<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
MARK ONE
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 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.)
10275 SCIENCE CENTER DRIVE 92121-1117
SAN DIEGO, CA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (619) 535-7500
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
As of April 30, 1998 the registrant had 38,903,699 shares of Common Stock
outstanding.
<PAGE> 2
LIGAND PHARMACEUTICALS INCORPORATED
QUARTERLY REPORT
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<S> <C>
COVER PAGE...............................................................................................1
TABLE OF CONTENTS........................................................................................2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997.............................3
Consolidated Statements of Operations for the three months ended March 31, 1998 and 1997...........4
Consolidated Statements of Cash Flows for the three months ended March 31, 1998 and 1997...........5
Notes to Consolidated Financial Statements.........................................................6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.....7
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk................................*
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.........................................................................*
ITEM 2. Changes in Securities.....................................................................*
ITEM 3. Defaults upon Senior Securities...........................................................*
ITEM 4. Submission of Matters to a Vote of Security Holders.......................................*
ITEM 5. Other Information.........................................................................17
ITEM 6. Exhibits and Reports on Form 8-K..........................................................17
SIGNATURE................................................................................................18
</TABLE>
* No information provided due to inapplicability of item.
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 26,054 $ 62,252
Short-term investments 35,728 20,978
Other current assets 2,042 864
------------ ------------
Total current assets 63,824 84,094
Restricted short-term investments 2,809 3,057
Property and equipment, net 15,460 14,853
Notes receivable from officers and employees 575 559
Other assets 6,785 4,860
============ ============
$ 89,453 $ 107,423
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,074 $ 10,717
Accrued liabilities 4,841 5,609
Deferred revenue 2,886 2,616
Current portion of obligations under capital leases 2,723 2,753
------------ ------------
Total current liabilities 14,524 21,695
Long-term obligations under capital leases 8,574 8,501
Convertible note 6,250 6,250
Convertible subordinated debentures 37,296 36,628
Stockholders' equity:
Convertible preferred stock, $.001 par value; 5,000,000
shares authorized; none issued -- --
Common stock, $.001 par value; 80,000,000 shares
authorized; 38,621,882 shares and 38,504,459 shares issued
at March 31, 1998 and December 31, 1997, respectively 39 39
Paid-in capital 312,423 311,681
Adjustment for unrealized gains (losses) on available-for-sale securities 1,642 384
Accumulated deficit (291,284) (277,744)
------------ ------------
22,820 34,360
Less treasury stock, at cost (1,114 shares
at March 31, 1998 and December 31, 1997) (11) (11)
------------ ------------
Total stockholders' equity 22,809 34,349
============ ============
$ 89,453 $ 107,423
============ ============
</TABLE>
See accompanying notes.
3
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LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Revenues:
Collaborative research and development:
Related parties $ -- $ 5,966
Unrelated parties 4,974 3,737
Other 92 109
-------- --------
5,066 9,812
Costs and expenses:
Research and development 14,907 16,626
Selling, general and administrative 2,769 2,319
-------- --------
Total operating expenses 17,676 18,945
-------- --------
Loss from operations (12,610) (9,133)
Interest income 1,052 1,069
Interest expense (1,982) (2,075)
-------- --------
Net loss $(13,540) $(10,139)
======== ========
Basic and diluted loss per share $ (.35) $ (.32)
======== ========
Shares used in computing net loss per share 38,565 31,994
======== ========
</TABLE>
See accompanying notes.
4
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LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(13,540) $(10,139)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 1,053 973
Amortization of notes receivable from officers and employees 50 56
Amortization of deferred compensation and consulting -- 108
Amortization of warrant subscription receivable -- 478
Accretion of debt discount 668 669
Change in operating assets and liabilities:
Other current assets (1,177) (181)
Receivable from a related party -- 795
Accounts payable and accrued liabilities (7,411) (1,294)
Deferred revenue 270 318
-------- --------
Net cash used in operating activities (20,087) (8,217)
INVESTING ACTIVITIES
Purchase of short-term investments (19,878) (10,145)
Proceeds from short-term investments 6,386 6,923
Increase in notes receivable from officers and employees (75) (50)
Payment of notes receivable from officers and employees 8 --
Increase in other assets (2,234) (3,670)
Decrease in other assets 309 30
Purchase of property and equipment (833) (52)
-------- --------
Net cash used in investing activities (16,317) (6,964)
FINANCING ACTIVITIES
Principal payments on obligations under capital leases (784) (696)
Net change in restricted short-term investment 248 231
Net proceeds from sale of common stock 742 3,593
-------- --------
Net cash provided by financing activities 206 3,128
-------- --------
Net decrease in cash and cash equivalents (36,198) (12,053)
Cash and cash equivalents at beginning of period 62,252 34,830
======== ========
Cash and cash equivalents at end of period $ 26,054 $ 22,777
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 2,327 $ 2,412
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Additions to obligations under capital leases $ 827 $ 944
Conversion of note to common stock -- $ 3,750
</TABLE>
See accompanying notes.
5
<PAGE> 6
LIGAND PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
1. BASIS OF PRESENTATION
The consolidated financial statements of Ligand Pharmaceuticals Incorporated
(the "Company") for the three months ended March 31, 1998 and 1997 are
unaudited. These financial statements reflect all adjustments, consisting of
only normal recurring adjustments which, in the opinion of management, are
necessary to fairly present the consolidated financial position as of March 31,
1998 and the consolidated results of operations for the three months ended March
31, 1998 and 1997. The results of operations for the period ended March 31, 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 consolidated financial statements for the year ended December 31, 1997
included in the Ligand Pharmaceuticals Incorporated 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. As
adjusted for this item, comprehensive net loss for the three month periods ended
March 31, 1998 and 1997 are $(12.3) million and $(10.2) million respectively.
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.
2. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding.
3. NEW COLLABORATIVE RESEARCH AGREEMENT
In April 1998, SmithKline Beecham plc. and the Company initiated a new
collaboration to develop small molecule drugs for the treatment or prevention of
obesity. As part of the collaboration, SmithKline Beecham plc. purchased 274,423
shares of Ligand Common Stock for $5.0 million ($18.22 per share, a 20 percent
premium over a 15-day trading average daily closing price of the Company's stock
prior to execution of the agreement) and also purchased for $1 million a warrant
to purchase 150,000 shares of Ligand Common Stock at $20 per share. The warrant
expires in five years, and Ligand may require SmithKline Beecham plc. to
exercise the warrant under certain circumstances after three years. SmithKline
Beecham plc. will also purchase additional Ligand Common Stock at a 20 percent
premium if a certain research milestone is achieved and will make cash payments
to Ligand if subsequent milestones are met.
The companies reached agreement on the collaboration in March 1998, however, due
to required regulatory approvals the agreements were not finalized until April.
Had the agreement, warrant and equity purchase closed as of March 31, 1998,
Ligand's cash, short-term investments and restricted cash would have been $70.6
million.
6
<PAGE> 7
PART I. FINANCIAL INFORMATION
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 ("STATs") drug discovery and development programs. The Company has
been unprofitable since its inception and expects to incur substantial
additional operating losses due to continued requirements for research and
development, preclinical testing, clinical trials, regulatory activities,
establishment of manufacturing processes and sales and marketing capabilities
until the approval and commercialization of the Company's products generate
sufficient revenues, expected in 1999. The Company expects that losses will
fluctuate from quarter to quarter as a result of differences in the timing of
expenses incurred and the revenues earned from collaborative arrangements. Some
of these fluctuations may be significant. As of March 31, 1998, the Company's
accumulated deficit was approximately $291.3 million.
On May 11, 1998, Ligand and Seragen, Inc., ("Seragen") announced the execution
of a definitive agreement under which a wholly owned subsidiary of Ligand will
merge with Seragen (the "Merger"). In addition, Ligand 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 (the "Asset Purchase").
Finally, Ligand announced that it had signed an agreement with Eli Lilly and
Company ("Lilly") and Seragen, to be effective upon the closing of the Merger or
under certain other circumstances, under which Lilly will assign to Ligand
Lilly's rights and obligations under its agreements with Seragen, including its
rights to Ontak(TM) (DAB389IL-2, Interleukin-2 Fusion Protein or denileukin
diftitox) (the Assignment and collectively, with the Merger and the Asset
Purchase, the "Proposed Transactions").
In December 1994, the Company and Allergan, Inc. ("Allergan") formed Allergan
Ligand Retinoid Therapeutics, Inc. ("ALRT") to continue the research and
development activities previously conducted by the Allergan Ligand Joint Venture
(the "Joint Venture"). In June 1995, the Company and ALRT completed a public
offering of 3,250,000 units (the "Units") with aggregate proceeds of $32.5
million (the "ALRT Offering") and cash contributions by Allergan and the Company
of $50.0 million and $17.5 million, respectively, providing for net proceeds of
$94.3 million for retinoid product research and development. Each Unit consisted
of one share of ALRT's callable common stock ("Callable Common Stock") and two
warrants, each warrant entitling the holder to purchase one share of the Common
Stock of the Company. In September 1997, the Company and Allergan exercised
their respective options to purchase all of the Callable Common Stock (the
"Stock Purchase Option") and certain assets (the "Asset Purchase Option") of
ALRT. The Company's exercise of the Stock Purchase Option required the issuance
of 3,166,567 shares of the Company's Common Stock along with cash payments
totaling $25.0 million, to holders of the Callable Common Stock in November
1997. Allergen's exercise of the Asset Purchase Option required a cash payment
of $8.9 million to ALRT in November 1997, which was used by the Company to pay a
portion of the Stock Purchase Option. Prior to September 1997, cash received
from ALRT was recorded as contract revenue. As a result of the ALRT buyback,
research expenditures incurred related to ALRT activities are no longer
reimbursed, eliminating the ALRT contract revenue recognition. The buyback of
ALRT was accounted for using the purchase method of accounting. The excess of
the purchase price over the fair value of net assets acquired was allocated to
in-process technology and written off resulting in a one time noncash charge to
results of operations of $65.0 million in 1997.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 ("1998"), as compared with Three Months Ended
March 31, 1997 ("1997")
The Company had revenues of $5.1 million for 1998 compared to revenues of $9.8
million for 1997. The decrease in revenues is primarily due to the buyback of
ALRT which resulted in reduced revenue recognition of $6.0 million compared
7
<PAGE> 8
to 1997, completion of the Glaxo-Wellcome, plc ("Glaxo") and Sankyo Company Ltd.
("Sankyo") collaborations in 1997, offset by increased revenues from a new
research and development collaboration with Lilly which began in November 1997.
Revenues in 1998 were derived from the Company's research and development
agreements with (i) Lilly of $2.5 million, (ii) SmithKline Beecham Corporation
("SmithKline Beecham") of $784,000, (iii) American Home Products Corporation
("AHP") of $705,000, (iv) Abbott Laboratories ("Abbott") of $300,000 as well as
an up-front license fee of $686,000 from Cytel Corporation ("Cytel") and product
sales of Ligand (Canada) in-licensed products of $92,000. Revenues for 1997 were
derived from the Company's research and development agreements with (i) ALRT of
$6.0 million, (ii) AHP of $1.2 million, (iii) Sankyo of $744,000, (iv) Abbott of
$540,000, (v) SmithKline Beecham of $711,000, (vi) Glaxo of $491,000 as well as
from product sales of Ligand (Canada) in-licensed products of $109,000.
For 1998, research and development expenses decreased to $14.9 million from
$16.6 million in 1997. These expenses decreased primarily due to completion of
the research portion of the Sankyo collaboration in October 1997 offset by
expansion of the Company's research, clinical and development personnel.
Selling, general and administrative expenses increased to $2.8 million in 1998
from $2.3 million in 1997. The increase was primarily attributable to personnel
additions and resource expansion in preparation for commercialization
activities. Interest income was $1.1 million for 1998 and 1997. Interest expense
decreased slightly to $2.0 million for 1998, from $2.1 million in 1997.
The Company has significant net operating loss carryforwards for federal and
state income taxes which are available subject to Internal Revenue Code 382 and
383 carryforward limitations.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations through private and public offerings of
its equity securities, collaborative research revenues, capital and operating
lease transactions, issuance of convertible notes, investment income and product
sales. From inception through March 31, 1998, the Company has raised $196.5
million from sales of equity securities: $78.2 million from the Company's public
offerings and an aggregate of $118.3 million from private placements and the
exercise of options and warrants.
As of March 31, 1998, the Company had acquired an aggregate of $26.3 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. 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. In March 1997, the Company
entered into a long-term lease, related to a second build-to-suit facility and
loaned the construction partnership $3.7 million at an annual interest rate of
8.5% which will be paid back monthly over a 10-year period. The second
build-to-suit facility was completed and occupied in December 1997. In February
1997, the Company signed a master lease agreement to finance future capital
equipment up to $1.5 million, and in July 1997, the master lease agreement was
extended to December 1998 to include up to an additional $4.5 million. Each
individual schedule under the extended master lease agreement will be paid back
monthly with interest over a five-year period. As of March 31, 1998, the company
had $2.8 million available to finance future capital equipment.
Working capital decreased to $49.3 million as of March 31, 1998, from $62.4
million at the end of 1997. The decrease in working capital resulted from a
decrease in cash due to increases in clinical trials and product development
expenses in late 1997, operating expenses and semi-annual interest payments due
on convertible subordinated debentures and convertible notes offset by a
decrease in accrued liabilities. For the same reasons, cash and cash
equivalents, short-term investments and restricted cash decreased to $64.6
million at March 31, 1998 from $86.3 million at December 31, 1997. The Company
primarily invests its cash in United States government and investment grade
corporate debt securities.
In April 1998, SmithKline Beecham plc. and the Company initiated a new
collaboration to develop small molecule drugs for the treatment or prevention of
obesity. As part of the collaboration, SmithKline Beecham plc. purchased 274,423
shares of Ligand Common Stock for $5.0 million ($18.22 per share, a 20 percent
premium over a 15-day trading average daily closing price of the Company's stock
prior to execution of the agreement) and also purchased for $1 million a warrant
to purchase 150,000 shares of Ligand Common Stock at $20 per share. The warrant
expires in five years, and Ligand may require SmithKline Beecham plc. to
exercise the warrant under certain circumstances after three years. SmithKline
Beecham plc. will also purchase additional Ligand Common Stock at a 20 percent
premium if a certain research milestone is achieved and will make cash payments
to Ligand if subsequent milestones are met.
8
<PAGE> 9
The companies reached agreement on the collaboration in March 1998, however, due
to required regulatory approvals the agreements were not finalized until April.
Had the agreement, warrant and equity purchase closed as of March 31, 1998,
Ligand's cash, short-term investments and restricted cash would have been $70.6
million.
The Company believes that its available cash, cash equivalents, marketable
securities and existing sources of funding will be adequate to satisfy its
anticipated capital requirements through 1999. 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.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, many companies' software and computer systems
may need to be upgraded or replaced in order to comply with such "Year 2000"
requirements. Certain of the Company's internal computer systems are not year
2000 compliant, and the Company utilizes third-party equipment and software that
may not be Year 2000 compliant. The Company has commenced taking actions to
correct or convert such internal systems and is in the early stages of
conducting an audit of its third-party suppliers as to the Year 2000 compliance
of their systems. The Company does not believe that the cost of these actions
will have a material adverse affect on the Company's business, financial
condition or operating results. However, there can be no assurance that a
failure of the Company's internal computer systems or of third-party equipment
or software used by the Company, or of systems maintained by the Company's
suppliers, to be Year 2000 compliant will not have a material adverse effect on
the Company's business, financial condition or operating results. In addition,
there can be no assurance that adverse changes in the purchasing patterns of the
Company's potential customers as a result of Year 2000 issues affecting such
customers will not have a material adverse effect on the Company's business,
financial condition or results of operations. These expenditures may result in
reduced funds available to purchase the Company's products which could have a
material adverse effect on the Company's business, operating results and
financial condition.
RISKS AND UNCERTAINTIES
In addition to the other business information contained herein, the following
are among the factors that should also be considered carefully in evaluating
Ligand, its wholly-owned subsidiaries, Glycomed Inc., Ligand (Canada) Inc. and
Allergan Ligand Retinoid Therapeutics, Inc.
("Ligand" or the "Company") and its business.
Uncertainty of Product Development and Commercialization and Related Technology.
Ligand was founded in 1987 and has not generated any revenues from the sale of
products developed by Ligand or its collaborative partners. To achieve
profitable operations, the Company, alone or with others, must successfully
develop, clinically test, market and sell its products. Any products resulting
from the Company's or its collaborative partners' product development efforts
are not expected to be available for sale for at least several years, if at all.
The development of new pharmaceutical products is highly uncertain and subject
to a number of significant risks. Potential products that appear to be promising
at early stages of development may not reach the market for a number of reasons.
Such reasons include the possibilities that potential products are found during
preclinical testing or clinical trials to be ineffective or to cause harmful
side effects, that they fail to receive necessary regulatory approvals, are
difficult or uneconomical to manufacture on a large scale, fail to achieve
market acceptance or are precluded from commercialization by proprietary rights
of third parties. To date, Ligand's resources have been substantially dedicated
to the research and development of potential pharmaceutical products based upon
its expertise in IR and STATs technologies. Even though certain pharmaceutical
products act through IRs, some aspects of the Company's IR technologies have not
been used to produce marketed products. In addition, the Company is not aware of
any drugs that have been developed and successfully commercialized that interact
directly with STATs. Much remains to be learned about the location and function
of IRs and STATs. Most of the Company's potential products will require
extensive additional development, including preclinical testing and clinical
trials, as well as regulatory approvals, prior to commercialization. No
assurance can be given that the Company's product development efforts will be
successful, that required regulatory approvals from the FDA or equivalent
foreign authorities for any indication will be obtained or that any products, if
introduced, will be capable of being produced in commercial quantities at
reasonable costs or will be successfully marketed. Further, the Company has no
sales and only limited marketing capabilities outside Canada, and even if the
Company's products in internal development are approved for
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<PAGE> 10
marketing, there can be no assurance that the Company will be able to develop
such capabilities or successfully market such products.
History of Operating Losses; Accumulated Deficit; Future Capital Needs;
Uncertainty of Additional Funding. Ligand has experienced significant operating
losses since its inception in 1987. As of March 31, 1998, Ligand had an
accumulated deficit of approximately $291.3 million. To date, substantially all
of Ligand's revenues have consisted of amounts received under collaborative
arrangements. The Company expects to incur additional losses due to continued
requirements for research and development, preclinical testing, clinical trials,
regulatory activities, establishment of manufacturing processes and sales and
marketing capabilities until the approval and commercialization of the Company's
products generate sufficient revenues, expected in 1999.
The discovery, development and commercialization of products will require the
commitment of substantial resources to conduct research, preclinical testing and
clinical trials, to establish pilot scale and commercial scale manufacturing
processes and facilities, and to establish and develop quality control,
regulatory, marketing, sales and administrative capabilities. The future capital
requirements of the Company will depend on many factors, including the pace of
scientific progress in its research and development programs, the magnitude of
these programs, the scope and results of preclinical testing and clinical
trials, the time and costs involved in obtaining regulatory approvals, the costs
involved in preparing, filing, prosecuting, maintaining and enforcing patent
claims, competing technological and market developments, the ability to
establish additional collaborations, changes in existing collaborations, the
cost of manufacturing scale-up and the effectiveness of the Company's
commercialization activities. To date, Ligand has not generated any revenue from
the sales of products developed by Ligand or its collaborative partners. There
can be no assurance that Ligand independently or through its collaborations will
successfully develop, manufacture or market any products or ever achieve or
sustain revenues or profitability from the commercialization of such products.
Moreover, even if profitability is achieved, the level of that profitability
cannot be accurately predicted. Ligand expects that operating results will
fluctuate from quarter to quarter as a result of differences in the timing of
expenses incurred and the revenues received from collaborative arrangements and
other sources. Some of these fluctuations may be significant. The Company
believes that its available cash, cash equivalents, marketable securities and
existing sources of funding will be adequate to satisfy its anticipated capital
requirements through 1999.
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 potential 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
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<PAGE> 11
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 Lilly, SmithKline Beecham, AHP,
Abbott, Sankyo, Glaxo, Allergan and Pfizer. These collaborations provide Ligand
with funding and research and development resources for potential products for
the treatment or control of metabolic diseases, hematopoiesis, women's health
disorders, inflammation, cardiovascular disease, cancer and skin disease, and
osteoporosis, respectively. The Company's collaborative agreements allow its
collaborative partners significant discretion in electing to pursue or not to
pursue any development program. There can be no assurance that the Company's
collaborations will continue or that the collaborations will be successful. In
addition, there can be no assurance that Ligand's collaborators will not pursue
alternative technologies either on their own or in collaboration with others as
a means of developing drugs competitive with the types of drugs currently being
developed in collaboration with Ligand, and any such action may result in the
withdrawal of support and increased competition for the Company's programs. In
addition, if products are approved for marketing under these programs, any
revenues to Ligand from these products will be dependent on the manufacturing,
marketing and sales efforts of its collaborators, which generally retain
commercialization rights under the collaborative agreements. Ligand's current
collaborators also generally have the right to terminate their respective
collaborations under certain circumstances. If any of the Company's
collaborative partners were to breach or terminate its agreements with the
Company or otherwise fail to conduct its collaborative activities successfully,
the development of the Company's products under such agreements would be delayed
or terminated. The delay or termination of any of the collaborations could have
a material adverse effect on Ligand.
There can be no assurance that disputes will not arise in the future with
Ligand's collaborators, including with respect to the ownership of rights to any
technology developed. For example, the Company was involved in litigation with
Pfizer, which was settled in April 1996, with respect to Ligand's rights to
receive milestones and royalties based on the development and commercialization
of droloxifene. These and other possible disagreements between collaborators and
the Company could lead to delays in the achievement of milestones or receipt of
milestone payments or research revenue, to delays or interruptions in, or
termination of, collaborative research, development and commercialization of
certain potential products, or could require or result in litigation or
arbitration, which could be time consuming and expensive and could have a
material adverse effect on the Company.
No Assurance that Recently Announced Transactions Can Be Completed. On May 11,
1998, Ligand announced the Proposed Transactions. The obligations of Ligand and
Seragen to consummate the Merger, the obligations of Ligand and Marathon to
consummate the Asset Purchase and the obligations of Ligand and Lilly to
consummate the Assignment are each subject to the satisfaction of a number of
conditions, including the approval of Seragen's shareholders, the effectiveness
of a Registration Statement and the accuracy of representations and warranties
of each of Ligand, Seragen and Marathon at the respective closings. In addition,
each of the agreements may be terminated under certain circumstances prior to
the effective date of the Merger. Ligand may not consummate the Asset Purchase
until the Merger is consummated. In addition, the Assignment is not effective
until the Merger is consummated, or under certain other circumstances. In
certain circumstances, Seragen will pay to Ligand a termination fee of $5
million plus a percentage of amounts realized in a competing transaction. There
can be no assurance that all of the conditions to the obligations of the parties
under the agreements will be satisfied, that the agreements will not be
terminated or that the Proposed Transactions will be consummated.
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.
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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 could 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 exclusive rights to more than 150 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 200 worldwide patents issued or allowed to it or to The
Salk Institute of Biological Studies ("The Salk Institute"), Baylor College of
Medicine ("Baylor") and other licensors. Further, there can be no assurance that
any patents issued to Ligand or to licensors of Ligand's technology will not be
challenged, invalidated, circumvented or rendered unenforceable based on, among
other things, subsequently discovered prior art, lack of entitlement to the
priority of an earlier, related application, or failure to comply with the
written description, best mode, enablement or other applicable requirements, or
that the rights granted under any such patents will provide significant
proprietary protection or commercial advantage to Ligand. The invalidation,
circumvention or unenforceability of any of Ligand's patent protection could
have a material adverse effect on the Company.
The commercial success of Ligand will also depend in part on Ligand's not
infringing patents issued to competitors and not breaching technology licenses
that cover technology used in Ligand's products. It is uncertain whether any
third-party patents will require Ligand to develop alternative technology or to
alter its products or processes, obtain licenses or cease certain activities. If
any such licenses are required, there can be no assurance that Ligand will be
able to obtain such licenses on commercially favorable terms, if at all. Failure
by Ligand to obtain a license to any technology that it may require to
commercialize its products could have a material adverse effect on Ligand.
Litigation, which could result in substantial cost to Ligand, may also be
necessary to enforce any patents issued or licensed to Ligand or to determine
the scope and validity of third-party proprietary rights. There can be no
assurance that Ligand's patents or those of its licensors, if issued, would be
held valid by a court or that a competitor's technology or product would be
found to infringe such patents. If any of its competitors have filed patent
applications in the United States which claim technology also invented by
Ligand, Ligand may be required to participate in interference proceedings
declared by the U.S. Patent and Trademark Office ("PTO") in order to determine
priority of invention and, thus, the right to a patent for the technology, which
could result in substantial cost to Ligand to determine its rights.
Ligand has learned that a United States patent has been issued to, and foreign
counterparts have been filed by, Hoffman LaRoche ("Roche") that include claims
to a formulation of 9-cis-Retinoic acid (Panretin) 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 is currently investigating the scope and validity of this
patent to determine its impact upon the Panretin Capsules and Gel products. The
PTO has informed Ligand that the overlapping claims are patentable to Ligand and
initiated 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 Panretin
Capsules and Gel products. While the Company believes that the Roche patent does
not cover the use of Panretin Capsules and Gel to treat leukemias such as APL
and sarcomas such as KS, or the treatment of skin diseases such as psoriasis, if
the Company does not prevail
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<PAGE> 13
in the interference proceeding, the Roche patent might block the Company's use
of Panretin Capsules and Gel in certain cancers, and the Company may not be able
to obtain patent protection for the Panretin Capsules and Gel 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.
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, which was developed by Cetus
Oncology Corporation and PHOTOFRIN, which was developed by QLT
PhotoTherapeutics, Inc. To market any of its products directly, the Company will
need to develop a marketing and sales force with technical expertise and
distribution capability or contract with other pharmaceutical and/or health care
companies with distribution systems and direct sales forces. There can be no
assurance that the Company will be able to establish direct or indirect sales
and distribution capabilities or be successful in gaining market acceptance for
proprietary products or for other products. To the extent the Company enters
into co-promotion or other licensing arrangements, any revenues received by the
Company will be dependent on the efforts of third parties, and there can be no
assurance that any such efforts will be successful.
Substantial Competition; Risk of Technological Obsolescence. Some of the drugs
which Ligand is developing will compete with existing therapies. In addition, a
number of companies are pursuing the development of novel pharmaceuticals which
target the same diseases that Ligand is targeting as well as IR-related and
STAT-related approaches to drug discovery and development. Many of Ligand's
existing or potential competitors, particularly large pharmaceutical companies,
have substantially greater financial, technical and human resources than Ligand
and may be better equipped to develop, manufacture and market products. In
addition, many of these companies have extensive experience in preclinical
testing and human clinical trials, obtaining FDA and other regulatory approvals
and manufacturing and marketing pharmaceutical products. Academic institutions,
governmental agencies and other public and private research organizations are
conducting research to develop technologies and products that may compete with
those under development by the Company. These institutions are becoming
increasingly aware of the commercial value of their findings and are becoming
more active in seeking patent protection and licensing arrangements to collect
royalties for the use of technology that they have developed. These institutions
also may market competitive commercial products on their own or through joint
ventures and will compete with the Company in recruiting highly qualified
scientific personnel. Any of these companies, academic institutions, government
agencies or research organizations may develop and introduce products and
processes competitive with or superior to those of Ligand. The development by
others of new treatment methods for those indications for which Ligand is
developing products could render Ligand's products noncompetitive or obsolete.
Ligand's products under development target a broad range of markets. Ligand's
competition will be determined in part by the potential indications for which
Ligand's products are developed and ultimately approved by regulatory
authorities. For certain of Ligand's potential products, an important factor in
competition may be the timing of market introduction of Ligand's or competitors'
products. Accordingly, the relative speed at which Ligand or its existing or
future corporate partners can develop products, complete the clinical trials and
regulatory approval processes, and supply commercial
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<PAGE> 14
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.
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Product Liability and Insurance Risks. Ligand's business exposes it to potential
product liability risks which are inherent in the testing, manufacturing and
marketing of human therapeutic products. Certain of the compounds the Company is
investigating could be injurious to humans. For example, retinoids as a class
are known to contain compounds which can cause birth defects. Ligand currently
has limited product liability insurance; however, there can be no assurance that
Ligand will be able to maintain such insurance on acceptable terms or that such
insurance will provide adequate coverage against potential liabilities. The
Company expects to procure additional insurance when its products progress to a
later stage of development and if any rights to later-stage products are
in-licensed in the future. To the extent that product liability insurance, if
available, does not cover potential claims, the Company will be required to
self-insure the risks associated with such claims. A successful product
liability claim or series of claims brought against the Company could have a
material adverse effect on the Company.
Dependence on Key Employees. Ligand is highly dependent on the principal members
of its scientific and management staff, the loss of whose services might impede
the achievement of development objectives. Furthermore, Ligand is currently
experiencing a period of rapid growth which requires the hiring of significant
numbers of scientific, management and operational personnel. Accordingly,
recruiting and retaining qualified management, operations and scientific
personnel to perform research and development work in the future will also be
critical to Ligand's success. Although Ligand believes it will be successful in
attracting and retaining skilled and experienced management, operational and
scientific personnel, there can be no assurance that Ligand will be able to
attract and retain such personnel on acceptable terms given the competition
among numerous pharmaceutical and biotechnology companies, universities and
other research institutions for such personnel.
Use of Hazardous Materials. Ligand's research and development involves the
controlled use of hazardous materials, chemicals and various radioactive
compounds. For example, retinoids as a class are known to contain compounds
which can cause birth defects. Although the Company believes that its current
safety procedures for handling and disposing of such materials, chemicals and
compounds comply with the standards prescribed by state and federal regulations,
the risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of any accident, the Company could be held
liable for any damages that result and any such liability could be significant.
The Company may incur substantial costs to comply with environmental
regulations. Any such event could have a material adverse effect on the Company.
Volatility of Stock Price. The market prices and trading volumes for securities
of emerging companies, like Ligand, have historically been highly volatile and
have experienced significant fluctuations unrelated to the operating performance
of such companies. Future announcements concerning the Company or its
competitors may have a significant impact on the market price of the Common
Stock. Such announcements might include the results of research, development
testing, technological innovations, new commercial products, government
regulation, developments concerning proprietary rights, litigation or public
concern as to the safety of the products.
Absence of Cash Dividends. No cash dividends have been paid on the Company's
Common Stock to date, and Ligand does not anticipate paying cash dividends in
the foreseeable future.
Effect of Shareholder Rights Plan and Certain Anti-Takeover Provisions. In
September 1996, the Company's Board of Directors adopted a preferred shares
rights plan (the "Shareholder Rights Plan") which provides for a dividend
distribution of one preferred share purchase right (a "Right") on each
outstanding share of the Company's Common Stock. Each Right entitles
stockholders to buy 1/1000th of a share of Ligand Series A Participating
Preferred Stock at an exercise price of $100, subject to adjustment. The Rights
will become exercisable following the tenth day after a person or group
announces acquisition of 20% or more of the Company's Common Stock, or announces
commencement of a tender offer, the consummation of which would result in
ownership by the person or group of 20% or more of the Company's Common Stock.
The Company will be entitled to redeem the Rights at $0.01 per Right at any time
on or before the earlier of the tenth day following acquisition by a person or
group of 20% or more of the Company's Common Stock and September 13, 2006.
Ligand's Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") includes a provision that requires the approval of the holders
of 66 2/3% of Ligand's voting stock as a condition to a merger or certain other
business transactions with, or proposed by, a holder of 15% or more of Ligand's
voting stock, except in cases where certain directors approve the transaction or
certain minimum price criteria and other procedural requirements are met (the
"Fair Price Provision"). The Certificate of Incorporation also requires that any
action required or permitted to be taken by stockholders of Ligand must be
effected at a duly called annual or special meeting of stockholders and may not
be effected by any consent in writing. In addition, special meetings of the
stockholders of Ligand may be called only by the Board of Directors,
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<PAGE> 16
the Chairman of the Board or the President of Ligand or by any person or persons
holding shares representing at least 10% of the outstanding Common Stock of the
Company. The Shareholder Rights Plan, the Fair Price Provision and other charter
provisions may discourage certain types of transactions involving an actual or
potential change in control of Ligand, including transactions in which the
stockholders might otherwise receive a premium for their shares over then
current market prices, and may limit the ability of the stockholders to approve
transactions that they may deem to be in their best interests. In addition, the
Board of Directors has the authority to fix the rights and preferences of and
issue shares of preferred stock, which may have the effect of delaying or
preventing a change in control of Ligand without action by the stockholders.
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PART II. OTHER INFORMATION
ITEM 5 OTHER INFORMATION
On May 11, 1998, Ligand and Seragen announced the execution of a definitive
agreement under which a wholly owned subsidiary of Ligand will merge with
Seragen (the "Merger"). In addition, Ligand announced that it had signed a
definitive asset purchase agreement to acquire substantially all the assets of
Marathon Biopharmaceuticals, LLC, which currently provides services to Seragen
under a service agreement. Finally, Ligand announced that it had signed an
agreement with Eli Lilly and Company ("Lilly") and Seragen, to be effective upon
the closing of the Merger or under certain other circumstances, under which
Lilly will assign to Ligand Lilly's rights and obligations under its agreements
with Seragen, including its rights to Ontak(TM) (DAB389IL-2, Interleukin-2
Fusion Protein or denileukin diftitox). See "Part I-Item 2-Management's
Discussion and Analysis of Financial Condition and Results of Operations-Risks
and Uncertainties."
ITEM 6 (A) EXHIBITS
Exhibit 10.173 Ninth Addendum to Amended Registration Rights Agreement,
dated June 24, 1994, between the Company and SmithKline
Beecham plc., and is effective as of April 24, 1998.
Exhibit 10.174 (1) Leptin Research, Development and License Agreement, dated
March 17, 1998, between the Company and SmithKline Beecham,
plc.
Exhibit 10.175 (1) Stock and Warrant Purchase Agreement, dated March 17, 1998,
among the Company, SmithKline Beecham, plc. and SmithKline
Beecham Corporation.
Exhibit 27.1 Financial Data Schedule
ITEM 6 (B) REPORTS ON FORMS 8-K
None.
(1) Certain confidential portions of this Exhibit were omitted by
means of marking such portions with an asterisk (the "Mark"). This
Exhibit has been filed separately with the Secretary of the
Commission without the Mark pursuant to the Company's Application
Requesting Confidential Treatment under Rule 24b-2 of the Securities
Exchange Act of 1934.
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LIGAND PHARMACEUTICALS INCORPORATED
March 31, 1998
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Ligand Pharmaceuticals Incorporated
Date: May 14, 1998 By /s/ PAUL V. MAIER
------------------------------ ---------------------------------
Paul V. Maier
Senior Vice President and
Chief Financial Officer
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<PAGE> 1
EXHIBIT 10.173
NINTH ADDENDUM TO AMENDED REGISTRATION RIGHTS AGREEMENT
This Ninth Addendum ("Addendum") to the Amended Registration Rights
Agreement dated June 24, 1994, as amended through the date hereof ("Registration
Rights Agreement") between Ligand Pharmaceuticals Incorporated (the "Company")
and SmithKline Beecham plc ("Investor") is effective as of April 24, 1998.
RECITALS
A. As of the date hereof, the Company has issued (i) 274,423 shares of
the Company's Common Stock (the "Shares") to Investor pursuant to Section 1.1(a)
of that certain Stock Purchase Agreement dated as of March 17, 1998 among the
Company and Investor (the "Purchase Agreement") and (ii) warrants exercisable
into 150,000 shares of the Company's Common Stock (the "Warrant Shares") to
Investor pursuant to Section 1.1(c) of the Purchase Agreement.
B. This Addendum serves to include the Shares (and the Warrant Shares,
when and if issued) within the definition of "Registrable Securities" under the
Registration Rights Agreement and to modify Schedule A to the Registration
Rights Agreement to include such Shares, all pursuant to Section 2.6(a) of the
Registration Rights Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth in the Registration Rights Agreement, the parties agree as follows:
1. Section 1.1, paragraph (f) of the Registration Rights Agreement is
hereby restated in its entirety as follows:
"(f) The term "Registrable Securities" means (i) the 6,150,085
shares of Class B Common Stock (or that number of shares of such other
class of stock into which the Common Stock is converted) issued upon
conversion of the Company's Preferred Stock to the holders thereof and
in the amounts set forth on Schedule A attached hereto, (ii) the Common
Stock issuable or issued upon exercise of those warrants issued to
certain Existing Investors and pursuant to which such Existing Investors
were previously granted registration rights by the Company, (iii) the
shares of Common Stock (or the shares of such other class of stock into
which the Common Stock is converted) issuable upon conversion of those
certain Unsecured Convertible Promissory Notes issued to American Home
Products Corporation pursuant to the Stock and Note Purchase Agreement
dated September 2, 1994, (iv) the 35,957 shares of Common Stock issuable
or issued upon exercise of the Warrant issued to Genentech, Inc. in
<PAGE> 2
connection with the merger of L.G. Acquisition Corp., a wholly-owned
subsidiary of the Company, with and into Glycomed Incorporated, which
shares are reflected on Schedule A attached to the Fourth Addendum to
this Agreement, (v) the 164,474 shares of Common Stock (or that number
of shares of such other class of stock into which the Common Stock is
converted) issued to S.R. One, Limited pursuant to a Stock and Note
Purchase Agreement dated February 3, 1995 ("Stock and Note Purchase
Agreement"), which shares are reflected on Schedule A attached to the
Eighth Addendum to this Agreement, and the shares of Common Stock (or
the shares of such other class of stock into which the Common Stock is
converted) issuable upon conversion of those certain Unsecured
Convertible Promissory Note dated October 30, 1997 issued pursuant to
the Stock and Note Purchase Agreement (and upon such conversion of the
Notes, Schedule A shall be updated to include such shares), (vi) the
274,423 shares of Common Stock (or that number of shares of such other
class of stock into which the Common Stock is converted) issued to the
Investor pursuant to the Purchase Agreement, which shares are reflected
on Schedule A attached hereto, and the shares of Common Stock (or the
shares of such other class of stock into which the Common Stock is
converted) issuable upon conversion of that certain Common Stock
Purchase Warrant issued to Investor pursuant to the Purchase Agreement
(and upon such conversion of such Warrant, Schedule A shall be updated
to include such shares), and (vii) any Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of
the shares referenced in (i), (ii), (iii), (iv), (v) and (vi) above,
excluding in all cases, however, any Registrable Securities sold by a
person in a transaction in which rights under this Agreement are not
assigned."
2. Schedule A of the Registration Rights Agreement is hereby restated in
its entirety as attached to this Addendum.
3. This Addendum may be executed in one or more counterparts.
4. This Addendum shall be binding upon the Company, Investor and each
holder of Registrable Securities and each future holder of Registrable
Securities pursuant to Section 2.6(a) of the Registration Rights Agreement.
[REMAINDER OF THE PAGE INTENTIONALLY LEFT BLANK]
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Addendum as of the
date first above written.
SMITHKLINE BEECHAM PLC LIGAND PHARMACEUTICALS
INCORPORATED
By: /s/ DONALD F. PARMAN By: /s/ WILLIAM L. RESPESS
---------------------------------- ------------------------------------
Title: Attorney-in-fact Title: Sr. V.P., General Counsel,
------------------------------- ---------------------------------
Government Affairs
---------------------------------
[SIGNATURE PAGE TO NINTH ADDENDUM TO
AMENDED REGISTRATION RIGHTS AGREEMENT]
-3-
<PAGE> 4
SCHEDULE A
to
Ninth Addendum to
Amended Registration Rights Agreement
<TABLE>
<CAPTION>
Name Shares
Issued
<S> <C>
Allergan Pharmaceuticals (Ireland) Ltd., Inc. 1,343,125
American Home Products Corporation 374,626
American Home Products Corporation 374,626
American Home Products Corporation 249,749
American Home Products Corporation 124,875
Aspen Venture Partners, L.P. 2,659
Enterprise Partners 3,745
Genentech, Inc. 35,957
Kleiner Perkins Caufield & Byers 7,688
ML Venture Partners II, L.P. 2,417
S.R. One, Limited 164,474
SmithKline Beecham 274,423
Venrock Associates 3,441
Venrock Associates II, L.P. 1,540
Windsor Venture Lease Partners Ltd., Inc. 283
Total: 2,963,628
</TABLE>
-4-
<PAGE> 1
EXHIBIT 10.174
LEPTIN RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT
by and between
SMITHKLINE BEECHAM PLC
and
LIGAND PHARMACEUTICALS INCORPORATED
DATED
MARCH 17, 1998
***Certain confidential portions of this Exhibit were omitted by means of
blackout of the text (the "Mark"). This Exhibit has been filed separately with
the Secretary of the Commission without the Mark pursuant to the Company's
Application Requesting Confidential Treatment under Rule 24b-2 under the
Exchange Act.
<PAGE> 2
LEPTIN RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT
SMITHKLINE BEECHAM PLC-LIGAND PHARMACEUTICALS INCORPORATED
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 1 DEFINITIONS............................................................1
ARTICLE 2 REPRESENTATIONS AND WARRANTIES.........................................8
ARTICLE 3 RESEARCH PROGRAM......................................................10
ARTICLE 4 MANAGEMENT OF THE RESEARCH PROGRAM....................................16
ARTICLE 5 DEVELOPMENT PROGRAM...................................................18
ARTICLE 6 LICENSES..............................................................19
ARTICLE 7 ROYALTIES AND OTHER PAYMENTS..........................................22
ARTICLE 8 ROYALTY REPORTS AND ACCOUNTING........................................26
ARTICLE 9 METHOD OF PAYMENTS....................................................28
ARTICLE 10 INFRINGEMENT ACTIONS BY THIRD PARTIES.................................29
ARTICLE 11 CONFIDENTIALITY.......................................................29
ARTICLE 12 PUBLICATION...........................................................31
ARTICLE 13 PATENTS...............................................................32
ARTICLE 14 TERM AND TERMINATION..................................................36
ARTICLE 15 INDEMNITY.............................................................42
ARTICLE 16 FORCE MAJEURE.........................................................43
ARTICLE 17 ASSIGNMENT............................................................44
ARTICLE 18 NOTIFICATION OF PATENT TERM RESTORATION...............................44
ARTICLE 19 SEVERABILITY..........................................................45
ARTICLE 20 MISCELLANEOUS.........................................................45
SIGNATURES ......................................................................47
APPENDIX A - RESEARCH WORKPLAN......................................................48
APPENDIX B - LIGAND SOLE PATENT RIGHTS..............................................55
</TABLE>
<PAGE> 3
LEPTIN RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT
THIS LEPTIN RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT, (hereinafter
"Agreement") is by and between SMITHKLINE BEECHAM plc, a corporation of England,
having its registered office at New Horizons Court, Brentford, Middlesex, TW8
9EP, England and LIGAND PHARMACEUTICALS INCORPORATED , a Delaware corporation,
having its principal place of business at 9393 Towne Centre Drive, San Diego,
California, U.S.A.
R E C I T A L S
WHEREAS, LIGAND has developed expertise and acquired proprietary rights
relating to the discovery and development of certain pharmaceutical products;
WHEREAS, SB has developed expertise and acquired proprietary rights
relating to the discovery, development, marketing and sales of certain
pharmaceutical products;
WHEREAS, SB and LIGAND desire to engage in a joint research and
development effort directed to the discovery and/or design of compositions of
matter which act as MODULATORS (as hereinafter defined) of certain STATS (as
hereinafter defined) controlled by LEPTIN in the hope of developing one or more
pharmaceutical products from such compounds;
WHEREAS, LIGAND is the owner of all right, title and interest in certain
PATENT RIGHTS (as hereinafter defined) and KNOW-HOW (as hereinafter defined);
and
WHEREAS, SB desires to obtain certain worldwide licenses from LIGAND
under the aforesaid PATENT RIGHTS and KNOW-HOW, and LIGAND is willing to grant
to SB such licenses;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, SB and LIGAND agree as follows:
ARTICLE 1
DEFINITIONS
For the purposes of this Agreement, the terms defined in this Article 1
shall have the respective meanings set forth below:
1.1 "AFFILIATE" shall mean, with respect to a party to this Agreement,
any other entity, whether de jure or de facto, which directly or indirectly
controls, is controlled by, or is under common control with, such party. A
business entity or party shall be regarded as in control of another business
entity if it owns, or directly or indirectly controls, at least *** (or such
lesser percentage which is the maximum allowed to be owned by
Page 1
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Confidential Treatment and filed separately with the Commission.
<PAGE> 4
a foreign entity in a particular jurisdiction) of the voting stock or other
ownership interest of the other entity, or if it directly or indirectly
possesses the power to direct or cause the direction of the management and
policies of the other entity by any lawful means whatsoever.
1.2 "ANNUAL RESEARCH FEE" shall mean the fee paid to LIGAND for
scientists for a CONTRACT YEAR, as determined by the LRC. There shall be ***
in the ***
***
***
***
***
***
***
***
***
***
***
***.
1.3 "COMPETING PRODUCT" shall mean, with respect to each specified
RESEARCH COMPOUND or PRODUCT, any other RESEARCH COMPOUND or PRODUCT which
exhibits similar therapeutic or prophylactic activity and which may be sold for
the same indications as such specified RESEARCH COMPOUND or PRODUCT.
1.4 "COMMENCEMENT DATE" shall mean commencement of the RESEARCH PROGRAM
under this Agreement, which shall be two (2) weeks after the EFFECTIVE DATE.
1.5 "CONTRACT YEAR" shall mean the twelve (12) month period from the
COMMENCEMENT DATE and each subsequent twelve (12) month period during the
RESEARCH PROGRAM TERM.
1.6 "DESIGNATED PATHWAY" shall mean the LEPTIN RECEPTOR and the JAK
and/or STATS mediated signaling process or processes mediated by the LEPTIN
RECEPTOR.
***
***
***
***.
1.7 "EFFECTIVE DATE" shall mean the date as of which this Agreement is
effective and shall be the date all required filings under the Hart-Scott-Rodino
Antitrust Improvements Act, as amended (the "HSR Act") with respect to the
contemporaneous sale of shares of the Company's Common Stock (as defined in the
Stock and Warrant Purchase Agreement of even date herewith) to SB shall have
been made and any required waiting period
Page 2
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Confidential Treatment and filed separately with the Commission.
<PAGE> 5
under the HSR Act shall have expired or been earlier terminated, and no action
or proceeding in the United States of America by law or in equity shall be
pending or threatened by any person, firm, corporation, government, governmental
authority, regulatory body or agency to enjoin, restrict or prohibit the
transactions contemplated under this Agreement or under the Stock and Warrant
Purchase Agreement.
1.8 "EXPLORATORY DEVELOPMENT" shall mean development and testing, beyond
the RESEARCH PROGRAM, designed to document the pharmaceutical profile of a
RESEARCH COMPOUND to demonstrate whether such RESEARCH COMPOUND may be
reasonably expected to be useful in the FIELD.
1.9 "FDA" shall mean the United States Food and Drug Administration or
any successor entity thereto.
1.10 "FIELD" shall mean any and all uses including the research,
discovery, development and commercialization of PRODUCTS which are MODULATORS of
the DESIGNATED PATHWAY.
1.11 "FIRST COMMERCIAL SALE" shall mean, with respect to a PRODUCT, the
first sale to a THIRD PARTY of such PRODUCT in a country after any required
marketing and pricing approvals have been granted by all appropriate
governmental authorities of such country, such first sale being an actual sale
or a deemed sale contributing to NET SALES as defined in Section 1.24 and
reportable under Section 8.1.
1.12 "FULL DEVELOPMENT" shall mean development and testing of a RESEARCH
COMPOUND, or a PRODUCT incorporating such RESEARCH COMPOUND, beyond EXPLORATORY
DEVELOPMENT, designed to obtain approval by the appropriate regulatory
authorities to market such PRODUCT.
1.13 "HTS" shall mean High Throughput Screen, which is a cell
culture-based screening assay useful for the discovery and characterization of
MODULATORS and which is: (a) is capable of routinely testing or characterizing
*** potential MODULATORS per week; (b) is able to detect *** ; (c) is
sufficiently reproducible and selective and (d) has an appropriate signal to
noise ratio to be useful as an HTS as demonstrated by profiling *** , as *** .
Notwithstanding the foregoing, the LRC may decide that
***
***.
1.14 "IND" shall mean an Investigational New Drug Application for
PRODUCT in the FIELD filed by or on the behalf of SB with the FDA, or the
equivalent application(s) filed with the appropriate regulatory authorities in a
MAJOR MARKET COUNTRY or under regulations governing a concertation proceeding
which includes a MAJOR MARKET
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Confidential Treatment and filed separately with the Commission.
<PAGE> 6
COUNTRY.
1.15 "KNOW-HOW" shall mean all present and future technical information
and know-how which is not in the public domain and which relates to HTSs and
other technology not in the public domain which is related to the discovery and
development of RESEARCH COMPOUNDS, including but not limited to assays for
PRIMARY and SECONDARY SCREENING, and the making and using of PRODUCTS.
1.16 "LEPTIN" shall mean any cytokine-like hormone expressed primarily
in white adipose tissue and encoded by the OB gene or any naturally occurring or
non-naturally occurring modified version thereof.
1.17 "LEPTIN RECEPTOR" shall mean a cell surface protein or protein
complex capable of specifically binding to leptin. At least one member of this
complex is encoded by the OB receptor gene.
1.18 "LEPTIN RESEARCH COMMITTEE" or "LRC" shall mean the research
management committee composed of representatives of LIGAND and SB described in
Section 4.1 hereof.
1.19 "LIGAND" shall mean LIGAND Pharmaceuticals Incorporated, a Delaware
corporation, having its principal place of business at 9393 Towne Centre Drive,
San Diego, California, U.S.A.
1.20 "MAJOR MARKET COUNTRY" shall mean any of Canada, France, Germany,
Italy, Japan, Spain and the United Kingdom.
1.21 "MILESTONE I" shall mean the ***
***
***
***.
1.22 "MODULATOR" shall mean a composition of matter other than a LEPTIN,
which modulates the DESIGNATED PATHWAY, including, but not limited to, LEPTIN
mimetics, potentiators, agonists and antagonists, ***
***
***
***.
1.23 "NDA" shall mean a New Drug Application or Product License
Application filed by or on behalf of SB with the FDA, or equivalent
application(s) filed with the appropriate regulatory and pricing authorities in
a MAJOR MARKET COUNTRY, or under regulations governing a concertation proceeding
which includes a MAJOR MARKET COUNTRY, requesting approval for commercialization
of a PRODUCT for an indication in the FIELD.
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Confidential Treatment and filed separately with the Commission.
<PAGE> 7
1.24 "NET SALES" shall mean with respect to a PRODUCT containing a
RESEARCH COMPOUND as a pharmaceutically active ingredient, which PRODUCT is sold
for its activity as a MODULATOR of the DESIGNATED PATHWAY, the gross invoiced
sales of such PRODUCT by SB, its AFFILIATES or sublicensees ("the Selling
Party") to THIRD PARTIES:
***
Page 5
***Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 8
***
1.25 "PATENT RIGHTS" shall mean (a) all issued patents and patent
applications heretofore or hereafter filed in any country within the TERRITORY
which are or become owned in whole or in part by or licensed to LIGAND or SB or
jointly by SB and LIGAND, or to which LIGAND or SB otherwise acquires rights,
having claims which read upon a PRODUCT or a RESEARCH COMPOUND or the process of
manufacture or use of a PRODUCT or a RESEARCH COMPOUND or upon a method or
reagent useful in a method to discover or develop a PRODUCT or RESEARCH
COMPOUND, together with any and all patents that have issued or in the future
issue therefrom and (b) all divisionals, continuations, continuations-in-part,
reexaminations, reissues, renewals, extensions or additions to any such patents
and patent applications and patents issuing thereon as well as SPCs; all to the
extent and only to the extent that (i) LIGAND or SB now has or hereafter will
have the right to grant licenses or other rights thereunder and (ii) the
granting of such licenses or rights thereunder is necessary for either party to
practice the rights and discharge the obligations it has by reason of this
Agreement. PATENT RIGHTS also include patents and patent applications concerning
"Transferred Technology" as that term is used in Sections 3.1.2, 13.4 and 14.2.6
and, to that extent, only for the purposes of Section 3.1.2, 13.4 and 14.2.6.
"LIGAND SOLE PATENT RIGHTS" shall mean PATENT RIGHTS owned or controlled solely
by LIGAND. The LIGAND SOLE PATENT RIGHTS that are the subject of grants to SB
hereunder are listed
Page 6
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Confidential Treatment and filed separately with the Commission.
<PAGE> 9
in Appendix B, the status of which shall be periodically updated.
1.26 "PHASE II" shall mean studies (as defined in 21 C.F.R. 312.21(b))
in human subjects designed to demonstrate the effectiveness of a drug candidate.
1.27 "PHASE III" shall mean studies (as defined in 21 C.F.R. 312.21(c))
in human subjects which are adequately well controlled (as those terms are
defined in 21 C.F.R. 314.126) intended to gather additional information about
the effectiveness and safety of a drug candidate.
1.28 "PRIMARY SCREENING" shall mean conducting any cell based or other
assay, screen or other test on a compound under the RESEARCH PROGRAM to
determine initially, to the extent the assay is able to do so, whether such
compound functions as a MODULATOR of activity mediated through the DESIGNATED
PATHWAY.
1.29 "PRODUCT" shall mean a RESEARCH COMPOUND that has been subjected to
full development and has been approved for marketing by the appropriate
government regulatory agencies.
1.30 "QUALIFIED SCIENTIST" shall mean a scientist having a Doctor of
Philosophy or equivalent degree in a scientific specialty appropriate to work
carried out by LIGAND under the RESEARCH PROGRAM or a scientist having a
Master's or Bachelor's degree in such a scientific specialty and at least three
(3) years of full-time experience in that scientific specialty. Eligible
scientific specialties include, but are not limited to, biochemistry, molecular
biology, cell biology, and pharmacology.
1.31 "RESEARCH COMPOUND" shall mean a composition of matter which is (i)
determined (by SB or LIGAND) to function as a MODULATOR of the DESIGNATED
PATHWAY either during the term of the RESEARCH PROGRAM, or, except in the case
of termination by SB under Sections 14.4 or 14.5 below, by SB, within *** after
expiration or termination of the RESEARCH PROGRAM if the RESEARCH PROGRAM is
less than or equal to *** long or within *** if the RESEARCH PROGRAM is longer
than *** , and (ii) which is developed and marketed for an indication directly
related to its activity as a MODULATOR of the DESIGNATED PATHWAY.
Notwithstanding the above, the term RESEARCH COMPOUND shall not embrace ***
***.
1.32 "RESEARCH PROGRAM" shall mean a program of research in the FIELD in
which LIGAND and SB will participate under this Agreement and which is described
generally in the research work plan set forth in Appendix A hereto, as revised
from time to time as provided in the Agreement.
1.33 "RESEARCH PROGRAM TERM" shall mean, subject to Sections 14.4 and
14.5 below, the period of the RESEARCH PROGRAM measured from the
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Confidential Treatment and filed separately with the Commission.
<PAGE> 10
COMMENCEMENT DATE and any extensions thereof resulting from the exercise of SB's
option under Section 3.3 or by mutual agreement of the parties.
1.34 "SB" shall mean SmithKline Beecham plc, a corporation of England,
having its registered office at New Horizons Court, Brentford, Middlesex, TW8
9EP, England.
1.35 "SECONDARY SCREENING" shall mean conducting any cell based or other
assay, screen or other test on a RESEARCH COMPOUND using in vitro cell systems
or reagents after the PRIMARY SCREENING of such RESEARCH COMPOUND for the
purpose of confirming the results of the PRIMARY SCREENING or to test the
RESEARCH COMPOUND for cross-reactivity with other than the DESIGNATED PATHWAYS
or for determining other relevant properties of the RESEARCH COMPOUND.
1.36 "SPC" shall mean shall mean a right based upon a patent to exclude
others from making, using and selling a PRODUCT, such as a Supplementary Patent
Certificate.
1.37 "STATs TECHNOLOGY" shall mean that technology currently possessed
by or developed during the term of the Agreement by LIGAND, whether or not
forming a part of LIGAND's PATENT RIGHTS, that permits or facilitates the
discovery and development of MODULATORS of gene transcription controlled by
receptor-mediated activation of latent cytoplasmic elements known as STATs
(Signal Transducers and Activators of Transcription), including technology
relating to the role played in the initiation or maintenance of such gene
transcription by a family of kinases referred to as JAKs (Janus Kinase).
1.38 "TERRITORY" shall mean all the countries and territories of the
world.
1.39 "THIRD PARTY" shall mean a party other than a party to this
Agreement.
1.40 "U.S.A." shall mean the United States of America and all of its
territories and possessions.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Each party hereby represents and warrants to the other party as follows:
2.1 Corporate Existence and Power. Such party (a) is a corporation duly
organized, validly existing and in good standing under the laws of the state or
country in which it is incorporated, (b) has the corporate power and authority
and the legal right to own and operate its property and assets, to lease the
property and assets it operates under lease, and to carry on its business as it
is now being conducted, and (c) is in compliance with all requirements of
applicable law, except to the extent that any noncompliance would not have a
material adverse effect on the properties, business, financial or other
condition of such party
Page 8
<PAGE> 11
and would not materially adversely affect such party's ability to perform its
obligations under this Agreement.
2.2 Authorization and Enforcement of Obligations. (a) Such party has the
corporate power and authority and the legal right to enter into this Agreement
and to perform its obligations hereunder; (b) such party has taken all necessary
corporate action on its part to authorize the execution and delivery of this
Agreement and the performance of its obligations hereunder; (c) the execution
and performance by such party of its obligations under this Agreement will not
constitute a breach of, or conflict with, any other agreement or arrangement,
whether written or oral, by which it is bound; and (d) this Agreement has been
duly executed and delivered on behalf of such party, and constitutes a legal,
valid, binding obligation, enforceable against such party in accordance with its
terms.
2.3 Consents. All necessary consents, approvals and authorizations of
all governmental authorities and other THIRD PARTIES required to be obtained by
such party in connection with the execution, delivery and performance of this
Agreement have been and shall be obtained.
2.4 Intellectual Property. Such party (a) owns or is the licensee in
good standing of all PATENT RIGHTS and KNOW-HOW to be used by it in connection
with the RESEARCH PROGRAM, except to the extent that such use is to be based
upon intellectual property furnished by the other party; (b) has received no
notice of infringement or misappropriation of any alleged rights asserted by any
THIRD PARTY in relation to any technology to be used by it in connection with
the RESEARCH PROGRAM; and (c) is not in default with respect to any license
agreement related to the RESEARCH PROGRAM. Each party shall immediately notify
the other party in writing in the event such party hereafter receives a notice
of the type referred to in (b) above, or becomes in default under any license
agreement referred to in (c) above. Each party further represents and warrants
that it will not encumber, with liens, mortgages, security interests or
otherwise, any PATENT RIGHTS, KNOW-HOW or other intellectual property to be used
in connection with the RESEARCH PROGRAM. Each party further warrants and
represents that it will not knowingly engage in any activity in furtherance of
the RESEARCH PROGRAM which it reasonably believes or has reason to believe will
constitute an infringement of any known THIRD PARTY patent rights, including the
knowing unlicensed or otherwise unauthorized use of any assay or any component
thereof which is claimed in a patent of a THIRD PARTY in the country of use.
2.5 DISCLAIMER OF WARRANTIES. NOTHING IN THIS AGREEMENT SHALL BE
CONSTRUED AS A REPRESENTATION MADE, OR WARRANTY GIVEN, BY LIGAND OR SB (A) THAT
ANY PATENT WILL ISSUE BASED UPON ANY PENDING PATENT APPLICATION WITHIN THE
PATENT RIGHTS, (B) THAT ANY PATENT WITHIN THE PATENT RIGHTS WHICH ISSUES WILL BE
VALID, OR (C) THAT, EXCEPT FOR THE PROVISIONS OF SECTION 2.4 HEREIN WHICH SHALL
NOT BE AFFECTED BY THIS SECTION 2.5, THE USE OF ANY LICENSE GRANTED HEREUNDER OR
THE USE OF ANY PATENT RIGHTS WILL NOT INFRINGE THE
Page 9
<PAGE> 12
PATENT OR PROPRIETARY RIGHTS OF ANY OTHER PERSON. FURTHERMORE, NEITHER LIGAND
NOR SB MAKES ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT
TO THE PATENT RIGHTS EXCEPT AS PROVIDED IN SECTION 2.4.
2.6 Each of LIGAND and SB acknowledges that, in entering into this
Agreement, the other has relied or will rely upon information supplied by it,
information to be supplied by it, and information which it has caused or will
cause to be supplied to the other by it's agents, representatives and/or
licensees, and each warrants and represents that all such information is and
will be timely and accurate in all material respects. Each further warrants and
represents that it has not, up through and including the date of this Agreement,
omitted to furnish the other with any information concerning the transactions
contemplated by this Agreement which would be material to the other's decision
to enter into this Agreement and to undertake the commitments and obligations
set forth herein.
2.7 Use of Research Funding. LIGAND warrants and represents that it will
apply the research funding, if any, it receives from SB under the Agreement
solely toward achieving the objectives of the RESEARCH PROGRAM.
ARTICLE 3
RESEARCH PROGRAM
3.1 Research Procedures.
3.1.1 Conduct of Research. LIGAND and SB each shall conduct the
work assigned to it in the RESEARCH PROGRAM, and in compliance in all material
respects with all requirements of applicable laws and regulations and with all
applicable good laboratory practices and good manufacturing practices, and shall
provide the following resources:
(a) in the case of LIGAND, allocation of at least *** scientists
per CONTRACT YEAR (measured on a full-time equivalent basis) in the *** CONTRACT
YEARS, at least *** scientists in the *** CONTRACT YEAR *** , and, thereafter,
in the *** CONTRACT YEARS *** (measured on a full time equivalent basis) *** ,
the scientists to be primarily in the fields of molecular biology and
biochemistry and secondarily in the fields of medicinal chemistry and
pharmacology, using personnel with sufficient skills and experience, together
with sufficient equipment and facilities, to carry out LIGAND's obligations
under the RESEARCH PROGRAM provided, however, that at least *** of the LIGAND
full-time equivalents shall be made up of *** in the RESEARCH PROGRAM and at
least *** of the LIGAND full-time equivalents shall be *** ; and
(b) in the case of SB, allocation of a reasonable amount of time
and effort, using personnel with sufficient skills and experience, together with
sufficient equipment and
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Confidential Treatment and filed separately with the Commission.
<PAGE> 13
facilities, to carry out SB's obligations under the RESEARCH PROGRAM .
3.1.2 Development of ***. It shall be LIGAND's responsibility under the
RESEARCH PROGRAM to develop, employ and transfer to ***. LIGAND shall transfer
to SB no later than *** after the conclusion of the RESEARCH PROGRAM *** , all
technology (including all updates thereof) *** (collectively referred to
hereinafter in this Agreement as "Transferred Technology"). The LRC shall
promptly consider a submission by LIGAND relevant to successful completion of
*** and give written notice to LIGAND of its acceptance or rejection of ***
which acceptance will not be unreasonably withheld. Each of the parties shall
have responsibility for the development of additional assays for SECONDARY
SCREENING as set forth in Appendix A, which allocation of responsibility may be
amended by the LRC.
3.1.3 Screening Responsibility. Initially, LIGAND shall be responsible
for conducting PRIMARY SCREENING and SECONDARY SCREENING of candidate RESEARCH
COMPOUNDS as set forth in the RESEARCH PROGRAM and as designated by the LRC and
shall regularly inform the LRC of the progress and results thereof. *** , SB
will assume some responsibility for such screening according to Appendix A
hereof.
3.1.4 Screening of *** . *** compounds
***
***
***
***
***
***
***
*** may be tested, at SB's sole discretion, for activity as a
MODULATOR of the DESIGNATED PATHWAY (i) by LIGAND during the RESEARCH PROGRAM
TERM at SB's prior written request or (ii) by SB, utilizing HTS or any other
assay provided by LIGAND during the RESEARCH PROGRAM. LIGAND shall not assert
against SB or SB's AFFILIATES, sublicensees or distributors any rights to any
and all inventions, discoveries or improvements directly related to *** arising
out of such screening (including without limitation, any pharmaceutical use
associated with or arising out of such screening). Further, LIGAND shall not
transfer any of its rights to such inventions, discoveries or improvements
unless such transferee (including, without limitation, sublicensees and
assignees) agrees, in writing, that it shall not assert any rights to such
inventions, discoveries or improvements (including without limitation, any
pharmaceutical use associated
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<PAGE> 14
with or arising out of such screening) against SB or SB's AFFILIATES,
sublicensees or distributors.
In any event, LIGAND shall not be required to perform any assay that
involves screening of ***
***.
Further, LIGAND shall not perform any research or use the ***
materials provided by SB for any purpose other than screening requested in
writing by SB.
3.1.5 Subcontracts. Neither LIGAND nor SB shall subcontract to
THIRD PARTIES portions of the RESEARCH PROGRAM without the prior consent of the
LRC, which consent shall not be unreasonably withheld; provided, however, that a
party shall have the right to contract for custom synthesis and other routinely
used outside services in accordance with its standard procurement practices. Any
subcontractor shall enter into a confidentiality agreement with the contracting
party, and shall be in compliance in all material respects with all requirements
of applicable laws and regulations, together with all applicable good laboratory
practices and good manufacturing practices. The contracting party shall
supervise and be responsible under this Agreement for such subcontract work.
3.2 Funding of the RESEARCH PROGRAM.
3.2.1 SB shall have ***. SB shall provide funding to LIGAND in the form
of an ANNUAL RESEARCH FEE *** , if any, as provided in Section 1.2, subject to
Sections 3.2.2 and 3.2.3.
3.2.2 In the event that SB determines, at its sole discretion in
accordance with Section 3.3, to extend the term of the RESEARCH PROGRAM beyond
the end of the *** CONTRACT YEAR then, in consideration for LIGAND's performance
of its obligations under the RESEARCH PROGRAM during such extension period, SB
will pay to LIGAND the ANNUAL RESEARCH FEES for the *** CONTRACT YEARS as
determined by the LRC; provided, however, that the amount of such fee
determination must receive the prior written approval of appropriate SB senior
research management before SB shall have any obligation to make any such
payments to LIGAND.
3.2.3 The ANNUAL RESEARCH FEES, *** , determined by the LRC shall be
paid in advance in *** installments equal to *** of the ANNUAL RESEARCH FEE for
any CONTRACT YEAR which follows the end of the *** CONTRACT YEAR, the first
payment, if any, being due on the day following the *** of the COMMENCEMENT
DATE, and payable within *** thereof and subsequent payments being due at the
beginning of each *** thereafter and payable within *** thereof. Within *** of
the end of each *** for which a *** payment is made, LIGAND shall provide to SB
an
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<PAGE> 15
statement specifying and verifying the number of persons assigned to and working
in the RESEARCH PROGRAM for that *** . The statement following each even
numbered *** shall state whether there has been an overage or underage in the
aggregate payments to LIGAND for the even numbered and preceding *** . If the
COMMENCEMENT DATE does not coincide with the beginning of a *** , the payment
for the *** in which the COMMENCEMENT DATE occurs will be pro-rated for the
***.
3.2.4 At the end of each even numbered *** , LIGAND shall be entitled to
reimbursement of any underage in the payments made to it during the preceding
*** ending with that even numbered *** . The reimbursement will be made within
*** of the presentation of an invoice showing that underage. If at the end of an
even numbered *** there has been an overpayment by SB to LIGAND for that and the
preceding *** , then the overpayment shall be credited by SB against the next
*** payment due LIGAND after notice of the overage, except in the case of the
last statement, in which case the overpayment shall be reimbursed to SB by
LIGAND within *** of the presentation of the statement showing that overage.
3.2.5 LIGAND shall maintain sufficient records to verify the calculation
of the ANNUAL RESEARCH FEE under Section 1.2 and LIGAND's allocation of LIGAND
scientists to the RESEARCH PROGRAM as required under Section 3.1.1(a). In the
event the RESEARCH PROGRAM TERM extends beyond the end of the *** CONTRACT YEAR
then, not more than *** during the *** of the RESEARCH PROGRAM TERM and for ***
after its expiration, SB shall have the right, during normal business hours upon
reasonable notice, to audit such records to verify such allocation and
calculation. SB shall treat all financial information subject to review under
this Section 3.2.5 as confidential, and shall cause its accounting firm to
maintain all such financial information in confidence from a THIRD PARTY. The
ANNUAL RESEARCH FEE shall be the maximum amount SB shall be obligated to pay
LIGAND for its services as part of the RESEARCH PROGRAM and LIGAND shall be
responsible for any additional costs incurred by LIGAND in any CONTRACT YEAR,
unless SB has agreed in writing in advance to pay any amount beyond the ANNUAL
RESEARCH FEE.
3.3 Extension of RESEARCH PROGRAM TERM. No later than six (6) months
before the expiration of the RESEARCH PROGRAM TERM as determined by Section
14.4, the LRC will submit to SB a written proposal approved by LIGAND to extend
the RESEARCH PROGRAM TERM, such proposal specifying the research to be
undertaken during the extended term. SB shall have the option, *** , to extend
the time of the RESEARCH PROGRAM TERM for up to *** by giving written notice
thereof to LIGAND within *** of receiving such proposal. Subject to Section 3.2,
the ANNUAL RESEARCH FEE for the additional years shall be determined in
accordance with Section 1.2 based upon the previous CONTRACT YEAR's ANNUAL
RESEARCH FEE adjusted for the increase in the *** and the number of full time
equivalents and QUALIFIED SCIENTISTS assigned to the RESEARCH PROGRAM
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<PAGE> 16
as determined by the LRC.
3.4 Exclusivity.
3.4.1 Except as expressly permitted under this Agreement, SB and
LIGAND shall not engage in any activity with any THIRD PARTY in the FIELD during
the RESEARCH PROGRAM TERM. Furthermore, except as expressly permitted under this
Agreement, ***
***
***
***
***
***
***
***
***
***
***.
3.4.2 Notwithstanding the provisions of Section 3.4.1 above, but
subject to SB's license rights under Article 6 below and the parties'
confidentiality and reporting obligations set forth in Sections 3.5 and Articles
11 and 12 below, LIGAND shall have the right to use ***
***
***
***
***
***
***
***
***
*** . However, no testing
under 3.4.2(d) shall be done ***
***
***
***
***
***
***
***
***
***.
3.5 Records and Reports.
3.5.1 Records. LIGAND and SB each shall maintain records, in
sufficient
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<PAGE> 17
detail and in good scientific manner appropriate for patent purposes, which
shall be complete and accurate and shall fully and properly reflect all work
done and results achieved in the performance of the RESEARCH PROGRAM (including
all data in the form required under all applicable laws and regulations). Such
records shall include books, records, reports, research notes, charts, graphs,
comments, computations, analyses, recordings, photographs, computer programs and
documentation thereof, computer information storage means, samples of materials
and other graphic or written data generated in connection with the RESEARCH
PROGRAM including any data required to be maintained pursuant to all
requirements of applicable laws and regulations.
3.5.2 Inspection of Records. Once each CONTRACT YEAR of the
RESEARCH PROGRAM, LIGAND and SB, each at its own cost, shall have the right
during normal business hours and upon reasonable notice, to inspect and copy all
such records of the other party to the extent reasonably required for the
performance of its obligations under this Agreement (with the party owning the
records determining what is reasonably required). Each party shall maintain such
records and the information of the other party contained therein in confidence
in accordance with Section 11.1 below and shall not use such records or
information except to the extent otherwise permitted by the Agreement.
3.5.3 Research Reports. LIGAND and SB each shall keep the other
party fully informed as to all discoveries and technical developments made under
the RESEARCH PROGRAM and likewise LIGAND shall keep SB informed as to research
it undertakes pursuant to parts (b) and (c) of Section 3.4.2 above. LIGAND and
SB each shall prepare, and distribute to the other party, a reasonably detailed
written summary report at such times, in such form and setting forth such
information regarding the RESEARCH PROGRAM as determined from time to time by
the LRC. Additionally, LIGAND may be required, at SB's sole option, to make a
formal presentation to the appropriate SB management committee at an SB location
and at LIGAND's expense. Written notice of such presentation shall be given to
LIGAND at least thirty (30) days in advance of the presentation. However, no
more than two such presentations per year will be required and every effort will
be made to schedule any such presentation(s) at the time of a regularly
scheduled LRC meeting at an SB location.
3.6 No Solicitation of Employees. During *** thereafter, neither LIGAND nor SB
through any of their respective employees who was involved with activities under
the RESEARCH PROGRAM shall, without the prior consent of the other party,
solicit the employment of any person who during the course of employment with
the other party was involved with activities under the RESEARCH PROGRAM and who
when solicited is a current employee of the other party. For purposes of this
Section 3.6, "solicit" shall not be deemed to mean (a) circumstances where an
employee of LIGAND or SB, as the case may be, initially contacts the other party
with regard to possible employment with such other party, or (b) general
solicitations of employment not specifically targeted at employees of the other
party.
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<PAGE> 18
ARTICLE 4
MANAGEMENT OF THE RESEARCH PROGRAM
4.1 LEPTIN RESEARCH COMMITTEE.
4.1.1 Composition of the LRC. The RESEARCH PROGRAM and all
preclinical testing of RESEARCH COMPOUNDS before commencing EXPLORATORY
DEVELOPMENT shall be conducted under the direction of the LRC. The LRC shall be
composed of three (3) named representatives of SB and three (3) named
representatives of LIGAND. The initial members of the LRC shall be as set forth
below:
<TABLE>
<CAPTION>
LIGAND Representatives SB Representatives
---------------------- ------------------
<S> <C>
*** ***
*** ***
*** ***
</TABLE>
Each party may replace one or more of its representatives on the LRC from time
to time in its sole discretion. In addition, if a party's regular member of the
LRC cannot attend a meeting of the committee, an alternate for that meeting
shall be appointed by such party. In order to insure continuity of action, a
party's designated alternate may attend LRC meetings as a non-voting observer,
even if all representatives are present.
4.1.2 Responsibilities of the LRC. The purposes of the LRC shall
be to supervise and coordinate the RESEARCH PROGRAM and all preclinical testing
of RESEARCH COMPOUNDS before commencement of EXPLORATORY DEVELOPMENT. As part of
its responsibilities, the LRC shall (a) review the research by LIGAND and SB
under the RESEARCH PROGRAM and the preclinical testing of RESEARCH COMPOUNDS
before commencement of EXPLORATORY DEVELOPMENT, (b) monitor the progress of the
RESEARCH PROGRAM and evaluate the work performed and the results obtained in
relation to the goals of the RESEARCH PROGRAM, (c) plan future activities under,
and make any necessary or desirable modifications to, the RESEARCH PROGRAM, (d)
recommend RESEARCH COMPOUNDS for further evaluation by the parties under the
RESEARCH PROGRAM and for EXPLORATORY DEVELOPMENT and FULL DEVELOPMENT by SB, (e)
approve the LIGAND workplan for each quarter of a CONTRACT YEAR under which
LIGAND scientists are deployed in the RESEARCH PROGRAM, (f) facilitate the
exchange of information between SB and LIGAND relating to the RESEARCH PROGRAM,
and (g) attempt resolution of disputes between the parties concerning the
RESEARCH PROGRAM. Notwithstanding the responsibilities of the LRC under (a)-(g)
above, the LRC shall have no right to extend the RESEARCH PROGRAM to include
activities outside the FIELD. The party hosting each meeting of the LRC promptly
shall prepare, and deliver to the other party within thirty (30) days after the
date of such meeting, minutes of such meeting setting forth all decisions of the
LRC relating to the RESEARCH PROGRAM in form and content reasonably acceptable
to the other party.
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<PAGE> 19
4.1.3 Meetings of the LRC. The LRC shall meet, at least once
each three (3) month period during the term of the RESEARCH PROGRAM, at such
times and places as agreed to by LIGAND and SB, *** , or such other locations as
the parties shall agree. The first such meeting will be held promptly following
the COMMENCEMENT DATE. Meetings of the LRC may be attended by such other
non-voting directors, officers, employees, consultants and other agents of
LIGAND and SB as the parties from time to time reasonably agree.
4.1.4 Actions by the LRC. Any approval, determination or other
action agreed to by *** SB members and *** LIGAND members of the LRC present at
the relevant LRC meeting shall be the approval, determination or other action of
the LRC; provided, however, that *** representatives of each party shall be
present at such meeting.
4.2 Disagreements. All disagreements within the LRC shall be submitted
for resolution to the *** on behalf of LIGAND, and *** on behalf of SB or their
designees.
4.3 Project Leaders. LIGAND and SB each shall appoint a person (a
"Project Leader") to coordinate its part of the RESEARCH PROGRAM. The Project
Leaders shall be the primary contacts between the parties with respect to the
RESEARCH PROGRAM. As of the COMMENCEMENT DATE the Project Leader for LIGAND
shall be *** and the Project Leader for SB shall be the *** . Each party shall
notify the other party as soon as practicable upon changing these appointments.
4.4 Availability of Employees. Each party shall make its employees
engaged in the RESEARCH PROGRAM available, upon reasonable notice during normal
business hours, at their respective places of employment to consult with the
other party on issues arising during the RESEARCH PROGRAM and in connection with
any request from any regulatory agency, including regulatory, scientific,
technical and clinical testing issues.
4.5 Visit of Facilities. Representatives of LIGAND and SB may, upon
reasonable notice during normal business hours, (a) visit the facilities where
the RESEARCH PROGRAM is being conducted, (b) consult informally, during such
visits and by telephone, with personnel of the other party performing work on
the RESEARCH PROGRAM, and (c) with the other party's prior approval, which
approval shall not be unreasonably withheld, visit the sites of any experiments
being conducted by such other party in connection with the RESEARCH PROGRAM,
EXPLORATORY DEVELOPMENT or FULL DEVELOPMENT, but only to the extent in each case
such other experiments relate to RESEARCH COMPOUNDS or PRODUCTS. On such visits,
an employee of the party conducting the research or development shall accompany
the employee(s) of the visiting party. If requested by the other party, LIGAND
and SB shall cause appropriate individuals working on the RESEARCH PROGRAM,
EXPLORATORY DEVELOPMENT or FULL DEVELOPMENT to be available
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<PAGE> 20
for meetings at the location of the facilities where such individuals are
employed at times reasonably convenient to the party responding to such request.
Any costs and expenses incurred by the requesting party as a result of such
visits or consulting shall be paid by the requesting party, including but not
limited to, travel, meals and cost of living expenses.
ARTICLE 5
DEVELOPMENT PROGRAM
5.1 EXPLORATORY DEVELOPMENT. LIGAND, SB and/or the LRC from time to time
shall make recommendations of RESEARCH COMPOUNDS for EXPLORATORY DEVELOPMENT by
SB. SB shall have the right in its sole discretion, but without the obligation,
to select RESEARCH COMPOUNDS for EXPLORATORY DEVELOPMENT alone or with others
and shall give prompt written notice to LIGAND of each such selection. SB shall
conduct such EXPLORATORY DEVELOPMENT of each such selected RESEARCH COMPOUND as
SB desires and shall inform LIGAND and the LRC of the progress and results
thereof. SB, at its sole expense, shall fund the costs of EXPLORATORY
DEVELOPMENT of any such selected RESEARCH COMPOUND. LIGAND may undertake
EXPLORATORY DEVELOPMENT at its own expense, but only under the terms and
conditions as provided by Article 6 herein.
5.2 FULL DEVELOPMENT. LIGAND, SB and/or the LRC from time to time shall
make recommendations of those RESEARCH COMPOUNDS that have completed EXPLORATORY
DEVELOPMENT for FULL DEVELOPMENT by SB. SB shall have the right in its sole
discretion, but without the obligation, to select RESEARCH COMPOUNDS for FULL
DEVELOPMENT alone or with others and shall give prompt notice to LIGAND of each
such selection. SB shall use its commercially reasonable efforts to conduct such
preclinical and human clinical trials as SB determines are necessary or
desirable to obtain regulatory approvals to manufacture and market such PRODUCTS
in the TERRITORY as SB desires and diligently to develop, seek necessary
approval to market, commence marketing and market such PRODUCTS for such purpose
in the TERRITORY subject to the last sentence of this Section 5.2. SB, at its
sole expense, shall fund the costs of FULL DEVELOPMENT of RESEARCH COMPOUNDS and
PRODUCTS. Notwithstanding anything else in this Agreement, but subject to
LIGAND's rights under Section 6.2, SB shall have the sole discretion to
determine which PRODUCTS to develop or market, or to continue to develop or
market, those for which regulatory approval to market will be sought, and when
and where and how and on what terms and conditions, to market such PRODUCTS in
the TERRITORY. LIGAND may undertake FULL DEVELOPMENT at its own expense, but
only under the terms and conditions as provided by ARTICLE 6 herein. Throughout
this Agreement, the terms "diligent," "diligently," "diligence," "good faith
efforts" and "commercially reasonable efforts" with regard to an SB obligation
to develop and/or commercialize a PRODUCT means that SB will exercise its
reasonable efforts and diligence in accordance with SB's business, legal,
medical and scientific judgment and SB's normal practices and procedures for
compounds having similar technical and commercial potential.
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<PAGE> 21
5.3 Development Information. SB shall keep LIGAND informed as to the
progress of the EXPLORATORY DEVELOPMENT and FULL DEVELOPMENT of all RESEARCH
COMPOUNDS and PRODUCTS under this Agreement and the filing and obtaining of the
approvals necessary for marketing. Within thirty (30) days after the end of each
six (6) month period following the commencement of EXPLORATORY DEVELOPMENT by SB
of the first RESEARCH COMPOUND, SB shall provide to LIGAND a reasonably detailed
written summary report which shall describe the progress of the EXPLORATORY
DEVELOPMENT and/or FULL DEVELOPMENT of RESEARCH COMPOUNDS and PRODUCTS under
this Agreement.
5.4 Excused Performance. To the extent SB undertakes FULL DEVELOPMENT of
a RESEARCH COMPOUND, the obligations of SB with respect to such RESEARCH
COMPOUND under this ARTICLE 5 are expressly conditioned upon prioritization by
SB and the continuing absence of any adverse condition *** relating to the
safety or efficacy or commercial feasibility of that RESEARCH COMPOUND, and such
obligations shall be delayed or suspended so long as any such condition or event
exists. If any such delay or suspension with respect to any such RESEARCH
COMPOUND exceeds *** in duration, such RESEARCH COMPOUND shall be subject to
LIGAND's rights under Section 6.2 below in the circumstance where SB is not
seeking to develop and has not developed any other RESEARCH COMPOUND and where
SB's conduct objectively constitutes abandonment of further development or
marketing of RESEARCH COMPOUND within the meaning of Section 6.2.3.
ARTICLE 6
LICENSES
6.1 License Grant to SB. Subject to the provisions hereof, LIGAND hereby
grants to SB an exclusive license, which license shall be exclusive even as to
LIGAND except to the extent LIGAND retains rights thereto under this Agreement,
under LIGAND's PATENT RIGHTS and KNOW-HOW with respect thereto throughout the
TERRITORY, including LIGAND's rights in any jointly owned PATENT RIGHTS, to
make, have made, import, use, offer for sale and sell PRODUCTS in the FIELD but
subject to LIGAND's license granted in Section 6.2. Subject to the provisions of
the Agreement, SB may grant sublicenses to PRODUCTS to any THIRD PARTY under the
license granted by this Section 6.1. Except as otherwise expressly provided in
this Agreement, SB shall have unfettered rights to grant sublicenses to PRODUCTS
to AFFILIATES under the license granted by this Section 6.1. Nothing in this
Agreement shall be construed as granting LIGAND any rights, title or ownership
interest whatsoever to *** . SB shall deliver a copy of each sublicense to
PRODUCTS to LIGAND promptly after granting such sublicense, provided that SB
shall have the right to redact all technical and commercial terms which SB deems
confidential and proprietary from such agreement prior to submitting it to
LIGAND. No sublicense shall relieve SB of any obligations under this Agreement.
SB will guarantee that the rights of LIGAND under this Agreement are not
adversely affected by any sublicense
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<PAGE> 22
granted pursuant to this Section 6.1. No rights to use PATENT RIGHTS and
KNOW-HOW for research and development purposes survive termination or expiration
of the RESEARCH PROGRAM except as expressly provided in this Agreement.
Notwithstanding the foregoing, SB's rights to use PATENT RIGHTS and KNOW-HOW
after expiration or termination shall include all PATENT RIGHTS and KNOW-HOW
that are not exclusively owned by LIGAND.
6.2 LIGAND Rights.
6.2.1 *** after the expiration or earlier termination of the
RESEARCH PROGRAM, except in the case of termination by SB under Section 14.3 or
14.5 below, LIGAND shall have the right in its sole discretion at its sole
expense, for its own benefit or together with a THIRD PARTY, to develop and
commercialize in the TERRITORY and in the FIELD (a) those RESEARCH COMPOUNDS
which SB abandons or elects not to develop in the FIELD as determined in
accordance with Section 6.2.3, and (b) those RESEARCH COMPOUNDS or PRODUCTS for
which SB delays or suspends the development or marketing for more than *** as
described in Section 5.4 above, as determined in accordance with Section 6.2.3,
in each case provided that SB or any of its AFFILIATES or sublicensees is not
either diligently developing or commercializing the RESEARCH COMPOUND for any
other pharmaceutical purpose or diligently conducting EXPLORATORY DEVELOPMENT or
FULL DEVELOPMENT with respect to, or diligently marketing, a COMPETING PRODUCT.
6.2.2 Additionally, at any time after the date *** after the
expiration or earlier termination of the RESEARCH PROGRAM, except in the case of
termination by SB under Section 14.3 or 14.5 below, if SB abandons or elects not
to develop a PRODUCT in the U.S.A. or any MAJOR MARKET COUNTRY, LIGAND shall
have the right in its sole discretion and at its sole expense, for its own
benefit or together with a THIRD PARTY, to develop and commercialize such
PRODUCT in the FIELD but only in the U.S.A. or those MAJOR MARKET COUNTRIES in
which SB abandons or elects not to develop such PRODUCT. LIGAND's right to
develop and commercialize shall not come into effect if SB, an AFFILIATE, or a
sublicensee is diligently conducting EXPLORATORY DEVELOPMENT or FULL DEVELOPMENT
of a COMPETING PRODUCT in the affected country or diligently marketing a
COMPETING PRODUCT in such country. For purposes of this Section 6.2.2, by way of
example but without limitation, SB shall not be deemed to have abandoned or
elected not to develop a PRODUCT in a country if (i) SB has received the
necessary regulatory approval to market such PRODUCT in the country in question,
and (ii) SB has not commenced or has ceased marketing such PRODUCT in the
country in question substantially due to adverse business or financial
conditions caused by the regulatory authorities or other government authorities
of such country which would cause marketing such PRODUCT in such country by SB
to be contrary to the financial best interests of LIGAND and SB (including not
commencing marketing in the U.S.A. or in a MAJOR MARKET COUNTRY where regulatory
authorities or other government authorities have price approval authority and
the price approved or proposed by the regulatory authorities or other government
authorities is unacceptable to SB), provided, however, that SB commences or
resumes
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<PAGE> 23
marketing such PRODUCT in such country as soon as reasonably practical after
such adverse business or financial conditions cease to exist. SB shall also not
be deemed to have abandoned or elected not to develop a PRODUCT in a country (or
countries) if SB has commenced EXPLORATORY DEVELOPMENT or FULL DEVELOPMENT with
respect to such PRODUCT in the U.S.A. or one or more of the MAJOR MARKET
COUNTRIES and has a reasonable intention to commence EXPLORATORY DEVELOPMENT or
FULL DEVELOPMENT with respect to such PRODUCT.
6.2.3 In order to determine whether SB has abandoned or elected
not to develop or commercialize a RESEARCH COMPOUND or PRODUCT for purposes of
Sections 5.4, 6.2.1 and 6.2.2 above, upon written notice from LIGAND, SB shall
inform LIGAND in writing within *** of receipt of LIGAND's notice whether it has
abandoned or elected not to commercialize such RESEARCH COMPOUND or PRODUCT and,
if so requested, shall provide a reasonable explanation of its efforts to
develop or commercialize such RESEARCH COMPOUND or PRODUCT. If SB has abandoned
or elected not to develop or commercialize such RESEARCH COMPOUND or PRODUCT,
then SB additionally shall inform LIGAND in writing whether it is diligently
conducting EXPLORATORY DEVELOPMENT or FULL DEVELOPMENT with respect to, or
diligently marketing, a COMPETING PRODUCT, and if so requested, shall provide a
reasonable explanation of its efforts with respect to such COMPETING PRODUCT. If
the parties disagree on the status of any RESEARCH COMPOUND or PRODUCT for
purposes of this Section 6.2, the parties shall confer and in good faith attempt
to resolve the disagreement between themselves.
6.2.4 If LIGAND exercises its rights under this Section 6.2 with
respect to any RESEARCH COMPOUND owned by or licensed to SB, subject to rights
of THIRD PARTIES, SB (a) shall grant to LIGAND an exclusive license (with the
exclusive right to sublicense) in the TERRITORY (or in the case of Section
6.2.2, in the countries permitted under Section 6.2.2) to make, have made,
import, use, offer for sale and sell PRODUCTS corresponding to such RESEARCH
COMPOUND in the FIELD, (b) shall provide LIGAND with all such information and
data regarding the RESEARCH COMPOUND which SB, or its sublicensees reasonably
have available in such country, for example access to drug master file, clinical
and QA data and the like, and shall execute such instruments as LIGAND
reasonably requests, to enable LIGAND to obtain the appropriate regulatory
approvals to market such PRODUCTS in such country and for any other lawful
purpose related to development and commercialization of such PRODUCTS in such
country, and (c) thereafter shall have no further rights under this Agreement
with respect to such RESEARCH COMPOUND or such PRODUCT in the FIELD in the
TERRITORY (or in the case of Section 6.2.2, in the countries permitted under
Section 6.2.2) except as expressly provided in this Agreement. With respect to
any license granted by SB under this Section 6.2.4, the commercial and other
terms as provided in Sections 7.2 through 7.4 hereof shall apply to LIGAND
mutatis mutandis.
6.2.5 If LIGAND or its sublicensee is not diligently developing
or commercializing any such RESEARCH COMPOUND or PRODUCT licensed from SB under
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<PAGE> 24
this Section 6.2 *** after the effective date of such license, then such license
shall terminate, and all rights in and to such RESEARCH COMPOUND or PRODUCT
shall revert to SB subject to the provisions of this Agreement, except the
provisions of this Section 6.2. In determining LIGAND diligence, Sections 5.4
and 6.2 shall apply to LIGAND mutatis mutandis.
ARTICLE 7
ROYALTIES AND OTHER PAYMENTS
7.1 MILESTONE I Payment. Within *** after the LRC determines that
MILESTONE I has been achieved in accordance with this Agreement, SB shall make,
unless otherwise made, the equity investment required under Section 1.1(b) of
the Stock and Warrant Purchase Agreement of even date herewith.
7.2 Other Milestone Payments. In addition to the funding of the RESEARCH
PROGRAM as provided in Section 3.2 above, and subject to Sections 7.3.2 and
14.2.6, as consideration for the STATs TECHNOLOGY and KNOW-HOW provided by
LIGAND to the RESEARCH PROGRAM and LIGAND's participation in the RESEARCH
PROGRAM, SB shall pay LIGAND each of the milestone payments set forth below, in
the specified amounts, within *** after their first achievement in the first of
the U.S.A. or a MAJOR MARKET COUNTRY up to a maximum of *** dollars with respect
to each RESEARCH COMPOUND.
Milestone Milestone Payment
--------- -----------------
*** (i) ***
*** (ii) ***
***
*** (iii) ***
***
***
*** (iv) ***
*** (v) ***
provided that:
(1) ***
***
***;
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<PAGE> 25
(2) by the term *** as used in this Section shall mean ***
***
***;
(3) by the term *** as used in this Section shall
mean ***
***
***;
(4) by the term *** as used in this Section shall mean ***
***
***;
(5) by the term *** as used in this Section is meant the ***
***
***
***.
(6) by the term *** as used in this Section is meant the ***
***
***
***
***.
7.3 Royalties Payable by SB.
7.3.1 Patent Protected PRODUCTS.
(a) As consideration for the license under PATENT RIGHTS granted
to SB under the Agreement and, independently, LIGAND'S participation in the
RESEARCH PROGRAM and subject to Sections 7.3.1(b) and 7.3.2, SB shall make the
following royalty payments to LIGAND, on a per PRODUCT basis:
- --------------------------------------------------------------------------------
*** ***
- --------------------------------------------------------------------------------
*** ***
- --------------------------------------------------------------------------------
*** ***
- --------------------------------------------------------------------------------
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<PAGE> 26
provided that, for purposes of this Section, achievement of the NET SALES
thresholds recited above shall be determined by adding the total annual NET
SALES in all countries of the TERRITORY in which the PRODUCT sold, or its method
of use for which it is being sold, is claimed in PATENT RIGHTS which have not
been abandoned, disclaimed or held to be invalid or unenforceable in a
proceeding from which no appeal has been or can be taken. Notwithstanding
anything else in this Agreement or any other SB-LIGAND agreement, SB shall pay
no more than a single royalty on a single PRODUCT, including but not limited to
the event in which a single PRODUCT arises under both this Agreement and another
SB-LIGAND agreement, in which case SB shall pay the higher royalty amount.
(b)
***
7.3.2 KNOW-HOW License.
(a) As consideration for the license to KNOW-HOW granted to SB
under this Agreement and, independently, LIGAND'S participation in the RESEARCH
PROGRAM, in
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<PAGE> 27
lieu of the royalty rates provided in Section 7.3.1(a), SB will pay royalties to
LIGAND calculated separately for each annual period using royalty rates which
are *** of the royalty rates stated in Section 7.3.1(a) for a period of *** from
the date of FIRST COMMERCIAL SALE on NET SALES in countries where no issued
PATENT RIGHTS claiming the PRODUCT sold or its method of use exist or where such
PATENT RIGHTS have lapsed, been disclaimed, gone abandoned or were held to be
invalid or unenforceable by a decision of a court or tribunal of competent
jurisdiction from which no appeal is or can be taken or where ***
***
***
***
***
***
***
***
***
***.
(b) Notwithstanding anything else in this Agreement, regardless
of whether *** are tested for any purpose by SB or by LIGAND during the RESEARCH
PROGRAM TERM utilizing HTS or any other assay provided by LIGAND, and under any
and all circumstances, Sections 7.2, 7.3.1 and 7.3.2(a) shall not apply to ***
(as defined in Section 3.1.4).
7.3.3 THIRD PARTY Challenges. Notwithstanding the above, in the
event any THIRD PARTY initiates any legal or administrative proceeding
challenging the validity, scope or enforceability of PATENT RIGHTS, in any
country in the TERRITORY, such as by opposing the grant of a patent in the
European Patent Office, and in the event that if such challenge were successful
there would be no issued PATENT RIGHTS claiming the PRODUCT in such country,
then the royalty obligation in Section 7.3.1 shall be applicable during such
period, and the royalty obligation on NET SALES in such country shall be paid by
SB during pendency of the proceeding. If during the pendency of such challenge a
product is marketed in such country which competes with a PRODUCT sold by SB in
that country and the claims in the patent are held to be invalid or otherwise
unenforceable with respect to the competing product by a court or other legal or
administrative tribunal from which no appeal is or can be taken, then the amount
of the royalties owed shall be retroactively calculated at the levels and for
the periods given in Section 7.3.2 above for the period the competing product is
marketed and the difference between the royalty paid under Section 7.3.1 during
this period and the royalty for that period calculated under Section 7.3.2 shall
be creditable by SB against future royalty payments owed under Section 7.3.2.
From the date of the final decision from which no appeal is or can be taken,
royalties will be calculated according to Section 7.3.2.
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7.4 Compulsory Licenses.
7.4.1 In the event that a governmental agency in any country or
territory grants or compels LIGAND to grant a license under its PATENT RIGHTS to
any THIRD PARTY for PRODUCT, SB shall have the benefit in such country or
territory of the terms granted to such THIRD PARTY to the extent that such terms
are more favorable than those of this Agreement in the circumstance where there
are no PATENT RIGHTS owned exclusively by SB claiming the PRODUCT or the use for
which it is being sold or where there are such PATENT RIGHTS, but such PATENT
RIGHTS are not the subject of a compulsory license to the same THIRD PARTY.
7.4.2 In the event that a governmental agency in any country or
territory grants or compels SB to grant a license under its PATENT RIGHTS to any
THIRD PARTY for PRODUCT, SB shall have the benefit in such country or territory
of the terms granted to such THIRD PARTY to the extent that such terms are more
favorable than those of this Agreement.
7.5 THIRD PARTY Licenses. If, during the term of this Agreement, SB, in
its sole reasonable discretion, deems it necessary to seek a license from any
THIRD PARTY in order to avoid infringement of such THIRD PARTY's intellectual
property rights during the exercise of the license herein granted to SB
hereunder, *** of any royalties or other fees paid to such THIRD PARTY under
such license may be deducted from that portion of royalties or other payments
otherwise due LIGAND under this Agreement payable at a royalty rate *** of NET
SALES, and further provided that any excess deduction shall be carried over into
subsequent years of the Agreement until the full deduction is taken.
ARTICLE 8
ROYALTY REPORTS AND ACCOUNTING
8.1 Reports, Exchange Rates. During the term of the Agreement following
the FIRST COMMERCIAL SALE of a PRODUCT, SB shall furnish to LIGAND a written
report for each calendar quarter showing in reasonably specific detail, on a
country by country basis, (a) the gross sales of all PRODUCTS sold by SB and its
sublicensees in the TERRITORY during the reporting period and the calculation of
NET SALES from such gross sales; (b) the royalties payable in U.S. dollars, if
any, which shall have accrued hereunder based upon NET SALES of PRODUCTS; (c)
withholding taxes, if any, required by law to be deducted in respect of such
sales; (d) the dates of the FIRST COMMERCIAL SALES of any PRODUCTS in any
country in the TERRITORY during the reporting period; and (e) the exchange rates
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<PAGE> 29
used in determining the amount of U.S. dollars. With respect to sales of
PRODUCTS invoiced in U.S. dollars, the gross sales, NET SALES, and royalties
payable shall be expressed in U.S. dollars. With respect to sales of PRODUCTS
invoiced in a currency other than U.S. dollars, the gross sales, NET SALES and
royalties payable shall be expressed in the domestic currency of the party
making the sale together with the U.S. dollar equivalent of the royalty payable,
calculated using the average closing buying rate for such currency quoted in the
continental terms method of quoting exchange rates (local currency per U.S. $1)
by *** , or, in the absence of quoted exchange rates from *** , a comparable
bank or financial institution, *** . Reports shall be due on the sixtieth (60th)
day following the close of each calendar quarter. The royalty report shall also
state separately the amount of the notional NET SALES upon which the royalty is
calculated attributed to notional NET SALES calculated as required under Section
1.24. SB shall keep complete and accurate records in sufficient detail to
properly reflect all gross sales and NET SALES and to enable the royalties
payable hereunder to be determined. The payment of the calculated quarterly
royalty shall accompany the royalty report.
8.2 Audits.
8.2.1 Upon the written request of LIGAND and not more than *** in
each calendar year, SB shall permit an independent certified public accounting
firm of nationally recognized standing, selected by LIGAND and reasonably
acceptable to SB, at *** expense, to have access during normal business hours to
such of the records of SB as may be reasonably necessary to verify the accuracy
of the royalty reports hereunder for any year ending not more than *** prior to
the date of such request. The accounting firm shall disclose to LIGAND only
whether the records are correct or not and the specific details concerning any
discrepancies. No other information shall be shared.
8.2.2 If such accounting firm concludes that additional royalties
were owed during such period, SB shall pay the additional royalties within ***
of the date LIGAND delivers to SB such accounting firm's written report so
concluding. The fees charged by such accounting firm shall be paid by LIGAND. If
the audit discloses that the royalties payable by SB for the audited period are
more than *** of the royalties actually paid for such period, then SB shall pay
interest at the prime rate on the additional royalties owed.
8.2.3 SB shall include in each permitted sublicense granted by it
pursuant to the Agreement a provision requiring the sublicensee to make reports
to SB, to keep and maintain records of sales made pursuant to such sublicense
and to grant access to such records by LIGAND's accounting firm to the same
extent required of SB under the Agreement. Upon the expiration of *** following
the end of any year, the calculation of royalties payable with respect to such
year shall be binding and conclusive upon LIGAND, SB and its sublicensees, and
such sublicensees shall be released from any liability or accountability with
respect to royalties for such year.
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<PAGE> 30
8.3 Confidential Financial Information. LIGAND shall treat all financial
information subject to review under this Article 8 or under any sublicense
agreement as confidential, and shall cause its accounting firm to retain all
such financial information in confidence.
ARTICLE 9
METHOD OF PAYMENTS
9.1 Payment Terms. Royalties shown to have accrued by each royalty
report provided for under Article 8 of the Agreement shall be due and payable on
the date such royalty report is due. Payment of royalties in whole or in part
may be made in advance of such due date.
9.2 Payment Method. Except as otherwise agreed between the parties, all
royalties and other payments due hereunder shall be paid in U.S. dollars. All
royalties and other payments by SB to LIGAND under the Agreement shall be
originated from a U.S.A. bank located in the U.S.A. and shall be made by bank
wire transfer in immediately available funds to such account as LIGAND shall
designate before such payment is due. If at any time legal restrictions in any
country in the TERRITORY prevent the prompt remittance in the manner set forth
in this Section 9.2 of part or all royalties owing with respect to PRODUCT sales
in such country, then the parties shall meet and mutually determine a lawful
manner of suspending or remitting the restricted part of such royalty payments
so long as such legal restrictions exist.
9.3 Withholding Taxes. All amounts owing from SB to LIGAND under the
Agreement are net amounts, and shall be paid without deduction to account for
any withholding taxes, value-added taxes or other taxes, levies or charges with
respect to such amounts payable on behalf of SB or its sublicensees and any
taxes required to be withheld on behalf of SB, or its sublicensees in any
country within the TERRITORY; provided, however, that SB may deduct the amount
of any taxes required to be withheld on behalf of LIGAND under the laws of any
jurisdiction on amounts owing from SB to LIGAND hereunder to the extent SB, or
its sublicensees pay to the appropriate governmental authority on behalf of
LIGAND such taxes. SB shall use reasonable efforts to minimize any taxes
required to be withheld on behalf of LIGAND by SB, or its sublicensees, and
promptly shall deliver to LIGAND proof of payment of such taxes together with
copies of all communications from or with such governmental authority with
respect thereto.
9.4 LIGAND Royalties. In any situation where LIGAND incurs a royalty
obligation to SB under this Agreement, unless otherwise agreed, the requirements
of ARTICLE 8 and ARTICLE 9 applicable to the reporting and payment of royalties
by SB shall be applicable mutatis mutandis to the reporting and payment of
royalties by LIGAND.
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<PAGE> 31
ARTICLE 10
INFRINGEMENT ACTIONS BY THIRD PARTIES
10.1 If a party, or to its knowledge, any of its sublicensees or
customers shall be sued by a THIRD PARTY for infringement of a patent because of
the research, development, importation, manufacture, use, offer for sale or sale
of RESEARCH COMPOUNDS or PRODUCTS, such party shall promptly notify the other in
writing of the institution of such suit. SB shall have the first right but not
the obligation to defend such suit at its own expense. If SB does not commence a
defense of such suit within ninety (90) days after the receipt of written
notice, LIGAND, after notifying SB in writing, shall be entitled to defend such
suit at LIGAND's expense. In either event each party shall assist the other
party and shall cooperate fully in the defense of such suit and furnish to the
party defending the suit all evidence in its control and reasonable assistance.
Any judgments, settlements or damages payable with respect to legal proceedings
covered by this Article 10 shall be paid by the party which controls the
litigation, subject to any claims against the other party for breach of or
indemnification under this Agreement or otherwise available at law or in equity.
Any THIRD PARTY royalty payments or damages required to be paid as the result of
a judgment or settlement under this Article 10 shall be paid by the party
controlling the suit subject to any claims against the other party for breach of
or indemnification under this Agreement or otherwise available at law or in
equity; provided, however, in the case of a PRODUCT sold by SB, if such damages
or THIRD PARTY royalty payments arise from the infringement of a patent having a
claim or claims which cover the screening activities of LIGAND or SB under the
RESEARCH PROGRAM, the damages or the THIRD PARTY royalty payments shall be fully
creditable against royalties owed LIGAND under this Agreement provided, further,
that in the event SB defends the suit SB may credit any damages or THIRD PARTY
royalties against up to *** of that portion of the royalty payments due LIGAND
under this Agreement at a royalty rate *** of NET SALES, and further provided
that any excess deduction shall be carried over into subsequent years of the
Agreement until the full deduction is taken.
ARTICLE 11
CONFIDENTIALITY
11.1 Nondisclosure Obligations. Except as otherwise provided in this
Article 11 and subject to Article 12 hereof, during the term of the Agreement
and for a period of *** thereafter, (a) both parties shall maintain in
confidence information and data resulting from or related to the RESEARCH
PROGRAM or the development of RESEARCH COMPOUNDS or PRODUCTS; and (b) both
parties shall also maintain in confidence and use only for purposes of this
Agreement all information and data supplied by the other party under this
Agreement, which if disclosed in writing is marked "Confidential," or if
disclosed orally is promptly thereafter confirmed in writing to be confidential.
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<PAGE> 32
11.2 Permitted Disclosures. For purposes of this Article 11, information
and data described in clause (a) or (b) above shall be referred to as
"Information." To the extent it is reasonably necessary or appropriate to
fulfill its obligations or exercise its rights under this Agreement, (w) a party
may disclose Information it is otherwise obligated under this Article 11 not to
disclose to its AFFILIATES, sublicensees, consultants, outside contractors and
clinical investigators, on a need-to-know basis on condition that such persons
or entities agree to keep the Information confidential for the same time periods
and to the same extent as such party is required to keep the Information
confidential; (x) a party or its AFFILIATES or sublicensees may disclose such
Information to government or other regulatory authorities to the extent that
such disclosure is reasonably necessary to obtain patents or authorizations to
conduct clinical trials with, and to commercially market the PRODUCT, provided
that the disclosing party shall request confidential treatment thereof when such
treatment is permitted; (y) a party may disclose Information as required by
applicable law, regulation or judicial process, provided that such party shall
give the other party prior written notice thereof and adequate opportunity to
object to any such disclosure or to request confidential treatment thereof; and
(z) a party may disclose Information as permitted under Section 11.1.
The obligation not to disclose or use Information shall not apply
to any part of such Information that (i) is or becomes patented, published or
otherwise part of the public domain other than by acts of the party obligated
not to disclose such Information or its AFFILIATES or sublicensees in
contravention of this Agreement; or (ii) is disclosed to the receiving party or
its AFFILIATES or sublicensees by a THIRD PARTY, provided such Information was
not obtained by such THIRD PARTY directly or indirectly from the other party
under this Agreement on a confidential basis; or (iii) prior to disclosure under
the Agreement, was already in the possession of the receiving party or any of
its AFFILIATES or sublicensees, provided such Information was not obtained
directly or indirectly from the other party under this Agreement; or (iv) is
disclosed in a press release agreed to by both parties under Section 11.3 below.
11.3 Publicity Review. Without the prior written consent of the other
party, neither party shall issue a press release or make any other form of
statement to the public regarding the execution, the subject matter, and/or the
terms of this Agreement or the Stock and Warrant Purchase Agreement, the work
under the RESEARCH PROGRAM or any other aspect of this Agreement or the Stock
and Warrant Purchase Agreement. Any of such statements may be made by LIGAND to
a THIRD PARTY to whom LIGAND is seeking to sell an equity interest, e.g., common
or preferred stock or an instrument convertible into common or preferred stock,
or from whom LIGAND is seeking a loan provided that such THIRD PARTY is bound
under obligations of confidentiality similar to those of this Article 11;
provided, however, that notwithstanding the above, any statements made by LIGAND
to a THIRD PARTY pharmaceutical company shall not include non-public information
about this Agreement or the Stock and Warrant Purchase Agreement. The consent of
the other party shall not be required with respect to disclosure of information
about this Agreement by a party when such disclosure is required of it by law or
regulation in the opinion of independent counsel. Each party agrees that it
shall cooperate fully with the other with respect to all
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disclosures regarding this Agreement to the Securities Exchange Commission and
any other governmental or regulatory agencies, including requests for
confidential treatment of proprietary information of either party included in
any such disclosure.
11.4 Bankruptcy Provision. All confidential information disclosed by one
party to the other shall remain the intellectual property of the disclosing
party. In the event that a party shall file in any court or agency pursuant to
any statute or regulation of any state or country, a petition in bankruptcy or
insolvency or for reorganization or for an arrangement or for the appointment of
a receiver or trustee of the party or of its assets, or if a party proposes a
written agreement of composition or extension of its debts, or if a party shall
be served with an involuntary petition against it, filed in any insolvency
proceeding a court or other legal or administrative tribunal, the bankrupt or
insolvent party shall promptly notify the court or other tribunal (a) that
confidential information received from the other party under this Agreement
remains the property of the other party and (b) of the confidentiality
obligations under this Agreement. In addition, the bankrupt or insolvent party
shall, to the extent permitted by law, take all steps necessary or desirable to
maintain the confidentiality of the other party's confidential information and
to insure that the court, other tribunal or appointee maintains such information
in confidence in accordance with the terms of this Agreement.
ARTICLE 12
PUBLICATION
12.1 Notice of Publication. During the term of the Agreement, LIGAND and
SB each acknowledge the other party's interest in publishing certain of its
results to obtain recognition within the scientific community and to advance the
state of scientific knowledge. Each party also recognizes the mutual interest in
obtaining valid patent protection and protecting business interests.
Consequently, either party, its employees or consultants wishing to make a
publication (including any oral disclosure made without obligation of
confidentiality) relating to work performed by such party as part of the
RESEARCH PROGRAM (the "Publishing Party") shall transmit to the other party (the
"Reviewing Party") a copy of the proposed written publication or an outline of
such oral disclosure at least thirty (30) days prior to submission for
publication or oral disclosure. The Reviewing Party shall have the right (a) to
propose modifications to the publication for patent, trade secret or commercial
reasons and (b) to request a reasonable delay in or avoidance of publication in
order to protect patentable information and trade secrets, the disclosure of
which would materially affect the interests of the Reviewing Party under this
Agreement. A party shall have the right in its own discretion to seek patents on
inventions made solely by its own employees.
12.2 Timing of Publication. If the Reviewing Party requests such a delay
or avoidance, the Publishing Party shall delay submission or presentation of the
publication for a period of ninety (90) days to enable modification as provided
in Section 12.1 or patent applications protecting each party's rights in such
information to be filed in accordance with Article 13 below. Upon the expiry of
sixty (60) days from transmission to the Reviewing
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Party, the Publishing Party shall be free to proceed with the written
publication or the presentation, respectively, unless the Reviewing Party has
requested the delay or avoidance described above.
ARTICLE 13
PATENTS
13.1 Ownership of Inventions, Applications for Patent and Patents.
Subject to such rights as are expressly granted under the Agreement, the entire
right, title and interest in all inventions, discoveries, improvements or other
technology directed at a RESEARCH COMPOUND or PRODUCT and all processes or uses
relating thereto, whether or not patentable (collectively, the "Inventions"),
together with all patent applications or patents based thereon, made during and
as a result of the RESEARCH PROGRAM (a) by employees or others acting solely on
behalf of LIGAND shall be owned solely by LIGAND (the "LIGAND Inventions"), (b)
by employees or others acting solely on behalf of SB shall be owned solely by SB
(the "SB Inventions"), and (c) by employees or others acting jointly on behalf
of LIGAND and SB shall be owned jointly by LIGAND and SB (the "Joint
Inventions"). Any dispute regarding the inventorship of an Invention or Joint
Invention made under the RESEARCH PROGRAM shall be resolved by the decision of
independent patent counsel, mutually acceptable to the parties, after
consideration of all evidence submitted by the parties, except to the extent
such decision is inconsistent with the subsequent determination of the
appropriate patent or judicial authorities. Each party shall promptly disclose
to the other party and the LRC the conception or reduction to practice under the
RESEARCH PROGRAM of Inventions by employees or others acting on behalf of such
party, and such disclosure shall be subject to the confidentiality provisions of
Article 11. Each party hereby represents and agrees that all employees and other
persons acting on its behalf in performing its obligations under the Agreement
shall be obligated under a binding written agreement or applicable law to assign
to such party or its AFFILIATE all Inventions made or developed by such employee
or other Person.
13.2 Patent Applications.
13.2.1 Priority Filings. When an Invention or Joint Invention has
been made under the RESEARCH PROGRAM which may reasonably be considered to be
patentable, a priority patent application shall be filed as soon as reasonably
possible. As used in this Agreement, a "priority patent application" means a
patent application that establishes a filing date under the Convention of Paris
for the Protection of Industrial Property. If a Joint Invention has been made
under the RESEARCH PROGRAM, SB shall have the first right, using in-house or
outside legal counsel selected at SB's sole discretion, to prepare, file,
prosecute, maintain and extend patent applications and patents concerning all
such inventions and discoveries owned in whole by SB or jointly by SB and LIGAND
in countries of SB's choice throughout the world with appropriate credit to
LIGAND representatives, including the naming of such parties as inventors where
appropriate and in accordance with the relevant
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legal requirements, for which SB shall bear the costs relating to such
activities which occur at SB's request or direction. SB shall solicit the LRC's
advice and review of the nature and text of such patent applications and
important prosecution matters related thereto in reasonably sufficient time
prior to filing thereof, and SB shall take into account the LRC's reasonable
comments related thereto. If SB, prior or subsequent to filing certain patent
applications on any inventions or discoveries which are owned in whole or in
part by LIGAND, elects not to file, prosecute or maintain such patent
applications or ensuing patents or certain claims encompassed by such patent
applications or ensuing patents in any country of the TERRITORY, SB shall give
LIGAND notice thereof within a reasonable period prior to allowing such patent
applications or patents or such certain claims encompassed by such patent
applications or patents to lapse or become abandoned or unenforceable, and
LIGAND shall thereafter have the right, at its sole expense, to prepare, file,
prosecute and maintain patent applications and patents or divisional
applications related to such certain claims encompassed by such patent
applications or patents concerning all such inventions and discoveries in
countries of its choice throughout the world. The party filing the application
with respect to an Invention or Joint Invention made under the RESEARCH PROGRAM
shall give the other party an opportunity to review the text of the application
before filing, and in good faith shall consider and incorporate the reasonable
requests of the other party. The party filing the application with respect to
any Invention or Joint Invention made under the RESEARCH PROGRAM shall supply
the other party with a copy of the application as filed, together with notice of
its filing date and serial number.
13.2.2 Foreign Filing Decisions. No later than nine (9) months
following the filing date of a priority patent application with respect to an
Invention or Joint Invention made under the RESEARCH PROGRAM filed according to
Section 13.2.1 above, the parties shall consult together, through the LRC or
otherwise, to determine whether such priority application with respect to such
Invention or Joint Invention should be abandoned without replacement; abandoned
and refiled; proceeded within the country of filing only; or used as the basis
for a claim of priority under the Paris Convention for corresponding
applications in or designating other countries. The parties shall consult
together to ensure that so far as legally and commercially practicable, the
texts filed in the U.S.A. and in other countries contain the same information
and claim the same scope of protection.
13.2.3 Prosecution and Maintenance. LIGAND and SB, as applicable,
shall have the right, using commercially and legally reasonable practices, to
control the prosecution, grant and maintenance of its PATENT RIGHTS with respect
to each Invention or Joint Invention made under the RESEARCH PROGRAM, and to
select all patent counsel or other professionals to advise, represent or act for
it in all matters relating to such PATENT RIGHTS. All costs incurred in
connection therewith shall be borne by the party taking action with respect to
such PATENT RIGHTS. In the case of Joint Inventions made under the RESEARCH
PROGRAM, the party controlling the prosecution, grant and maintenance of such
joint PATENT RIGHTS shall consider all reasonable requests of the other party
with respect thereto. All costs incurred in connection with the prosecution,
grant and maintenance of such joint PATENT RIGHTS shall be paid in equal parts
by the parties. Each party shall
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inform the other party at regular intervals, or on request, about the status of
all patent applications or patents for which it is responsible with respect to
Inventions or Joint Inventions made under the RESEARCH PROGRAM.
In the event that LIGAND or SB elects not to file a patent
application on an Invention or Joint Invention made under the RESEARCH PROGRAM
in any country, or decides to abandon any pending application or granted patent
on an Invention or Joint Invention made under the RESEARCH PROGRAM in any
country, it shall provide adequate notice to the other party and give the other
party the opportunity to file or maintain such application or patent at its own
expense.
13.3 Cooperation. Each party shall make available to the other party or
its authorized attorneys, agents or representatives, its employees, agents or
consultants necessary or appropriate to enable the appropriate party to file,
prosecute and maintain patent applications and resulting patents with respect to
all Inventions or Joint Inventions made under the RESEARCH PROGRAM, as set forth
in Section 13.2 above, for a period of time sufficient for such party to obtain
the assistance it needs from such personnel. Where appropriate, each party shall
sign or cause to have signed all documents relating to said patent applications
or patents at no charge to the other.
13.4 No Other Technology Rights. Except as otherwise provided in the
Agreement, under no circumstances shall a party hereto, as a result of the
Agreement, obtain any ownership interest or other right in any technology, trade
secrets, patents, pending patent applications, PRODUCTS, vaccines, antibodies,
cell lines or cultures, or animals of the other party, including items owned,
controlled or developed by the other, or transferred by the other to such party
at any time pursuant to the Agreement. It is understood and agreed by the
parties that, except for Transferred Technology, the Agreement does not grant to
either party any license or other right in basic technology of the other party
except to the extent necessary to enable the parties to carry out their part of
the RESEARCH PROGRAM, EXPLORATORY DEVELOPMENT, FULL DEVELOPMENT, manufacture,
marketing and sales of RESEARCH COMPOUNDS and PRODUCTS.
13.5 Enforcement of PATENT RIGHTS.
13.5.1 LIGAND and SB each shall use good faith efforts to enforce
their own PATENT RIGHTS against infringers, and to consult with the other party
both prior to and during said enforcement. Upon learning of significant and
continuing infringement of such PATENT RIGHTS by a THIRD PARTY in the FIELD,
LIGAND or SB, as the case may be, shall promptly provide notice to the other
party in writing of the fact and shall supply the other party with all evidence
possessed by the notifying party pertaining to and establishing said
infringement(s).
13.5.2 LIGAND may elect to initiate legal action with respect to
LIGAND SOLE PATENT RIGHTS against such THIRD PARTY in its sole discretion, and
SB shall
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cooperate fully with LIGAND in any such action at its own out-of-pocket expense,
further provided that SB shall have the right, but not the obligation, to join
as a party provided it funds up to *** . SB shall have the right to be
represented by legal counsel of its own choosing at its sole expense. If LIGAND,
within *** of receipt of such notice or such lesser period of time if a further
delay would result in material harm, or the loss of a material right, has not
commenced legal action against an infringer whose infringing product competes
with a PRODUCT and is embraced by a valid claim of said LIGAND SOLE PATENT
RIGHTS in that country, which LIGAND SOLE PATENT RIGHTS are licensed to SB
hereunder, upon written notice from SB, LIGAND shall promptly either: (i)
initiate such action; or (ii) authorize SB to commence such action.
13.5.3 SB may elect to initiate legal action with respect to
PATENT RIGHTS owned jointly or solely by SB against such THIRD PARTY in its sole
discretion, and LIGAND shall cooperate fully with SB in any such action at its
own out-of-pocket expense, further provided that LIGAND shall have the right,
but not the obligation, to join as a party provided it funds up to *** . LIGAND
shall have the right to be represented by legal counsel of its own choosing at
its sole expense. If SB, within *** of receipt of such notice or such lesser
period of time if a further delay would result in material harm, or the loss of
a material right, has not commenced legal action against an infringer whose
infringing product is embraced by a valid claim of said SB PATENT RIGHTS in that
country, upon written notice from LIGAND, SB shall promptly either: (i) initiate
such action; or (ii) authorize LIGAND to commence such action.
13.5.4 Notwithstanding anything to the contrary, any settlement
of such legal action under Section 13.5 by the initiating party shall not
require the consent of the non-initiating party unless such settlement would
require the other party to be subject to an injunction or to make a monetary
payment or would otherwise adversely affect the other party's rights under this
Agreement, and such consent will not be unreasonably withheld. The party whose
PATENT RIGHTS allegedly are being infringed shall not be obligated to bring or
maintain more than one such suit at any time with respect to claims directed to
any one method of manufacture or composition of matter. All monies recovered
upon the final judgment or settlement of any such suit shall be shared, after
reimbursement of expenses, by LIGAND and SB pro rata according to the respective
percentages of costs borne by each party in such suit pursuant to this Section
13.5.
13.5.5 Notwithstanding the foregoing, LIGAND and SB shall fully
cooperate with each other in the planning and execution of any action to enforce
such PATENT RIGHTS, and shall join suit if required by law to do so in order to
bring such action.
13.6 Unauthorized Use of PATENT RIGHTS. Neither LIGAND nor SB shall
willfully take any action which would, directly or indirectly, infringe, or
induce or contribute to the infringement of, one or more claims of any issued
patent of the other party or its AFFILIATES, except to the extent such action is
authorized by a license granted under the Agreement. If either LIGAND or SB
takes any action, directly or indirectly, to challenge the
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validity of any issued patent related to the RESEARCH PROGRAM owned by the other
party or its AFFILIATES, then the other party shall have the right in its sole
discretion to terminate the RESEARCH PROGRAM; provided, however, in the
circumstance where the challenged patent is included within the PATENT RIGHTS of
the other party, the other party additionally shall have the right to terminate
the license granted under Article 6 above, to the extent permitted by law, on a
country-by-country basis. For the avoidance of doubt this right to terminate
shall not apply to license rights in the U.S. provided that the licensee is not
in breach of any obligation which would otherwise give rise to a right of
termination. A party shall not be entitled to withhold any milestone payment or
payment of any royalty accruing during any challenge by such party to the
validity of a patent included within the PATENT RIGHTS of the other party.
13.7 Trademarks:
13.7.1 SB shall be responsible for the selection of all
trademarks and tradenames which are employed in connection with any PRODUCT,
subject to final review and approval by SB's legal personnel. SB shall be
responsible for registration and maintenance of all such trademarks and
tradenames, and, in those countries where recordation is required, SB shall be
recorded as the registered user of such trademarks. Nothing in this Agreement
shall be construed as a grant of rights, by license or otherwise, to LIGAND to
use such trademarks and tradenames or any other trademarks and tradenames owned
by SB for any purpose. SB shall own such tradenames and trademarks and shall
retain such ownership upon termination of this Agreement.
13.7.2 Nothing in this Agreement shall be construed as a grant of
rights, by license or otherwise, to either party, to use the name of the other
party or any entity affiliated therewith for any purpose whatsoever except as
may otherwise be expressly provided for in this Agreement.
13.7.3 Nothing in this Section 13.7 shall be deemed a limitation
on LIGAND's right to register and use trademarks or tradenames of its own for
PRODUCTS for which it acquires rights under ARTICLE 6.
ARTICLE 14
TERM AND TERMINATION
14.1 Expiration.
14.1.1 Royalty obligations under Section 7.3.1 for each PRODUCT in each
country of the TERRITORY shall expire upon the earliest of:
(a) the expiration, abandonment or invalidation of the last remaining
PATENT RIGHTS in such country which claims the PRODUCT sold or its method of use
for which it is being sold;
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(b) introduction of ***
***; and
(c) the expiration of ten (10) years after the priority filing date of
pending PATENT RIGHTS which claims the PRODUCT sold or its method of use for
which it is being sold.
Notwithstanding the foregoing, once the ***
***
***
***
***.
Expiration of SB's royalty obligations under Section 7.3.1 for a particular
PRODUCT under this provision shall not preclude SB from continuing to market
such PRODUCT and to use KNOW-HOW related thereto in such country without further
royalty payments or any other remuneration to LIGAND, except to the extent that
Section 7.3.2 is still applicable to the NET SALES of the particular PRODUCT in
the particular country.
14.1.2 Royalty obligations under Section 7.3.2 in each country shall
expire ten (10) years from the date of FIRST COMMERCIAL SALE in such country.
Expiration of SB's royalty obligations for a particular PRODUCT under this
provision shall not preclude SB from continuing to market such PRODUCT and to
use KNOW-HOW related thereto in such country without further royalty payments or
any other remuneration to LIGAND.
14.1.3 Unless otherwise terminated, this Agreement shall expire upon the
later of (a) the expiration, lapse or invalidation of the last remaining PATENT
RIGHTS in the TERRITORY which claims PRODUCT, or (b) ten (10) years from the
date of FIRST COMMERCIAL SALE in the last country in the TERRITORY in which the
PRODUCT is marketed by SB. Expiration of this Agreement under this provision
shall not preclude SB from continuing to make, have made, use and sell PRODUCT,
*** and to use KNOW-HOW related thereto in the TERRITORY without further royalty
payments or any other remuneration to LIGAND.
14.2 Effect of Expiration or Termination.
14.2.1 Upon termination of this Agreement, LIGAND shall have the
right to retain any sums already paid by SB hereunder, and SB shall pay all sums
accrued hereunder which are then due. With respect to any license granted to
LIGAND by SB under Section 6.2 and terminated by LIGAND under Section 14.7, the
terms as provided in Sections 14.2.1 through 14.2.2 hereof shall apply to LIGAND
mutatis mutandis.
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14.2.2 Upon termination of this Agreement in its entirety or with
respect to any PRODUCT in any country under Section 14.6, SB shall notify LIGAND
of the amount of PRODUCT SB, its AFFILIATES, sublicensees and distributors then
have on hand, the sale of which would, but for the termination, be subject to
royalty, and SB, its AFFILIATES, sublicensees and distributors shall thereupon
be permitted to sell that amount of PRODUCT provided that SB shall pay the
royalty thereon at the time herein provided for.
14.2.3 Termination of this Agreement in its entirety shall
terminate all outstanding obligations and liabilities between the parties
arising from this Agreement except those described in Articles 2, 8 and 9 (to
the extent applicable to PRODUCT sold, if any, after termination), 11 (for the
time limit provided therein), 13, 14, 15, 16, 17, 19 and 20 and other than those
outstanding obligations and liabilities resulting from a breach hereof. In
addition, any other provision required to interpret and enforce the parties'
rights and obligations under this Agreement shall also survive, but only to the
extent required for the full observation and performance of this Agreement. Upon
termination of this Agreement in its entirety, all LIGAND's interest and rights
granted to SB under Article 6 shall revert to LIGAND and all SB's interest and
rights granted to LIGAND under Article 6 shall revert to SB.
14.2.4 Termination of the Agreement in accordance with the
provisions hereof shall not limit remedies which may be otherwise available in
law or equity.
14.2.5 Except as otherwise provided in this Agreement, including
but not limited to Section 3.4.2, until the end of the period of (a) *** after
expiration or termination of the RESEARCH PROGRAM if the RESEARCH PROGRAM is
less than or equal to *** long or (b) the period of *** after expiration or
termination of the RESEARCH PROGRAM if the RESEARCH PROGRAM if the RESEARCH
PROGRAM is longer than ***, LIGAND shall have no right to use (i) any HTS, (ii)
any KNOW-HOW in the FIELD, (iii) any KNOW-HOW provided to LIGAND by SB and (iv)
any RESEARCH COMPOUND.
14.2.6 After expiration or termination of the RESEARCH PROGRAM
for other than breach by SB, SB shall have the right to use only so much of
LIGAND's STATs TECHNOLOGY which is related to the DESIGNATED PATHWAYS and which
has been transferred to SB during the course of the RESEARCH PROGRAM TERM (a)
for the purpose of continuing development of a RESEARCH COMPOUND or PRODUCT ***
(as defined in Section 3.1.4) and (b) for the identification of additional
MODULATORS. For a period of (i) *** after expiration or termination of the
RESEARCH PROGRAM if the RESEARCH PROGRAM is less than or equal to *** long or
(ii) for a period of *** if the RESEARCH PROGRAM is longer than *** , in the
event that a compound is identified by SB, as a result of its activities
pursuant to part (b) hereinabove, as having activity as a MODULATOR, such
compound will be designated a RESEARCH COMPOUND for which milestone and royalty
payments may be payable to LIGAND under Article 7. After the *** referred
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to above, as applicable, SB has the right to use the Transferred Technology for
its own use, even if the practice of the Transferred Technology by SB does fall
within the scope of LIGAND SOLE PATENT RIGHTS, without any further payment to
LIGAND. If (i) LIGAND files a patent application on the Transferred Technology
no later than *** after expiration or termination of the RESEARCH PROGRAM, (ii)
such patent application issues and, but for the license grant in Section 6.1 of
this Agreement, SB's use of Transferred Technology after the *** referred to
above would have infringed such issued patent and (iii) such PRODUCT arose out
of the practice of the Transferred Technology by SB after the *** referenced
above, then SB shall pay to LIGAND *** of the royalty rates stated in Section
7.3.1, in accordance with the mechanism provided therein, on the NET SALES of
such PRODUCT for a period of ten (10) years from the date of FIRST COMMERCIAL
SALE so long as the issued patent was not abandoned, disclaimed, or held to be
invalid or unenforceable in a proceeding from which no appeal can be taken
during its use with respect to development of the PRODUCT and there is no
Competition in the Marketplace (as defined in Section 7.3.1). Section 7.2 shall
not apply to any PRODUCT arising out of the practice of the Transferred
Technology by SB after the *** referenced above. Notwithstanding the foregoing,
if the Transferred Technology does not fall within LIGAND SOLE PATENT RIGHTS, SB
shall have *** to LIGAND for any PRODUCT arising from use of the Transferred
Technology after the *** and SB shall have no further payment obligations to
LIGAND with respect to its continuing use of the Transferred Technology after
said *** referred to above.
14.3 Termination In Case of Bankruptcy.
14.3.1 Either party may terminate this Agreement if, at any time,
the other party shall file in any court or agency pursuant to any statute or
regulation of any state or country, a petition in bankruptcy or insolvency or
for reorganization or for an arrangement or for the appointment of a receiver or
trustee of the party or of its assets, or if the other party proposes a written
agreement of composition or extension of its debts, or if the other party shall
be served with an involuntary petition against it, filed in any insolvency
proceeding, and such petition shall not be dismissed within sixty (60) days
after the filing thereof, or if the other party shall propose or be a party to
any dissolution or liquidation, or if the other party shall make an assignment
for the benefit of creditors.
14.3.2 Notwithstanding the bankruptcy of LIGAND, or the
impairment of performance by LIGAND of its obligations under this Agreement as a
result of bankruptcy or insolvency of LIGAND, SB shall be entitled to retain the
licenses granted herein, subject to LIGAND's rights to terminate this Agreement
for reasons other than bankruptcy or insolvency as expressly provided in this
Agreement, and subject to performance by SB of its preexisting obligations under
this Agreement. Notwithstanding the bankruptcy of SB, or the impairment of
performance by SB of its obligations under this Agreement as a result of
bankruptcy or insolvency of SB, LIGAND shall be entitled to retain the licenses
granted herein, subject to
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SB's rights to terminate this Agreement for reasons other than bankruptcy or
insolvency as expressly provided in this Agreement, and subject to performance
by LIGAND of its preexisting obligations under this Agreement.
14.3.3 All rights and licenses granted under or pursuant to this
Agreement by LIGAND to SB, and by SB to LIGAND, are, and shall otherwise be
deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code,
licenses of rights to "intellectual property" as defined under Section 101(52)
of the U.S. Bankruptcy Code. The parties agree that each party, as a licensee of
such rights under this Agreement, shall retain and may fully exercise all of its
rights and elections under the U.S. Bankruptcy Code, subject to performance by
the licensee of its preexisting obligations under this Agreement. The parties
further agree that, in the event of the commencement of a bankruptcy proceeding
by or against the licensor under the U.S. Bankruptcy Code, the licensee shall be
entitled to a complete duplicate of (or complete access to, as appropriate) any
such intellectual property and all embodiments of such intellectual property,
and same, if not already in its possession, shall be promptly delivered to the
licensee (a) upon any such commencement of a bankruptcy proceeding upon written
request therefor by the licensee, unless the licensor elects to continue to
perform all of its obligations under this Agreement, or (b) if not delivered
under (a) above, upon the rejection of this Agreement by or on behalf of the
licensor upon written request therefor by the licensee, provided, however, that
upon the licensor's (or its successor's) written notification to the licensee
that it is again willing and able to perform all of its obligations under this
Agreement, the licensee shall promptly return all such tangible materials to the
licensor, but only to the extent that the licensee does not require continued
access to such materials to enable the licensee to perform its obligations under
this Agreement.
14.4 Expiration or Termination of RESEARCH PROGRAM. The initial term of
the RESEARCH PROGRAM shall be *** from the COMMENCEMENT DATE; provided, however,
that the term shall be automatically extended by *** if LIGAND has developed an
HTS before the *** anniversary of the COMMENCEMENT DATE and such HTS is approved
by the LRC under Section 3.1.2. If LIGAND has not developed an HTS approved by
the LRC under Section 3.1.2 before the *** anniversary of the COMMENCEMENT DATE,
SB can terminate the RESEARCH PROGRAM at any time, in *** , by giving LIGAND ***
prior written notice thereof. SB can terminate the RESEARCH PROGRAM as provided
in this Agreement without terminating this Agreement.
14.5 Termination for Material Breach. If either party fails or neglects
to perform covenants or provisions of this Agreement, including but not limited
to the representation and warranty in Section 2.4 that each party will not
knowingly engage in any activity in furtherance of the RESEARCH PROGRAM which
will or is likely to constitute an infringement of any known THIRD PARTY patent
rights, and if such default is material and is not corrected within sixty (60)
days after receiving written notice from the other party with respect to such
default, such other party shall have the right to terminate this Agreement by
giving written notice to the
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party in default provided the notice of termination is given within six (6)
months of the default and prior to correction of the default.
14.6 Termination by SB on country-by-country basis: Except as provided
in Section 14.4, SB may terminate this Agreement with respect to a particular
PRODUCT or all PRODUCTS in any country in the TERRITORY, or the entire
TERRITORY, by giving LIGAND *** written notice thereof based on a reasonable
determination by SB not to continue development and marketing of a PRODUCT. The
PRODUCT so terminated shall be considered abandoned and LIGAND's rights thereto
shall be determined pursuant to Section 6.2. In the event that SB shall
terminate this Agreement with respect to all PRODUCTS in all countries of the
TERRITORY, the PRODUCTS so terminated shall not be considered abandoned, and if
LIGAND has not already exercised its right, if any, under Section 6.2 prior to
such termination, this Agreement shall be deemed to be terminated in its
entirety and Section 14.2 shall apply.
14.7 Termination by LIGAND on country-by-country basis: LIGAND may
terminate its rights obtained under Section 6.2 with respect to any RESEARCH
COMPOUND or PRODUCT corresponding thereto in any country in the TERRITORY by
giving SB at least *** written notice thereof based on a reasonable
determination by LIGAND not to continue development and marketing of such
RESEARCH COMPOUND or PRODUCT. Termination of LIGAND'S rights with respect to
such RESEARCH COMPOUND or PRODUCT in any country in the TERRITORY under this
provision shall terminate all licenses granted to LIGAND in such country related
to such RESEARCH COMPOUND or PRODUCT under Article 6 with full reversion to SB
of all SB's interest and rights, including PATENT RIGHTS and KNOW-HOW, in such
country related to such RESEARCH COMPOUND or PRODUCT.
14.8 Termination of the RESEARCH PROGRAM by SB: SB may, *** , terminate
the RESEARCH PROGRAM, in its entirety, by giving LIGAND at least *** days
written notice thereof based on a reasonable determination by SB, after
consultation with LIGAND, using the same standards SB would use in assessing
whether or not to continue research, development or commercialization of a
product of its own making, that the *** of the RESEARCH PROGRAM or the RESEARCH
COMPOUNDS does not justify continuation of the RESEARCH PROGRAM or continued
research, development or commercialization of the RESEARCH COMPOUNDS. If SB
terminates the RESEARCH PROGRAM under this Section 14.8, SB shall have the
option, at its sole discretion, to retain any or all of the licenses granted to
SB by LIGAND under Section 6 under LIGAND's PATENT RIGHTS and KNOW-HOW with
respect to any or all of the RESEARCH COMPOUNDS identified prior to such
termination, such retained licenses to remain subject to the terms of this
Agreement, and the applicable Sections of this Agreement shall survive
termination under this Section 14.8. SB shall notify LIGAND in writing, no later
than *** after termination of the RESEARCH PROGRAM, whether SB wishes to retain
licenses to any RESEARCH COMPOUNDS. RESEARCH COMPOUNDS which are not retained by
SB in writing under this Section 14.8 shall be immediately subject to Section
6.2 and the date of the written notice of termination of the RESEARCH PROGRAM
shall be
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deemed the first day of the *** period referred to in Sect. 6.2.1. Further, if
SB terminates the RESEARCH PROGRAM under this Section 14.8, LIGAND shall have
the right to retain any quarterly installment of the ANNUAL RESEARCH FEE already
paid to LIGAND by SB prior to the effective date of termination.
ARTICLE 15
INDEMNITY
15.1 Direct Indemnity. Each party shall indemnify and hold the other
party, its AFFILIATES and sublicensees harmless, and hereby forever releases and
discharges the other party, its sublicensees, from and against all claims,
demands, liabilities, damages and expenses, including attorneys' fees and costs
(collectively, "Liabilities") arising out of negligence, recklessness or
intentional misconduct of the indemnifying party, or sublicensees in connection
with the work performed by such party during the RESEARCH PROGRAM, EXPLORATORY
DEVELOPMENT, FULL DEVELOPMENT or the marketing or sale of RESEARCH COMPOUNDS or
PRODUCTS hereunder; except in each case to the extent such Liabilities resulted
from negligence, recklessness or intentional misconduct of the other party,
provided that, the adequate notice and right to participate provisions of
Section 15.3 below are followed.
15.2 Other Indemnity.
15.2.1 Each party shall indemnify and hold the other party, its
AFFILIATES and sublicensees harmless from and against all Liabilities suffered
or incurred in connection with THIRD PARTY claims for personal injuries or any
PRODUCT recall to the extent caused by: (a) any failure to test for or provide
adequate warnings of adverse side effects to the extent such failure arises out
of negligence, recklessness or intentional misconduct in connection with the
indemnifying party's preclinical or clinical testing obligations hereunder, (b)
any manufacturing defect in any PRODUCT or any other material manufactured by
the indemnifying party, AFFILIATES or permitted sublicensees, or (c) any other
act or omission (without regard to culpable conduct) of the indemnifying party,
or permitted sublicensees in connection with the activities contemplated under
the Agreement; except in each case to the extent such Liabilities resulted from
negligence, recklessness or intentional misconduct of the other party, provided
that, the adequate notice and right to participate provisions of Section 15.3
below are followed.
15.3 Procedure. A party (the "Indemnitee") that intends to claim
indemnification under this Article 15 shall promptly notify the other party (the
"Indemnitor") of any Liability or action in respect of which the Indemnitee or
any of its sublicensees intend to claim such indemnification, and the Indemnitor
shall have the right to participate in, and, to the extent the Indemnitor so
desires, jointly with any other Indemnitor similarly noticed, to assume the
defense thereof with counsel selected by the Indemnitor; provided, however, that
an Indemnitee shall have the right to retain its own counsel, with the fees and
expenses of such
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counsel to be paid by the Indemnitee, if representation of such Indemnitee by
the counsel retained by the Indemnitor would be inappropriate due to actual or
potential differing interests between such Indemnitee and any other party
represented by such counsel in such proceedings. The indemnity agreement in this
Article 15 shall not apply to amounts paid in settlement of any loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Indemnitor, which consent shall not be withheld unreasonably. The failure
to deliver notice to the Indemnitor within a reasonable time after the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such Indemnitor of any liability to the Indemnitee under
this Article 15, but the omission to deliver notice to the Indemnitor will not
relieve it of any liability that it may have to any Indemnitee otherwise than
under this Article 15. The Indemnitee under this Article 15, its employees and
agents, shall cooperate fully with the Indemnitor and its legal representatives
in the investigation of any action, claim or liability covered by this
indemnification.
15.4 Insurance. SB shall maintain, through self-insurance or otherwise,
PRODUCT liability insurance with respect to the development, manufacture and
sale of PRODUCTS in such amount as SB customarily maintains with respect to its
other PRODUCTS having similar technical and commercial potential. SB shall
maintain such insurance for so long as it continues to develop, manufacture or
sell any PRODUCTS, and thereafter for so long as SB maintains insurance for
itself covering such manufacture or sales. The requirement to maintain insurance
shall apply mutatis mutandis to LIGAND in the circumstance where LIGAND acquires
the right under this Agreement to commercialize a PRODUCT.
15.5 Indemnity Exclusion. A party that relinquishes rights to a RESEARCH
COMPOUND or PRODUCT to the other party shall not be obligated to indemnify the
other party, or its sublicensees under Sections 15.1 and 15.2 with respect to
their use of information obtained from the relinquishing party as a result of
the relinquishing of rights to the RESEARCH COMPOUND or PRODUCT.
ARTICLE 16
FORCE MAJEURE
Neither party shall be held liable or responsible to the other party nor
be deemed to have defaulted under or breached this Agreement for failure or
delay in fulfilling or performing any term of this Agreement when such failure
or delay is caused by or results from causes beyond the reasonable control of
the affected party including but not limited to fire, floods, embargoes, war,
acts of war (whether war be declared or not), insurrections, riots, civil
commotions, strikes, lockouts or other labor disturbances, acts of God or acts,
omissions or delays in acting by any governmental authority or the other party.
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ARTICLE 17
ASSIGNMENT
This Agreement may not be assigned or otherwise transferred, nor, except
as expressly provided hereunder, may any right or obligations hereunder be
assigned or transferred by either party without the consent of the other
party;***
***
***
*** . Any permitted assignee shall assume all obligations of its
assignor under this Agreement. If LIGAND desires to assign this Agreement and
its rights and obligations hereunder in connection with the transfer or sale of
all or substantially all of its business to a Competitor of SB, or in the event
of its merger or consolidation or change in control or similar transaction to a
Competitor of SB prior to *** , SB shall have the right within *** after receipt
of written notice thereof from LIGAND to either (a) grant a consent to such
assignment, or (b) terminate the RESEARCH PROGRAM, in which case the RESEARCH
PROGRAM shall terminate upon receipt by LIGAND of written notice of such
election to terminate. If SB elects to terminate the RESEARCH PROGRAM under the
immediately preceding sentence, LIGAND shall be entitled to *** in which the
notice of termination is given and (b) *** . Nothing in this Article 17 shall
prevent a party from assigning its rights to develop and commercialize a PRODUCT
for which it acquires rights from the other under this Agreement which
assignment shall be subject to any rights accorded the non-assigning party as a
result of this Agreement. As used in Article 17, the term "a Competitor of SB"
refers to an entity which, without consideration of the assets acquired as a
result of the assignment from LIGAND, either (i) *** .
ARTICLE 18
NOTIFICATION OF PATENT TERM RESTORATION
LIGAND or SB, as the case may be, shall notify the other party of (a)
the issuance of each U.S. patent, or foreign patent where extension is possible,
included within the PATENT
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RIGHTS, giving the date of issue and patent number for each such patent, and (b)
each notice pertaining to any patent included within the PATENT RIGHTS which it
receives as patent owner pursuant to U.S. law, including but not limited to the
Drug Price Competition and Patent Term Restoration Act of 1984 (hereinafter
called the "Act"), or equivalent foreign laws, including notices pursuant to
SectionSection 101 and 103 of the Act from persons who have filed an abbreviated
NDA ("ANDA") or with respect to an NDA pursuant to 21 U.S.C. Section355(b). Such
notices shall be given promptly, but in any event within five (5) calendar days
of each such patent's date of issue or receipt of each such notice pursuant to
the law, whichever is applicable. LIGAND or SB, as the case may be, shall
discuss relevant issues and decide upon appropriate action with respect to
patent term restoration under the law, any allegations of failure to show due
diligence and all awards of patent term restoration (extensions) with respect to
the PATENT RIGHTS. Likewise, LIGAND or SB, as the case may be, shall inform the
other party of patent extensions and periods of data exclusivity in the rest of
the world regarding any PRODUCT.
ARTICLE 19
SEVERABILITY
Each party hereby agrees that it does not intend to violate any public
policy, statutory or common laws, rules, regulations, treaty or decision of any
government agency or executive body thereof of any country or community or
association of countries. If any term or provision of this Agreement is held to
be invalid, illegal or unenforceable by a court or other governmental authority
of competent jurisdiction, such invalidity, illegality or unenforceability shall
not affect any other term or provision of this Agreement, which shall remain in
full force and effect. The holding of a term or provision to be invalid, illegal
or unenforceable in a jurisdiction shall not have any effect on the application
of the term or provision in any other jurisdiction.
ARTICLE 20
MISCELLANEOUS
20.1 Notices. Any consent, notice or report required or permitted to be
given or made under this Agreement by one of the parties hereto to the other
shall be in writing, delivered personally or by facsimile transmission effective
upon such delivery and, in the case of facsimile transmission, confirmation of
receipt by the recipient (and promptly confirmed by personal delivery, U.S.
first class mail or courier), U.S. first class mail or courier, postage prepaid
(where applicable), addressed to such other party at its address indicated
below, or to such other address as the addressee shall have last furnished in
writing to the addressor and (except as otherwise provided in this Agreement)
shall be effective upon receipt by the addressee.
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If to LIGAND: LIGAND Pharmaceuticals Incorporated
9393 Towne Center Drive
San Diego, California 92121
Attention: General Counsel
If to SB: SmithKline Beecham plc
New Horizons Court
Brentford, Middlesex, TW8 9EP
England
Attention: Senior Vice President,
Worldwide Business Development
copies to:
SmithKline Beecham Corporation
One Franklin Plaza (Mail Code FP1930)
P.O. Box 7929
Philadelphia, Pennsylvania 19101
U.S.A.
Attention: Senior Vice President,
Worldwide Business Development
SmithKline Beecham Corporation
One Franklin Plaza
P.O. Box 7929
Philadelphia, Pennsylvania 19101, U.S.A.
Attention: General Counsel-U.S.
20.2 Applicable Law. The Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
20.3 Entire Agreement. This Agreement and the concurrently executed
Stock and Warrant Purchase Agreement and the accompanying Warrant, Ninth
Addendum to the Amended Registration Rights Agreement and the Promissory Notes
between LIGAND and SB to which LIGAND and SB are parties contain the entire
understanding of the parties with respect to the subject matter hereof and shall
supersede all express or implied agreements and understandings, either oral or
written, heretofore made relating to the subject matter hereof. This Agreement
may be amended, or any term hereof modified, only by a written instrument duly
executed by both parties hereto.
20.4 Headings. The captions to the several Articles and Sections hereof
are not a part of this Agreement, but are merely guides or labels to assist in
locating and reading the several Articles and Sections hereof.
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20.5 Independent Contractors. It is expressly agreed that LIGAND and SB
shall be independent contractors and that the relationship between the two
parties shall not constitute a partnership, joint venture or agency. Neither
LIGAND nor SB shall have the authority to make any statements, representations
or commitments of any kind, or to take any action, which shall be binding on the
other, without the prior consent of the party to do so.
20.6 U.S. Export Laws and Regulations. Each party warrants and
represents to the other that it does not intend to, nor will it knowingly export
from the U.S.A. or reexport from any foreign country, or knowingly permit a
THIRD PARTY to export or reexport technology or technical information of the
other party, to a country where such export or reexport would be in violation of
U.S. Export Administration Regulations.
20.7 Waiver. The waiver by either party hereto of any right hereunder or
the failure to perform or of a breach by the other party shall not be deemed a
waiver of any other right hereunder or of any other breach or failure by said
other party whether of a similar nature or otherwise.
20.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
SMITHKLINE BEECHAM plc LIGAND PHARMACEUTICALS
INCORPORATED
By: /s/ J-P. Garnier By: /s/ William L. Respess
----------------------------- --------------------------------
J-P. Garnier William L. Respess
Title: Chief Operating Officer & President Title: Senior Vice President,
General Counsel and Secretary
Date: March 17, 1998 Date: 3/18/98
Page 47
<PAGE> 50
LEPTIN RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT
SMITHKLINE BEECHAM plc-LIGAND PHARMACEUTICALS INCORPORATED
APPENDIX A
KEY TO ABBREVIATIONS
The following abbreviations are used in this Appendix A:
HTS High Throughput Screen
JAK Janus Kinase
STAT Signal Transducer and Activator of Transcription
The main goal of this collaboration is to discover small molecules that can
mimic or potentiate the effects of leptin through the use of screens that detect
the activation of the signal transduction systems utilized by leptin.
A. SPECIFIC OBJECTIVES - SUMMARY
***
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***Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 51
B. WORK TO BE PERFORMED BY LIGAND
***
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Confidential Treatment and filed separately with the Commission.
<PAGE> 52
***
C. WORK TO BE DONE BY SB
***
D. JOINT RESEARCH BETWEEN SB AND LIGAND
***
Page 50
***Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 53
E. LIGAND STAFFING REQUIREMENTS:
The LIGAND staffing requirements anticipated for the *** are summarized in the
following tables. Decisions about staffing allocation will be reviewed
periodically by the LRC.
<TABLE>
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
*** *** *** *** *** *** *** ***
LIGAND ACTIVITY
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*** *** *** ***
***
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*** *** *** *** ***
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***
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***
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***
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*** *** *** ***
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*** *** *** *** ***
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***
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*** *** *** *** ***
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*** *** *** *** ***
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*** *** *** ***
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*** *** *** *** *** *** *** *** ***
========================================================================================================
</TABLE>
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Confidential Treatment and filed separately with the Commission.
<PAGE> 54
================================================================================
TIMINGS TO COMPLETION FROM START OF COLLABORATION
- --------------------------------------------------------------------------------
MONTHS
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*** ***
- --------------------------------------------------------------------------------
*** ***
- --------------------------------------------------------------------------------
*** ***
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*** ***
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Confidential Treatment and filed separately with the Commission.
<PAGE> 55
CRITICAL PATH FOR DISCOVERY OF SMALL MOLECULE MODULATORS OF LEPTIN ACTION
<TABLE>
<CAPTION>
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LIGAND SB
------ --
<S> <C>
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***
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*** ***
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***
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*** ***
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***
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*** ***
</TABLE>
Page 53
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Confidential Treatment and filed separately with the Commission.
<PAGE> 56
- --------------------------------------------------------------------------------
*** ***
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***
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***
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Page 54
***Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 57
LEPTIN RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT
SMITHKLINE BEECHAM plc-LIGAND PHARMACEUTICALS INCORPORATED
APPENDIX B
LIGAND SOLE PATENT RIGHTS
1) ***
2) ***
3) ***
Page 55
***Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 1
EXHIBIT 10.175
STOCK AND WARRANT PURCHASE AGREEMENT
THIS STOCK AND WARRANT PURCHASE AGREEMENT is made as of the 17th day of
March, 1998, by and among Ligand Pharmaceuticals Incorporated, a Delaware
corporation (the "Company"), SmithKline Beecham plc, an English public limited
company ("Investor"), and SmithKline Beecham Corporation, a Pennsylvania
corporation ("SBC").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Shares and Warrant.
1.1 Sale and Issuance of Shares and Warrant. SBC shall have joint
and several liability for all of Investor's obligations under this Section 1.1.
(a) First Installment. Subject to the terms and conditions of
this Agreement, Investor agrees to pay $5,000,000 ("First Installment") to the
Company at the Closing and the Company agrees to sell and issue to Investor at
the Closing the number of shares (the "First Installment Shares") of the
Company's Common Stock equal to $5,000,000 divided by $18.22 (which is 120% of
the average daily closing price of the Company's Common Stock reported by the
National Association of Securities Dealers, Inc. ("NASD") for the fifteen (15)
trading days preceding the fifth (5th) day prior to the date hereof).
(b) Second Installment. Subject to the terms and conditions of
this Agreement, Investor agrees to pay $2,250,000 (the "Second Installment") to
the Company and the Company agrees to sell and issue to Investor the number of
shares (the "Second Installment Shares") of the Company's Common Stock equal to
*** divided by 120% of the average daily closing price of the Company's Common
Stock reported by the NASD on the *** to the Second Installment Date (as defined
below). Investor shall pay the Second Installment to the Company if and when the
requirements of the milestone set forth in Section 7.1 (the "Milestone") of the
Leptin Research, Development and License Agreement of even date herewith between
the Company and Investor (the "Research Agreement") are met. The Company shall
deliver written notice to Investor, including documentation of the LRC action
(as defined in the Research Agreement), of the satisfaction of the requirements
of the Milestone, and shall simultaneously deliver a written certification that
the representations and covenants of the Company set forth in Section 2 of this
Agreement are true and correct with respect to the Second Installment Shares as
of the date of such notice. The date on which such notice is delivered shall be
the "Second Installment Date". Investor shall deliver the Second Installment to
the Company in accordance with Section 1.2 within thirty (30) days of the Second
Installment Date and shall simultaneously deliver a written verification that
the representations and covenants of Investor set forth in Section 3 of this
Agreement are true and correct with respect to the Second Installment Shares as
of the date of delivery of the Second
***Certain confidential portions of this Exhibit were omitted by means
of blackout of the text (the "Mark"). This Exhibit has been filed
separately with the Secretary of the Commission without the Mark
pursuant to the Company's Application Requesting Confidential Treatment
under Rule 24b-2 under the Exchange Act.
<PAGE> 2
Installment Shares. Upon delivery of the Second Installment to the Company by
Investor, the Company shall issue and deliver to Investor a certificate
representing the Second Installment Shares (free and clear of all liens, claims
and other encumbrances except as otherwise provided herein and in the
Registration Rights Agreement (as defined below)).
(c) Sale and Issuance of Warrant. Subject to the terms and
conditions of this Agreement, Investor agrees to pay $1,000,000 (the "Warrant
Purchase Price") to the Company at the Closing and the Company agrees to sell
and issue to Investor at the Closing the Common Stock Purchase Warrant in the
form attached hereto as Exhibit A (the "Warrant").
1.2 Closing. The purchase and sale of the First Installment
Shares and the Warrant shall take place at the offices of Brobeck, Phleger &
Harrison LLP, 550 West "C" Street, Suite 1200, San Diego, California, within
three (3) business days after the date on which all conditions to closing set
forth in Section 4 and Section 5 have been satisfied, or at such other time and
place as the Company and Investor mutually agree upon orally or in writing
(which time and place are designated as the "Closing"). At the Closing the
Company shall deliver to Investor (i) a certificate representing the First
Installment Shares and (ii) the Warrant (both of which shall be free and clear
of all liens, claims and other encumbrances except as otherwise provided herein
and in the Registration Rights Agreement (as defined below)). In consideration
of such delivery, Investor shall make payment of the purchase prices for the
First Installment Shares and the Warrant by delivery to the Company of the First
Installment and the Warrant Purchase Price. Such payments by Investor at the
Closing and all payments with respect to the Second Installment shall be in
immediately-available funds in the form of a certified or cashier's check
payable to the Company's order or by wire transfer of funds to the Company's
designated bank account. Notwithstanding anything to the contrary in this
Agreement or the Research Agreement, either Ligand separately or Investor and
SBC jointly shall be entitled to terminate this Agreement and the Research
Agreement in the event the Closing has not occurred on or before June 1, 1998.
2. Representations and Warranties of the Company. Except as otherwise
set forth on the Schedule of Exceptions attached hereto as Exhibit B, the
Company hereby represents and warrants to Investor that:
2.1 Organization, Good Standing and Qualification. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure so to qualify would be
reasonably expected to have a material adverse effect on the business,
operations, properties, assets, prospects or condition (financial or otherwise)
of the Company (a "Material Adverse Effect"). Except as disclosed in the Form
10-K (as defined herein), the Company has no subsidiaries.
2.2 Authorization. The Company has all requisite corporate power
and authority (i) to execute, deliver and perform its obligations under this
Agreement, the Registration Rights Agreement and the Research Agreement; (ii) to
issue the Securities (as defined herein) in the manner and for the purpose
contemplated by this Agreement, and
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<PAGE> 3
(iii) to execute, deliver and perform its obligations under all other agreements
and instruments executed and delivered by it pursuant to or in connection with
this Agreement, the Registration Rights Agreement and the Research Agreement.
All corporate action on the part of the Company, its officers, directors and
stockholders necessary for the authorization, execution and delivery of this
Agreement, the Securities, the Ninth Addendum to Amended Registration Rights
Agreement of even date herewith, which makes Investor a party to the Amended
Registration Rights Agreement between the Company and certain of its
stockholders (collectively, the "Registration Rights Agreement"), and the
Research Agreement, the performance of all obligations of the Company hereunder
and thereunder and the authorization, issuance (or reservation for issuance) and
delivery of the Securities has been taken or will be taken prior to the Closing,
and this Agreement, the Warrant (when issued and fully paid for), the
Registration Rights Agreement and the Research Agreement constitute valid and
legally binding obligations of the Company, enforceable in accordance with their
respective terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief, or other
equitable remedies.
2.3 Valid Issuance of Securities. The First Installment Shares
and the Second Installment Shares, if any (collectively, the "Shares") and the
Warrant which are being purchased hereunder and the shares of Common Stock
issuable upon exercise of the Warrant, when each are issued, sold and delivered
in accordance with the terms hereof and thereof for the consideration expressed
herein and therein, will be duly and validly issued, fully paid and
nonassessable and, based in part upon the representations of Investor in this
Agreement, the Shares and the Warrant will be issued in compliance with all
applicable federal and state securities laws.
2.4 SEC Reports. The Company has heretofore filed with the
Securities and Exchange Commission (the "SEC") pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), all reports and other
documents required to be filed, including an Annual Report on Form 10-K for the
year ended December 31, 1996 (the "Form 10-K"). None of such reports, or any
other reports, documents, registration statements, definitive proxy materials
and other filings required to be filed with the SEC under the rules and
regulations of the SEC (the "SEC Filings") contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements made, at the time and in light of the
circumstances under which they were made, not misleading. Since December 31,
1996, the Company has timely filed with the SEC all SEC Filings and all such SEC
Filings complied in all material respects with all applicable requirements of
the Securities Act of 1933, as amended (the "Securities Act"), the Exchange Act,
and the rules thereunder. The audited financial statements of the Company
included or incorporated by reference in the 1996 Annual Report and the
unaudited financial statements contained in the quarterly reports on Form 10-Q
each have been prepared in accordance with such acts and rules and with United
States generally accepted accounting principles applied on a consistent basis
throughout the periods indicated therein and with each other, except as may be
indicated therein or in the notes thereto and except that the unaudited interim
financial statements may not contain all footnotes and adjustments required by
United States generally accepted accounting principles, and fairly present the
financial condition of the Company as at the dates thereof and the results of
its operations and statements of cash flows for the periods
-3-
<PAGE> 4
then ended, subject, in the case of unaudited interim financial statements, to
normal year-end adjustments. Except as reflected in such financial statements,
the Company has no material liabilities, absolute or contingent, other than
ordinary course liabilities incurred since the date of the last such financial
statements in connection with the conduct of the business of the Company. Since
December 31, 1996, except as set forth in the Company's SEC Filings, there has
been no:
(a) change in the assets, liabilities, financial condition
or operating results of the Company from that reflected in the 1996 Annual
Report, except changes in the ordinary course of business that have not,
individually or in the aggregate, resulted in and are not reasonably expected to
result in a Material Adverse Effect (and except that the Company expects to
continue to incur substantial operating losses, which may be material);
(b) damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties or
financial condition of the Company (and except that the Company expects to
continue to incur substantial operating losses, which may be material);
(c) waiver or compromise by the Company of a material
right or of a material debt owed to it;
(d) satisfaction or discharge of any lien, claim or
encumbrance by the Company, except in the ordinary course of business and which
is not material to the business, properties or financial condition of the
Company (as such business is presently conducted);
(e) material change to a material contract or arrangement
by which the Company or any of its assets is bound or subject;
(f) sale, assignment or transfer to a third party that is
not an affiliate of the Company (as hereafter defined) of any material patents,
trademarks, copyrights, trade secrets or other intangible assets for
compensation which is less than fair value;
(g) mortgage, pledge, transfer of a security interest in,
or lien, created by the Company, with respect to any of its material properties
or assets, except liens for taxes not yet due or payable;
(h) declaration, setting aside or payment or other
distribution in respect of any of the Company's capital stock, except any direct
or indirect redemption, purchase or other acquisition of any such stock by the
Company; or
(i) event or condition of any type that has had or is
reasonably expected to have a Material Adverse Effect.
-4-
<PAGE> 5
For purposes of this Section 2.4 of this Agreement, the term
"affiliate of the Company" means any individual or entity directly or indirectly
controlling, controlled by or under common control with, the Company. Without
limiting the foregoing, the direct or indirect ownership of 50% or more of the
outstanding voting securities of any entity, or the right to receive 50% or more
of the profits or earnings of an entity, shall be deemed to constitute control.
2.5 Contracts. With respect to each of the material contracts,
commitments and agreements of the Company, the Company is not, and has no actual
knowledge that any other party is, in default under or in respect of any such
material contract, commitment or agreement, the result of which default would
have a Material Adverse Effect. No party to any such material contract,
commitment or agreement, would be authorized or permitted to terminate its
obligations thereunder by reason of the execution and delivery of this Agreement
or any of the transactions contemplated herein.
2.6 Compliance. The Company has complied with, and is not in
default under or in violation of its Certificate of Incorporation, Bylaws or any
and all laws, ordinances and regulations or other governmental restrictions,
orders, judgments or decrees, applicable to the Company's business as presently
conducted and as proposed to be conducted, including individual products
marketed by it, where any such default or violation would have a Material
Adverse Effect. The Company has not received notice of any possible or actual
violation of any applicable law, ordinance, regulation, or order, the result of
which violation would be reasonably expected to have a Material Adverse Effect.
The Company is not a party to any agreement or instrument, or subject to any
charter or other corporate restriction, or any judgment, order, decree, law,
ordinance, regulation or other governmental restriction which would prevent or
impede, or be breached or violated by, or would result in the creation of any
lien or encumbrance upon any assets of the Company by, the transactions
contemplated in this Agreement, the execution, delivery or performance of the
Registration Rights Agreement or the Research Agreement, except that no
representation or warranty is made with respect to filings required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 as amended.
2.7 Compliance with Other Instruments. The execution, delivery
and performance of this Agreement and of the transactions contemplated hereby
will not result in any violation of or constitute, with or without the passage
of time and the giving of notice, either a default under any provision of the
Company's Certificate of Incorporation or Bylaws.
2.8 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority is required on
the part of the Company in connection with the Company's valid execution,
delivery and performance of this Agreement, the Registration Rights Agreement
and the Research Agreement, except for any filings under any applicable state
securities laws and except for any filing under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 as amended. The filings under state securities laws, if
any, will be effected by the Company at its cost within the applicable
stipulated statutory period.
-5-
<PAGE> 6
2.9 Litigation. There is no action, suit, proceeding or
investigation pending or currently threatened against the Company which
questions the validity of this Agreement, the Registration Rights Agreement or
the Research Agreement, or the right of the Company to enter into such
agreements or to consummate the transactions contemplated hereby or thereby.
There is no action, suit, proceeding or investigation pending or currently
threatened against the Company, which singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would materially adversely affect
the business, properties, operations, financial condition, income or business
prospects of the Company as presently being conducted.
2.10 Permits. Except as disclosed in the SEC Filings (including,
among other things, the lack of FDA approvals for the commercial sale of the
Company's product candidates), the Company has all governmental franchises,
permits, licenses, and any similar authority necessary for the conduct of its
business as now being conducted by it or as proposed to be conducted by it, the
lack of which could have a Material Adverse Effect. The Company is not in
default in any material respect under any of such franchises, permits, licenses
or other similar authority.
2.11 Taxes. The Company has filed all federal, state and other
tax returns which are required to be filed and has heretofore paid all taxes
which have become due and payable, except where the failure to file or pay would
not be reasonably expected to have a Material Adverse Effect. The provision for
taxes on the balance sheet as of December 31, 1996 is sufficient for the payment
of all accrued and unpaid taxes of the Company with respect to the period then
ended.
2.12 Title. The Company has good and marketable title to all
material property and assets reflected in the financial statements to the 1996
Annual Report (or as described in the SEC Filings). The Company occupies its
leased properties under valid and binding leases conforming to the description
thereof set forth in the SEC Filings.
2.13 Intellectual Property. The Company owns, or possesses
adequate rights to use, all of its patents, patent rights, trade secrets,
know-how, proprietary techniques, including processes and substances,
trademarks, service marks, trade names and copyrights described or referred to
in the SEC Filings or owned or used by it or which is necessary for the conduct
of its business as presently conducted, except where the failure to own or
possess such patents, patent rights, trade secrets, know-how, proprietary
techniques, including processes and substances, trademarks, service marks, trade
names and copyrights would not have a Material Adverse Effect. The Company has
not received any notice of infringement of or conflict with asserted rights of
others with respect to any patents, patent rights, trade secrets, know-how,
proprietary techniques, including processes and substances, trademarks, service
marks, trade names and copyrights which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would be reasonably
expected to have a Material Adverse Effect.
2.14 Capitalization; Options and Warrants. The authorized capital
stock of the Company consists of Eighty-Five million (85,000,000) shares, of
which Eighty million
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<PAGE> 7
(80,000,000) shares are Common Stock, par value $0.001 per share, and Five
million (5,000,000) shares are Preferred Stock, par value $0.001 per share, of
which Eighty thousand (80,000) shares have been designated Series A
Participating Preferred Stock. As of September 30, 1997, 32,977,938 shares of
the Company's Common Stock and no shares of Preferred Stock were issued and
outstanding. Except for the transactions contemplated hereby and except as set
forth in the Company's SEC Filings, since December 31, 1996, the Company has not
granted any option (except for stock options granted under the Company's stock
option plans), warrants, rights (including conversion or preemptive rights,
except for stock purchased under the Company's stock purchase plans), or similar
rights to any person or entity to purchase or acquire any rights with respect to
any shares of capital stock of the Company that in the aggregate exceed 250,000
shares.
2.15 Nasdaq National Market Designation. The Common Stock is
currently included in the Nasdaq National Market of the Nasdaq Stock Market and
the Company knows of no reason or set of facts which is likely to result in the
termination or inclusion of the Common Stock in the Nasdaq National Market or
the inability of such stock to continue to be included in the Nasdaq National
Market. The Company shall use all commercially reasonable efforts to maintain
the Non-Quantitative Designation Criteria contained in Section 4460 of the NASD
Manual to the extent such criteria are within the control of the Company.
Nothing in this Section shall be interpreted to preclude the Company from
listing its Common stock on a national securities exchange in lieu of the Nasdaq
National Market.
2.16 Accuracy of Representations and Warranties. No
representation or warranty by the Company contained in this Agreement, and no
statement contained in any exhibit, schedule, disclosure, certificate, list or
other instrument delivered or to be delivered to Investor pursuant hereto or in
connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state any material fact necessary to
make the statements contained herein or therein not misleading.
3. Representations and Warranties of Investor. Investor and SBC hereby
jointly and severally represent and warrant that:
3.1 Organization, Good Standing and Qualification. Investor is a
public limited company duly organized, validly existing and in good standing
under the laws of England. SBC is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of Pennsylvania.
Investor and SBC each has all requisite power and authority to carry on its
business as now conducted and as proposed to be conducted.
3.2 Authorization. All corporate action on the part of each
Investor and SBC, and their respective officers and directors necessary for the
authorization, execution and delivery of this Agreement and the Registration
Rights Agreement and the performance of all obligations of Investor and SBC
hereunder and thereunder has been taken or will be taken prior to the Closing,
and this Agreement and the Registration Rights Agreement constitute valid and
legally binding obligations of Investor and SBC as their interests appear,
enforceable in accordance with their respective terms, except (i) as limited by
applicable
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<PAGE> 8
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting the enforcement of creditors' rights generally, and (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies.
3.3 Purchase Entirely for Own Account. This Agreement is made
with Investor and SBC in reliance upon Investor's representation to the Company,
which by execution of this Agreement Investor hereby confirms, that the Shares
and the Warrant to be received by Investor and the shares of Common Stock
issuable upon exercise of the Warrant (collectively, the "Securities") will be
acquired for investment for Investor's own account, not as a nominee or agent,
and not with a view to the resale or distribution of any part thereof, and that
Investor does not have any present intention of selling, granting any
participation in, or otherwise distributing the same in violation of the
Securities Act or any state securities laws. By executing this Agreement,
Investor further represents that it does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities. Investor and SBC each represent that it has full power and authority
to enter into this Agreement.
3.4 Investment Experience. Investor acknowledges that it is able
to fend for itself, can bear the economic risk of its investment and has such
knowledge and experience in financial or business matters that it is capable of
evaluating the merits and risks of the investment in the Securities. Investor
also represents that it has not been organized for the purpose of acquiring the
Securities.
3.5 Accredited Investor. Investor is an "accredited investor"
within the meaning of SEC Rule 501 of Regulation D, as presently in effect.
3.6 Restricted Securities. Investor understands that the
Securities it is purchasing are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such Securities may be resold without registration under
the Securities Act only in certain limited circumstances. In this connection,
Investor represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the
Securities Act.
3.7 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, Investor further agrees not to
make any disposition of all or any portion of the Securities unless and until
the transferee has agreed in writing for the benefit of the Company to be bound
by Sections 3.7, 6.2 and 7 (except that Sections 3.7, 6.2 and 7 shall not apply
to a transferee in a registered public offering or a sale under Rule 144 or as
provided in Section 7) of this Agreement, all provisions of the Registration
Rights Agreement and the Warrant, if applicable, and:
(a) There is then in effect a Registration Statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such Registration Statement; or
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<PAGE> 9
(b) (i) Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a reasonably
detailed statement of the circumstances surrounding the proposed disposition (to
the extent required for purposes of securities law compliance), and (ii) if
reasonably requested by the Company, Investor shall have furnished the Company
with an opinion of counsel (which may be Investor's or SBC's inside counsel), in
form and substance reasonably satisfactory to the Company, that such disposition
will not require registration of such shares under the Securities Act. It is
agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in unusual circumstances.
3.8 Legends. It is understood that the certificates evidencing
the Securities may bear one or all of the following legends:
(a) "These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in effect
with respect to the securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not required or unless
sold pursuant to Rule 144 of such Act."
(b) "These securities are subject to certain transfer
restrictions contained in a certain Stock and Warrant Purchase Agreement dated
March 17, 1998, as amended from time to time, a copy of which may be obtained
from the Company without charge."
(c) Any legend required by any applicable state securities
laws.
To the extent that such legends are no longer applicable, the
Company shall cause its transfer agent to remove the legends upon request by
Investor.
3.9 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority is required on
the part of Investor or SBC in connection with Investor's or SBC's valid
execution, delivery and performance of this Agreement, the Warrant or the
Registration Rights Agreement, or the issuance of the Shares and the Warrant,
except for any filings under any applicable state securities laws and except for
any filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
4. Conditions of Investor's Obligations at Closing. The obligations of
Investor under Sections 1.1(a) and (c) of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which shall not be effective without the consent of Investor thereto:
4.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of the Closing.
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<PAGE> 10
4.2 Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing,
and all corporate or other proceedings in connection with the transactions
contemplated at the Closing and all documents incident thereto shall be
reasonably satisfactory in form and in substance to Investor.
4.3 Compliance Certificate. An officer of the Company shall have
delivered to Investor a certificate certifying that (a) the conditions specified
in Sections 4.1 and 4.2 have been fulfilled; (b) the Company has not filed a
petition in bankruptcy or insolvency or for reorganization or for an arrangement
or for the appointment of a receiver or trustee of its assets, nor is the
Company aware of any events or action that would make any such filing or
arrangement imminent; and (c) no action or event has occurred, nor is any action
or event imminent, that would impair the Company's ability to perform as
contemplated under the Research Agreement.
4.4 Approvals. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required as of the Closing in connection with the lawful issuance
and sale of the Shares and the Warrant pursuant to this Agreement shall have
been duly obtained and shall be effective as of the Closing.
4.5 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to Investor and it shall have received all such counterpart original
and certified or other copies of such documents as it may reasonably request.
4.6 Research Agreement. The Company and SBC shall have entered
into the Research Agreement.
4.7 Registration Rights Agreement. The Company and Investor shall
have entered into the Ninth Addendum to Amended Registration Rights Agreement.
4.8 Opinion of Company Counsel. Investor shall have received an
opinion from the Company's Senior Vice President, General Counsel, Government
Affairs and Secretary, dated as of the Closing, in form and substance reasonably
acceptable to Investor.
4.9 Conditions of Investor's Obligations at Second Installment.
The obligations of Investor or SBC under Section 1.1(b) are subject to the
fulfillment on or before the closing of the Second Installment of the following
conditions, the waiver of which shall not be effective without the consent of
Investor thereto: (a) all Second Installment Shares shall, when issued, sold and
delivered, be duly and validly issued, fully paid and nonassessable; (b) the
offer and sale of the Second Installment Shares shall comply with applicable
federal and state securities laws; (c) the Company shall have filed with the SEC
all material reports required by the Exchange Act to be filed as of the date of
the applicable closing; and (d) all authorizations, approvals or permits, if
any, of any governmental authority
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<PAGE> 11
or regulatory body of the United States or of any state that are required in
connection with the lawful issuance and sale of the Second Installment Shares
shall have been duly obtained and shall be effective as of the proposed closing.
5. Conditions of the Company's Obligations at Closing. The obligations
of the Company to Investor under this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions by Investor:
5.1 Representations and Warranties. The representations and
warranties of Investor contained in Section 3 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.
5.2 Performance. Investor shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing, and
all corporate or other proceedings in connection with the transactions
contemplated at the Closing and all documents incident thereto shall be
reasonably satisfactory in form and in substance to the Company.
5.3 Compliance Certificate. An officer of Investor shall have
delivered to the Company a certificate certifying that the conditions specified
in Sections 5.1 and 5.2 have been fulfilled.
5.4 Payment of Purchase Price. Investor shall have delivered the
purchase prices specified in Sections 1.1(a) and (b).
5.5 Qualifications. All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required as of the Closing in connection with the lawful
issuance and sale of the Shares and the Warrant pursuant to this Agreement shall
have been duly obtained and shall be effective as of the Closing.
5.6 Research Agreement. The Company and SBC shall have entered
into the Research Agreement.
5.7 Registration Rights Agreement. The Company and Investor shall
have entered into the Ninth Addendum to Amended Registration Rights Agreement.
5.8 Conditions of Company's Obligations at Second Installment.
The obligations of the Company under Section 1.1(b) are subject to the
fulfillment on or before the closing of the Second Installment of the following
conditions, the waiver of which shall not be effective without the consent of
the Company thereto: (a) the representations and warranties of Investor (or SBC,
if SBC is purchasing the Second Installment Shares) contained in Section 3 shall
be true on and as of the closing with the same effect as though such
representations and warranties had been made on and as of the closing; (b) the
offer and sale of the Second Installment Shares shall comply with applicable
federal and state securities laws; and (c) all authorizations, approvals or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful issuance
and sale of the Second Installment Shares shall have been duly obtained and
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<PAGE> 12
shall be effective as of the proposed closing.
6. Covenants of the Parties.
6.1 Additional Registration Rights. Following the payment by
Investor of the Second Installment, the Company and Investor (or SBC, as
applicable) shall enter into an Addendum to the Registration Rights Agreement,
in substantially the form of the Ninth Addendum entered into in connection with
the Closing pursuant to which such shares of stock of the Company obtained by
Investor (or SBC, as applicable) shall be included within the definition of
"Registrable Securities" under the Registration Rights Agreement and Schedule A
of the Registration Rights Agreement shall be restated accordingly.
6.2 Transfer Restriction. Notwithstanding any rights under the
Registration Rights Agreement, Investor hereby agrees that without the prior
written consent of the Company (which may be withheld in its sole discretion),
neither it nor any affiliate (as defined in Rule 144 of the Act promulgated by
the SEC ("Affiliate")) shall, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees who
agree to be similarly bound) the Shares, the Warrant and any shares of Common
Stock issued upon exercise of the Warrant (collectively, the "Restricted
Securities") until the later of (i) *** following the date of this Agreement or
(ii) *** . Notwithstanding the foregoing, transfers solely among Investor
Affiliates shall not be subject to the transfer restrictions set forth in this
Section 6.2 provided the Affiliate transferee agrees in writing to be bound by
this Section 6.2. In order to enforce the foregoing covenant, the Company may
impose legends and/or stop-transfer instructions with respect to the Restricted
Securities held by Investor or any Affiliate (and the Restricted Securities of
every other person subject to the foregoing restriction).
6.3 Standstill Provisions. Commencing as of the Closing and for
the period until the earlier of (i) three (3) years following the date of this
Agreement and (ii) the termination of the Research Program (as defined in
Section 1.34 of the Research Agreement), so long as Investor and its Affiliates
(including SBC) together own shares which represent more than *** of the
outstanding Common Stock of the Company, Investor (including SBC and all
Affiliates of Investor) shall not acquire beneficial ownership of any shares of
Common Stock of the Company, any securities convertible into or exchangeable for
Common Stock, or any other right to acquire Common Stock, except by way of stock
dividends or other distributions or offerings made available to holders of
Common Stock generally, from the Company or any other person or entity, without
the prior written consent of the Company, which consent may be withheld in its
sole discretion; provided, however, that in no event shall (i) the original
purchase of securities pursuant to that certain Stock and Note Purchase
Agreement between *** (ii) the original purchase of securities pursuant to this
Agreement, (iii) the exercise of the Warrant, or
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***Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 13
(iv) the acquisition by SBC (or any affiliate of SBC) of another company that
atthe time of the acquisition owns securities of the Company constitute a
violation of this Section 6.3.
6.4 Diligent Efforts. The parties to this Agreement hereby agree
to use diligent efforts to cause the conditions contained in Sections 4 and 5
hereof to be satisfied.
7. Right of First Offer.
7.1 Right of First Offer.
(a) Investor shall not make any disposition of all or any portion
(or any interest) of the Restricted Securities without first giving the Company
the right to accept an offer to purchase such Restricted Securities, except for
any dispositions that are exempt pursuant to the terms of Section 7.3. Subject
to Section 6.2, at the time Investor wishes to make a disposition of any or all
of the Restricted Securities (except for dispositions that are exempt pursuant
to the terms of Section 7.3), it shall submit a written offer to sell all, but
not less than all, of such Restricted Securities which Investor wishes to
dispose (the "Offered Shares") to the Company (the "Offer") by facsimile to the
Company's President or Chief Operating Officer (such facsimile to be received
during the Company's normal business hours and to be confirmed in writing by
notice pursuant to Section 8.6) as follows:
(i) If Investor wishes to sell the Offered Shares in
an open market disposition, the Offer shall disclose the number of Offered
Shares proposed to be sold. As soon as practicable after receipt of the Offer,
but in no event later than three business days after Investor makes the Offer,
the Company shall have the option to accept the Offer to purchase the Offered
Shares at the higher of (i) the closing market price on the business day next
preceding the day of the Offer or (ii) the closing market price on the business
day next preceding the day the Offer is accepted by the Company. In the event
the Company does not purchase the Offered Shares offered by Investor pursuant to
the Offer, Investor may sell the Offered Shares at any time within ninety (90)
days after the expiration of the Offer. Any such sale shall be made in the open
market at the market prices prevailing at the time of the sale.
(ii) If Investor wishes to sell or otherwise transfer
the Offered Shares in a privately negotiated transaction, whether through
broker-dealers who may act as agent or acquire the Offered Shares as principal,
or otherwise, the Offer shall disclose the number of Offered Shares proposed to
be sold or transferred and the price at which the Offered Shares are offered to
the Company. As soon as practicable after receipt of the Offer, but in no event
later than three business days after Investor makes the Offer, the Company shall
have the option to accept the Offer to purchase the Offered Shares at the higher
of (i) the price per share set forth in the Offer or (ii) the closing market
price on the business day next preceding the day the Offer is accepted by the
Company. In the event the Company does not purchase the Offered Shares offered
by Investor pursuant to the Offer, and provided that the price specified in the
Offer is not greater than the closing market price on the business day
nextpreceding the day of the Offer, Investor may sell or transfer the Offered
Shares at any time within ninety (90) days after the expiration of the Offer for
any price.
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<PAGE> 14
(iii) If Investor wishes to effect an underwritten
offering of the Offered Shares pursuant to registration rights granted by the
Company (if permitted thereby), the Offer shall disclose the number of Offered
Shares proposed to be sold to the underwriters. The Company shall have the
option to purchase the Offered Shares at the higher of (i) the closing market
price on the business day next preceding the day of the Offer or (ii) the
closing market price on the business day next preceding the day the Offer is
accepted by the Company. As soon as practicable after receipt of the Offer, but
in no event later than three business days after Investor makes the Offer, the
Company shall have the option to accept the Offer to purchase the Offered
Shares. In the event the Company does not purchase the Offered Shares offered by
Investor pursuant to the Offer, Investor may sell the Offered Shares in an
underwritten offering commenced within ninety (90) days after the expiration of
the Offer.
(b) Any Offered Shares not sold in accordance with the applicable
terms and within the applicable time periods provided in subsection (a) above
shall continue to be subject to the Company's right of first offer pursuant to
this Section 7.
(c) The provisions of subsections (a) and (b) above shall not
apply to any disposition of Restricted Securities in which the aggregate number
of such Restricted Securities involved in such disposition is less than ***
(subject to appropriate adjustment in the event of such stock splits, stock
dividends, recapitalizations and the like) during any thirty (30)-day period.
(d) The provisions of subsections (a) and (b) above shall not
apply to any disposition of Restricted Securities made in a privately negotiated
transaction, whether through broker-dealers who may act as agent or acquire such
Restricted Securities as principal, or otherwise, in which: (i) the aggregate
number of such Restricted Securities involved in such disposition is less than
*** (subject to appropriate adjustment in the event of stock splits, stock
dividends, recapitalizations and the like); and (ii) no other disposition under
this Section 7.1(d) shall have occurred for a period of at least thirty (30)
days prior to the applicable disposition; and (iii) such disposition shall not
be to an entity a material portion of the business operations of which relates
to the pharmaceutical industry, or to an affiliate of such entity or to a third
party purchasing on behalf of such entity. The Restricted Securities subject to
this Section 7.1(d) shall bear a legend reasonably acceptable to the Company
reflecting the restrictions set forth herein.
(e) If the Company accepts an Offer under this Section 7, the
closing of such purchase shall occur within twenty (20) business days after
acceptance of the Offer by the Company. Upon such acceptance, the Company and
Investor shall be legally obligated to consummate the purchase contemplated
thereby.
(f) The provisions of this Section 7 shall not have any effect at
such times as Investor and SBC together with their Affiliates own shares of the
Common Stock of the Company which represent less than *** of the outstanding
Common Stock of the Company.
***Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
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<PAGE> 15
7.2 Binding Effect. The Company's right of first offer shall be
assignable in whole or in part by the Company, (but only after the Company
receives notice of a transfer which is subject to the Company's right of first
offer and only with respect to that individual transaction) and shall inure to
the benefit of its successors and assigns. The Company's right of first offer
shall be binding upon any transferee of any Restricted Securities acquired
pursuant to a disposition that is exempt from the right of first offer pursuant
to the terms of Section 7.3. However, the Company's right of first offer shall
not apply to any transferee of any Restricted Securities if the Restricted
Securities were previously offered to the Company pursuant to Section 7.1, the
Company elected not to purchase such Restricted Securities and Investor sold
such Restricted Securities to the transferee in compliance with Section 7.1.
7.3 Exempt Transfers. Subject to Section 7.2, the Company's right
of first offer shall not apply to (i) transfers to Affiliates of Investor or SBC
or to donees, provided the transferee agrees to be bound by the obligations of
this Agreement, or (ii) transactions involving a merger, reorganization,
recapitalization, exchange offer or sale of all or substantially all of the
business or capital stock of the Company approved by the Company's board of
directors.
8. Miscellaneous.
8.1 Survival of Warranties. The warranties, representations and
covenants of the Company and Investor and SBC contained in or made pursuant to
this Agreement shall survive the execution and delivery of this Agreement and
the Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of Investor, SBC or the Company.
8.2 Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any of the Shares or the Warrant sold hereunder or any shares
issuable upon the exercise of the Warrant), provided, however, Investor's or
SBC's rights and obligations under Section 1.1 shall not be assignable, except
to an Affiliate so long as the performance by the Affiliate is guaranteed by SBC
in form and substance reasonably acceptable to the Company. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
8.3 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
8.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE> 16
8.5 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.6 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing by personal delivery to
the party to be notified or by Federal Express or other overnight package
delivery service or registered or certified mail, postage prepaid and addressed
to the party to be notified at the following addresses, or at such other address
as such party may designate by five (5) days' advance written notice to the
other parties (with notice deemed given upon receipt):
If to the Company:
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, California 92121
Attn: William L. Respess, Esq.
If to Investor:
SmithKline Beecham plc
New Horizons Court
Brentford, Middlesex, TW8 9EP
England
Attn: Senior Vice President,
Worldwide Business Development
If to SBC:
SmithKline Beecham Corporation
One Franklin Plaza (FP2225)
P.O. Box 7929
Philadelphia, Pennsylvania 19102
Attn: General Counsel - U.S.
8.7 Finder's Fee. Each party represents that it neither is nor
will be obligated for any finders' fee or commission in connection with this
transaction. Each party agrees to indemnify and to hold harmless the other from
any liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the indemnifying party or any of its officers, partners,
employees, or representatives is responsible.
8.8 Expenses. Irrespective of whether the Closing is effected,
each party shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement.
Notwithstanding the foregoing, the Company shall pay any and all stamp, transfer
and other similar taxes payable or determined to be
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<PAGE> 17
payable in connection with the execution and delivery of this Agreement or the
original issuance of the Securities, including shares issuable upon exercise of
the Warrant, and shall save and hold Investor harmless from and against any and
all liabilities with respect to or resulting from any delay in paying, or
omission to pay, such taxes.
8.9 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company, Investor and SBC.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any securities purchased under this Agreement at the
time outstanding, each future holder of all such securities, and the Company.
8.10 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
8.11 Entire Agreement. This Agreement and the documents referred
to herein constitute the entire agreement among the parties with respect to the
subjects hereof and thereof and no party shall be liable or bound to any other
party in any manner by any warranties, representations, or covenants with
respect to such subjects except as specifically set forth herein or therein.
[Remainder of This Page Intentionally Left Blank]
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<PAGE> 18
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
THE COMPANY:
LIGAND PHARMACEUTICALS
INCORPORATED
By: /s/ William L. Respess
---------------------------------------------
Title: Senior Vice President
--------------------------------------------
General Counsel, Govt. Affairs
INVESTOR:
SMITHKLINE BEECHAM PLC
By: /s/ J-P. Garnier
----------------------------------------------
Title: Chief Operating Officer & President
---------------------------------------------
SBC:
SMITHKLINE BEECHAM CORPORATION
By: /s/ J-P Garnier
----------------------------------------------
Title: Chief Operating Officer & President
--------------------------------------------
[SIGNATURE PAGE TO STOCK AND WARRANT PURCHASE AGREEMENT]
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<PAGE> 19
EXHIBIT A
FORM OF WARRANT
A-1
<PAGE> 20
No. SBC-1
150,000 Shares
COMMON STOCK PURCHASE WARRANT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND SUCH LAWS, THESE
SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED
OF, EXCEPT PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SAID ACT AND SUCH LAWS AND UPON OBTAINING AN OPINION OF
COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY), SATISFACTORY TO THE
COMPANY, THAT SUCH DISPOSITION MAY BE MADE WITHOUT REGISTRATION OF THE
SECURITIES UNDER SUCH ACT AND SUCH LAWS, OR, WITH RESPECT TO FEDERAL
SECURITIES LAWS ONLY, UNLESS SOLD PURSUANT TO RULE 144.
THESE SECURITIES ARE SUBJECT TO CERTAIN TRANSFER RESTRICTIONS CONTAINED
IN A CERTAIN STOCK AND WARRANT PURCHASE AGREEMENT DATED MARCH 17, 1998,
A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY WITHOUT CHARGE.
LIGAND PHARMACEUTICALS INCORPORATED
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT, for value received, SmithKline Beecham plc, an
English public limited company (including any permitted successors and assigns,
"Holder"), is entitled to purchase, on the terms hereof, One Hundred Fifty
Thousand (150,000) fully paid and nonassessable shares of Common Stock, par
value $0.001 per share (the "Common Stock"), of Ligand Pharmaceuticals
Incorporated, a Delaware corporation (the "Company").
1. Exercise of Warrant. The terms and conditions upon which this Warrant
may be exercised, and the shares of Common Stock issuable upon exercise hereof
(sometimes referred to herein as the "Warrant Shares") may be purchased, are as
follows:
<PAGE> 21
1.1 Term. This Warrant may be exercised in whole or in part at
any time after the date hereof, but at or prior to 5:00 p.m. Pacific Standard
Time on March 17, 2003, after which time this Warrant shall terminate and shall
be void and of no further force or effect.
1.2 Purchase Price. The per share purchase price for the shares
of Common Stock to be issued upon exercise of this Warrant shall be Twenty
Dollars ($20.00), subject to adjustment as provided herein.
1.3 Method of Exercise. The exercise of the purchase rights
evidenced by this Warrant shall be effected by (i) the surrender of the Warrant,
together with a duly executed copy of the subscription form attached hereto, to
the Company at its principal offices and (ii) the delivery of the purchase price
for the number of shares of Common Stock for which the purchase rights hereunder
are being exercised by check or bank draft payable to the Company's order or by
wire transfer of the purchase price to the Company's designated bank account.
1.4 Issuance of Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, a certificate or certificates for the purchased
Warrant Shares shall be issued to the Holder as soon as practicable.
1.5 Limitations on Exercise. Any exercise of the Warrant, whether
pursuant to this Section 1 or the Company Option, shall be subject to compliance
with applicable governmental laws and regulations.
2. Certain Adjustments.
2.1 Mergers, Consolidations or Sale of Assets.
a. If at any time there shall be a capital reorganization
(other than a combination or subdivision of the Common Stock otherwise provided
for herein), or a merger or consolidation of the Company with or into another
corporation, then, as a part of such reorganization, merger or consolidation,
lawful provision shall be made so that the Holder shall thereafter be entitled
to receive upon exercise of this Warrant, during the period specified in this
Warrant and upon payment of the purchase price, the number of shares of stock or
other securities or property of the Company or the successor corporation
resulting from such reorganization, merger or consolidation to which a holder of
the Common Stock issuable upon exercise of this Warrant would have been entitled
under the provisions of the agreement in such reorganization, merger or
consolidation if this Warrant had been exercised immediately before that
reorganization, merger or consolidation. In any such case, appropriate
adjustment (as determined in good faith by the Company's Board of Directors)
shall be made in the application of the provisions of this Warrant with respect
to the rights and interests of the Holder after the reorganization, merger or
consolidation to the end that the provisions of this Warrant (including
adjustment of the purchase price then in effect and the number of Warrant Shares
issuable upon exercise hereof) shall be applicable after that event,
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<PAGE> 22
as near as reasonably may be, in relation to any shares or other property
issuable after that event upon exercise of this Warrant.
b. If at any time there shall be a sale of the
Company's properties and assets as, or substantially as, an entirety to any
other person, then the Company shall give each Holder of this Warrant notice of
such sale. The Holder of this Warrant shall have thirty (30) days from the date
of such notice to exercise this Warrant in accordance with Section 1 above;
provided, that if this Warrant is not so exercised prior to the end of such
thirty (30) day period, this Warrant shall terminate and be of no further force
or effect. Upon exercise of this Warrant prior to the end of such thirty (30)
day period, the Holder hereof shall be entitled to receive the number of shares
of stock or other securities or property of the Company resulting from such sale
to which a holder of the Common Stock issuable upon exercise of this Warrant
would have been entitled if this Warrant had been exercised immediately before
such sale.
2.2 Splits and Subdivisions. In the event the Company should at
any time or from time to time fix a record date for the effectuation of a split
or subdivision of the outstanding shares of Common Stock or the determination of
the holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock or other securities or rights
convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as the
"Common Stock Equivalents"), without payment of any consideration by such holder
for the additional shares of Common Stock or Common Stock Equivalents, then, as
of such record date (or the date of such distribution, split or subdivision if
no record date is fixed), the purchase price shall be appropriately decreased
and the number of Warrant Shares issuable upon exercise hereof shall be
appropriately increased in proportion to such increase of outstanding shares.
2.3 Combination of Shares. If the number of shares of Common
Stock outstanding at any time after the date hereof is decreased by a
combination of the outstanding shares of Common Stock, the purchase price shall
be appropriately increased and the number of Warrant Shares issuable upon
exercise hereof shall be appropriately decreased in proportion to such decrease
in outstanding shares of Common Stock.
2.4 Adjustments for Other Distributions. In the event the Company
shall declare a distribution payable in securities of other persons, evidences
of indebtedness issued by the Company or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 2.2, then, in each
such case for the purpose of this subsection 2.4, upon exercise of this Warrant
the Holder shall be entitled to a proportionate share of any such distribution
as though the Holder was the holder of the number of shares of Common Stock of
the Company issuable upon exercise of this Warrant as of the record date fixed
for the determination of the holders of Common Stock of the Company entitled to
receive such distribution.
2.5 Certificate as to Adjustments. In the case of each adjustment
or readjustment of the purchase price and the number of Warrant Shares issuable
upon exercise
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<PAGE> 23
of this Warrant pursuant to this Section 2, the Company will promptly compute
such adjustment or readjustment in accordance with the terms hereof and cause a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based to be delivered to
the Holder. The Company will, upon the written request at any time of the
Holder, furnish or cause to be furnished to such Holder a certificate setting
forth:
a. Such adjustments and readjustments;
b. The purchase price at the time in effect; and
c. The number of Warrant Shares and the amount and nature,
if any, of other property at the time issuable upon the exercise of the Warrant.
2.6 Notices of Record Date, etc. In the event of:
a. Any taking by the Company of a record of the holders of
the Common Stock of the Company for the purpose of determining the holders
thereof who are entitled to receive any dividend (other than a cash dividend
payable out of earned surplus at the same rate as that of the last such cash
dividend theretofore paid) or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right; or
b. Any capital reorganization of the Company, any
reclassification or recapitalization of the Common Stock of the Company or any
transfer of all or substantially all of assets of the Company to any other
person or any consolidation or merger involving the Company; or
c. Any voluntary or involuntary dissolution, liquidation
or winding-up of the Company;
the Company will mail to the holder of this Warrant, at least ten (10) days
prior to the earliest date specified therein, a notice specifying:
(i) The date on which any such record is to be taken for
the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right; and
(ii) The date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding-up is expected to become effective and the record date for determining
the stockholders entitled to vote thereon, if any.
3. Fractional Shares. No fractional shares shall be issued in connection
with any exercise of this Warrant. In lieu of the issuance of any such
fractional share, the Company shall make a cash payment equal to the then fair
market value of such fractional share as determined in good faith by the
Company's Board of Directors.
-4-
<PAGE> 24
4. Reservation of Common Stock. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the exercise of this Warrant, such number of
its shares of Common Stock as shall from time to time be sufficient to effect
the exercise of this Warrant; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the exercise
of the entire Warrant, in addition to such other remedies as shall be available
to the Holder, the Company will use its reasonable best efforts to take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes.
5. Privileges of Stock Ownership. Prior to the exercise of this Warrant,
the Holder shall not be entitled, by virtue of holding this Warrant, to any
rights of a stockholder of the Company.
6. Limitation of Liability. Except as otherwise provided herein, in the
absence of affirmative action by the Holder to purchase the Warrant Shares, no
mere enumeration herein of the rights or privileges of the Holder shall give
rise to any liability of such Holder for the purchase price or as a stockholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
7. Transfers and Exchanges.
7.1 Transfer Restrictions. Subject to the requirements of Section
3 and the transfer restrictions of Sections 6.1, 6.2 and 7 of the Stock and
Warrant Purchase Agreement dated March 17, 1998, between the Company, the Holder
and SmithKline Beecham Corporation (the "Purchase Agreement"), which terms shall
apply to this Warrant and the Warrant Shares, and subject to compliance with
applicable federal and state securities laws, this Warrant and all rights
hereunder are transferable in whole or in part by the Holder. The transfer shall
be recorded on the books of the Company upon the surrender of this Warrant,
properly endorsed, to the Company at its principal offices and the payment to
the Company of all transfer taxes and other governmental charges imposed on such
transfer. In the event of a partial transfer, the Company shall issue to the
several holders one or more appropriate new warrants.
7.2 Partial Exercises. In the event of a partial exercise of this
Warrant, the Company shall issue an appropriate new warrant to the Holder.
7.3 Form of New Warrants. All new warrants issued in connection
with transfers, exchanges or partial exercises shall be identical in form and
provision to this Warrant except as to the number of shares.
7.4 Legends. Certificates evidencing the Warrant Shares shall
bear the following legend:
-5-
<PAGE> 25
"These securities are subject to certain transfer restrictions
contained in a certain Stock and Warrant Purchase Agreement dated
March 17, 1998, a copy of which may be obtained from the Company
without charge."
8. Company Right to Require Holder to Purchase Warrant Shares.
8.1 Company Option; Exercise Period. On any date after *** , on
which the daily closing price of the Common Stock reported on the National
Association of Securities Dealers, Inc. *** (collectively, the "Trigger Event"),
the Company shall have the right (the "Company Option") to require that the
Holder purchase all of the Warrant Shares not previously purchased.
8.2 Company Notice. Following the Trigger Event, the Company may
deliver written notice to the Holder (the "Company Notice") of its election to
exercise the Company Option, which Company Notice shall specify the number of
Warrant Shares the Holder shall be required to purchase and the date on which
the Company proposes the Warrant Shares be issued.
8.3 Deliveries by the Holder. Within ten (10) business days after
the receipt of the Company Notice, the Holder shall deliver to the Company (i)
this Warrant, together with a duly executed copy of the subscription form
attached hereto electing to purchase the number of Warrant Shares specified in
the Company Notice, (ii) the purchase price for the number of Warrant Shares
specified in the Company Notice by check or bank draft payable to the Company's
order or by wire transfer of the purchase price to the Company's designated bank
account and (iii) such documents and certificates as the Company may reasonably
request to comply with applicable securities and other laws and contractual
obligations.
8.4 Closings. The Company shall, as soon as practicable upon
receipt of this Warrant, the subscription form and the purchase price, cause to
be issued to the Holder a certificate or certificates for the purchased Warrant
Shares, and, if the subscription is for less than the total number of Warrant
Shares that may at the time be purchased under the Warrant, a new warrant
representing the right to purchase the remaining Warrant Shares.
8.5 Legends. Notwithstanding anything herein to the contrary,
unless the Warrant Shares have been registered for sale or resale under the
Securities Act of 1933, as amended (the "Securities Act"), each certificate for
Warrant Shares issued hereunder shall bear standard and customary legends
regarding nontransferability in the absence of registration or exemption from
registration under the Securities Act and any applicable state statutes.
9. Successors and Assigns. The terms and provisions of this Warrant
shall be binding upon the Company and the Holder and their respective successors
and assigns.
***Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
-6-
<PAGE> 26
10. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to the Company,
and upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new warrant of like tenor and dated as of the
date of such cancellation, in lieu of this Warrant.
11. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or legal holiday, then such action may be
taken or such right may be exercised, except as to payment of the purchase
price, on the next succeeding day that is not a Saturday, Sunday or legal
holiday.
12. Amendments and Waivers. Any term of this Warrant may be amended and
the observance of any term of this Warrant may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holder.
13. Notice. Any notice required under this Warrant shall be delivered in
the manner set forth in Section 8.6 of the Purchase Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-7-
<PAGE> 27
In witness whereof, this Common Stock Purchase Warrant has been executed
as of the date set forth below.
Dated: April 24, 1998 LIGAND PHARMACEUTICALS
INCORPORATED
By: /s/ William L. Respess
------------------------------------------
Title: Sr. V.P., General Counsel, Government
------------------------------------------
Affairs
The undersigned Holder agrees and accepts this Warrant and acknowledges
that it has read and confirms each of the representations contained in Section 3
of the Purchase Agreement.
SMITHKLINE BEECHAM PLC
By: /s/ Donald F. Parman
-------------------------------------------
Title: Attorney-in-Fact
------------------------------------------
[SIGNATURE PAGE TO COMMON STOCK PURCHASE WARRANT]
-8-
<PAGE> 28
SUBSCRIPTION FORM
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, California 92121
Ladies and Gentlemen:
The undersigned, _____________________________, hereby elects
to purchase, pursuant to the provisions of the Common Stock Purchase Warrant
dated April 24, 1998, held by the undersigned, _________ shares of the Common
Stock of Ligand Pharmaceuticals Incorporated, a Delaware corporation.
The undersigned hereby confirms and acknowledges the investment
representations and warranties made in the Stock and Warrant Purchase Agreement
dated March 17, 1998, among Ligand Pharmaceuticals Incorporated, the Holder and
SmithKline Beecham Corporation, and reaffirms each of such representations and
warranties as of the date hereof and accepts such shares subject to the
restrictions of such Agreement.
Dated:___________________ ,_______
----------------------------------------------
(Signature must conform exactly to name of
Holder as specified on the face of the Warrant)
-----------------------------------------------
(Print Name)
-----------------------------------------------
(Address)
<PAGE> 29
EXHIBIT B
SCHEDULE OF EXCEPTIONS
This Schedule of Exceptions is made and given pursuant to Section 2 of
the Stock and Warrant Purchase Agreement dated as of March 17, 1998 (the
"Agreement"). The section numbers in this Schedule of Exceptions correspond to
the section numbers in the Agreement; however, any information disclosed herein
under any section number shall be deemed to be disclosed and incorporated into
any other section number under the Agreement where such disclosure would
otherwise be appropriate. Any terms defined in the Agreement shall have the same
meaning when used in this Schedule of Exceptions as when used in the Agreement
unless the context otherwise requires.
Nothing herein constitutes an admission of any liability or obligation
of the Company nor an admission against the Company's interest. The inclusion of
any agreement or other matter herein or any exhibit hereto should not be
interpreted as indicating that the Company has determined that such an agreement
or other matter is necessarily material to the Company. Investor and SBC each
acknowledge that certain information contained in this schedule may constitute
material confidential information relating to the Company which may not be used
for any purpose other than in connection with Investor's decision to purchase
the Company's Common Stock and the Warrant pursuant to the Agreement.
Schedule 2.1 -- Organization, Good Standing and Qualification
Allergan Ligand Retinoid Therapeutics, Inc. ("ALRT") is a Delaware
corporation which, following the consummation of the buyback of all outstanding
shares of Callable Common Stock of ALRT, $0.001 par value per share (the
"Callable Common Stock") in November 1997 described below, is a subsidiary of
the Company.
Schedule 2.2 -- Authorization
The Company intends to file a Nasdaq National Market Notification Form
for Listing of Additional Shares Pursuant to SEC Rule 10b-17 shortly following
the issuance of the Shares.
Schedule 2.4 -- SEC Reports
In September 1997, the Company filed a Registration Statement on Form
S-1 (No. 333-36535) (the "Registration Statement") with the Securities and
Exchange Commission in connection with the public offering of an indefinite
number of shares of Common Stock, par value $.001 per share (the "Shares") of
the Company with an aggregate value of $46,410,000. In addition, the Company
filed a Schedule 13e-3 with respect to the transaction. In November 1997, the
Company issued an aggregate of 3,166,567 shares of Common Stock and paid an
aggregate of $25,000,000 in cash to ALRT stockholders. ALRT's stockholders
received such Shares in connection with the Company's exercise of its option to
acquire all of the outstanding shares of the Callable Common Stock.
B-1
<PAGE> 30
In September 1997, in connection with the Company and Allergan, Inc.'s
("Allergan") exercise of their respective options to purchase Callable Common
Stock and assets of ALRT as set forth in the Registration Statement, the Company
and ALRT also agreed to restructure the terms and conditions relating to
research, development, commercialization and sublicense rights for the ALRT
compounds, as more fully described in the Registration Statement. The
restructured arrangement with Allergan closed in November 1997.
In October 1997, the Company announced the closure of the Alameda
facility housing Glycomed at the expiration of the leases in October 1997. In
connection with this closure, Glycomed's assets and programs were transferred
for integration with the Company's San Diego operations.
In November 1997, the Company and Eli Lilly and Company ("Lilly")
entered into a strategic alliance for the discovery and development of products
based upon the Company's intracellular technology. The collaboration will focus
on products with broad applications across metabolic diseases, including
diabetes, obesity, dislipidemia, insulin resistance and cardiovascular diseases
associated with insulin resistance and obesity. The specifics of the transaction
with Lilly are more fully described in the Registration Statement and included a
$37.5 million equity investment by Lilly in Ligand.
In December 1997, the Company converted $1.25 million of the convertible
notes outstanding to American Home Products into 124,875 shares of the Company's
Common Stock at a $10.01 conversion price, resulting in an outstanding balance
of convertible notes of $3.75 million.
Schedule 2.13 -- Intellectual Property
The Company has become aware that a United States patent has been issued
to, and foreign counterparts have been filed by, Hoffman LaRoche ("LaRoche")
which covers pharmaceutical uses of 9-cis-retinoic acid (LGD1057) which may
conflict with the Company's right under the patent applications. The U.S. Patent
and Trademark Office ("PTO") has informed the Company that the overlapping
claims are patentable to the Company and initiated an interference proceeding to
determine whether the Company or LaRoche 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 which may impact the outcome. In addition, the interference proceeding
may delay the decision of the PTO regarding the Company's application for the
Oral and Topical Panretin (LGD1057) products. While the Company believes that
the LaRoche patent does not cover the use of Oral and Topical Panretin (LGD1057)
to treat leukemias such as APL and sarcomas such as KS, or the treatment of skin
diseases such as psoriasis, if the Company does not prevail in the interference
proceeding, the LaRoche patent might block the Company's use of Oral and Topical
Panretin (LGD1057) in certain cancers, and the Company may not be able to obtain
patent protection for the Oral and Topical Panretin (LGD1057) products.
B-2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 26,054
<SECURITIES> 38,537<F4>
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 74
<CURRENT-ASSETS> 63,824
<PP&E> 30,971
<DEPRECIATION> 15,511
<TOTAL-ASSETS> 89,453
<CURRENT-LIABILITIES> 14,524
<BONDS> 52,120<F1>
0
0
<COMMON> 39
<OTHER-SE> 21,139<F2>
<TOTAL-LIABILITY-AND-EQUITY> 89,453
<SALES> 92
<TOTAL-REVENUES> 5,066
<CGS> 58
<TOTAL-COSTS> 3,530<F3>
<OTHER-EXPENSES> 11,377
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,982
<INCOME-PRETAX> (13,541)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,541)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,541)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
<FN>
<F1>INCLUDES BONDS, MORTGAGES AND OTHER LONG-TERM DEBT, INCLUDING CAPITALIZED
LEASES.
<F2>INCLUDES ADDITIONAL PAID IN CAPITAL, OTHER ADDITIONAL CAPITAL AND RETAINED
EARNINGS, APPROPRIATED AND UNAPPROPRIATED.
<F3>PER CHIEF ACCOUNTANT AT THE SEC, THIS AMOUNT EXCLUDES SALES AND G&A
EXPENSES, INCLUDES COSTS AND EXPENSES APPLICABLE TO SALES AND REVENUES, AND
TANGIBLE COSTS OF GOODS SOLD.
<F4>INCLUDES RESTRICTED CASH.
</FN>
</TABLE>
