================================
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.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information............................ 2
Prospectus Summary............................... 3
Risk Factors..................................... 7
Special Note Regarding Forward-Looking
Statements..................................... 15
Price Range of Common Stock...................... 16
Dividend Policy.................................. 16
Capitalization................................... 17
Selected Consolidated Financial Data............. 18
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 19
Business......................................... 23
Management....................................... 54
Certain Transactions............................. 71
Principal Stockholders........................... 79
Description of Capital Stock..................... 81
Plan of Distribution............................. 83
Legal Matters.................................... 83
Experts.......................................... 84
Additional Information........................... 84
Index to Consolidated Financial Statements....... F-1
</TABLE>
============================================================
============================================================
3,107,596 SHARES
LOGO
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
NOVEMBER 19, 1997
============================================================
<PAGE> 135
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the sale of
the Common Stock being registered. All the amounts shown are estimates, except
for the registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration fee.......................................................... $ 14,064
Listing fee............................................................... 17,500
Printing and engraving expenses........................................... 30,000
Legal fees and expenses................................................... 50,000
Accounting fees and expenses.............................................. 25,000
Transfer Agent and Registrar fees......................................... 5,000
Miscellaneous expenses.................................................... 3,436
-------
Total........................................................... $145,000
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
(a) Section 145 of the Delaware General Corporation Law permits
indemnification of officers and directors of Ligand under certain conditions and
subject to certain limitations. Section 145 of the Delaware General Corporation
Law also provides that a corporation has the power to purchase and maintain
insurance on behalf of its officers and directors against any liability asserted
against such person and incurred by him or her in such capacity, or arising out
of his or her status as such, whether or not the corporation would have the
power to indemnify him or her against such liability under the provisions of
Section 145 of the Delaware General Corporation Law.
(b) Article VII, Section 1 of the Bylaws of Ligand provides that Ligand
shall indemnify its officers, directors, employees and agents to the full extent
permitted by the General Corporation Law of Delaware. The rights to indemnity
thereunder continue as to a person who has ceased to be a director, officer,
employee or agent and inure to the benefit of the heirs, executors and
administrators of the person. In addition, expenses incurred by a director or
officer in defending any civil, criminal, administrative or investigative
action, suit or proceeding by reason of the fact that he or she is or was a
director or officer of Ligand (or was serving at Ligand's request as a director
or officer of another corporation) shall be paid by Ligand in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he or she is not entitled to be
indemnified by Ligand as authorized by the relevant section of the Delaware
General Corporation Law.
(c) As permitted by Section 102(b)(7) of the Delaware General Corporation
Law, Article V, Section (A)2 of Ligand's Certificate of Incorporation provides
that a director of Ligand shall not be personally liable for monetary damages or
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to Ligand or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived any
improper personal benefit.
(d) Article V, Section (A)1 of Ligand's Certificate of Incorporation
provides that the liability of the directors of Ligand for monetary damages
shall be eliminated to the fullest extent permissible under California law.
Accordingly, to the extent California law applies, a director will not be liable
for monetary damages for breach of duty to Ligand or its stockholders in any
action brought by or in the right of Ligand. However, a director remains liable
to the extent required by law (i) for acts or omissions that involve intentional
misconduct or a knowing and culpable violation of law, (ii) for acts or
omissions that a director believes to be contrary to the best interests of
Ligand or its stockholders or that involve the absence of good faith on the part
of the director, (iii) for any transaction from which a director derived an
improper personal benefit, (iv) for acts or omissions that show a reckless
disregard for the director's duty to Ligand or its stockholders in circumstances
in which the
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<PAGE> 136
director was aware, or should have been aware, in the ordinary course of
performing a director's duties, of a risk of serious injury to Ligand or its
stockholders, (v) for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to Ligand or
its stockholders, (vi) for any act or omission occurring prior to the date when
the exculpation provision became effective and (vii) for any act or omission as
an officer, notwithstanding that the officer is also a director or that his or
her actions, if negligent or improper, have been ratified by the directors. The
effect of the provisions in the Certificate of Incorporation is to eliminate the
rights of Ligand and its stockholders (through stockholders' derivative suits on
behalf of Ligand) to recover monetary damages against a director for breach of
duty as a director, including breaches resulting from negligent behavior in the
context of transactions involving a change of control of Ligand or otherwise,
except in the situations described in clauses (i) through (vii) above. These
provisions will not alter the liability of directors under federal securities
laws.
(e) Pursuant to authorization provided under the Certificate of
Incorporation, Ligand has entered into indemnification agreements with each of
its present and certain of its former directors. Ligand has also entered into
similar agreements with certain of Ligand's executive officers who are not
directors. Generally, the indemnification agreements attempt to provide the
maximum protection permitted by Delaware and California law as it may be amended
from time to time. Moreover, the indemnification agreements provide for certain
additional indemnification. Under such additional indemnification provisions,
however, an individual will not receive indemnification for judgments,
settlements or expenses if he or she is found liable to Ligand (except to the
extent the court determines he or she is fairly and reasonably entitled to
indemnity for expenses), for settlements not approved by Ligand or for
settlements and expenses if the settlement is not approved by the court. The
indemnification agreements provide for Ligand to advance to the individual any
and all reasonable expenses (including legal fees and expenses) incurred in
investigating or defending any such action, suit or proceeding. In order to
receive an advance of expenses, the individual must submit to Ligand copies of
invoices presented to him or her for such expenses. Also, the individual must
repay such advances upon a final judicial decision that he or she is not
entitled to indemnification. Ligand's Bylaws contain a provision of similar
effect relating to advancement of expenses to a director or officer, subject to
an undertaking to repay if it is ultimately determined that indemnification is
unavailable.
(f) There is directors and officers liability insurance now in effect which
insures directors and officers of the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since September 1, 1994, the Company has sold and issued the following
unregistered securities:
(1) On September 6, 1994, the Company issued an aggregate of 431,965
shares of Common Stock of the Company to American Home Products Corporation
for an aggregate consideration of $5,000,000. For additional information
concerning this transaction, reference is made to the information contained
under the caption "Business -- Strategic Alliances" in the form of the
Prospectus contained herein.
(2) On February 6, 1995, the Company issued an aggregate of 674,127
shares of Common Stock of the Company to SmithKline Beecham Corporation for
an aggregate consideration of $5,000,000. For additional information
concerning this transaction, reference is made to the information contained
under the caption "Business -- Strategic Alliances" in the form of the
Prospectus included herein.
(3) On June 6, 1995, the Company issued an aggregate of 994,819 shares
of Common Stock of the Company to Allergan Pharmaceuticals (Ireland) Ltd.
Inc. for an aggregate consideration of $6,000,000. For additional
information concerning this transaction, reference is made to the
information contained under the caption "Business -- Strategic Alliances"
in the form of the Prospectus included herein.
(4) On August 31, 1995, the Company issued an aggregate of 516,129
shares of Common Stock of the Company to Abbott Laboratories for an
aggregate consideration of $5,000,000. For additional information
concerning this transaction, reference is made to the information contained
under the caption "Business -- Strategic Alliances" in the form of the
Prospectus included herein.
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<PAGE> 137
(5) On September 11, 1995, the Company issued an aggregate of 189,274
shares of Common Stock of the Company to Sankyo Company Ltd. for an
aggregate consideration of $1,500,000. For additional information
concerning this transaction, reference is made to the information contained
under the caption "Business -- Strategic Alliances" in the form of the
Prospectus included herein.
(6) On November 10, 1995, the Company issued an aggregate of 260,200
shares of Common Stock of the Company to SmithKline Beecham Corporation for
an aggregate consideration of $2,500,000. For additional information
concerning this transaction, reference is made to the information contained
under the caption "Business -- Strategic Alliances" in the form of the
Prospectus included herein.
(7) On August 29, 1996, the Company issued an aggregate of 374,626
shares of Common Stock of the Company to American Home Products Corporation
through the conversion of existing convertible notes with an aggregate
value of $3,750,000. For additional information concerning this
transaction, reference is made to the information contained under the
caption "Business -- Strategic Alliances" in the form of the Prospectus
included herein.
(8) On February 10, 1997, the Company issued an aggregate of 164,474
shares of Common Stock of the Company to SmithKline Beecham Corporation for
an aggregate consideration of $2,500,000. For additional information
concerning this transaction, reference is made to the information contained
under the caption "Business -- Strategic Alliances" in the form of the
Prospectus included herein.
(9) On March 20, 1997, the Company issued an aggregate of 374,626
shares of Common Stock of the Company to American Home Products Corporation
through the conversion of existing convertible notes with an aggregate
value of $3,750,000. For additional information concerning this
transaction, reference is made to the information contained under the
caption "Business -- Strategic Alliances" in the form of the Prospectus
included herein.
(10) On July 28, 1997, the Company issued an aggregate of 249,749
shares of Common Stock of the Company to American Home Products Corporation
through the conversion of existing convertible notes with an aggregate
value of $2,500,000. For additional information concerning this
transaction, reference is made to the information contained under the
caption "Business -- Strategic Alliances" in the form of the Prospectus
included herein.
The sales and issuances of securities in the above transactions were deemed
to be exempt under the Act by virtue of Section 4(2) thereof and/or Regulation D
promulgated thereunder. The purchasers in each case represented their intention
to acquire the securities for investment only and not with a view to the
distribution thereof. Appropriate legends were affixed to the stock certificates
issued in such transactions. Similar representations of investment intent were
obtained and similar legends imposed in connection with any subsequent transfers
of any such securities. The Company believes that all recipients had adequate
success, through employment or other relationships, to information about the
Company to make an informed investment decision.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
---------------- ---------------------------------------------------------------------
<C> <S>
#2.1 Agreement of Merger, dated February 7, 1995 by and among Ligand
Pharmaceuticals Incorporated, LG Acquisition Corp. and Glycomed
Incorporated (other Exhibits omitted, but will be filed by the
Company with the Commission upon request).
#2.2 Form of Plan of Merger.
#3.2 Amended and Restated Certificate of Incorporation of the Company.
&3.3 Bylaws of the Company, as amended.
</TABLE>
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<PAGE> 138
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
---------------- ---------------------------------------------------------------------
<C> <S>
x3.4 Certificate of Designation of Rights, Preferences and Privileges of
Series A Participating Preferred Stock of Ligand Pharmaceuticals
Incorporated (Exhibit 3.1).
*4.1 Specimen stock certificate for shares of Common Stock of the Company.
+5.1 Opinion of Brobeck, Phleger & Harrison LLP with respect to the
securities being registered.
#10.1 The Company's 1992 Stock Option/Stock Issuance Plan, as amended.
*10.2 Form of Stock Option Agreement.
*10.3 Form of Stock Issuance Agreement.
*10.4 The Company's Restricted Stock Purchase Plan, as amended.
*10.5 Form of the Company's Employee Restricted Stock Purchase Agreement.
*10.6 Form of Consultant Restricted Stock Purchase Agreement.
*10.7 The Company's 1988 Stock Option Plan, as amended.
*10.8 Form of Incentive Stock Option Agreement (Installment Vesting).
*10.9 Form of Non-Qualified Stock Option Agreement (Installment Vesting).
*10.10 Form of Consultant Non-Qualified Stock Option Agreement (Immediate
Vesting).
*10.12 1992 Employee Stock Purchase Plan.
*10.13 Form of Stock Purchase Agreement.
*10.26 Lease, dated December 1, 1988, between the Company and Nippon Landic
(U.S.A.), Inc., the assignee of Nexus/Gadco-UTC, as amended by an
agreement dated December 1, 1988, First Amendment to Lease dated
August 19, 1991, and Third Amendment to Lease dated August 22, 1991.
*10.29 Consulting Agreement, dated October 20, 1988, between the Company and
Dr. Ronald M. Evans, as amended by Amendment to Consulting Agreement,
dated August 1, 1991, and Second Amendment to Consulting Agreement,
dated March 6, 1992.
*10.30 Form of Proprietary Information and Inventions Agreement.
*10.31 Research and License Agreement, dated March 9, 1992, between the
Company and Baylor College of Medicine (with certain confidential
portions omitted).
*10.32 License Agreement, dated January 27, 1992, between the Company and
HSC Research and Development Limited Partnership and Mount Sinai
Hospital (with certain confidential portions omitted).
*10.33 License Agreement, dated November 14, 1991, between the Company and
Rockefeller University (with certain confidential portions omitted).
*10.34 License Agreement and Bailment, dated July 22, 1991, between the
Company and the Regents of the University of California (with certain
confidential portions omitted).
*10.35 Agreement, dated May 1, 1991, between the Company and Pfizer Inc
(with certain confidential portions omitted).
*10.36 License Agreement, dated July 3, 1990, between the Company and the
Brigham and Woman's Hospital, Inc. (with certain confidential
portions omitted).
*10.37 Compound Evaluation Agreement, dated May 17, 1990, between the
Company and SRI International (with certain confidential portions
omitted).
</TABLE>
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<PAGE> 139
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
---------------- ---------------------------------------------------------------------
<C> <S>
*10.38 License Agreement, dated January 5, 1990, between the Company and the
University of North Carolina at Chapel Hill (with certain
confidential portions omitted).
*10.39 License Agreement, dated January 4, 1990, between the Company and
Baylor College of Medicine (with certain confidential portions
omitted).
*10.40 License Agreement, dated January 4, 1990, between the Company and
Baylor College of Medicine (with certain confidential portions
omitted).
*10.41 License Agreement, dated October 1, 1989, between the Company and
Institut Pasteur (with certain confidential portions omitted).
*10.42 Sublicense Agreement, dated September 13, 1989, between the Company
and AndroBio Corporation (with certain confidential portions
omitted).
*10.43 License Agreement, dated June 23, 1989, between the Company and La
Jolla Cancer Research Foundation (with certain confidential portions
omitted).
*10.44 License Agreement, dated October 20, 1988, between the Company and
The Salk Institute for Biological Studies, as amended by Amendment to
License Agreement dated September 15, 1989, Second Amendment to
License Agreement, dated December 1, 1989 and Third Amendment to
License Agreement dated October 20, 1990 (with certain confidential
portions omitted).
*10.45 Agreement dated June 12, 1989, between the Company and the Regents of
the University of California.
*10.46 Form of Indemnification Agreement between the Company and each of its
directors.
*10.47 Form of Indemnification Agreement between the Company and each of its
officers.
*10.50 Consulting Agreement, dated October 1, 1991, between the Company and
Dr. Bert W. O'Malley.
*10.53 Stock and Warrant Purchase Agreement, dated June 30, 1992 between the
Company and Allergan, Inc. and Allergan Pharmaceuticals (Ireland)
Ltd., Inc.
*10.58 Stock Purchase Agreement, dated September 9, 1992, between the
Company and Glaxo, Inc.
*10.59 Research and Development Agreement, dated September 9, 1992, between
the Company and Glaxo, Inc. (with certain confidential portions
omitted).
*10.60 Stock Transfer Agreement, dated September 30, 1992, between the
Company and the Rockefeller University.
*10.61 Stock Transfer Agreement, dated September 30, 1992, between the
Company and New York University.
*10.62 License Agreement, dated September 30, 1992, between the Company and
the Rockefeller University (with certain confidential portions
omitted).
*10.63 Professional Services Agreement, dated September 30, 1992, between
the Company and Dr. James E. Darnell.
*10.64 Letter Agreement, dated August 24, 1992, between the Company and Dr.
Howard T. Holden.
*10.65 Letter Agreement, dated August 20, 1992, between the Company and Dr.
George Gill.
*10.66 Letter Agreement, dated September 3, 1992, between the Company and
Dr. Lloyd E. Flanders.
</TABLE>
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<PAGE> 140
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
---------------- ---------------------------------------------------------------------
<C> <S>
*10.67 Letter Agreement, dated September 11, 1992, between the Company and
Mr. Paul Maier.
%*10.68 Master Equipment Lease, dated October 27, 1992 and related Master
Equipment Lease Agreement Schedule between the Company and AT&T
Commercial Finance Corporation.
!!10.69 Form of Automatic Grant Option Agreement.
**10.73 Supplementary Agreement, dated October 1, 1993, between the Company
and Pfizer, Inc to Agreement, dated May 1, 1991.
***10.74 Loan and Security Agreement, dated November 11, 1993, between the
Company and Household Commercial of California, Inc.
***10.75 Stock Purchase Agreement, dated July 6, 1994, between the Company and
Abbott Laboratories (with certain confidential portions omitted).
!10.76 Amended Registration Rights Agreement, dated June 24, 1994, between
the Company and the individuals listed on attached Schedule A, as
amended (Exhibit 4.1).
!10.77 First Addendum to Amended Registration Rights Agreement, dated July
6, 1994, between the Company and Abbott Laboratories (Exhibit 4.2)
***10.78 Research, Development and License Agreement, dated July 6, 1994,
between the Company and Abbott Laboratories (with certain
confidential portions omitted) (Exhibit 10.75).
***10.79 Stock and Note Purchase Agreement, dated September 2, 1994, between
the Company and American Home Products Corporation (with certain
confidential portions omitted).
***10.80 Unsecured Convertible Promissory Note dated September 2, 1994, in the
face amount of $10,000,000 executed by the Company in favor of
American Home Products Corporation (with certain confidential
portions omitted) (Exhibit 10.78).
***10.81 Second Addendum to Amended Registration Rights Agreement, dated
September 2, 1994, between the Company and American Home Products
Corporation.
***10.82 Research, Development and License Agreement, dated September 2, 1994,
between the Company and American Home Products Corporation, as
represented by its Wyeth-Ayerst Research Division (with certain
confidential portions omitted) (Exhibit 10.77).
***10.83 Option Agreement, dated September 2, 1994, between the Company and
American Home Products Corporation, as represented by its
Wyeth-Ayerst Research Division (with certain confidential portions
omitted) (Exhibit 10.80).
***10.84 Distribution and Marketing Agreement, dated September 16, 1994,
between the Company and Cetus Oncology Corporation, a wholly owned
subsidiary of the Chiron Corporation (with certain confidential
portions omitted) (Exhibit 10.82).
&10.85 Technology License Agreement, dated June 3, 1995, between the
Company, Allergan, Inc. and Allergan Ligand Retinoid Therapeutics,
Inc.
&10.86 Research and Development Agreement, dated June 3, 1995, between the
Company, Allergan, Inc. and Allergan Ligand Retinoid Therapeutics,
Inc.
&10.87 Commercialization Agreement, dated June 3, 1995, between the Company,
Allergan, Inc. and Allergan Ligand Retinoid Therapeutics, Inc.
</TABLE>
II-6
<PAGE> 141
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
---------------- ---------------------------------------------------------------------
<C> <S>
&10.88 Administrative Agreement, dated June 3, 1995, between the Company,
Allergan, Inc. and Allergan Ligand Retinoid Therapeutics, Inc.
&10.89 Services Agreement, dated June 3, 1995, between the Company,
Allergan, Inc. and Allergan Ligand Retinoid Therapeutics, Inc.
&10.90 1057 Purchase Option Agreement, dated June 3, 1995, between the
Company, Allergan, Inc. and Allergan Ligand Retinoid Therapeutics,
Inc.
&10.91 Asset Purchase Option Agreement, dated June 3, 1995, between the
Company, Allergan, Inc. and Allergan Ligand Retinoid Therapeutics,
Inc.
&10.92 Joint Venture Dissolution Agreement, dated June 3, 1995, between the
Company, Allergan, Inc. and Allergan Ligand Retinoid Therapeutics,
Inc.
&10.93 Indemnity Agreement, dated June 3, 1995, between the Company,
Allergan, Inc. and Allergan Ligand Retinoid Therapeutics, Inc.
&10.94 Tax Allocation Agreement, dated June 3, 1995, between the Company,
Allergan, Inc. and Allergan Ligand Retinoid Therapeutics, Inc.
&10.95 Stock Purchase Agreement, dated June 3, 1995, between the Company,
Allergan, Inc. and Allergan Pharmaceuticals (Ireland), Ltd.
&10.97 Research, Development and License Agreement, dated December 29, 1994,
between SmithKline Beecham Corporation and the Company (with certain
confidential portions omitted).
&10.98 Stock and Note Purchase Agreement, dated February 2, 1995, between
SmithKline Beecham Corporation, S.R. One Limited and the Company
(with certain confidential portions omitted).
&10.99 Third Addendum to Amended Registration Rights Agreement, dated
February 3, 1995, between S. R. One, Limited and the Company.
#10.100 PHOTOFRIN(R) Distribution Agreement, dated March 8, 1995, between the
Company and Quadra Logic Technologies Inc. (with certain confidential
portions omitted).
10.101(2) Stock Rights Agreement, dated December 28, 1990, among Glycomed,
Genentech, Inc. and specified shareholders (Exhibit 10.1).
10.119(2) Option and Development Agreement, dated August 15, 1990, between
Glycomed and Dr. Richard E. Galardy and Dr. Damian Grobelny with
exhibit thereto (with certain confidential portions omitted) (Exhibit
10.20).
10.120(2) Option and Development Agreement, dated November 27, 1989, between
Glycomed and the President and Fellows of Harvard College with
appendices thereto (with certain confidential portions omitted)
(Exhibit 10.21).
10.121(2) Option and Development Agreement, dated January 1, 1991, between
Glycomed and UAB Research Foundation with exhibits thereto (with
certain confidential portions omitted) (Exhibit 10.22).
10.122(2) Joint Venture Agreement, dated December 18, 1990, among Glycomed,
Glyko, Inc., Millipore Corporation, Astroscan, Ltd., Astromed, Ltd.,
Gwynn R. Williams and John Klock, M.D., with exhibits thereto (with
certain confidential portions omitted) (Exhibit 10.23).
10.124(2) Master Lease Agreement, dated June 22, 1990, between Glycomed and
Lease Management Services with Addendum and Security Deposit Pledge
Agreement (Exhibit 10.25).
</TABLE>
II-7
<PAGE> 142
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
---------------- ---------------------------------------------------------------------
<C> <S>
10.125(3) Marina Village Office/R & D Industrial Gross Leases, dated August 5,
1988 and August 8, 1988, between Glycomed and Alameda Real Estate
Investments, with Exhibits, Addendum and Amendment No. 1 thereto
(Exhibit 10.26).
10.126(3) Marina Village Office/R & D Industrial Gross Office Tech Leases,
dated May 1, 1992, between Glycomed and Alameda Real Estate
Investments, with exhibits and Addenda for the space at 860 Atlantic
and 2061 Challenger (Exhibit 10.27).
10.127(3) Research and License Agreement, dated April 29, 1992, between
Glycomed and the Alberta Research Council with Appendix thereto (with
certain confidential portions omitted) (Exhibit 10.28).
10.130(6) Amendment to Research and License Agreement, dated July 12, 1993,
between Glycomed and the Alberta Research Council (with certain
confidential portions omitted) (Exhibit 10.32).
10.131(7) Amendments to Research and License Agreement, dated October 22, 1993,
December 16, 1993, and May 9, 1994 between Glycomed and the Alberta
Research Council (with certain confidential portions omitted)
(Exhibit 10.33).
10.132(7) License Agreement, dated February 14, 1994 between Glycomed and
Sankyo Company, Ltd., for the Far East marketing rights of ophthalmic
indications of Galardin(TM) MPI and analogs (with certain
confidential portions omitted) (Exhibit 10.34).
10.133(7) Collaborative Technology Research and Development Agreement between
Glycomed and Sankyo Company, Ltd., dated June 27, 1994 (with certain
confidential portions omitted) (Exhibit 10.35).
10.136(8) Amendment to Research and License Agreement, dated September 22, 1994
between Glycomed and Alberta Research Council (with certain
confidential portions omitted) (Exhibit 10.38).
#10.137 First Supplemental Indenture among the Company, Glycomed and Chemical
Trust Company of California, Trustee (Exhibit 10.133).
#10.138 Form of Dominion Warrant upon assumption by the Company (Exhibit
10.134).
#10.139 Form of Genentech Warrant upon assumption by the Company (Exhibit
10.135).
%%10.140 Promissory Notes, General Security Agreements and a Credit Terms and
Conditions letter dated March 31, 1995, between the Company and
Imperial Bank (Exhibit 10.101).
-10.141 Fourth Addendum to Amended Registration Rights Agreement, dated May
18, 1995, between the Company and Genentech, Inc.
-10.142 Stock Purchase Agreement, dated June 27, 1995, between the Company
and Sankyo Company, Ltd.
-10.143 Fifth Addendum to Amended Registration Rights Agreement, dated
September 11, 1995, between the Company and Sankyo Company Limited.
-10.144 Stock Purchase Agreement, dated August 28, 1995, between the Company
and Abbott Laboratories.
-10.145 Sixth Addendum to Amended Registration Rights Agreement, dated August
31, 1995, between the Company and Abbott Laboratories.
-10.146 Amendment to Research and Development Agreement, dated January 16,
1996, between the Company and American Home Products Corporation, as
amended.
</TABLE>
II-8
<PAGE> 143
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
---------------- ---------------------------------------------------------------------
<C> <S>
-10.147 Amendment to Stock Purchase Agreement, dated January 16, 1996,
between the Company and American Home Products Corporation.
-10.148 Lease, dated July 6, 1994, between the Company and Chevron/Nexus
partnership, First Amendment to lease dated July 6, 1994.
x10.149 Successor Employment Agreement, signed May 1, 1996, between the
Company and David E. Robinson.
x10.150 Master Lease Agreement, signed May 30, 1996, between the Company and
USL Capital Corporation.
x10.151 Settlement Agreement and Mutual Release of all Claims, signed April
20, 1996, between the Company and Pfizer, Inc. (with certain
confidential portions omitted).
x10.152 Letter Amendment to Abbott Agreement, dated March 14, 1996, between
the Company and Abbott Laboratories (with certain confidential
portions omitted).
xx10.153 Letter Agreement, dated August 8, 1996, between the Company and Dr.
Andres Negro-Vilar.
--10.154 Preferred Shares Rights Agreement, dated as of September 13, 1996, by
and between Ligand Pharmaceuticals Incorporated and Wells Fargo Bank,
N.A. (Exhibit 10.1).
(9)10.155 Letter Agreement, dated November 4, 1996, between the Company and
William Pettit.
(9)10.156 Letter Agreement, dated February 6, 1997, between the Company and
Russell L. Allen.
(9)10.157 Master Lease Agreement, signed February 13, 1997, between the Company
and Lease Management Services.
(9)10.158 Lease, dated March 7, 1997, between the Company and Nexus Equity VI
LLC.
(9)10.159 Eighth Addendum to amended registration rights agreement, dated June
24, 1994, as amended between Ligand Pharmaceuticals and S.R. One,
Limited and is effective as of February 10, 1997.
(9)10.160 Seventh Addendum to amended registration rights agreement, dated June
24, 1994, as amended between Ligand Pharmaceuticals and S.R. One,
Limited and is effective November 10, 1995.
(10)10.161 Settlement Agreement, License and Mutual General Release between
Ligand Pharmaceuticals and SRI/LJCRF, dated August 23, 1995 (with
certain confidential portions omitted).
(11)10.162 Limited Extension of Collaborative Technology Research, Option and
Development Agreement between Ligand Pharmaceuticals and Sankyo
Company Limited, dated June 24, 1997.
(11)10.163 Extension of Master Lease Agreement between Lease Management Services
and Ligand Pharmaceuticals dated July 29, 1997.
(12)10.164 Third Amendment to Agreement, dated September 2, 1997, between the
Company and American Home Products Corporation.
+21.1 Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Ernst & Young, LLP, Independent Auditors.
+24.1 Power of Attorney.
</TABLE>
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<PAGE> 144
- ---------------
<TABLE>
<S> <C>
* These exhibits were previously filed as part of, and are hereby incorporated by
reference to, the same numbered exhibit filed with the Company's Registration
Statement on Form S-1 (No. 33-47257) filed on April 16, 1992 as amended.
% These exhibits were previously filed as part of, and are hereby incorporated by
reference to, the same numbered exhibit filed with the Company's Annual Report on
Form 10-K for the year ended December 31, 1992.
** These exhibits were previously filed as part of, and are hereby incorporated by
reference to, the same numbered exhibit filed with the Company's Annual Report on
Form 10-K for the year ended December 31, 1993.
*** These exhibits were previously filed as part of, and are hereby incorporated by
reference to, the same numbered exhibit (except as otherwise noted) filed with the
Company's Quarterly Report on Form 10-Q for the period ended September 30, 1994.
! These exhibits were previously filed as part of, and are hereby incorporated by
reference to, the exhibit filed with the Company's Form 8-K, filed on July 14, 1994.
!! This exhibit was previously filed as part of, and is hereby incorporated by
reference to Exhibit 99.1 filed with the Company's Form S-8 (No. 33-85366), filed on
October 17, 1994.
& 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-1/S-3 (No. 33-87598 and 33-87600) filed on December 20, 1994, as amended.
# 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-4 (No. 33-90160) filed on March 9, 1995, as amended.
%% This exhibit was previously filed as part of, and are hereby incorporated by
reference to, the same numbered exhibit filed with the Company's Quarterly report on
Form 10-Q for the period ended September 30, 1995.
- -- These exhibits were filed previously, and are hereby incorporated by reference to,
the same numbered exhibit filed with the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
x These exhibits were previously filed as part of, and are hereby incorporated by
reference to, the same numbered exhibit filed with the Company's Quarterly report on
Form 10-Q for the period ended June 30, 1996.
xx This exhibit was previously filed as part of, and are hereby incorporated by
reference to, the same numbered exhibit filed with the Company's Quarterly report on
Form 10-Q for the period ended September 30, 1996.
(1) Filed as an exhibit to Glycomed's Annual Report on Form 10-K (File No. 0-19161)
filed on September 27, 1991 and incorporated herein by reference.
(2) Filed as an exhibit to Glycomed's Registration Statement on Form S-1 (No. 33-39961)
filed on or amendments thereto and incorporated herein by reference.
(3) Filed as an exhibit to Glycomed's Annual Report on Form 10-K (File No. 0-19161)
filed on September 25, 1992 and incorporated herein by reference.
(4) Filed as an exhibit to Glycomed's Registration Statement on Form S-3 (No. 33-55042)
filed on November 25, 1992 or amendments thereto and incorporated herein by
reference.
(5) Filed as an exhibit to Glycomed's Registration Statement on Form S-8 (No. 33-68620)
filed on September 13, 1993 and incorporated herein by reference.
(6) Filed as an exhibit to Glycomed's Annual Report on Form 10-K (File No. 0-19161)
filed on September 13, 1993 and incorporated herein by reference.
</TABLE>
II-10
<PAGE> 145
<TABLE>
<S> <C>
(7) Filed as an amendment to Glycomed's Annual Report on Form 10-K (File No. 0-19161)
filed on September 27, 1994 and incorporated herein by reference.
(8) Filed as an exhibit to Glycomed's Quarterly Report on Form 10-Q (File No. 0-19161)
filed on February 10, 1995 and incorporated herein by reference.
- --- These exhibits were previously filed as part of, and are hereby incorporated by
reference, the same numbered exhibit filed with the Company's Registration Statement
on Form S-3 (No. 333-12603) filed on September 25, 1996, as amended.
(9) This exhibit was previously filed as part of, and is hereby incorporated by
reference to, the same numbered exhibit filed with the Company's Annual Report on
Form 10-K for the period ended December 31, 1996.
(10) This exhibit was previously filed as part of, and is hereby incorporated by
reference to, the same numbered exhibit filed with the Company's Quarterly Report on
Form 10-Q for the period ended March 31, 1997.
(11) This exhibit was previously filed as part of, and is hereby incorporated by
reference to, the same numbered exhibit filed with the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1997.
(12) This exhibit was previously filed as part of, and is hereby incorporated by
reference to, the same numbered exhibit filed with the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1997.
</TABLE>
- ---------------
+ Filed previously.
(b) FINANCIAL STATEMENT SCHEDULES INCLUDED SEPARATELY IN THE REGISTRATION
STATEMENT.
None
All other schedules are omitted because they are not required, are not
applicable or the information is included in the Consolidated Financial
Statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions described in Item 15, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-11
<PAGE> 146
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted
from the form of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective; and
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) If the registrant is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial statements
required by Rule 3-19 of Regulation S-X at the start of any delayed offering or
throughout a continuous offering.
II-12
<PAGE> 147
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Diego, State of California, on the 17th day of
November 1997.
LIGAND PHARMACEUTICALS INCORPORATED
By: /s/ DAVID E. ROBINSON
-------------------------------------------
David E. Robinson
Chairman, President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ ------------------
<S> <C> <C>
/s/ DAVID E. ROBINSON Chairman, President, and November 17, 1997
- ------------------------------------------ Chief Executive Officer
(David E. Robinson) (Principal Executive Officer)
/s/ PAUL V. MAIER Senior Vice President, Chief November 17, 1997
- ------------------------------------------ Financial Officer and
(Paul V. Maier) Treasurer (Principal Financial
and Accounting Officer)
* Director November 17, 1997
- ------------------------------------------
(Henry F. Blissenbach)
* Director November 17, 1997
- ------------------------------------------
(Alexander D. Cross)
* Director November 17, 1997
- ------------------------------------------
(John Groom)
* Director November 17, 1997
- ------------------------------------------
(Irving S. Johnson)
* Director November 17, 1997
- ------------------------------------------
(Carl C. Peck, M.D.)
*By: /s/ DAVID E. ROBINSON
-------------------------------------
David E. Robinson, Attorney-in-Fact
</TABLE>
II-13
<PAGE> 148
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------- ---------------------------------------------------------------------------
<C> <S>
#2.1 Agreement of Merger, dated February 7, 1995 by and among Ligand
Pharmaceuticals Incorporated, LG Acquisition Corp. and Glycomed
Incorporated (other Exhibits omitted, but will be filed by the Company with
the Commission upon request).
#2.2 Form of Plan of Merger.
#3.2 Amended and Restated Certificate of Incorporation of the Company.
&3.3 Bylaws of the Company, as amended.
x3.4 Certificate of Designation of Rights, Preferences and Privileges of Series
A Participating Preferred Stock of Ligand Pharmaceuticals Incorporated
(Exhibit 3.1).
*4.1 Specimen stock certificate for shares of Common Stock of the Company.
+5.1 Opinion of Brobeck, Phleger & Harrison LLP with respect to the securities
being registered.
#10.1 The Company's 1992 Stock Option/Stock Issuance Plan, as amended.
*10.2 Form of Stock Option Agreement.
*10.3 Form of Stock Issuance Agreement.
*10.4 The Company's Restricted Stock Purchase Plan, as amended.
*10.5 Form of the Company's Employee Restricted Stock Purchase Agreement.
*10.6 Form of Consultant Restricted Stock Purchase Agreement.
*10.7 The Company's 1988 Stock Option Plan, as amended.
*10.8 Form of Incentive Stock Option Agreement (Installment Vesting).
*10.9 Form of Non-Qualified Stock Option Agreement (Installment Vesting).
*10.10 Form of Consultant Non-Qualified Stock Option Agreement (Immediate
Vesting).
*10.12 1992 Employee Stock Purchase Plan.
*10.13 Form of Stock Purchase Agreement.
*10.26 Lease, dated December 1, 1988, between the Company and Nippon Landic
(U.S.A.), Inc., the assignee of Nexus/Gadco-UTC, as amended by an agreement
dated December 1, 1988, First Amendment to Lease dated August 19, 1991, and
Third Amendment to Lease dated August 22, 1991.
*10.29 Consulting Agreement, dated October 20, 1988, between the Company and Dr.
Ronald M. Evans, as amended by Amendment to Consulting Agreement, dated
August 1, 1991, and Second Amendment to Consulting Agreement, dated March
6, 1992.
*10.30 Form of Proprietary Information and Inventions Agreement.
*10.31 Research and License Agreement, dated March 9, 1992, between the Company
and Baylor College of Medicine (with certain confidential portions
omitted).
*10.32 License Agreement, dated January 27, 1992, between the Company and HSC
Research and Development Limited Partnership and Mount Sinai Hospital (with
certain confidential portions omitted).
*10.33 License Agreement, dated November 14, 1991, between the Company and
Rockefeller University (with certain confidential portions omitted).
*10.34 License Agreement and Bailment, dated July 22, 1991, between the Company
and the Regents of the University of California (with certain confidential
portions omitted).
</TABLE>
<PAGE> 149
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------- ---------------------------------------------------------------------------
<C> <S>
*10.35 Agreement, dated May 1, 1991, between the Company and Pfizer Inc (with
certain confidential portions omitted).
*10.36 License Agreement, dated July 3, 1990, between the Company and the Brigham
and Woman's Hospital, Inc. (with certain confidential portions omitted).
*10.37 Compound Evaluation Agreement, dated May 17, 1990, between the Company and
SRI International (with certain confidential portions omitted).
*10.38 License Agreement, dated January 5, 1990, between the Company and the
University of North Carolina at Chapel Hill (with certain confidential
portions omitted).
*10.39 License Agreement, dated January 4, 1990, between the Company and Baylor
College of Medicine (with certain confidential portions omitted).
*10.40 License Agreement, dated January 4, 1990, between the Company and Baylor
College of Medicine (with certain confidential portions omitted).
*10.41 License Agreement, dated October 1, 1989, between the Company and Institut
Pasteur (with certain confidential portions omitted).
*10.42 Sublicense Agreement, dated September 13, 1989, between the Company and
AndroBio Corporation (with certain confidential portions omitted).
*10.43 License Agreement, dated June 23, 1989, between the Company and La Jolla
Cancer Research Foundation (with certain confidential portions omitted).
*10.44 License Agreement, dated October 20, 1988, between the Company and The Salk
Institute for Biological Studies, as amended by Amendment to License
Agreement dated September 15, 1989, Second Amendment to License Agreement,
dated December 1, 1989 and Third Amendment to License Agreement dated
October 20, 1990 (with certain confidential portions omitted).
*10.45 Agreement dated June 12, 1989, between the Company and the Regents of the
University of California.
*10.46 Form of Indemnification Agreement between the Company and each of its
directors.
*10.47 Form of Indemnification Agreement between the Company and each of its
officers.
*10.50 Consulting Agreement, dated October 1, 1991, between the Company and Dr.
Bert W. O'Malley.
*10.53 Stock and Warrant Purchase Agreement, dated June 30, 1992 between the
Company and Allergan, Inc. and Allergan Pharmaceuticals (Ireland) Ltd.,
Inc.
*10.58 Stock Purchase Agreement, dated September 9, 1992, between the Company and
Glaxo, Inc.
*10.59 Research and Development Agreement, dated September 9, 1992, between the
Company and Glaxo, Inc. (with certain confidential portions omitted).
*10.60 Stock Transfer Agreement, dated September 30, 1992, between the Company and
the Rockefeller University.
*10.61 Stock Transfer Agreement, dated September 30, 1992, between the Company and
New York University.
*10.62 License Agreement, dated September 30, 1992, between the Company and the
Rockefeller University (with certain confidential portions omitted).
*10.63 Professional Services Agreement, dated September 30, 1992, between the
Company and Dr. James E. Darnell.
*10.64 Letter Agreement, dated August 24, 1992, between the Company and Dr. Howard
T. Holden.
</TABLE>
<PAGE> 150
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------- ---------------------------------------------------------------------------
<C> <S>
*10.65 Letter Agreement, dated August 20, 1992, between the Company and Dr. George
Gill.
*10.66 Letter Agreement, dated September 3, 1992, between the Company and Dr.
Lloyd E. Flanders.
*10.67 Letter Agreement, dated September 11, 1992, between the Company and Mr.
Paul Maier.
%*10.68 Master Equipment Lease, dated October 27, 1992 and related Master Equipment
Lease Agreement Schedule between the Company and AT&T Commercial Finance
Corporation.
!!10.69 Form of Automatic Grant Option Agreement.
**10.73 Supplementary Agreement, dated October 1, 1993, between the Company and
Pfizer, Inc to Agreement, dated May 1, 1991.
***10.74 Loan and Security Agreement, dated November 11, 1993, between the Company
and Household Commercial of California, Inc.
***10.75 Stock Purchase Agreement, dated July 6, 1994, between the Company and
Abbott Laboratories (with certain confidential portions omitted).
!10.76 Amended Registration Rights Agreement, dated June 24, 1994, between the
Company and the individuals listed on attached Schedule A, as amended (
Exhibit 4.1).
!10.77 First Addendum to Amended Registration Rights Agreement, dated July 6,
1994, between the Company and Abbott Laboratories (Exhibit 4.2)
***10.78 Research, Development and License Agreement, dated July 6, 1994, between
the Company and Abbott Laboratories (with certain confidential portions
omitted) (Exhibit 10.75).
***10.79 Stock and Note Purchase Agreement, dated September 2, 1994, between the
Company and American Home Products Corporation (with certain confidential
portions omitted).
***10.80 Unsecured Convertible Promissory Note dated September 2, 1994, in the face
amount of $10,000,000 executed by the Company in favor of American Home
Products Corporation (with certain confidential portions omitted) (Exhibit
10.78).
***10.81 Second Addendum to Amended Registration Rights Agreement, dated September
2, 1994, between the Company and American Home Products Corporation.
***10.82 Research, Development and License Agreement, dated September 2, 1994,
between the Company and American Home Products Corporation, as represented
by its Wyeth-Ayerst Research Division (with certain confidential portions
omitted) (Exhibit 10.77).
***10.83 Option Agreement, dated September 2, 1994, between the Company and American
Home Products Corporation, as represented by its Wyeth-Ayerst Research
Division (with certain confidential portions omitted) (Exhibit 10.80).
***10.84 Distribution and Marketing Agreement, dated September 16, 1994, between the
Company and Cetus Oncology Corporation, a wholly owned subsidiary of the
Chiron Corporation (with certain confidential portions omitted) (Exhibit
10.82).
&10.85 Technology License Agreement, dated June 3, 1995, between the Company,
Allergan, Inc. and Allergan Ligand Retinoid Therapeutics, Inc.
&10.86 Research and Development Agreement, dated June 3, 1995, between the
Company, Allergan, Inc. and Allergan Ligand Retinoid Therapeutics, Inc.
&10.87 Commercialization Agreement, dated June 3, 1995, between the Company,
Allergan, Inc. and Allergan Ligand Retinoid Therapeutics, Inc.
&10.88 Administrative Agreement, dated June 3, 1995, between the Company,
Allergan, Inc. and Allergan Ligand Retinoid Therapeutics, Inc.
</TABLE>
<PAGE> 151
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------- ---------------------------------------------------------------------------
<C> <S>
&10.89 Services Agreement, dated June 3, 1995, between the Company, Allergan, Inc.
and Allergan Ligand Retinoid Therapeutics, Inc.
&10.90 1057 Purchase Option Agreement, dated June 3, 1995, between the Company,
Allergan, Inc. and Allergan Ligand Retinoid Therapeutics, Inc.
&10.91 Asset Purchase Option Agreement, dated June 3, 1995, between the Company,
Allergan, Inc. and Allergan Ligand Retinoid Therapeutics, Inc.
&10.92 Joint Venture Dissolution Agreement, dated June 3, 1995, between the
Company, Allergan, Inc. and Allergan Ligand Retinoid Therapeutics, Inc.
&10.93 Indemnity Agreement, dated June 3, 1995, between the Company, Allergan,
Inc. and Allergan Ligand Retinoid Therapeutics, Inc.
&10.94 Tax Allocation Agreement, dated June 3, 1995, between the Company,
Allergan, Inc. and Allergan Ligand Retinoid Therapeutics, Inc.
&10.95 Stock Purchase Agreement, dated June 3, 1995, between the Company,
Allergan, Inc. and Allergan Pharmaceuticals (Ireland), Ltd.
&10.97 Research, Development and License Agreement, dated December 29, 1994,
between SmithKline Beecham Corporation and the Company (with certain
confidential portions omitted).
&10.98 Stock and Note Purchase Agreement, dated February 2, 1995, between
SmithKline Beecham Corporation, S.R. One Limited and the Company (with
certain confidential portions omitted).
&10.99 Third Addendum to Amended Registration Rights Agreement, dated February 3,
1995, between S. R. One, Limited and the Company.
#10.100 PHOTOFRIN(R) Distribution Agreement, dated March 8, 1995, between the
Company and Quadra Logic Technologies Inc. (with certain confidential
portions omitted).
10.101(2) Stock Rights Agreement, dated December 28, 1990, among Glycomed, Genentech,
Inc. and specified shareholders (Exhibit 10.1).
10.119(2) Option and Development Agreement, dated August 15, 1990, between Glycomed
and Dr. Richard E. Galardy and Dr. Damian Grobelny with exhibit thereto
(with certain confidential portions omitted) (Exhibit 10.20).
10.120(2) Option and Development Agreement, dated November 27, 1989, between Glycomed
and the President and Fellows of Harvard College with appendices thereto
(with certain confidential portions omitted) (Exhibit 10.21).
10.121(2) Option and Development Agreement, dated January 1, 1991, between Glycomed
and UAB Research Foundation with exhibits thereto (with certain
confidential portions omitted) (Exhibit 10.22).
10.122(2) Joint Venture Agreement, dated December 18, 1990, among Glycomed, Glyko,
Inc., Millipore Corporation, Astroscan, Ltd., Astromed, Ltd., Gwynn R.
Williams and John Klock, M.D., with exhibits thereto (with certain
confidential portions omitted) (Exhibit 10.23).
10.124(2) Master Lease Agreement, dated June 22, 1990, between Glycomed and Lease
Management Services with Addendum and Security Deposit Pledge Agreement
(Exhibit 10.25).
10.125(3) Marina Village Office/R & D Industrial Gross Leases, dated August 5, 1988
and August 8, 1988, between Glycomed and Alameda Real Estate Investments,
with Exhibits, Addendum and Amendment No. 1 thereto (Exhibit 10.26).
</TABLE>
<PAGE> 152
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------- ---------------------------------------------------------------------------
<C> <S>
10.126(3) Marina Village Office/R & D Industrial Gross Office Tech Leases, dated May
1, 1992, between Glycomed and Alameda Real Estate Investments, with
exhibits and Addenda for the space at 860 Atlantic and 2061 Challenger
(Exhibit 10.27).
10.127(3) Research and License Agreement, dated April 29, 1992, between Glycomed and
the Alberta Research Council with Appendix thereto (with certain
confidential portions omitted) (Exhibit 10.28).
10.130(6) Amendment to Research and License Agreement, dated July 12, 1993, between
Glycomed and the Alberta Research Council (with certain confidential
portions omitted) (Exhibit 10.32).
10.131(7) Amendments to Research and License Agreement, dated October 22, 1993,
December 16, 1993, and May 9, 1994 between Glycomed and the Alberta
Research Council (with certain confidential portions omitted) (Exhibit
10.33).
10.132(7) License Agreement, dated February 14, 1994 between Glycomed and Sankyo
Company, Ltd., for the Far East marketing rights of ophthalmic indications
of Galardin(TM) MPI and analogs (with certain confidential portions
omitted) (Exhibit 10.34).
10.133(7) Collaborative Technology Research and Development Agreement between
Glycomed and Sankyo Company, Ltd., dated June 27, 1994 (with certain
confidential portions omitted) (Exhibit 10.35).
10.136(8) Amendment to Research and License Agreement, dated September 22, 1994
between Glycomed and Alberta Research Council (with certain confidential
portions omitted) (Exhibit 10.38).
#10.137 First Supplemental Indenture among the Company, Glycomed and Chemical Trust
Company of California, Trustee (Exhibit 10.133).
#10.138 Form of Dominion Warrant upon assumption by the Company (Exhibit 10.134).
#10.139 Form of Genentech Warrant upon assumption by the Company (Exhibit 10.135).
%%10.140 Promissory Notes, General Security Agreements and a Credit Terms and
Conditions letter dated March 31, 1995, between the Company and Imperial
Bank (Exhibit 10.101).
-10.141 Fourth Addendum to Amended Registration Rights Agreement, dated May 18,
1995, between the Company and Genentech, Inc.
-10.142 Stock Purchase Agreement, dated June 27, 1995, between the Company and
Sankyo Company, Ltd.
-10.143 Fifth Addendum to Amended Registration Rights Agreement, dated September
11, 1995, between the Company and Sankyo Company Limited.
-10.144 Stock Purchase Agreement, dated August 28, 1995, between the Company and
Abbott Laboratories.
-10.145 Sixth Addendum to Amended Registration Rights Agreement, dated August 31,
1995, between the Company and Abbott Laboratories.
-10.146 Amendment to Research and Development Agreement, dated January 16, 1996,
between the Company and American Home Products Corporation, as amended.
-10.147 Amendment to Stock Purchase Agreement, dated January 16, 1996, between the
Company and American Home Products Corporation.
-10.148 Lease, dated July 6, 1994, between the Company and Chevron/Nexus
partnership, First Amendment to lease dated July 6, 1994.
x10.149 Successor Employment Agreement, signed May 1, 1996, between the Company and
David E. Robinson.
</TABLE>
<PAGE> 153
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------- ---------------------------------------------------------------------------
<C> <S>
x10.150 Master Lease Agreement, signed May 30, 1996, between the Company and USL
Capital Corporation.
x10.151 Settlement Agreement and Mutual Release of all Claims, signed April 20,
1996, between the Company and Pfizer, Inc. (with certain confidential
portions omitted).
x10.152 Letter Amendment to Abbott Agreement, dated March 14, 1996, between the
Company and Abbott Laboratories (with certain confidential portions
omitted).
xx10.153 Letter Agreement, dated August 8, 1996, between the Company and Dr. Andres
Negro-Vilar.
--10.154 Preferred Shares Rights Agreement, dated as of September 13, 1996, by and
between Ligand Pharmaceuticals Incorporated and Wells Fargo Bank, N.A.
(Exhibit 10.1).
(9)10.155 Letter Agreement, dated November 4, 1996, between the Company and William
Pettit.
(9)10.156 Letter Agreement, dated February 6, 1997, between the Company and Russell
L. Allen.
(9)10.157 Master Lease Agreement, signed February 13, 1997, between the Company and
Lease Management Services.
(9)10.158 Lease, dated March 7, 1997, between the Company and Nexus Equity VI LLC.
(9)10.159 Eighth Addendum to amended registration rights agreement, dated June 24,
1994, as amended between Ligand Pharmaceuticals and S.R. One, Limited and
is effective as of February 10, 1997.
(9)10.160 Seventh Addendum to amended registration rights agreement, dated June 24,
1994, as amended between Ligand Pharmaceuticals and S.R. One, Limited and
is effective November 10, 1995.
(10)10.161 Settlement Agreement, License and Mutual General Release between Ligand
Pharmaceuticals and SRI/LJCRF, dated August 23, 1995 (with certain
confidential portions omitted).
(11)10.162 Limited Extension of Collaborative Technology Research, Option and
Development Agreement between Ligand Pharmaceuticals and Sankyo Company
Limited, dated June 24, 1997.
(11)10.163 Extension of Master Lease Agreement between Lease Management Services and
Ligand Pharmaceuticals dated July 29, 1997.
(12)10.164 Third Amendment to Agreement, dated September 2, 1997, between the Company
and American Home Products Corporation.
+21.1 Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Ernst & Young LLP, Independent Auditors.
+24.1 Power of Attorney.
</TABLE>
- ---------------
<TABLE>
<S> <C>
* These exhibits were previously filed as part of, and are hereby incorporated by
reference to, the same numbered exhibit filed with the Company's Registration
Statement on Form S-1 (No. 33- 47257) filed on April 16, 1992 as amended.
% These exhibits were previously filed as part of, and are hereby incorporated by
reference to, the same numbered exhibit filed with the Company's Annual Report on
Form 10-K for the year ended December 31, 1992.
** These exhibits were previously filed as part of, and are hereby incorporated by
reference to, the same numbered exhibit filed with the Company's Annual Report on
Form 10-K for the year ended December 31, 1993.
</TABLE>
<PAGE> 154
<TABLE>
<S> <C>
*** These exhibits were previously filed as part of, and are hereby incorporated by
reference to, the same numbered exhibit (except as otherwise noted) filed with the
Company's Quarterly Report on Form 10-Q for the period ended September 30, 1994.
! These exhibits were previously filed as part of, and are hereby incorporated by
reference to, the exhibit filed with the Company's Form 8-K, filed on July 14, 1994.
!! This exhibit was previously filed as part of, and is hereby incorporated by
reference to Exhibit 99.1 filed with the Company's Form S-8 (No. 33-85366), filed on
October 17, 1994.
& 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-1/S-3 (No. 33-87598 and 33-87600) filed on December 20, 1994, as amended.
# 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-4 (No. 33-90160) filed on March 9, 1995, as amended.
%% This exhibit was previously filed as part of, and are hereby incorporated by
reference to, the same numbered exhibit filed with the Company's Quarterly report on
Form 10-Q for the period ended September 30, 1995.
- -- These exhibits were filed previously, and are hereby incorporated by reference to,
the same numbered exhibit filed with the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
x These exhibits were previously filed as part of, and are hereby incorporated by
reference to, the same numbered exhibit filed with the Company's Quarterly report on
Form 10-Q for the period ended June 30, 1996.
xx This exhibit was previously filed as part of, and are hereby incorporated by
reference to, the same numbered exhibit filed with the Company's Quarterly report on
Form 10-Q for the period ended September 30, 1996.
(1) Filed as an exhibit to Glycomed's Annual Report on Form 10-K (File No. 0-19161)
filed on September 27, 1991 and incorporated herein by reference.
(2) Filed as an exhibit to Glycomed's Registration Statement on Form S-1 (No. 33-39961)
filed on or amendments thereto and incorporated herein by reference.
(3) Filed as an exhibit to Glycomed's Annual Report on Form 10-K (File No. 0-19161)
filed on September 25, 1992 and incorporated herein by reference.
(4) Filed as an exhibit to Glycomed's Registration Statement on Form S-3 (No. 33-55042)
filed on November 25, 1992 or amendments thereto and incorporated herein by
reference.
(5) Filed as an exhibit to Glycomed's Registration Statement on Form S-8 (No. 33-68620)
filed on September 13, 1993 and incorporated herein by reference.
(6) Filed as an exhibit to Glycomed's Annual Report on Form 10-K (File No. 0-19161)
filed on September 13, 1993 and incorporated herein by reference.
</TABLE>
<PAGE> 155
<TABLE>
<S> <C>
(7) Filed as an amendment to Glycomed's Annual Report on Form 10-K (File No. 0-19161)
filed on September 27, 1994 and incorporated herein by reference.
(8) Filed as an exhibit to Glycomed's Quarterly Report on Form 10-Q (File No. 0-19161)
filed on February 10, 1995 and incorporated herein by reference.
- --- These exhibits were previously filed as part of, and are hereby incorporated by
reference, the same numbered exhibit filed with the Company's Registration Statement
on Form S-3 (No. 333-12603) filed on September 25, 1996, as amended.
(9) This exhibit was previously filed as part of, and is hereby incorporated by
reference to, the same numbered exhibit filed with the Company's Annual Report on
Form 10-K for the period ended December 31, 1996.
(10) This exhibit was previously filed as part of, and is hereby incorporated by
reference to, the same numbered exhibit filed with the Company's Quarterly Report on
Form 10-Q for the period ended March 31, 1997.
(11) This exhibit was previously filed as part of, and is hereby incorporated by
reference to, the same numbered exhibit filed with the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1997.
(12) This exhibit was previously filed as part of, and is hereby incorporated by
reference to, the same numbered exhibit filed with the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1997.
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated
January 29, 1997 with respect to the Consolidated Financial Statements of Ligand
Pharmaceuticals Incorporated and to the use of our report dated January 20,
1995 with respect to the financial statements of the Allergan Ligand Joint
Venture, both included in Amendment No. 2 to the Registration Statement (Form
S-1) and related Prospectus of Ligand Pharmaceuticals Incorporated for the
registration of its common stock.
ERNST & YOUNG LLP
San Diego, California
November 17, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and to the
use of our report dated March 25, 1997 with respect to the financial statements
of Allergan Ligand Retinoid Therapeutics, Inc. in the Registration Statement
(Form S-1) and related Prospectus of Ligand Pharmaceuticals Incorporated for
the registration of its common stock.
ERNST & YOUNG LLP
San Diego, California
November 17, 1997
