UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
MARK ONE
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____ TO ____ . COMMISSION FILE NUMBER: 0-20720
LIGAND PHARMACEUTICALS INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 77-0160744
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
9393 TOWNE CENTRE DRIVE 92121
SAN DIEGO, CA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (619)535-3900
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
--- ---
As of April 11, 1997 the registrant had 32,500,233 shares of
Common Stock outstanding.
<PAGE>
LIGAND PHARMACEUTICALS INCORPORATED
QUARTERLY REPORT
FORM 10-Q
TABLE OF CONTENTS
COVER PAGE 1
TABLE OF CONTENTS 2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1997 and
December 31, 1996 3
Consolidated Statements of Operations for the three months
ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
ITEM 3. Quantitative and Qualitative Disclosures about
Market Risk *
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings *
ITEM 2. Changes in Securities *
ITEM 3. Defaults upon Senior Securities *
ITEM 4. Submission of Matters to a Vote of Security Holders *
ITEM 5. Other Information *
ITEM 6. Exhibits and Reports on Form 8-K 16
SIGNATURE 17
* No information provided due to inapplicability of item.
2
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PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
<TABLE>
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
March 31, December 31,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 22,777 $ 34,830
Short-term investments 48,949 45,822
Receivable from a related party 2,292 3,087
Other current assets 1,887 1,706
----------- -----------
Total current assets 75,905 85,445
Restricted short-term investments 3,296 3,527
Property and equipment, net 11,703 11,680
Notes receivable from officers and
employees 528 534
Other assets 4,594 954
----------- -----------
$ 96,026 $ 102,140
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,482 $ 4,137
Accrued liabilities 4,231 4,870
Deferred revenue 2,469 2,151
Current portion of obligations under
capital leases 2,844 2,607
----------- -----------
Total current liabilities 13,026 13,765
Long-term obligations under capital leases 8,722 8,711
Convertible subordinated debentures 34,622 33,953
Convertible note 7,500 11,250
Stockholders' equity:
Convertible preferred stock, $.001 par
value; 5,000,000 shares authorized;
no shares issued or outstanding -- -- -- --
Common stock, $.001 par value;
80,000,000 shares authorized;
32,486,932 shares and 31,799,617
shares issued at March 31, 1997 and
December 31, 1996, respectively 33 32
Paid-in capital 222,229 214,887
Warrant subscription receivable (1,975) (2,453)
Adjustment for unrealized gains (losses)
on available-for-sale securities (173) (78)
Accumulated deficit (187,733) (177,594)
Deferred compensation and consulting
fees (214) (322)
----------- -----------
32,167 34,472
Less treasury stock, at cost (1,114
shares at March 31, 1997 and
December 31, 1996) (11) (11)
----------- -----------
Total stockholders' equity 32,156 34,461
----------- -----------
$ 96,026 $ 102,140
=========== ===========
</TABLE>
See accompanying notes.
3
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<TABLE>
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
Three Months Ended
March 31,
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Collaborative research and development:
Related parties $ 5,966 $ 3,236
Unrelated parties 3,737 5,475
Other 109 57
------------ -----------
9,812 8,768
Costs and expenses:
Research and development 16,626 12,270
Selling, general and administrative 2,319 2,618
------------ -----------
Total operating expenses 18,945 14,888
------------ -----------
Loss from operations (9,133) (6,120)
Interest income 1,069 1,097
Interest expense (2,075) (2,057)
------------ -----------
Net loss $ (10,139) $ (7,080)
============ ===========
Net loss per share $ (.32) $ (.25)
============ ===========
Shares used in computing net loss per
share 31,994 27,916
============ ===========
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<CAPTION>
Three Months Ended
March 31,
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (10,139) $ (7,080)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 973 942
Amortization of notes receivable from
officers and employees 56 61
Amortization of deferred compensation
and consulting fees 108 127
Amortization of warrant subscription
receivable 478 360
Accretion of debt discount 669 669
Change in operating assets and
liabilities:
Other current assets (181) (144)
Receivable from a related party 795 378
Accounts payable and accrued
liabilities (1,294) (3,078)
Deferred revenue 318 (74)
------------ ------------
Net cash used in operating activities (8,217) (7,839)
INVESTING ACTIVITIES
Purchase of short-term investments (10,145) (23,020)
Proceeds from short-term investments 6,923 28,118
Increase in notes receivable from officers
and employees (50) -- --
Increase in deposits and other assets (3,670) -- --
Decrease in deposits and other assets 30 34
Purchase of property and equipment (52) (443)
------------ ------------
Net cash (used in) provided by investing
activities (6,964) 4,689
FINANCING ACTIVITIES
Principal payments on obligations under
capital leases (696) (459)
Net change in restricted short-term
investments 231 3,011
Net proceeds from sale of common stock 3,593 1,138
------------ ------------
Net cash provided by financing activities 3,128 3,690
------------ ------------
Net (decrease) increase in cash and cash
equivalents (12,053) 540
Cash and cash equivalents at beginning of
period 34,830 15,963
------------ ------------
Cash and cash equivalents at end of period $ 22,777 $ 16,503
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ 2,412 $ 2,520
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Additions to obligations under capital
leases $ 944 $ 807
Conversion of note to common stock $ 3,750 $ -- --
</TABLE>
5
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LIGAND PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997
1. BASIS OF PRESENTATION
The consolidated financial statements of Ligand Pharmaceuticals
Incorporated (the "Company") for the three months ended March 31,
1997 and 1996 are unaudited. These financial statements reflect
all adjustments, consisting of only normal recurring adjustments
which, in the opinion of management, are necessary to fairly
present the consolidated financial position as of March 31, 1997
and the consolidated results of operations for the three months
ended March 31, 1997 and 1996. The results of operations for the
period ended March 31, 1997 are not necessarily indicative of the
results to be expected for the year ending December 31, 1997.
For more complete financial information, these financial
statements, and the notes thereto, should be read in conjunction
with the audited consolidated financial statements for the year
ended December 31, 1996 included in the Ligand Pharmaceuticals
Incorporated Form 10-K filed with the Securities and Exchange
Commission.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share", which is effective for
fiscal periods ending after December 15, 1997. At that time, the
Company will be required to change the method currently used to
compute earnings per share and to restate all prior periods
presented. Under the new requirements for calculating primary
earnings per share, which will be renamed basic earnings per
share, stock options, warrants and convertible securities will
always be excluded. The impact of Statement 128 on the
calculation of basic and diluted earnings per share for the
quarters ended March 31, 1997 and 1996 will have no effect.
2. CONVERSION OF CONVERTIBLE NOTE
In March 1997, the Company converted $3.8 million of the
convertible notes outstanding with Wyeth-Ayerst Laboratories, the
pharmaceutical division of American Home Products Corporation,
into 374,626 shares of the Company's Common Stock at the $10.01
conversion price.
3. COLLABORATION EQUITY INVESTMENT
In February 1997, a third installment equity investment of $2.5
million was provided to the Company by SmithKline Beecham
Corporation as a result of its election to expand the scope of
research under its research agreement with the Company.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This quarterly report may contain predictions, estimates and
other forward-looking statements that involve a number of risks
and uncertainties, including those discussed below at "Risks and
Uncertainties." While this outlook represents management's
current judgment on the future direction of the business, such
risks and uncertainties could cause actual results to differ
materially from any future performance suggested below. The
Company undertakes no obligation to release publicly the results
of any revisions to these forward-looking statements to reflect
events or circumstances arising after the date hereof.
OVERVIEW
Since January 1989, the Company has devoted substantially all of
its resources to its intracellular receptor and Signal
Transducers and Activators of Transcription drug discovery and
development programs. The Company has been unprofitable since its
inception and expects to incur substantial additional operating
losses for the next several years, due to continued requirements
for research and development, preclinical testing, regulatory
activities, establishment of manufacturing processes and sales
and marketing capabilities. The Company expects that losses will
fluctuate from quarter to quarter as a result of differences in
the timing of expenses incurred and the revenues earned from
collaborative arrangements. Some of these fluctuations may be
significant. As of March 31, 1997, the Company's accumulated
deficit was approximately $187.7 million.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 ("1997"), COMPARED WITH THREE
MONTHS ENDED MARCH 31, 1996 ("1996")
The Company had revenues of $9.8 million for 1997 compared to
revenues of $8.8 million for 1996. The increase in revenues is
primarily due to increased revenues from Allergan Ligand Retinoid
Therapeutics, Inc. ("ALRT"), a company formed by Ligand and
Allergan, Inc. ("Allergan") to conduct research and development
activities, offset by decreased revenues from the research and
development agreement with Wyeth-Ayerst Laboratories, the
pharmaceutical division of American Home Products Corporation
("AHP"), due to a one time payment of $1.5 million in 1996, which
expanded and amended the research and development agreement.
Revenues in 1997 were derived from the Company's research and
development agreements with (i) ALRT of $6.0 million, (ii) AHP of
$1.2 million, (iii) Sankyo Company Ltd. ("Sankyo") of $744,000,
(iv) Abbott Laboratories ("Abbott") of $540,000, (v) SmithKline
Beecham Corporation ("SmithKline Beecham") of $711,000, (vi)
Glaxo-Wellcome plc ("Glaxo") of $491,000, as well as from product
sales of Ligand (Canada) in-licensed products of $109,000.
Revenues in 1996 were derived from the Company's research and
development agreements with (i) ALRT of $3.2 million, (ii) AHP of
$2.9 million, (iii) Abbott of $725,000, (iv) Glaxo of $538,000,
(v) SmithKline Beecham of $575,000, (vi) Sankyo of $703,000, and
from product sales of Ligand (Canada) in-licensed products of
$57,000.
For 1997, research and development expenses increased to $16.6
million from $12.3 million in 1996. These expenses increased
primarily due to expansion of the Company's clinical and
development programs, as well as related additions of clinical
and development personnel. Selling, general and administrative
expenses decreased to $2.3 million in 1997 from $2.6 million in
1996. The decrease in 1997 was primarily due to unusually high
legal expenses incurred in 1996 related to the settlement of a
future product rights litigation, offset by additions to
personnel to support expanded clinical and development programs.
Interest income was $1.1 million in 1997 and 1996. Interest
expense was $2.1 million in 1997 and 1996, and consisted of
interest required by the Company's wholly-owned subsidiary,
Glycomed Incorporated, under its Convertible Subordinated
Debentures ("Debentures"), accretion of debt discount under the
Debentures, and capital lease obligations used to finance
equipment.
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 March 1997, the Company has raised $161.8
million from sales of equity securities: $78.2 million from the
Company's public offerings and an aggregate of $83.6 million from
private placements and the exercise of options and warrants.
7
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In March 1997, the Company converted $3.8 million of the
convertible notes outstanding to AHP into 374,626 shares of the
Company's Common Stock at the $10.01 conversion price. In
February 1997, a third installment equity investment of $2.5
million was provided to the Company by SmithKline Beecham as a
result of their election to expand the scope of research as
defined.
As of March 31, 1997, the Company had acquired an aggregate of
$19.1 million in laboratory and office equipment, and $4.6
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 Glycomed 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. 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
with interest 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 May 1997, the Company signed
a letter of intent to finance future capital equipment up to $4.5
million.
Working capital decreased to $62.9 million as of March 31, 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 the
convertible note. For the same reasons, cash and cash
equivalents, short-term investments, and restricted cash
decreased to $75.0 million at March 31, 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
1998, assuming the Company does not exercise either the option to
acquire certain assets related to Oral and Topical Panretin
(ALRT1057) (the "ALRT1057 Option") or an option to acquire all
the outstanding shares of ALRT callable common stock (the "ALRT
Stock Purchase Option") which were granted to Ligand and
Allergan, as part of the ALRT formation. Based on the current
level of product development expenditures, ALRT could use
substantially all of the funds available for research and
development in late 1997 or early 1998, which would trigger the
ALRT Stock Purchase Option. The Company has made no
determination concerning the exercise of either the ALRT1057
Option or the ALRT Stock Purchase Option. The Company's future
capital requirements will depend on many factors, including the
pace of scientific progress in research and development programs,
the magnitude of these programs, the scope and results of
preclinical testing and clinical trials, the time and costs
involved in obtaining regulatory approvals, the costs involved in
preparing, filing, prosecuting, maintaining and enforcing patent
claims, competing technological and market developments, the
ability to establish additional collaborations, changes in the
existing collaborations, the cost of manufacturing scale-up and
the effectiveness of the Company's commercialization activities.
RISKS AND UNCERTAINTIES
THE FOLLOWING ARE AMONG THE FACTORS THAT SHOULD ALSO BE
CONSIDERED CAREFULLY IN EVALUATING LIGAND AND ITS WHOLLY-OWNED
SUBSIDIARIES GLYCOMED INC. AND LIGAND (CANADA) INC. ("LIGAND" OR
"THE COMPANY") AND ITS BUSINESS.
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 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
Intracellular Receptors ("IRs") and Signal Transducers and
Activators of Transcription ("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,
8
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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 March 31, 1997, Ligand had an accumulated deficit of
approximately $187.7 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 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
1998, assuming the Company does not exercise for cash its options
to acquire either the assets related to Oral Panretin (ALRT1057)
and Topical Panretin (ALRT1057) or the outstanding callable
common stock of ALRT. Based on the current level of product
development expenditures, ALRT has announced it could use
substantially all of the funds available for research and
development in late 1997 or early 1998, which would trigger the
ALRT Stock Purchase Option. The Company has made no determination
concerning the exercise of either the ALRT1057 Option or the ALRT
Stock Purchase Option.
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
9
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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.
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, AHP,
Abbott, Sankyo, Glaxo, ALRT (which collaboration continues the
work previously undertaken with Allergan, Inc. through the
Allergan Ligand Joint Venture) and Pfizer Inc. These
collaborations provide Ligand with funding and research and
development resources for potential products for the treatment or
control of cardiovascular disease, cancer and skin disease,
osteoporosis, hematopoiesis, women's health disorders, and
inflammation, respectively. The Company's collaborative
agreements allow its collaborative partners significant
discretion in electing to pursue or not to pursue any development
program. There can be no assurance that the Company's
collaborations will continue or that the collaborations will be
successful. In addition, there can be no assurance that Ligand's
collaborators will not pursue alternative technologies either on
their own or in collaboration with others as a means of
developing drugs competitive with the types of drugs currently
being developed in collaboration with Ligand, and any such action
may result in the withdrawal of support and increased competition
for the Company's programs. In addition, if products are approved
for marketing under these programs, any revenues to Ligand from
these products will be dependent on the manufacturing, marketing
and sales efforts of its collaborators, which generally retain
commercialization rights under the collaborative agreements.
Ligand's current collaborators also generally have the right to
terminate their respective collaboration under certain
circumstances. If any of the Company's collaborative partners
were to breach or terminate its agreements with the Company or
otherwise fail to conduct its collaborative activities
successfully, the development of the Company's products under
such agreements would be delayed or terminated. The delay or
termination of any of the collaborations could have a material
adverse effect on Ligand.
There can be no assurance that disputes will not arise in
the future with Ligand's collaborators, including with respect to
the ownership of rights to any technology developed. For example,
the Company was involved in litigation with Pfizer, which was
settled in April 1996, with respect to Ligand's rights to receive
milestones and royalties based on the development and
commercialization of droloxifene. These and other possible
disagreements between collaborators and the Company could lead to
delays in the achievement of milestones or receipt of milestone
payments or research revenue, to delays or interruptions in, or
termination of, collaborative research, development and
commercialization of certain potential products, or could require
or result in litigation or arbitration, which could be time
consuming and expensive and could have a material adverse effect
on the Company.
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 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.
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<PAGE>
Any such conflict could limit the scope of the patents, if any,
that Ligand may be able to obtain or result in the denial of Ligand's
patent applications. In addition, if patents that cover Ligand's
activities are issued to other companies, there can be no
assurance that Ligand would be able to obtain licenses to such
patents at a reasonable cost, if at all, or be able to develop or
obtain alternative technology. The Company has from time to time
had, continues to have and may have in the future discussions
with its current and potential collaborators regarding the scope
and validity of the Company's patent and other proprietary rights
to its technologies, including the Company's co-transfection
assay. If a collaborator or other party were successful in having
substantial patent rights of the Company determined to be
invalid, it could adversely affect the ability of the Company to
retain existing collaborations beyond their expiration or, where
contractually permitted, encourage their termination. Such a
determination could also adversely affect the Company's ability
to enter into new collaborations. If any disputes should arise in
the future with respect to the rights in any technology developed
with a collaborator or with respect to other matters involving
the collaboration, there could be delays in the achievement of
milestones or receipt of milestone payments or research revenues,
or interruptions or termination of collaborative research,
development and commercialization of certain potential products,
and litigation or arbitration could result. Any of the foregoing
matters could be time consuming and expensive and could have a
material adverse effect on the Company.
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, Baylor College of Medicine 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. 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 for the Oral and
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 does 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 (ALRT 1057) products.
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<PAGE>
Ligand also relies upon trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop
and maintain its competitive position. There can be no assurance
that others will not independently develop substantially
equivalent proprietary information or otherwise gain access to or
disclose such information of Ligand. It is Ligand's policy to
require its employees, certain contractors, consultants, members
of its Scientific Advisory Board and parties to collaborative
agreements to execute confidentiality agreements upon the
commencement of employment or consulting relationships or a
collaboration with Ligand. There can be no assurance that these
agreements will not be breached, that they will provide
meaningful protection of Ligand's trade secrets or adequate
remedies in the event of unauthorized use or disclosure of such
information or that Ligand's trade secrets will not otherwise
become known or be independently discovered by its competitors.
EXERCISE OF PANRETIN (ALRT 1057) OPTION AND ALRT STOCK
PURCHASE OPTION. As part of 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") all of the technologies
that had been previously developed by the Allergan-Ligand Joint
Venture (the "Joint Venture") that had been formed and owned 50
percent by each of Ligand and Allergan were contributed to ALRT,
an off-balance sheet entity. In exchange for Ligand's and
Allergan's contributions of cash and technology, they each
received the ALRT1057 Option. The ALRT1057 Option is exercisable
at prices ranging from $21.4 million to $36.2 million (of which
$18.7 million to $31.7 million is payable by Ligand) at any time
beginning June 1997 and ending the earlier of 90 days after
regulatory approval for the commercial sale of Oral or Topical
Panretin (ALRT1057) and June 2000. The ALRT1057 Option must be
exercised by both Ligand and Allergan. As a result, Ligand can
exercise the ALRT1057 Option only if Ligand and Allergan each
conclude that the exercise of the ALRT1057 Option is in both of
their best interests. In addition, Ligand received the ALRT Stock
Purchase Option . The ALRT Stock Purchase Option is exercisable
at prices ranging from $71.4 million to $120.7 million at any
time between June 1997 and June 2000. If Ligand exercises the
ALRT Stock Purchase Option, Allergan has an option to purchase an
undivided 50% interest in all of the assets of ALRT at prices
ranging from $8.9 million to $15.0 million. The purchase prices
for the ALRT1057 Option and the ALRT Stock Purchase Option may be
paid by Ligand and Allergan in shares of Common Stock, Allergan
common stock, cash or any combination thereof. If Ligand
exercises the ALRT1057 Option or the ALRT Stock Purchase Option,
it will be required to make a substantial cash payment or to
issue shares of Common Stock, or both. Any cash payment would
reduce Ligand's capital resources. The Company may not have
sufficient capital resources to exercise the ALRT1057 Option or
the ALRT Stock Purchase Option for cash, which will require the
Company to issue shares of Common Stock to exercise either of
such options. Any payment in shares of Common Stock would result
in a decrease in the percentage ownership of the Company held by
Ligand's stockholders at that time. The exercise of the ALRT1057
Option may result in, and the exercise of the ALRT Stock Purchase
Option will likely require, the recording of a significant charge
to the Company's earnings. Based on the current level of product
development expenditures, ALRT has announced it could use
substantially all of the funds available for research and
development in late 1997 or early 1998, which would trigger the
ALRT Stock Purchase Option.
In addition, continuation of development and
commercialization of Oral and Topical Panretin (ALRT1057) and
other products under development by ALRT may require substantial
additional expenditures by Ligand. If Ligand does not exercise
the ALRT1057 Option or ALRT Stock Purchase Option prior to
expiration, the Company may lose valuable rights, including
rights to Oral and Topical Panretin (ALRT1057) and other ALRT
assets. Ligand and Allergan also have the option to provide
funding for the development of ALRT products in certain
circumstances. In the event that such funding is not provided and
other funds available to ALRT are less than $10.0 million, the
contractual relationship among ALRT, Allergan and Ligand may be
terminated by ALRT. In such an event, ALRT would retain its
rights to the products currently under development by ALRT, which
could have a material adverse effect on Ligand. As of the date
of this filing, Ligand has no plans to provide additional funding
to ALRT and has made no determination concerning the exercise of
either the ALRT1057 Option or the ALRT Stock Purchase Option.
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 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.
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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.
EXTENSIVE GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY
APPROVAL. The manufacturing and marketing of Ligand's products
and its ongoing research and development activities are subject
to regulation for safety and efficacy by numerous governmental
authorities in the United States and other countries. Prior to
marketing, any drug developed by the Company must undergo
rigorous preclinical and clinical testing and an extensive
regulatory approval process mandated by the FDA and equivalent
foreign authorities. These processes can take a number of years
and require the expenditure of substantial resources.
The time required for completing such testing and obtaining
such approvals is uncertain, and there is no assurance that any
such approval will be obtained. The Company or its collaborative
partners may decide to replace a compound in testing with a
modified or optimized compound, thus extending the test period.
In addition, delays or rejections may be encountered based upon
changes in FDA policy during the period of product development
and FDA review of each submitted new drug application or product
license application. Similar delays may also be encountered in
other countries. There can be no assurance that even after such
time and expenditures, regulatory approval will be obtained for
any products developed by the Company. Moreover, prior to
receiving FDA or equivalent foreign authority approval to market
its products, the Company may be required to demonstrate that its
products represent improved forms of treatment over existing
therapies. If regulatory approval of a product is granted, such
approval may entail limitations on the indicated uses for which
the product may be marketed. Further, even if such regulatory
approval is obtained, a marketed product, its manufacturer and
its manufacturing facilities are subject to continual review and
periodic inspections, and subsequent
13
<PAGE>
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. There can be no assurance that
Medicare and third-party payors will authorize or otherwise
budget reimbursement for the prescription of any of Ligand's
potential products. Additionally, third-party payors, including
Medicare, are increasingly challenging the prices charged for
medical products and services and may require additional cost-
benefit analysis data from the Company in order to demonstrate
the cost-effectiveness of its products. There can be no assurance
that the Company will be able to provide such data in order to
gain market acceptance of its products with respect to pricing
and reimbursement.
In the United States, the Company expects that there will
continue to be a number of federal and state proposals to
implement government control of pricing and profitability of
prescription pharmaceuticals. In addition, increasing emphasis on
managed health care will continue to put pressure on such
pricing. Cost control initiatives could decrease the price that
the Company or any of its collaborative partners or other
licensees receives for any drugs it may discover or develop in
the future and, by preventing the recovery of development costs,
which could be substantial, and an appropriate profit margin,
could have a material adverse effect on the Company. Further, to
the extent that cost control initiatives have a material adverse
effect on the Company's collaborative partners, the Company's
ability to commercialize its products and to realize royalties
may be adversely affected. Furthermore, federal and state
regulations govern or influence the reimbursement to health care
providers of fees and capital equipment costs in connection with
medical treatment of certain patients. If any actions are taken
by federal and/or state governments, such actions could adversely
affect the prospects for sales of the Company's products. There
can be no assurance that action taken by federal and/or state
governments, if any, with regard to health care reform will not
have a material adverse effect on the Company.
PRODUCT LIABILITY AND INSURANCE RISKS. Ligand's business
exposes it to potential product liability risks which are
inherent in the testing, manufacturing and marketing of human
therapeutic products. Certain of the compounds the Company is
investigating could be injurious to humans. For example,
retinoids as a class are known to contain compounds which can
cause birth defects. Ligand currently has limited product
liability insurance; however, there can be no assurance that
Ligand will be able to maintain such insurance on acceptable
terms or that such insurance will provide adequate coverage
against potential liabilities. The Company expects to procure
additional insurance when its products progress to a later stage
of development and if any rights to later-stage products are in-
licensed in the future. To the extent that product liability
insurance, if available, does not cover potential claims, the
Company will be required to self-insure the risks associated with
such claims. A successful product liability claim or series of
claims brought against the Company could have a material adverse
effect on the Company.
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 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
14
<PAGE>
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 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 Common Stock. Each Right entitles stockholders to
buy 1/1000th of a share of Ligand Series A Participating
Preferred Stock at an exercise price of $100, subject to
adjustment. The Rights will become exercisable following the
tenth day after a person or group announces acquisition of 20% or
more of the Common Stock, or announces commencement of a tender
offer, the consummation of which would result in ownership by the
person or group of 20% or more of the Common Stock. The Company
will be entitled to redeem the Rights at $0.01 per Right at any
time on or before the earlier of the tenth day following
acquisition by a person or group of 20% or more of the Common
Stock and September 13, 2006.
Ligand's Amended and Restated Certificate of Incorporation
(the "Certificate of Incorporation") includes a provision that
requires the approval of the holders of 66 2/3% of Ligand's
voting stock as a condition to a merger or certain other business
transactions with, or proposed by, a holder of 15% or more of
Ligand's voting stock, except in cases where certain directors
approve the transaction or certain minimum price criteria and
other procedural requirements are met (the "Fair Price
Provision"). The Certificate of Incorporation also requires that
any action required or permitted to be taken by stockholders of
Ligand must be effected at a duly called annual or special
meeting of stockholders and may not be effected by any consent in
writing. In addition, special meetings of the stockholders of
Ligand may be called only by the Board of Directors, the Chairman
of the Board or the President of Ligand or by any person or
persons holding shares representing at least 10% of the
outstanding Common Stock. The Shareholder Rights Plan, the Fair
Price Provision and other charter provisions may discourage
certain types of transactions involving an actual or potential
change in control of Ligand, including transactions in which the
stockholders might otherwise receive a premium for their shares
over then current market prices, and may limit the ability of the
stockholders to approve transactions that they may deem to be in
their best interests. In addition, the Board of Directors has the
authority to fix the rights and preferences of and issue shares
of preferred stock, which may have the effect of delaying or
preventing a change in control of Ligand without action by the
stockholders.
15
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PART II. OTHER INFORMATION
ITEM 6 (A) EXHIBITS
Exhibit 10.161 (1) Settlement Agreement, License and Mutual
General Release between Ligand
Pharmaceuticals and SRI/LJCRF, dated August
23, 1995 (with certain confidential portions
omitted).
Exhibit 27.0 Financial Data Schedule
ITEM 6 (B) REPORTS ON FORMS 8-K
None.
(1) Certain confidential portions of this Exhibit were omitted by
means of marking such portions with an asterisk (the "Mark").
This Exhibit has been filed separately with the Secretary of the
Commission without the Mark pursuant to the Company's Application
Requesting Confidential Treatment under Rule 406 under the
Securities Act.
16
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LIGAND PHARMACEUTICALS INCORPORATED
March 31, 1997
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Ligand Pharmaceuticals Incorporated
Date: May 12, 1997 By /s/ Paul V. Maier
------------- ----------------------
Paul V. Maier
Senior Vice President and Chief Financial Officer
17
SETTLEMENT AGREEMENT, LICENSE AND
MUTUAL GENERAL RELEASE
This Settlement Agreement and Mutual General Release (the "Agreement"),
having an effective date for all purposes of August 23, 1995, is made and
entered into by and between La Jolla Cancer Research Foundation (hereinafter
"FOUNDATION"), a California non-profit and public benefit corporation, having a
place of business at 10901 North Torrey Pines Road, La Jolla, CA 92037, SelectRA
Pharmaceuticals, Inc. (hereinafter "SELECTRA"), a California corporation, having
a place of business at 10901 North Torrey Pines Road, La Jolla, CA 92037, SRI
International (hereinafter "SRI"), a California non-profit and public benefit
corporation, having a place of business at 333 Ravenswood Ave., Menlo Park, CA
94025, (hereinafter collectively referred to as "DEFENDANTS"), and Ligand
Pharmaceuticals Incorporated (hereinafter "LIGAND"), a Delaware corporation,
having its principal place of business at 9393 Towne Centre Drive, Suite 100,
San Diego, California, 92121 and Allergan Ligand, a California partnership
(hereinafter "JV"), having a principal office and place of business at 9393
Towne Centre Drive, Suite 100, San Diego, California, 92121, (hereinafter
collectively referred to as "PLAINTIFFS") and Allergan Ligand Retinoid
Therapeutics, Inc. (hereinafter "ALRT"), a Delaware corporation, having a
principal office at 9393 Towne Centre Drive, Suite 100, San Diego, California
92121.
WITNESSETH, That:
WHEREAS, there is now pending in the United States District Court for
the Southern District of California (the "Court") an action entitled
ALLERGAN/LIGAND JOINT VENTURE V. LA JOLLA CANCER RESEARCH FOUNDATION, ET AL.
Federal District Court Case No. 931895 IEG (CM) (hereinafter referred to as the
"Action");
[*] Certain confidential portions of this Exhibit were omitted by means of
blackout of the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 406
under the Act.
<PAGE>
WHEREAS, the Complaint in the Action alleges that the DEFENDANTS have
infringed certain patents exclusively licensed to LIGAND which LIGAND has in
turn sublicensed in whole or in part to the JV and which have subsequently been
sublicensed to ALRT;
WHEREAS, the DEFENDANTS have, in answer to the Complaint in the Action,
denied infringement and asserted, inter alia, that the patents-in-suit are
invalid and/or unenforceable;
WHEREAS, SRI has demanded arbitration (hereinafter the "Arbitration") of
certain issues in the Action arising between SRI and LIGAND, and the Court has
ordered a stay of all claims in the Action against SRI pending the Arbitration;
WHEREAS, LIGAND, the JV and ALRT, as part of the settlement of the
Action, are willing to grant to each of FOUNDATION and SRI non-exclusive,
non-assignable sublicenses to use the technology covered by the patents on
which the Action is based for basic research purposes, including the limited
right to grant sublicenses under Section 5.02;
WHEREAS, FOUNDATION and SRI, as part of the settlement of the Action,
are willing to grant to LIGAND an option to acquire an exclusive, worldwide
license, including the right to grant sublicenses, to any inventions,
discoveries and developments that are enabled by, reduced to practice or
otherwise derived from or facilitated by acts within the scope of the claims of
the patents on which the Action is based, the license to include patent
applications and patents on said inventions, discoveries and developments;
WHEREAS, SRI, as part of the settlement of the Action, to the extent it
has not already done so, will make available to LIGAND samples of all retinoid
compounds synthesized in the laboratory of [*] through [*] pursuant to the
Compound Evaluation Agreement between LIGAND and SRI
[*] CONFIDENTIAL TREATMENT REQUESTED
-2-
<PAGE>
bearing an effective date of May 17, 1990, for evaluation and potential
commercialization of said compounds by LIGAND, and FOUNDATION and SELECTRA
acknowledge the rights of LIGAND arising under this Agreement and/or the
Compound Evaluation Agreement;
WHEREAS, the Parties have agreed that settlement of the Action is
contingent upon entry by the Court of a consent judgment in a form satisfactory
to all the Parties and dismissal of the Arbitration; and
WHEREAS, LIGAND, the JV, ALRT, SELECTRA, SRI and FOUNDATION desire to
take all further actions required to settle the Action.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the Parties agree as follows:
ARTICLE 1
Definitions
For purposes of this Agreement, the terms defined in this Article
shall have the meaning specified and shall be applicable both to the singular
and plural forms:
1.01 "Party" shall mean either LIGAND, the JV, ALRT, FOUNDATION,
SRI or SELECTRA, and the term "Parties" shall mean LIGAND, the JV, ALRT,
FOUNDATION, SRI and SELECTRA. The terms "LIGAND", "the JV", "ALRT",
"FOUNDATION", "SRI" and "SELECTRA" include "Affiliates".
1.02 "Affiliate" means (i) any corporation, firm, partnership,
individual or other form of business organization which is now or hereafter
owned or controlled by or under common control with a Party, (ii) any
corporation in which a Party owns at least fifty percent (50%) of the stock
entitled to vote for
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<PAGE>
directors, and (iii) any corporation, firm, partnership, individual or other
form of business organization in which a Party has the maximum ownership
interest it is permitted to have in the country where such business
organization exists.
1.03 "Ligand Patented Technology" means and is limited to United
States Patents Nos. 4,981,784, 5,071,773, 5,091,518 and 5,171,671 and any
foreign counterparts thereof. Upon expiration, disclaimer or a holding from
which no appeal is or can be taken of invalidity of any patent included in the
Ligand Patented Technology or any claim or claims thereof, then Ligand Patented
Technology shall mean and be limited to the unexpired patents included in the
Ligand Patented Technology and the patents or claims thereof not affected by
such disclaimer or holding of invalidity.
1.04 "Option Technology" means any invention, discovery or
development by employees, consultants or agents of one or more of DEFENDANTS,
including without limitation, technical data, specifications, information,
know-how, processes, compounds, formulations and materials, which invention,
discovery or development was enabled by, reduced to practice, or otherwise
derived from or facilitated by an act or acts within the scope of the claims of
any patent within the Ligand Patented Technology. Option Technology also
includes inventions, discoveries or developments made by employees, consultants
or agents of DEFENDANTS with persons who are not employees, consultants or
agents of DEFENDANTS including Research Collaborators with DEFENDANTS pursuant
to Section 5.02 hereof.
1.05 "Option Patent" means any United States or foreign patent or
patent application (including any abandoned patent application) which covers
or, if an abandoned patent application, covered Option Technology. Exhibit "A"
hereto is a list of all such patents and patent applications which, after a
good faith inquiry, are known to FOUNDATION and SRI as of the effective date
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of this Agreement; provided, however, that failure to list a patent or patent
application on Exhibit "A" does not create a presumption such patent or patent
application does not or did not cover Option Technology. The term Option
Patent when applied to a specific issued patent includes all reissues,
renewals, extensions and additions thereof and the patent applications from
which they issue. The term "Option Patent" when applied to a specific patent
application includes continuations, continuations-in-part, divisions and
substitutes thereof and the patents which issue therefrom. A patent or patent
application covers Option Technology if it contains a claim which reads upon
Option Technology.
1.06 "Licensed Patent" means an Option Patent for which LIGAND has
exercised its option to acquire an exclusive, worldwide license covering the
same under Article 6 of this Agreement.
1.07 "Licensed Product" means a drug or other product whose
importation, making, using or selling is read upon by any claim in a Licensed
Patent or the discovery or development of which was enabled by, reduced to
practice, or otherwise derived from or facilitated by an act or acts within the
scope of a claim in a Licensed Patent.
1.08 Licensed Process" shall mean any process the practice of which
is read upon by a claim in a Licensed Patent or the discovery or development of
which was enabled by, reduced to practice or otherwise derived from or
facilitated by an act or acts within the scope of a claim in a Licensed Patent,
including any processes used to screen compounds on behalf of a third party.
1.09 "Net Sales" shall mean, in the case of sales to
non-Affiliates, the invoiced price by LIGAND, JV, ALRT, or their Affiliates or
sublicensees, less (a) customary trade quantity and cash discounts actually
allowed and taken; (b) allowances actually given for returned, rejected or
recalled products; (c) actual
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charges for bad debts; (d) freight and insurance if included in the invoice
price; (e) government mandated rebates; and (f) value added tax, sales, use or
turnover taxes, excise taxes, and custom duties included in the invoiced price.
1.10 "Field" means and is limited to use of the Ligand Patented
Technology by FOUNDATION and/or SRI for basic research, and specifically does
not include research funded by a for-profit entity, unless the results of the
research funded by such forprofit entity are subject to the LIGAND option of
Section 6.01.
1.11 "Territory" means and is limited to FOUNDATION'S premises at
10901 North Torrey Pines Road, La Jolla, California, 92037, or any expansion
and/or replacement premises thereof with respect to the license granted
hereunder to FOUNDATION and SRI's premises at 333 Ravenswood Avenue, Menlo
Park, California 94205 or any expansion and/or replacement premises thereof and
the premises of any research collaborators sublicensed under Section 5.02 with
respect to the license granted hereunder to SRI.
ARTICLE 2
Settlement of Action
2.01 Consent Judgment. The Parties shall forthwith jointly present
to the Court a stipulated Consent Judgment and Injunction in the Action, in
form and substance as set forth in Exhibit "B" attached hereto, and shall use
their best efforts to have the Court enter and file such Consent Judgment and
Injunction. If the Court refuses to, or does not within one hundred twenty
(120) days after such presentation, (i) enter and file the Consent Judgment and
Injunction, or (ii) enter and file it with changes agreed to by all the
Parties, then any Party aggrieved by a refusal or failure of the Court to enter
and file such Consent Judgment and Injunction may terminate this Agreement by
written notice to all of the other Parties within fifteen (15) days of the
refusal or
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within fifteen (15) days after the 120th day from such presentation, whichever
is earlier.
2.02 Restrictions on Rights to Use Ligand Patented Technology.
Pursuant to the sublicenses granted FOUNDATION and SRI pursuant to Article 5
hereof, FOUNDATION and SRI are granted specified rights to use Ligand Patented
Technology. Except as provided in this Agreement, and in addition to the
provisions of the Consent Judgment and Injunction as it may be finally entered
and filed, DEFENDANTS hereby covenant and agree, for themselves and their
agents, employees, privies, successors and assigns, not to make, have made,
import, use, sell, market or distribute in the United States any products or
carry out any processes which would infringe claims in the Ligand Patented
Technology or to induce or contribute to the infringement of the Ligand
Patented Technology by others.
2.03 Expenses. Each Party shall bear its own costs and expenses,
including all attorneys fees, in connection with the Action and this Agreement.
2.04 Windup of SELECTRA. SELECTRA will be promptly and permanently
wound up. FOUNDATION represents and warrants that the windup of SELECTRA will
not leave or result in any rights to Option Technology and Option Patents in a
third party, other than rights of the United States Government arising by
statute or regulation. In addition to any remedies to which it is entitled at
law or in equity, LIGAND may terminate the license granted FOUNDATION for
breach of this warranty.
2.05 Dismissal of Arbitration. LIGAND and SRI will stipulate to
the dismissal of the Arbitration with respect to their Compound Evaluation
Agreement bearing an effective date of May 17, 1990, with each Party to bear
its own costs, including attorney fees, in connection with the Arbitration.
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2.06 Waiver By Third Parties. DEFENDANTS will secure the waiver of
any third party rights to Option Technology and Option Patents known to exist,
after reasonable inquiry, as of the effective date of this Agreement, including
those held by Telios Pharmaceuticals, Inc. (but excluding those of the United
States Government arising by statute or regulation as a result of the funding
by the United States of research that results in Option Technology or Option
Patents), that conflict with the rights granted LIGAND hereunder.
2.07 Covenant Not to Contest Patents. DEFENDANTS and each of them
will not after the effective date of this Agreement seek in any proceeding, or
assist any other party except under judicial compulsion, to have any patent or
any claim thereof in the Ligand Patented Technology declared, determined or
adjudicated invalid or unenforceable. As used in this Section 2.07,
"proceeding" includes a reexamination proceeding in the United States Patent and
Trademark Office.
2.08 Press Release. The Parties shall jointly issue a press
release in the form attached hereto as Exhibit "C" on or promptly after the
effective date of this Agreement. No Party shall thereafter make any further
written or oral public release or written or oral public statement regarding
this Agreement and the underlying Action or Arbitration (including, without
limitation, press releases and disclosures in Securities and Exchange
Commission filings) unless such written or oral public release or written or
oral public statement has previously been reviewed and approved by all Parties;
provided, however, that a Party shall not be required to secure the approval of
any other Party to make a disclosure which, upon advice of independent counsel,
it is required to make by law or regulation, and further provided that where
approval is required that no Party shall unreasonably withhold its approval.
Once approved, such written or oral public release or written or oral public
statement (including the press release attached hereto as Exhibit "C") may be
freely reissued or
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repeated without additional approval. Nothing in this Section 2.08 shall
affect the Parties' respective rights to communicate privately, orally or in
writing with employees, vendors, researchers, distributors, licensees,
prospective licensees and other commercially affected persons and entities as
may be necessary to effectuate this Agreement. Each Party shall have the
obligation to use reasonable efforts to prevent its agents and employees from
violating the foregoing.
2.09 Authorized Comments. Notwithstanding the provision of Section
2.08, a Party shall have the right to comment upon the unauthorized statements
of the employees of any other Party about this Agreement or the Action or the
Arbitration or the motives of any Party in bringing or settling the Action or
Arbitration. FOUNDATION acknowledges the truth thereof and authorizes the
publication by PLAINTIFFS of the following facts:
1. That FOUNDATION did not seek a license to the Ligand Patented
Technology at any time before the Action was brought;
2. That SELECTRA intended to develop compounds that are highly
specific for individual retinoid receptors - a technology that
would compete directly with LIGAND;
3. That the FOUNDATION intended to hold a substantial equity
interest in SELECTRA;
4. That Magnus Pfahl, Ph.D., formerly a senior staff scientist at
FOUNDATION, would have held a substantial equity interest in
SELECTRA; and
5. That both the FOUNDATION and Dr. Pfahl and each of them would
have obtained a financial benefit from the success of
SELECTRA.
SRI acknowledges the truth thereof and authorizes publication by PLAINTIFFS of
the following facts:
1. That SRI did not seek a license to the Ligand Patented
Technology before the Action was brought; and
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2. That SRI expected to obtain a financial benefit if SELECTRA
were successful and Dr. Marcia Dawson, as an employee of SRI,
would have been entitled to a share of such benefit.
2.10 Restriction on Seeking Governmental License. During the term
of its sublicense granted under Section 5.01, each of DEFENDANTS agree to
terminate any current effort and not hereafter seek from any agency of the
United States Government an express license to any patent included in the Ligand
Patented Technology. Neither this Section 2.10 nor any other provision of this
Agreement shall preclude DEFENDANTS from seeking to influence any agency of the
United States or legislative body thereof concerning matters of general public
policy, laws or regulations relating to the impact of patents on basic research
or any other matter other than to seek an express license from the National
Institutes of Health or any other agency of the United States to any patent
included in the Ligand Patented Technology.
ARTICLE 3
Release
3.01 Release by Plaintiffs. Except as otherwise expressly provided
for and set forth in this Agreement, PLAINTIFFS, for themselves and their
agents, successors, assigns, representatives and attorneys, and each of them, do
hereby release and forever discharge DEFENDANTS, and their directors, officers,
trustees, employees, agents and consultants acting in such capacity on behalf of
or in the course of their duties for DEFENDANTS, and each of them, from any and
all manner of action or actions, cause or causes of action, in law or in equity,
suits, debts, liens, contracts, agreements, promises, liabilities, claims,
demands, losses, costs, or expenses of any nature whatsoever, whether known or
unknown, fixed or contingent, which PLAINTIFFS have or may hereafter have
against DEFENDANTS, or any of them, by reason of any matter, cause or thing
whatsoever from the beginning of time to the date hereof; provided, however,
that this release shall have no effect with respect to the License Agreement of
June 23,
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1989 between LIGAND and FOUNDATION, and this release, while applicable to
claims for breach of, and to all events relating to, the Compound Evaluation
Agreement occurring before the effective date, does not affect the rights and
obligations of SRI and LIGAND under the Compound Evaluation Agreement to the
extent provided under Article 4 of this Agreement. The matters released
pursuant to this Section 3.01 are herein referred to as "Plaintiff's Released
Claims."
3.02 Release by Defendants. Except as otherwise expressly provided
for and set forth in this Agreement, DEFENDANTS, for themselves and their
agents, successors, assigns, representatives and attorneys, and each of them, do
hereby release and forever discharge PLAINTIFFS, and their directors, trustees,
officers, employees, agents and consultants acting in such capacity on behalf of
or in the course of their duties for PLAINTIFFS, and each of them, from any and
all manner of action or actions, cause or causes of action, in law or in equity,
suits, debts, liens, contracts, agreements, promises, liabilities, claims,
demands, losses, costs, or expenses of any nature whatsoever, whether known or
unknown, fixed or contingent, which DEFENDANTS have or may hereafter have
against PLAINTIFFS, or any of them, by reason of any matter, cause or thing
whatsoever from the beginning of time to the date hereof; provided, however,
that this release shall have no effect with respect to the License Agreement of
June 23, 1989 between LIGAND and FOUNDATION, and this release, while applicable
to claims for breach of, and to all events relating to, the Compound Evaluation
Agreement occurring before the effective date, does not affect the rights and
obligations of SRI and LIGAND under the Compound Evaluation Agreement to the
extent provided under Article 4 of this Agreement. The matters released
pursuant to this Section 3.02 are herein referred to as "Defendant's Released
Claims." Nothing herein will release LIGAND from its obligations to make royalty
payments on Improvement Compounds arising under the Compound Evaluation
Agreement.
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3.03 Unknown Claims. The Parties specifically understand,
acknowledge and agree that this is a full and final release, applying to all of
the Plaintiff's Released Claims and Defendant's Released Claims, whether known
or unknown. The Parties, having been fully advised by their respective
counsel, hereby expressly and voluntarily waive all rights or benefits that
they, and each of them, might otherwise have under the provisions of Section
1542 of the Civil Code of the State of California, which provides as follows,
and under all federal, state and/or common-law statutes or principles of
similar effect:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
3.04 Full Release. This Agreement is a full accord, satisfaction
and discharge of all of the Plaintiff's Released Claims and Defendant's
Released Claims. This Agreement has been executed with the express intention
of effectuating the full and final extinguishment of all such claims.
3.05 Use in Pleadings. It is specifically understood and agreed
that this Agreement may be pleaded as a full and complete defense to, and may
be used as the basis for, an injunction against any action, suit, or other
proceeding which may be instituted, prosecuted or attempted in breach of this
Agreement.
3.06 Attorneys' Fees. In the event that legal action is necessary
to enforce or remedy a breach of a provision or provisions of this Agreement,
all costs and attorneys' fees shall be paid by the non-prevailing Party or
Parties to the prevailing Party or Parties.
3.07 No Assignment of Claims. The Parties hereby represent and
warrant to each other that they have not sold, assigned,
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transferred, conveyed or otherwise disposed of any claim which, but for such
sale, assignment, transfer, conveyance or other disposal, would be covered by
this Agreement.
ARTICLE 4
Compound Evaluation
4.01 SRI Compounds. SRI shall make available to LIGAND, for
evaluation and potential commercialization in accordance with the terms of the
Compound Evaluation Agreement between LIGAND and SRI bearing an effective date
of May 17, 1990, samples of all of the retinoid compounds synthesized in the
laboratory of [*] through [*] not previously provided to LIGAND pursuant to the
Compound Evaluation Agreement, which compounds are listed in Exhibit "D" hereto,
for which SRI has a current supply. For those compounds synthesized before [*]
for which no quantities are available, SRI will, at LIGAND's request,
resynthesize the compounds for LIGAND at SRI's then standard commercial rate for
research done for outside entities. SRI will provide to LIGAND a summary of any
chemical and biological properties actually determined by SRI for the compounds
synthesized through [*] and which were not previously made available to LIGAND;
LIGAND shall provide SRI with the results of its evaluation of the samples of
said compounds as required by the Compound Evaluation Agreement. Performance of
the obligations of SRI under Section 2.04 of the Compound Evaluation Agreement
will be optional on the part of SRI with respect to the compounds of Exhibit
"D". Nothing in the Compound Evaluation Agreement or this Agreement shall be
construed to obligate SRI to pursue patent protection for or protect
patentability prior to publication or disclosure of the compounds of Exhibit
"D", and SRI provides no warranty as to the patentability of any compound of
Exhibit "D". The terms of the Addendum attached hereto shall govern the patent
expenses associated with the patent applications specified therein. SRI shall
have no obligation to provide to LIGAND samples of compounds synthesized by [*]
[*] CONFIDENTIAL TREATMENT REQUESTED
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after [ * ] but if such subsequently synthesized compounds constitute Option
Technology, LIGAND shall have an Option to acquire rights to Option Patents
covering or related thereto as provided in Article 6 hereof.
4.02 Acknowledgement of LIGAND's Rights by FOUNDATION and SELECTRA.
FOUNDATION and SELECTRA hereby acknowledge LIGAND's rights as set forth in
Section 4.01 to the compounds synthesized in the laboratory of [ * ] through
[ * ] and not previously provided to LIGAND pursuant to the Compound Evaluation
Agreement between LIGAND and SRI bearing an effective date of May 17, 1990 and
agree that they will not assert any rights in such compounds inconsistent with
or in derogation of LIGAND's rights set forth in Section 4.01 hereof and in the
Compound Evaluation Agreement. LIGAND hereby agrees to reimburse FOUNDATION for
any patent application costs incurred with respect to said compounds pursuant to
the terms and conditions set forth in Section 6.03(c) below if it exercises its
option under Article 6 to acquire rights beyond those available to it under the
Compound Evaluation Agreement.
4.03 Exhausted Rights. Nothing in this Agreement shall be deemed
to restore to LIGAND any rights exhausted under the Compound Evaluation
Agreement with respect to any compound actually provided to LIGAND under the
Compound Evaluation Agreement prior to the date of this Agreement; provided,
however, that any discovery or development made with respect to such previously
provided compounds which constitute option Technology shall be subject to
LIGAND's rights thereto under Article 6. Nothing herein shall affect LIGAND's
obligation to pay royalties for Improvement Compounds arising under the
Compound Evaluation Agreement.
[*] CONFIDENTIAL TREATMENT REQUESTED
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ARTICLE 5
BASIC RESEARCH SUBLICENSE
5.01 Sublicense. LIGAND, the JV and ALRT hereby grant to each of
FOUNDATION and SRI, subject to the terms herein recited, a royalty-free,
non-exclusive sublicense to make and use, but not to sell, the Ligand Patented
Technology solely within the Field and the Territory. Except as provided in
Section 5.02 herein, these sublicenses do not include the right of FOUNDATION
or SRI to further sublicense the Ligand Patented Technology without LIGAND's
prior written approval. Further, FOUNDATION or SRI may not assign, convey or
otherwise transfer any rights in or to use Ligand Patented Technology that are
created by this Agreement to any other party except as provided in Sections
5.02 and 10.06 hereof.
5.02 Research Collaborations. Each of FOUNDATION or SRI, as the
case may be, may sublicense the performance of its rights under the license for
Ligand Patented Technology granted under Section 5.01 in bona fide research
collaborations between either or both of them and not-for-profit entities
("Research Collaborators") which entities shall perform the sublicensed
activities subject to the following conditions:
(a) The FOUNDATION or SRI, and their respective Research
Collaborators, as the case may be, may not assign or otherwise convey
prospectively or after the fact any rights, or permit its employees,
consultants or agents to convey any rights in the Option Technology
except in the circumstance where LIGAND has failed to exercise its
option rights under Section 6.01;
(b) A Research Collaborator will be advised of LIGAND's
rights under this Agreement and acknowledge them to LIGAND in writing;
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(c) FOUNDATION or SRI, as the case may be, will use its
reasonable best efforts to assure that its employees, consultants,
agents, and its Research Collaborator(s) use the Ligand Patented
Technology solely in the course and scope of activities licensed under
Section 5.01; and
(d) In any collaboration initiated within five (5) years
of the effective date of this Agreement between FOUNDATION or SRI, as
the case may be, and FOUNDATIONS's former employee, Magnus Pfahl,
Ph.D., or with his employer, in which he is an investigator and under
which the right to sublicense is exercised by FOUNDATION or SRI, as
the case may be, provision must be made for LIGAND to secure the same
rights to inventions, discoveries and developments made by Dr. Pfahl
or persons under his direction as would be the case if Dr. Pfahl were
a FOUNDATION employee.
FOUNDATION and/or SRI shall not permit, and they shall take reasonable
steps, including bringing suit, to prevent any use of Ligand Patented
Technology by a Research Collaborator of FOUNDATION and/or SRI in connection
with their collaboration in violation of these conditions and outside the scope
of the sublicenses permitted under this Section 5.02, and any breach by
FOUNDATION and/or SRI of the foregoing shall constitute a material breach of
this Agreement by that Research Collaborator's sublicensor, FOUNDATION or SRI,
as the case may be. A Research Collaborator shall not have the right to grant
any further sublicense of its rights obtained under this Section 5.02.
ARTICLE 6
OPTION FOR EXCLUSIVE LICENSE
6.01 Option Grant to LIGAND. FOUNDATION and SRI hereby grant to
LIGAND an option to acquire an exclusive worldwide right and license, with the
right to grant sublicenses, under option Patents, which Option Patents upon
exercise of the option will
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become Licensed Patents, to conduct research using technology covered thereby
and to develop, import, make, have made, use and sell Licensed Products and
Licensed Processes, including the right to use Licensed Patents in its
collaborative research efforts with and in the provision of services to third
parties. This option right shall be freely assignable by LIGAND, effective
upon receipt of written notice of the name of the assignee from LIGAND to SRI
and FOUNDATION. Neither FOUNDATION nor SRI shall have the right to grant to a
third party any rights which would operate to deprive LIGAND of its rights to
Option Technology or Option Patents prior to expiration of the option exercise
time period specified in Section 6.02 hereof. To secure LIGAND's rights under
this Article 6, each of FOUNDATION and SRI represent that it has entered with
its present employees, consultants and agents and hereafter will enter into
with new employees, consultants and agents, agreements which will have the
effect of requiring assignment to FOUNDATION or SRI of any rights such
employees, consultants and agents may have to Option Technology and Option
Patents. The rights to Licensed Patents acquired by LIGAND pursuant to this
Agreement shall be subject to (i) the rights of the United States as the
financial sponsor of the research from which the Licensed Patents were derived
which arise by statute or regulation, or by requirement of a grant or contract,
when such a requirement is a standard, government imposed part of the grant or
contract and of similar grants or contracts between the United States and other
not-for-profit entities like SRI and FOUNDATION, and (ii) the rights of
FOUNDATION and SRI and their licensed Research Collaborators to use said
Licensed Patents for conducting basic research pursuant to Article 5 hereof.
6.02 Disclosure to LIGAND of Option Technology. FOUNDATION and/or
SRI will promptly disclose Option Patents to LIGAND, after which LIGAND shall
have [*] from said disclosure by FOUNDATION and/or SRI to review said disclosed
information, patent applications or patents, and to exercise its option to
license
[*] CONFIDENTIAL TREATMENT REQUESTED
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such Option Patents. The patents and patent applications in Exhibit
"A" (except the applications specified in the Addendum attached hereto) are
deemed to be disclosed as of the effective date of this Agreement. At their
election FOUNDATION and SRI may disclose Option Technology to LIGAND before any
Option Patents are created therefor. If such disclosure is made, LIGAND's
option to subsequently created Option Patents will expire the later of [*] from
the disclosure of the Option Technology or [*] from the first disclosure of such
related Option Patents. FOUNDATION and/or SRI shall have the right to [*].
Nothing in this Agreement shall be construed to obligate SRI or FOUNDATION to
protect patentability prior to publication or disclosure of Option Technology,
and SRI and FOUNDATION provide no warranty as to the patentability of any Option
Technology; provided, however, that SRI and FOUNDATION will provide LIGAND with
a copy of any notice given an agency of the federal government pursuant to 35
U.S.C. 202(c)(1) concerning inventions which are Option Technology.
6.03 Exercise of Option. If LIGAND elects to exercise its option
to acquire, and does acquire, an exclusive license to an Option Patent pursuant
to this Article 6, LIGAND shall perform and complete each of the following
acts:
(a) Deliver within the time period specified in Section
6.02 above written notice of exercise to whichever of FOUNDATION and/or SRI is
an owner of the Option Patent;
(b) Pay to FOUNDATION and/or SRI, whichever is the owner of
the Option Patent, a non-refundable option exercise fee in the aggregate of [*]
Dollars ($[*]) for each Licensed Patent licensed hereunder upon said exercise.
The payment of the [*] Dollar ($[*]) license fee upon exercise of an option with
respect to a Licensed Patent shall constitute a discharge of the obligation to
pay the license fee for any other Option Patent which concurrently or
subsequently is
[*] CONFIDENTIAL TREATMENT REQUESTED
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the subject of option exercise under this Article 6 if the concurrent or
subsequent Licensed Patent is "related" to the Licensed Patent for which the
license fee is paid. As used herein, a Licensed Patent is "related" to another
Licensed Patent if, in whole or in part, the subject matter patented (or sought
to be patented in the case of an application for patent) in the Licensed Patent
is entitled to the benefit of the same filing date as or priority date as the
other Licensed Patent. Related patents include, by way of example, an
application for patent in the United States and its continuations,
continuations-in-part, and divisions and foreign filed applications claiming
the benefit of the filing date of the application as filed in the United
States; and
(c) Pay and/or reimburse FOUNDATION and/or SRI pursuant
to Section 6.07 herein for all of their subsequent and/or past expenses
reasonably incurred incident to the preparation, filing, prosecution, and/or
maintenance of the issued or subsequently issuing Licensed Patent within forty
five (45) days of receipt of a written statement of such expenses. If LIGAND
reasonably disputes any expenses set forth in the written statement, it shall
disclose in writing its objection and FOUNDATION and/or SRI will first attempt
to negotiate in good faith with LIGAND or mediate their differences for a
period of not less than forty five (45) days. At the end of the forty five (45)
day period, if such negotiations and/or mediation are unsuccessful, any Party
may submit the dispute to binding arbitration pursuant to Article 8 herein. In
the arbitration, the arbitrator may require LIGAND to pay some or all of the
disputed expenses, or the arbitrator may require FOUNDATION and/or SRI to
refund to LIGAND some or all of the payments made pursuant hereto.
6.04 License Fee and Royalties. To the extent that LIGAND exercises
its option and acquires Licensed Patents pursuant to this Article 6, LIGAND
shall pay to FOUNDATION and/or SRI:
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(a) minimum annual royalty payments of [ * ] Dollars
($[ * ]) per calendar year per Licensed Patent which is a United States patent
commencing twelve (12) months after the issuance of such United States patent,
which minimum royalty payments shall be payable by January 31 of the calendar
year in which due (the first payment being prorated for the portion of the
calendar year remaining when the payment comes due). The payment of the minimum
annual royalty for a Licensed Patent shall constitute the discharge of the
obligation to pay the minimum annual royalty applicable to any other Licensed
Patent to which it is "related" in the manner as described in Section 6.03(b).
The minimum royalty payments shall be creditable by LIGAND against royalties
paid by LIGAND, or its sublicensees, for Licensed Products or Licensed Processes
covered by the Licensed Patent pursuant to Section 6.04(b) below accrued in the
year for which the minimum royalty payment is owed;
(b) a royalty on Net Sales of Licensed Products. The
royalty shall be (i) [ * ] percent ([*]%) on the Net Sales of a Licensed Product
when its making, use or sale is covered by a claim in a Licensed Patent and (ii)
[ * ] percent ([*]%) on the Net Sales of a Licensed Product when the making, use
or sale thereof is not covered by a claim in a Licensed Patent but a Licensed
Patent is used in the discovery or development of the Licensed Product. The
royalty shall be paid on a country by country basis, from the first commercial
sale thereof until the later of (a) expiration of the Licensed Patent having a
claim which reads on making, using or selling the Licensed Product or (b) [ * ]
years in the case where the Licensed Patent was used in the discovery or
development of the Licensed Product. Only one royalty will be owed on a Licensed
Product in the circumstance where the Licensed Product is covered by multiple
claims in one or more Licensed Patents and where a royalty would be owed under
(i) and (ii) above, the royalty shall be [ * ] percent ([*]%) of Net Sales; and
(c) LIGAND shall also have the right to perform Licensed Processes as
a service to a third party for a fee,
[ * ] CONFIDENTIAL TREATMENT REQUESTED
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including the right to perform Licensed Processes for a fee in connection with
the development of a product whose making, using or selling is not within the
scope of any claim of the Licensed Patents in lieu of charging a royalty on the
sales thereof. LIGAND will pay to the FOUNDATION or SRI, as the case may be,
the greater of: (i) [*] percent ([*]%) of its "Net Revenues" or (ii) [*] percent
([*]%) of its "Gross Revenues" from performance of the services in the case
where LIGAND is not entitled to a royalty on the sales of any product because of
its performance of a Licensed Process. LIGAND will pay FOUNDATION and/or SRI
[*] percent ([*]%) of its Net Revenue from the performance of services where
LIGAND is entitled to a royalty on sales of a product because of its performance
of a Licensed Process. Net Revenues for the purpose of this Section 6.04(c) are
the Gross Revenues received for performance of the service less the fully
burdened costs incurred in rendering the service.
6.05 Co-Ownership. When License Patents are owned jointly by SRI
and FOUNDATION, the option exercise and royalty payments required by this
Agreement will be split equally between them unless LIGAND is otherwise
instructed by both FOUNDATION and SRI in writing. In the case where Licensed
Patents are the result of joint inventions by employees of SRI and/or FOUNDATION
and a third party or by employees of SRI, FOUNDATION and a third party and the
third party refuses to license LIGAND to its rights subject to the payments
required by this Agreement, then the payments for exercise of the option and
royalties, including minimum annual royalty payments, will be reduced by [*]
percent ([*]%).
6.06 Net Compensation Sharing. If LIGAND fails, within the time
limits specified in this Article 6, to exercise its option rights, FOUNDATION
and/or SRI shall be free to license such Option Patents to any other party. If
and where FOUNDATION and/or SRI license such Option Patents to another party,
then LIGAND will be entitled to receive a percentage of the net compensation
received by FOUNDATION and/or SRI, in whatever form such compensation is
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rendered, including, but not limited to, royalties, milestone payments,
technology transfer fees, bonuses, and license acquisition fees, and in
whatever form paid, including, but not limited to, cash, stock, stock options,
stock warrants, (but excluding any payments for research work actually
performed to the extent not in excess of SRI standard commercial rates or
FOUNDATION's fully burdened cost therefor, whichever is applicable) as
follows:
(a) if the licensee of a FOUNDATION and/or SRI Option
Patent sells a product or service within the scope of a claim in the
Option Patent, LIGAND shall receive [*] percent ([*]%) of the net
compensation received by FOUNDATION and/or SRI; or
(b) if the licensee of a FOUNDATION and/or SRI Option
Patent exploits the Option Patent in the discovery, development,
investigation, characterization or evaluation of a product or service
which is not within the scope of a claim in the Option Patent, LIGAND
shall receive [*] percent ([*]%) of the net compensation received by
FOUNDATION and/or SRI.
In determining "net compensation" received, FOUNDATION and/or SRI shall be
entitled to deduct from cash consideration received any unreimbursed expenses
directly incurred (i) to obtain and maintain any Option Patent or Option
Technology licensed to the third party, including filing fees, maintenance
fees, attorneys' fees, consulting fees and the like, and (ii) to locate the
third party and to negotiate and enter into the agreement with the third party.
Past research costs are not considered direct expenses.
The right of the FOUNDATION or SRI to license Option Patents for which LIGAND
fails to exercise its option does not carry with it the right to sublicense the
Ligand Patented Technology directly or
[*] CONFIDENTIAL TREATMENT REQUESTED
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by implication as part of the license nor does it affect the rights of SRI or
Foundation provided in Section 5.02.
6.07 Patent Prosecution and Expenses. Subject to its rights and
obligations elsewhere set forth in this Section 6.07 and consistent with the
timing requirements set forth in Section 6.03(c) hereof, LIGAND shall
reimburse FOUNDATION and/or SRI for such reasonable patent filing, prosecution,
and maintenance costs, including costs on a per hour basis for time spent by
inventors and staff who cooperate in such activities at the request of the
responsible attorney acting for FOUNDATION and/or SRI, as shall be incurred on
each Licensed Patent during the term of such license. In this regard,
FOUNDATION and/or SRI may continue to use the patent attorneys or agents being
used by them at the time LIGAND exercises its option or such other qualified
independent patent attorneys or agents reasonably satisfactory to FOUNDATION
and or SRI and LIGAND to file, prosecute and maintain Licensed Patents;
provided, however, that in the case where a LIGAND or JV or ALRT owned patent
or patent application or that of a LIGAND or JV or ALRT licensor other than
FOUNDATION and/or SRI ("the Ligand Application") claims the same or
substantially the same invention as that covered by the application within the
Licensed Patents (the "Foundation/SRI Application"), and the Foundation/SRI
Application has a later effective filing date in the United States, then LIGAND
shall have no obligation to reimburse costs incurred in the prosecution of the
Foundation/SRI Application, unless and until it is finally determined that the
Foundation/SRI Application has priority over the Ligand Application in an inter
partes proceeding as provided in Title 35 of the United States Code or in an
informal proceeding as provided in this Section 6.07. After LIGAND has
exercised its option: (i) FOUNDATION and/or SRI may elect to have such attorney
bill LIGAND directly for such expenses; (ii) at LIGAND's request and expense,
such attorneys or agents shall regularly meet and/or consult with LIGAND and/or
its designated officers and counsel to keep them advised of the status of
patent matters in the normal course;
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(iii) so long as a delay will not adversely affect the rights of FOUNDATION
and/or SRI, their patent attorneys or agents, when requested by LIGAND, shall
be instructed not to file any papers without giving LIGAND reasonable time and
opportunity to review and comment; (iv) LIGAND's requests for the filing in a
single application of related inventions, discoveries and developments
constituting Option Technology to reduce Sections 6.03(b) and 6.04(a) payments
will be deemed presumptively correct and it will be the burden of FOUNDATION
and/or SRI to establish that joinder of subject matter in a single application
is contrary to standard practice in the United States. The practices of
FOUNDATION, SRI and LIGAND exhibited by patent applications filed on their
behalf before the effective date of this Agreement shall be considered evidence
of such standard practice. The standards used in the United States Patent and
Trademark Office in restriction practice and in foreign patent offices under
the concept of "unity of invention" are not relevant to the appropriateness of a
LIGAND request; and (v) LIGAND shall be entitled to determine the countries in
which it wishes to obtain and maintain patent protection under this Agreement
and shall be free, at any time and at its sole option, to abandon patent
prosecution or maintenance in any country; provided, however, that sixty (60)
days notice is given FOUNDATION and/or SRI concerning such abandonment.
Abandonment of an application in favor of a continuation or
continuation-in-part or surrender of a patent in a reissue proceeding shall not
be deemed abandonment of a Licensed Patent. A Licensed Patent abandoned by
LIGAND shall thereafter be deemed on a country-by-country basis to be an Option
Patent on which LIGAND's option under Section 6.01 has expired. In any
situation in which a Ligand Application and a Foundation/SRI Application
claims the same or substantially the same subject matter, at the request of an
affected Party, the Parties shall in good faith attempt to determine relative
priority of invention. Each Party will bear its own costs in such a procedure.
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6.08 Enforcement of Licensed Patents by LIGAND. LIGAND and any
Affiliate or sublicensee authorized by LIGAND shall, at its option, have the
right to enforce any of the Licensed Patents against infringement by an
unlicensed third party or parties and to bring such suit in its own name. In
the event LIGAND, its Affiliates or its sublicensees shall prosecute any legal
action, it shall be at their own expense. FOUNDATION and/or SRI shall cooperate
with LIGAND and render reasonable assistance in enforcing the Licensed Patents.
If requested, FOUNDATION and/or SRI shall join LIGAND, its authorized Affiliate
or sublicensee as a party in any such action and in such event FOUNDATION and/or
SRI shall be entitled to be represented by their own counsel at their own
expense in any such action. During the period wherein LIGAND, its Affiliates or
its sublicensees is or are prosecuting any such action, LIGAND shall have the
right to credit the legal expenses incurred against the royalties (including
minimums if the country is the United States) payable under this Agreement in
such country by [*] percent ([*]%). In the event that LIGAND obtains a recovery
in such an action, it shall reimburse FOUNDATION and/or SRI the reduced
royalties, after first applying any recovery amount to repay the expenses in
excess of the reduced royalties involved in prosecuting the action to
completion. Any and all recovery amounts remaining thereafter shall be
allocated [*] percent ([*]%) to LIGAND and [*] percent ([*]%) to FOUNDATION
and/or SRI.
6.09 Cooperation. As used in Sections 6.07 and 6.08, "cooperate"
means with respect to FOUNDATION and SRI that they and their respective
employees will, at LIGAND's request, take actions, including but not limited
to, executing documents, providing declarations and affidavits, supplying
documents and giving depositions and in-court testimony, and otherwise
affirmatively assisting in the matters and proceedings which are the subject of
those sections without subpoena. If an employee of FOUNDATION and/or SRI is
requested by LIGAND to give a deposition or in-Court testimony or attend any
proceeding in the
[*] CONFIDENTIAL TREATMENT REQUESTED
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United States Patent or Trademark Office or any proceeding in a foreign
patent office, LIGAND will reimburse FOUNDATION and/or SRI for the reasonable
travel costs incurred. Travel costs incurred under this Section will be deemed
reasonable if such type of costs are reimbursable to LIGAND's own employees
under LIGAND's travel policy. LIGAND will reimburse FOUNDATION and/or SRI for
time spent by any SRI or FOUNDATION professional staff member cooperating with
LIGAND, at a rate equivalent to the commercial rate charged for such employee's
time, or the fully burdened payroll cost of such employee's time if no
commercial rate exists, for up to a maximum of [*] Dollars $ [*]) per employee
per day. LIGAND will reimburse SRI and/or FOUNDATION for any other costs
incurred cooperating with LIGAND to the extent such other costs are incurred
with the knowledge and consent of LIGAND.
6.10 Lack of Enforcement. In the event that LIGAND does not
undertake any legal action against an unlicensed third party or parties pursuant
to Section 6.08 of this Agreement, FOUNDATION and/or SRI shall have the right to
attempt to enforce any of the Licensed Patents against the third party or
parties. If, at the end of six (6) months after LIGAND gives FOUNDATION and/or
SRI written notice of LIGAND's decision not to undertake legal action against
said third party or parties, FOUNDATION and/or SRI have not terminated the
unlicensed competition of said third party or parties or commenced legal action
for that purpose, LIGAND shall have the right at its election, by written notice
to FOUNDATION and/or SRI, to reduce the royalty thereafter payable to FOUNDATION
and/or SRI with respect to LIGAND's or its sublicensees or LIGAND Affiliates
sales of Licensed Products or practice of Licensed Processes adversely affected
by such unlicensed competition, to the extent such Licensed Products or Licensed
Processes are covered by a claim in the Licensed Patent, by fifty percent (50%)
thereof until such unlicensed competition shall be terminated. If the Licensed
Patent which is the subject of unlicensed infringement covers a product or
process used in the discovery,
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development, characterization or evaluation of a Licensed Product or Licensed
Process, failure to abate the infringement after notice from LIGAND shall
relieve LIGAND of the obligation to pay any royalty arising in the future under
Section 6.04(b)(ii).
6.11 Third Party Action For Infringement. In the event that any
third party shall bring an action against LIGAND, its sublicensees or LIGAND
Affiliates for alleged infringement of any patent or rights thereunder of such
third party, by reason of the practice of the Licensed Patents, LIGAND shall
promptly give written notice to FOUNDATION and/or SRI of the bringing of such
action. To the extent that such action is attributable to LIGAND's use of
Licensed Patents, LIGAND, its sublicensees and LIGAND Affiliates shall have the
right to withhold payment to FOUNDATION and/or SRI of [*] percent ([*]%) of the
royalties thereafter being payable with respect to Licensed Products sold and
Licensed Processes practiced in the country where such action is brought, until
such time as the liability of LIGAND, its sublicensees or Affiliates shall be
determined; and they shall also be entitled to offset against any future
royalties payable with respect to that country to FOUNDATION and/or SRI under
this Article 6 of this Agreement after such determination, all unreimbursed
expenses, costs and/or damages incurred or paid by LIGAND, its sublicensees or
Affiliates in the defense of or by reason of such action. In the event LIGAND,
its sublicensees or Affiliates is or are obligated to pay royalties or make
further payments to such third party in excess of the withheld payments or to
any third party in order for LIGAND, its sublicensees or Affiliates to
manufacture, use and sell Licensed Products or practice Licensed Processes, such
payments, to the extent attributable to LIGAND's use of Licensed Patents shall
be offset against royalties thereafter payable to FOUNDATION and/or SRI with
respect to that country under this Agreement to the extent of [*] percent ([*]%)
of the royalties payable to FOUNDATION and/or SRI with respect to that country
under this Agreement; provided, however, in no event shall the credits, offsets
or reductions set
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forth in this Agreement cause the royalties payable to be reduced below [*]
percent ([*]%). SRI and FOUNDATION shall have no obligation to pay for the cost
of LIGAND's defense and LIGAND shall be solely responsible for its costs. In
the event that LIGAND, its Affiliates or sublicensees are enjoined from selling
any Licensed Product or practicing Licensed Processes, and the royalties
withheld under this Section 6.11 of this Agreement are in excess of their said
expenses, costs and/or damages, LIGAND shall have the right to retain such
excess and shall not be obligated to pay said excess to FOUNDATION and/or SRI.
6.12 Voluntary Disclosure of Technology Deemed Outside Option
Technology. With respect to any invention, discovery or development made by
FOUNDATION and/or SRI during the term of this option, including any inventions
or discoveries made by FOUNDATION and/or SRI in collaboration with third
parties, FOUNDATION and/or SRI may at their sole discretion disclose said
inventions or discoveries to LIGAND and notify LIGAND that the invention or
discovery is outside the scope of the option granted in Section 6.01 herein.
Thereafter, LIGAND shall have ninety (90) days in which to notify FOUNDATION
and/or SRI that it disagrees with such a contention. In the event of such a
disagreement, LIGAND and FOUNDATION and/or SRI will first use good faith efforts
to negotiate or mediate their differences for a period of not less than ninety
(90) days. However, if such negotiations and/or mediation is unsuccessful, any
Party may submit the dispute to binding arbitration pursuant to Article 8
herein.
6.13 Contesting Disputes Concerning Option Technology. If LIGAND
believes that any particular invention, discovery, or development made by
FOUNDATION and/or SRI, including any inventions or discoveries made by
FOUNDATION and/or SRI in collaboration with third parties, that is not
disclosed to LIGAND by the FOUNDATION and/or SRI pursuant to Section 6.02, is
within the scope of the option granted LIGAND in Section 6.01 herein, then
LIGAND shall have the right to contest and contend that such
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invention, discovery or development is within the scope of the option granted in
Section 6.01 herein by giving written notice of its contention to SRI and/or
FOUNDATION. In the event FOUNDATION and/or SRI disagree with such a contention,
LIGAND and FOUNDATION and/or SRI will first use good faith efforts to negotiate
or mediate their differences for a period of not less than ninety (90) days.
However, if such negotiations and/or mediation is unsuccessful, any Party may
submit the dispute to binding arbitration pursuant to Article 8 herein.
6.14 Dispute Regarding Existence of Licensed Product or Process.
In the event of any dispute between LIGAND and FOUNDATION and/or SRI as to
whether or not a product sold or process performed by LIGAND, its Affiliates, or
sublicensees is a Licensed Product or Licensed Process for which a royalty or
share of a service fee is due FOUNDATION and/or SRI, any Party, at its option,
shall have the right to submit the dispute to binding arbitration under Article
8. LIGAND shall not be deemed to be in default of this Article 6 of this
Agreement for nonpayment of royalties during the period in which its payment
obligation is disputed and for one (1) month after the conclusion of the
arbitration if it is required to pay royalties by reason of an arbitration award
to FOUNDATION and/or SRI. At the conclusion of the arbitration, all reasonable
expenses of the arbitration, including attorney fees, will be borne by the
losing Party to the arbitration proceeding.
6.15 Commercialization Efforts. LIGAND shall, using reasonable
efforts, as determined in its good faith business judgment, diligently seek to
commercially exploit Licensed Patents. LIGAND shall be deemed to have met this
obligation if within [*] year from exercise of its option under Section 6.01 it
has incorporated the technology subject to the option into a program that is
spending alone or in collaboration with another party or through an Affiliate or
sublicensee at least [*] per year for said program provided that the Licensed
Patents are
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used in the program in a manner which generates a current payment obligation
under Section 6.04(c) or are being used in the development of a Product for
which a royalty would be incurred under Section 6.04(b); provided, however, that
the failure to meet the standards of this sentence shall not, in and of itself,
be deemed a failure, or create a presumption thereof of failure, by LIGAND to
meet its obligation of diligence under this Section.
6.16 Reporting Payment Obligations and Payments. In the circumstance
where a Party has a royalty or other payment obligation to the other arising
from this Agreement, it shall provide biannual reports to the Party entitled to
receive the royalty or other payment within sixty (60) days of each June 30 and
December 31 during the period when such royalties or other payments are due. In
the case of reports of royalty obligations, such reports shall state the
quantity and description of products subject to royalty sold the preceding
royalty period, the Net Sales thereof and the calculation of the royalty due.
All royalties or other payments due hereunder shall be paid simultaneously with
the submission of such reports. If any taxes are imposed on the payment of
royalties or other payments due the Party and/or are required to be withheld
therefrom, such taxes shall be for the account of the Party and shall reduce the
royalty payments required to be made hereunder. All payments shall be made in
U.S. Dollars.
6.17 Records and Audits. A Party shall keep true and accurate
records and/or books of account containing information reasonably required for
the computation and verification of royalty and other payments to be made
hereunder to the other Party, which records and/or books shall at all reasonable
and mutually convenient times during ordinary business hours be open for
periodic inspection, not more than once each calendar year and for inspection of
no more than the three (3) prior years records and/or books, by an independent
certified public accountant selected by the party having the right to receive a
royalty or
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other payment and who is reasonably acceptable to the other Party, for the sole
purpose of and only to the extent reasonably necessary for verification of the
amount of royalties or other payments due and payable under this Agreement. The
expense of the audit shall be borne by the auditing Party and the results
thereof shall be binding on both Parties; provided, however, if the audit
discloses an aggregate error of more than [*] percent ([*]%) for any audited
period, the expenses for said audit shall be reimbursed by the Party in error.
Any underage in a royalty or other payment revealed by the audit shall be due
and payable within thirty (30) days of the audit results being disclosed to the
audited Party unless contested during the thirty (30) day period by the audited
Party which may at its expense retain a second independent certified public
accountant to audit the payment obligation. The payment obligation calculated
by the second accountant will be disclosed to the other Party and averaged with
the results disclosed by the first auditor and any underage resulting from such
averaging will be payable within thirty (30) days of the second audit.
6.18 Governmental Approvals and Marketing of Licensed Products or
Process. LIGAND or its licensee or assignee shall be responsible for obtaining
all necessary governmental approvals for the development, product,
distribution, sale and use of any Licensed Product or Process at its expense.
LIGAND or its licensee or assignee shall have sole responsibility for any
warning labels, packaging and instructions as to the use of any Licensed
Product or Process and for the quality control for any Licensed Product or
Process.
6.19 Indemnity. LIGAND hereby agrees to indemnify, defend and hold
harmless FOUNDATION and/or SRI (hereinafter "Indemnitees") from and against
any liability or expense arising from any product liability claim asserted by
any party as the result of the use of any Licensed Product or Process or any
product liability claim arising from the use of any Licensed
[*] CONFIDENTIAL TREATMENT REQUESTED
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Patent by LIGAND, its assignee or licensee pursuant to this Agreement. Such
indemnity and defense obligation shall apply to any product liability claim,
including without limitation, personal injury, death or property damage, made by
employees, subcontractors, sublicensees, or agents of licensees, as well as any
member of the general public. Notwithstanding the above, LIGAND shall have no
obligation to indemnify, defend or hold harmless the Indemnitees for claims
arising from the negligence or willful misconduct of the Indemnitees, their
officers, agents, employees or permitted licensees and is conditioned on the
prompt notice of and reasonable assistance in the defense of such claims.
6.20 Patent Marking. To the extent required by applicable law,
LIGAND, its licensee or assignee shall mark all Licensed Products or their
containers in accordance with the applicable patent marking laws.
6.21 No Use of Name. The use of the name of FOUNDATION and/or SRI
in connection with the advertising or sale of any Licensed Product or Process is
expressly prohibited.
6.22 DISCLAIMER OF WARRANTIES. NOTHING IN THE AGREEMENT SHALL BE
CONSTRUED AS A REPRESENTATION MADE OR WARRANTY GIVEN BY SRI OR FOUNDATION THAT
ANY PATENT WILL ISSUE BASED UPON ANY OPTION TECHNOLOGY, THAT ANY PATENT WHICH
ISSUES COVERING OPTION TECHNOLOGY WILL BE VALID, OR THAT THE USE OF ANY
LICENSED PATENT WILL NOT INFRINGE THE PATENT OR PROPRIETARY RIGHTS OF ANY OTHER
PERSON. FURTHERMORE, SRI AND FOUNDATION MAKE NO REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED, WITH RESPECT TO THE LICENSED PATENTS INCLUDING, WITHOUT
LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
6.23 Governmental Interests. In the situation where FOUNDATION
and/or SRI have received funding from the United States Government in support of
research activities which have resulted
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in Licensed Patents, LIGAND acknowledges that LIGAND's rights pursuant to this
Agreement shall be subject to the rights of the United States Government which
arise or result from the receipt of research support from the United States
Government by FOUNDATION and/or SRI, including, without limitation, (i) the
grant to the United States of a nonexclusive, irrevocable, royalty-free license
to Licensed Patents for governmental purposes, (ii) the right of the United
States to exercise "march-in" rights to force certain non-exclusive licensing
if LIGAND is not diligently commercializing certain Licensed Products or
Processes, and (iii) the obligation of LIGAND to manufacture substantially in
the United States those Licensed Products and Processes which are sold in the
United States, unless a waiver is obtained from the appropriate agency of the
United States.
ARTICLE 7
CONFIDENTIALITY
7.01 Confidentiality. Except for purposes of this Agreement, including
the basic research sublicense and option rights granted hereunder, each Party
shall exercise all reasonable care to not disclose or use any confidential or
proprietary information which may be supplied by another Party (i.e., the
Disclosing Party) in the course of their relationship hereunder. The foregoing
obligations shall not apply when and to the extent such information (1) was
lawfully available to the public prior to receipt of such information by the
Receiving Party, (2) through no act on the part of the Receiving Party,
thereafter becomes lawfully available to the public, (3) is required to be
disclosed by the Receiving Party to a third party by law or legal process,
provided that, should the Receiving Party be required to make such disclosure,
they will take all reasonable steps to inform the Disclosing Party of such
disclosure in sufficient time for the Disclosing Party to oppose such
disclosure before it takes place, (4) is independently developed by the
Receiving Party, or (5) is approved by the Disclosing Party for disclosure by
the Receiving
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Party. The obligations imposed in this Section 7.01 will continue until five
(5) years after the date of the last disclosure of confidential and proprietary
information under this Agreement.
ARTICLE 8
Arbitration
8.01 Arbitration of Section 6.12 and 6.13 Disputes. LIGAND, the
JV, and ALRT on the one hand and FOUNDATION and/or SRI on the other agree upon
request of any party to arbitrate any dispute arising under Sections 6.12 and
6.13 concerning the scope of LIGAND's option arising under Section 6.01 as it
relates to the subject matter of any invention, discovery or development made
during the Option Term as defined in Section 9.01. The arbitrator of such a
dispute will have no right to consider the validity of any patent included in
the Ligand Patented Technology or any other factor affecting the scope of the
option except whether the disputed invention, discovery or development was
enabled by, reduced to practice or otherwise derived from or facilitated by an
act or acts within the claims of the Ligand Patented Technology. FOUNDATION
and/or SRI will not be permitted any discovery in the arbitration. LIGAND
and/or the JV and/or ALRT will be permitted to discover, absent a showing of
good cause, only the laboratory notebooks and other records of FOUNDATION
and/or SRI and take the deposition of FOUNDATION and/or SRI scientists
concerning conception and reduction to practice of the invention, discovery or
development and use of Ligand Patented Technology and to depose custodians of
records or other persons necessary to authenticate or corroborate FOUNDATION
and/or SRI records concerning such conception and reduction to practice and use
of Ligand Patented Technology and to take the testimony of any witness for
impeachment purposes. The burden of proof in any such arbitration will be on
FOUNDATION and/or SRI and by a preponderance of the evidence. The arbitration
shall be binding, except that a Party may contend in any dispute concerning the
result thereof that the arbitrator acted outside of the scope authorized by
this Section 8.01, and unless another procedure is agreed upon by the parties
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thereto shall be conducted before a single impartial arbitrator selected by the
Parties or, if they are unable to agree within fifteen (15) days of a demand,
selected under the Commercial Arbitration Rules of the American Arbitration
Association and conducted under those rules except as modified or limited by
this Section 8.01. The award in the arbitration may be enforced in any court
having jurisdiction over the parties. Any arbitration under this Section 8.01
shall be conducted in San Diego, California. A demand for arbitration under
this section will not be enforceable against another Party when a dispute
otherwise subject to arbitration is combined with any other justiciable claim
which (i) is not subject to a demand for arbitration under this Agreement and
(ii) which is brought in any court having appropriate subject matter
jurisdiction and jurisdiction over the parties. All expenses of the
arbitration including the reasonable attorney's fees of all parties, shall be
borne by the losing party.
8.02 Arbitration of Disputes Under Sections 6.03(c) and 6.14. Any
controversy or claim of the kind specified in Sections 6.03(c) and 6.14 of the
Agreement, including the determination of the interpretation of scope of this
Agreement to arbitrate those Sections, shall be resolved by the following
procedures: Any Party may submit a dispute to final and binding arbitration
administered by the American Arbitration Association ("AAA") pursuant to the
Commercial Arbitration Rules of the AAA at the time of submission. Unless the
Parties have agreed upon the selection of the Arbitrator before then, the AAA
shall appoint the Arbitrator pursuant to its rules as soon as practicable, but
in any event within thirty (30) days after the submission to the AAA. The
arbitration hearings shall commence within forty-five (45) days after the
selection of the Arbitrator. Unless the Arbitrator otherwise directs, each
Party shall be limited to two pre-hearing depositions lasting no longer than six
(6) hours each. The parties shall exchange the documents to be used at the
hearing no later than seven (7) days prior to the hearing date. Unless the
Arbitrator otherwise directs, each Party shall have no longer than
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ten (10) hours in total to present its position at the hearing, and the
hearing shall be completed within a two-week period. A demand for
arbitration under this section will not be enforceable against another Party
when a dispute otherwise subject to arbitration is combined with any other
justiciable claim which (i) is not subject to a demand for arbitration under
this Agreement and (ii) which is brought in any court having appropriate
subject matter jurisdiction and jurisdiction over the parties. The award in
any arbitration may be enforced in any court having jurisdiction over the
Parties. All expenses of the arbitration including the reasonable attorney's
fees of all parties, shall be borne by the losing Party as determined by the
arbitration.
ARTICLE 9
TERM AND TERMINATION
9.01 Option Term. Except as provided in the last sentence of this
Section 9.01, LIGAND's option rights pursuant to Article 6 of this Agreement
shall run from the effective date of this Agreement until the termination of
the sublicense granted in Section 5.01 hereof; provided however, with respect
to any Option Technology discovered by FOUNDATION and/or SRI prior to the
termination of said sublicense, LIGAND's option under Article 6 shall continue
to be exercisable for the time periods as set forth in Sections 6.02, 6.12, and
6.13 (but not beyond two years following the termination of said sublicense),
whichever time period expires earlier. This period is hereinafter the "Option
Term". The consideration for LIGAND's option under Section 6.01 is LIGAND's,
the JV's and ALRT's concurrence in dismissal of the Action and the Arbitration
and grant of the licenses under Article 5 to FOUNDATION and/or SRI.
Therefore, LIGAND's option shall remain in full force and effect even in the
subsequent event that (a) a court or government agency or arbitration or
legislative enactment establishes that (i) acts by DEFENDANTS which would be
infringing by an unlicensed party are not infringing by DEFENDANTS because of
their status as non-profit institutions; (ii) acts by DEFENDANTS which would
-36-
<PAGE>
otherwise be infringing constitute an unactionable experimental or de minimis
use; or (iii) acts by DEFENDANTS which would be infringing are done in the
course of work done on behalf of the United States Government; or (b)
DEFENDANTS secure a license to any or all of the Ligand Patented Technology by
a subsequent act of an agency of the United States Government; or (c) it is
determined by a court or in an arbitration that DEFENDANTS have such a license
by operation of law. It is further provided that the establishment of any such
defense to infringement or any such license under (a)-(c) above cannot be
asserted by DEFENDANTS as a failure of consideration under this Agreement or the
basis for recision of this Agreement based on mutual or unilateral mistake or as
the basis for any other legal or equitable remedy or defense intended to limit,
reduce or eliminate LIGAND's rights during the Option Term or under any Licensed
Patents. The above notwithstanding, LIGAND's option rights under Article 6
shall not extend for more than [*] years beyond the effective date of this
Agreement in the case of establishment of any license or defense arising under
(a)-(c) of this Section 9.01 with respect to any claim within the Ligand
Patented Technology but LIGAND's option rights under Article 6 based on a claim
within the Ligand Patented Technology not subject to such license or defense
shall not be affected.
9.02 License Term for LIGAND. After the exercise of any option to
Option Patents, the resulting rights of LIGAND arising from such exercise to
Licensed Patents will expire [*]. Any license obtained by LIGAND under Section
6.01 will terminate automatically in the event of default by LIGAND under any of
its obligations under this Article 6 relating to that license, if said default,
including but not limited to failure to pay royalties or reimburse costs, is not
cured within thirty (30) days after written notice of default is received by
LIGAND. Provided however, if LIGAND disputes the existence of said default or
maintains that the default has been cured within the time limits,
-37-
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
and LIGAND submits the dispute to arbitration under Article 8 within said
thirty (30) days, then the termination shall not occur unless and until the
completion or termination of said arbitration, and the failure of LIGAND to
effect a cure of any default determined by said arbitration within thirty (30)
days following the completion or termination of said arbitration.
9.03 Agreement Term. This Agreement will expire on the later of
(i) expiration of the Option Term or (ii) expiration of the obligation of
LIGAND to pay any royalty on Licensed Patents.
9.04 Sublicense Term For FOUNDATION and SRI. The term of the
sublicenses granted FOUNDATION and SRI under Section 5.01, unless terminated
for material breach, shall be for the life of the patents included in the
Ligand Patented Technology unless terminated earlier at the election of SRI or
FOUNDATION. The sublicense under Section 5.01 may be terminated by LIGAND or
its assignee as to FOUNDATION if a material breach of the license by
FOUNDATION occurs and as to SRI if a material breach of the license by SRI
occurs, if said material breach is not cured within 30 days after written
notice of the breach is received by the breaching party. Termination of the
sublicense by either SRI or FOUNDATION shall not be construed to be termination
by the other. If the sublicense granted to FOUNDATION or SRI is terminated
under this Agreement but not as to both of them, the Party who is the surviving
sublicensee may not grant rights under Section 5.02 to the Party whose
sublicense is terminated.
ARTICLE 10
MISCELLANEOUS
10.01 Applicable Law. This Agreement shall be construed in accordance
with the laws of the State of California without reference to its conflict of
laws provisions.
-38-
<PAGE>
10.02 Impossibility and Waiver. In the event that any further
lawful performance of this Agreement or any part thereof by any Party hereto
shall be rendered impossible by or as a consequence of any law or
administrative ruling of any government, or political subdivision thereof,
having jurisdiction over such Party, such Party shall not be considered in
default hereunder by reason of any failure to perform occasioned thereby.
10.03 Force Majeure. Any delays in or failure by a Party in performance
of any obligations hereunder shall be excused if and to the extent caused by
such occurrences beyond such Party's reasonable control, including but not
limited to acts of God, strikes, or other labor disturbances, war, whether
declared or not, sabotage, and other causes, whether similar or dissimilar to
those specified which cannot reasonably be controlled by the Party who failed
to perform.
10.04 Severability. The provisions of this Agreement shall be deemed
severable. Therefore, if any part of this Agreement is rendered void, invalid
or unenforceable, such rendering shall not affect the validity and
enforceability of the remainder of this Agreement unless the part or parts
which are void, invalid or unenforceable as aforesaid shall substantially
impair the value of the whole agreement to either Party.
10.05 Integration and Amendment. This Agreement, including the
Addendum and Exhibits, sets forth the entire agreement between the Parties
relating to the subject matter contained herein and may not be modified,
amended or discharged except as expressly stated in this Agreement or by a
written agreement signed by the Parties hereto.
10.06 Assignment and Succession. This Agreement and the rights and
obligations hereunder granted to and undertaken by LIGAND shall not be assigned
by LIGAND without prior written approval of FOUNDATION and SRI except to a
successor in interest
-39-
<PAGE>
of substantially all of the assets to which this Agreement pertains or to an
Affiliate of LIGAND or to a successor entity in the case of a merger,
acquisition or other combination in which LIGAND is not a surviving entity, in
which case written notice (but not approval) is required. This Agreement and
the rights and obligations granted to and undertaken by FOUNDATION and/or SRI
shall not be assignable without prior written consent of LIGAND except to a
non-profit entity which acquires substantially all of the assets of FOUNDATION
and/or SRI. This Agreement shall be binding upon and inure to the benefit of
the Parties hereto, LIGAND'S assigns, successors, trustee(s) or receiver(s) in
bankruptcy, and legal representatives, including any successor or assignee of
the interest of LIGAND, or any LIGAND Affiliate, of the business to which this
Agreement pertains by way of merger or purchase of assets or otherwise, and
FOUNDATION'S and/or SRI'S permitted assigns, personal representatives,
successors and trustee(s), or receiver(s) in bankruptcy.
10.07 Notices. Any and all communications required as provided for
in this Agreement shall be in writing and sent by any means to the last known
address of the Parties to be served therewith. Notices shall be effective when
received at the address of the Party to whom notice is given so long as the
notice is properly addressed as set forth below. Any notice to be given to
LIGAND, the JV and ALRT shall be addressed and sent to:
William L. Respess, Esq.
Senior Vice President and General Counsel
LIGAND PHARMACEUTICALS INCORPORATED
9393 Towne Centre Drive, Suite 100
San Diego, California 92121
-40-
<PAGE>
Any notice to be given to FOUNDATION shall be addressed and sent to:
Louis R. Coffman,
Vice President and Chief Administrative officer
LA JOLLA CANCER RESEARCH FOUNDATION
10901 North Torrey Pines Road
La Jolla, CA 92037
Any notice to be given to SRI shall be addressed to:
Daniel W. Morris
Director, Licensing and Business Development
Science and Technology Group
SRI INTERNATIONAL
333 Ravenswood Ave.
Menlo Park, CA 94025
10.08 Authority. The signature of a duly authorized representative
of a Party shall bind that Party and its Affiliates.
10.09 Headings. Headings are used in this Agreement for convenience
only and shall not affect any construction or interpretation of this Agreement.
10.10 WARRANTY. FOUNDATION AND SRI WARRANT THAT TO THE BEST OF
THEIR RESPECTIVE KNOWLEDGE, AFTER REASONABLE INQUIRY, NO PERSON OR ENTITY OTHER
THAN THE GOVERNMENT OF THE UNITED STATES HAS ANY RIGHTS TO OPTION TECHNOLOGY
WHICH ARE IN DEROGATION OF OR WOULD LIMIT OR IMPAIR THE RIGHTS THERETO GRANTED
LIGAND UNDER THIS AGREEMENT.
10.11 Separate Liability. The Parties agree that the obligations
and duties of each Party arising under this Agreement regardless whether
shared, identical, or otherwise similar, are separate and distinct from the
obligations and duties of any other Party. Actions or failures to act by one
Party shall not confer joint and several liability to the other Parties.
-41-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed in multiple counterparts, each of which shall be deemed an original, as
of the date and year first above written.
LA JOLLA CANCER LIGAND PHARMACEUTICALS
RESEARCH FOUNDATION INCORPORATED
By: [SIG] By: /s/ WILLIAM L. RESPESS
-------------------------------- ------------------------------
William L. Respess
Title: V.P. Title: Senior Vice President
----------------------------- General Counsel,
Government Affairs
--------------------------
Date: August 22, 1995 Date: August 22, 1995
-------------------------------- ------------------------------
SRI INTERNATIONAL ALLERGAN LIGAND
By: LIGAND JVR, INC.
General Partner
By:/s/ WILLIAM P. SOMMERS By: /s/ WILLIAM L. RESPESS
-------------------------------- ------------------------------
William P. Sommers William L. Respess
Title: President and CEO Title: Secretary
-------------------------------- ------------------------------
Date: August 22, 1995 Date: August 22, 1995
-------------------------------- ------------------------------
SELECTRA PHARMACEUTICALS, INC. ALLERGAN LIGAND RETINOID
THERAPEUTICS, INC.
By: [SIG] By: /s/ WILLIAM L. RESPESS
-------------------------------- ------------------------------
William L. Respess
Title: V.P. Title: Secretary
-------------------------------- ------------------------------
Date: August 22, 1995 Date: August 22, 1995
-------------------------------- ------------------------------
-42-
<PAGE>
ADDENDUM
to
SETTLEMENT AGREEMENT, LICENSE AND
MUTUAL GENERAL RELEASE
In addition to the rights and obligations set forth in the Settlement
Agreement, License and Mutual General Release, the Parties agree to the
following: LIGAND will reimburse SRI and/or FOUNDATION and/or pay for such
reasonable patent filing, prosecution, and maintenance costs, including costs on
a per hour basis for time spent by inventors and staff, incurred at Ligand's
request and with its prior approval and subject to the terms and conditions for
reimbursement set forth in Section 6.09 hereof after May 3, 1995 for the
following United States patent applications and their corresponding foreign
counterparts: U.S. Serial No. [*] ("[*]" to M.I. Dawson et al., filed [*]) and
U.S. Serial No. [*], the divisional application filed therefrom on [*]; U.S.
Serial No. [*] ("[*]", to M. Pfahl et al., filed [*]) and U.S. Serial No. [*]
("[*]" to M. Pfahl et al., filed [*]) and U.S. Serial No. [*] ("[*]"), the
continuation-in-part application filed therefrom on [*]. LIGAND shall determine,
in its sole discretion, the countries in which it wishes to obtain and maintain
patent protection with regard to the inventions disclosed in the above
referenced applications, and shall be free to abandon prosecution and
maintenance, provided that written notice is provided to SRI and/or FOUNDATION
sixty (60) days prior to such abandonment. LIGAND shall exercise its option
under Section 6.01 with respect to the applications identified in this ADDENDUM
on or before three (3) months from the effective date of this Agreement.
[*] CONFIDENTIAL TREATMENT REQUESTED
-43-
<PAGE>
EXHIBIT "A"
Option Patents
<PAGE>
La Jolla Cancer Research Foundation
Pfahl Patents
Pfahl 1
"Methods of Using Estrogen Receptor as a Constitutive Transcriptional Activator
and a Respressor"
Serial No. 07/502,325
Filed: 3/30/90
Patent No. 5,183,736
Issued 2/2/93
Pfahl 2
"[*]"
Serial No. [*]
Filed: [*]
Continuation of
Serial No. [*]
Filed [*]
Continuation of
Serial No. [*]
Filed [*]
Pfahl 3
"[*]"
Serial No. [*]
Filed: [*]
Pfahl 4
"[*]"
Serial No. [*]
Filed: [*]
Serial No. [*]
Filed: [*]
Pfahl 5
"[*]"
Serial No. [*]
Filed: [*]
Continuation-in-Part of
Serial No. [*]
Filed: [*]
Pfahl 6
"[*]"
Serial No. [*]
Filed: [*]
[*] CONFIDENTIAL TREATMENT REQUESTED
A - 1
<PAGE>
Pfahl Patents
Page 2
Pfahl 7
"[*]"
Serial No. [*]
Filed: [*]
Divisional of [*]
Pfahl 8
"[*]"
Serial No. [*]
Filed: [*]
Pfahl 9
"[*]"
Serial No. [*]
Date Filed: [*]
Continuation-in-Part of
Serial No. [*]
Filed: [*]
Pfahl 11
"[*]"
Serial No. [*]
Filed: [*]
Pfahl 12
"[*]"
Serial No. [*]
Filed: [*]
[*] CONFIDENTIAL TREATMENT REQUESTED
A - 2
<PAGE>
EXHIBIT "B"
Form of Consent Judgment
<PAGE>
LYON & LYON Case No. 93-1895 IEG (CM)
A Partnership including
DOUGLAS E. OLSON (State Bar No. 38649)
J. DONALD McCARTHY (State Bar No. 69864)
A Professional Corporation
HOPE & MELVILLE (State Bar No. 145100)
First Interstate World Center
633 West Fifth Street, Suite 4700
Los Angeles, California 90071-2066
(213) 489-1600
Attorneys for Plaintiffs
LIGAND PHARMACEUTICALS INCORPORATED
and ALLERGAN LIGAND
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF CALIFORNIA
LIGAND PHARMACEUTICALS
INCORPORATED, a Delaware corporation;
and ALLERGAN LIGAND, a California
partnership,
Plaintiffs,
v.
LA JOLLA CANCER RESEARCH
FOUNDATION, a California corporation;
SELECTRA PHARMACEUTICALS, INC., a
California corporation; and SRI
INTERNATIONAL, a California corporation,
Defendants.
CONSENT JUDGMENT
----------------
Plaintiffs Ligand Pharmaceutical Incorporated and Allergan Ligand and
Defendants La Jolla Cancer Research Foundation, SelectRA Pharmaceutical, Inc.,
and SRI International have agreed, as part of a settlement, to the entry of the
following Consent Judgment, subject to the approval of the Court:
IT IS HEREBY ORDERED ADJUDGED, AND DECREED that:
1. This Court has jurisdiction over the subject matter of the Complaint
and over the parties to this Consent Judgment.
LYON & LYON
First Interstate World Center
633 West Fifth Street, Suite 4700
Los Angeles, CA 90071-2066
(213) 489-1600
B - 1
<PAGE>
2. Plaintiffs, under an exclusive license from the owner, have
the right to sue for infringement of U.S. Patent Nos. 4,981,784; 5,071,773;
5,091,518; and 5,171,671 (hereafter collectively referred to as the "Evans
Patents"). Each of the Evans Patents is lawfully issued, valid and enforceable.
Defendant SelectRA Pharmaceuticals, Inc. has infringed the Evans Patents by its
plans to make, use or sell the inventions claimed therein and has induced
others to make, use or sell the inventions claimed therein. Defendant La Jolla
Cancer Research Foundation has infringed the Evans Patents in its efforts to
commercialize the technology claimed therein. Defendant SRI International has
induced infringement of the Evans Patents by providing retinoid compounds for
biological evaluations to Defendant La Jolla Cancer Research Foundation.
3. The parties have entered into a Settlement Agreement, License
and Mutual General Release, dated as of August __, 1995 (the "Settlement
Agreement"). Pursuant to the Settlement Agreement, the Plaintiffs have granted
to Defendant La Jolla Cancer Research Foundation and to Defendant SRI
International certain license rights to use the Evans Patents (the
"Defendants' License Rights").
4. Defendants, and each of them, their respective agents,
servants, employees, any business entity effectively owned or controlled by
them, and all persons, including successors and assigns, in active concert or
participation with them, or any of them, who receive actual notice of this
consent Judgment, except to the extent licensed under the Settlement Agreement,
are hereby enjoined:
a. from making, using or selling any product, method or
compound or thing which infringes any claim of the Evans Patents;
b. from contributing to anyone's infringement of any claim
of the Evans Patents; or
c. from inducing anyone to infringe any claim of the Evans
Patents.
LYON & LYON
First Interstate World Center
633 West Fifth Street, Suite 4700
Los Angeles, CA 90071-2066
(213) 489-1600
B - 2
<PAGE>
5. The parties have settled their monetary claims, there shall be
no damages or accounting for damages or profits hereunder, and each party shall
bear its own costs, including attorneys' fees.
6. Except to the extent that relief is granted above, every
remaining claim in the Complaint is hereby dismissed with prejudice.
7. The Court shall retain jurisdiction over the subject matter
hereof and over Defendants to ensure compliance with this Consent Judgment.
Dated:
------------------------- -----------------------------------------
United States District Judge
Approved as to form and content:
LYON & LYON
A Partnership including
DOUGLAS E. OLSON
J. DONALD McCARTHY
Professional Corporations
HOPE E. MELVILLE
First Interstate World Center
633 West Fifth Street, Suite 4700
Los Angeles, California 90071-2066
Telephone: (213) 489-1600
Dated: By:
------------------------- --------------------------------------
Attorneys for Plaintiffs
LIGAND PHARMACEUTICALS
INCORPORATED AND ALLERGAN LIGAND
CAMPBELL AND FLORES
MAURICIO A. FLORES
LYNNE M. BRENNAN
4370 La Jolla Village Drive, Suite 700
San Diego, CA 92122
Telephone: (619) 535-9001
Dated: By:
------------------------- --------------------------------------
Attorneys for Defendants
LA JOLLA CANCER RESEARCH FOUNDATION
and SELECTRA PHARMACEUTICALS, INC.
LYON & LYON
First Interstate World Center
633 West Fifth Street, Suite 4700
Los Angeles, CA 90071-2066
(213) 489-1600
B - 3
<PAGE>
PILLSBURY MADISON & SUTRO
ROBERT P. TAYLOR
RODERICK M. THOMPSON
JEAN I. LIU
225 Bush Street
P.O. Box 7880
San Francisco, CA 94120-7880
Telephone: (415) 983-1000
Dated: By:
------------------------- --------------------------------------
Attorneys for Defendant
SRI INTERNATIONAL
LYON & LYON
First Interstate World Center
633 West Fifth Street, Suite 4700
Los Angeles, CA 90071-2066
(213) 489-1600
B - 4
<PAGE>
EXHIBIT "C"
Form of Press Release
<PAGE>
DRAFT DRAFT DRAFT
Ligand and ALRT Contact: La Jolla Cancer Research Foundation:
Susan E. Atkins Louis Coffman
(619) 550-7687 (619) 455-6480 ext. 202
FOR IMMEDIATE RELEASE
- ---------------------
LIGAND and ALRT SETTLE
PATENT INFRINGEMENT SUIT
AGAINST LA JOLLA CANCER
RESEARCH FOUNDATION,
SelectRA AND SRI
SAN DIEGO, CA, AUG. XX, 1995 -- Ligand Pharmaceuticals Incorporated
(Nasdaq:LGND), Allergan Ligand Retinoid Therapeutics, Inc. (Nasdaq:ALRIZ) and
the La Jolla Cancer Research Foundation (LJCRF), today announced that they have
reached a mutual settlement agreement in the patent infringement litigation
commenced by Ligand and the Allergan-Ligand joint venture against LJCRF and
SelectRA Pharmaceuticals, Inc., an affiliate of LJCRF, and SRI International.
The settlement includes a consent judgment which confirms the validity
of four patents (U.S. 4,981,784; U.S. 5,071,773; U.S. 5,091,518; and U.S.
5,171,671) covering aspects of retinoid technology utilized in the discovery
and characterization of retinoid compounds which are potentially valuable
pharmaceutical products. The patents, which are owned by The Salk Institute for
Biological Studies, are licensed exclusively to Ligand and exclusively
sublicensed to Allergan Ligand Retinoid Therapeutics, Inc. (ALRT) for retinoid
applications. Pursuant to the settlement, the consent judgment also
acknowledges an infringement of the patent rights principally by reason of
activities surrounding SelectRA's proposed commercialization of retinoid
technology. As part of the settlement, SelectRA is being dissolved.
The settlement also includes a cross-licensing arrangement, with no
party paying any damages. LJCRF and SRI have been granted a royalty-free,
limited license to use the technology covered by the patents-in-suit for basic
research purposes. LJCRF and SRI have in turn granted options to Ligand to
acquire exclusive, worldwide, royalty-bearing license rights to inventions and
patent rights which result from the use by the LJCRF and SRI of the licensed
patent rights. ALRT acquires rights to such inventions and patent rights having
retinoid applications as a result of Ligand's blanket sublicense to ALRT of its
rights to retinoid technology. Under the settlement, Ligand and ALRT will have
the opportunity to evaluate certain retinoid compounds prepared at SRI and, at
ALRT's option, develop for commercial purposes those of interest to it.
C-1
<PAGE>
LJCRF INFRINGEMENT
PAGE TWO
"ALRT has a broad and strong patent position in the field of retinoid
technology and we will continue to aggressively protect these important
intellectual property assets while proceeding equally aggressively to
commercialize this technology," according to Dr. Marvin Rosenthale, ALRT
President.
"Ligand is pleased with this settlement which achieves our original
goals for initiating this litigation. We are also pleased that the settlement
provides that certain retinoid technology invented by the La Jolla Cancer
Research Foundation and SRI International can be commercially exploited by
ALRT," according to David E. Robinson, Ligand President and Chief Executive
Officer.
"The Foundation is pleased to enter into this settlement with Ligand so
as to secure the Foundation's right to use the patented technology for
conducting the Foundation's basic scientific research programs," according to
Erkki Ruoslahti, M.D., President of LJCRF. "The Foundation's discoveries can
now be commercialized through Ligand or ALRT, and the Foundation is optimistic
that they will be successful in developing and marketing products arising from
this technology, which may result in royalty payments to support the
Foundation's further basic scientific research efforts."
Allergan Ligand Retinoid Therapeutics, Inc. is a newly formed company
whose primary purpose is to discover and develop drugs based on retinoids.
Retinoids have a broad range of biological actions, and evidence suggests that
retinoids may be useful in the treatment of skin diseases, a variety of
cancers, including kidney cancer, certain forms of leukemia and other cancers,
as well as eye diseases.
Ligand Pharmaceuticals Incorporated, founded in 1987, is a leader in
gene transcription technology, particularly intracellular receptor (IR)
technology and Signal Transducers and Activators of Transcription (STATs).
Ligand applies IR and STATs technology to the discovery and development of
small molecule drugs to enhance therapeutic and safety profiles and to address
major unmet patient needs in cancer, women's health and skin diseases, as well
as osteoporosis, cardiovascular and inflammatory disease.
The La Jolla Cancer Research Foundation, located in La Jolla,
California, was established in 1976 as a non-profit biomedical research
institute to investigate the biological roots of cancer with the goal of
finding complete and noninvasive cures for the disease.
C-2
<PAGE>
EXHIBIT "D"
Retinoid Compounds Synthesized in
[*] Laboratory During Term of the
Compound Evaluation Agreement
[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
Table 1A
Retinoids available from inventory
Retinoid Retinoid
No. Structure No. Structure
- -------- --------- -------- ---------
1 [*] 8 [*]
2 [*] 9 [*]
3 [*] 10 [*]
4 [*] 11 [*]
5 [*] 12 [*]
6 [*] 13 [*]
7 [*] 14 [*]
[*] CONFIDENTIAL TREATMENT REQUESTED
D - 1
<PAGE>
Table 1A continued
Retinoid Retinoid
No. Structure No. Structure
- -------- --------- -------- ---------
15(2) [*] 23 [*]
16(2) [*] 24 [*]
17 [*] 25 [*]
18 [*] 25(2) [*]
19 [*] 27 [*]
20 [*] 28 [*]
21 [*] 29 [*]
22 [*] 30 [*]
[*] CONFIDENTIAL TREATMENT REQUESTED
D - 2
<PAGE>
Table 1A continued
Retinoid Retinoid
No. Structure No. Structure
- -------- --------- -------- ---------
31(2) [*] 39 [*]
32 [*] 40 [*]
33 [*] 41 [*]
34 [*] 42 [*]
35 [*]
36 [*]
37 [*]
38 [*]
[*] CONFIDENTIAL TREATMENT REQUESTED
D - 3
<PAGE>
Table 1B
Retinoids not available from inventory
Retinoid Retinoid
No. Structure No. Structure
- -------- --------- -------- ---------
43 [*] 51 [*]
44 [*] 52 [*]
45 [*] 53 [*]
46 [*] 54(2) [*]
47(2) [*] 55 [*]
48 [*] 56 [*]
49(1) [*] 57 [*]
50 [*] 58 [*]
[*] CONFIDENTIAL TREATMENT REQUESTED
D - 4
<PAGE>
Table 1B continued
Retinoid Retinoid
No. Structure No. Structure
- -------- --------- -------- ---------
59 [*] 67(1) [*]
60 [*] 68 [*]
61 [*] 69 [*]
62 [*] 70(1) [*]
63 [*] 71 [*]
64 [*] 72 [*]
65 [*] 73 [*]
66 [*] 74 [*]
[*] CONFIDENTIAL TREATMENT REQUESTED
D - 5
<PAGE>
Table 1B continued
Retinoid Retinoid
No. Structure No. Structure
- -------- --------- -------- ---------
75 [*]
- ----------
(1) None remaining.
(2) Known to have been claimed by others ([*]).
[*] CONFIDENTIAL TREATMENT REQUESTED
D - 6
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q for the three months ended March 31, 1997 and is qualified in its entirety
by reference to such financial statements (in thousands except earnings per
share).
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 22,777
<SECURITIES> 52,245
<RECEIVABLES> 2,292
<ALLOWANCES> 0
<INVENTORY> 50
<CURRENT-ASSETS> 75,905
<PP&E> 23,670
<DEPRECIATION> 11,967
<TOTAL-ASSETS> 96,026
<CURRENT-LIABILITIES> 13,026
<BONDS> 50,844
0
0
<COMMON> 33
<OTHER-SE> 34,496
<TOTAL-LIABILITY-AND-EQUITY> 96,026
<SALES> 109
<TOTAL-REVENUES> 9,812
<CGS> 58
<TOTAL-COSTS> 11,214
<OTHER-EXPENSES> 5,412
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,075
<INCOME-PRETAX> (10,139)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,139)
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<NET-INCOME> (10,139)
<EPS-PRIMARY> (.32)
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</TABLE>
