<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 8-K/A (Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 12, 1998
Ligand Pharmaceuticals Incorporated
--------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 000-20720 77-0160744
- ------------------------------ ----------------------- -------------------
(State or other (Commission File Number) (IRS Employer
jurisdiction of incorporation) File Number Identification No.)
10275 Science Center Drive, San Diego, California 92121
- ------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 535-3900
Not Applicable
--------------------------------------------------------------
(Former name or former address, if changed since last report.)
1
<PAGE> 2
Ligand Pharmaceuticals Incorporated ("Ligand") hereby amends its Current
Report on Form 8-K ("Form 8-K") as set forth in the pages attached hereto.
Ligand originally filed its Form 8-K with the Securities and Exchange Commission
on August 25, 1998. Defined terms not otherwise defined herein shall have the
meaning given them in the Form 8-K.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired: Seragen, Inc. ("Seragen").
Index to Seragen Financial Statements
<TABLE>
<CAPTION>
Sequentially
Document Numbered Page
-------- -------------
Annual Financial Statements
---------------------------
<S> <C> <C>
(1) Report of Independent Accountants *
(Arthur Andersen LLP)
(2) Report of Independent Accountants *
PricewaterhouseCoopers LLP
(3) Balance Sheets as of December 31, 1996 *
and 1997
(4) Statements of Operations for the years
ended December 31, 1995, 1996 and 1997 *
(5) Statements of Stockholders' Equity
(Deficit) for the years ended December 31, *
1995, 1996 and 1997
(6) Statements of Cash Flows for the years
ended December 31, 1995, 1996 and 1997 *
(7) Notes to Financial Statements *
Interim Financials
------------------
(8) Balance Sheets as of December 31, 1997 3
and June 30, 1998
(9) Statements of Operations for the six
months ended June 30, 1997 and 1998 4
(10) Statements of Cash Flows for the six
months ended June 30, 1997 and 1998 5
(11) Notes to Financial Statements 6
</TABLE>
- ----------
* Incorporated herein by reference to Ligand's Registration
Statement on Form S-4 (No. 333-58823) filed with the Securities
and Exchange Commission on July 9, 1998.
2
<PAGE> 3
SERAGEN, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1997 June 30, 1998
----------------- -------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,328,535 $ 3,245,229
Restricted cash.................................... 175,000 200,000
Contract receivable................................ 208,190 644,638
Unbilled contract receivable....................... 944,063 1,331,167
Prepaid expenses and other current assets.......... 72,065 72,257
----------- -----------
Total of current assets................ 6,727,853 5,493,291
Property and equipment, net........................... 15,064 14,711
Deferred commission................................... 2,060,000 2,060,000
Other assets.......................................... 8,648 9,324
----------- -----------
$ 8,811,565 $ 7,577,326
=========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Accounts payable................................... $ 447,008 $ 241,820
Related party payable.............................. 3,422,833 6,915,736
Dividend payable - Series B preferred stock........ 2,943,136 4,120,131
Accrued expenses................................... 2,240,435 1,900,892
Preferred stock redemption liability............... -- 4,530,461
Short-term obligation.............................. 800,000 800,000
----------- -----------
Total current liabilities.............. 9,853,412 $18,509,040
----------- -----------
Non-current liabilities:
Deferred revenue................................... 10,000,000 10,000,000
Long-term obligation............................... 1,450,000 650,000
Canadian affiliate put option liability............ 2,400,000 2,400,000
----------- -----------
13,850,000 13,050,000
----------- -----------
Commitments and contingencies
Stockholders' (deficit);
Convertible preferred stock, Series B, $.01 par
value; issued and outstanding 23,800 shares at
December 31, 1997 and June 30, 1998, respectively,
at liquidation preference.......................... 23,800,000 23,800,000
Convertible preferred stock, Series C, $.01 par
value; issued and outstanding 5,000 and 0 shares at
December 31, 1997 and June 30, 1998, respectively,
at liquidation preference.......................... 5,500,000 --
Convertible preferred stock, Series D, $.01 par
value; issued and outstanding 908 and 0 shares at
December 31, 1997 and June 30, 1998, respectively,
at liquidation preference.......................... 1,023,231 --
Common stock, $.01 par value; 70,000,000 shares
authorized; issued 21,444,894 and 28,430,011 shares
at December 31, 1997 and June 30, 1998, respectively 214,448 284,308
Additional paid in capital......................... 160,957,800 164,166,614
Accumulated deficit................................ (206,384,995) (212,230,305)
------------ ------------
(14,889,516) (23,979,383)
Less-treasury stock (777 shares at cost at December
31, 1996 and June 30, 1997, respectively)............. (2,331) (2,331)
------------ ------------
Total stockholders' (deficit).......... (14,891,847) (23,981,714)
------------ ------------
$ 8,811,565 $ 7,577,326
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
SERAGEN, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended June 30
--------------------------------
1997 1998
------------- ------------
<S> <C> <C>
Revenue:
Contract revenue and license fees................... $ 2,159,447 $ 1,921,692
Operating expenses:
Cost of contract revenue............................ 2,129,856 1,921,617
Research and development............................ 5,800,166 2,853,707
General and administrative.......................... 2,600,579 1,638,844
----------- -----------
$10,530,601 $ 6,414,168
----------- -----------
Loss from operations............................. (8,371,154) (4,492,476)
Interest income..................................... 29,464 78,092
Interest expense.................................... (172,366) --
----------- -----------
Net loss before extraordinary item............... (8,514,056) (4,414,384)
----------- -----------
Extraordinary income................................ 2,050,000 800,000
----------- -----------
Net loss......................................... (6,464,056) (3,614,384)
----------- -----------
Preferred stock dividends and accretion............. 1,801,797 2,230,926
----------- -----------
Net loss applicable to common stockholders.......... $(8,265,853) $(5,845,310)
=========== ===========
Basic and Diluted net loss per common share......... $ (0.44) $ (0.23)
=========== ===========
Weighted average common shares used in computing
Basic and Diluted net loss per share............... 18,885,360 25,551,682
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
SERAGEN, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended June 30
--------------------------------
1997 1998
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................. $(6,464,056) $(3,614,384)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................ 464,293 4,297
Gain on disposal of property and equipment........... 2,491 --
Amortization of discount on long-term debt........... 171,903 --
Extraordinary item................................... (2,050,000) (800,000)
Non-cash charge for issuance of common shares........ 800,000 --
Compensation expense for Marathon employee options... -- 230,778
Changes in operating assets and liabilities:
Contract receivable.................................. (26,865) (436,448)
Unbilled contract receivable 60,117 (387,104)
Prepaid expenses and other current assets 187,744 (192)
Accounts payable..................................... (184,032) (205,188)
Related party payable................................ -- 3,494,082
Accrued expenses..................................... (306,768) (339,543)
----------- -----------
Net cash used in operating activities..................... (7,345,173) (2,053,702)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment.................. (25,809) (3,944)
Decrease (increase) in other assets.................. 38,944 (676)
(Increase) in restricted cash account................ -- (25,000)
----------- -----------
Net cash (used in) provided by investing activities....... 13,135 (29,620)
----------- -----------
Cash flows from financing activities:
Net proceeds from common stock issuances............. 75 16
Repayments of long-term debt......................... (37,418) --
Deposits received from Boston University............. 7,899,739 --
----------- -----------
Net cash provided by financing activities................. 7,862,396 16
----------- -----------
Net increase (decrease) in cash and cash equivalents...... 530,358 (2,083,306)
Cash and cash equivalents, beginning of period............ 1,548,392 5,328,535
----------- -----------
Cash and cash equivalents, end of period $ 2,078,750 $ 3,245,229
=========== ===========
Supplemental disclosures of cash flows information:
Cash paid for interest............................... $ 463 $ --
=========== ===========
Supplemental non cash activities:
Conversion of Series A preferred stock to common stock $ 2,060,056 $ --
Conversion of Series C preferred stock to common stock
and redemption liability............................. -- $ 6,274,833
Series C and D preferred dividends................... $ 638,458 $ 103,136
Accrued but unpaid Series B dividends................ -- $ 4,120,131
Issuance of common stock to Lilly.................... $ 800,000 $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
SERAGEN, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1998
1. BASIS OF PRESENTATION
The financial statements of Seragen Incorporated (the "Company" or "Seragen")
for the six months ended June 30, 1997 and 1998 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 financial position as of June 30, 1998 and the results of operations for the
six months ended June 30, 1997 and 1998. The results of operations for the
period ended June 30, 1998 are not necessarily indicative of the results to be
expected for the year ending December 31, 1998. For more complete financial
information, these financial statements, and the notes thereto, should be read
in conjunction with the audited financial statements for the year ended December
31, 1997 included in the Company's most recent Annual Report on Form 10-K filed
with the Securities and Exchange Commission.
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
Reporting Comprehensive Income and SFAS 131, Segment Information. Both of these
standards are effective for fiscal years beginning after December 15, 1997. SFAS
130 requires that all components of comprehensive income, including net income,
be reported in the financial statements in the period in which they are
recognized. SFAS 130 requires the change in net unrealized gains (losses) on
available-for-sale securities to be included in comprehensive income. The
Company's total comprehensive net loss for the six month periods ended June 30,
1997 and 1998 were the same as reported net loss for those periods. SFAS 131
amends the requirements for public enterprises to report financial and
descriptive information about its reportable operating segments. The Company
currently operates in one business and operating segment and does not believe
adoption of this standard will have a material impact on the Company's financial
statements as reported.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date(s) of the financial statements and
the reported amounts of revenues and expenses during the reporting period(s).
Actual results could differ from those estimates.
2. NET LOSS PER SHARE
Basic and Diluted net loss per share is computed using the weighted average
number of common shares outstanding. Common stock equivalents related to stock
options are antidilutive and therefore, not included.
3. LIGAND MERGER AGREEMENT
On August 12, 1998, Ligand Pharmaceuticals Incorporated ("Ligand") and Seragen
announced the closing under a definitive agreement under which a wholly owned
subsidiary of Ligand was merged with Seragen (the "Merger"). In addition, Ligand
had previously announced that it had signed a definitive asset purchase
agreement to acquire substantially all the assets of Marathon
Biopharmaceuticals, LLC, ("Marathon") which currently provides services to
Seragen under a service agreement. Finally, Seragen signed an agreement with
Ligand and Eli Lilly and Company ("Lilly") under which Lilly assigned to Ligand
Lilly's rights and obligations under its agreements with Seragen, including its
rights to ONTAK(TM) (DAB(389)IL-2, Interleukin-2 Fusion Protein or denileukin
diftitox).
Under the terms of the merger agreement, Ligand paid merger consideration at
closing in the amount of $30 million, $4 million of which was in cash and $26
million of which was in the form of approximately 1,858,800 shares of Ligand
Common Stock valued at $13.99 per share under the terms of the merger agreement.
Ligand's stock price for this portion of the transaction is based on the average
closing share price for the five trading days prior to signing of the definitive
agreement in May 1998. From the upfront payment, Seragen's common shareholders
received at the time of closing approximately .036 of a share of Ligand stock
for every share of Seragen common stock owned
6
<PAGE> 7
immediately prior to closing. The remainder of the $30 million in merger
consideration paid at closing was used to settle claims of Seragen's creditors,
obligees and preferred shareholders.
The merger agreement also calls for an additional $37 million payment in cash
and/or Ligand Common Stock, at Ligand's option, to be paid six months after the
date of receipt of final U.S. Food and Drug Administration (FDA) clearance to
market ONTAK(TM). The $37 million payment will not be made, however, if
ONTAK(TM) is not cleared by the FDA by August 12, 2000. Of the $37 million,
Seragen's common shareholders will receive $0.23 in, at Ligand's option, cash or
equivalent value of Ligand Common Stock (based on the average closing price for
the 10 trading days immediately preceding the second closing), for every Seragen
common share owned. The remainder of the $37 million payment will be used to
settle claims of Seragen's creditors, obligees and preferred shareholders. The
terms of the Merger are more fully described in the Company's Form 8-K dated May
11, 1998.
7
<PAGE> 8
(b) Pro Forma Financial Information: Ligand/Seragen.
Index to Ligand/Seragen Pro Forma Financial Information
<TABLE>
<CAPTION>
Sequentially
Numbered
Document Page
-------- -------------
<S> <C>
(1) Introduction 9
(2) Pro Forma Condensed Consolidated Balance Sheet
as of June 30, 1998 (unaudited) 10
(3) Pro Forma Condensed Consolidated Statements of
Operations for the six months ended June 30,
1998 (unaudited) 11
(4) Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1997
(unaudited) 12
(5) Notes to Pro Forma Condensed Consolidated
Financial Statements 13
</TABLE>
8
<PAGE> 9
PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet as
of June 30, 1998 and the unaudited pro forma condensed consolidated statements
of operations for the year ended December 31, 1997 and the six months ended June
30, 1998 give effect to the Merger as of June 30, 1998 for the pro forma
condensed consolidated balance sheet and as of January 1, 1997 for the pro forma
condensed consolidated statements of operations.
The unaudited pro forma condensed consolidated financial statements are
based on historical financial statements of Ligand and Seragen, giving effect to
the Merger applying the purchase method of accounting and the assumptions and
adjustments as discussed in the accompanying notes to the unaudited pro forma
condensed consolidated financial statements (see Note A). These unaudited pro
forma condensed consolidated financial statements have been prepared by the
management of Ligand based upon the consolidated financial statements of Ligand
and Seragen as of June 30, 1998 (unaudited) and for the year ended December 31,
1997 and the six months ended June 30, 1998 (unaudited). The unaudited pro forma
condensed consolidated financial statements should be read in conjunction with
the historical financial statements and notes thereto incorporated by reference.
The unaudited pro forma condensed consolidated financial statements are not
necessarily indicative of what actual results of operations would have been for
the periods presented had the transaction occurred on the dates indicated and do
not purport to indicate the results of future operations.
9
<PAGE> 10
LIGAND PHARMACEUTICALS INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 1998
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
SERAGEN
PRO FORMA SERAGEN MERGER PRO FORMA MERGER
ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
LIGAND SERAGEN (NOTE B) AS ADJUSTED (NOTE C) AS ADJUSTED
--------- --------- ------------ ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash, cash equivalents and
short-term investments $ 49,153 $ 3,245 $ (3,245)(a) $ -- $ (6,000)(a) $ 43,153
Restricted cash -- 200 (200)(a) -- -- --
Other current assets 3,178 2,048 (1,976)(b) 72 1,500(b) 4,750
--------- --------- --------- --------- --------- ---------
Total current assets 52,331 5,493 (5,421) 72 (4,500) 47,903
Restricted cash 2,809 -- -- -- -- 2,809
Property, plant and
equipment, net 15,516 15 -- 15 15,000(c) 30,531
Deferred commission -- 2,060 (2,060)(c) -- -- --
Acquired technology -- -- -- -- 35,504(d) 35,504
Other non-current assets 11,612 9 -- 9 -- 11,621
--------- --------- --------- ------- --------- ---------
$ 82,268 $ 7,577 $ (7,481) $ 96 $ 46,004 $ 128,368
========= ========= ========= ========= ========= =========
Liabilities and
stockholders's equity
Current liabilities:
Accounts payable and
other liabilities $ 12,554 $ 2,143 $ (167)(a) $ -- $ -- $ 12,554
(1,976)(b)
Related party payable -- 6,916 (6,916)(d) -- -- --
Dividend Payable -- Series B
preferred stock -- 4,120 (4,120)(d) -- -- --
Preferred stock
redemption liability -- 4,530 (4,530)(d) -- -- --
Deferred revenue 4,291 -- -- -- -- 4,291
Current portion of
obligations under capital
leases and equipment
notes payable 2,817 -- -- -- -- 2,817
Short-term obligation
-- Ajinomoto -- 800 (800)(e) -- -- --
--------- --------- --------- --------- --------- ---------
Total current
liabilities 19,662 18,509 (18,509) -- -- 19,662
Long-term obligations under
capital leases and
equipment notes payable 8,406 -- -- -- -- 8,406
Long-term obligation -- Ajinomoto -- 650 (550)(e) 100 -- 100
Long-term contingent Merger
obligations -- -- -- -- 50,000(e) 50,000
Deferred revenue -- Lilly
bulk purchase -- 5,000 (5,000)(e) -- -- --
Deferred revenue -- USSC option -- 5,000 (5,000)(d) -- -- --
Canadian affiliate put option -- 2,400 (2,400)(d) -- -- --
Convertible note and debentures 40,465 -- -- -- -- 40,465
--------- --------- --------- --------- --------- ---------
Total liabilities $ 68,533 $ 31,559 $ (31,459) $ 100 $ 50,000 $ 118,633
========= ========= ========= ========= ========= =========
Stockholders' equity:
Paid-in capital 320,592 188,248 22,966(d) 211,214 (211,214)(f) 346,592
26,000(f)
Adjustment for unrealized
losses on available
for sale securities 1,838 -- -- -- -- 1,838
Accumulated deficit (308,695) (212,230) (2,060)(c) (211,218) 211,218(f) (338,695)
(3,278)(a)
6,350(e)
(30,000)(g)
--------- --------- --------- --------- --------- ---------
Total stockholders' equity 13,735 (23,982) 23,978 (4) (3,996) 9,735
--------- --------- --------- --------- --------- ---------
$ 82,268 $ 7,577 $ (7,481) $ 96 $ 46,004 $ 128,368
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to Pro Forma Condensed Consolidated Financial Statements.
10
<PAGE> 11
LIGAND PHARMACEUTICALS INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(1)
For the Six Months Ended June 30, 1998
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Merger
Pro Forma Pro Forma
Adjustments Reflecting
Ligand Seragen (Note D) Merger
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Collaborative research and development:
Related parties $ -- $ -- $ -- $ --
Unrelated parties 9,273 1,922 -- 11,195
Other 179 -- -- 179
-------- -------- -------- --------
Total revenues 9,452 1,922 0 11,374
-------- -------- -------- --------
Costs and expenses:
Research and development 32,237 4,775 300 (a) 38,497
1,185 (b)
Selling, general and administrative 6,100 1,639 (231)(c) 7,508
-------- -------- -------- --------
Total costs and expenses 38,337 6,414 1,254 46,005
-------- -------- -------- --------
Loss from operations (28,885) (4,492) (1,254) (34,631)
Interest income 1,882 78 (243)(d) 1,717
Interest expense (3,948) -- -- (3,948)
-------- -------- -------- --------
Net loss $(30,951) $ (4,414) $ (1,497) $(36,862)
======== ======== ======== ========
Basic and Diluted net loss per share $ (0.80) $ (0.91)
======== ========
Shares used in computing loss per share 38,708 40,567
======== ========
</TABLE>
- ----------
(1) Due to its non-recurring nature, a $30.0 million in-process technology
charge recorded by Ligand in conjunction with the Merger for the estimated
fair value of the in-process technologies of Seragen is not reflected in
the above unaudited pro forma condensed consolidated statement of
operations
See accompanying notes to Pro Forma Condensed Consolidated Financial Statements.
11
<PAGE> 12
LIGAND PHARMACEUTICALS INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(1)
For the Year Ended December 31, 1997
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Merger
Pro Forma
Adjustments Pro Forma
Ligand Seragen (Note D) As Adjusted
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Collaborative research and development
Related parties $ 18,997 $ -- $ -- $ 18,997
Unrelated parties 32,284 4,714 -- 36,998
Other 418 -- -- 418
--------- --------- --------- ---------
Total revenues 51,699 4,714 -- 56,413
--------- --------- --------- ---------
Costs and expenses:
Research and development 72,426 14,882 (598)(a) 86,710
2,367 (b) 2,367
Selling, general and administrative 10,108 5,739 (800)(c) 15,047
Write-off of acquired in-process
technology(2) 64,970 -- -- 64,970
--------- --------- --------- ---------
Total costs and expenses 147,504 20,621 969 169,094
--------- --------- --------- ---------
Loss from operations (95,805) (15,907) (969) (112,681)
Interest income 3,743 127 (457)(d) 3,413
Interest expense (8,088) (172) 172 (e) (8,088)
--------- --------- --------- ---------
Net loss $(100,150) $ (15,952) $ (1,254) $(117,356)
========= ========= ========= =========
Basic and Diluted net loss per share $ (3.02) $ (3.35)
========= =========
Shares used in computing loss per share 33,128 34,987
========= =========
</TABLE>
- ----------
(1) Due to its non-recurring nature, a $30.0 million in-process technology
charge to be recorded by Ligand in conjunction with the Merger for the
estimated fair value of the in-process technologies of Seragen is not
reflected in the above unaudited pro forma condensed consolidated statement
of operations.
(2) Write-off of acquired in-process technology recorded by Ligand in 1997
related to Ligand's buyback of Allergan Ligand Retenoid Therapeutics, Inc.
(ALRT).
See accompanying notes to Pro Forma Condensed Consolidated Financial Statements.
12
<PAGE> 13
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
NOTE A
As consideration for Ligand's acquisition of Seragen through the Merger, Ligand
has paid and has agreed to pay to holders of Seragen Capital Stock and certain
creditors and obligees of Seragen the Merger Consideration pursuant to the terms
of the Merger Agreement, as follows:
1. The Closing Consideration, paid at the Closing, in the form of cash in
the amount of $4.0 million and approximately 1,858,800 shares of Ligand
Common Stock valued at $13.9875 per share (the average closing price of
the Ligand Common Stock on the Nasdaq National Market for the five
trading days prior to the announcement of the Merger) or $26.0 million
in the aggregate; and
2. The Milestone Consideration, payable on the Milestone Date, in the event
that Final FDA Approval is received on or before the Second Closing
Anniversary, or in the event Final FDA Approval is not received by the
Second Closing Anniversary and Ligand has not satisfied certain
obligations to undertake activities to obtain Final FDA Approval. The
Milestone Consideration, if any, may be paid in the form of cash, shares
of Ligand Common Stock or a combination of both as determined by Ligand
in its sole discretion. In the event Final FDA Approval has not been
received by the Second Closing Anniversary and Ligand has not breached
certain obligations to undertake activities to obtain Final FDA
Approval, Ligand will be relieved of all obligations to pay the
Milestone Consideration (See Note E).
Simultaneously with the signing of the Merger Agreement, Ligand entered into the
Option and Purchase Agreement pursuant to which Ligand will acquire the
Purchased Assets from and assume the Assumed Liabilities of Marathon. Ligand
also entered into the Letter Agreement and Lilly Agreement.
The total cost of the transactions is anticipated to be $82.0 million:
1. including
(a) $30 million paid at the Closing to
(i) creditors and obligees of Seragen pursuant to the terms
of the Merger Agreement and
(ii) holders of Seragen Capital Stock pursuant to the terms
of the Merger Agreement;
(b) $5 million payable for the purchase of the assets of Marathon
under the Option and Purchase Agreement no later than January
31, 1999, as extended, and liabilities assumed pursuant to the
terms of the Option and Purchase Agreement;
(i) amounts payable after the Merger only in the event of,
among other things, receipt of Final FDA Approval of
DAB(389)IL-2 (see Note E), including
(ii) $5.0 million payable to Lilly as a milestone payment
pursuant to the Lilly Agreement,
(iii) $37 million payable to holders of Seragen Capital Stock
and certain creditors and obligees of Seragen pursuant
to the Merger Agreement,
(iv) $3 million payable pursuant to the terms of the Option
and Purchase Agreement; and
(c) $2.0 million of estimated costs and expenses of the Merger; but
2. excluding amounts payable to Lilly as any subsequent milestone payment,
royalties or otherwise pursuant to the Lilly Agreement.
The pro forma consolidated financial statements were derived based on the
following assumptions:
1. at the Closing, Closing Consideration paid in the form of cash in the
amount of $4.0 million and approximately 1,858,800 shares of Ligand
Common Stock valued at $13.9875 per share (the average closing price of
the Ligand Common Stock on the Nasdaq National Market for the five
trading days prior to the announcement of the Merger) or $26.0 million
in the aggregate;
2. based on receipt of the Complete Review Letter, Ligand records on its
balance sheet as of the Closing Date (i) an intangible asset ("acquired
technology") which will be amortized over the remaining life of the
patents (assumed to be 15 years) and (ii) certain contingent obligations
as liabilities ("long-term contingent Merger obligations"). See Note E;
13
<PAGE> 14
3. all payments which Ligand may elect to pay in cash, Ligand Common Stock
or a combination of both are assumed to be paid wholly in Ligand Common
Stock.
Ligand will obtain a valuation of the tangible and intangible assets in order to
properly allocate the total purchase price to all of the assets acquired and
liabilities assumed in the Merger as required by Accounting Principles Board
Opinion No. 16. Pending completion of such valuations, Ligand has assigned the
estimated cost to the fair value of net assets acquired, including $30.0
million, to in-process technology. Ligand recorded a charge to operations for
the amount of in-process technology immediately following the consummation of
the Merger. This charge has not been reflected in the pro forma condensed
consolidated statement of operations for the year ended December 31, 1997 or the
six months ended June 30, 1998.
NOTE B
The pro forma condensed consolidated balance sheet gives effect to certain
adjustments as if they had occurred on June 30, 1998, immediately prior to the
Merger, including the elimination of certain assets and the capitalization of
certain liabilities pursuant to the terms of the Accord Agreement and the
elimination of certain liabilities pursuant to the Seragen Canada Settlement
Agreement and the Lilly Agreement.
These adjustments are summarized as follows (in thousands):
<TABLE>
<S> <C>
(a) Use of cash to pay Seragen-related pre-Merger transaction costs
and payables with excess cash distributed to Seragen
creditors and obligees $ (3,445)
(b) Elimination of unbilled and accrued contract research costs (1,976)
(c) Elimination of unamortized deferred commission (2,060)
(d) Capitalization of various short- and long-term
liabilities and obligations prior to the Merger (22,996)
(e) Forgiveness of obligations prior to the Merger (6,350)
</TABLE>
NOTE C
The pro forma condensed consolidated balance sheet includes the adjustments
necessary to give effect to the Merger as if it had occurred on June 30, 1998
and reflects the allocation of the cost of the proposed acquisition to the fair
value of net assets acquired; payment of $4 million in cash; issuance of
approximately 1,858,800 shares of Ligand Common Stock valued at $13.9875 per
share (the average closing price of the Ligand Common Stock on the Nasdaq
National Market for the five trading days prior to the announcement of the
Merger) or $26 million in the aggregate; payment of $2 million in Merger
transaction costs; the accrual of $50 million for long-term contingent Merger
obligations including the Milestone Consideration, the Lilly Milestone Payment
pursuant to the Lilly Agreement, and payments due January 31, 1999 (or later, as
extended) and six months after Final FDA Approval of DAB(389)IL-2 pursuant to
the Option and Purchase Agreement and the Merger Agreement, respectively; and
elimination of Seragen's equity accounts.
These adjustments are summarized as follows (in thousands):
<TABLE>
<S> <C>
(a) Use of cash for Merger and related transaction costs $ (6,000)
(b) Adjustment to fair market value of inventory 1,500
(c) Adjustment to fair market value of Marathon property and equipment 15,000
(d) Valuation of acquired technology 35,504
(e) Long-term contingent Merger obligations 50,000
(f) Issuance of Ligand Common Stock as discussed in Note A and
elimination of Seragen equity accounts 26,000
(g) Estimated charge to operations for in-process technology (30,000)
</TABLE>
14
<PAGE> 15
NOTE D
The pro forma condensed consolidated statements of operations include the
adjustments necessary to reflect the Merger as if it had occurred on January 1,
1997.
The pro forma adjustments are summarized as follows (in thousands):
<TABLE>
<CAPTION>
For the six For the twelve
months ended months ended
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
(a) Adjustment for depreciation resulting from
adjusting the basis of property and equipment
to fair value and amortization over 25 years $ 300 $ (598)
(b) Amortization of acquired technology over 15 years 1,185 2,369
(c) Elimination of Seragen stock issuance costs (1997)
and compensation expense amortization (1998) (231) (800)
(d) Elimination of interest income for Seragen
and reduction of Ligand interest income
resulting from use of $6 million for the
Merger at an annual interest rate of 5.5% (243) (457)
(e) Elimination of interest expense related to the
amortization of Seragen's Ajinomoto liability 0 172
</TABLE>
The net loss per share and the shares used in computing the net loss per share
for the year ended December 31, 1997 and the six months ended June 30, 1998 are
based upon Ligand's historical weighted average common shares outstanding for
the respective periods adjusted to reflect the issuance of approximately
1,858,800 shares of Ligand Common Stock as described in Note A.
NOTE E
There is no assurance that Final FDA Approval of DAB(389)IL-2 will be received,
or will be received prior to the Second Closing Anniversary.
In the event that Final FDA Approval is not received by the Second Closing
Anniversary and Ligand has not breached certain obligations to undertake
activities to obtain Final FDA Approval, Ligand will be relieved of all
obligations to pay the Milestone Consideration and to pay certain other
contingent payments pursuant to the Option and Purchase Agreement and the Lilly
Agreement. In such an event, the carrying value of Acquired Technology of $35.5
million, inventory of $1.5 million and property, plant and equipment of $15
million would be reduced by the $45 million of long-term contingent Merger
obligations which are no longer due and payable and the remaining asset value of
$7 million would be evaluated in accordance with SFAS No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of."
15
<PAGE> 16
(c) Exhibits.
(1) Exhibit 23.1 - Consent of Arthur Andersen LLP
(2) Exhibit 23.2 - Consent of PricewaterhouseCoopers LLP
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Current Report on Form 8-K/A to be signed on its
behalf by the undersigned hereunto duly authorized.
Ligand Pharmaceuticals Incorporated
-----------------------------------
(Registrant)
Date: September 25, 1998 By: /s/ Paul V. Maier
-----------------------------------
Name: Paul V. Maier
Title: Senior Vice President and
Chief Financial Officer
17
<PAGE> 18
EXHIBIT INDEX
The following Exhibits are filed herewith:
<TABLE>
<CAPTION>
Document Description
- -------- -----------
<S> <C>
Exhibit 23.1 Consent of Arthur Andersen LLP
Exhibit 23.2 Consent of PricewaterhouseCoopers LLP
</TABLE>
18
<PAGE> 1
EXHIBIT 23.1
Report of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of
our reports dated February 5, 1998 (except for the matters discussed in Notes A
and J as to which the dates are May 11, 1998 and March 30, 1998, respectively)
incorporated by reference in this Form 8-K/A into the Company's previously
filed Registration Statement File No. 333-58823.
Arthur Andersen LLP
Boston, Massachusetts
September 24, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Form 8-K/A of our report
dated February 23, 1996, on our audit of the financial statements of Seragen,
Inc. for the year ended December 31, 1995, appearing in the registration
statement on Form S-4 (No. 333-58823) of Ligand filed with the Securities and
Exchange Commission pursuant to the Securities Act of 1933.
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 25, 1998
