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 JUNE 30, 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 July 31, 1997 the registrant had 32,859,502 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 June 30, 1997
and December 31, 1996 3
Consolidated Statements of Operations for the three
and six months ended June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the six
months ended June 30, 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 17
ITEM 5. Other Information *
ITEM 6. Exhibits and Reports on Form 8-K 17
SIGNATURE 18
* 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>
June 30, December 31,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,723 $ 34,830
Short-term investments 42,546 45,822
Receivable from a related party 2,980 3,087
Other current assets 1,147 1,706
----------- -----------
Total current assets 64,396 85,445
Restricted short-term investments 3,295 3,527
Property and equipment, net 14,981 11,680
Notes receivable from officers and
employees 535 534
Other assets 4,565 954
----------- -----------
$ 87,772 $ 102,140
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,235 $ 4,137
Accrued liabilities 5,587 4,870
Deferred revenue 1,395 2,151
Current portion of obligations
under capital leases 2,924 2,607
----------- -----------
Total current liabilities 13,141 13,765
Long-term obligations under capital
leases 8,733 8,711
Convertible subordinated debentures 35,290 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;
32,565,088 shares and 31,799,617
shares issued at June 30, 1997
and December 31, 1996, respectively 33 32
Paid-in capital 222,854 214,887
Warrant subscription receivable (1,468) (2,453)
Adjustment for unrealized gains
(losses) on available-for-sale
securities (47) (78)
Accumulated deficit (198,147) (177,594)
Deferred compensation and consulting
fees (106) (322)
----------- -----------
23,119 34,472
Less treasury stock, at cost
(1,114 shares at June 30, 1997
and December 31, 1996) (11) (11)
----------- -----------
Total stockholders' equity 23,108 34,461
----------- -----------
$ 87,772 $ 102,140
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
<TABLE>
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT NET LOSS PER SHARE DATA)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Collaborative research
and development:
Related parties $ 6,247 $ 4,026 $ 12,213 $ 7,262
Unrelated parties 3,552 4,403 7,289 9,878
Other 117 61 226 118
--------- --------- --------- ---------
9,916 8,490 19,728 17,258
Costs and expenses:
Research and development 16,689 14,811 33,315 27,081
Selling, general and
administrative 2,559 2,554 4,878 5,172
--------- --------- --------- ---------
Total operating expenses 19,248 17,365 38,193 32,253
--------- --------- --------- ---------
Loss from operations (9,332) (8,875) (18,465) (14,995)
Interest income 933 902 2,002 1,999
Interest expense (2,015) (2,067) (4,090) (4,124)
--------- --------- --------- ---------
Net loss $(10,414) $(10,040) $(20,553) $(17,120)
========= ========= ========= =========
Net loss per share $ (.32) $ (.36) $ (.64) $ (.61)
========= ========= ========= =========
Shares used in computing
net loss per share 32,520 28,071 32,259 27,990
========= ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
<TABLE>
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<CAPTION>
Six Months Ended
June 30,
1997 1996
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (20,553) $ (17,120)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 1,951 1,914
Amortization of notes receivable from
officers and employees 124 129
Amortization of deferred compensation
and consulting fees 216 254
Amortization of warrant subscription
receivable 985 806
Accretion of debt discount 1,337 1,337
Company stock received for milestone
revenue -- -- (438)
Change in operating assets and
liabilities:
Other current assets 558 (207)
Receivable from a related party 107 308
Accounts payable and accrued
liabilities (185) (2,584)
Deferred revenue (756) (594)
---------- ----------
Net cash used in operating activities (16,216) (16,195)
INVESTING ACTIVITIES
Purchase of short-term investments (16,364) (35,127)
Proceeds from short-term investments 19,671 43,352
Increase in notes receivable from officers
and employees (125) (180)
Increase in deposits and other assets (3,670) -- --
Decrease in deposits and other assets 59 64
Purchase of property and equipment (3,512) (252)
---------- ----------
Net cash (used in) provided by investing
activities (3,941) 7,857
FINANCING ACTIVITIES
Principal payments on obligations under
capital leases (1,400) (1,039)
Net change in restricted short-term
investments 232 3,013
Net proceeds from sale of common stock 4,218 1,629
---------- ----------
Net cash provided by financing activities 3,050 3,603
---------- ----------
Net decrease in cash and cash equivalents (17,107) (4,735)
Cash and cash equivalents at beginning
of period 34,830 15,963
---------- ----------
Cash and cash equivalents at end of period $ 17,723 $ 11,228
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ 2,678 $ 2,742
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Additions to obligations under capital
leases $ 1,739 $ 1,313
Conversion of note to common stock $ 3,750 -- --
</TABLE>
5
<PAGE>
LIGAND PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997
1. BASIS OF PRESENTATION
The consolidated financial statements of Ligand Pharmaceuticals
Incorporated (the "Company") for the three and six months ended
June 30, 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 June 30,
1997 and the consolidated results of operations for the three and
six months ended June 30, 1997 and 1996. The results of
operations for the period ended June 30, 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 June 30, 1997 and 1996 will have no effect.
2. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number
of common shares outstanding.
3. CONVERSION OF CONVERTIBLE NOTE
In March 1997, and again in July 1997, the Company converted $3.8
million and $2.5 million, respectively, of the convertible notes
outstanding with American Home Products Corporation, into 374,626
and 249,749 shares, respectively, of the Company's Common Stock
at a $10.01 conversion price.
4. COLLABORATION EQUITY INVESTMENT
In February 1997, a third installment equity investment of $2.5
million was made by SmithKline Beecham Corporation as a result of
its election to expand the scope of research under its research
agreement with the Company.
6
<PAGE>
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 ("IR") 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, clinical
trials, regulatory activities, establishment of manufacturing
processes and sales and marketing capabilities. The Company
expects that losses will fluctuate from quarter to quarter as a
result of differences in the timing of expenses incurred and the
revenues earned from collaborative arrangements. Some of these
fluctuations may be significant. As of June 30, 1997, the
Company's accumulated deficit was approximately $198.1 million.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 ("1997"), COMPARED WITH THREE
MONTHS ENDED JUNE 30, 1996 ("1996")
The Company had revenues of $9.9 million for 1997 compared to
revenues of $8.5 million for 1996. The net 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 initial milestone revenues
received from Pfizer Inc. ("Pfizer") in 1996. Revenues in 1997
were derived from the Company's research and development
agreements with (i) ALRT of $6.2 million, (ii) American Home
Products Corporation ("AHP") of $1.1 million, (iii) SmithKline
Beecham Corporation ("SmithKline Beecham") of $792,000, (iv)
Sankyo Company Ltd. ("Sankyo") of $687,000, (v) Abbott
Laboratories ("Abbott") of $540,000, (vi) Glaxo-Wellcome plc
("Glaxo") of $407,000, as well as from product sales of Ligand
Pharmaceuticals (Canada) Incorporated ("Ligand (Canada)") in-
licensed products of $117,000. Revenues in 1996 were derived
from the Company's research and development agreements with (i)
ALRT of $4.0 million, (ii) AHP of $1.5 million, (iii) Abbott of
$725,000, (iv) Sankyo of $666,000, (v) SmithKline Beecham of
$596,000, (vi) Glaxo of $514,000, as well as from milestone
revenue from Pfizer of $438,000, and product sales of Ligand
(Canada) in-licensed products of $60,000.
For 1997, research and development expenses increased to $16.7
million from $14.8 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 were $2.6 million in both 1997 and 1996. The 1997
selling, general and administrative expenses reflect personnel
additions to support expanded clinical and development programs,
however, the total 1996 expenses were comparable to 1997 due to
higher legal expenses incurred in 1996 related to the settlement
of future product rights litigation. Interest income increased
to $933,000 in 1997 from $902,000 in 1996. The slight increase
was due to the completion of a public offering with net proceeds
of approximately $35.2 million in October 1996 and increased
research revenues, offset by usage of cash to support expansion
activities. Interest expense was $2.0 million in 1997 and $2.1
million in 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.
SIX MONTHS ENDED JUNE 30, 1997 ("1997"), COMPARED WITH SIX MONTHS
ENDED JUNE 30, 1996 ("1996")
The Company had revenues of $19.7 million for 1997 compared to
revenues of $17.3 million for 1996. The increase in revenues is
primarily due to increased revenues from ALRT, offset by
decreased revenues from the research and development agreement
with AHP, due to a one time payment of $1.5 million in 1996,
which expanded and amended the research and development
agreement. Revenues in 1997 were derived from the Company's
research and development agreements with (i) ALRT of $12.2
million, (ii) AHP of $2.4 million, (iii) SmithKline Beecham of
$1.5 million, (iv) Sankyo of $1.4 million, (v) Abbott of $1.1
million, (vi) Glaxo of $899,000 and product sales of Ligand
(Canada) in-
7
<PAGE>
licensed products of $226,000. Revenues in 1996 were derived
from the Company's research and development agreements with (i)
ALRT of $7.3 million, (ii) AHP of $4.4 million, (iii) Abbott of
$1.4 million, (iv) Sankyo of $1.4 million, (v) SmithKline
Beecham of $1.2 million, (vi) Glaxo of $1.1 million, as well as
from milestone revenue from Pfizer of $438,000 and products sales
of Ligand (Canada) in-licensed products of $118,000.
For 1997, research and development expenses increased to $33.3
million from $27.1 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 $4.9 million in 1997 from $5.2 million in
1996. The decrease was primarily attributable to higher legal
expenses incurred in 1996 related to the settlement of future
product rights litigation, offset by additions to personnel to
support expanded clinical and development programs. Interest
income was $2.0 million in 1997 and 1996. Interest expense was
$4.1 million in 1997 and 1996, and consisted of interest
required under the Debentures, accretion of debt discount of 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 June 1997, the Company has raised $162.5
million from sales of equity securities: $78.2 million from the
Company's public offerings and an aggregate of $84.3 million from
private placements and the exercise of options and warrants.
In March 1997 and again in July 1997, the Company converted $3.8
million and $2.5 million, respectively, of the convertible notes
outstanding to AHP into 374,626 and 249,749 shares, respectively,
of the Company's Common Stock at a $10.01 conversion price.
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 under
its research agreement with the Company.
As of June 30, 1997, the Company had acquired an aggregate of
$23.2 million in property, laboratory and office equipment, and
$4.7 million in tenant leasehold improvements, substantially all
of which has been funded through capital lease and equipment note
obligations and which also includes laboratory and office
equipment acquired in the 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 July 1997, the master lease
agreement was extended to include up to an additional $4.5
million.
Working capital decreased to $51.3 million as of June 30, 1997,
from $71.7 million at the end of 1996. The decrease in working
capital resulted from an increase in cash from collaborative
research agreements and equity investments, offset by an increase
in operating expenses, as described above, semi-annual interest
payments due on the Debentures and interest paid on convertible
notes. For the same reasons, cash and cash equivalents, short-
term investments, and restricted cash decreased to $63.6 million
at June 30, 1997 from $84.2 million at December 31, 1996. The
Company primarily invests its cash in United States government
and investment grade corporate debt securities.
The Company believes that its available cash, cash equivalents,
marketable securities and existing sources of funding will be
adequate to satisfy its anticipated capital requirements through
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 its funds available for research and development in late
1997 or early 1998, which would require Ligand to exercise the
ALRT Stock Purchase Option within a certain period of time or
provide operating funds to ALRT or Ligand would lose rights to
products being developed by ALRT. The Company has made no
determination concerning the exercise of either the ALRT1057
Option or the ALRT Stock Purchase Option. See "Risk and
Uncertainties-Exercise of Panretin (ALRT 1057) Option and ALRT
Stock Purchase Option".
8
<PAGE>
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 or its collaborative partners'
product development efforts are not expected to be available for
sale for at least several years, if at all.
The development of new pharmaceutical products is highly
uncertain and subject to a number of significant risks. Potential
products that appear to be promising at early stages of
development may not reach the market for a number of reasons.
Such reasons include the possibilities that potential products
are found during preclinical testing or clinical trials to be
ineffective or to cause harmful side effects, that they fail to
receive necessary regulatory approvals, are difficult or
uneconomical to manufacture on a large scale, fail to achieve
market acceptance or are precluded from commercialization by
proprietary rights of third parties. To date, Ligand's resources
have been substantially dedicated to the research and development
of potential pharmaceutical products based upon its expertise in
IR and 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, the Company is not aware of any drugs that have been
developed and successfully commercialized that interact directly
with STATs. Much remains to be learned about the location and
function of IRs and STATs. Most of the Company's potential
products will require extensive additional development, including
preclinical testing and clinical trials, as well as regulatory
approvals, prior to commercialization. No assurance can be given
that the Company's product development efforts will be
successful, that required regulatory approvals from the FDA or
equivalent foreign authorities for any indication will be
obtained or that any products, if introduced, will be capable of
being produced in commercial quantities at reasonable costs or
will be successfully marketed. Further, the Company has no sales
and only limited marketing capabilities outside Canada, and even
if the Company's products in internal development are approved
for marketing, there can be no assurance that the Company will be
able to develop such capabilities or successfully market such
products.
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; FUTURE CAPITAL
NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. Ligand has experienced
significant operating losses since its inception in 1987. As of
June 30, 1997, Ligand had an accumulated deficit of approximately
$198.1 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
9
<PAGE>
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 could use substantially all of its funds
available for research and development in late 1997 or early
1998, which would require Ligand to exercise the ALRT Stock
Purchase Option within a certain period of time or provide
operating funds to ALRT or Ligand would lose rights to products
being developed by ALRT. 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 the
Company. In addition, the FDA may require additional clinical
trials, which could result in increased costs and significant
development delays.
The rate of completion of clinical trials of the Company's
products is dependent upon, among other factors, obtaining
adequate clinical supplies and the rate of patient accrual.
Patient accrual is a function of many factors, including the size
of the patient population, the proximity of patients to clinical
sites and the eligibility criteria for the trial. Delays in
planned patient enrollment in clinical trials may result in
increased costs, program delays or both, which could have a
material adverse effect on the Company. In addition, some of the
Company's current collaborative partners have certain rights to
control the planning and execution of product development and
clinical programs, and there can be no assurance that such
corporate partners' rights to control aspects of such programs
will not impede the Company's ability to conduct such programs in
accordance with the schedules and in the manner currently
contemplated by the Company for such programs. There can be no
assurance that, if clinical trials are completed, the Company or
its collaborative partners will submit an NDA with respect to any
potential products or that any such application will be reviewed
and approved by the FDA in a timely manner, if at all.
RELIANCE ON COLLABORATIVE RELATIONSHIPS. The Company's strategy
for the development, clinical testing, manufacturing and
commercialization of certain of its potential products includes
entering into collaborations with corporate partners, licensors,
licensees and others. To date, Ligand has entered into drug
discovery and development collaborations with SmithKline Beecham,
AHP, Abbott, Sankyo, Glaxo, ALRT (which collaboration continues
the work previously undertaken with Allergan through the Allergan
Ligand Joint Venture) and Pfizer. These collaborations provide
Ligand with funding and research and development resources for
potential products for the treatment or control of hematopoiesis,
women's health disorders, inflammation, cardiovascular disease,
cancer and skin disease, and osteoporosis, respectively. The
Company's collaborative agreements allow its collaborative
partners significant discretion in electing to pursue or not to
pursue any development program. There can be no assurance that
the Company's collaborations will continue or that the
collaborations will be successful. In addition, there can be no
assurance that Ligand's collaborators will not pursue alternative
technologies either on their own or in collaboration with others
as a means of developing drugs competitive with the types of
drugs currently being developed in collaboration with Ligand, and
any such action may result in the withdrawal of support and
increased competition for the Company's programs. In addition, if
products are approved for marketing under these programs, any
revenues to Ligand from these products will be dependent on the
manufacturing, marketing and sales efforts of its collaborators,
which generally retain commercialization rights under the
collaborative agreements. Ligand's current
10
<PAGE>
collaborators also generally have the right to terminate their
respective collaborations under certain circumstances. If any of
the Company's collaborative partners were to breach or terminate
its agreements with the Company or otherwise fail to conduct its
collaborative activities successfully, the development of the
Company's products under such agreements would be delayed or
terminated. The delay or termination of any of the collaborations
could have a material adverse effect on Ligand.
There can be no assurance that disputes will not arise in the
future with Ligand's collaborators, including with respect to the
ownership of rights to any technology developed. For example, the
Company was involved in litigation with Pfizer, which was settled
in April 1996, with respect to Ligand's rights to receive
milestones and royalties based on the development and
commercialization of droloxifene. These and other possible
disagreements between collaborators and the Company could lead to
delays in the achievement of milestones or receipt of milestone
payments or research revenue, to delays or interruptions in, or
termination of, collaborative research, development and
commercialization of certain potential products, or could require
or result in litigation or arbitration, which could be time
consuming and expensive and could have a material adverse effect
on the Company.
UNCERTAINTY OF PATENT PROTECTION; DEPENDENCE ON PROPRIETARY
TECHNOLOGY. The patent positions of pharmaceutical and
biopharmaceutical firms, including Ligand, are uncertain and
involve complex legal and technical questions for which important
legal principles are largely unresolved. In addition, the
coverage sought in a patent application can be significantly
reduced before or after a patent is issued. This uncertain
situation is also affected by revisions to the United States
patent law adopted in recent years to give effect to
international accords to which the United States has become a
party. The extent to which such changes in law will affect the
operations of Ligand cannot be ascertained. In addition, there is
currently pending before Congress legislation providing for other
changes to the patent law which may adversely affect
pharmaceutical and biopharmaceutical firms. If such pending
legislation is adopted, the extent to which such changes would
affect the operations of the Company cannot be ascertained.
Ligand's success will depend in part on its ability to obtain
patent protection for its technology both in the United States
and other countries. A number of pharmaceutical and biotechnology
companies and research and academic institutions have developed
technologies, filed patent applications or received patents on
various technologies that may be related to Ligand's business.
Some of these patent applications, patents or technologies may
conflict with Ligand's technologies or patent applications. Any
such conflict could limit the scope of the patents, if any, that
Ligand may be able to obtain or result in the denial of Ligand's
patent applications. In addition, if patents that cover Ligand's
activities are issued to other companies, there can be no
assurance that Ligand would be able to obtain licenses to such
patents at a reasonable cost, if at all, or be able to develop or
obtain alternative technology. The Company has from time to time
had, continues to have and may have in the future discussions
with its current and potential collaborators regarding the scope
and validity of the Company's patent and other proprietary rights
to its technologies, including the Company's co-transfection
assay. If a collaborator or other party were successful in having
substantial patent rights of the Company determined to be
invalid, it could adversely affect the ability of the Company to
retain existing 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
11
<PAGE>
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 with
claims covering 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 and
ALRT do not prevail in the interference proceeding, the Roche
patent might block the Company's use of Oral and Topical Panretin
(ALRT1057) in certain cancers, and the Company may not be able to
obtain patent protection for the Oral and Topical Panretin
(ALRT1057) products.
Ligand also relies upon trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop
and maintain its competitive position. There can be no assurance
that others will not independently develop substantially
equivalent proprietary information or otherwise gain access to or
disclose such information regarding Ligand. It is Ligand's policy
to require its employees, certain contractors, consultants,
members of its Scientific Advisory Board and parties to
collaborative agreements to execute confidentiality agreements
upon the commencement of employment or consulting relationships
or a collaboration with Ligand. There can be no assurance that
these agreements will not be breached, that they will provide
meaningful protection of Ligand's trade secrets or adequate
remedies in the event of unauthorized use or disclosure of such
information or that Ligand's trade secrets will not otherwise
become known or be independently discovered by its competitors.
EXERCISE OF 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"), 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
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<PAGE>
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 require Ligand to exercise the ALRT Stock
Purchase Option within a certain period of time or provide
operating funds to ALRT or Ligand would lose rights to products
being developed by ALRT.
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.
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(R), which was
developed by Cetus Oncology Corporation and PHOTOFRIN(R), 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.
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<PAGE>
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 and regulation for safety and efficacy by numerous
governmental authorities in the United States and other
countries. Prior to marketing, any drug developed by the Company
must undergo rigorous preclinical and clinical testing and an
extensive regulatory approval process mandated by the FDA and
equivalent foreign authorities. These processes can take a number
of years and require the expenditure of substantial resources.
The time required for completing such testing and obtaining such
approvals is uncertain, and there is no assurance that any such
approval will be obtained. The Company or its collaborative
partners may decide to replace a compound in testing with a
modified or optimized compound, thus extending the test period.
In addition, delays or rejections may be encountered based upon
changes in FDA policy during the period of product development
and FDA review of each submitted new drug application or product
license application. Similar delays may also be encountered in
other countries. There can be no assurance that even after such
time and expenditures, regulatory approval will be obtained for
any products developed by the Company. Moreover, prior to
receiving FDA or equivalent foreign authority approval to market
its products, the Company may be required to demonstrate that its
products represent improved forms of treatment over existing
therapies. If regulatory approval of a product is granted, such
approval may entail limitations on the indicated uses for which
the product may be marketed. Further, even if such regulatory
approval is obtained, a marketed product, its manufacturer and
its manufacturing facilities are subject to continual review and
periodic inspections, and subsequent discovery of previously
unknown problems with a product, manufacturer or facility may
result in restrictions on such product or manufacturer, including
withdrawal of the product from the market.
DEPENDENCE ON THIRD-PARTY REIMBURSEMENT AND HEALTH CARE REFORM.
Ligand's commercial success will be heavily dependent upon the
availability of reimbursement for the use of any products
developed by the Company or its collaborative partners. There
can be no assurance that Medicare and third-party payors will
authorize or otherwise budget reimbursement for the prescription
of any of Ligand's potential products. Additionally, third-party
payors, including Medicare, are increasingly challenging the
prices charged for medical products and services and may require
additional cost-benefit analysis data from the Company in order
to demonstrate the cost-effectiveness of its products. There can
be no assurance that the Company will be able to provide such
data in order to gain market acceptance of its products with
respect to pricing and reimbursement.
In the United States, the Company expects that there will
continue to be a number of federal and state proposals to
implement government control of pricing and profitability of
prescription pharmaceuticals. In addition, increasing emphasis
on managed health care will continue to put pressure on such
pricing. Cost control initiatives could decrease the price that
the Company or any of its collaborative partners or other
licensees receives for any drugs it or they may discover or
develop in the future and, by preventing the recovery of
development costs, which could be substantial, and an appropriate
profit margin, could have a material adverse effect on the
Company. Further, to the extent that cost control initiatives
have a material adverse effect on the Company's collaborative
partners, the Company's ability to commercialize its products and
to realize royalties may be adversely affected. Furthermore,
federal and state regulations govern or influence the
reimbursement to health care providers of fees and capital
equipment costs in connection with medical treatment of certain
patients. If any actions are taken by federal and/or state
governments, such actions could adversely affect the prospects
for sales of the Company's products. There can be no assurance
that action taken by federal and/or state governments, if any,
with regard to health care reform will not have a material
adverse effect on the Company.
PRODUCT LIABILITY AND INSURANCE RISKS. Ligand's business exposes
it to potential product liability risks which are inherent in the
testing, manufacturing and marketing of human therapeutic
products. Certain of the compounds the Company is investigating
could be injurious to humans. For example, retinoids as a class
are known to contain compounds which can
14
<PAGE>
cause birth defects. Ligand currently has limited product
liability insurance; however, there can be no assurance that
Ligand will be able to maintain such insurance on acceptable
terms or that such insurance will provide adequate coverage
against potential liabilities. The Company expects to procure
additional insurance when its products progress to a later stage
of development and if any rights to later-stage products are in-
licensed in the future. To the extent that product liability
insurance, if available, does not cover potential claims, the
Company will be required to self-insure the risks associated with
such claims. A successful product liability claim or series of
claims brought against the Company could have a material adverse
effect on the Company.
DEPENDENCE ON KEY EMPLOYEES. Ligand is highly dependent on the
principal members of its scientific and management staff, the
loss of whose services might impede the achievement of
development objectives. Furthermore, Ligand is currently
experiencing a period of rapid growth which requires the hiring
of significant numbers of scientific, management and operational
personnel. Accordingly, recruiting and retaining qualified
management, operations and scientific personnel to perform
research and development work in the future will also be critical
to Ligand's success. Although Ligand believes it will be
successful in attracting and retaining skilled and experienced
management, operational and scientific personnel, there can be no
assurance that Ligand will be able to attract and retain such
personnel on acceptable terms given the competition among
numerous pharmaceutical and biotechnology companies, universities
and other research institutions for such personnel.
USE OF HAZARDOUS MATERIALS. Ligand's research and development
involves the controlled use of hazardous materials, chemicals and
various radioactive compounds. For example, retinoids as a class
are known to contain compounds which can cause birth defects.
Although the Company believes that its current safety procedures
for handling and disposing of such materials, chemicals and
compounds, comply with the standards prescribed by state and
federal regulations, the risk of accidental contamination or
injury from these materials cannot be completely eliminated. In
the event of any accident, the Company could be held liable for
any damages that result and any such liability could be
significant. The Company may incur substantial costs to comply
with environmental regulations. Any such event could have a
material adverse effect on the Company.
VOLATILITY OF STOCK PRICE. The market prices and trading volumes
for securities of emerging companies, like Ligand, have
historically been highly volatile and have experienced
significant fluctuations unrelated to the operating performance
of such companies. Future announcements concerning the Company or
its competitors may have a significant impact on the market price
of the Common Stock. Such announcements might include the results
of research, development testing, technological innovations, new
commercial products, government regulation, developments
concerning proprietary rights, litigation or public concern as to
the safety of the products.
ABSENCE OF CASH DIVIDENDS. No cash dividends have been paid on
the 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
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<PAGE>
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.
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PART II. OTHER INFORMATION
ITEM 4 SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on May 21, 1997.
The following elections and proposals were approved at the Company's
Annual Meeting:
<TABLE>
<CAPTION>
VOTES
VOTES VOTES VOTES ABSTAIN- BROKER
FOR AGAINST WITHHELD ING NONVOTE
---------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1. Election of a Board of
Directors. The total
number of votes cast for,
or withheld for each
nominee was as follows:
Henry F. Blissenbach 26,983,209 -- -- 355,266 -- -- -- --
Alexander D.Cross, Ph.D. 26,973,230 -- -- 365,245 -- -- -- --
John Groom 26,161,642 -- -- 1,176,833 -- -- -- --
Irving S. Johnson, Ph.D. 27,001,393 -- -- 337,082 -- -- -- --
Carl C. Peck 26,971,761 -- -- 366,714 -- -- -- --
David E. Robinson 26,638,287 -- -- 700,188 -- -- -- --
William C. Shepherd 27,019,443 -- -- 319,032 -- -- -- --
2. Amendment of 1992 21,590,393 4,973,104 -- -- 99,897 675,081
Stock Option/ Stock
Issuance Plan to increase
the authorized number of
shares of Common Stock from
6,428,457 to 7,303,457.
3. Amendment of the 1992 25,105,073 1,672,140 -- -- 87,625 473,637
Employee Stock Purchase
Plan, to increase the
authorized number of shares
of Common Stock available
for issuance under such
plan from 166,500 to
206,500.
4. Ratification of the 27,145,766 75,342 -- -- 40,265 77,102
appointment of Ernst &
Young LLP as the
independent auditors for
the fiscal year ending
December 31, 1997.
</TABLE>
ITEM 6 (A) EXHIBITS
Exhibit 27.0 Financial Data Schedule
Exhibit 10.162 Limited Extension of Collaborative Technology
Research, Option and Development Agreement between
Ligand Pharmaceuticals and Sankyo Company Limited,
dated June 24, 1997.
Exhibit 10.163 Extension of Master Lease Agreement between Lease
Management Services and Ligand Pharmaceuticals
dated July 29, 1997.
ITEM 6 (B) REPORTS ON FORMS 8-K
None.
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LIGAND PHARMACEUTICALS INCORPORATED
JUNE 30, 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
August 13, 1997 /s/ Paul V. Maier
Date: --------------- By ---------------------
Paul V. Maier
Senior Vice President and Chief Financial Officer
18
<PAGE> 1
EXHIBIT 10.162
LIMITED EXTENSION OF COLLABORATIVE TECHNOLOGY
RESEARCH, OPTION AND DEVELOPMENT AGREEMENT
This Agreement, having an effective date as of the date of completed
execution by the parties, is entered into by and between GLYCOMED INCORPORATED
("Glycomed"), a California corporation having a place of business at 860
Atlantic Avenue, Alameda, California, 94501, U.S.A. and SANKYO COMPANY LIMITED,
a Japanese corporation having its principal place of business at 5-1,
Nihonbashi-Honcho, 3-chome, Chuo-ku, Tokyo 103, Japan ("Sankyo").
WHEREAS, Glycomed and Sankyo have previously entered into a
COLLABORATIVE TECHNOLOGY RESEARCH, OPTION AND DEVELOPMENT AGREEMENT (the
"Collaborative Technology Agreement") having an effective date of June 27, 1994;
WHEREAS the Collaborative Technology Agreement includes a Research Term
scheduled to expire on June 26, 1997; and
WHEREAS Glycomed and Sankyo have agreed to extend the Research Term of
the Collaborative Technology Agreement for a limited period;
NOW, THEREFORE, the parties agree as follows:
1. The Research Term of the Collaborative Technology Agreement shall be
extended for limited period from June 27, 1997 to October 31, 1997 under the
same terms and conditions including an additional four (4) months payment of
Eight Hundred Eighty-Eight Thousand, Eight Hundred Eighty-Nine U.S. Dollars
(U.S. $888,889) payable by Sankyo under Article 2.6.1 of the Collaborative
Technology Agreement to cover the extension of the Research Term as set forth
herein.
GLYCOMED INCORPORATED SANKYO COMPANY, LIMITED
By: /s/ Lloyd Flanders By: /s/ Yoshihiko Baba
------------------------------ ------------------------------
Lloyd Flanders Yoshihiko Baba
Title: Senior Vice President, Title: Managing Director
Preclinical Development Research Institute
Research & Development
Project Management
Date: June 24, 1997 Date: June 23, 1997
---------------------------- ----------------------------
<PAGE> 1
EXHIBIT 10.163
[LEASE MANAGEMENT SERVICES, INC. LETTERHEAD]
[SEAL]
July 29, 1997
Mr. Dennis Genge
Executive Director of Finance
LIGAND PHARMACEUTICALS, INC.
9393 Towne Centre Drive, Suite 100
San Diego CA 92121
Dear Dennis:
We are pleased to confirm credit approval for LIGAND PHARMACEUTICALS, INC.
LESSEE: LIGAND PHARMACEUTICALS, INC.
LESSOR: Lease Management Services, Inc.
EQUIPMENT: A lease line extension of $4,500,000 to finance equipment and
related sales tax as per the attached list. All equipment is
subject to Lessor's final approval. This line extension does
NOT include any warrants, deposits, or negative covenant
provisions.
LEASE TERM: Sixty (60) months.
RENTAL FACTOR: 1.952% of equipment cost payable monthly in advance for each
lease schedule.
The yield in this transaction will be adjusted relative to any
increase in comparable term U.S. Treasury maturities. The
payment factor for each schedule will be set at the time it is
documented and will be fixed for the term. The payment factors
above are based on the average of the Federal Reserve 3- and 5-
year treasuries (6.72%) for the week ending 4/25/97.
<PAGE> 2
Mr. Dennis Genge
7/29/97
Page 2
LEASE TYPE: Net lease - insurance, personal property taxes and maintenance
paid by Lessee.
END OF LEASE: At the end of the lease term, equipment will be purchased for
10% of original, aggregate equipment cost.
CONTINGENCIES: 1) Standard documentation satisfactory to Lessee and
Lessor.
2) Release against this lease credit line are contingent
upon no material adverse in Borrower's financial
condition, management, operations, or business
prospects. This credit line, unless extended in writing,
expires 6/30/98. In the event the lease line is not
fully utilized by the expiration date, Lessor agrees to
extend the takedown period to 12/31/98, subject to
credit approval.
3) Throughout the lease term, Lessee shall provide
quarterly financials within 45 days of each month-end,
and annually, an audited statement within 120 days of
each fiscal year end. All such financial statements to
be prepared using generally accepted accounting
principles and to be in compliance with SEC
regulations.
4) Complete equipment specifications to be provided to
Lessor before each takedown. Invoices must be less than
45 days old or funded within 45 days of credit
approval.
All equipment to be located at Lessee's various San
Diego, California, facilities. Custom equipment;
software in excess of $450,000; upgrades to equipment to
which Lessor does not have clear title or first security
interest; disposables; "soft costs" such as freight,
plumbing, wiring, labor or installation; and leasehold
or tenant improvements are excluded from this line.
5) This is a statement of mutual intent and not an
agreement to Lease. The terms set forth above are not
therefore binding until a lease agreement is executed
between Lessor and Lessee for specific items of
equipment.
<PAGE> 3
Mr. Dennis Genge
7/29/97
Page 3
COMMITMENT FEE: We are in receipt of your $45,000.00 commitment fee which shall
be fully credited pro-rata to rentals due. All or a portion of
said fee will be forfeited if this transaction is approved by
Lessor and not executed by Lessee as called for in this
proposal.
We're very pleased to help finance your equipment needs and promise to give you
the best service in the industry.
Sincerely,
/s/ Stephanie K. Wagner
Stephanie K. Wagner
Vice President Marketing
SKW:clb
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10Q for the six months ended June 30, 1997 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 17,723
<SECURITIES> 45,841
<RECEIVABLES> 2,980
<ALLOWANCES> 0
<INVENTORY> 50
<CURRENT-ASSETS> 64,396
<PP&E> 27,926
<DEPRECIATION> 12,945
<TOTAL-ASSETS> 87,772
<CURRENT-LIABILITIES> 13,141
<BONDS> 51,523
0
0
<COMMON> 33
<OTHER-SE> 24,707
<TOTAL-LIABILITY-AND-EQUITY> 87,772
<SALES> 226
<TOTAL-REVENUES> 19,728
<CGS> 124
<TOTAL-COSTS> 21,555
<OTHER-EXPENSES> 11,760
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,090
<INCOME-PRETAX> (20,553)
<INCOME-TAX> 0
<INCOME-CONTINUING> (20,553)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,553)
<EPS-PRIMARY> (.64)
<EPS-DILUTED> (.64)
</TABLE>
