<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-K
--------------------
Mark One
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
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 No. 0-20720
LIGAND PHARMACEUTICALS INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 77-0160744
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
10275 Science Center Drive 92121-1117
San Diego, CA (Zip Code)
(Address of Principal Executive Offices)
</TABLE>
Registrant's telephone number, including area code: (858) 550-7500
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Warrants to purchase one share of Common Stock, $.001 par value
Preferred Share Purchase Rights
(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Registrant's voting stock held by
non-affiliates as of February 29, 2000 was $1,034,768,582. For purposes of this
calculation, shares of Common Stock held by directors, officers and 5%
stockholders known to the Registrant have been deemed to be owned by affiliates
which should not be construed to indicate that any such person possesses the
power, direct or indirect, to direct or cause the direction of the management or
policies of the Registrant or that such person is controlled by or under common
control with the Registrant.
As of February 29, 2000 the registrant had 53,249,143 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement to be filed not later than 120
days after December 31, 1999, in connection with the Registrant's 2000 Annual
Meeting of Stockholders, referred to herein as the "Proxy Statement," are
incorporated by reference into Part III of this Form 10-K. Certain exhibits
filed with the Registrant's prior registration statements and period reports
under the Securities Exchange Act of 1934 are incorporated herein by reference
into Part IV of this Report.
================================================================================
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Part I
Item 1. Business
Overview...............................................................................1
Business Strategy......................................................................2
Ligand Marketed Products...............................................................3
Product Development Process............................................................4
Ligand Clinical Development and Research Programs......................................5
Collaborative Research and Development Programs........................................9
Technology.............................................................................13
Manufacturing..........................................................................16
Quality Assurance......................................................................17
Research and Development Expenses......................................................17
Competition............................................................................17
Government Regulation..................................................................17
Patents and Proprietary Rights.........................................................18
Human Resources........................................................................18
Risks and Uncertainties................................................................18
Item 2. Properties..............................................................................24
Item 3. Legal Proceedings.......................................................................24
Item 4. Submission of Matters to a Vote of Security Holders.....................................24
Part II
Item 5. Markets For Registrant's Common Stock and Related Stockholders Matters..................24
Item 6. Selected Consolidated Financial Data....................................................25
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...26
Item 7A.Quantitative and Qualitative Disclosures About Market Risk..............................30
Item 8. Consolidated Financial Statements and Supplementary Data................................30
Item 9. Changes and Disagreements with Accountants and Financial Disclosure.....................30
Part III
Item 10.Directors and Executive Officers of the Registrant......................................30
Item 11.Executive Compensation..................................................................30
Item 12.Security Ownership of Certain Beneficial Owners and Management..........................30
Item 13.Certain Relationships and Related Transactions..........................................30
Part IV
Item 14.Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................31
Financial Statements
Report of Ernst & Young LLP, Independent Auditors...............................................F-2
Consolidated Balance Sheets.....................................................................F-3
Consolidated Statements of Operations...........................................................F-4
Consolidated Statements of Stockholders' Equity (Deficit).......................................F-5
Consolidated Statements of Cash Flows...........................................................F-6
Notes to Consolidated Financial Statements......................................................F-7
</TABLE>
i
<PAGE>
GLOSSARY
<TABLE>
<CAPTION>
PRODUCTS AND INDICATIONS
<S> <C>
ONTAK(R)(denileukin diftitox) Approved in February 1999 in the U.S. for
the treatment of patients with persistent or
recurrent cutaneous T-cell lymphoma whose
malignant cells express the CD25 component
of the Interleukin-2 receptor.
Panretin(R) (alitretinoin) gel 0.1% Approved in February 1999 in the U.S. for
the topical treatment of cutaneous lesions
of patients with AIDS-related Kaposi's sarcoma.
Targretin(R)(bexarotene) capsules Approved in December 1999 in the U.S. for
once daily oral administration for the
treatment of cutaneous manifestations of
cutaneous T-cell lymphoma in patients who
are refractory to at least one prior
systemic therapy.
CTCL Cutaneous T-cell lymphoma
HIV Human immunodeficiency virus
HRT Hormone replacement therapy
KS Kaposi's sarcoma
NHL Non-Hodgkin's lymphoma
SCIENTIFIC TERMS
AR Androgen Receptor
ER Estrogen Receptor
IR Intracellular Receptor
JAK Janus Kinase family of tyrosine protein kinases
PPAR Peroxisome Proliferation Activated Receptor
PR Progesterone Receptor
RAR Retinoic Acid Receptor
RR Retinoid Responsive Intracellular Receptor
RXR Retinoid X Receptor
SARM Selective Androgen Receptor Modulator
SERM Selective Estrogen Receptor Modulator
STAT Signal Transducer and Activator of Transcription
REGULATORY TERMS
CHPB Canadian Health Protection Branch
EMEA European Agency for the Evaluation of Medicinal Products
FDA United States Food and Drug Administration
IND Investigational New Drug Application (United States)
MAA Marketing Authorization Application (Europe)
NDA New Drug Application (United States)
NDS New Drug Submission (Canada)
</TABLE>
ii
<PAGE>
PART I
ITEM 1. BUSINESS
The discussion of our business contained in this annual report on form 10-K
may contain certain projections, 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. We undertake no obligation to release publicly the
results of any revisions to these forward-looking statements to reflect events
or circumstances arising after the date of this annual report.
Our trademarks, trade names and service marks referenced in this annual
report include ONTAK(R), Panretin(R) and Targretin(R). Each other trademark,
trade name or service mark appearing in this annual report belongs to its
holder.
References to Ligand Pharmaceuticals Incorporated ("Ligand", the "Company",
"we" or "our") include its wholly owned subsidiaries - Glycomed Incorporated;
Ligand Pharmaceuticals (Canada) Incorporated; Ligand Pharmaceuticals
International, Inc.; Marathon Biopharmaceuticals, Inc.; and Seragen, Inc.
OVERVIEW
Our goal is to build a profitable pharmaceutical company which discovers,
develops and markets new drugs that address critical unmet medical needs of
patients in the areas of cancer, men's and women's health and skin diseases, as
well as osteoporosis, metabolic, cardiovascular and inflammatory diseases. We
strive to develop drugs that are more effective and/or safer than existing
therapies and that are more convenient (taken orally or topically administered)
and cost effective. We plan to build a profitable pharmaceutical company by
generating income from two diversified profit centers: sales revenues from
specialty oncology products developed and marketed by Ligand, and research,
milestone and royalty revenues resulting from collaborations where large
pharmaceutical partners develop and market products in large markets beyond
Ligand's strategic focus or resources.
We currently market three oncology products in the United States ("U.S."),
all of which were approved by the U.S. Food and Drug Administration ("FDA") in
1999 -- Panretin(R) gel, ONTAK(R) and Targretin(R) capsules. The FDA is
currently reviewing an NDA for a fourth product, Targretin(R) gel, which review
is expected to be completed in June 2000. In Europe, Marketing Authorization
Applications ("MAA") for Targretin(R) capsules and Panretin(R) gel are under
review by the European Agency for the Evaluation of Medicinal Products ("EMEA").
We also continue efforts to in-license and acquire products, such as ONTAK(R)
(acquired in the 1998 Seragen acquisition) and Morphelan(TM) (licensed from
Elan), which have near-term prospects of FDA approval and which can be marketed
by our specialty cancer and HIV-center sales force in the U.S. Additional
products are being developed through our internal development programs.
Currently, Ligand has seven products in clinical development, including marketed
products in clinical development for larger market indications such as
non-Hodgkin's lymphoma ("NHL"), psoriasis and various cancers.
We have established research and development collaborations with numerous
global pharmaceutical companies, including Abbott Laboratories, Allergan,
American Home Products, Glaxo Wellcome, Eli Lilly, Parke-Davis (Warner-Lambert),
Pfizer, SmithKline Beecham and, early in 2000, Organon (Akzo-Nobel). During
1999, our corporate partners had seven compounds on human development track,
including two products scheduled to enter Phase III clinical trials in 2000, and
numerous compounds in research and pre-clinical stages. These corporate partner
products are being studied for the treatment of large market indications such as
breast cancer, osteoporosis, diabetes and cardiovascular disease.
Internal and collaborative research and development programs utilize our
proprietary science technology based on our leadership position in gene
transcription technology. Our proprietary technologies involve two natural
mechanisms that regulate gene activity: (1) non-peptide hormone activated
Intracellular Receptors ("IRs") and (2) cytokine and growth factor activated
Signal Transducers and Activators of Transcription ("STATs"). Panretin(R) gel,
Targretin(R) capsules and all of our corporate partner products currently on
human development track are IR modulators, discovered using our IR technology.
In late 1998, we assembled a specialty oncology and HIV-center sales and
marketing team to market in the U.S. products developed, acquired or licensed by
us. In late 1999, we expanded our U.S. sales force from 20 to 40 sales
representatives to support the launch of Targretin(R) capsules and increase
market penetration of ONTAK(R) and Panretin(R) gel. Internationally, through
marketing and distribution agreements with Ferrer and Alfa Wassermann, we have
established a European and Latin American marketing and distribution capability
in anticipation of potential product approvals in Europe and Latin America for
Panretin(R) gel and Targretin(R) capsules.
1
<PAGE>
BUSINESS STRATEGY
Our goal is to become a profitable pharmaceutical research, development and
marketing company that generates significant cash flow. Building primarily on
our proprietary IR and STATs technologies, our strategy is to generate cash flow
primarily from (1) the sale in the U.S. and Europe of specialty oncology
products developed, acquired or in-licensed by us and (2) research, milestone
and royalty revenues from the development and sale of products developed and
marketed by our collaborative partners.
Building a Specialty Oncology Franchise in the U.S. and Europe
Our strategy is to develop a specialty cancer product pipeline based on our
IR and STATs technologies and acquired and in-licensed products and to market
these products initially with a specialized sales force in the U.S. and directly
or through marketing partners in selected international markets. Focusing
initially on niche oncology indications with the possibility of expedited
regulatory approval has allowed us to bring products to market quickly. This
strategy also allows us to market these products with a specialty oncology sales
force, spreading the cost of our sales and marketing infrastructure among
multiple products. Our goal is to expand the markets for our products through
additional indication approvals, approvals in international markets and
marketing and distribution agreements in select international markets where we
will not market directly. To further leverage our sales force, we intend to
selectively license-in or acquire complementary technology and/or products in
advanced stages of development.
Building a Collaborative-Based Business in Large Product Markets
Our strategy in our collaborative research and development business is to
share the risks and benefits of discovering and developing drugs to treat
diseases that are beyond Ligand's strategic focus or resources. These diseases
typically affect large populations often treated by primary care physicians and
drugs to treat these diseases may be more costly to develop and/or to market
effectively with a small specialty sales force. Despite these risks, drugs
approved for these indications may have large market potential - often in excess
of $1.0 billion in sales.
Since our inception, we have entered into 11 significant collaborations
with major pharmaceutical companies focusing on a broad range of disease
targets. In 1999, our corporate partners advanced four compounds into human
development track and two additional compounds were scheduled to enter Phase III
trials in 2000.
<TABLE>
<CAPTION>
Initiation of
Corporate Collaborator (1) Collaboration Focus
- ------------------------- ------------- -----
<S> <C> <C>
Pfizer Inc. May 1991 Osteoporosis, breast cancer
Allergan, Inc. June 1992 Skin disorders, type II diabetes
Glaxo-Wellcome plc September 1992 Cardiovascular diseases
Abbott Laboratories July 1994 Inflammatory diseases
Wyeth-Ayerst, the pharmaceutical division September 1994 Women's and men's health, oncology
of American Home Products
SmithKline Beecham February 1995 Oncology, anemia
Eli Lilly November 1997 Type II diabetes, metabolic and
cardiovascular diseases
SmithKline Beecham April 1998 Obesity
Parke-Davis Pharmaceutical Research and September 1999 Women's health
Development of Warner-Lambert Company
Organon February 2000 Women's health
</TABLE>
(1) A collaboration initiated in 1994 with Sankyo Company, Ltd. has been
completed.
2
<PAGE>
We have entered into research and development collaborations with the goal
of generating research, milestone and royalty revenues in market opportunities
resulting from Ligand's technologies that are beyond Ligand's strategic focus or
resources. Our collaborative programs focus on discovering drugs for certain
cardiovascular, inflammatory, metabolic and other diseases, as well as broad
applications for women's and men's health. We believe that our collaborators
have the resources, including clinical and regulatory experience, manufacturing
capabilities and marketing infrastructure, needed to develop and commercialize
drugs for these markets. The arrangements generally provide for collaborative
discovery programs funded largely by the corporate partners aimed at discovering
new therapies for diseases treated by primary care physicians. In general, drugs
resulting from these collaborations will be developed, manufactured and marketed
by the corporate partners. Our collaborative agreements provide for Ligand to
receive: (1) research revenue during the drug discovery stage; (2) milestone
revenue for compounds successfully moving through clinical development; and (3)
royalty revenue from the sale of drugs developed through collaborative efforts.
LIGAND MARKETED PRODUCTS
We currently market three oncology products in the U.S.
<TABLE>
<CAPTION>
Marketed Approved U.S. European Indications in
Product(1) Indication Status Status Development (2)
- ---------- ---------- --------- --------- ---------------
<S> <C> <C> <C> <C>
ONTAK(R) CTCL Marketed -- NHL, psoriasis
Panretin(R) gel KS Marketed MAA filed Skin cancers
Targretin(R) capsules CTCL Marketed MAA filed Psoriasis, advanced breast cancer,
various other cancers
</TABLE>
(1) We also market two oncology products in-licensed for marketing
exclusively in Canada -- PHOTOFRIN(R) and Proleukin(R). Product sales
from PHOTOFRIN(R) and Proleukin(R) in 1999 were not significant
compared to total product sales and are not expected to be in the
future.
(2) For a discussion of other indications in development, see "Ligand
Clinical Development and Research Programs".
U.S. SPECIALTY ONCOLOGY FRANCHISE. We have developed a cancer product
pipeline that includes three products marketed in the U.S. and several
late-stage products nearing NDA submission or approval. The FDA has approved
Panretin(R) gel, ONTAK(R) and Targretin(R) capsules and is currently reviewing
the NDA for Targretin(R) gel, which review is expected to be completed in June
2000. The five retinoid products in our cancer pipeline, Panretin(R) gel,
Panretin(R) capsules, Targretin(R) gel, Targretin(R) capsules and LGD1550, were
developed using IR technology. Retinoids may offer important clinical advantages
over currently available cancer therapies by triggering natural mechanisms to
halt or reverse the progress of various forms of cancer. In 1999, we doubled our
sales force to 40 representatives and put in place additional resources and
infrastructure to support our sales and marketing efforts. Our sales and
marketing organization now includes more than 85 people. Our targeted physician
market consists of 3,500 oncologists and 3,500 dermatologists in the U.S. We
believe that a 40-person sales force can efficiently cover the 3,200 offices or
centers these physicians represent and is adequate to market our products until
the launch of another product following regulatory approval or expansion of
indications for our existing products.
EUROPEAN AND LATIN AMERICAN SPECIALTY ONCOLOGY FRANCHISE. In early 1999, we
laid the groundwork for global commercialization with the initiation of European
operations through our subsidiary, Ligand Pharmaceuticals International, Inc.,
with headquarters in London to support our business development efforts in
Europe. In 1999, we submitted two MAAs via the EMEA seeking marketing clearance
in Europe for Targretin(R) capsules and for Panretin(R) gel. Also in 1999, we
entered into marketing and distribution agreements with Ferrer International
S.p.A. for territories in Spain, Portugal, Greece, and Latin America and Alfa
Wassermann in Italy for the marketing and distribution of ONTAK(R) and
Panretin(R) in all indications and Targretin(R) in cancer and dermatological
indications. We expect to enter into additional marketing and distribution
agreements during 2000 for select European markets where we will not market our
products directly.
CTCL MARKET. CTCL is a type of NHL that appears initially in the skin, but
over time may involve other organs. CTCL is a cancer of T-lymphocytes, white
blood cells that play a central role in the body's immune system. The disease
can be extremely disfiguring and debilitating and median survival for late-stage
patients is less than three years. The prognosis for CTCL is based in part on
the stage of the disease when diagnosed. CTCL is most commonly a slowly
progressing cancer, and many patients live with the complications of CTCL for 10
or more years after diagnosis. However, some patients have a much more
aggressive form of this disease. CTCL affects an estimated 16,000 people in the
U.S. With ONTAK(R) and Targretin(R) capsules currently approved in the U.S. for
the treatment of CTCL, and Targretin(R) gel granted priority review status by
the FDA, our current strategy is to have multiple products available for
treating CTCL.
3
<PAGE>
ONTAK(R). ONTAK(R), approved for marketing in February 1999 by the FDA for
the treatment of patients with persistent or recurrent cutaneous T-cell lymphoma
("CTCL") whose malignant cells express the CD25 component of the interleukin-2
("IL-2") receptor, was developed using Seragen's fusion protein technology.
ONTAK(R) is the first product commercialized by us for the treatment of CTCL and
the first treatment to be approved for CTCL in nearly 10 years. The FDA acted
under the accelerated approval regulations in its approval of ONTAK(R) and
requested that we conduct certain post-approval clinical and research studies to
further document the safety, efficacy and pharmacokinetic profile of this drug.
ONTAK(R) is currently in two Phase II clinical trials for the treatment of
patients with NHL. Clinical trials using ONTAK(R) for the treatment of psoriasis
have also been conducted. These indications provide significantly larger market
opportunities than CTCL.
TARGRETIN(R) CAPSULES. In late December 1999, the FDA granted marketing
approval for Targretin(R) capsules with once daily oral administration for the
treatment of cutaneous manifestations of CTCL in patients who are refractory to
at least one prior systemic therapy. We launched sales and marketing of
Targretin(R) capsules in January 2000. Targretin(R) capsules offer the
convenience of a daily oral dose administered by the patient at home. At the
request of the FDA, we agreed to conduct certain post-approval Phase IV clinical
and pharmacokinetic studies. We are developing Targretin(R) capsules in a
variety of larger market opportunities, including moderate to severe plaque
psoriasis and advanced breast cancer. We are also pursuing approval of
Targretin(R) capsules for the treatment of CTCL in Europe, where we submitted an
MAA with the EMEA in November 1999.
PANRETIN(R) GEL. Panretin(R) gel, a topical retinoid developed utilizing IR
technology, was approved for marketing by the FDA in February 1999 for the
topical treatment of cutaneous lesions of patients with AIDS-related Kaposi's
sarcoma ("KS"). Panretin(R) gel was approved in June 1999 by Canada's Health
Protection Branch ("CHPB") for the same indication. As the first patient-applied
treatment for AIDS-related KS, Panretin gel represents a new non-invasive option
to the traditional management of this disease. Most approved therapies require
the time and expense of periodic visits to a healthcare facility and
administration of the treatment by a doctor or nurse. AIDS-related KS adversely
affects the quality of life for thousands of people in the U.S. We are also
pursuing approval of Panretin(R) gel for the treatment of cutaneous lesions of
patients with AIDS-related KS in Europe; we submitted an MAA with the EMEA in
February 1999. Panretin(R) gel is currently in clinical development for certain
skin cancers.
PRODUCT DEVELOPMENT PROCESS
The development phase for a compound refers to the current stage of
development for a particular indication. There are three phases in product
development -- the research phase, the preclinical phase and the clinical trials
phase. (See "Government Regulation" for a more complete description of the
regulatory process.) Research activities include research related to specific IR
and STATs targets and the identification of lead compounds. Lead compounds are
chemicals that have been identified that meet pre-selected criteria in cell
culture models for activity and potency against IR or STATs targets. More
extensive evaluation is then undertaken to determine if the compound should be
selected to enter into preclinical development. Once a lead compound is
selected, chemical modification of the compound is then undertaken to create the
best drug candidate.
The preclinical phase includes pharmacology and toxicology testing in
preclinical models (in vitro and in vivo), formulation work and manufacturing
scale-up to gather necessary data to comply with applicable regulations prior to
commencement of human clinical trials. Development candidates are lead compounds
that have successfully undergone in vitro and in vivo evaluation to demonstrate
that they have an acceptable profile, which justifies taking them through
preclinical development with the intention of filing an Investigational New Drug
application ("IND") and initiating human clinical testing.
Clinical trials are typically conducted in three sequential phases that may
overlap. In Phase I, the initial introduction of the pharmaceutical into humans,
the emphasis is on testing for adverse effects, dosage tolerance, absorption,
metabolism, distribution, excretion and clinical pharmacology. Phase II involves
studies in a representative patient population to determine the efficacy of the
pharmaceutical for specific targeted indications, to determine dosage tolerance
and optimal dosage and to identify related adverse side effects and safety
risks. Once a compound is found to be effective and to have an acceptable safety
profile in Phase II evaluations, Phase III trials are undertaken to evaluate
clinical efficacy further and to further test for safety. Sometimes Phase I and
II trials or Phase II and III trials are combined. In the U.S., the FDA reviews
both the clinical plans and the results of the trials and may discontinue the
trials at any time if there are significant safety issues.
4
<PAGE>
LIGAND CLINICAL DEVELOPMENT AND RESEARCH PROGRAMS
We are developing several proprietary products for which we have worldwide
rights for a variety of cancers and skin diseases, as summarized in the table
below. Many of the indications being pursued are related to larger market
opportunities for our currently marketed products. Our product development
programs are primarily based on products discovered through our IR technology,
with the exception of ONTAK(R) which was developed using Seragen's fusion
protein technology and Morphelan(TM) which was developed by Elan. Our research
programs are based on both our IR and STAT technologies. Seven products are in
advanced stages of development. Five of the products in our proprietary product
development programs are retinoids, discovered and developed using our
proprietary IR technology. (See "Technology" for a discussion of our IR and STAT
technologies and retinoids.)
<TABLE>
<CAPTION>
Program (1) Disease/Indication Development Phase
- ----------- ------------------ -----------------
<S> <C> <C>
ONTAK(R) CTCL Marketed
Non-Hodgkin's lymphoma Phase II
Psoriasis Phase II
Targretin(R) capsules CTCL Marketed
Advanced breast cancer Phase II
Moderate-to-severe psoriasis Phase II
Targretin(R) gel CTCL NDA filed
Actinic keratoses Phase II
Skin cancers Phase II (Under
development)
Panretin(R) gel Kaposi's sarcoma Marketed
Basal cell cancer of the skin Phase II (Under
development)
Panretin(R) capsules Kaposi's sarcoma Phase II
Bronchial metaplasia Phase II
LGD1550 capsules Head and neck cancer Phase II (Under
development)
Cervical cancer Phase II (Under
development)
Morphelan(TM) (2) Chronic pain Phase III
SARMs
o LGD2226 (Androgen agonists) Hypogonadism, osteoporosis, male/female Preclinical
sexual dysfunction, cachexia, AIDS-wasting Development/IND track
o LGD1331 (Androgen antagonists) Prostate cancer, hirsutism, acne, benign Preclinical
prostatic hyperplasia, androgenetic alopecia
STATs Cancer, Immunology, Growth Research
Glucocorticoid agonist Cancer Preclinical
</TABLE>
(1) This table is not intended to be a comprehensive list of Ligand's
internal research and development programs.
(2) Morphelan(TM) was licensed from Elan. (See "Morphelan Development
Program" below.)
ONTAK(R) Development Programs
ONTAK(R) is the first of a new class of targeted cytotoxic biologic agents
called fusion proteins that was acquired in the acquisition of Seragen. ONTAK(R)
is marketed in the U.S. for CTCL. In addition to ongoing CTCL trials, we are
conducting clinical trials with ONTAK(R) in NHL and psoriasis, indications that
represent significantly larger market opportunities than CTCL. While CTCL
affects approximately 20,000 people in the U.S., NHL affects approximately
300,000 people in the U.S. and moderate to severe psoriasis affects an estimated
1.4 to 1.9 million people in the U.S.
5
<PAGE>
In early 1999, ONTAK(R) entered Phase II trials for the treatment of
patients with NHL. One study, being conducted by the Eastern Cooperative
Oncology Group, assesses ONTAK(R) in patients with certain types of low- and
intermediate-grade NHL who have previously been treated with at least one
systemic anti-cancer treatment. A second multi-center trial for ONTAK(R) is
being conducted by us in patients with low-grade NHL who have been previously
treated with at least one chemotherapy regimen and at least one monoclonal
antibody therapy. Interim results of these trials are expected in 2000.
Clinical trials with ONTAK(R) have demonstrated benefits in patients with
long-standing, previously treated severe psoriasis. In the most recent Phase
I/II study, 35 patients received one of three dose levels of ONTAK(R), with
improvement seen at all levels. Eight of the patients had a 50% or greater
improvement as measured by the Mean Psoriasis Area and Severity Index, and 18
showed improvement relative to the Physician's Global Assessment of the
patients' psoriasis. Based on these positive preliminary results, additional
investigation is being considered.
Targretin(R) Capsules Development Programs
Targretin(R) capsules are approved and marketed in the U.S. for CTCL.
Ligand is also investigating the use of Targretin(R) capsules in several cancer
and skin disease markets which represent significantly larger market
opportunities in comparison to the CTCL market. When our collaborative partner
Lilly opted not to proceed with the development of Targretin(R) capsules in
diabetes, all of Lilly's rights to the oral form of Targretin(R) reverted to
Ligand.
In November 1998, we initiated a Phase II trial with Targretin(R) capsules
for the treatment of patients with advanced breast cancer. The open-label study
will assess the efficacy, safety and tolerability of Targretin(R) capsules at
two dose levels in up to 180 patients at approximately 30 sites at leading
cancer centers throughout the U.S. This year, experts predict that more than
180,000 cases of breast cancer will be diagnosed, making it the most common
non-skin malignancy in the U.S. among women. The prevalence of breast cancer in
the U.S. is estimated to have reached more than 2 million.
We are also conducting a Phase II trial with Targretin(R) capsules for the
treatment of patients with moderate to severe psoriasis, a condition that is
estimated to affect between 1.4 and 1.9 million people in the U.S. A phase II
study in patients with head and neck cancers and a Phase II study in KS have
been completed, as well as Phase II/III trial in lung cancer and a Phase II
multicenter trial in type II diabetes in Europe. The diabetes trial demonstrated
the insulin sensitizing effects of this RXR-selective drug in humans.
Targretin(R) Gel Development Programs
In December 1999, we submitted to the FDA an NDA for Targretin(R)
(bexarotene) gel 1%, a novel topical therapy for the treatment of cutaneous
lesions in patients with Stage IA, IB or IIA CTCL who have not tolerated other
therapies or who have refractory or persistent disease. The FDA has granted
Targretin(R) gel orphan drug designation for the treatment of patients with
CTCL, and has granted priority review status of the NDA filing. We have
completed Phase IIA trials with Targretin(R) gel for the treatment of patients
with actinic keratoses, a condition that is estimated to affect up to 5 million
people in the U.S. A Phase II trial with Targretin(R) gel for the treatment of
patients with non-melanoma skin cancer is under development. Non-melanoma skin
cancers affect approximately 500,000 people in the U.S. An MAA filing in Europe
for Targretin(R) gel in CTCL is targeted for 2000.
Panretin(R) Gel Development Program
A Phase II trial is under development for use of Panretin(R) gel in
patients with basal cell carcinoma, a disease with an estimated 600,000 new
cases diagnosed in the U.S. each year.
Panretin(R) Capsules Development Programs
Panretin(R) capsules have demonstrated clinical promise for the systemic
treatment of cutaneous AIDS-related KS, other cancers and skin disorders. In
completed Phase I/II human clinical trials, Panretin(R) capsules were tolerated
at doses up to 140 milligrams per square meter of body surface area per day. At
the maximum tolerated dose, side effects, including headaches, elevated
triglyceride levels, hypercalcemia and mucocutaneous irritation, were dose
limiting toxicities. We have reported favorable results in two Phase II trials
with Panretin(R) capsules in patients with KS and are currently evaluating
whether to proceed with development in KS. Phase II trials with Panretin(R)
capsules are ongoing in bronchial metaplasia. We have completed Phase II trials
in myelodysplastic syndrome, severe plaque psoriasis, and breast and pediatric
cancers, and the NCI-Canada has evaluated the results of a Phase I/II trial
using Panretin(R) capsules in combination with interferon alpha for renal cell
carcinoma.
6
<PAGE>
LGD1550 Capsules Development Program
LGD1550 is a potent RAR agonist that strongly inhibits growth of several
human cancer cell lines. Phase I/ IIA clinical trials in advanced cancer have
shown that LGD1550 capsules were well tolerated. Investigators observed
dose-limiting skin toxicities, diarrhea and abdominal cramps. Dose-limiting
toxicities, such as headache and lipid abnormalities, frequently observed with
other retinoids, have not been observed with LGD1550. Unlike all-trans retinoic
acid, a retinoid approved for the treatment of acute promyelocytic leukemia,
LGD1550 does not appear to induce its own metabolism over the dose range tested
since blood levels are maintained with continued therapy. Phase II studies with
LGD1550 in combination with chemotherapy for the treatment of patients with
cervical and head and neck cancers are under development. The prevalence of
cervical cancer cases in the U.S. is estimated at 205,000 cases, while the
prevalence of head and neck cancer in the U.S. is estimated at more than 210,000
cases.
Morphelan(TM) Development Program
As part of a broader strategic alliance formed in 1998 with Elan, Elan
licensed to Ligand exclusive rights to market Elan's proprietary product
Morphelan(TM) in the U.S. and Canada for pain management in cancer and HIV
patients. We also have an option to co-promote Morphelan(TM) in continental
Europe for the same indications. Morphelan(TM), a once-daily, oral capsule form
of morphine, may provide sustained pain management for HIV and cancer patients
as compared to current therapies requiring frequent doses. Enrollment in Phase
III clinical trials in the U.S. has recently been completed by Elan. We
anticipate submission of an NDA in the U.S. by Elan in the first half of 2000.
If approved, we will market and sell Morphelan(TM) through our existing
specialty cancer and HIV-center sales force.
SARMs Programs
We are pioneering the development of tissue selective androgen receptor
modulators ("SARMs"), a novel class of non-steroidal, orally active molecules
that selectively modulate the activity of the androgen receptor ("AR") in
different tissues, providing a wide range of opportunities for the treatment of
many diseases and disorders in both men and women. Tissue-selective AR agonists
or antagonists may provide utility in male hormone replacement therapy and the
treatment of skin disorders, osteoporosis, sexual dysfunction in men and women,
prostate cancer, benign prostatic hyperplasia ("BPH") and other diseases. The
use of androgen antagonists has shown efficacy in the treatment of prostate
cancer, with three androgen antagonists currently approved by the FDA for use in
the treatment of prostate cancer. However, we believe that there is a
substantial medical need for improved androgen modulators for use in the
treatment of prostate cancer due to significant side effects seen with currently
available drugs that may be eliminated or reduced by SARMs.
Our SARMs programs have been our largest internally funded programs over
the past five years. We believe that our intellectual property in the SARM area
is strong. We have assembled an extensive SARM compound library and one of the
largest and most experienced AR drug discovery teams in the pharmaceutical
industry. We intend to pursue the specialty applications emerging from SARMs
internally, but may seek collaborations with major pharmaceutical companies to
exploit broader clinical applications.
We have two first generation SARMs in preclinical development: (1) LGD1331,
an androgen antagonist for acne, prostate cancer, BPH and hirsutism, and (2)
LGD2226, an androgen agonist for male hypogonadism, male and female sexual
dysfunction and osteoporosis. Preclinical studies of LGD1331 indicate that it
may have utility for treating acne and hirsutism disorders that affect a
significant number of women. In vivo studies of LGD1331 have revealed favorable
characteristics, including indirect evidence of diminished effects on the
central nervous system, compared with currently marketed drugs of this type for
the treatment of these conditions.
STATs Research Programs
In contrast to our IR program, our STATs programs focus on receptors found
on the surface of the cell. STATs play a modulating role in the biology of
cytokines and growth factors. Many diseases, such as inflammatory conditions,
may result from excessive cytokine activity, and others may result from
insufficient cytokine activity. (See "Technology -- STATs Technology" for a more
complete discussion of our STATs technology.) In our STATs programs, we seek to
develop drug candidates that mimic or block the activity of relevant cytokines
for use in a variety of conditions including cancer, inflammation and disorders
of blood cell formation.
Our program to discover and develop small molecule, orally available drugs
to act as interferon agonists for potential application in various cancers and
viral diseases is ongoing. We are also continuing an internal preclinical
program aimed at discovering novel immunomodulatory drugs. Clinically, it is
well established that a variety of immune disorders are characterized by
unbalanced helper T-cell responses. Helper T-cells are white blood cells
critical to immune response.
7
<PAGE>
Several cytokines play a key role in regulating the proper balance of
helper T-cell responses, including Interleukin-4 ("IL-4") and Interleukin-12
("IL-12"). Regulating helper T-cell responses through modulation of IL-4 or
IL-12 signaling pathways may have application in allergy and asthma in the case
of IL-4, and transplant rejection and autoimmune diseases in the case of IL-12.
Compelling in vivo evidence suggests that pharmacological intervention in the
Janus Kinase family of tyrosine protein kinases ("JAK")/STAT signaling pathways
activated by IL-4 or IL-12 could result in drugs with novel mechanisms of action
that may not only complement, but also greatly improve on current therapies.
X-Ceptor Research Programs
Extensive work in the area of IRs has resulted in the identification and
discovery of more than 50 members of the IR superfamily that do not interact
with the known non-peptide hormones. We believe that among these orphan IRs
there may be receptors for uncharacterized small molecule hormones and that the
physiological roles of the various orphan receptors are likely to be diverse and
important to human biology and disease. In 1999, we invested in a new private
corporation, X-Ceptor Therapeutics, Inc., to fund research to identify
therapeutic products from orphan nuclear receptors. X-Ceptor, funded with $25.0
million primarily from outside investors, will enable accelerated development of
this early stage technology in a manner that offers upside reward while
minimizing the risk and burden of direct management, financing or full profit
and loss responsibility. Taking the position of minority equity investor, we
contributed cash, warrants and enabling technology to X-Ceptor and have the
right to reacquire all of the capital stock of X-Ceptor for a predetermined
purchase price in 2002 or 2003. (See Note 12 to the consolidated financial
statements.)
8
<PAGE>
COLLABORATIVE RESEARCH AND DEVELOPMENT PROGRAMS
We are pursuing several major collaborative drug discovery programs to
further develop the research and development of compounds based on our IR and
STAT technologies. These collaborations focus on several large market
indications as shown in the table below.
<TABLE>
<CAPTION>
Indication U.S. Prevalence
---------- ---------------
<S> <C>
Osteoporosis 10 million
Breast Cancer 2 million
Hormone Replacement Therapy 7 million
Cardiovascular Disease 58 million
Contraception 35 million
Type II Diabetes 15 million
Obesity 48 million
</TABLE>
During 1999, there were seven collaborative products on a human development
track -- droloxifene, lasofoxifene, TSE424, ERA923, WAY160910, GW544 and GWXXX.
(See Note 10 to the consolidated financial statements for a description of the
financial terms of our key ongoing collaboration agreements.)
<TABLE>
<CAPTION>
Development
Program (1) Disease/Indication Phase Marketing Rights
- -------- ------------------ ----- ----------------
<S> <C> <C> <C>
SEX HORMONE MODULATORS
SERMs
o Droloxifene (2) Osteoporosis Discontinued Pfizer
o Lasofoxifene (CP336,156) Osteoporosis, breast cancer Phase II/III Pfizer
o TSE424 Post-menopausal osteoporosis Phase II/III AHP
o ERA923 Breast cancer Phase I AHP
o ER Modulators HRT, osteoporosis, cardiovascular disease, Research Parke-Davis
breast cancer, mood and cognitive disorders
PR Modulators
o PR Modulators HRT, contraception, reproductive disorders Research Organon
o WAY160910 (PR Antagonists) HRT, contraception Preclinical/ AHP
IND track
o PR Agonists (LGD1447 series) Contraception, reproductive disorders Preclinical AHP/Ligand(3)
CARDIOVASCULAR/METABOLIC DISEASE
GW544 (PPAR Modulators ) Type II diabetes, cardiovascular disease Phase I Glaxo
GWXXX (PPAR Modulators) Cardiovascular disease Preclinical/ Glaxo
IND track
PPAR Modulators Diabetes, metabolic diseases Preclinical Lilly
RXR Modulators Diabetes, metabolic diseases Preclinical Lilly
ob-gene Pathway Metabolic diseases Research Lilly
ob-Leptin Metabolic diseases Research SmithKline Beecham
AGN4204 and AGN4326 Type II diabetes Preclinical Allergan
INFLAMMATORY DISEASE
Glucocorticoid Agonists Inflammation Preclinical Abbott/Ligand(3)
AGN4310 Psoriasis, mucocutaneous toxicity Preclinical/ Allergan
IND track
STATs
Hematopoietic Growth Factors Oncology, anemia Preclinical SmithKline Beecham/
Ligand(3)
</TABLE>
(1) This table is not intended to be a comprehensive list of Ligand's
collaborative research and development programs.
(2) In December 1999, Pfizer chose not to continue development of droloxifene.
(3) We have retained certain compound rights in our collaborations with AHP,
Abbott, and SmithKline Beecham.
9
<PAGE>
Sex Hormone Modulators Collaborative Programs
The primary objective of our sex hormone modulators collaborative programs
is to develop drugs for hormonally responsive cancers of men and women, hormone
replacement therapies and the treatment and prevention of diseases affecting
women's health, as well as hormonal disorders prevalent in men. Our programs,
both collaborative and internal, in the sex hormone modulators area target
development of tissue-selective modulators of the progesterone receptor ("PR"),
the estrogen receptor ("ER") and the androgen receptor ("AR"). Through our
collaborations with Pfizer and AHP, three selective ER modulators ("SERMs") are
in development in osteoporosis and advanced breast cancer. In collaboration with
Parke-Davis, we are seeking SERMs for the treatment of osteoporosis, breast
cancer, cardiovascular disease, and mood and cognitive disorders. In addition,
we are developing two SARMS in our internal programs and seek to enter into
collaborations with large global pharmaceutical companies for the development of
SARMs in large markets beyond our strategic focus or resources.
SERMS. Over the past eight years of collaboration with corporate partners
on the discovery, development and enhancement of SERMs, four SERMs (including
droloxifene) have emerged covering three generations of advancements in
efficacy. Today, Ligand is the principal company to have three generations of
SERMs in its collaborative pipeline, and we believe the clinical trials being
conducted by our collaborative partners on second-generation SERMs are furthest
advanced among all clinical trials for SERMs. Our partners Pfizer and AHP each
have second-generation SERMs moving into Phase III trials in 2000, and
Parke-Davis's goal is to declare one or more third-generation SERMs as clinical
development candidates.
PR MODULATORS. We are also developing novel non-steroidal PR antagonists,
partial agonists and agonists internally and in collaboration with AHP and
Organon, for use in hormone replacement therapy, contraception, reproductive
disorders and other applications in women's health. Exploratory clinical
research indicates that PR antagonists may have utility in contraception and in
a variety of chronic diseases, including endometriosis and cancer. We believe
that more selective PR antagonists may be useful in the treatment of many
hormone responsive diseases, including gynecological and malignant disorders,
such as breast and uterine cancer, uterine fibroids (benign smooth muscle
tumors) and endometriosis. Although current PR antagonists are used clinically
for acute contraceptive indications, their use in chronic diseases is likely to
be limited by their cross-reaction with the glucocorticoid receptor, which is
anticipated to produce adverse side effects with long-term administration. We
have discovered specific PR antagonists that do not cross-react with the IR for
glucocorticoids. We have also discovered several additional non-steroidal lead
compounds that are PR modulators. In addition, we have discovered closely
related compounds that are full agonists of the PR, which may be useful in
contraception, reproductive disorders, and hormone replacement therapy.
AHP COLLABORATION. In 1994, we entered into a collaborative research
agreement with Wyeth-Ayerst Laboratories, the pharmaceutical division of AHP, to
discover and develop drugs that interact with estrogen or progesterone receptors
for use in hormone replacement therapy, anti-cancer therapy, gynecological
diseases, central nervous system disorders associated with menopause and
fertility control. We granted AHP exclusive worldwide rights to all products
discovered in the collaboration that are agonists or antagonists to the PR and
ER for application in the fields of women's health and cancer therapy.
As part of this collaboration, we tested AHP's extensive chemical library
for activity against a selected set of targets of our internal programs. We may
select for internal development up to 24 lead compounds to which we will have
worldwide rights. In 1996, AHP exercised its option to include compounds we
discovered that modulate PRs and to expand the collaboration to encompass the
treatment or prevention of osteoporosis through the ER. AHP also added four
advanced chemical compound series from its internal ER-osteoporosis program to
the collaboration. The research phase of the collaboration ended in August 1998.
AHP has ongoing clinical studies with two SERMs. AHP is developing TSE424
for the treatment of post-menopausal osteoporosis, with Phase II trials ongoing,
and has announced their intention to initiate Phase III trials in 2000. ERA923
is being developed for the treatment of breast and reproductive cancers. AHP
filed an IND for ERA923 for the treatment of women with breast cancer in
December 1998 and Phase I trials in breast cancer are nearing completion. AHP
has also elected to proceed with IND track development of WAY160910, a
non-steroidal PR antagonist that may be useful in the creation of the first
estrogen-free oral contraceptive.
PFIZER COLLABORATION. In 1991, we entered into a five-year collaborative
research and development and license agreement with Pfizer to develop better
alternative therapies for osteoporosis. In November 1993, we jointly announced
the successful completion of the research phase of our alliance with the
identification of a development candidate and backups for the prevention and
treatment of osteoporosis. In preclinical studies, the candidates from the
program mimic the beneficial effects of estrogen on bone and have an impact on
blood serum lipids often associated with cardiac benefits without increasing
uterine or breast tissue proliferation.
10
<PAGE>
We have milestone and royalty rights to two SERMs, lasofoxifene and
droloxifene, which over the past year have been under development by Pfizer for
osteoporosis and breast cancer. Lasofoxifene, previously known as CP336,156, is
a second generation estrogen partial agonist discovered through our
collaborative relationship with Pfizer to which Pfizer has retained marketing
rights. Droloxifene, a first generation estrogen antagonist, is a Pfizer
compound for which we performed work at Pfizer's request. These SERMs have been
shown to reduce bone loss and decrease low-density lipoprotein levels ("LDL", or
"bad" cholesterol). In late 1999, Pfizer announced that it planned to move
lasofoxifene forward into Phase III studies in 2000 for the treatment of breast
cancer and osteoporosis and that it would discontinue development of
droloxifene. Our royalty rights on sales of lasofoxifene are double that for
droloxifene.
PARKE-DAVIS COLLABORATION. In September 1999, we entered into a research,
development and license agreement with the Parke-Davis Pharmaceutical Research
and Development ("Parke-Davis") of Warner-Lambert Company. The research and
development collaboration will focus on the discovery, characterization, design
and development of third-generation small molecule compounds with beneficial
effects for the treatment and prevention of diseases mediated through the ER.
Some of the diseases affected by drugs that act upon the ER are osteoporosis,
cardiovascular disease, breast cancer, and mood and cognitive disorders.
Parke-Davis's goal is to declare one or more third-generation SERMs as clinical
development candidates.
ORGANON COLLABORATION. In February 2000, we entered into a collaboration
with Organon to focus on small molecule compounds with potential effects for the
treatment and prevention of gynecological diseases mediated through the
progesterone receptor. The objective of the collaboration is the discovery of
new non-steroidal compounds that are tissue-selective in nature and may have
fewer side effects. Such compounds may provide utility in hormone replacement
therapy, oral contraception, reproductive diseases, and other hormone-related
disorders.
Cardiovascular/Metabolic Disease Collaborative Programs
We are exploring the role of certain IRs, including the peroxisome
proliferation activated receptors ("PPARs"), in cardiovascular and metabolic
disorders. PPARs, a subfamily of orphan IRs, have been implicated in processes
that regulate plasma levels of very low density lipoproteins and triglycerides.
(See "Technology -- Intracellular Receptor Technology" for a discussion of PPARs
and orphan IRs.) Data implicate PPARs in the mechanism of action of lipid
lowering drugs such as Lopid(R). There are three subtypes of the PPAR subfamily
with defined novel aspects of their action -- alpha, beta and gamma. The subtype
PPAR alpha appears to regulate the metabolism of certain lipids and is useful in
treating hyperlipidemia. PPAR gamma plays a role in fat cell differentiation and
cellular responses to insulin. Modulators of PPAR gamma activity (e.g., the
glitazone class of insulin sensitizers) have utility in the management of type
II diabetes. PPARs are believed to function in cells in partnership with RXRs.
In addition to compounds that act directly on PPARs and that may have utility in
various cardiovascular and metabolic disorders, certain retinoids are able to
activate this RXR:PPAR complex (e.g., Targretin(R) capsules) and they may also
have utility in these disorders. We have three collaborative partners, Glaxo,
Lilly and SmithKline Beecham, in the areas of cardiovascular and metabolic
diseases, with two compounds on a clinical development tract. (See "STATs
Collaborative Program" below for a discussion of the SmithKline Beecham
collaboration.)
GLAXO COLLABORATION. In 1992, we entered into a five-year collaboration
with Glaxo to discover and develop drugs for the prevention or treatment of
atherosclerosis and other disorders affecting the cardiovascular system. The
collaboration focuses on discovering drugs which produce beneficial alterations
in lipid and lipoprotein metabolism in three project areas: (1) regulation of
cholesterol biosynthesis and expression of a receptor which removes cholesterol
from the blood stream, (2) the IRs influencing circulating HDL levels, and (3)
PPARs, the subfamily of IRs activated by lipid lowering drugs, such as Lopid(R)
and Atromid-S. The collaborative research program was successfully completed in
1997 with the identification of a novel lead structure that activates selected
PPAR subfamily members and the identification of a different lead compound that
shows activity in preclinical models for lowering LDL cholesterol by
up-regulating LDL receptor gene expression in liver cells. We retained the right
to develop and commercialize products arising from the collaboration in markets
not exploited by Glaxo or where Glaxo is not developing a product for the same
indication.
In 1999, Glaxo advanced two compounds to exploratory development: (1)
GW544, a PPAR agonist in Phase I trials for diabetes, that is also under
investigation as a potential therapy for cardiovascular disease; and (2) a
second candidate that is in preclinical development for cardiovascular disease.
Cardiovascular disease affects more than 58 million Americans and is estimated
to be responsible for 30% of all deaths worldwide each year.
LILLY COLLABORATION. In 1997, we entered into a strategic alliance with
Lilly for the discovery and development of products based upon our IR technology
with broad applications in the fields of metabolic diseases, including diabetes,
obesity, dyslipidemia, insulin resistance and cardiovascular diseases associated
with insulin resistance and obesity. Under the alliance, Lilly received: (1)
worldwide, exclusive rights to our compounds and technology associated with the
RXR receptor in the
11
<PAGE>
field; (2) rights to use our technology to develop an RXR compound in
combination with a SERM in cancer; (3) worldwide, exclusive rights in certain
areas to our PPAR technology, along with rights to use PPAR research technology
with the RXR technology; and (4) exclusive rights to our HNF4 receptor and the
obesity gene promoter technology. Lilly has the right to terminate the
development of compounds under the agreements. We would receive rights to
certain of such compounds in return for a royalty to Lilly, the rate of which is
dependent on the stage at which the development is terminated.
Under the alliance, we retained or received: (1) exclusive rights to
independently research, develop and commercialize Targretin(R) and other RXR
compounds in the fields of cancer and dermatology; (2) an option to obtain
selected rights to one of Lilly's specialty pharmaceutical products; and (3)
rights to receive milestones, royalties and options to obtain certain
co-development and co-promotion rights for the Lilly-selected RXR compound in
combination with a SERM.
Our rights under the initial agreements have changed. In connection with
the acquisition of Seragen in 1998, we obtained from Lilly its rights to
ONTAK(R) in satisfaction of our option to obtain selected rights to one of
Lilly's specialty pharmaceutical products. In 1999, we agreed to focus our
collaborative efforts on the RXR modulator second-generation program, which has
compounds with improved therapeutic indices relative to the three
first-generation compounds, and on co-agonists of the PPAR receptor program. In
early 1999, Lilly opted not to proceed with the development of certain
first-generation compounds, including Targretin(R), in the RXR program for
diabetes. As a result of this decision, all rights to the oral form of
Targretin(R) reverted to us and LGD1268 and LGD1324 returned to the pool of
eligible RXR modulators for possible use in oncology in combination with a SERM
under the collaboration agreement between Ligand and Lilly.
Inflammatory Disease Collaborative Program
Abbott Collaboration. In 1994, we entered into a collaborative research
agreement with Abbott to discover and develop small molecule compounds for the
prevention or treatment of inflammatory diseases. The collaborative program
includes several molecular approaches to discovering modulators of
glucocorticoid receptor activity that have significantly improved therapeutic
profiles relative to currently known anti-inflammatory steroids such as
prednisone and dexamethasone. The collaboration is focused on the development of
novel non-steroidal glucocorticoids that maintain the efficacy of
corticosteroids that are currently used to treat inflammatory diseases, but lack
some or all of corticosteroids' dose-limiting side effects. Several compounds
discovered during the collaboration have progressed to advanced preclinical
testing in an effort to select a clinical candidate.
Abbott received exclusive worldwide rights for all products discovered in
the collaboration for use in inflammation. We received exclusive worldwide
rights for all anti-cancer products discovered in the collaboration. Abbott will
make milestone and royalty payments on products targeted at inflammation
resulting from the collaboration, while we will make milestone and royalty
payments on products targeted at anti-cancer resulting from the collaboration.
Each party will be responsible for the development, registration and
commercialization of the products in its respective field.
STATs Collaborative Program
Our proprietary STAT technology is distinct from our IR technology
platform. STATs are activated through a receptor located on the surface of the
cell rather than a receptor located within the cell. STAT technology provides us
with a second broadly enabling drug discovery platform that has potential
applications in cancer, inflammation, asthma, allergy, infectious disease,
anemia, obesity, diabetes and growth disorders. (See "Technology" for a more
complete discussion of our STAT technology.) We are pursuing product development
opportunities based on our STAT technology through a collaboration with
SmithKline Beecham and internally funded programs focusing on interferon
agonists and other cytokine agonists and antagonists.
SMITHKLINE BEECHAM COLLABORATION. In 1995, we entered into a collaborative
agreement with SmithKline Beecham to utilize our proprietary STATs technology to
discover and characterize small molecule, orally bioavailable drugs to control
hematopoiesis (the formation and development of blood cells) for the treatment
of a variety of blood cell deficiencies. In 1998, we announced with SmithKline
Beecham the discovery of the first non-peptide small molecule that mimics the
activity of Granulocyte- Colony Stimulating Factor ("G-CSF"), a natural hormone
that stimulates production of infection-fighting neutrophils (a type of white
blood cell). This molecule could lead to the development of an orally active
drug that could replace recombinant G-CSF (sold by Amgen as Neupogen(TM)), a
drug that must be administered by injection. While this lead compound has only
been shown to be active in mice, its discovery is a major scientific milestone
and suggests that orally active, small molecule mimics can be developed not only
for G-CSF, but for other cytokines as well. Ligand and SmithKline Beecham
continue to pursue development of this compound series.
A number of lead series have been found that mimic the activity of natural
growth factors for white cells and platelets. These are currently being
optimized through medicinal chemistry. Based on the progress achieved to date,
SmithKline
12
<PAGE>
Beecham and Ligand have chosen to extend this collaboration for a year beyond
the term of the original contract.
Under the collaboration, we have the right to select up to three compounds
related to hematopoietic targets for development as anti-cancer products other
than those compounds selected for development by SmithKline Beecham. SmithKline
Beecham has the option to co-promote these products with us in North America and
to develop and market them outside North America.
In April 1998, we formed a new collaboration with SmithKline Beecham to
develop small molecule drugs that modulate the signaling pathway controlled by
leptin as a means of discovering orally available drugs for treatment or
prevention of obesity. Under the new agreement, SmithKline Beecham obtained
exclusive worldwide rights to products resulting from the obesity collaboration
and has agreed to make milestone payments to us as compounds progress through
preclinical and clinical development, and royalty payments on sales, if products
result from the research.
Allergan and ALRT Programs
In 1997, in conjunction with the buyback of Allergan Ligand Retinoid
Therapeutics, Inc. ("ALRT"), we agreed with Allergan to restructure the terms
and conditions relating to research, development, and commercialization and
sublicense rights for the ALRT compounds. (See Note 11 to the consolidated
financial statements.) Under the restructured arrangement, we received
exclusive, worldwide development, commercialization and sublicense rights to
Panretin(R) capsules and Panretin(R) gel, LGD1550, LGD268 and LGD324. Allergan
received exclusive, worldwide development, commercialization and sublicense
rights to LGD4310, an RAR antagonist. Allergan also received LGD4326 and
LGD4204, two advanced preclinical RXR selective compounds. In addition, we
participated in a lottery with Allergan for each of the approximately 2,000
retinoid compounds existing in the ALRT compound library as of the closing date,
with each party acquiring exclusive, worldwide development, commercialization
and sublicense rights to the compounds which they selected. Ligand and Allergan
will each pay the other a royalty based on net sales of products developed from
the compounds selected by each in the lottery and the other ALRT compounds to
which each acquires exclusive rights. We will also pay to Allergan royalties
based on our net sales of Targretin(R) for uses other than oncology and
dermatology indications. In the event that we license commercialization rights
to Targretin(R) to a third party, we will pay to Allergan a percentage of
royalties payable to us with respect to sales of Targretin(R) other than in
oncology and dermatology indications. Allergan has two compounds (AGN4204 and
AGN4326) in preclinical development for type II diabetes and one compound
(AGN4310) in preclinical development for psoriasis and mucocutaneous toxicity.
TECHNOLOGY
In our successful efforts to discover new and important medicines, we and
our exclusive academic collaborators have concentrated on two areas of research:
advancing the understanding of the activities of hormones and hormone-related
drugs and making scientific discoveries related to IR and STAT technologies. We
believe that our expertise in these technologies will enable us to develop
novel, small-molecule drugs acting through IRs or STATs with more
target-specific properties than currently available drugs, resulting in either
improved therapeutic and side effect profiles and new indications for IRs or
novel mechanisms of action and oral activity for STATs. Both STATs and IRs are
families of transcription factors that change cell function by selectively
turning on or off particular genes in response to circulating signals that
impinge on cells. In addition to our proprietary IR and STAT technologies, we
acquired fusion protein technology, which was utilized by Seragen in the
development of ONTAK(R).
Intracellular Receptor ("IR") Technology
Hormones occur naturally within the body and control processes such as
reproduction, cell growth, and differentiation. Hormones generally fall into two
general classes, the non-peptide hormones and the peptide hormones. The
non-peptide hormones include the retinoids, sex steroids (estrogens, progestins
and androgens), adrenal steroids (glucocorticoids and mineralocorticoids),
vitamin D and thyroid hormone. These non-peptide hormones act by binding to
their corresponding IRs to regulate the expression of genes in order to maintain
and restore balanced cellular function within the body. Hormonal imbalances can
lead to a variety of diseases. The hormones themselves and drugs that mimic or
block hormone action may be useful in the treatment of these diseases.
Furthermore, hormone mimics (agonists) or blockers (antagonists) can be used in
the treatment of diseases in which the underlying cause is not hormonal
imbalance. The effectiveness of the IRs as drug targets is clearly demonstrated
by currently available drugs acting through IRs for several diseases. However,
the use of most of these drugs has been limited by their often significant side
effects. Examples of currently marketed hormone-related drugs acting on IRs are
glucocorticoids (steroids used to treat inflammation), natural and synthetic
estrogens and progesterones (used for hormone replacement therapy and
contraception), tamoxifen (an estrogen antagonist used in the treatment of
breast cancer), and various retinoids such as Accutane(R) and Retin-A(R) (used
to treat acne and others to treat psoriasis).
13
<PAGE>
We have built a strong proprietary position and accumulated substantial
expertise in IRs applicable to drug discovery and development. Building on our
scientific findings about the molecular basis of hormone action, we have created
proprietary new tools to explore and manipulate non-peptide hormone action for
potential therapeutic benefit. We employ a proprietary cell-culture based assay
system for small molecules that can modulate IRs, referred to as the
co-transfection assay. The co-transfection assay system simulates the actual
cellular processes controlled by IRs and is able to detect whether a compound
interacts with a particular human IR and whether this interaction mimics or
blocks the effects of the natural regulatory molecules on target gene
expression.
The understanding of non-peptide hormones and their actions has increased
substantially in the last 15 years. Driving this rapid expansion of knowledge
has been the discovery of the family of IRs through which all the known
small-molecule, non-peptide hormones act. We and our academic collaborators and
consultants have made major discoveries pertaining to IRs and small molecule
hormones and compounds, which interact with these IRs. These discoveries
include: (1) the identification of the IR superfamily, (2) the recognition of IR
subtypes, (3) the heterodimer biology of RXR-selective compounds and (4) the
discovery of orphan IRs. We believe that each of these broad areas of knowledge
provides important opportunities for drug discovery.
IR SUPERFAMILY. The receptors for all the non-peptide hormones are closely
related members of a superfamily of proteins known as IRs. Human IRs for all of
the known non-peptide hormones have now been cloned, in many cases by our
scientists or our collaborators. The structure and underlying mechanism of
action of the IRs have many common features, such that drug discovery insights
about one IR can often be directly applied to other members of the IR
superfamily, bringing synergy to our IR-focused drug discovery efforts. First
generation drugs were developed and commercialized for their therapeutic
benefits prior to the discovery of IRs and often cross-react with the IRs for
hormones other than the intended target, which can result in significant side
effects. The understanding that IRs are structurally similar has enabled us to
determine the basis for the side effects of some first-generation drugs and to
discover improved drug candidates.
IR SUBTYPES. For some of the non-peptide hormones, several closely related
but non-identical IRs, known as IR subtypes, have been discovered. These include
six subtypes of the IRs for retinoids, two subtypes of the IRs for thyroid
hormone, two subtypes for the ER, and three subtypes for the PPARs. Patent
applications covering many of these IR subtypes have been exclusively licensed
by us. We believe that drugs capable of selective modulation of IR subtypes will
allow more specific pharmacological intervention better matched to therapeutic
need. Targretin(R), an RXR selective molecule, was discovered as a result of our
understanding of retinoid receptor subtypes.
RETINOID RESPONSIVE IRS ("RRS.") Retinoic acid, a derivative of Vitamin A,
is one of the body's natural regulatory hormones that has a broad range of
biological actions, influencing cell growth, differentiation, programmed cell
death and embryonic development. Many chemical analogues of retinoic acid,
called retinoids, also have biological activity. Specific retinoids have been
approved by the FDA for the treatment of psoriasis and certain severe forms of
acne. Evidence also suggests that retinoids can be used to arrest and, to an
extent, reverse the effects of skin damage arising from prolonged exposure to
the sun. Other evidence suggests that retinoids are useful in the treatment of a
variety of cancers, including kidney cancer and certain forms of leukemia. For
example, all-trans-Retinoic-acid has been approved by the FDA for the treatment
of acute promyelocytic leukemia. Retinoids have also shown an ability to reverse
precancerous (premalignant) changes in tissues, reducing the risk of development
of cancer, and may have potential as preventive agents for a variety of
epithelial malignancies, including skin, head and neck, bladder and prostate
cancer. Currently marketed retinoids, which were developed and commercialized
prior to the discovery of retinoid-responsive IRs, cause significant side
effects. These include severe birth defects if fetal exposure occurs, severe
irritation of the skin and mucosal surfaces, elevation of plasma lipids,
headache and skeletal abnormalities.
The six RRs that have been identified to date can be grouped in two
subfamilies -- retinoic acid receptors ("RARs") and retinoid X receptors
("RXRs"). Patent applications covering members of both families of RRs have been
licensed exclusively to us primarily from The Salk Institute. The RR subtypes
appear to have different functions, based on their distribution in the various
tissues within the body and data arising from in vitro and in vivo studies,
including studies of transgenic mice. Several of the retinoids currently in
commercial use are either non-selective in their pattern of RR subtype
activation or are not ideal drugs for other reasons. We are developing
chemically synthesized retinoids that, by selectively activating RR subtypes,
may preserve desired therapeutic effects while reducing side effects.
We have two retinoid products approved by the FDA (Panretin(R) gel and
Targretin(R) capsules) and five retinoid products in clinical trials
(Panretin(R) gel, Panretin(R) capsules, Targretin(R) capsules, Targretin(R) gel
and LGD1550 capsules). Panretin(R) gel and Panretin(R) capsules incorporate
9-cis retinoic acid, a retinoid isolated and characterized by us in 1991 in
collaboration with scientists at The Salk Institute and Baylor. 9-cis retinoic
acid is the first non-peptide hormone discovered in over 25 years and appears to
be a natural ligand for the RAR and RXR subfamilies of retinoid receptors.
Bexarotene, the active substance in Targretin(R), is a synthetic retinoid
developed by us that shows selective retinoid receptor subtype activity that is
14
<PAGE>
different from that of 9-cis retinoic acid, the active substance in Panretin(R).
Targretin(R) selectively activates a subclass of retinoid receptors called RXRs.
RXRs play an important role in the control of a variety of cellular functions.
LGD1550 is a potent RAR agonist that strongly inhibits growth of several human
cancer cell lines.
RXRS. RXRs can form a dimer with numerous IRs, such as the retinoic acid
receptor ("RAR"), thyroid hormone receptor and vitamin D receptor. While RXRs
are widely expressed, their IR partners are more selectively expressed in
different tissues, such as liver, fat or muscle. As a result, compounds that
bind RXRs offer the unique potential to treat a variety of diseases, including
cancer and metabolic diseases. In preclinical models of type II diabetes, RXR
agonists appear to stimulate the physiological pathways responsive to RXR-PPAR
receptor partners expressed in key target tissues that are involved in glucose
metabolism. As a result, a discrete set of genes is activated in these tissues,
resulting in a decrease in serum glucose levels and insulin.
ORPHAN RECEPTORS. Over 50 additional members of the IR superfamily, which
do not interact with the known non-peptide hormones, have been discovered. These
members of the IR superfamily have been designated orphan receptors. We believe
that among the orphan IRs may be receptors for uncharacterized small molecule
hormones and that the physiological roles of the various orphan IRs are likely
to be diverse. We have devised strategies to isolate small molecules that
interact with orphan IRs and this technology forms the basis of the newly formed
company X-Ceptor. (See Note 12 to the consolidated financial statements.)
Signal Transducers and Activators of Transcription ("STAT") Technology
STATs are a family of proteins that are a key part of the signal
transduction pathway for a variety of biologically important polypeptide
hormones (e.g., interferons, interleukins, leptin and hematopoietic growth
factors). STATs play a role in the biology of cytokines and growth factors
functionally analogous to that played by IRs in the biology of the non-peptide
hormones. When various cytokines or growth factors bind to their receptors on
the cell surface, this triggers the activation of specific members of the Janus
Kinase family of tyrosine protein kinases ("JAKs"), which in turn activate
specific STATs. The activated STATs enter the cell nucleus and bind to the
control regions of specific target genes and alter their expression, thereby
modulating physiologic or pathophysiologic processes.
The discovery of STATs, the elucidation of their roles in interferon signal
transduction, and the first cloning of genes encoding STATs were all
accomplished by our exclusive collaborator, Dr. James Darnell, and were
described initially in 1992. A total of seven members of the STAT family have
been identified and a large number of peptide hormones have been shown to
utilize STAT signaling pathways. These peptide hormones include the interferons
(alpha, beta and gamma), the hematopoietic colony stimulating factors
(interleukin-3, EPO, G-CSF, GM-CSF and thrombopoietin), growth hormone,
prolactin, leptin and many of the interleukins.
Many diseases, such as certain inflammatory conditions, may be the result
of excessive activity of certain cytokines. In these conditions it may prove
beneficial to block the actions of specific cytokines. In other pathological
states, there is insufficient activity of specific cytokines. For example, in
patients with chronic renal failure, diminished erythropoietin ("EPO") release
by the damaged kidneys results in the inadequate production of red blood cells,
causing anemia. Recombinant human EPO protein (Epogen(R)) can be administered to
correct this anemia effectively, but must be injected. Many other cytokines are
useful as injected protein medicines, including interferons (Intron-A(R),
Roferon(R), Betaseron(R)), interleukins (e.g., Proleukin(R), which we market in
Canada), and hematopoietic growth factors (Epogen(R), Neupogen(R)). Each of
these and many other cytokines appear to exert their actions through JAK/STAT
signal transduction pathways.
We are utilizing JAK/STAT technologies to seek low molecular weight
compounds able to mimic or block the actions of medically relevant cytokines for
uses in various pathological conditions, including cancer, inflammation and
disorders of blood cell formation. Because these compounds are small molecules,
they have the potential to offer significant advantages over current recombinant
cytokine-based therapies, including oral bioavailability, greater ease of
manufacture and improved stability.
We are using our high throughput screening assays to discover small
molecule drugs for potential application in various cancers and viral diseases
and that act as cytokine agonists and antagonists in cancer and immunology. We
have also established a collaboration with SmithKline Beecham to discover and
characterize small molecule drugs to modulate specific JAK/STAT pathways to
control the formation of red and white blood cells for treating patients with
cancer or anemia and a second collaboration in this area related to obesity.
Proof of principle for this approach was achieved with SmithKline Beecham in the
area of G-CSF mimics. We have additional assays under development to allow high
throughput screening for and subsequent optimization of small molecule drugs
that act through JAK/STAT signaling pathways to block or mimic other medically
significant cytokines and growth factors.
15
<PAGE>
Fusion Protein Technology
Our fusion protein technology was developed by Seragen, which we acquired
in 1998. Seragen's fusion proteins consist of a fragment of diphtheria toxin
genetically fused to a ligand that binds to specific receptors on the surface of
target cells. Once bound to the cell, the fusion proteins are designed to enter
the cell and destroy the ability of the cell to manufacture proteins, resulting
in cell death. Using this platform, Seragen genetically engineered six fusion
proteins, each of which consists of a fragment of diphtheria toxin fused to a
different targeting ligand, such as a polypeptide hormone or growth factor.
ONTAK(R), which is approved in the U.S. for the treatment of patients with
persistent or recurrent CTCL, is a fusion protein consisting of a fragment of
diphtheria toxin genetically fused to a part of interleukin-2. In addition to
treatment of CTCL, fusion proteins may have utility in oncology, dermatology,
infectious diseases and autoimmune diseases. Seragen has entered into exclusive
license agreements with Harvard University and other parties for patents related
to fusion protein technology and has been issued four U.S. patents for
improvements in the technology licensed from Harvard University.
Academic Collaborations
To date, we have licensed technology from The Salk Institute, Baylor
College of Medicine and Rockefeller University and developed relationships with
key scientists to further the development of our core IR and STAT technologies.
THE SALK INSTITUTE OF BIOLOGICAL STUDIES. In 1988, we established an
exclusive relationship with The Salk Institute, which is one of the research
centers in the area of IR technology. Under the agreement, we have an exclusive,
worldwide license to certain IR technology developed in the laboratory of Dr.
Ronald Evans, a Salk professor and Howard Hughes Medical Institute Investigator.
Dr. Evans cloned and characterized the first IR in 1985 and is an inventor of
the co-transfection assay used by us to screen for IR modulators. Under the
agreement, we are obligated to make certain royalty payments based on sales of
certain products developed using the licensed technology, as well as certain
minimum annual royalty payments.
In May 1998, we submitted an NDA to the FDA for Panretin(R) gel for the
treatment of AIDS-related KS. In connection with the submission, we exercised an
option to acquire a fully paid up license for the patent rights to Panretin(R)
by paying a one-time license fee of approximately $4.1 million to The Salk
Institute.
We have also entered into exclusive consulting agreements with Dr. Evans
that continue through July 2001. Dr. Evans serves as Chairman of Ligand's
Scientific Advisory Board.
BAYLOR COLLEGE OF MEDICINE. In 1990, we established an exclusive
relationship with Baylor, which is a center of IR technology. We entered into a
series of agreements with Baylor under which we have an exclusive, worldwide
license to IR technology developed at Baylor and to future improvements made in
the laboratory of Dr. Bert W. O'Malley through September 2000. Dr. O'Malley is a
professor and the Chairman of the Department of Cell Biology at the Baylor
College of Medicine and the Director of the Center for Reproductive Biology who
leads IR research at that institution.
We work closely with Dr. O'Malley and Baylor in scientific IR research,
particularly in the area of sex steroids and orphan IRs. Under the agreement, we
are obligated to make payments to Baylor College of Medicine in support of
research done in Dr. O'Malley's laboratory through September 2000. We are also
obligated to make certain royalty payments based on the sales of products
developed using the licensed technology. We have entered into an exclusive
consulting agreement with Dr. O'Malley through September 2002. Dr. O'Malley is a
member of Ligand's Scientific Advisory Board.
ROCKEFELLER UNIVERSITY. In September 1992, we entered into a worldwide,
exclusive license agreement with Rockefeller University and exclusive consulting
agreements with Dr. James Darnell of Rockefeller University and Dr. David Levy
of NYU to develop and commercialize certain technology involving STATs to
control gene expression. Dr. Darnell is one of the leading investigators of the
control of gene expression by STATs. Rockefeller University will receive a
royalty on any commercialized products developed using the technology. Related
technology was assigned by NYU to Rockefeller University and is covered by the
license agreement with us.
In addition to the collaborations discussed above, we also have a number of
other consulting, licensing, development and academic agreements by which we
strive to advance our technology.
MANUFACTURING
We currently have no manufacturing facilities and, accordingly, rely on
third parties, including our collaborative partners, for commercial or clinical
production of any products or compounds.
16
<PAGE>
Certain raw materials necessary for the commercial manufacturing of our
products are custom and must be obtained from a specific sole source. In
addition, our finished products are produced by sole source manufacturers. We
currently attempt to manage the risk associated with such sole source raw
materials and production by actively managing our inventories and supply and
production arrangements. We attempt to remain appraised of the financial
condition of our suppliers and their ability to continue to supply our raw
materials and finished products in an uninterrupted and timely manner.
Unavailability of certain materials or the loss of current sources of production
could cause an interruption in production and a reduced supply of finished
product pending establishment of new sources, or in some cases, implementation
of alternative processes. For a discussion of the risks associated with
manufacturing see "Risks and Uncertainties."
QUALITY ASSURANCE
Our success depends in great measure upon customer confidence in the
quality of our products and in the integrity of the data that support their
safety and effectiveness. The quality of our products arises from our total
commitment to quality in all aspects of our business, including research and
development, purchasing, manufacturing, and distribution. Quality-assurance
procedures have been developed relating to the quality and integrity of our
scientific information and production processes.
Control of production processes involves rigid specifications for
ingredients, equipment, and facilities, manufacturing methods, packaging
materials, and labeling. Control tests are made at various stages of production
processes and on the final product to assure that the product meets all
regulatory requirements and our standards. These tests may involve chemical and
physical microbiological testing, preclinical testing, human clinical trials, or
a combination of these trials.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were $59.4 million, $70.3 million and
$71.9 million in fiscal 1999, 1998 and 1997, respectively, of which
approximately 73%, 75%, and 29% we sponsored, and the remainder of which was
funded pursuant to collaborative research and development arrangements.
COMPETITION
Some of the drugs we are 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 we are targeting. A number
of pharmaceutical and biotechnology companies are pursuing IR-related or
STAT-related approaches to drug discovery and development. Furthermore, academic
institutions, government agencies, and other public and private organizations
conducting research may seek patent protection with respect to potentially
competing products or technologies and may establish collaborative arrangements
with our competitors.
Our competitive position also depends upon our ability to attract and
retain qualified personnel, obtain patent protection or otherwise develop
proprietary products or processes and secure sufficient capital resources for
the often substantial period between technological conception and commercial
sales. For a discussion of the risks associated with competition see "Risks and
Uncertainties."
GOVERNMENT REGULATION
The manufacturing and marketing of our products, our ongoing research and
development activities, and products being developed by our collaborative
partners are subject to regulation for safety and efficacy by numerous
governmental authorities in the United States and other countries. In the United
States, pharmaceuticals are subject to rigorous regulation by federal and
various state authorities, including the FDA. The Federal Food, Drug, and
Cosmetic Act and the Public Health Service Act govern the testing, manufacture,
safety, efficacy, labeling, storage, record keeping, approval, advertising and
promotion of our products. There are often comparable regulations, which apply
at the state level. Product development and approval within this regulatory
framework takes a number of years and involves the expenditure of substantial
resources.
The steps required before a pharmaceutical agent may be marketed in the
United States include (1) preclinical laboratory tests, (2) the submission to
the FDA of an IND, which must become effective before human clinical trials may
commence, (3) adequate and well-controlled human clinical trials to establish
the safety and efficacy of the drug, (4) the submission of a NDA to the FDA and
(5) the FDA approval of the NDA prior to any commercial sale or shipment of the
drug. A company must pay a one-time user fee for NDA submissions, and annually
pay user fees for each approved product and manufacturing establishment. In
addition to obtaining FDA approval for each product, each domestic
drug-manufacturing establishment must be registered with the FDA and in
California, with the Food and Drug Branch of California. Domestic manufacturing
establishments are subject to pre-approval inspections by the FDA prior to
marketing approval and then to biennial inspections and must comply with current
Good Manufacturing Practices ("cGMP"). To supply products for use in the United
17
<PAGE>
States, foreign manufacturing establishments must comply with cGMP and are
subject to periodic inspection by the FDA or by regulatory authorities in such
countries under reciprocal agreements with the FDA.
For both currently marketed and future products, failure to comply with
applicable regulatory requirements after obtaining regulatory approval can,
among other things, result in the suspension of regulatory approval, as well as
possible civil and criminal sanctions. In addition, changes in existing
regulations could have a material adverse effect to us.
For marketing outside the United States before FDA approval to market, we
must submit an export permit application to the FDA. We also will be subject to
foreign regulatory requirements governing human clinical trials and marketing
approval for drugs. The requirements relating to the conduct of clinical trials,
product licensing, pricing and reimbursement vary widely from country to country
and there can be no assurance that we or any of our partners will meet and
sustain any such requirements. For a discussion of the risks associated with
government regulations see "Risks and Uncertainties."
PATENTS AND PROPRIETARY RIGHTS
We believe that patents and other proprietary rights are important to our
business. Our policy is to file patent applications to protect technology,
inventions and improvements to our inventions that are considered important to
the development of our business. We also rely upon trade secrets, know-how,
continuing technological innovations and licensing opportunities to develop and
maintain our competitive position.
To date, we have filed or participated as licensee in the filing of
approximately 108 currently pending patent applications in the United States
relating to our technology, as well as foreign counterparts of certain of these
applications in many countries. In addition, we own or are the exclusive
licensee to rights covered by approximately 190 patents issued, granted or
allowed worldwide. Subject to compliance with the terms of the respective
agreements, our rights under our licenses with our exclusive licensors extend
for the life of the patents covering such developments. For a discussion of the
risks associated with patent and proprietary rights see "Risks and
Uncertainties."
HUMAN RESOURCES
As of February 29, 2000, we had 385 full-time employees, of whom 229 were
involved directly in scientific research and development activities. Of these
employees, approximately 69 hold Ph.D. or M.D. degrees.
RISKS AND UNCERTAINTIES
The following is a summary description of some of the many risks we face in
our business. You should carefully review these risks in evaluating our
business, including the businesses of our subsidiaries. You should also consider
the other information described in this report.
OUR PRODUCT DEVELOPMENT AND COMMERCIALIZATION INVOLVES A NUMBER OF UNCERTAINTIES
AND WE MAY NEVER GENERATE SUFFICIENT REVENUES FROM THE SALE OF PRODUCTS TO
BECOME PROFITABLE.
We were founded in 1987. We have incurred significant losses since our
inception. At December 31, 1999, our accumulated deficit was $470.3 million. To
date, we have received the majority of our revenues from our collaborative
arrangements and have recently begun receiving revenues from the sale of
pharmaceutical products. To become profitable, we must successfully develop,
clinically test, market and sell our products. Even if we achieve profitability,
we cannot predict the level of that profitability or whether we will be able to
sustain profitability. We expect that our operating results will fluctuate from
period to period as a result of differences in when we incur expenses and
receive revenues from product sales, collaborative arrangements and other
sources. Some of these fluctuations may be significant.
Most of our products will require extensive additional development,
including preclinical testing and human studies, as well as regulatory
approvals, before we can market them. We do not expect that any products
resulting from our product development efforts or the efforts of our
collaborative partners, other than those for which marketing approval has been
received, will be available for sale until the first half of the 2000 calendar
year at the earliest, if at all. There are many reasons that we may fail in our
efforts to develop our other potential products, including the possibility that:
o we may discover during preclinical testing or human studies that our
potential products are ineffective or cause harmful side effects,
18
<PAGE>
o the products may fail to receive necessary regulatory approvals from the
FDA or foreign authorities in a timely manner or at all,
o we may fail to produce the products, if approved, in commercial quantities
or at reasonable costs, or
o the proprietary rights of other parties may prevent us from marketing the
products.
WE NEED TO BUILD MARKETING AND SALES FORCES IN THE UNITED STATES AND EUROPE
WHICH WILL BE AN EXPENSIVE AND TIME-CONSUMING PROCESS.
Developing the sales force to market and sell products is a difficult,
expensive and time-consuming process. We recently developed a sales force for
the U.S. market and currently rely on another company to distribute our
products. The distributor is responsible for providing many marketing support
services, including customer service, order entry, shipping and billing, and
customer reimbursement assistance. In addition, in Canada we are the sole
marketer of two cancer products other companies have developed. In Europe, we
will rely initially on other companies to distribute and market our products. In
1999, we entered into agreements for the marketing and distribution of our
products in Spain, Portugal, Greece, Italy, and Central and South America and we
established a subsidiary, Ligand Pharmaceuticals International, Inc., with a
branch in London, England to manage our European marketing and operations. We
may not be able to continue to establish and maintain the sales and marketing
capabilities necessary to successfully commercialize our products. To the extent
we enter into co-promotion or other licensing arrangements, any revenues we
receive will depend on the marketing efforts of others, which may or may not be
successful.
SOME OF OUR KEY TECHNOLOGIES HAVE NOT BEEN USED TO PRODUCE MARKETED PRODUCTS AND
MAY NOT BE CAPABLE OF PRODUCING SUCH PRODUCTS.
To date, we have dedicated most of our resources to the research and
development of potential drugs based upon our expertise in our IR and STATs
technologies. Even though there are marketed drugs that act through IRs, some
aspects of our IR technologies have not been used to produce marketed products.
In addition, we are 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. If we are unable to
apply our IR and STAT technologies to the development of our potential products,
we will not be successful in developing new products.
OUR DRUG DEVELOPMENT PROGRAMS WILL REQUIRE SUBSTANTIAL ADDITIONAL FUTURE
CAPITAL.
Our drug development programs require substantial additional capital,
arising from costs to:
o conduct research, preclinical testing and human studies,
o establish pilot scale and commercial scale manufacturing processes and
facilities, and
o establish and develop quality control, regulatory, marketing, sales and
administrative capabilities to support these programs.
Our future operating and capital needs will depend on many factors,
including:
o the pace of scientific progress in our research and development programs
and the magnitude of these programs,
o the scope and results of preclinical testing and human studies,
o the time and costs involved in obtaining regulatory approvals,
o the time and costs involved in preparing, filing, prosecuting, maintaining
and enforcing patent claims, o competing technological and market
developments,
o our ability to establish additional collaborations,
o changes in our existing collaborations,
o the cost of manufacturing scale-up, and
o the effectiveness of our commercialization activities.
If additional funds are required and we are unable to obtain them on terms
favorable to us, we may be required to cease or reduce further commercialization
of our products, to sell some or all of our technology or assets or to merge
with another entity.
19
<PAGE>
OUR PRODUCTS MUST CLEAR SIGNIFICANT REGULATORY HURDLES PRIOR TO MARKETING.
Before we obtain the approvals necessary to sell any of our potential
products, we must show through preclinical studies and clinical trials or human
testing that each product is safe and effective. Our failure to show any
product's safety and effectiveness would delay or prevent regulatory approval of
the product and could adversely affect our business. The clinical trials process
is complex and uncertain. The results of preclinical studies and initial
clinical trials may not necessarily predict the results from later large-scale
clinical trials. In addition, clinical trials may not demonstrate a product's
safety and effectiveness to the satisfaction of the regulatory authorities. A
number of companies have suffered significant setbacks in advanced clinical
trials or in seeking regulatory approvals, despite promising results in earlier
trials. The FDA may also require additional clinical trials after regulatory
approvals are received, which could be expensive and time-consuming, and failure
to successfully conduct those trials could jeopardize continued
commercialization.
The rate at which we complete our clinical trials depends on many factors,
including our ability to obtain adequate supplies of the products to be tested
and patient enrollment. Patient enrollment 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 patient
enrollment may result in increased costs and longer development times. In
addition, some of our collaborative partners have rights to control product
development and clinical programs for products developed under the
collaborations. As a result, these collaborators may conduct these programs more
slowly or in a different manner than we had expected. Even if clinical trials
are completed, we or our collaborative partners still may not apply for FDA
approval in a timely manner or the FDA still may not grant approval.
WE MAY NOT BE ABLE TO PAY AMOUNTS DUE ON OUR OUTSTANDING INDEBTEDNESS.
We and our subsidiaries may not have sufficient funds to make required
payments due under existing debt. If we, or our subsidiaries do not have
adequate funds, we will be forced to refinance the existing debt and may not be
successful in doing so. Our subsidiary, Glycomed, is obligated to make payments
under debentures in the total principal amount of $50 million. The debentures
bear interest at a rate of 7 1/2% per annum and are due in 2003. In addition, at
December 31, 1999, we had outstanding a $2.5 million convertible note to
SmithKline Beecham Corporation and $85.2 million in zero coupon convertible
notes to Elan. Subsequent to December 31, 1999, we converted $20 million in zero
coupon convertible notes plus accrued interest into 1,600,123 shares of common
stock. Glycomed's failure to make payments when due under its debentures would
cause us to default under the outstanding notes to Elan or other notes we may
issue to Elan.
WE MAY REQUIRE ADDITIONAL STOCK OR DEBT FINANCINGS TO FUND OUR OPERATIONS
WHICH MAY NOT BE AVAILABLE ON ACCEPTABLE TERMS.
We have incurred losses since our inception and do not expect to generate
positive cash flow to fund our operations for one or more years. As a result, we
may need to complete additional equity or debt financings to fund our
operations. Our inability to obtain additional financing could adversely affect
our business. Financings may not be available on acceptable terms. In addition,
these financings, if completed, still may not meet our capital needs and could
result in substantial dilution to our stockholders. For instance, the zero
coupon convertible notes outstanding to Elan are convertible into common stock
at the option of Elan, subject to some limitations. In addition, we may issue
additional notes to Elan with up to a total issue price of $10 million, which
also would be convertible into common stock. If adequate funds are not
available, we may be required to delay, reduce the scope of or eliminate one or
more of our drug development programs. Alternatively, we may be forced to
attempt to continue development by entering into arrangements with collaborative
partners or others that require us to relinquish some or all of our rights to
technologies or drug candidates that we would not otherwise relinquish.
WE FACE SUBSTANTIAL COMPETITION.
Some of the drugs that we are developing and marketing will compete with
existing treatments. In addition, several companies are developing new drugs
that target the same diseases that we are targeting and are taking IR-related
and STAT-related approaches to drug development. Many of our existing or
potential competitors, particularly large drug companies, have greater
financial, technical and human resources than us and may be better equipped to
develop, manufacture and market products. Many of these companies also have
extensive experience in preclinical testing and human clinical trials, obtaining
FDA and other regulatory approvals and manufacturing and marketing
pharmaceutical products. In addition, academic institutions, governmental
agencies and other public and private research organizations are developing
products that may compete with the products we are developing. These
institutions are becoming more aware of the commercial value of their findings
and are seeking patent protection and licensing arrangements to collect payments
for the use of their technologies. These institutions also may market
competitive products on their own or through joint ventures and will compete
with us in recruiting highly qualified scientific personnel. Any of these
companies, academic institutions, government agencies or research organizations
may develop and introduce products and processes that compete with or are
20
<PAGE>
better than ours. As a result, our products may become noncompetitive or
obsolete.
OUR SUCCESS WILL DEPEND ON THIRD-PARTY REIMBURSEMENT AND MAY BE IMPACTED BY
HEALTH CARE REFORM.
Sales of prescription drugs depend significantly on the availability of
reimbursement to the consumer from third party payors, such as government and
private insurance plans. These third party payors frequently require drug
companies to provide predetermined discounts from list prices, and they are
increasingly challenging the prices charged for medical products and services.
Our current and potential products may not be considered cost-effective and
reimbursement to the consumer may not be available or sufficient to allow us to
sell our products on a competitive basis.
In addition, the efforts of governments and third party payors to contain
or reduce the cost of health care will continue to affect the business and
financial condition of drug companies. A number of legislative and regulatory
proposals to change the health care system have been discussed in recent years.
In addition, an increasing emphasis on managed care in the United States has and
will continue to increase pressure on drug pricing. We cannot predict whether
legislative or regulatory proposals will be adopted or what effect those
proposals or managed care efforts may have on our business. The announcement
and/or adoption of such proposals or efforts could adversely affect our profit
margins and business.
WE RELY HEAVILY ON COLLABORATIVE RELATIONSHIPS AND TERMINATION OF ANY OF THESE
PROGRAMS COULD REDUCE THE FINANCIAL RESOURCES AVAILABLE TO US.
Our strategy for developing and commercializing many of our potential
products includes entering into collaborations with corporate partners,
licensors, licensees and others. To date, we have entered into collaborations
with Organon, Warner-Lambert Company, Eli Lilly and Company, SmithKline Beecham
Corporation, American Home Products, Abbott Laboratories, Sankyo Company Ltd.,
Glaxo-Wellcome plc, Allergan, Inc., and Pfizer Inc. These collaborations provide
us 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. These agreements also give our collaborative partners
significant discretion when deciding whether or not to pursue any development
program. We cannot be certain that our collaborations will continue or be
successful.
In addition, our collaborators may develop drugs, either alone or with
others, that compete with the types of drugs they currently are developing with
us. This would result in less support and increased competition for our
programs. If products are approved for marketing under our collaborative
programs, any revenues we receive will depend on the manufacturing, marketing
and sales efforts of our collaborators, who generally retain commercialization
rights under the collaborative agreements. Our current collaborators also
generally have the right to terminate their collaborations under specified
circumstances. If any of our collaborative partners breach or terminate their
agreements with us or otherwise fail to conduct their collaborative activities
successfully, our product development under these agreements will be delayed or
terminated.
We may have disputes in the future with our collaborators, including
disputes concerning which of us owns the rights to any technology developed. For
instance, we were involved in litigation with Pfizer, which we settled in April
1996, concerning our right to milestones and royalties based on the development
and commercialization of droloxifene. These and other possible disagreements
between us and our collaborators could delay our ability and the ability of our
collaborators to achieve milestones or our receipt of other payments. In
addition, any disagreements could delay, interrupt or terminate the
collaborative research, development and commercialization of certain potential
products, or could result in litigation or arbitration. The occurrence of any of
these problems could be time-consuming and expensive and could adversely affect
our business.
OUR SUCCESS DEPENDS ON OUR ABILITY TO OBTAIN AND MAINTAIN OUR PATENTS AND OTHER
PROPRIETARY RIGHTS.
Our success will depend on our ability and the ability of our licensors to
obtain and maintain patents and proprietary rights for our potential products
and to avoid infringing the proprietary rights of others, both in the United
States and in foreign countries. Patents may not be issued from any of these
applications currently on file or, if issued, may not provide sufficient
protection. In addition, if we breach our licenses, we may lose rights to
important technology and potential products.
Our patent position, like that of many pharmaceutical companies, is
uncertain and involves complex legal and technical questions for which important
legal principles are unresolved. We may not develop or obtain rights to products
or processes that are patentable. Even if we do obtain patents, they may not
adequately protect the technology we own or have licensed. In addition, others
may challenge, seek to invalidate, infringe or circumvent any patents we own or
license, and rights we receive under those patents may not provide competitive
advantages to us. Further, the manufacture, use or sale of our products may
infringe the patent rights of others.
21
<PAGE>
Several drug companies and research and academic institutions have
developed technologies, filed patent applications or received patents for
technologies that may be related to our business. Others have filed patent
applications and received patents that conflict with patents or patent
applications we have licensed for our use, either by claiming the same methods
or compounds or by claiming methods or compounds that could dominate those
licensed to us. In addition, we may not be aware of all patents or patent
applications that may impact our ability to make, use or sell any of our
potential products. For example, United States patent applications may be kept
confidential while pending in the Patent and Trademark Office, and patent
applications filed in foreign countries are often first published six months or
more after filing. Any conflicts resulting from the patent rights of others
could significantly reduce the coverage of our patents and limit our ability to
obtain meaningful patent protection. If other companies obtain patents with
conflicting claims, we may be required to obtain licenses to those patents or to
develop or obtain alternative technology. We may not be able to obtain any such
license on acceptable terms or at all. Any failure to obtain such licenses could
delay or prevent us from pursuing the development or commercialization of our
potential products.
We have had and will continue to have discussions with our current and
potential collaborators regarding the scope and validity of our patent and other
proprietary rights. If a collaborator or other party successfully establishes
that our patent rights are invalid, we may not be able to continue our existing
collaborations beyond their expiration. Any determination that our patent rights
are invalid also could encourage our collaborators to terminate their agreements
where contractually permitted. Such a determination could also adversely affect
our ability to enter into new collaborations.
We may also need to initiate litigation, which could be time-consuming and
expensive, to enforce our proprietary rights or to determine the scope and
validity of others' rights. If litigation results, a court may find our patents
or those of our licensors invalid or may find that we have infringed on a
competitor's rights. If any of our competitors have filed patent applications in
the United States which claim technology we also have invented, the Patent and
Trademark Office may require us to participate in expensive interference
proceedings to determine who has the right to a patent for the technology.
We have learned that Hoffmann-La Roche Inc. has received a United States
patent and has made patent filings in foreign countries that relate to our
Panretin(R) capsules and gel products. We filed a patent application with an
earlier filing date than Hoffmann-La Roche's patent, which we believe is broader
than, but overlaps in part with, Hoffmann-La Roche's patent. We currently are
investigating the scope and validity of Hoffmann-La Roche's patent to determine
its impact upon our products. The Patent and Trademark Office has informed us
that the overlapping claims are patentable to us and has initiated a proceeding
to determine whether we or Hoffmann-La Roche are entitled to a patent. We may
not receive a favorable outcome in the proceeding. In addition, the proceeding
may delay the Patent and Trademark Office's decision regarding our earlier
application. If we do not prevail, the Hoffmann-La Roche patent might block our
use of Panretin(R) capsules and gel in certain cancers.
We also rely on unpatented trade secrets and know-how to protect and
maintain our competitive position. We require our employees, consultants,
collaborators and others to sign confidentiality agreements when they begin
their relationship with us. These agreements may be breached and we may not have
adequate remedies for any breach. In addition, our competitors may independently
discover our trade secrets. Any of these actions might adversely affect our
business.
WE RELY ON THIRD-PARTY MANUFACTURERS.
We currently have no manufacturing facilities and we rely on others for
clinical or commercial production of our marketed and potential products. To be
successful, we will need to manufacture our products, either directly or through
others, in commercial quantities, in compliance with regulatory requirements and
at acceptable cost. Any extended and unplanned manufacturing shutdowns could be
expensive and could result in inventory and product shortages. If we are unable
to develop our own facilities or contract with others for manufacturing
services, our ability to conduct preclinical testing and human clinical trials
will be adversely affected. In addition, our revenues could be adversely
affected if we are unable to supply currently marketed products. This in turn
could delay our submission of products for regulatory approval and our
initiation of new development programs. In addition, although other companies
have manufactured drugs acting through IRs and STATs on a commercial scale, we
may not be able to do so at costs or in quantities to make marketable products.
The manufacturing process also may be susceptible to contamination, which
could cause the affected manufacturing facility to close until the contamination
is identified and fixed. In addition, problems with equipment failure or
operator error also could cause delays.
22
<PAGE>
OUR BUSINESS EXPOSES US TO PRODUCT LIABILITY RISKS AND WE MAY NOT HAVE
SUFFICIENT INSURANCE TO COVER ANY CLAIMS.
Our business exposes us to potential product liability risks. A successful
product liability claim or series of claims brought against us could result in
payment of significant amounts of money and divert management's attention from
running the business. Some of the compounds we are investigating may be harmful
to humans. For example, retinoids as a class are known to contain compounds,
which can cause birth defects. We may not be able to maintain our insurance on
acceptable terms, or our insurance may not provide adequate protection in the
case of a product liability claim. To the extent that product liability
insurance, if available, does not cover potential claims, we will be required to
self-insure the risks associated with such claims.
WE ARE DEPENDENT ON OUR KEY EMPLOYEES, THE LOSS OF WHOSE SERVICES COULD
ADVERSELY AFFECT US.
We depend on our key scientific and management staff, the loss of whose
services could adversely affect our business. Furthermore, we are currently
experiencing a period of rapid growth, which requires us to hire many new
scientific, management and operational personnel. Recruiting and retaining
qualified management, operations and scientific personnel to perform research
and development work also is critical to our success. We may not be able to
attract and retain such personnel on acceptable terms given the competition
among numerous drug companies, universities and other research institutions for
such personnel.
WE USE HAZARDOUS MATERIALS WHICH REQUIRES US TO INCUR SUBSTANTIAL COSTS TO
COMPLY WITH ENVIRONMENTAL REGULATIONS.
In connection with our research and development activities, we handle
hazardous materials, chemicals and various radioactive compounds. We cannot
completely eliminate the risk of accidental contamination or injury from the
handling and disposing of hazardous materials. In the event of any accident, we
could be held liable for any damages that result, which could be significant. In
addition, we may incur substantial costs to comply with environmental
regulations. Any of these events could adversely affect our business.
OUR STOCK PRICE MAY BE ADVERSELY AFFECTED BY VOLATILITY IN THE MARKETS.
The market prices and trading volumes for our securities, and the
securities of emerging companies like us, have historically been highly volatile
and have experienced significant fluctuations unrelated to operating
performance. Future announcements concerning us or our competitors may impact
the market price of our common stock. These announcements might include:
o the results of research or development testing,
o technological innovations,
o new commercial products,
o government regulation,
o receipt of regulatory approvals by competitors,
o our failure to receive regulatory approvals,
o developments concerning proprietary rights, or
o litigation or public concern about the safety of the products.
YOU MAY NOT RECEIVE A RETURN ON YOUR SHARES OTHER THAN THROUGH THE SALE OF YOUR
SHARES OF COMMON STOCK.
We have not paid any cash dividends on our common stock to date, and we do
not anticipate paying cash dividends in the foreseeable future. Accordingly,
other than through a sale of your shares, you may not receive a return.
OUR SHAREHOLDER RIGHTS PLAN AND CHARTER DOCUMENTS MAY PREVENT TRANSACTIONS THAT
COULD BE BENEFICIAL TO YOU.
Our shareholder rights plan and provisions contained in our certificate of
incorporation and bylaws may discourage transactions involving an actual or
potential change in our ownership, including transactions in which you might
otherwise receive a premium for your shares over then-current market prices.
These provisions also may limit your ability to approve transactions that you
deem to be in your best interests. In addition, our board of directors may issue
shares of preferred stock without any further action by you. Such issuances may
have the effect of delaying or preventing a change in our ownership.
23
<PAGE>
ITEM 2. PROPERTIES
We currently lease and occupy office and laboratory facilities in San
Diego, California. These include a 52,800 square foot facility leased through
June 2014, an 82,000 square foot facility leased through February 2014, and a
7,500 square foot facility leased through February 2001. We believe these
facilities will be adequate to meet our near-term space requirements.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are a party to litigation arising in the normal
course of business. As of the date of this filing, we are not a party to any
litigation which would have a material effect on our financial position,
business operations or cash flows.
On August 4, 1998, a lawsuit was filed in the Court of Chancery of the
State of Delaware which sought to enjoin the acquisition of Seragen by Ligand.
The injunction was denied and the acquisition occurred on August 12, 1998. An
amended complaint was filed on or about December 18, 1998 against Seragen,
Seragen Technology, Inc., specified former directors and officers and Seragen
investors, Boston University and specified trustees, Marathon Biopharmaceuticals
L.L.C., Ligand and Knight Acquisition Corp., a wholly owned subsidiary of Ligand
at the time of the merger with Seragen ("Knight"). Ligand and Knight were not
named as defendants in the original complaint. The operative complaint alleges
claims of self-dealing and breach of fiduciary duties of disclosure, loyalty and
care by the individual defendants and Seragen investors, and seeks damages on
behalf of a class of shareholders who purchased Seragen common stock during the
period April 1992 through August 12, 1998. The lawsuit also challenges the
fairness of Ligand's acquisition of Seragen, and the allocation of the merger
proceeds among the individual defendants, Seragen's investors and minority
shareholders. The defendants in the litigation, including Ligand, Knight and
Seragen, have filed various motions to dismiss the claims. A hearing on these
pending motions is presently scheduled on April 10, 2000. We believe that the
lawsuit is without merit and intend to defend against it vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders in the fourth
quarter ended December 31, 1999.
PART II
ITEM 5. MARKETS FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS MATTERS
(a) MARKET INFORMATION
Our common stock trades on the Nasdaq National Market tier of the Nasdaq
Stock Market under the symbol "LGND." The following table sets forth the high
and low sales prices for our common stock on the Nasdaq National Market for the
periods indicated.
<TABLE>
<CAPTION>
Price Range
--------------
High Low
---- ---
<S> <C> <C>
Year Ended December 31, 1998:
1st Quarter............................... $ 16 5/8 $ 10 7/8
2nd Quarter............................... 16 3/8 12 1/8
3rd Quarter............................... 13 1/4 5 1/2
4th Quarter............................... 12 3/8 6 15/16
Year Ended December 31, 1999:
1st Quarter............................... $ 14 3/4 $ 8 3/16
2nd Quarter............................... 11 7/16 8 3/16
3rd Quarter............................... 11 3/16 6 7/16
4th Quarter............................... 13 7/8 7 1/2
</TABLE>
(b) HOLDERS
As of February 29, 2000, there were approximately 2,127 holders of record
of the common stock.
24
<PAGE>
(c) DIVIDENDS
We have never declared or paid any cash dividends on our capital stock and
do not intend to pay any cash dividends in the foreseeable future. We currently
intend to retain our earnings, if any, to finance future growth. We have no
contractual restrictions on paying dividends.
(d) RECENT SALES OF UNREGISTERED SECURITIES
On December 8, 1999, we issued to Elan International Services, Ltd.
("EIS"), a subsidiary of Elan Corporation, plc ("Elan"), 498,433 shares of our
common stock as payment of a $5 million milestone due Elan under the Morphelan
license agreement. On December 31, 1999, we issued to EIS 2,433,032 shares of
our common stock related to the conversion of $20 million in zero coupon
convertible senior notes plus accrued interest. The shares of common stock were
issued to a single entity, EIS, under a claim of exemption under Regulation S
promulgated by the Securities and Exchange Commission or, alternatively, under
Section 4(2) of the Securities Act of 1933, as amended.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data set forth below with respect to our
consolidated financial statements has been derived from the audited financial
statements. The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes included
elsewhere in this filing.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ -----------
(in thousands, except net loss per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenues:
Product sales (1)....................................... $ 11,307 $ 406 $ 418 $ -- $ --
Collaborative research and development and other
revenues............................................. 26,978 17,267 51,281 36,842 24,516
Contract manufacturing.................................. 2,610 -- -- -- --
------------ ------------ ------------ ------------ -----------
Total revenues..................................... 40,895 17,673 51,699 36,842 24,516
------------ ------------ ------------ ------------ -----------
Costs and expenses:
Cost of products sold (1)............................... 3,563 466 520 -- --
Contract manufacturing.................................. 6,926 -- -- -- --
Research and development................................ 59,442 70,273 71,906 59,494 41,636
Selling, general and administrative (1)................. 27,257 16,568 10,108 10,205 8,181
Technology milestone payment (2)........................ 5,000 -- -- -- --
Write-off of acquired in-process technology (3)......... -- 45,000 64,970 -- 19,564
ALRT contribution....................................... -- -- -- -- 17,500
------------ ------------ ------------ ------------ -----------
Total costs and expenses........................... 102,188 132,307 147,504 69,699 86,881
------------ ------------ ------------ ------------ -----------
Loss from operations..................................... (61,293) (114,634) (95,805) (32,857) (62,365)
------------ ------------ ------------ ------------ -----------
Other income (expense):
Interest income...................................... 2,470 3,070 3,743 3,704 3,603
Interest expense (4)................................. (12,979) (8,322) (8,088) (8,160) (5,410)
Debt conversion expense.............................. (2,200) -- -- -- --
Other................................................ (717) 2,000 -- -- --
------------ ------------ ------------ ------------ -----------
Total other income (expense)...................... (13,426) (3,252) (4,345) (4,456) (1,807)
------------ ------------ ------------ ------------ -----------
Net loss................................................. $ (74,719) $ (117,886) $ (100,150) $ (37,313) $ (64,172)
============ ============ ============ ============ ===========
Basic and diluted net loss per share..................... $ (1.58) $ (2.92) $ (3.02) $ (1.30) $ (2.70)
============ ============ ============ ============ ===========
Shares used in computing net loss per share.............. 47,146,312 40,392,421 33,128,372 28,780,914 23,791,542
============ ============ ============ ============ ===========
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ----------- ----------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents, short term
investments and restricted investments.....$ 49,166 $ 72,521 $ 86,287 $ 84,179 $ 76,903
Working capital.............................. 35,978 51,098 62,399 71,680 57,349
Total assets................................. 134,645 156,020 107,423 102,140 93,594
Long-term debt (4)........................... 136,634 90,487 51,379 53,914 49,864
Accumulated deficit.......................... (470,349) (395,630) (277,744) (177,594) (140,281)
Total stockholders' equity (deficit)......... (25,590) (11,362) 34,349 34,461 28,071
</TABLE>
(1) We began selling and marketing ONTAK and Panretin in 1999.
(2) Consists of technology payment to Elan related to Morphelan. See note 7 of
notes to consolidated financial statements.
(3) Includes write-offs related to the Seragen merger and technology acquired
from Elan in 1998 and the ALRT transaction in 1997. See notes 4, 7, and 11,
respectively, of notes to consolidated financial statements.
(4) Increase in 1999 and 1998 relates to the issuance of zero coupon
convertible notes to Elan. See note 7 of notes to consolidated financial
statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This annual report may contain predictions, estimates and other
forward-looking statements that involve a number of risks and uncertainties,
including those discussed at "Risks and Uncertainties." This outlook represents
our current judgment on the future direction of our business. Such risks and
uncertainties could cause actual results to differ materially from any future
performance suggested. We undertake no obligation to release publicly the
results of any revisions to these forward-looking statements to reflect events
or circumstances arising after the date of this annual report.
Panretin(R) and Targretin(R) are registered trademarks of Ligand
Pharmaceuticals Incorporated, and ONTAK(R) is a registered trademark of Seragen,
Inc., our wholly-owned subsidiary.
OVERVIEW
Since January 1989, we have devoted substantially all of our resources to
our drug discovery and development programs focused on intracellular receptors,
also known as IRs, and signal transducers and activators of transcription, also
known as STATs. We have been unprofitable since our inception. We expect to
incur substantial additional operating losses until the commercialization of our
products, begun in the first quarter of 1999, generates sufficient revenues to
cover our expenses. We expect that our operating results will fluctuate from
quarter to quarter and period to period as a result of differences in the timing
of expenses incurred and revenues earned from collaborative research and
development, product sales and other arrangements. Some of these fluctuations
may be significant. As of December 31, 1999, our accumulated deficit was $470.3
million.
The consolidated results include the results of : Ligand Pharmaceuticals
Incorporated; Seragen, Inc. ("Seragen"), acquired in 1998; Marathon
Biopharmaceuticals, Inc. ("Marathon"), established in 1999 subsequent to an
asset acquisition; Ligand Pharmaceuticals International, Inc., established in
1999; Ligand Pharmaceuticals (Canada) Incorporated; Glycomed Incorporated; and
Allergan Ligand Retinoid Therapeutics, Inc. ("ALRT"), acquired in 1997.
In January 1999, we consummated the purchase of the assets of Marathon
Biopharmaceuticals LLC ("Marathon LLC"). The purchase of the Marathon LLC assets
was completed under an agreement between us, Marathon LLC and other subsidiaries
of Boston University dated May 11, 1998. The purchase price consisted of a $5
million payment in January 1999 satisfied through the issuance of 402,820 shares
of our common stock and a $3 million cash payment in August 1999.
In February 1999, the United States Food and Drug Administration ("FDA")
granted us marketing approval for our first two products, Panretin gel for the
treatment of cutaneous lesions of patients with AIDS-related Kaposi's sarcoma,
also known as KS, and ONTAK for the treatment of patients with persistent or
recurrent cutaneous T-cell lymphoma, also known as CTCL.
In March 1999, we issued to Eli Lilly and Company ("Lilly") 434,546 shares
of our common stock as payment of a $5 million milestone due to Lilly under an
agreement with us and Seragen covering rights to ONTAK. In addition, we signed
marketing and distribution agreements with Ferrer Internacional S.A. to
exclusively market and distribute, in Spain, Portugal,
26
<PAGE>
Greece, and Central and South America our five near-term oncology products:
ONTAK, Panretin gel, Panretin capsules, Targretin gel and Targretin capsules.
In June 1999, we submitted a new drug application to the FDA seeking
marketing clearance for Targretin capsules. The indication sought was for once
daily oral administration of Targretin capsules for the treatment of patients
with early stage CTCL who have not tolerated other therapies, patients with
refractory or persistent early stage CTCL, and patients with refractory advanced
stage CTCL. We received approval from the FDA in December 1999. In addition, we
became a minority equity investor in a new private corporation, X-Ceptor
Therapeutics, Inc. ("X-Ceptor"), whose mission is to conduct research in and
identify therapeutic products from the field of orphan nuclear receptors. For
additional details regarding X-Ceptor, please see note 12 of the notes to
consolidated financial statements.
In July 1999, we issued $40 million of zero coupon convertible notes under
the terms of our strategic alliance with Elan Corporation, plc ("Elan") and in
August 1999 agreed to amend the underlying financing arrangement to provide for
the use of the $30 million of additional financing available under the
arrangement for general corporate purposes. In August 1999, we issued $20
million of convertible notes under the amended agreement. For additional
details, please see note 7 of the notes to consolidated financial statements.
In August 1999, in addition to making the $3 million cash payment for the
Marathon LLC assets, we made a cash payment of $34.1 million related to our
contingent merger obligation to Seragen stakeholders. For additional details,
please see note 4 of the notes to consolidated financial statements.
In September 1999, we entered into a royalty arrangement with Hoffmann-La
Roche Inc. and a collaborative research and development arrangement with
Parke-Davis. For additional details, please see notes 8 and 10, respectively, of
the notes to consolidated financial statements.
In December 1999, in addition to receiving FDA approval for Targretin
capsules, we submitted a new drug application for Targretin gel for the
treatment of patients with early stage CTCL. In February 2000, the new drug
application was accepted for priority review by the FDA. Under the priority
review, the FDA is expected to complete its review within six months of the
December 1999 submission date. In December 1999, we also completed an exchange
offer for warrants originally issued in 1995, resulting in net proceeds to us of
$13.9 million. In addition, we issued 498,443 shares of common stock to Elan as
a $5 million technology milestone payment and 2,433,032 shares related to Elan's
conversion of $20 million of outstanding zero coupon convertible notes and
accrued interest. We also sold certain royalty rights to a third party for $3.25
million and entered into a marketing and distribution agreement with Alfa
Wassermann S.p.A. for the marketing and distribution of our oncology products in
Italy.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 ("1999"), AS COMPARED WITH YEAR ENDED DECEMBER 31,
1998 ("1998")
Total revenues for 1999 were $40.9 million, an increase of $23.2 million as
compared to 1998. Loss from operations for 1999 was $61.3 million, a decrease of
$53.3 million as compared to 1998. Net loss for 1999 was $74.7 million or
$(1.58) per share, a decrease of $43.2 million from the 1998 net loss of $117.9
million or $(2.92) per share. The principal factors causing these changes are
discussed below.
In 1999 we wrote off $5 million related to a milestone payment made to Elan
under the license agreement for its product Morphelan. In 1998 we wrote off $30
million of acquired in-process technology related to the merger with Seragen and
$15 million related to the license agreement with Elan. For additional details,
please see notes 4 and 7, respectively, of the notes to consolidated financial
statements.
Product sales for 1999 were $11.3 million, as compared to $406,000 in 1998.
The increase is due to revenues from sales of ONTAK and Panretin gel, approved
by the FDA in February 1999. Contract manufacturing sales for 1999 were $2.6
million. These sales were generated under contract manufacturing agreements
performed at the Marathon facility acquired in January 1999.
Collaborative research and development and other revenues for 1999 were $27
million, an increase of $9.7 million over 1998. The increase in 1999 was due
primarily to $5.1 million of revenue earned under royalty arrangements and $3.3
million earned in connection with marketing and distribution agreements entered
into in 1999. The year-to-year comparison of collaborative research and
development and other revenues is as follows ($,000):
27
<PAGE>
<TABLE>
<CAPTION>
Year Ended
December 31,
1999 1998
------------- ------------
<S> <C> <C>
Collaborative research and development
$16,001 $16,406
Royalties 5,102 -- --
Marketing and distribution agreements 3,250 -- --
Milestone revenues 2,625 861
------------- ------------
$26,978 $17,267
============= ============
</TABLE>
Certain collaborative research partners accounted for greater than 10% of
total revenues in 1999 and 1998. For additional details, please see note 2 of
notes to consolidated financial statements.
Cost of products sold increased from $466,000 in 1998 to $3.6 million in
1999. The increase is due to manufacturing costs, amortization of acquired
technology, and royalty expenses associated with the sale of our new products.
Contract manufacturing costs incurred at the Marathon facility were $6.9
million.
Research and development expenses were $59.4 million in 1999, compared to
$70.3 million in 1998. The decrease was due primarily to the reduction of
clinical trial activity related to Panretin gel and Targretin capsules, approved
by the FDA in February 1999 and December 1999, respectively, offset in part by
increased clinical costs for Targretin gel submitted to the FDA for approval in
December 1999. Selling, general and administrative expenses were $27.3 million
in 1999, up from $16.6 million in 1998. The increase was due primarily to
increased costs associated with the expansion of our sales and marketing
activities related to the launch of our new products.
Interest expense in 1999 was $13 million, an increase of $4.7 million over
1998. The increase is due to the accretion related to the $100 million in issue
price of zero coupon convertible notes issued to Elan in November 1998 ($40
million), July 1999 ($40 million) and August 1999 ($20 million). The debt
conversion expense of $2.2 million relates to the incentive provided to Elan for
their conversion of $20 million in notes in December 1999.
We have significant net operating loss carry forwards for federal and state
income taxes which are available subject to Internal Revenue Code Sections 382
and 383 carryforward limitations. For additional details, please see note 13 of
the notes to consolidated financial statements.
YEAR ENDED DECEMBER 31, 1998 ("1998"), AS COMPARED WITH YEAR ENDED DECEMBER 31,
1997 ("1997")
Total revenues for 1998 were $17.7 million, a decrease of $34 million as
compared to 1997. Loss from operations for 1998 was $114.6 million, an increase
of $18.8 million as compared to 1997. Net loss for 1998 was $117.9 million or
$(2.92) per share, an increase of $17.7 million from the 1997 net loss of $100.2
million or $(3.02) per share. The principal factors causing these changes are
discussed below.
In 1998, we wrote off $45 million of in-process technology compared to $65
million in 1997. The 1997 write-off related to the acquisition of ALRT. For
additional details on the acquisition of ALRT, please see note 11 of the notes
to consolidated financial statements.
Collaborative research and development and other revenues for 1998 were
$17.3 million, a decrease of $34 million over 1997. The decrease was primarily
related to the elimination of $19 million in revenues earned form ALRT due to
the purchase of ALRT in 1997, the completion of research and development
collaborations in 1997 and early 1998 which reduced 1998 revenues by $6.4
million, and a reduction in revenues earned in 1998 in the research and
development collaboration with Lilly of $9.4 million. The year to year
comparison of collaborative research and development and other revenues is as
follows ($,000):
<TABLE>
<CAPTION>
Year Ended
December 31,
1998 1997
------------- -------------
<S> <C> <C>
Collaborative research and development $16,406 $32,284
Milestone revenues 861 -- --
ALRT -- -- 18,997
------------- ------------
$17,267 $51,281
============= ============
</TABLE>
28
<PAGE>
Certain collaborative research partners accounted for greater than 10% of
total revenues in 1998 and 1997. For additional details, please see note 2 of
notes to consolidated financial statements.
Research and development expenses were $70.3 million in 1998, compared to
$71.9 million in 1997. The decrease was due primarily to the stage of clinical
trials on potential products in 1998 as compared to 1997. Selling, general and
administrative expenses were $16.6 million in 1998, up from $10.1 million in
1997. The increase was due primarily to increased costs associated with the
expansion of our sales and marketing activities in preparation for the launch of
our new products.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations through private and public offerings of our
equity securities, collaborative research and development and other revenues,
issuance of convertible notes, capital and operating lease transactions,
equipment financing arrangements, investment income and product sales.
As of December 31, 1999, we had acquired a total of $43.9 million in
property, laboratory and office equipment, and tenant leasehold improvements. Of
this total, $7.6 million was recorded in the August 1998 merger with Seragen,
while substantially all of the balance has been funded through capital lease and
equipment financing arrangements. We lease our office and laboratory facilities
under operating lease arrangements. Our current facilities were occupied in
December 1997. Our equipment financing arrangements extend through June 30, 2000
with $1.8 million of financing available under those arrangements at December
31, 1999. For additional details on our commitments under leases and equipment
financing arrangements, please see note 8 of the notes to consolidated financial
statements.
Working capital decreased to $36 million as of December 31, 1999, from
$51.1 million at the end of 1998. The decrease in working capital resulted from
decreases in cash and cash equivalents of $2.9 million and short-term
investments of $19.9 million used to finance operating activities offset in part
by an increase in accounts receivable of $1.7 million related to the sale of the
recently introduced products, a decrease in accounts payable of $7 million due
to a reduction in research and development activities, and lower deferred
revenues of $1.1 million due to the timing of completion of collaborative
agreements.
For the same reasons, cash and cash equivalents, short-term investments and
restricted investments decreased to $49.2 million at December 31, 1999 from
$72.5 million at December 31, 1998. We primarily invest our cash in United
States government and investment grade corporate debt securities.
In 1999, we issued $60 million of zero coupon convertible notes under the
terms of our strategic alliance with Elan. We have $10 million of additional
financing available under the arrangement that may be used for general corporate
purposes. In December 1999 and March 2000, Elan converted a total of $40 million
of notes plus accrued interest into common stock. For additional details, please
see notes 7 and 14 of the notes to consolidated financial statements.
In August 1999, we made a $37.1 million cash payment due for the purchase
of the assets of Marathon and the acquisition of Seragen. However, we withheld
$2.9 million of the total amount due specified Seragen stakeholders for
potential contingencies. For additional details, please see note 4 of the notes
to consolidated financial statements.
We may be required to make milestone payments of up to $10 million to Elan
under the Morphelan license agreement and $5 million to Lilly related to sales
of ONTAK. These payments may be made in cash or our common stock. For additional
details, please see notes 7 and 4, respectively, of the notes to consolidated
financial statements.
In December 1999, we generated cash flows from the sale of a royalty stream
for $3.25 million and the exercise of certain warrants under an exchange offer
resulting in net proceeds of $13.9 million. In January 2000, we sold the
contract manufacturing assets of Marathon resulting in cash proceeds of $10
million.
We believe our available cash, cash equivalents, short-term investments and
existing sources of funding will be adequate to satisfy our anticipated
operating and capital requirements through 2000. Our future operating and
capital requirements will depend on many factors, including: the effectiveness
of our commercialization activities; the pace of scientific progress in our
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 or changes in existing collaborations; and the cost of
manufacturing scale-up.
29
<PAGE>
NEW ACCOUNTING PRONOUNCEMENT
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements. SAB No. 101 provides guidance in applying generally accepted
accounting principles to revenue recognition in financial statements, including
the recognition of nonrefundable up-front fees received in conjunction with a
research and development arrangement. The evaluation of the impact of SAB No.
101 has not been completed. However, to the extent SAB No. 101 would be
applicable and have a material impact, we would implement this new pronouncement
beginning with the first quarter of 2000.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 1999 our investment portfolio includes fixed-income
securities of $15.2 million. These securities are subject to interest rate risk
and will decline in value if interest rates increase. However, due to the short
duration of our investment portfolio, an immediate 10% change in interest rates
would have no material impact on our financial condition, results of operations
or cash flows.
We generally conduct business including sales to foreign customers, in U.S.
dollars and as a result we have very limited foreign currency exchange rate
risk. The effect of an immediate 10% change in foreign exchange rates would have
no material impact on our financial condition, results of operations or cash
flows.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data required by
this item are set forth at the pages indicated in Item 14(a)(1).
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The sections labeled "Election of Directors", "Executive Officers" and
"Section 16(a) Beneficial Ownership Reporting Compliance" appearing in the
Company's Proxy Statement to be delivered to stockholders in connection with the
2000 Annual Meeting of Stockholders (the "Proxy Statement") are incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The section labeled "Executive Compensation and Other Information"
appearing in the Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The sections labeled "Principal Stockholders" and "Security Ownership of
Directors and Management" appearing in the Proxy Statement are incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The sections labeled "Executive Compensation and Other Information" and
"Certain Relationships and Related Transactions" appearing in the Proxy
Statement are incorporated herein by reference.
30
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS
The financial statements required by this item are submitted in a separate
section beginning on Page F-1 of this report.
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS OF LIGAND PHARMACEUTICALS INCORPORATED
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................................................F-2
Consolidated Balance Sheets at December 31, 1999 and 1998..........................................................F-3
Consolidated Statements of Operations for each of the three years in the period ended December 31, 1999............F-4
Consolidated Statements of Stockholders' Equity (Deficit) for each of the three years in the period ended
December 31, 1999..................................................................................................F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1999............F-6
Notes to Consolidated Financial Statements.........................................................................F-7
</TABLE>
(b) REPORTS ON FORM 8-K.
The following reports on Form 8-K were filed by the Company during the fourth
quarter of 1999:
<TABLE>
<CAPTION>
Date of Filing Description
-------------- -----------
<S> <C>
November 19, 1999 Item 5, Warrant Exchange Offer
December 14, 1999 Items 5 and 7, FDA Recommends Marketing Approval for Targretin Capsules
December 23, 1999 Items 5 and 7, Receipt of $13.9 Million From Warrant Exchange Offer
</TABLE>
(c) EXHIBITS - 1999 10-K
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
2.1 (1) Agreement and Plan of Reorganization dated May 11, 1998, by and among the Company, Knight
Acquisition Corp. and Seragen, Inc. (Filed as Exhibit 2.1).
2.2 (1) Option and Asset Purchase Agreement, dated May 11, 1998, by and among the Company, Marathon
Biopharmaceuticals, LLC, 520 Commonwealth Avenue Real Estate Corp. and 660 Corporation. (Filed
as Exhibit 10.3).
3.1 (1) Amended and Restated Certificate of Incorporation of the Company. (Filed as Exhibit 3.2)
3.2 (1) Bylaws of the Company, as amended. (Filed as Exhibit 3.3)
3.3 (2) Amended Certificate of Designation of Rights, Preferences and Privileges of Series A
Participating Preferred Stock of Ligand Pharmaceuticals Incorporated.
4.1 (16) Preferred Shares Rights Agreement, dated as of September 13, 1996, by and between Ligand
Pharmaceuticals Incorporated and Wells Fargo Bank, N.A. (Filed as Exhibit 10.1).
4.2 (13) Amendment to Preferred Shares Rights Agreement, dated as of November 9, 1998, between the
Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (Exhibit 99.1). (Filed as
Exhibit 10.1)
10.1 (3) The Company's 1992 Stock Option/Stock Issuance Plan, as amended.
10.2 (4) Form of Stock Option Agreement.
10.3 (4) Form of Stock Issuance Agreement.
10.12 (4) 1992 Employee Stock Purchase Plan.
10.13 (4) Form of Stock Purchase Agreement.
10.30 (4) Form of Proprietary Information and Inventions Agreement.
10.46 (4) Form of Indemnification Agreement between the Company and each of its directors.
10.47 (4) Form of Indemnification Agreement between the Company and each of its officers.
10.69 (5) Form of Automatic Grant Option Agreement.
10.97 (6) Research, Development and License Agreement, dated December 29, 1994, between SmithKline
Beecham Corporation and the Company (with certain confidential portions omitted).
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
10.98 (6) Stock and Note Purchase Agreement, dated February 2, 1995, between SmithKline Beecham
Corporation, S.R. One, Limited and the Company (with certain confidential portions omitted).
10.99 (6) Third Addendum to Amended Registration Rights Agreement, dated February 3, 1995, between S. R.
One, Limited and the Company.
10.158 (7) Lease, dated March 7, 1997, between the Company and Nexus Equity VI LLC.
10.167 (8) Development and License Agreement, dated November 25, 1997, between the Company and Eli Lilly
and Company (with certain confidential portions omitted).
10.168 (8) Collaboration Agreement, dated November 25, 1997, among the Company, Eli Lilly and Company, and
Allergan Ligand Retinoid Therapeutics, Inc. (with certain confidential portions omitted).
10.169 (8) Option and Wholesale Purchase Agreement, dated November 25, 1997, between the Company and Eli
Lilly and Company (with certain confidential portions omitted).
10.170 (8) Stock Purchase Agreement, dated November 25, 1997, between the Company and Eli Lilly and
Company.
10.171 (8) First Amendment to Option and Wholesale Purchase Agreement dated February 23, 1998, between the
Company and Eli Lilly and Company (with certain confidential portions omitted).
10.172 (8) Second Amendment to Option and Wholesale Purchase Agreement, dated March 16, 1998, between the
Company and Eli Lilly and Company (with certain confidential portions omitted).
10.173 (9) 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.
10.174 (9) Leptin Research, Development and License Agreement, dated March 17, 1998, between the Company
and SmithKline Beecham, plc (with certain confidential portions omitted).
10.175 (9) Stock and Warrant Purchase Agreement, dated March 17, 1998, among the Company, SmithKline
Beecham, plc. and SmithKline Beecham Corporation (with certain confidential portions omitted).
10.176 (10) Secured Promissory Note, dated March 7, 1997, in the face amount of $3,650,000, payable to the
Company by Nexus Equity VI LLC. (Filed as Exhibit 10.1).
10.177 (10) Amended memorandum of Lease effective March 7, 1997, between the Company and Nexus Equity VI
LLC. (Filed as Exhibit 10.2)
10.178 (10) First Amendment to Lease, dated March 7, 1997, between the Company and Nexus Equity VI LLC.
(Filed as Exhibit 10.3)
10.179 (10) First Amendment to secured Promissory Note, date March 7, 1997, payable to the Nexus Equity VI
LLC. (Filed as Exhibit 10.4)
10.183 (11) Extension Option Agreement, dated May 11, 1998, by and among the Company, Seragen, Inc.,
Marathon Biopharmaceuticals, LLC, 520 Commonwealth Avenue Real Estate Corp. and 660
Corporation. (Filed as Exhibit 99.5)
10.184 (11) Letter agreement, dated May 11, 1998, by and among the Company, Eli Lilly & Company and
Seragen, Inc. (Filed as Exhibit 99.6).
10.185 (1) Amendment No. 3 to Option and Wholesale Purchase Agreement, dated May 11, 1998, by and between
Eli Lilly and Company and the Company. (Filed as Exhibit 10.6).
10.186 (1) Agreement, dated May 11, 1998, by and among Eli Lilly and Company, the Company and Seragen,
Inc. (Filed as Exhibit 10.7).
10.188 (11) Settlement Agreement, dated May 1, 1998, by and among Seragen, Inc., Seragen Biopharmaceuticals
Ltd./Seragen Biopharmaceutique Ltee, Sofinov Societe Financiere D'Innovation Inc., Societe
Innovatech Du Grand Montreal, MDS Health Ventures Inc., Canadian Medical Discoveries Fund Inc.,
Royal Bank Capital Corporation and Health Care and Biotechnology Venture Fund (Filed as Exhibit
99.2).
10.189 (11) Accord and Satisfaction Agreement, dated May 11, 1998, by and among Seragen, Inc., Seragen
Technology, Inc., Trustees of Boston University, Seragen LLC, Marathon Biopharmaceuticals, LLC,
United States Surgical Corporation, Leon C. Hirsch, Turi Josefsen, Gerald S.J. and Loretta P.
Cassidy, Reed R. Prior, Jean C. Nichols, Elizabeth C. Chen, Robert W. Crane, Shoreline Pacific
Institutional Finance, Lehman Brothers Inc., 520 Commonwealth Avenue Real Estate Corp. and 660
Corporation (Filed as Exhibit 99.4).
10.190 (1) Amendment No. 1 to Service Agreement, dated as of May 11, 1998, by and between Seragen, Inc.
and Marathon Biopharmaceuticals, LLC. (Filed as Exhibit 10.11)
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
10.191 (10) Letter of Agreement dated September 28, 1998 among the Company, Elan Corporation, plc and Elan
International Services, Ltd. (with certain confidential portions omitted), (Filed as Exhibit
10.5)
10.192 (10) Stock Purchase Agreement dated September 30, 1998 between the Company and Elan International
Services, Ltd. (with certain confidential portions omitted), (Filed as Exhibit 10.6)
10.193 (10) Tenth Addendum to Registration Rights Agreement dated September 30, 1998 between the Company
and Elan International Services, Ltd. (Filed as Exhibit 10.7)
10.194 (12) Eleventh Addendum to Registration Rights Agreement dated November 9, 1998 between the Company
and Elan International Services, Ltd.
10.195 (12) Zero Coupon Convertible Senior Note Due 2008 dated November 9, 1998 between the Company and
Elan International Services, Ltd., No. R-1.
10.196 (12) Zero Coupon Convertible Senior Note Due 2008 dated November 9, 1998 between the Company and
Elan International Services, Ltd., No. R-2.
10.197 (14) Research, Development and License Agreement by and between the Company and Warner-Lambert
Company dated September 1, 1999 (with certain confidential portions omitted). (Filed as
Exhibit 10.1)
10.198 (14) Stock Purchase Agreement by and between the Company and Warner-Lambert Company dated September
1, 1999 (with certain confidential portions omitted). (Filed as Exhibit 10.2)
10.199 (14) Thirteenth Addendum to Amended Registration Rights Agreement dated June 24, 1994, between the
Company and Warner-Lambert Company, effective September 1, 1999. (Filed as Exhibit 10.3)
10.200 (14) Nonexclusive Sublicense Agreement, effective September 8, 1999, by and among Seragen, Inc.,
Hoffmann-La Roche Inc. and F. Hoffmann-La Roche Ltd. (with certain confidential portions
omitted). (Filed as Exhibit 10.4)
10.201 (14) Amendment to Development, Licence and Supply Agreement between the Company and Elan
Corporation, plc dated August 20, 1999 (with certain confidential portions omitted). (Filed as
Exhibit 10.5)
10.202 (14) Ligand Purchase Option (to acquire outstanding capital stock of X-Ceptor Therapeutics, Inc.),
contained in Schedule I to the Certificate of Incorporation of X-Ceptor Therapeutics, Inc., as
amended. (Filed as Exhibit 10.6)
10.203 (14) License Agreement effective June 30, 1999 by and between the Company and X-Ceptor Therapeutics,
Inc. (with certain confidential portions omitted). (Filed as Exhibit 10.7)
10.204 (14) Zero Coupon Convertible Senior Note Due 2008 dated July 14, 1999 between the Company and
Monksland Holdings, B.V., No. R-3. (Filed as Exhibit 10.10)
10.205 (14) Zero Coupon Convertible Senior Note Due 2008 dated August 31, 1999 between the Company and
Monksland Holdings, B.V., No. R-4. (Filed as Exhibit 10.11)
10.206 (14) Stock Purchase Agreement dated September 30, 1999 by and between the Company and Elan
International Services, Ltd. (with certain confidential portions omitted). (Filed as Exhibit
10.13)
10.207 (14) Fourteenth Addendum to Amended Registration Rights Agreement dated June 24, 1994 between the
Company and Elan International Services, Ltd., effective September 30, 1999. (Filed as Exhibit
10.14)
10.208 (14) Twelfth Addendum to Amended Registration Rights Agreement dated June 24, 1994 between the
Company and Elan International Services, Ltd., effective August 4, 1999. (Filed as Exhibit
10.16)
10.209 (14) Series X Warrant dated August 4, 1999 between the Company and Elan International Services, Ltd.
(Filed as Exhibit 10.15)
10.210 (15) Securities Purchase Agreement dated November 6, 1998 among Elan Corporation, plc, Elan
International Services, Ltd. and the Company (filed as Exhibit 1). (Filed as Exhibit 10.8)
10.211 (15) Development, Licence and Supply Agreement dated November 6, 1998 between Elan Corporation, plc
and the Company (filed as Exhibit 2). (Filed as Exhibit 10.9)
10.212 (15) Letter Agreement dated August 13, 1999 among the Company, Elan International Services, Ltd. and
Elan Corporation, plc (filed as Exhibit 3). (Filed as Exhibit 10.12)
10.213 Incentive Agreement dated December 31, 1999 among the Company, Elan International Services,
Ltd. and Monksland Holdings, BV.
10.214 Fifteenth Addendum to Amended Registration Rights Agreement dated June 24, 1994, among the
Company and certain other persons, effective October 6, 1999.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
10.215 Sixteenth Addendum to Amended Registration Rights Agreement dated June 24, 1994, between
the Company and Elan International Services, Ltd., effective December 31, 1999.
10.216 Amendment to Ligand Purchase Option (to acquire outstanding capital stock of X-Ceptor
Therapeutics, Inc.), contained in Schedule I to the Certificate of Incorporation of X-Ceptor
Therapeutics, Inc., as amended October 1, 1999.
10.217 Amended and Restated Series X Warrant dated November 22, 1999 between the Company and Elan
International Services, Ltd.
10.218 Royalty Stream Purchase Agreement dated as of December 31, 1999 among Seragen, Inc., the Company,
Pharmaceutical Partners, L.L.C., Bioventure Investments, Kft, and Pharmaceutical Royalties, LLC.
(with certain confidential portions omitted).
21.1 Subsidiaries of Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (See Page 35).
27.1 Financial Data Schedule.
</TABLE>
- --------------
<TABLE>
<S> <C>
(1) This exhibit was previously filed as part of, and is hereby incorporated by
reference to the numbered exhibit filed with the Company's Registration
Statement on Form S-4 (No. 333-58823) filed on July 9, 1998.
(2) This exhibit was previously filed as part of and is hereby incorporated by
reference to the same numbered exhibit filed with the Company's Quarterly
Report on Form 10-Q for the period ended March 31, 1999.
(3) This exhibit was previously filed as part of, and is hereby incorporated by
reference to the same numbered exhibit filed with the Registration
Statement on Form S-4 (No. 33-90160) filed on March 9, 1995, as amended.
(4) This exhibit was previously filed as part of, and is hereby incorporated by
reference to, the same numbered exhibit filed with the Company's
Registration Statement on Form S-1 (No. 33-47257) filed on April 16, 1992
as amended.
(5) This exhibit was previously filed as part of, and is hereby incorporated by
reference to Exhibit 99.1 filed with the Company's Form S-8 (No. 33-85366),
filed on October 17, 1994.
(6) This exhibit was previously filed as part of, and is hereby incorporated by
reference to, the same numbered exhibit filed with the Registration
Statement on Form S-1/S-3 (No. 33-87598 and 33-87600) filed on December 20,
1994, as amended.
(7) This exhibit was previously filed as part of, and is hereby incorporated by
reference to the same numbered exhibit filed with the Company's Annual
Report on Form 10-K for the period ended December 31, 1996.
(8) This exhibit was previously filed as part of, and is hereby incorporated by
reference to the same numbered exhibit filed with the Company's Annual
Report on Form 10-K for the period ended December 31, 1997.
(9) This exhibit was previously filed as part of, and is hereby incorporated by
reference to the same numbered exhibit filed with the Company's Quarterly
Report on Form 10-Q for the period ended March 31, 1998.
(10) This exhibit was previously filed as part of and is hereby incorporated by
reference to the numbered exhibit filed with the Company's Quarterly Report
on Form 10-Q for the period ended September 30, 1998.
(11) Previously filed as, and hereby incorporated by reference to, the numbered
exhibit filed with the Current Report on Form 8-K of Seragen, Inc. filed
with the Commission on May 15, 1998.
(12) This exhibit was previously filed as part of, and is hereby incorporated by
reference to the same numbered exhibit filed with the Company's Annual
Report on Form 10-K for the period ended December 31, 1998.
(13) This exhibit was previously filed as part of, and is hereby incorporated by
reference to the numbered exhibit filed with, the Registration Statement on
Form 8-A/A Amendment No. 1 (No. 0-20720) filed on December 24, 1998.
(14) This exhibit was previously filed as part of and is hereby incorporated by
reference to the numbered exhibit filed with the Company's Quarterly Report
on Form 10-Q for the period ended September 30, 1999.
(15) This exhibit was previously filed as part of, and is hereby incorporated by
reference to the numbered exhibit filed with, the Schedule 13D of Elan
Corporation, plc, filed on January 6, 1999, as amended.
(16) This exhibit was previously filed as part of, and is hereby incorporated by
reference, the numbered exhibit filed with the Company's Registration
Statement on Form S-3 (No. 333-12603) filed on September 25, 1996, as
amended.
</TABLE>
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ DAVID E. ROBINSON
------------------------------------------
David E. Robinson,
President and Chief Executive Officer
Date: March 29, 2000
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears
below constitutes and appoints David E. Robinson or Paul V. Maier, his or her
attorney-in-fact, with power of substitution in any and all capacities, to sign
any amendments to this Annual Report on Form 10-K, and to file the same with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that the
attorney-in-fact or his or her substitute or substitutes may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ DAVID E. ROBINSON Chairman of the Board, President, March 24, 2000
- ----------------------------------- Chief Executive Officer and Director
David E. Robinson (Principal Executive Officer)
/s/ PAUL V. MAIER Senior Vice President, Chief Financial Officer March 24, 2000
- ----------------------------------- (Principal Financial and Accounting Officer)
Paul V. Maier
/s/ HENRY F. BLISSENBACH Director March 26, 2000
- -----------------------------------
Henry F. Blissenbach
/s/ ALEXANDER D. CROSS Director March 26, 2000
- -----------------------------------
Alexander D. Cross
/s/ JOHN GROOM Director March 28, 2000
- -----------------------------------
John Groom
/s/ IRVING S. JOHNSON Director March 27, 2000
- -----------------------------------
Irving S. Johnson
/s/ CARL C. PECK Director March 28, 2000
- -----------------------------------
Carl C. Peck
/s/ MICHAEL A. ROCCA Director March 24, 2000
- -----------------------------------
Michael A. Rocca
</TABLE>
35
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.................... F-2
Consolidated Balance Sheets.......................................... F-3
Consolidated Statements of Operations................................ F-4
Consolidated Statements of Stockholders' Equity (Deficit)............ F-5
Consolidated Statements of Cash Flows................................ F-6
Notes to Consolidated Financial Statements........................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Ligand Pharmaceuticals Incorporated
We have audited the accompanying consolidated balance sheets of Ligand
Pharmaceuticals Incorporated as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ligand
Pharmaceuticals Incorporated at December 31, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
San Diego, California
February 22, 2000
F-2
<PAGE>
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................ $ 29,903 $ 32,801
Short-term investments............................................... 17,252 37,166
Accounts receivable, net ............................................ 1,657 --
Inventories.......................................................... 5,732 6,166
Other current assets................................................. 2,135 1,860
---------- ----------
Total current assets......................................... 56,679 77,993
Restricted investments............................................... 2,011 2,554
Property and equipment, net.......................................... 20,542 23,722
Acquired technology, net ............................................ 38,969 40,312
Other assets......................................................... 16,444 11,439
---------- ----------
$ 134,645 $ 156,020
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable..................................................... $ 5,395 $ 12,363
Accrued liabilities.................................................. 8,173 7,216
Deferred revenue..................................................... 3,028 4,115
Current portion of equipment financing obligations .................. 4,105 3,201
---------- ----------
Total current liabilities.................................... 20,701 26,895
---------- ----------
Long-term equipment financing obligations ............................. 6,907 8,165
Convertible subordinated debentures.................................... 41,977 39,302
Accrued acquisition obligation......................................... 2,900 50,000
Convertible note....................................................... 2,500 2,500
Zero coupon convertible senior notes................................... 85,250 40,520
Commitments
Stockholders' deficit:
Convertible preferred stock, $0.001 par value, 5,000,000 shares
authorized; none issued........................................... -- --
Common stock, $0.001 par value; 80,000,000 shares authorized,
53,018,248 shares and 45,690,067 shares issued at December 31, 1999
and 1998, respectively............................................ 53 46
Paid-in capital...................................................... 448,784 384,715
Deferred warrant expense ............................................ (3,460) --
Adjustment for unrealized losses on available-for-sale securities.... (607) (482)
Accumulated deficit.................................................. (470,349) (395,630)
---------- ----------
(25,579) (11,351)
Less treasury stock, at cost (1,114 shares).......................... (11) (11)
---------- ----------
Total stockholders' deficit ................................. (25,590) (11,362)
---------- ----------
$ 134,645 $ 156,020
========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE>
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except net loss per share data)
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Product sales.................................... $ 11,307 $ 406 $ 418
Collaborative research and development and other
revenues ...................................... 26,978 17,267 51,281
Contract manufacturing........................... 2,610 -- --
----------- ----------- -----------
Total revenues............................ 40,895 17,673 51,699
----------- ----------- -----------
Costs and expenses:
Cost of products sold ............................ 3,563 466 520
Contract manufacturing ........................... 6,926 -- --
Research and development.......................... 59,442 70,273 71,906
Selling, general and administrative............... 27,257 16,568 10,108
Technology milestone payment ..................... 5,000 -- --
Write-off of acquired in-process technology....... -- 45,000 64,970
----------- ----------- -----------
Total costs and expenses.................. 102,188 132,307 147,504
----------- ----------- -----------
Loss from operations................................ (61,293) (114,634) (95,805)
----------- ----------- -----------
Other income (expense) :
Interest income................................. 2,470 3,070 3,743
Interest expense................................ (12,979) (8,322) (8,088)
Debt conversion expense ........................ (2,200) -- --
Other........................................... (717) 2,000 --
------------ ----------- -----------
Total other income (expense) ........... (13,426) (3,252) (4,345)
------------ ------------ -----------
Net loss............................................ $ (74,719) $ (117,886) $ (100,150)
=========== =========== ===========
Basic and diluted net loss per share................ $ (1.58) $ (2.92) $ (3.02)
=========== =========== ===========
Shares used in computing net loss per share......... 47,146,312 40,392,421 33,128,372
============ ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the three years ended December 31, 1999
(in thousands, except share data)
<TABLE>
<CAPTION>
Adjustment
for unrealized
gains (losses) Deferred Treasurey Total
Common stock on available- compensation stock stockholders'
------------------ Paid-in for-sale Accumulated and ------------- equity Comprehensive
Shares Amount Capital Warrants securities deficit consulting Shares Amount(deficit) income(loss)
--------- ------- ------- --------- ----------- --------- ----------- ------ ------ ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996........31,799,617 $ 32 $214,887 $(2,453) $(78) $(177,594) $ (322) (1,114) $(11) $34,461
Issuance of
Common Stock..............6,704,842 7 96,794 -- -- -- -- -- -- 96,801
Amortization of
deferred compensation
and consulting fees...... -- -- -- -- -- -- 322 -- -- 322
Amortization of warrant
subscription receivable... -- -- -- 1,535 -- -- -- -- -- 1,535
Write-off of warrant
subscription receivable... -- -- -- 918 -- -- -- -- -- 918
Adjustment of unrealized
gains on available-for-sale
securities............. -- -- -- -- 462 -- -- -- -- 462 462
Net loss............... -- -- -- -- -- (100,150) -- -- -- (100,150) (100,150)
--------- ----- -------- ------- ----- --------- ------ ----- ---- --------- ---------
Balance at
December 31, 1997...... 38,504,459 39 311,681 -- 384 (277,744) -- (1,114) (11) 34,349 $(99,688)
=========
Issuance of
Common Stock........... 7,185,608 7 73,034 -- -- -- -- -- -- 73,041
Adjustment of
unrealized losses on
available-for-sale
securities............. -- -- -- -- (866) -- -- -- -- (866) (866)
Net loss............... -- -- -- -- -- (117,886) -- -- -- (117,886) (117,886)
--------- ----- -------- ------- ---- --------- ------ ----- ---- --------- ---------
Balance at
December 31, 1998...... 45,690,067 46 384,715 -- (482) (395,630) -- (1,114) (11) (11,362) $(118,752)
=========
Issuance of
Common Stock .......... 7,328,181 7 59,695 -- -- -- -- -- -- 59,702
Adjustment of unrealized
losses on available-
for-sale securities.... -- -- -- -- (125) -- -- -- -- (125) (125)
Issuance of warrants... -- -- 4,374 (3,990) -- -- -- -- -- 384
Amortization of
deferred warrant expense -- -- -- 530 -- -- -- -- -- 530
Net loss .............. -- -- -- -- -- (74,719) -- -- -- (74,719) (74,719)
---------- ----- -------- --------- ----- --------- ------ ------- ----- ---------- ----------
Balance at
December 31, 1999 ..... 53,018,248 $ 53 $448,784 $(3,460) $(607) $(470,349) $ -- (1,114) $(11) $(25,590) $ (74,844)
========== ===== ======== ========= ===== ========== ====== ======= ===== ========= ==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------
1999 1998 1997
----------- ----------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................................. $ (74,719) $(117,886) $(100,150)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization of property and equipment.......... 5,565 4,326 4,133
Amortization of acquired technology ............................. 1,343 -- --
Amortization of deferred warrant expense ........................ 530 -- --
Amortization of warrant subscription receivable.................. -- -- 2,453
Write-off of acquired in-process technology...................... -- 45,000 64,970
Technology milestone payment .................................... 5,000 -- --
Accretion of debt discount and interest.......................... 7,942 3,194 2,675
Debt conversion expense.......................................... 2,200 -- --
Other............................................................ 195 257 546
Change in operating assets and liabilities:
Accounts receivable ........................................... (1,657) -- --
Receivable from a related party................................ -- -- 3,087
Inventories.................................................... 434 (2,899) --
Other current assets .......................................... (275) (1,031) 856
Accounts payable and accrued liabilities....................... (6,011) 891 7,605
Deferred revenue............................................... (1,087) 1,499 465
---------- --------- ---------
Net cash used in operating activities................................ (60,540) (66,649) (13,360)
---------- --------- ---------
INVESTING ACTIVITIES
Purchases of short-term investments.................................. (21,402) (52,245) (35,033)
Proceeds from short-term investments................................. 41,191 35,191 60,339
Purchase of property and equipment................................... (2,385) (5,457) (7,424)
Proceeds from sale of property and equipment......................... -- 92 109
Payment of accrued acquisition obligation ........................... (37,100) -- --
Increases in other assets............................................ (7,525) (4,462) (4,306)
Decreases in other assets............................................ 2,325 925 146
Net cash paid for exercise of ALRT stock purchase option............. -- -- (12,661)
Net cash paid for Seragen acquisition................................ -- (5,756) --
--------- --------- ---------
Net cash provided by (used in) investing activities.................. (24,896) (31,712) 1,170
--------- --------- ---------
FINANCING ACTIVITIES
Principal payments on equipment financing obligations................. (3,381) (2,983) (3,210)
Proceeds from equipment financing arrangements ....................... 3,027 3,095 3,146
Net change in restricted investments.................................. 543 503 470
Net proceeds from the issuance of convertible note.................... -- -- 2,500
Net proceeds from issuance of zero coupon convertible senior notes.... 60,000 30,000 --
Net proceeds from sale of common stock and warrants................... 22,349 38,295 36,706
--------- --------- ---------
Net cash provided by financing activities............................. 82,538 68,910 39,612
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents.................. (2,898) (29,451) 27,422
Cash and cash equivalents at beginning of year........................ 32,801 62,252 34,830
--------- --------- ---------
Cash and cash equivalents at end of year.............................. $ 29,903 $ 32,801 $ 62,252
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid......................................................... $ 4,941 $ 5,736 $ 5,444
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of zero coupon convertible senior note to common stock ..... 20,537 -- --
Issuance of common stock to satisfy accrued acquisition obligations.... 10,000 -- --
Issuance of common stock for technology milestone payment ............. 5,000 -- --
Issuance of warrants to X-Ceptor investors ............................ 3,990 -- --
Issuance of common stock for debt conversion incentive ................ 2,200 -- --
Issuance of common stock to purchase Seragen........................... -- 25,996 --
Issuance of convertible note and common stock for technology license... -- 15,000 --
Conversion of convertible note to common stock......................... $ -- $ 3,750 $ 7,500
</TABLE>
See accompanying notes.
F-6
<PAGE>
LIGAND PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND ITS BUSINESS
Ligand Pharmaceuticals Incorporated, a Delaware corporation (the "Company"
or "Ligand"), develops and markets drugs that address critical unmet medical
needs of patients in the areas of cancer, skin diseases, and men's and women's
hormone-related diseases, as well as osteoporosis, metabolic disorders and
cardiovascular and inflammatory diseases. Ligand's drug discovery and
development programs are based on gene transcription technology, primarily
related to Intracellular Receptors and Signal Transducers and Activators of
Transcription. The Company includes its direct wholly owned subsidiaries, Ligand
Pharmaceuticals International, Inc., Glycomed Incorporated ("Glycomed"), Ligand
Pharmaceuticals (Canada) Incorporated, Allergan Ligand Retinoid Therapeutics,
Inc. ("ALRT") and Seragen, Inc. ("Seragen").
In February 1999, the Company was granted U.S. Food and Drug Administration
("FDA") marketing approval for its first two products, Panretin(R) gel
("Panretin") for the treatment of Kaposi's sarcoma in AIDS Patients and
ONTAK(TM) ("ONTAK") for the treatment of patients with persistent or recurrent
cutaneous T-cell lymphoma ("CTCL"). In December 1999, the FDA approved Targretin
(R) capsules ("Targretin") for the treatment of CTCL in patients who are
refractory to at least one prior systemic therapy. The Company also submitted a
New Drug Application ("NDA") to the FDA in December 1999 for Targretin (R) gel
for the treatment of patients with early stage CTCL.
The Company's other potential products are in various stages of
development. Potential products that appear to be promising at early stages of
development may not reach the market for a number of reasons. Substantially all
of the Company's revenues to date have been derived from its research and
development agreements with major pharmaceutical collaborators. Prior to
generating revenues from these products, the Company must complete the
development of its products in the human health care market. No assurance can be
given that: (1) product development efforts will be successful, (2) required
regulatory approvals for any indication will be obtained, (3) any products, if
introduced, will be capable of being produced in commercial quantities at
reasonable costs or that, (4) patient and physician acceptance of these products
will be achieved. There can be no assurance that Ligand will ever achieve or
sustain profitability.
The Company faces risks common to companies whose products are in various
stages of development. These risks include, among others, the Company's need for
additional financing to complete its research and development programs and
commercialize its technologies. The Company expects to incur substantial
additional research and development expenses, including continued increases in
personnel and costs related to preclinical testing, clinical trials, and sales
and marketing expenses related to product sales. The Company intends to seek
additional funding sources of capital and liquidity through collaborative
arrangements, collaborative research or through public or private financing.
There is no assurance such financing would be available under favorable terms,
if at all.
The Company believes that patents and other proprietary rights are
important to its business. The Company's policy is to file patent applications
to protect technology, inventions and improvements to its inventions that are
considered important to the development of its business. The patent positions of
pharmaceutical and biotechnology firms, including the Company, are uncertain and
involve complex legal and technical questions for which important legal
principles are largely unresolved.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain reclassifications
have been made to amounts included in the prior years financial statements to
conform to the presentation for the year ended December 31, 1999.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
disclosures made in the accompanying notes to the consolidated financial
statements. Actual results could differ from those estimates.
F-7
<PAGE>
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents consist of highly liquid securities with original
maturities at the date of acquisition of less than three months. Investments
with an original maturity of more than three months are considered short-term
investments and have been classified by management as available-for-sale. Such
investments are carried at fair value, with unrealized gains and losses included
as a separate component of shareholders' deficit.
RESTRICTED INVESTMENTS
Restricted investments consist primarily of a certificate of deposit held
with a financial institution as collateral under an equipment financing
arrangement.
CONCENTRATIONS OF CREDIT RISK
The Company invests its excess cash principally in United States government
debt securities, investment grade corporate debt securities and certificates of
deposit. The Company has established guidelines relative to diversification and
maturities that maintain safety and liquidity. These guidelines are periodically
reviewed and modified to take advantage of trends in yields and interest rates.
The Company has not experienced any significant losses on its cash equivalents
or short-term investments.
The Company extends credit on an uncollateralized basis primarily to
wholesale drug distributors throughout the United States. The Company has not
experienced significant credit losses on customer accounts.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in-first-out method. Inventories consist of the following (in
thousands):
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Raw materials................................... $ 705 $ 2,382
Work-in-process................................. 3,645 3,634
Finished goods.................................. 1,382 150
---------- ----------
$ 5,732 $ 6,166
========== ==========
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and consists of the following (in
thousands):
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Property........................................... $ 2,649 $ 2,649
Equipment and leasehold improvements............... 41,240 38,854
Less accumulated depreciation and amortization .... (23,347) (17,781)
--------- ---------
Net property and equipment......................... $20,542 $23,722
========= =========
</TABLE>
Depreciation of equipment and leasehold improvements is computed using the
straight-line method over the estimated useful lives of the assets which range
from three to fifteen years. Assets acquired pursuant to capital lease
arrangements and leasehold improvements are amortized over their estimated
useful lives or their related lease term, whichever is shorter.
ACQUIRED TECHNOLOGY
Acquired technology represents the ONTAK technology acquired in the merger
with Seragen which is being amortized on a straight-line basis over the period
estimated to be benefited of 15 years. Amortization of acquired technology is
included in cost of products sold in the consolidated statements of operations
and totaled $1.3 million for the year ended December 31, 1999.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, if indicators of impairment exist, the Company
assesses the
F-8
<PAGE>
recoverability of the affected long-lived assets by determining whether the
carrying value of such assets can be recovered through undiscounted future
operating cash flows. If impairment is indicated, the Company measures the
amount of such impairment by comparing the carrying value of the asset to the
present value of the expected future cash flows associated with the use of the
asset. While the Company's current and historical operating and cash flow losses
are indicators of impairment, the Company believes the future cash flows to be
received from the long-lived assets will exceed the assets' carrying value, and
accordingly the Company has not recognized any impairment losses through
December 31, 1999.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, cash equivalents, securities
available-for-sale, receivables, accounts payable and accrued liabilities are
considered to be representative of their respective fair values because of the
short-term nature of those investments. The fair values of the Company's
equipment financing obligations, convertible subordinated debentures,
convertible note, and zero coupon convertible senior notes approximates their
carrying values based upon the current rates and terms offered to the Company
for similar financing arrangements.
REVENUE RECOGNITION
Revenues from product sales are recognized upon shipment, net of allowances
for returns, rebates and chargebacks. The Company is obligated to accept from
customers the return of pharmaceuticals which have reached their expiration
date. Contract manufacturing and collaborative research and development and
other revenues are recognized on a basis consistent with the performance
requirements of the contract. Payments received in advance of performance are
recorded as deferred revenue.
Revenues from significant customers, which accounted for greater than 10%
of total revenues, are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1999 1998 1997
--------------- -------------- ----------
<S> <C> <C> <C>
Eli Lilly (Note 10)................................. $ 10,095 $ 10,353 $ 19,708
SmithKline Beecham (Note 10)........................ $ 3,652 $ 3,737 $ 3,235
Allergan Ligand Retinoid Therapeutics (Note 11) .... -- -- $ 18,997
</TABLE>
COSTS AND EXPENSES
Cost of products sold includes manufacturing costs, amortization of
acquired technology, and royalty expenses associated with the Company's
commercial products. Research and development costs are expensed as incurred.
Costs and expenses included in research and development expenses related to
collaborative research and development arrangements for the years ended December
31, 1999, 1998, and 1997 were $16 million, $17.3 million, and $51.3 million,
respectively.
LOSS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding. Basic and diluted net loss per share amounts are equivalent
for the periods presented as the inclusion of common stock equivalents in the
number of shares used for the dilutive computation would be anti-dilutive.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees and with the disclosure requirements of SFAS No. 123, Accounting for
Stock-Based Compensation (Note 9).
COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 established new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this statement has no impact on the Company's net loss or shareholders' deficit.
SFAS No. 130 requires unrealized gains or losses on the Company's
available-for-sale securities and foreign currency translation adjustments,
which prior to adoption were reported separately in shareholders' equity, to be
included in other comprehensive income.
F-9
<PAGE>
3. INVESTMENTS
The following table summarizes the various investment categories at (in
thousands):
<TABLE>
<CAPTION>
Gross Unrealized Estimated Fair
Cost Gains (Losses) Value
--------- ----------- ------------
<S> <C> <C> <C>
December 31, 1999
U.S. Government Securities................... $ 2,610 $ (12) $ 2,598
Corporate Obligations........................ 12,653 (45) 12,608
Certificates of Deposit...................... 2,046 -- 2,046
--------- ----------- ------------
17,309 (57) 17,252
Certificates of Deposit-restricted........... 2,011 -- 2,011
Equity securities............................ 693 (550) 143
--------- ------------ ------------
$ 20,013 $ (607) $ 19,406
========= ============ ============
December 31, 1998
U.S. Government Securities................... $ 13,240 $ 5 $ 13,245
Corporate Obligations........................ 19,262 63 19,325
Certificates of Deposit...................... 4,596 -- 4,596
--------- ----------- ------------
37,098 68 37,166
Certificates of Deposit-restricted........... 2,554 -- 2,554
Equity securities............................ 693 (550) 143
--------- ----------- ------------
$ 40,345 $ (482) $ 39,863
========= ============ ============
</TABLE>
Equity securities are included in long-term other assets.
Realized gains on sales of available-for-sale securities for the year ended
December 31, 1998 were $2 million. There were no material realized gains or
losses for the years ended December 31, 1999 and 1997.
The amortized cost and estimated fair value of investments at December 31,
1999 and 1998, by contractual maturity, are shown below (in thousands). Expected
maturities will differ from contractual maturities because the issuers of the
securities may have the right to prepay obligations without prepayment
penalties.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------- ----------------------
Estimated Estimated
Cost Fair Value Cost Fair Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Due in one year or less..................... $ 5,606 $ 5,606 $ 24,270 $ 24,291
Due after one year through three years...... 13,714 13,657 15,382 15,429
Due after three years....................... -- -- -- --
-------- -------- -------- --------
19,320 19,263 39,652 39,720
Equity securities........................... 693 143 693 143
-------- -------- -------- --------
$ 20,013 $ 19,406 $ 40,345 $ 39,863
======== ======== ======== ========
</TABLE>
4. MERGER WITH SERAGEN
In August 1998, the Company completed a merger with Seragen (the "Merger")
and entered into an agreement with Seragen and Eli Lilly and Company ("Lilly")
under which Lilly assigned to the Company Lilly's rights and obligations under
its agreements with Seragen, including its sales and marketing rights to
ONTAK(TM). In addition, the Company had previously announced that it had signed
a definitive asset purchase agreement to acquire substantially all the assets of
Marathon Biopharmaceuticals, LLC, ("Marathon") which provided manufacturing
services to Seragen under a service agreement.
Under the terms of the merger agreement, Ligand paid merger consideration
at closing in the amount of $31.7 million, $5.7 million of which was in cash and
$26 million of which was through the issuance of approximately 1,858,515 shares
of the Company's Common Stock valued at $13.99 per share. The valuation of the
Company's Common Stock for this portion of the transaction was based on the
average closing share price for the five trading days prior to signing of the
definitive agreement in May 1998. The merger agreement also called for an
additional $37 million payment in cash and/or the Company's Common Stock, at the
Company's option, to be paid six months after the date of receipt of final FDA
approval to market ONTAK. The final FDA approval occurred in February 1999. In
August 1999, the Company made a cash payment of $34.1 million. Pending
resolution of final contingencies and in accordance with the terms of the merger
agreement, the Company withheld the remaining $2.9 million from payments made to
certain Seragen stakeholders. The Company purchased substantially all of the
assets of Marathon for $8 million through the issuance in January 1999 of
402,820 shares of
F-10
<PAGE>
the Company's Common Stock with a fair value of $5 million and a $3 million
cash payment in August 1999, six months after the FDA approval of ONTAK.
The Company's agreement with Lilly provides for a milestone payment to
Lilly upon ONTAK approval by the FDA, a potential future milestone payment to
Lilly based on cumulative sales of ONTAK, royalties to Lilly on sales of ONTAK,
and payments by Lilly to Ligand as reimbursement for certain ONTAK clinical and
other costs incurred by the Company. In March 1999, Ligand issued to Lilly
434,546 shares of the Company's Common Stock as payment of the $5 million
milestone for the ONTAK approval. In addition, upon cumulative net sales of
ONTAK reaching $20 million, Lilly will receive a second $5 million milestone
payment.
The Merger was accounted for using the purchase method of accounting. The
purchase price, totaling $84.1 million, which included liabilities assumed of
$2.3 million was allocated to the fair value of the assets acquired. The
purchase price is composed of and allocated to the fair value of assets acquired
as follows (in thousands):
<TABLE>
<S> <C>
Issuance of Common Stock (including transaction costs)................ $ 25,996
Amounts due to Seragen stakeholders, Marathon and Lilly, payable in
Common Stock or cash................................................ 50,000
Liabilities assumed................................................... 2,360
Net cash paid......................................................... 5,756
--------
$ 84,112
========
Inventories........................................................... $ 3,230
Property and equipment................................................ 7,905
Identifiable intangible assets:
Write-off of in-process technology.................................. 30,000
Acquired technology................................................. 40,312
Other intangibles................................................... 2,665
--------
$ 84,112
========
</TABLE>
The following pro forma condensed statement of operations information has
been prepared to give effect to the Merger as if such transaction had occurred
at the beginning of the periods presented. The historical results of operations
have been adjusted to reflect (1) adjustment for depreciation resulting from
adjusting the basis of certain property and equipment to fair value and
amortization over 10 years, (2) amortization of acquired technology over 15
years, (3) elimination of Seragen stock issuance costs (1997) and compensation
expense amortization (1998), (4) elimination of interest income for Seragen and
reduction of Ligand interest income resulting from use of $6 million for the
Merger at an annual interest rate of 5.5%, and (5) elimination of interest
expense related to certain Seragen liabilities. The information presented is not
necessarily indicative of the results of future operations of the merged
companies. Included in the 1998 net loss is a one-time charge of $30 million
related to in-process research and development included in the intangibles
acquired.
Pro Forma Results of Operations (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenues.................................. $ 20,477 $ 56,413
Net loss.................................. (124,867) (118,675)
Weighted average shares outstanding....... 40,392 34,987
Loss per share............................ (3.09) (3.39)
</TABLE>
5. OTHER ASSETS AND ACCRUED LIABILITIES
Other assets comprise the following (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Deferred rent............................ $ 3,381 $ 3,429
Prepaid royalty buyout (Note 8).......... 3,944 4,080
Intangible assets acquired (Note 4) ..... 2,651 2,665
Investment in X-Ceptor (Note 12)......... 5,246 --
Other.................................... 1,222 1,265
--------- -------
$ 16,444 $11,439
========= =======
</TABLE>
F-11
<PAGE>
Accrued liabilities comprise the following (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Accrued legal............................ $ 431 $ 1,140
Accrued interest......................... 1,972 1,972
Accrued compensation..................... 2,981 1,784
Other.................................... 2,789 2,320
--------- --------
$ 8,173 $ 7,216
========= ========
</TABLE>
6. CONVERTIBLE SUBORDINATED DEBENTURES
The convertible subordinated debentures pay interest semi-annually at 7.5%
per annum and are due in 2003. The difference between the face value and the
fair market value at the acquisition date is being accreted up to the face value
over the remaining term of the debentures and the accretion is charged to
interest expense. The debentures are convertible into the Company's Common Stock
at $26.52 per share.
7. STRATEGIC ALLIANCE AND FINANCING
In September 1998, the Company and Elan Corporation, plc ("Elan") signed a
binding letter of agreement. Under the terms of the agreement, Elan purchased
approximately $20 million of the Company's Common Stock. Elan also purchased
from the Company $40 million in issue price of Zero Coupon Convertible Senior
Notes, due 2008 with an 8% per annum yield to maturity (the "Notes"). These
Notes are convertible into the Company's Common Stock at $14 per share. Under
the terms of the initial agreement, up to an additional $70 million of Notes
which Elan could also purchase would be convertible into the Company's Common
Stock at a price which would be the average of the closing prices of the
Company's Common Stock for the 20 trading days immediately prior to the issuance
of a Note plus a premium; however, in no event would the conversion price be
less than $14 per share or more than $20 per share. The Notes could be used to
finance the final payments for the Seragen merger as well as other acquisitions
of complementary technologies, subject to the consent of Elan.
In July 1999, the Company issued an additional $40 million of Notes to Elan
under the terms of the initial agreement, which are convertible at $14 per
share. In August 1999, the Company and Elan agreed to amend the initial
agreement to provide that the remaining takedown of up to $30 million in Notes
may be utilized for general corporate purposes. Pursuant to this amended
agreement, in August 1999, the Company issued $20 million of Notes with terms
similar to the Notes previously issued, but convertible at $9.15 per share,
which represented a premium over the Company's stock price on the date of
issuance. In December 1999, Elan converted the $20 million Note plus accrued
interest into 2,244,460 shares of the Company's Common Stock. The Company
provided Elan a $2.2 million conversion incentive through the issuance of an
additional 188,572 shares of the Company's Common Stock. The incentive was
recorded as debt conversion expense in other income (expense). In March 2000,
Elan converted an additional $20 million in Notes plus accrued interest into
1,600,123 shares of Common Stock (see Note 14).
The agreement with Elan contains an anti-dilution provision. In accordance
with such provision and as a result of other equity issuances by the Company,
the Company sold Common Stock and warrants to Elan in 1999 totaling $839,000.
Assuming conversion of its outstanding Notes and warrants, Elan would own
approximately 17% of Ligand's shares on a fully diluted basis.
Elan also agreed to exclusively license to the Company in the United States
and Canada its proprietary product Morphelan(TM), a once-daily,
sustained-release, solid oral dosage form of morphine for pain in oncology and
HIV patients. For the rights to Morphelan(TM) the Company paid Elan certain
license fees in 1998, with milestone payments due upon the occurrence of certain
events up to and including the approval of the NDA in the United States.
Payments may be in cash, or subject to certain conditions, in the Company's
Common Stock or Notes. In November 1998, the Company paid Elan $5 million
through the issuance of 429,185 shares of the Company's Common Stock and $10
million from the issuance of Notes. In December 1999, the Company paid Elan a $5
million milestone payment through the issuance of 498,443 shares of the
Company's Common Stock. The 1999 consideration of $5 million was written off as
a technology milestone payment and the 1998 consideration of $15 million was
written off as acquired in-process technology. Elan could receive up to $5
million upon submission of the Morphelan(TM) NDA and another $5 million upon
approval of Morphelan by the FDA.
8. COMMITMENTS
LEASES AND EQUIPMENT NOTES PAYABLE
The Company has entered into capital lease and equipment note payable
agreements which require monthly payments
F-12
<PAGE>
through September 2004. The carrying value of equipment under these
agreements at December 31, 1999 and 1998 was $20.1 million and $17.3 million,
respectively. At December 31, 1999 and 1998, accumulated amortization was $7.9
million and $7.3 million, respectively. The underlying equipment is used as
collateral under the equipment notes payable.
The Company has also entered into operating lease agreements for office and
research facilities with varying terms through August 2015. The agreements
provide for increases in annual rentals based on changes in the Consumer Price
Index or fixed percentage increases varying from 3% to 6%. One of these leases
requires an irrevocable standby letter of credit of $1.3 million to secure the
performance of the Company's lease obligations. Rent expense for the years ended
December 31, 1999, 1998 and 1997 was $3.2 million, $3.2 million and $3.4
million, respectively.
At December 31, 1999, annual minimum rental payments due under the
Company's leases and equipment notes payable are as follows (in thousands):
<TABLE>
<CAPTION>
Obligations under
capital leases and
equipment notes
payable Operating leases
---------------- ----------------
<S> <C> <C>
2000..................................... $ 4,894 $ 3,287
2001..................................... 3,662 2,975
2002..................................... 2,519 2,888
2003..................................... 1,295 2,871
2004..................................... 285 2,928
Thereafter............................... -- 31,954
------------ -----------
Total minimum lease payments... 12,655 $ 46,903
===========
Less amounts representing interest....... (1,643)
------------
Present value of minimum lease payments.. 11,012
------------
Less current portion..................... 4,105
------------
$ 6,907
============
</TABLE>
In 1997, one of the Company's main operating lease agreements for office
and research facilities expired, and the Company moved into a second
build-to-suit facility. In early 1997, the Company entered into a 17-year lease
and the Company loaned the construction partnership $3.7 million, which is being
repaid with interest over a 10-year period.
ROYALTY AGREEMENTS
The Company has entered into royalty agreements requiring payments in 1999
ranging from 1% to 15% of net sales and up to 35% for license and other royalty
arrangements. Currently, the Company is making minimum royalty payments under
three agreements, of $315,000 per year. Royalty expense for the years ended
December 31, 1999, 1998 and 1997 was $967,000, $75,000 and $276,000,
respectively, and is included in cost of products sold in the consolidated
statements of operations.
In May 1998, the Company elected to make a final one-time $4.1 million
royalty payment to The Salk Institute for Biological Studies as an alternative
to paying future royalty payments based on total net sales of defined potential
products. The one-time payment is being amortized over the remaining life of the
related patents.
In September 1999, Ligand and Seragen entered into a sublicense agreement
with Hoffmann-La Roche Inc. ("Roche"), with respect to Seragen's rights under a
family of patents called the "Strom Patents." The Strom Patents, licensed by
Seragen from Beth Israel Deaconess Medical Center ("Beth Israel"), cover the use
of antibodies that target the interleukin-2 receptor to treat transplant
rejection and autoimmune diseases. In consideration for the sublicense, Roche
paid Seragen a $2.5 million royalty based on sales occurring before the date of
the agreement plus Roche will pay royalties on subsequent sales of licensed
products. Seragen will also receive milestone payments in the event Roche
receives U.S. regulatory approval of licensed products. A non-exclusive license
was previously issued by Seragen to Novartis requiring similar royalty payments.
Beth Israel receives approximately 35% of the total royalty and milestone
payments made related to the Strom Patents.
In December 1999, the Company and Seragen entered into an agreement with
Pharmaceutical Partners LLC ("Pharma") whereby Pharma purchased Seragen's
royalty stream to be received under the Roche and Novartis royalty agreements
described above. Pharma paid $3.25 million in December 1999 and would pay an
additional $3.25 million should sales exceed a predetermined amount in any of
years 2001 through 2004. In addition, Seragen retains the patents and the right
to receive the future milestone payments from Roche described above.
F-13
<PAGE>
9. STOCKHOLDERS' EQUITY
WARRANTS
At December 31, 1999, the Company had outstanding warrants to purchase
2,586,299 shares of the Company's Common Stock, of which 1,286,643 warrants
relate to ALRT ("ALRT warrants") (Note 11). The ALRT warrants have an exercise
price of $7.12 per share, the additional warrants have exercise prices ranging
from $10 to $20 per share and expire at various dates through October 6, 2006.
In 1999 and 1998, the Company received net proceeds of approximately $17.4
million and $12.5 million, respectively, from investors who elected to exercise
their ALRT warrants to purchase 2,939,717 and 2,267,836 shares, respectively.
The Company agreed to pay a cost of money incentive to the investors for the
early exercise of those warrants which was recorded as a reduction of equity.
STOCK PLANS
The Company's 1992 Stock Option Stock Issuance Plan provides for the
issuance of up to 9,073,457 shares of the Company's Common Stock. The large
majority of the options granted have 10 year terms and vest over four years of
continued employment. The Company's employee stock purchase plan also provides
for the sale of up to 355,000 shares of the Company's Common Stock.
Following is a summary of the Company's stock option plan activity and
related information:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
-------------- -----------
<S> <C> <C>
Balance at December 31, 1996................. 3,796,882 $ 9.55
Granted.................................... 875,339 12.75
Exercised.................................. (384,340) 8.59
Cancelled.................................. (219,375) 10.65
-------------- -----------
Balance at December 31, 1997................. 4,068,506 10.26
Granted.................................... 1,584,604 11.10
Exercised.................................. (211,524) 7.52
Cancelled.................................. (396,567) 11.30
-------------- -----------
Balance at December 31, 1998................. 5,045,019 10.56
Granted.................................... 894,792 10.67
Exercised.................................. (228,991) 8.29
Cancelled.................................. (405,361) 11.82
-------------- -----------
Balance at December 31, 1999................. 5,305,459 $ 10.58
============= ===========
Options exercisable at December 31, 1999..... 3,344,575 $ 10.33
============= ===========
Options exercisable at December 31, 1998..... 2,814,876 $ 9.79
============= ===========
Options exercisable at December 31, 1997..... 2,442,187 $ 9.31
============= ===========
</TABLE>
Following is a further breakdown of the options outstanding as of December
31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------- -------------------------------------
Weighted
average
Options remaining life Weighted average Number Weighted average
Range of exercise prices outstanding in years exercise price Exercisable exercise price
------------------------ ----------- -------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
$4.68 - 8.65........... 1,091,071 5.28 $ 7.37 932,795 $ 7.33
9.00 - 9.60........... 1,067,734 6.67 9.33 652,531 9.33
9.77 - 11.25.......... 1,137,439 7.69 10.60 529,178 10.55
11.26 - 13.00.......... 1,253,868 7.48 12.22 769,771 12.28
13.25 - $16.38.......... 755,347 7.76 14.22 460,300 14.31
------------- --------------- ------------- --------------- ------------
5,305,459 6.95 $ 10.58 3,344,575 $ 10.33
============= =============== ============= =============== ============
</TABLE>
At December 31, 1999, 768,507 shares were available under the plans for
future grants of stock options or sale of stock.
Pro forma information regarding net loss and loss per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The
estimated weighted average fair value at grant date for the options granted
during 1999, 1998, and 1997 were $6.73, $6.65, and $5.96
F-14
<PAGE>
per option, respectively. The fair value for these options was estimated at
the dates of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ------------ ----------
<S> <C> <C> <C>
Risk free interest rates........... 6.3% 4.8% 6.3%
Dividend yields.................... -- -- --
Volatility......................... 70.0% 62.0% 42.7%
Weighted average expected life..... 5 years 5 years 5 years
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows (in thousands, except for net loss per share
information):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
Net loss as reported............. $ (74,719) $ (117,886) $ (100,150)
Net loss pro forma............... (80,549) (121,916) (102,929)
Net loss per share as reported... (1.58) (2.92) (3.02)
Net loss per share pro forma..... (1.71) (3.01) (3.11)
</TABLE>
The pro forma effect on net loss for 1999, 1998 and 1997 is not
representative of the pro forma effect on net loss in future years because it
does not take into consideration pro forma compensation expense related to
grants made prior to 1995.
SHAREHOLDER RIGHTS PLAN
In September 1996, the Company's Board of Directors adopted a preferred
shareholder rights plan (the "Shareholder Rights Plan"), as amended, 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 an acquisition of 20% or more of the Common Stock, or
announces commencement of a tender offer, the consummation of which would result
in ownership by the person or group of 20% or more of the Common Stock. The
Company will be entitled to redeem the Rights at $0.01 per Right at any time on
or before the earlier of the tenth day following acquisition by a person or
group of 20% or more of the common stock and September 13, 2006.
In November 1998, the Shareholder Rights Plan was amended to exclude Elan
or any of its affiliates as an acquiring person to the extent of their ownership
on or before November 9, 2005 of up to 25% of the Company's Common Stock on a
fully diluted basis or thereafter to the extent their ownership exceeds 20% on
November 9, 2005. However, shares acquired pursuant to the arrangements with
Elan described in Note 7 are not counted in such determination unless additional
shares of the Company's Common Stock have been acquired by Elan outside of such
arrangements.
10. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS
ELI LILLY AND COMPANY
In November 1997, the Company entered into a strategic alliance with Lilly
for the discovery and development of products based on Ligand's Intracellular
Receptor technology. Under the agreement, Lilly made a $31.25 million equity
investment and agreed to support up to $49 million in research funding. Revenues
recognized under the agreement for the years ended December 31, 1999, 1998 and
1997 were $9 million, $10 million and $19.7 million, respectively. The Company
also had the option to obtain selected rights to one Lilly specialty
pharmaceutical product. In connection with the August 1998 acquisition of
Seragen, Ligand obtained from Lilly its rights to ONTAK and entered into an
agreement where Lilly is to fund certain clinical and other regulatory costs
incurred by Ligand as mandated by the FDA in the approval of ONTAK. Revenues
recognized under this agreement for the years ended December 31, 1999 and 1998
were $1 million and $353,000, respectively.
F-15
<PAGE>
SMITHKLINE BEECHAM
In February 1995, the Company entered into a research collaboration with
SmithKline Beecham Corporation ("SmithKline Beecham") to discover and
characterize small molecule drugs to control hematopoiesis. Revenues recognized
under the agreement for the years ended December 31, 1999, 1998 and 1997 were
$2.7 million, $3 million and $3.2 million, respectively. SmithKline Beecham has
agreed to provide the Company up to $21.5 million in research funding and equity
investments. To date, SmithKline Beecham has made equity investments of $10
million and invested $2.5 million as a convertible note. The note is convertible
into the Company's Common Stock at $13.56 per share and is due October 2002
unless converted into the Company's Common Stock earlier. The interest on the
note is payable semi-annually at prime.
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 $5
million of the Company's Common Stock 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% premium
if a certain research milestone is achieved and will make cash payments to
Ligand if subsequent milestones are met. Revenues recognized under the agreement
for the years ended December 31, 1999 and 1998 were $1 million and $700,000,
respectively.
PARKE-DAVIS
In September 1999, Ligand entered into a research, development and license
agreement with the Parke-Davis Pharmaceutical Research Division ("Parke-Davis")
of Warner-Lambert Company ("Warner-Lambert") to discover, characterize, design
and develop small molecule compounds with beneficial effects for the treatment
and prevention of diseases mediated through the estrogen receptor. Some of the
diseases affected by drugs that act upon the estrogen receptor are osteoporosis,
cardiovascular disease, breast cancer, and mood and cognitive disorders.
Under the terms of the agreement, the Company may receive up to $13 million
in research funding through December 2002 as well as future product milestone
payments and royalties. Parke-Davis will fund the costs of developing and
marketing compounds selected from the collaboration and has been granted the
worldwide rights to manufacture and sell any products resulting from the
collaboration. The Company will be entitled to milestones at various stages of
each compound's development. Upon the marketing of a product, Parke-Davis will
pay the Company royalties on net sales of each product on a product-by-product
basis. In addition, Warner-Lambert purchased $2.5 million of the Company's
Common Stock at fair value.
ABBOTT LABORATORIES
In July 1994 the Company entered into a long-term collaborative research
agreement with Abbott Laboratories ("Abbott") to discover and develop drugs for
the prevention or treatment of inflammatory diseases. Revenues under the
agreement, which was completed in July 1999, for the years ended December 31,
1999, 1998 and 1997 were $600,000, $1.2 million and $1.7 million, respectively.
AMERICAN HOME PRODUCTS CORPORATION
In September 1994, the Company entered into a collaborative research
agreement with Wyeth-Ayerst Laboratories, the pharmaceutical division of
American Home Products, to discover and develop drugs which interact with the
estrogen or progesterone receptors. Revenues under the agreement, which was
completed in September 1998, for the years ended December 31, 1998 and 1997 were
$1.3 million and $4 million, respectively.
11. ALLERGAN LIGAND RETINOID THERAPEUTICS, INC.
In December 1994, the Company and Allergan, Inc. ("Allergan") formed ALRT
for retinoid product research and development. In September 1997, the Company
and Allergan exercised their respective options to purchase 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 million to holders of the callable common stock in
November 1997. Allergan's exercise of the Asset Purchase Option required a cash
payment of $8.9 million which was used by the Company to pay a portion of the
Stock Purchase Option.
F-16
<PAGE>
In November 1997, ALRT became a wholly owned subsidiary of the Company. The
transaction was accounted for using the purchase method of accounting. The
excess of the purchase price over the fair value of the net assets acquired was
allocated to in-process technology and was written off, resulting in a one-time
non-cash charge to results of operations of $65 million. Details of the
acquisition are as follows (in thousands):
<TABLE>
<S> <C>
Total consideration:
Issuance of Common Stock ....................... $ 52,595
Liabilities assumed ............................ 1,010
Warrant subscription receivable write-off ...... 918
Net cash paid for ALRT net of cash received .... 12,661
--------
$ 67,184
========
Less:
Deferred liabilities write-off.................. $ 2,214
Write-off of in-process technology.............. 64,970
--------
$ 67,184
========
</TABLE>
12. X-CEPTOR THERAPEUTICS, INC.
In June 1999, Ligand became a minority equity investor in a new private
corporation, X-Ceptor Therapeutics, Inc. ("X-Ceptor"), whose mission is to
conduct research in and identify therapeutic products from the field of orphan
nuclear receptors. Ligand invested $6 million in X-Ceptor through the
acquisition of convertible preferred stock and owns approximately 17% of
X-Ceptor's outstanding capital stock. Ligand is accounting for its investment in
X-Ceptor using the equity method of accounting. Ligand's interest in X-Ceptor
losses in 1999 was $754,000, which is included in other income (expense) in the
consolidated statements of operations. Ligand has also granted to X-Ceptor an
exclusive license to use the Ligand orphan nuclear receptors technology that is
not currently committed to other partnership programs and a nonexclusive license
to use Ligand's enabling proprietary process technology as it relates to drug
discovery using orphan nuclear receptors. X-Ceptor made a license payment of $2
million to Ligand. Ligand recognized $1.7 million as revenue in 1999
representing the third-party ownership of X-Ceptor. Ligand has not performed any
research and development activities on behalf of X-Ceptor.
Ligand also issued warrants to X-Ceptor investors, founders and certain
employees to purchase 950,000 shares of Ligand Common Stock with an exercise
price of $10 per share and expiration date of October 6, 2006. The warrants were
recorded at their fair value of $4.20 per warrant or $3.9 million as deferred
warrant expense within stockholders' deficit and are being amortized to
operating expense through June 2002. Amortization was $530,000 in 1999, which is
included in research and development expense in the consolidated statements of
operations.
Ligand has the right but not the obligation to acquire all, but not less
than all, of the outstanding X-Ceptor stock at June 30, 2002 or upon the cash
balance of X-Ceptor falling below a pre-determined amount. Upon certain
conditions, Ligand may extend the option by 12 months by providing additional
funding of $5 million. The option price, payable pro-rata based on total
cumulative non-Ligand funding, is up to $61.4 million at June 30, 2002 (or
earlier, in certain circumstances) or up to $79.8 million upon extension. The
option price may be paid in cash or shares of Ligand common stock, or any
combination of the two, at Ligand's sole discretion.
13. INCOME TAXES
At December 31, 1999, the Company had consolidated federal and combined
California income tax net operating loss carryforwards of approximately $394
million and $78 million, respectively. The difference between the federal and
California tax loss carryforwards is primarily attributable to the
capitalization of research and development expenses for California income tax
purposes and the 50% limitation on California loss carryforwards. The Company
also had foreign net operating loss carryforwards of approximately $5 million,
which will begin to expire in 2001 unless previously utilized.
The federal tax loss carryforward will begin to expire in 2002, unless
previously utilized. The California tax loss carryforwards began expiring in
1998 (approximately $2 million expired in 1999). The Company also had
consolidated federal and combined California research tax credit carryforwards
of approximately $17 million and $5 million, respectively, which will begin to
expire in 2002 unless previously utilized.
Pursuant to Internal Revenue Code Sections 382 and 383, use of a portion of
net operating loss and credit carryforwards will be limited because of
cumulative changes in ownership of more than 50% which occurred within three
year periods during 1989, 1992 and 1996. However, the Company does not believe
the limitations will have a material impact upon the future utilization of these
carryforwards. In addition, use of Glycomed's and Seragen's preacquisition tax
net operating and
F-17
<PAGE>
credit carryforwards will also be limited because the acquisitions by the
Company represent changes in ownership of more than 50%. Such tax net operating
losses and credit carryforwards have been reduced, including the related
deferred tax assets.
Significant components of the Company's deferred tax assets as of December
31, 1999 and 1998 are shown below. A valuation allowance has been recognized to
fully offset the deferred tax assets as of December 31, 1999 and 1998 as
realization of such assets is uncertain.
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
---------- ----------
(in thousands)
<S> <C> <C>
Deferred tax liabilities:
Acquired subordinated debt.................. $ 3,270 $ 4,387
Purchased intangible assets................. 16,964 17,621
Fixed assets................................ 2,251 2,684
---------- ----------
Total deferred tax liabilities.... 22,485 24,692
---------- ----------
Deferred tax assets:
Net operating loss carryforwards............ 144,440 126,771
Research and development credits............ 21,065 17,218
Capitalized research and development........ 9,366 13,604
Capitalized license......................... 8,149 6,150
Accrued expenses............................ 910 1,347
Other, net ................................. 4,330 1,593
---------- ----------
Total deferred tax assets......... 188,260 166,683
---------- ----------
Net deferred tax assets..................... 165,775 141,991
Valuation allowance for deferred tax assets. (165,775) (141,991)
---------- ----------
$ -- $ --
========== ==========
</TABLE>
As of December 31, 1999, approximately $2.4 million of the valuation
allowance for deferred tax assets related to benefits of stock option deductions
which, when recognized, will be allocated directly to paid-in capital.
14. SUBSEQUENT EVENTS
SALE OF CONTRACT MANUFACTURING ASSETS
In January 2000, Ligand sold the assets associated with the contract
manufacturing business of Seragen subsidiary Marathon Biopharmaceuticals Inc.
for approximately $10 million in cash. Under the terms of the sale, Seragen has
entered into a long-term supply agreement with the acquirer of the assets for
the manufacture of ONTAK and the performance of certain process and production
development work for the next-generation ONTAK product. Seragen has minimal
purchase commitments under the agreement and the purchase commitments are
consistent with Ligand's current costs to manufacture. The assets sold consist
primarily of property and equipment of $6.7 million and intangibles of $2.7
million. The Company recognized an immaterial gain on this transaction in
January 2000.
RESEARCH AND DEVELOPMENT COLLABORATION
In February 2000, the Company and Organon entered into a collaboration to
focus on small molecule compounds with potential effects for the treatment and
prevention of gynecological diseases mediated through the progesterone receptor.
Under the terms of the collaboration, Ligand received up front payments and may
receive milestone and royalty payments on a product-by-product basis. Organon
has been granted exclusive worldwide rights to manufacture and sell any products
resulting from the collaboration.
CONVERSION OF ZERO COUPON CONVERTIBLE NOTES
In March 2000, Elan converted an additional $20 million in Notes plus
accrued interest, convertible at $14 per share, into 1,501,543 shares of the
Company's Common Stock. The Company provided Elan a $2 million conversion
incentive through the issuance of an additional 98,580 shares of the Company's
Common Stock. The incentive was recorded as debt conversion expense in other
income (expense) in the first quarter of 2000.
F-18
<PAGE>
<PAGE>
EXHIBIT 10.213
INCENTIVE AGREEMENT
-------------------
This incentive agreement (this "Agreement"), dated as of December 31, 1999,
by and among Monksland Holdings, BV, a Dutch corporation ("Monksland"), Elan
International Services, Ltd., a Bermuda corporation ("EIS"), and Ligand
Pharmaceuticals Incorporated, a Delaware corporation ("Ligand").
Recitals
WHEREAS, Ligand issued to Monksland on August 31, 1999 a Zero Coupon
Convertible Senior Note due 2008 in the amount of $41,137,581 at maturity (the
"Note") under a Securities Purchase Agreement, dated as of November 6, 1998 (the
"Purchase Agreement") by and among Ligand, EIS and Elan Corporation, plc, a
public limited company organized under the laws of Ireland ("Elan"); and
WHEREAS, Ligand has requested that Monksland convert the Note to shares of
Ligand common stock prior to January 1, 2000 and Monksland concurrent with this
Agreement is converting the Note to shares of Ligand common stock.
NOW, THEREFORE, in consideration of the covenants and mutual agreements set
forth herein and for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
Agreement
Section 1. Agreement to Convert
In consideration for 188,572 shares of Ligand common stock (the "Incentive
Shares") to be issued by Ligand to EIS, an affiliate of Monksland, at the
request of Monksland, and subject to the terms and conditions of this Agreement,
Monksland hereby agrees to convert the Note under its terms and conditions as of
the date hereof. Also, at the request of Monksland, the shares to be issued by
Ligand upon conversion of the Note shall be issued to EIS at the request of
Monksland.
Section 2. Representations & Warranties of Ligand
(i) Except as otherwise set forth in the Schedule of Exceptions (as updated
on December 30, 1999) attached hereto as Exhibit A, the representations and
warranties of Ligand contained in the Purchase Agreement that are qualified by
Material Adverse Effect or materiality are true and correct in all respects and
the representations and warranties of Ligand contained in the Purchase Agreement
that are not so qualified are true and correct in all material respects, in
<PAGE>
each case, on and as of the date hereof, except to the extent that such
representations and warranties expressly relate to an earlier date, and Ligand
has performed all covenants and agreements and satisfied all conditions on its
part to be performed or satisfied under the Purchase Agreement at or prior to
the date hereof;
(ii) As of the date hereof and since June 30, 1998, except as set forth in
the Additional SEC Reports, no event or development has occurred, and no
information has become known, that, individually or in the aggregate, has or
would be reasonably likely to have a Material Adverse Effect;
(iii) The issuance of the Incentive Shares has not been enjoined
(temporarily or permanently);
(iv) Each of the Purchase Agreement, the Registration Rights Agreement or
the New Registration Rights Agreement, as the case may be, the License Agreement
and, to the extent outstanding, the Securities, are, and after giving effect to
the issuance of the Incentive Shares, will be, valid and enforceable against
Ligand, except that (A) the enforcement thereof may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii) general
principles of equity and the discretion of the court before which any proceeding
therefor may be brought and (B) any rights to indemnity or contribution under
the Registration Rights Agreement or the New Registration Rights Agreement, as
the case may be, may be limited by federal and state securities laws and public
policy considerations, and no event that constitutes a breach of or a default
under (or an event which, with notice or passage of time or both would
constitute a default under) this Agreement, the Registration Rights Agreement or
the New Registration Rights Agreement, as the case may be, the License Agreement
or, to the extent outstanding, the Securities, by Ligand has occurred and is
continuing or, after giving effect to the issuance and sale of the Incentive
Shares, will have occurred and be continuing;
(v) Under the Preferred Share Rights Agreement, dated as of September 13,
1996, between Ligand and Wells Fargo Bank, N.A., as amended (the "Rights
Agreement"), no event has occurred that has caused or will cause, and none of
the execution of this Agreement or the consummation of the transactions
contemplated hereby, including the issuance of the Incentive Shares, will cause,
rights issued thereunder to become exercisable or a "Distribution Date" to
occur, assuming compliance by Elan and its Affiliates with the provisions of
Section 14(c) of the Purchase Agreement; and
(vi) The Registration Rights Agreement has been duly amended to include the
Incentive Shares within the definition of Registrable Securities thereunder.
Section 3. Representations & Warranties of EIS
(i) EIS acknowledges that the Incentive Shares will not be registered under
the
2
<PAGE>
Securities Act or any other applicable securities laws, will be issued in
transactions not requiring registration under the Securities Act and, unless so
registered, may not be offered, sold or otherwise transferred except in
compliance with the registration requirements of the Securities Act or any other
applicable securities law, pursuant to an exemption therefrom or in a
transaction not subject thereto and in each case in compliance with the
conditions for transfer set forth in paragraph (iii) below;
(ii) EIS is outside the United States and is not a "U.S. person" (as such
term is defined in Regulation S);
(iii) Until the expiration of the "one-year distribution compliance period"
within the meaning of Rule 903 of Regulation S, EIS will not sell or otherwise
transfer the Incentive Shares, except (i) to Ligand or its Subsidiaries, (ii)
pursuant to an effective registration statement which has been declared
effective under the Securities Act, (iii) in an offshore transaction in
accordance with Rule 904 of Regulation S or (iv) pursuant to any other available
exemption from the registration requirements of the Securities Act, including
Rule 144. After the expiration of such "one-year distribution compliance
period," EIS will not sell or otherwise transfer the Incentive Shares, except
pursuant to registration under the Securities Act or an available exemption
therefrom and, in any case, in accordance with the provisions of Regulation S
and applicable state securities laws;
(iv) EIS understands that the certificates representing the Incentive
Shares will, so long as appropriate, bear the legend set forth in clause (vi) of
Section 4(a) of the Purchase Agreement;
(v) EIS agrees that Ligand shall be entitled to make a notation on its
records and give instructions to any transfer agent of the Common Stock in order
to implement the restrictions on transfer set forth in the Purchase Agreement;
(vi) EIS believes that it has received all information it considers
necessary or appropriate and has had an opportunity to ask questions and receive
answers from Ligand regarding the terms and conditions of the issuance and sale
of the Incentive Shares and the business, properties, prospects and financial
condition of Ligand; provided that this clause (vi) shall in no way limit or
modify the representations and warranties of Ligand set forth in Section 3 of
the Purchase Agreement or the right of EIS to rely thereon; it is a
sophisticated investor and that an investment in the Incentive Shares involves a
high degree of risk; and that the valuation price of the Incentive Shares may or
may not exceed the last publicly quoted per share "asked" price of the Common
Stock on the date hereof;
(vii) EIS will be acquiring the Incentive Shares for its own account for
the purpose of investment and not (i) with a view to, or for sale in connection
with, any distribution thereof or (ii) for the account or on behalf of any "U.S.
person" (as such term is defined in Regulation S); EIS understands, acknowledges
and agrees that it must bear the economic risk of its investment in the
Incentive Shares for an indefinite period of time and that prior to any offer or
sale of such securities, Ligand may require, as a condition to effecting a
transfer of the Incentive Shares, an
3
<PAGE>
opinion of its counsel, acceptable to Ligand, as to the registration or
exemption therefrom under the Securities Act;
(viii) EIS was not formed specifically for the purpose of acquiring the
Incentive Shares under this Agreement;
(ix) EIS nor any of its Affiliates has, directly or indirectly, within the
past 90 days nor will such persons until the expiration of the "one-year
distribution compliance period" within the meaning of Rule 903 of Regulation S
commencing from the later to occur of (i) the last Additional Closing occurring
on or before December 31, 1999 and (ii) the last License Share Issuance
occurring on or before the expiration or termination of the License Agreement
directly or indirectly, enter into any short selling of any equity security of
Ligand (including, without limitation, the Common Stock) or any hedging
transaction with respect to any equity security of Ligand, including, without
limitation, puts, calls, or other option transactions, option writing and equity
swaps, unless in compliance with the Securities Act;
(x) EIS acknowledges that, until November 9, 2000, it shall not, directly
or indirectly, without the prior written consent of Ligand, Transfer the
Incentive Shares; provided that EIS may Transfer the Incentive Shares to any of
its Affiliates and any Affiliate of EIS may Transfer the Incentive Shares to EIS
or any Affiliate of EIS, subject to EIS's agreements set forth herein; and
(xi) EIS acknowledges that the issuance of the Incentive Shares shall not
result in an adjustment to the Conversion Price of the Notes under Section 6(i)
thereof.
Section 4. Acknowledgment of Ligand
Ligand acknowledges notwithstanding anything in the Purchase Agreement, the
acquisition of the Incentive Shares by EIS, shall not be violative of any
standstill provision contained in the Purchase Agreement, including Section
14(c), or otherwise applicable to EIS, and that the Incentive Shares shall be
afforded all of the rights and exceptions afforded the Shares under such
applicable provisions; provided that Ligand shall have no obligation to amend
the Rights Agreement with respect to the Incentive Shares.
Section 5. Miscellaneous
(i) APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND
THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE
AND TO BE PERFORMED WHOLLY THEREIN, WITHOUT GIVING EFFECT TO ANY PROVISIONS
THEREOF RELATING TO CONFLICTS OF LAW.
(ii) Waiver. No failure or delay on the part of a party hereto in
exercising any right,
4
<PAGE>
power or remedy hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right, power or remedy preclude any other
or further exercise thereof or the exercise of any other right, power or remedy
hereunder.
(iii) 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.
(iv) Terms. Capitalized terms used but not otherwise defined herein shall
have the meanings assigned to them in the Purchase Agreement.
5
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto and delivered as of the date first written above.
MONKSLAND HOLDINGS, BV
By: /s/Kevin Insley
Name: Kevin Insley
Title: Authorized Signatory
ELAN INTERNATIONAL SERVICES, LTD.
By: /s/Kevin Insley
Name: Kevin Insley
Title: President & CFO
LIGAND PHARMACEUTICALS INCORPORATED
By: /s/David Robinson
Name:
Title:
6
<PAGE>
EXHIBIT 10.214
FIFTEENTH ADDENDUM TO AMENDED REGISTRATION RIGHTS AGREEMENT
This Fifteenth Addendum ("Addendum") to the Amended Registration Rights
Agreement dated June 24, 1994, as amended through the date hereof ("Registration
Rights Agreement") among Ligand Pharmaceuticals Incorporated (the "Company") and
the persons and entities listed on Exhibit A hereto (collectively, the "X-Ceptor
Investors and Founders") is effective as of October 6, 1999.
RECITALS
A. The Company has issued warrants to purchase an aggregate of 950,000
shares of the Company's Common Stock with an exercise price equal to $10.00 per
share (collectively, the "X-Ceptor Warrants") to the X-Ceptor Investors and
Founders.
B. This Addendum serves to include any shares of the Company's Common Stock
issuable upon the exercise of the X-Ceptor Warrants within the definition of
"Registrable Securities" under the Registration Rights Agreement and to provide
that Schedule A to the Registration Rights Agreement shall be further updated to
include any such shares issued upon the exercise of the X-Ceptor Warrants, 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 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, (ii) 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, (iii) the 35,957 shares of Common Stock issuable or
issued upon exercise of the Warrant issued to Genentech, Inc. in 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, (iv) 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 (the "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 Notes dated October 30, 1997
<PAGE>
(the "S.R. One Notes") issued pursuant to the Stock and Note Purchase
Agreement (and upon such conversion of the S.R. One Notes, Schedule A shall
be updated to include such shares), (v) 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 SmithKline Beecham plc pursuant to a
Stock Purchase Agreement dated April 24, 1998 (the "SmithKline Stock
Purchase Agreement"), which shares are reflected on Schedule A attached to
the Ninth 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 that certain Warrant (the "Warrant")
issued pursuant to the SmithKline Stock Purchase Agreement (and upon such
conversion of the Warrant, Schedule A shall be updated to include such
shares), (vi) the 1,278,970 shares of Common Stock (or that number of
shares of such other class of stock into which the Common Stock is
converted) issued to Elan International Services, Ltd. pursuant to the
Stock Purchase Agreement dated September 30, 1998, which shares are
reflected on Schedule A attached to the Tenth Addendum to this Agreement,
(vii) the 437,768 shares of Common Stock (or that number of shares of such
other class of stock into which the Common Stock is converted) issued to
Elan International Services, Ltd. pursuant to the Securities Purchase
Agreement, dated November 6, 1998 (the "Elan Securities Purchase
Agreement"), which shares are reflected on Schedule A attached to the
Eleventh Addendum to this Agreement, (viii) 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 the Zero Coupon Convertible Senior
Notes due 2008 (the "Elan Notes") issued pursuant to the Elan Securities
Purchase Agreement (and upon such conversion of the Elan Notes, Schedule A
shall be updated to include such shares), (viii) the 429,185 shares of
Common Stock (or the shares of such other class of stock into which the
Common Stock is converted) issued to Elan Corporation, plc pursuant to the
Development, License and Supply Agreement dated November 9, 1998 (the "Elan
License Agreement"), which shares are reflected on Schedule A attached to
the Eleventh Addendum to this Agreement, (ix) the shares of Common Stock
that may be issued to Elan Corporation, plc pursuant to the Elan License
Agreement (and upon each such issuance, Schedule A shall be updated to
include such shares), (x) the shares of Common Stock (or the shares of such
other class of stock into which the Common Stock is converted) issuable to
Elan International Services, Ltd. upon exercise of that certain Warrant
(the "EIS Warrant") dated August 4, 1999 (and upon such exercise of the EIS
Warrant, Schedule A shall be updated to include such shares), (xi) the
289,750 shares of Common Stock (or the shares of such other class of stock
into which the Common Stock is converted) issued to Warner Lambert Company
pursuant to the Purchase Agreement dated September 1, 1999, which shares
are reflected on Schedule A attached to the Thirteenth Addendum to this
Agreement, (xii) the 52,742 shares of Common Stock (or the shares of such
other class of stock into which the Common Stock is converted) issued to
EIS pursuant to the Stock Purchase Agreement dated September 30, 1999,
which shares are reflected on Schedule A attached to the Fourteenth
Addendum to this Agreement, (xiii) the shares of Common Stock (or
2
<PAGE>
the shares of such other class of stock into which the Common Stock is
converted) issuable upon exercise of those certain Series X Warrants dated
[October 6, 1999] (the "X-Ceptor Warrants") (and upon any such exercise of
the X-Ceptor Warrants, Schedule A shall be updated to include such shares),
and (xiv) 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), (vi), (vii), (viii), (ix), (x), (xi), (xii) and (xiii) 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, each of the X-Ceptor
Investors and Founders, 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 THIS PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Addendum as of the date
first above written.
LIGAND PHARMACEUTICALS INCORPORATED
By: /s/William L. Respess
Its: Senior Vice President
General Counsel, Government Affairs
X-CEPTOR INVESTORS AND FOUNDERS:
Domain Partners IV, L.P.
By: One Palmer Square Associates IV, L.L.C.,
General Partner
By: /s/Kathleen Schoemaker
Its: Managing Member
DP IV Associates, L.P.
By: One Palmer Square Associates IV, L.L.C.,
General Partner
By: /s/Kathleen Schoemaker
Its: Managing Member
[SIGNATURE PAGE TO FIFTEENTH ADDENDUM
TO AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE>
FARALLON CAPITAL PARTNERS, L.P.
FARALLON CAPITAL INSTITUTIONAL
PARTNERS, L.P.
FARALLON CAPITAL INSTITUTIONAL
PARTNERS II, L.P.
FARALLON CAPITAL INSTITUTIONAL
PARTNERS III, L.P.
RR CAPITAL PARTNERS, L.P.
By: Farallon Partners, L.L.C.,
its General Partner
By: /s/David Cohen
Its:
TechAMP International, L.P.
By: AMP&A Management, LLC,
General Partner
By: /s/ A.M. Papas
Its: Manager
/s/ Kevin Kinsella
- ----------------------
Kevin Kinsella
/s/Ronald Evans
- ----------------------
Ronald Evans
/s/Bert O'Malley
- ----------------------
Bert O'Malley
/s/David Mangelsdorf
- ----------------------
David Mangelsdorf
[SIGNATURE PAGE TO FIFTEENTH ADDENDUM
TO AMENDED REGISTRATION RIGHTS AGREEMENT]
5
<PAGE>
/s/Richard Heyman
- ----------------------
Richard Heyman
/s/Robert Giargiari
- ----------------------
Robert Giargiari
/s/Ming Wei Wang
- ----------------------
Ming Wei Wang
GIMV N.V.
By: /s/ illegible /s/ illegible
- ---------------------- ----------------------
Its: Vice President Vice President
Sofinov Societe Financiere D'Innovation, Inc.
By: /s/Jean-Chirtophe Denondin
- -------------------------------------
Its: Vice President
By: /s/Ginette Depelteau
- -------------------------------------
Its: Secretary
[SIGNATURE PAGE TO FIFTEENTH ADDENDUM
TO AMENDED REGISTRATION RIGHTS AGREEMENT]
6
<PAGE>
SCHEDULE A
to
Fifteenth Addendum to
Amended Registration Rights Agreement
<TABLE>
<CAPTION>
- --------------------------------------------------------- ---------------------
Shares
Name Issued
- --------------------------------------------------------- ---------------------
<S> <C>
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
Domain Partners IV, L.P. _______
DP IV Associates, L.P. _______
Elan Corporation, plc 429,185
Elan International Services, Ltd. 1,769,480
Enterprise Partners 3,745
Ronald Evans _______
Farallon Capital Partners, L.P. _______
Farallon Capital Institutional Partners, L.P. _______
Farallon Capital Institutional Partners II, L.P. _______
Farallon Capital Institutional Partners III, L.P. _______
GIMV N.V. _______
Genentech, Inc. 35,957
Robert Giargiari _______
Richard Heyman _______
Kevin Kinsella _______
A-1
<PAGE>
Kleiner Perkins Caufield & Byers 7,688
ML Venture Partners II, L.P. 2,417
David Mangelsdorf _______
Bert O'Malley _______
RR Capital Partners, L.P. _______
S.R. One, Limited 164,474
SmithKline Beecham 274,423
Sofinov Societe Financiere D'Innovation _______
TechAMP International, L.P. _______
Venrock Associates 3,441
Venrock Associates II, L.P. 1,540
Ming Wei Wang _______
Warner Lambert Company 289,750
Windsor Venture Lease Partners Ltd., Inc. 283
Total: 4,108,918
- --------------------------------------------------------- ---------------------
2
</TABLE>
<PAGE>
EXHIBIT 10.215
SIXTEENTH ADDENDUM TO AMENDED REGISTRATION RIGHTS AGREEMENT
This Sixteenth 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 Elan International Services, Ltd. ("EIS") is effective as of December 31,
1999.
RECITALS
A. The Company has issued 188,572 shares of the Company's Common Stock (the
"Incentive Shares") to EIS pursuant to the terms of that certain Incentive
Agreement dated December 31, 1999 among the Company, EIS and Monksland Holdings,
B.V.
B. This Addendum serves to include the EIS Shares within the definition of
"Registrable Securities" under the Registration Rights Agreement 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 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, (ii) 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, (iii) the 35,957 shares of Common Stock issuable or
issued upon exercise of the Warrant issued to Genentech, Inc. in 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, (iv) 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 (the "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 Notes dated October 30, 1997 (the
"S.R. One Notes") issued pursuant to the Stock and Note Purchase Agreement
(and upon such conversion of the S.R. One Notes, Schedule A shall be
updated to include such shares), (v) the 274,423 shares of Common Stock (or
that number of shares of such other class of stock into which the Common
Stock is
<PAGE>
converted) issued to SmithKline Beecham plc pursuant to a Stock
Purchase Agreement dated April 24, 1998 (the "SmithKline Stock Purchase
Agreement"), which shares are reflected on Schedule A attached to the Ninth
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 that certain Warrant (the "Warrant") issued
pursuant to the SmithKline Stock Purchase Agreement (and upon such
conversion of the Warrant, Schedule A shall be updated to include such
shares), (vi) the 1,278,970 shares of Common Stock (or that number of
shares of such other class of stock into which the Common Stock is
converted) issued to Elan International Services, Ltd. pursuant to the
Stock Purchase Agreement dated September 30, 1998, which shares are
reflected on Schedule A attached to the Tenth Addendum to this Agreement,
(vii) the 437,768 shares of Common Stock (or that number of shares of such
other class of stock into which the Common Stock is converted) issued to
Elan International Services, Ltd. pursuant to the Securities Purchase
Agreement, dated November 6, 1998 (the "Elan Securities Purchase
Agreement"), which shares are reflected on Schedule A attached to the
Eleventh Addendum to this Agreement, (viii) 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 the Zero Coupon Convertible Senior
Notes due 2008 (the "Elan Notes") issued pursuant to the Elan Securities
Purchase Agreement (and upon such conversion of the Elan Notes, Schedule A
shall be updated to include such shares), (viii) the 429,185 shares of
Common Stock (or the shares of such other class of stock into which the
Common Stock is converted) issued to Elan Corporation, plc pursuant to the
Development, License and Supply Agreement dated November 9, 1998 (the "Elan
License Agreement"), which shares are reflected on Schedule A attached to
the Eleventh Addendum to this Agreement, (ix) the shares of Common Stock
that may be issued to Elan Corporation, plc pursuant to the Elan License
Agreement (and upon each such issuance, Schedule A shall be updated to
include such shares), (x) the shares of Common Stock (or the shares of such
other class of stock into which the Common Stock is converted) issuable to
Elan International Services, Ltd. upon exercise of that certain Warrant
(the "EIS Warrant") dated August 4, 1999 (and upon such exercise of the EIS
Warrant, Schedule A shall be updated to include such shares), (xi) the
289,750 shares of Common Stock (or the shares of such other class of stock
into which the Common Stock is converted) issued to Warner Lambert Company
pursuant to the Purchase Agreement dated September 1, 1999, which shares
are reflected on Schedule A attached to the Thirteenth Addendum to this
Agreement, (xii) the 52,742 shares of Common Stock (or the shares of such
other class of stock into which the Common Stock is converted) issued to
EIS pursuant to the Stock Purchase Agreement dated September 30, 1999,
which shares are reflected on Schedule A attached to the Fourteenth
Addendum to this Agreement, (xiii) the shares of Common Stock (or the
shares of such other class of stock into which the Common Stock is
converted) issuable upon exercise of those certain Series X Warrants dated
October 6, 1999 (the "X-Ceptor Warrants") (and upon any such exercise of
the X-Ceptor Warrants, Schedule A shall be updated to include such shares),
(xiv) the 188,572
2
<PAGE>
shares of Common Stock (or that number of shares of such other class
of stock into which the Common Stock is converted) issued to Elan
International Services, Ltd. pursuant to the Incentive Agreement, dated
December 31, 1999, which shares are reflected on Schedule A attached to the
Sixteenth Addendum to this Agreement, and (xv) 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), (vi), (vii), (viii),
(ix), (x), (xi), (xii), (xiii) and (xiv) 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, EIS, 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 THIS PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Addendum as of the date
first above written.
LIGAND PHARMACEUTICALS INCORPORATED
By: /s/David E. Robinson
Its:
ELAN INTERNATIONAL SERVICES, LTD.
By: /s/Kevin Insley
Its:
[SIGNATURE PAGE TO SIXTEENTH ADDENDUM
TO AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE>
SCHEDULE A
to
Sixteenth Addendum to
Amended Registration Rights Agreement
<TABLE>
<CAPTION>
- --------------------------------------------- ----------------------
Shares
Name Issued
- --------------------------------------------- ----------------------
<S> <C>
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
Elan Corporation, plc 429,185
Elan International Services, Ltd. 4,202,512
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
Warner Lambert Company 289,750
Windsor Venture Lease Partners Ltd., Inc. 283
Total: 6,541,950
- --------------------------------------------- ----------------------
</TABLE>
A-1
<PAGE>
EXHIBIT 10.216
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "X-CEPTOR THERAPEUTICS, INC.", FILED IN THIS OFFICE ON THE FIRST DAY OF
OCTOBER, A.D. 1999, AT 4 O'CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
/s/ Edward J. Freel
-----------------------------------
[SEAL] Edward J. Freel, Secretary of State
3057193 8100 AUTHENTICATION: 0008418
991418040 DATE: 10-05-99
<PAGE>
CERTIFICATE OF AMENDMENT OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
X-CEPTOR THERAPEUTICS, INC.
Kevin J. Kinsella and Michael O'Donnell certify that:
1. They are the Chief Executive Officer and the Secretary, respectively, of
X-Ceptor Therapeutics, Inc., a Delaware Corporation (the "Corporation")
originally incorporated on June 16, 1999.
2. Paragraph 7.4 (a)(i) of Schedule I of the Amended and Restated
Certificate of Incorporation is amended to read in its entirety as follows:
"(i) The fair market value of a share of Common Stock (the
"Fair Market Value") shall be determined in accordance with the following
formula:
A = B/C
Where: A = Fair Market Value per share of Common Stock
B = $61,400,000 less an amount equal to product of (i)
$2.07432, multiplied by (ii) the excess, if any, of (A)
18,900,000, over (B) the aggregate number of shares of Series B
Preferred sold by the Company on the closing Date and within 120
days of the closing Date (excluding any shares held by Ligand,
its affiliates or any of their transferees) (such amount being
the "Series B Shortfall") if the Exercise Date occurs at any time
on or before the Third Anniversary, or $79,800,000 less an amount
equal to the product of (i) $2.6959, multiplied by (ii) the
Series B Shortfall if the Exercise Date occurs after the Third
Anniversary
C = Number of shares of Common Stock outstanding on the
Option Closing Date taking into account the automatic conversion
of any shares of Preferred Stock pursuant to the company's
Certificate of Incorporation immediately prior to the Option
Closing Date (excluding any shares held by Ligand, its affiliates
(in excess of an aggregate of 200,000 shares of Common Stock) or
any of their transferees) and including all shares issuable upon
conversion or exercise of options, warrants, convertible notes or
other convertible or exercisable securities (collectively,
"Convertible Securities")"
<PAGE>
IN WITNESS WHEREOF, this Certificate of Amendment of the Amended and
Restated Certificate of Incorporation, which amends certain provisions of the
Amended and Restated Certificate of Incorporation of the Corporation, having
been duly adopted in accordance with Section 242 of the Delaware General
Corporation Law, has been duly executed by its Chief Executive Officer and
Secretary this 29th day of September, 1999.
/s/ Kevin J. Kinsella
--------------------------------
Kevin J. Kinsella, Chief
Executive Officer
/s/Michael J. O'Donnell
--------------------------------
Michael J. O'Donnell, Secretary
-2-
<PAGE>
EXHIBIT 10.217
No. X-1
NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE HEREUNDER HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED,
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT WITH RESPECT TO THE SECURITIES OR UNLESS
LIGAND PHARMACEUTICALS INCORPORATED RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THIS WARRANT SATISFACTORY TO LIGAND PHARMACEUTICALS INCORPORATED,
STATING THAT SUCH OFFER, SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
THIS WARRANT IS VOID AFTER 5:00 P.M., SAN DIEGO TIME, ON AUGUST 3, 2006.
LIGAND PHARMACEUTICALS INCORPORATED
AMENDED AND RESTATED
SERIES X WARRANT
FOR THE PURCHASE OF
91,406 SHARES OF COMMON STOCK
IN CONSIDERATION OF the payment by the initial holder hereof (the "Initial
Holder") to LIGAND PHARMACEUTICALS INCORPORATED, a Delaware corporation
("LIGAND"), of Three Hundred Eighty-Three Thousand Nine Hundred Five Dollars and
Twenty Cents ($383,905.20), LIGAND hereby certifies that
ELAN INTERNATIONAL SERVICES, LTD.
or any registered assignee of the Initial Holder (each of the Initial Holder and
any such registered assignee being hereinafter referred to as the "Holder") is
entitled, subject to the provisions of this Warrant, to purchase from LIGAND, at
any time or from time to time on or after the earlier of (i) August 4, 2000 (the
"Exercise Date") or (ii) the date which is ten (10) days prior to the
Acceleration Date (as hereinafter defined) and before 5:00 p.m. San Diego time,
on August 3, 2006 (the "Exercise Period"), Ninety-One Thousand Four Hundred Six
(91,406) fully paid and nonassessable shares of Common Stock, $.001 par value,
of LIGAND. The term "Common Stock" shall mean the aforementioned Common Stock of
LIGAND together with any other equity securities that may be issued by LIGAND in
connection therewith or in substitution therefor as provided herein. The
purchase price per share for such shares of Common Stock shall be equal to
$10.00 as appropriately adjusted pursuant to Section 9 and Section 10 hereof
(the "Exercise Price").
<PAGE>
For purposes of this Warrant, (a) "Acceleration Event" means the occurrence
of any of the following events: (i) LIGAND shall, or shall agree to, merge or
consolidate with any other corporation as a result of which the stockholders of
LIGAND own less than a majority of the voting stock of the surviving corporation
immediately following such consolidation or merger; (ii) LIGAND shall, or shall
agree to, be acquired (by merger or otherwise) by any unaffiliated person
(including any individual, partnership, joint venture, corporation, trust or
group thereof); (iii) LIGAND shall, or shall agree to, sell, lease, transfer or
otherwise dispose of all or substantially all of its assets to any unaffiliated
person; or (iv) any "person" or "group" (within the meaning of Section 13(d) and
Section 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), shall announce the commencement of a bona fide tender offer or exchange
offer in accordance with the rules and regulations of the Exchange Act to
purchase or acquire securities in LIGAND, such that after such purchase or
acquisition, the acquiror "beneficially owns" or would "beneficially own" (as
defined in Rule 13d-3 under the Exchange Act) securities of LIGAND representing
30% or more of the combined voting power of LIGAND's then outstanding securities
having power to vote in the election of directors; (b) "Acceleration Date" means
the first date upon which an Acceleration Event occurs, provided that, if
approval of the shareholders of LIGAND is required in connection with such
Acceleration Event, Acceleration Date means the date of such shareholder
approval; and (c) "Closing Price" means the closing price per share of the
Common Stock on the principal national securities exchange on which the Common
Stock is listed or admitted to trading or, if not listed or traded on any such
exchange, on the National Association of Securities Dealers Automated Quotation
System ("Nasdaq") National Market System ("Nasdaq National Market"), or if not
listed or traded on any such exchange or system, the average of the last bid and
offer price per share on the Nasdaq over-the-counter system or, if such
quotations are not available, the fair market value as reasonably determined by
the Board of Directors of LIGAND or any committee of such Board. Other
capitalized terms used herein but not defined herein shall have the meanings
given such terms in the Purchase Agreement.
The number of shares of Common Stock to be received upon the exercise of
this Warrant and the Exercise Price are subject to adjustment from time to time
as hereinafter set forth. The shares of Common Stock deliverable upon such
exercise, as adjusted from time to time, are hereinafter sometimes referred to
as "Warrant Shares."
1. Exercise of Warrant.
(a) This Warrant may be exercised in whole or in increments of one hundred
(100) shares (unless the Warrant is exercisable for a lesser number of shares in
which case the Warrant may be exercised only in whole), at any time or from time
to time, during the Exercise Period by presentation and surrender thereof to
LIGAND, at its offices designated in Section 17 hereof, with the Purchase Form
attached hereto duly executed and accompanied by cash or a certified or official
bank check drawn to the order of "LIGAND PHARMACEUTICALS INCORPORATED" in the
amount of the Exercise Price multiplied by the number of Warrant Shares
specified in such form. If this Warrant should be exercised in part only, LIGAND
shall, upon surrender of this Warrant, execute and deliver a new Warrant
evidencing the rights of the Holder thereof to purchase the balance of the
Warrant Shares purchasable hereunder. Upon
2
<PAGE>
receipt by LIGAND during the Exercise Period of this Warrant and such
Purchase Form, in proper form for exercise, together with proper payment of the
Exercise Price, at such office, the Holder shall be deemed to be the holder of
record of the number of Warrant Shares specified in such form, provided,
however, that if the date of such receipt by LIGAND is a date on which the stock
transfer books of LIGAND are closed, such person shall be deemed to have become
the record holder of such shares on the next succeeding business day on which
the stock transfer books of LIGAND are open. LIGAND shall pay any and all
documentary, stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of such Warrant Shares. Any new or substitute Warrant issued
under this Section 1 or any other provision of this Warrant shall be dated the
date of this Warrant.
(b) Each certificate representing any Warrant Shares issued upon exercise
of this Warrant (unless such Warrant Shares have been registered pursuant to the
Twelfth Addendum to Registration Rights Agreement by and among LIGAND and the
other parties named therein, as amended from time to time (the "Rights
Agreement")) shall be endorsed with a legend in substantially the following
form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT WITH RESPECT TO THE SECURITIES OR UNLESS
LIGAND PHARMACEUTICALS INCORPORATED RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF SUCH SECURITIES SATISFACTORY TO LIGAND PHARMACEUTICALS, INCORPORATED
STATING THAT SUCH OFFER, SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
2. Right To Exchange Warrant.
(a) The Holder shall have the right to require LIGAND to exchange this
Warrant (the "Exchange Right") (subject to the availability of such Exchange
Right pursuant to the Securities Act of 1933, as amended (the "Act") and the
rules and regulations thereunder), in whole or in increments of one hundred
(100) shares (unless the Warrant is exercisable for a lesser number of shares in
which case the Warrant may be exchanged only in whole), at any time during the
Exercise Period, for shares of Common Stock as provided for in this Section 2.
Upon exercise of the Exchange Right, LIGAND shall deliver to the Holder (without
payment by the Holder of any Exercise Price) the number of shares of Common
Stock calculated as follows:
X = Y(A-B)
A
Where: X = the number of shares of Common Stock to be issued to the Holder upon
the exercise of the Exchange Right.
3
<PAGE>
Y = the number of Warrant Shares for which exchange has been
requested.
A = the Closing Price for the trading day immediately preceding the
receipt of the Warrant and the Purchase Form as provided in Section 2(b).
B = the Exercise Price for the Warrant Shares in effect immediately
prior to the exercise of the Exchange Right.
(b) The Exchange Right may be exercised by the Holder, at any time or from
time to time, on any Business Day by delivering this Warrant and the Purchase
Form attached hereto to LIGAND at its offices designated in Section 17 hereof,
and specifying that the Holder is exercising the Exchange Right to acquire the
number of shares of Common Stock then issuable upon such exchange pursuant to
Section 2(a). If this Warrant should be exchanged in part only, LIGAND shall,
upon surrender of this Warrant, execute and deliver a new Warrant evidencing the
rights of the Holder thereof to purchase the balance of the Warrant Shares
purchasable hereunder. Upon receipt by LIGAND during the Exercise Period of this
Warrant and such Purchase Form, in proper form for exercise, at such office, the
Holder shall be deemed to be the holder of record of the number of Warrant
Shares issuable upon exercise of the Exchange Right as calculated pursuant to
Section 2(a), provided, however, that if the date of such receipt by LIGAND is a
date on which the stock transfer books of LIGAND are closed, such person shall
be deemed to have become the record holder of such shares on the next succeeding
Business Day on which the stock transfer books of LIGAND are open. LIGAND shall
pay any and all documentary, stamp or similar issue or transfer taxes payable in
respect of the issue or delivery of such Warrant Shares.
(c) No fractional shares of Common Stock shall be issued to the Holder in
connection with the exchange of this Warrant pursuant to this Section 2. Instead
of any fractional shares of Common Stock that would otherwise be issuable to the
Holder, LIGAND shall pay to the Holder a cash adjustment in respect of such
fractional interest in an amount equal to that fractional interest multiplied by
the Closing Price for the trading day immediately preceding the receipt of this
Warrant and the Purchase Form as provided in Section 2(b).
3. Warrant Register. This Warrant shall be registered in a register (the
"Warrant Register") to be maintained by LIGAND at its offices in the name of the
record holder set forth above. LIGAND may deem and treat the registered Holder
of this Warrant as the absolute owner thereof (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof or any distribution to the Holder hereof and for all other
purposes, and LIGAND shall not be affected by any notice to the contrary.
4. Reservation of Shares. LIGAND hereby agrees that at all times there
shall be reserved for issuance and delivery upon exercise of this Warrant all
shares of its Common Stock or other shares of capital stock of LIGAND from time
to time issuable upon exercise of this Warrant. All such shares shall be duly
authorized and when issued upon such exercise shall be validly issued, fully
paid and nonassessable, free and clear of all liens, security interests, charges
and other
4
<PAGE>
encumbrances or restrictions on sale granted by LIGAND and free and clear
of all preemptive rights granted by LIGAND.
Before taking any action that would cause a reduction pursuant to the
provisions hereof of the Exercise Price below the then par value (if any) of the
Warrant Shares issuable upon exercise of this Warrant, LIGAND shall take any
corporate action that may, in the opinion of its counsel, be necessary in order
that LIGAND may validly and legally issue fully paid and nonassessable Warrant
Shares at the initial Exercise Price as so adjusted.
5. Transfer of the Warrant and Warrant Shares.
(a) Neither this Warrant nor any of the Warrant Shares nor any interest in
either may be offered, sold, assigned, pledged, hypothecated, encumbered or in
any other manner transferred or disposed of, in whole or in part, except in
accordance with Section 6 hereof and in compliance with applicable United States
federal and state securities laws, the securities laws of other applicable
jurisdictions, and the terms and conditions of the Purchase Agreement and
hereof. Except as provided below, each Warrant shall bear the following legend:
NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE HEREUNDER HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED,
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT WITH RESPECT TO THE SECURITIES OR UNLESS
LIGAND PHARMACEUTICALS INCORPORATED RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THIS WARRANT SATISFACTORY TO LIGAND PHARMACEUTICALS INCORPORATED,
STATING THAT SUCH OFFER, SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
Notwithstanding the foregoing, the Holder may require LIGAND to issue a Warrant
without the legend set forth above in substitution for a legended Warrant if
either (i) the sale, transfer or other disposition of such Warrant is registered
under the Act and applicable securities laws or (ii) the Holder has received an
opinion of counsel satisfactory to LIGAND that such registration is not required
with respect to such Warrant. The provisions of this Section 5 shall be binding
upon all subsequent holders of this Warrant. No transfer or assignment of this
Warrant may be made except in accordance with the provisions of Section 6
hereof.
(b) The original offering and sale of this Warrant was intended to be
exempt from registration under the Act by virtue of Section 4(2) of the Act and
the provisions of Regulation D promulgated under the Act. LIGAND is not under
any obligation to register this Warrant or the Warrant Shares other than as
provided in the Rights Agreement.
(c) This Warrant and the Warrant Shares may not be sold, transferred or
otherwise disposed of unless (i) the sale, transfer or other disposition of this
Warrant or the Warrant Shares, as the case may be, are registered under the Act
and applicable securities laws or (ii) in the opinion of counsel satisfactory to
LIGAND, an exemption from the registration
5
<PAGE>
requirements of the Act and such securities laws is available, and in the
absence of an effective registration statement covering such securities or an
available exemption from registration under the Act, this Warrant and the
Warrant Shares must be held indefinitely.
6. Exchange, Transfer or Assignment of Warrant.
(a) Subject to the provisions of Section 5 hereof, this Warrant may be
assigned or transferred, at the option of the Holder but only to an accredited
investor within the meaning of Rule 501(a) of Regulation D, upon surrender of
this Warrant to LIGAND, with the Warrant Assignment Form attached hereto duly
executed and information in such form as reasonably requested by LIGAND
substantiating such assignee's status as an accredited investor accompanied by
funds sufficient to pay any transfer tax. LIGAND shall execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment, and
this Warrant shall promptly be canceled. LIGAND shall not be required to issue
any Warrant to any assignee other than an accredited investor.
(b) This Warrant may not be divided or exchanged for other Warrants of
denominations exercisable for less than one hundred (100) Warrant Shares.
(c) Any transfer or assignment of this Warrant shall be without charge
(other than the cost of any transfer tax) to the Holder and any new Warrant
issued pursuant to this Section 6 shall be dated the date hereof. The term
"Warrant" as used herein includes any new Warrant issued pursuant to this
Section or Sections 1, 2, 5 or 7 hereof.
7. Lost, Mutilated or Missing Warrant. Upon receipt by LIGAND of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of satisfactory
indemnification, and upon surrender and cancellation of this Warrant, if
mutilated, LIGAND shall authenticate and deliver a new Warrant of like tenor and
date.
8. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in LIGAND, either at law or in equity,
and the rights of the Holder are limited to those expressed in this Warrant.
9. Anti-Dilution Provision. The Exercise Price and the number of Warrant
Shares that may be purchased upon the exercise hereof shall be subject to change
or adjustment as follows:
(a) Stock Dividends and Stock Splits. If at any time after the date
hereof and before 5:00 p.m., San Diego time, on the last day of the Exercise
Period, (i) LIGAND shall fix a record date for the issuance of any stock
dividend payable in shares of Common Stock or (ii) the number of shares of
Common Stock shall have been increased by a subdivision or split-up of shares of
Common Stock, then, on the record date fixed for the determination of holders of
Common Stock entitled to receive such dividend or immediately after the
effective date of such subdivision or split-up, as the case may be, the number
of shares to be delivered upon exercise of this Warrant shall be appropriately
increased so that the Holder thereafter shall be entitled to receive the number
of shares of Common Stock that the Holder would have owned immediately
6
<PAGE>
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price shall be appropriately decreased.
(b) Combination of Stock. If at any time after the date hereof and
before 5:00 p.m., San Diego time, on the last day of the Exercise Period, the
number of shares of Common Stock outstanding shall have been decreased by a
combination of the outstanding shares of Common Stock, then, immediately after
the effective date of such combination, the number of shares of Common Stock to
be delivered upon exercise of this Warrant shall be appropriately decreased so
that the Holder thereafter shall be entitled to receive the number of shares of
Common Stock that the Holder would have owned immediately following such action
had this Warrant been exercised immediately prior thereto, and the Exercise
Price shall be appropriately increased.
(c) Reorganization, etc. If at any time after the date hereof and
before 5:00 p.m., San Diego time, on the last day of the Exercise Period, any
capital reorganization of LIGAND, or any reclassification of the Common Stock,
or any consolidation of LIGAND with or merger of LIGAND with or into any other
person or entity or any sale, lease or other transfer of all or substantially
all of the assets of LIGAND to any other person or entity shall be effected in
such a way that upon consummation of such transaction, the holders of Common
Stock shall be entitled to receive stock, securities or assets with respect to
or in exchange for Common Stock, then, upon exercise of this Warrant in
accordance with Section 1 hereof, the Holder shall have the right to receive the
kind and amount of stock, securities or assets receivable upon such
reorganization, reclassification, consolidation, merger or sale, lease or other
transfer by a holder of the number of shares of Common Stock that the Holder
would have been entitled to receive upon exercise of this Warrant pursuant to
Section 1 hereof had this Warrant been exercised immediately before such
reorganization, reclassification, consolidation, merger or sale, lease or other
transfer, subject to adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 9.
(d) Rights Offering. If LIGAND at any time after the date of issuance
hereof and before 5:00 p.m., San Diego time, on the last day of the Exercise
Period, shall issue or sell or fix a record date for the issuance of rights,
options, warrants or convertible or exchangeable securities to all holders of
Common Stock entitling them to subscribe for or purchase Common Stock or
securities convertible into Common Stock, in any such case, at a price per share
(or having a conversion price per share) that, together with the value (if for
consideration other than cash, as determined in good faith by the Board of
Directors of LIGAND) of any consideration paid for any such rights, options,
warrants, or convertible or exchangeable securities, is greater than the
Exercise Price and less than the Closing Price on the date of such issuance or
sale or on such a record date then, immediately after the date of such issuance
or sale, or on such record date, the number of shares to be delivered upon
exercise of this Warrant shall be appropriately increased so that the Holder
thereafter, during the Exercise Period, will be entitled to receive the number
of shares of Common Stock determined by multiplying the number of shares the
Holder would have been entitled to receive immediately before the date of such
issuance or sale or such record date by a fraction, the denominator of which
will be the number shares of Common Stock outstanding on such date plus the
number of shares of Common Stock that the aggregate offering price of the total
number of shares so offered for subscription or purchase (or the aggregate
7
<PAGE>
initial conversion price of the convertible securities so offered) would
purchase at such Closing Price, and the numerator of which will be the number of
shares of Common Stock outstanding on such date plus the number of shares of
Common Stock offered for subscription or purchase (or into which the convertible
securities so offered are initially convertible), and the exercise price shall
be appropriately adjusted. The time of occurrence of an event giving rise to an
adjustment pursuant to this Section 9(d) shall, in the case of a dividend, be
the record date and shall, in the case of an issuance or sale, be the date of
such issuance or sale.
(e) Special Dividends. If LIGAND at any time after the date of
issuance of this Warrant and before 5:00 p.m., San Diego time, on the last day
of the Exercise Period shall distribute to all holders of its Common Stock cash,
debt securities or other assets (including evidences of indebtedness), except to
the extent paid out of retained or accumulated earnings, the Exercise Price will
be adjusted so that immediately following the date fixed by LIGAND as the record
date in respect of such issuance it shall equal the price determined by
multiplying the Exercise Price in effect immediately prior to the close of
business on the record date for the determination of the shareholders entitled
to receive such dividend by a fraction, the numerator of which shall be the
Closing Price on such record date less the then fair market value as determined
by the Board of Directors of LIGAND, whose determination shall be conclusive, of
the portion of the securities or assets distributed applicable to one share of
Common Stock and the denominator of which shall be such Closing Price. Such
adjustment shall become effective on such record date.
(f) No Adjustments to Exercise Price. No adjustment in the Exercise
Price in accordance with the provisions of subsections 10(a), (b), (c), (d) or
(e) above need be made if such adjustment would amount to a change in such
Exercise Price of less than $0.01; provided, however, that the amount by which
any adjustment is not made by reason of the provisions of this section shall be
carried forward and taken into account at the time of any subsequent adjustment
in the Exercise Price.
(g) Fractional Shares. No fractional shares of Common Stock or scrip
shall be issued to the Holder in connection with the exercise of this Warrant.
Instead of any fractional shares of Common Stock that would otherwise be
issuable to the Holder, LIGAND shall pay to the Holder a cash adjustment in
respect of such fractional interest in an amount equal to that fractional
interest multiplied by the Closing Price on the date of exercise.
(h) Definition of Common Stock. For purposes of this Section 9, the
term "Common Stock" shall mean (i) the class of stock designated as the Common
Stock of LIGAND on the date hereof, or (ii) any other classes of stock resulting
from successive changes or reclassifications of such shares consisting solely of
changes in par value or from par value to no par value, or from no par value to
par value.
10. Notices of Certain Events.
(a) If at any time after the date hereof and before the expiration of the
Exercise Period:
8
<PAGE>
(i) LIGAND authorizes the issuance to all holders of its Common Stock
of rights, options or warrants to subscribe for or purchase shares of its Common
Stock or any other subscription rights, options or warrants; or
(ii) LIGAND authorizes the distribution to all holders of its Common
Stock of evidences of its indebtedness or assets (other than cash dividends or
distributions payable out of retained earnings or stock dividends); or
(iii) there shall be any capital reorganization of LIGAND or
reclassification of the Common Stock (other than a change in par value of the
Common Stock or an increase in the authorized capital stock of LIGAND not
involving the issuance of any shares thereof) or any consolidation or merger to
which LIGAND is a party (other than a consolidation or merger in which LIGAND is
the continuing corporation and that does not result in any reclassification or
change in the Common Stock outstanding) or a conveyance, lease or transfer of
all or substantially all of the properties and assets of LIGAND (other than the
granting of a security interest); or
(iv) there shall be any voluntary or involuntary dissolution,
liquidation or winding-up of LIGAND; or
(v) there shall be any other event that would result in an adjustment
pursuant to Section 9 hereof in the Exercise Price or the number of Warrant
Shares that may be purchased upon the exercise hereof;
LIGAND shall cause to be mailed or delivered to the Holder, (A) at least twenty
(20) days (or ten (10) days in any case specified in clauses (i) or (ii) above)
before the applicable record or effective date hereinafter specified or (B) on
the date on which any case specified in clauses (i) through (v) above is
publicly announced, whichever is later, a notice stating (A) the date as of
which the holders of Common Stock of record entitled to receive any such rights,
options, warrants or distributions is to be determined, or (B) the date on which
any such reorganization, reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding-up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities or other property, if any, deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding-up.
(b) LIGAND shall (i) at least twenty (20) days before the occurrence of any
Acceleration Event (unless the occurrence of that Acceleration Event is beyond
its control, in which case, LIGAND shall as soon as practicable) or (ii) on the
date on which any such Acceleration Event is publicly announced, whichever is
later, cause to be mailed or delivered to the Holder a notice describing in
reasonable detail such Acceleration Event and informing the Holder that Warrant
may be exercised by the Holder thereof.
(c) Any failure by LIGAND to provide notice to the Holder in accordance
with this Section 10 shall not affect the legality or validity of any such
distribution, right, option, warrant,
9
<PAGE>
consolidation, merger, conveyance, lease, transfer, dissolution, liquidation or
winding-up or the vote upon any such action.
11. Officer's Certificate. Whenever the number of Warrant Shares that may
be purchased upon exercise of this Warrant is adjusted as required by the
provisions of this Warrant, LIGAND shall forthwith file in the custody of its
Secretary or an Assistant Secretary an officer's certificate showing the
adjusted number of Warrant Shares that may be purchased on exercise of this
Warrant and the adjusted Exercise Price, determined as herein provided, setting
forth in reasonable detail the facts requiring such adjustment and the manner of
computing such adjustment. Each such officer's certificate shall be made
available at all reasonable times for inspection by the Holder. LIGAND shall,
forthwith after each such adjustment, cause a copy of such certificate to be
mailed to the Holder.
12. Listing of Warrant Shares. The Warrant Shares, when registered pursuant
to the Rights Agreement or otherwise tradeable under Rule 144 of the Act, shall
be listed or admitted to trading on either a national securities exchange or the
Nasdaq National Market consistent with the shares of Common Stock then
outstanding at the time of issuance of the Warrant Shares.
13. Representations of Holder.
The Holder hereby represents, covenants and acknowledges to LIGAND that:
(a) this Warrant and the Warrant Shares are "restricted securities" as
such term is used in the rules and regulations under the Act and that such
securities have not been and will not be registered under the Act or any state
securities law (unless such Warrant Shares have been registered pursuant to the
Rights Agreement), and that such securities must be held indefinitely unless a
transfer can be made pursuant to appropriate exemptions;
(b) the Holder has read, and fully understands, the terms of this
Warrant set forth on its face and the attachments hereto, including the
restrictions on transfer contained herein;
(c) the Holder is purchasing for investment for its own account and
not with a view to or for sale in connection with any distribution of this
Warrant or the Warrant Shares and it has no intention of selling such securities
in a public distribution in violation of the federal securities laws or any
applicable state securities laws; provided that nothing contained herein will
prevent Holder from transferring such securities in compliance with the terms of
this Warrant and the applicable federal and state securities laws;
(d) the Holder is an "accredited investor" within the meaning of
paragraph (a) of Rule 501 of Regulation D promulgated by the Securities and
Exchange Commission (the "Commission") and an "excluded purchaser" within the
meaning of Section 25102(f) of the California Corporate Securities Law of 1968;
and
(e) the Holder (i) has received all information the Holder has
requested from LIGAND and considers necessary or appropriate for deciding
whether to acquire this Warrant, (ii) has had an opportunity to ask questions
and receive answers from LIGAND regarding the
10
<PAGE>
terms and conditions of this Warrant and to obtain any additional
information necessary to verify the accuracy of the information given to the
Holder, and (iii) has such knowledge and experience in financial and business
matters such that the Holder is capable of evaluating the merits and risks of
the investment in this Warrant.
14. Successors. All the provisions of this Warrant by or for the benefit of
LIGAND or the Holder shall bind and inure to the benefit of their respective
successors, assignees, heirs and personal representatives.
15. Headings. The headings of sections of this Warrant have been inserted
for convenience of reference only, are not to be considered a part hereof and
shall in no way modify or restrict any of the terms or provisions hereof.
16. Amendments. This Warrant may be amended by the written consent of
LIGAND and the Holder hereof.
17. Notices. All notices, requests and other communications to LIGAND or
Holder hereunder shall be in writing (including telecopy or similar electronic
transmissions), shall refer specifically to this Warrant and shall be personally
delivered or sent by telecopy or other electronic facsimile transmission, by
overnight delivery with a nationally recognized overnight delivery service or by
registered mail or certified mail, return receipt requested, postage prepaid, in
each case to the respective address specified below (or to such address as may
be specified in writing to the other party hereto):
(a) If to LIGAND, to:
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, CA 92121
Attention: President
with a copy to the attention of General Counsel
(b) If to HOLDER, to the address set forth in the Warrant
Register that shall be maintained by LIGAND in accordance with Section 3 hereof.
Any notice or communication given in conformity with this Section 17 shall be
deemed to be effective when received by the addressee, if delivered by hand, one
(1) day after deposit with a nationally recognized overnight delivery service
and three (3) days after mailing, if mailed.
18. Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, as applied to contracts
made and performed entirely within the State of California.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
11
<PAGE>
IN WITNESS WHEREOF, LIGAND has duly caused this Warrant to be signed and
attested by its duly authorized officers and to be dated as of November 22,
1999.
LIGAND PHARMACEUTICALS INCORPORATED
/s/Paul V. Maier
-----------------------------------
By: Paul V. Maier
Title: Senior Vice President,
Chief Financial Officer
Attest: /s/William L. Respess
- --------------------------------
By: William L. Respess
Title: Senior Vice President,
General Counsel, Government Relations
ACCEPTED AND AGREED TO BY:
ELAN INTERNATIONAL SERVICES, LTD.
/s/Kevin Insley
- ---------------------------------
By: Kevin Insley
Title: President & CFO
[SIGNATURE PAGE TO SERIES X WARRANT]
<PAGE>
PURCHASE FORM
Dated:______________
The undersigned hereby irrevocably exercises the attached Warrant to
purchase __________________ shares of LIGAND Common Stock and (i) herewith
either (a) makes payment of $___________ in payment of the Exercise Price
thereof on the terms and conditions specified in the attached Warrant
Certificate or (b) if the undersigned elects pursuant to Section 2 of the
attached Warrant to convert such Warrant into LIGAND Common Stock, the
undersigned exercises the attached Warrant by exchange under the terms of
Section 2, (ii) surrenders the attached Warrant Certificate and all right, title
and interest therein to LIGAND and (iii) directs that the Warrant Shares
deliverable upon the exercise of such Warrant and cash payment in respect of
fractional Warrant Shares, if any, and any unexercised Warrant be registered (in
the case of such Warrants and Warrant Shares) in the name and at the address
specified below and delivered thereto.
Signature:
Name:
(Please Print)
Address:
City, Sate and Zip Code:
Taxpayer Identification or Social Security Number:
Any unexercised Warrant Shares evidenced by the attached Warrant
Certificate are to be issued to:
Name:
(Please Print)
Address:
City, Sate and Zip Code:
Taxpayer Identification or Social Security Number:
NOTE: THE ABOVE SIGNATURE MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE
OF THE ATTACHED WARRANT IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATSOEVER.
<PAGE>
WARRANT ASSIGNMENT FORM
FOR VALUE RECEIVED and in compliance with the provisions of Sections 5 and
6 of the attached Warrant, __________________________ hereby sells, assigns and
transfers to:
Name:
(Please Print)
Address:
City, Sate and Zip Code:
Taxpayer Identification or Social Security Number:
its right to purchase up to _______ Warrant Shares represented by the attached
Warrant and does hereby irrevocably constitute and appoint
________________________________ attorney to transfer said Warrant on the books
of LIGAND, with full power of substitution in the premises.
Dated:__________________ ______________________________
Signature of registered holder
NOTE: THE ABOVE SIGNATURE MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE
OF THE ATTACHED WARRANT IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATSOEVER.
EXHIBIT 10.218
ROYALTY STREAM PURCHASE AGREEMENT
AMONG
PHARMACEUTICAL PARTNERS, L.L.C.
BIOVENTURE INVESTMENTS, Kft
PHARMACEUTICAL ROYALTIES, L.L.C.
and
SERAGEN, INC.
LIGAND PHARMACEUTICALS INCORPORATED
Dated as of December 31, 1999
*** 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 1934
Act.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I - DEFINITIONS..........................................................1
1.01 Definitions....................................................1
ARTICLE II - PURCHASE AND SALE...................................................2
2.01 Purchase and Sale..............................................2
2.02 No Assumed Obligations.........................................3
2.03 Excluded Assets................................................3
2.04 Initial Purchase Price.........................................3
2.05 Contingent Purchase Price......................................3
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF SELLER AND STOCKHOLDERS..........4
3.01 Corporate Existence and Power..................................4
3.02 Corporate Authorization........................................4
3.03 Corporate Authorization Governmental Authorization.............4
3.04 Corporate Authorization Non-Contravention......................4
3.05 No Undisclosed Material Liabilities............................5
3.06 Litigation.....................................................5
3.07 Compliance with Laws...........................................5
3.08 Intellectual Property..........................................5
3.09 Finders' Fees..................................................6
3.10 Other Information..............................................6
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BUYER.............................6
4.01 Organization and Existence.....................................6
4.02 Corporate Authorization........................................6
4.03 Governmental Authorization.....................................6
4.04 Non-Contravention..............................................6
4.05 Finders' Fees..................................................6
4.06 Financing......................................................7
4.07 Litigation.....................................................7
ARTICLE V - COVENANTS............................................................7
5.01 Maintenance of Enabling Agreements.............................7
5.02 Confidentiality................................................7
5.03 Public Announcement............................................8
5.04 Payment of Seragen Royalty.....................................8
5.05 Roche and Novartis Royalty Reports.............................8
5.06 Roche and Novartis Audits......................................8
5.07 Breach of Roche or Novartis Licenses...........................8
ARTICLE VI - REPRESENTATIONS AND WARRANTIES OF BUYER.............................9
6.01 Indemnification................................................9
6.02 Procedures; No Waiver; Exclusivity.............................9
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE VII - TERM...............................................................10
7.01 Term...........................................................10
7.02 Termination by Seller..........................................10
ARTICLE VIII - MISCELLANEOUS.....................................................10
8.01 Notices........................................................10
8.02 Amendments; No Waivers.........................................11
8.03 Expenses.......................................................11
8.04 Successors and Assigns.........................................11
8.05 Governing Law; Jurisdiction....................................11
8.06 Counterparts; Effectiveness....................................12
8.07 Entire Agreement...............................................12
8.08 Captions.......................................................12
ARTICLE IX ...............................................................12
9.1 The Guaranty...................................................12
9.2 Guaranty Unconditional.........................................12
9.3 Discharge Only Upon Payment in Full; Reinstatement in Certain
Circumstances..................................................13
9.4 Waiver by Ligand...............................................13
Schedule
- --------
Schedule A Patent Matters
</TABLE>
<PAGE>
ROYALTY STREAM PURCHASE AGREEMENT
AGREEMENT dated as of December 31, 1999 among Seragen, Inc., a Delaware
corporation ("Seller"), with respect to Article IX, Ligand Pharmaceuticals
Incorporated, a Delaware corporation ("Ligand"), as guarantor of Seller's
obligations, Pharmaceutical Partners, L.L.C. , a Delaware limited liability
company ("Pharma Partners"), Bioventure Investments, Kft, an affiliate of Pharma
Partners ("Bioventure"), and Pharmaceutical Royalties, LLC, an affiliate of
Pharma Partners ("Pharma Royalties"), as assignees. Bioventure and Pharma
Royalties are hereinafter collectively referred to as the "Pharma Affiliates".
Pharma Partners and the Pharma Affiliates are collectively referred to
hereinafter as "Buyer".
W I T N E S S E T H:
WHEREAS, Buyer desires to purchase certain assets of Seller from Seller,
and Seller desires to sell, assign and transfer such assets to Buyer, upon the
terms and subject to the conditions hereinafter set forth; and
WHEREAS, Buyer desires that Ligand unconditionally guaranty the obligations
of Seller set forth in this Agreement, and Ligand, in order to induce Buyer to
enter into this Agreement, agrees to such guaranty, upon the terms and subject
to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the parties hereto agree
as follows:
ARTICLE I
DEFINITIONS
1.01 Definitions. The following terms, as used herein, have the following
meanings:
"Affiliate" means with respect to any Person, any Person directly or
indirectly controlling, controlled by or under common control with such other
Person.
"Closing" has the meaning set forth in Section 2.01.
"Beth Israel Agreement" means the License and Royalty Agreement between
Beth Israel Hospital Association ("Beth Israel") and Seller dated as of June 1,
1990.
"Beth Israel Royalty" means ***% of the Gross Royalty less deductions
therefrom permitted under the Beth Israel Agreement.
"Enabling Agreements" means the Beth Israel Agreement, the Novartis License
and the Roche License.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
"Excluded Liabilities and Obligations" has the meaning set forth in Section
2.02.
"Governmental Authority" means any government, court, regulatory or
administrative agency or commission, or other governmental authority, agency or
instrumentality, whether federal, state or local (domestic or foreign),
including, without limitation, the U.S. Patent and Trademark Office (the "PTO")
and the U.S. National Institutes of Health.
"Gross Royalty" means all royalty payments made to Seller or any other
Person under the Novartis License and the Roche License after January 1, 2001;
provided that, for purposes of this Agreement, Gross Royalty shall not include
any milestone payment made to Seller pursuant to Section 3.2 of the Roche
License.
"Lien" means, with respect to any agreement or other asset, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in respect of
such asset.
"Novartis License" means that License Agreement entered into between Seller
and Sandoz Pharma, Ltd. executed by Seller on September 4, 1996 and by Sandoz on
August 27, 1996.
"Patents" means the patents and applications in Schedule A hereto of which
Seller is the exclusive licensee under the Beth Israel Agreement and which are
subject to the Novartis License and the Roche License.
"Person" means an individual, corporation, partnership, association, trust
or other entity or organization, but not including a government or political
subdivision or any agency or instrumentality of such government or political
subdivision.
"Purchase Price" has the meaning set forth in Section 2.04.
"Roche License" means that Nonexclusive Sublicense Agreement of September
8, 1999 by and between Seller on the one hand and Hoffmann-La Roche Inc. and F.
Hoffmann-La Roche Ltd. on the other.
"Seragen Royalty" means ***% of the Gross Royalty.
ARTICLE II
PURCHASE AND SALE OF SERAGEN ROYALTY
2.01 Purchase and Sale. Upon the terms and subject to the conditions of
this Agreement: (a) Pharma Partners agrees to cause the Pharma Affiliates to
purchase from Seller, and Seller agrees to sell and transfer to the Pharma
Affiliates, upon execution of this Agreement, free and clear of all Liens, the
Seragen Royalty. For purposes of this Agreement, Bioventure shall purchase ***%
and Pharma Royalties shall purchase ***%, respectively, of the Seragen
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
2
<PAGE>
Royalty. The payment of the Purchase Price by the Pharma Affiliates to Seller
is sometimes hereinafter referred to as the "Closing".
(b) At the Closing, Seller shall cause to be delivered to Pharma Partners
and the Pharma Affiliates:
(i)......a certified copy of the Board of Directors of Seller
authorizing the Agreement and the transactions contemplated thereby;
and
(ii) a receipt for the Purchase Price.
At and after the Closing, if requested by Pharma Partners, Seller will execute
and deliver to Pharma Partners or the Pharma Affiliates such instruments and
documents as may be reasonably requested by Pharma Partners in order to evidence
the Pharma Affiliates' ownership of the Seragen Royalty, including without
limitation such UCC registration forms as Pharma Partners may request.
2.02 No Assumed Obligations. Notwithstanding any provision in this
Agreement or any other writing to the contrary, the Pharma Affiliates are
acquiring only the Seragen Royalty and are not assuming any liability or
obligation of Seller of whatever nature, whether presently in existence or
arising or asserted hereafter, whether under any of the Enabling Agreements or
otherwise. All such liabilities and obligations shall be retained by and remain
obligations and liabilities of Seller (the "Excluded Liabilities and
Obligations").
2.03 Excluded Assets. Buyer does not, by purchase of the Seragen Royalty,
acquire any assets or contract rights of Seller under the Enabling Agreements
except all rights, title and interest to the Seragen Royalty. Buyer acknowledges
that milestone payments made to Seller pursuant to Section 3.2 of the Roche
License are not included in the Seragen Royalty. Notwithstanding the foregoing
in this Section 2.03, after the Closing, at the request of Pharma Partners,
Seller and Pharma Partners agree to develop and make jointly in good faith an
approach to the licensees under the Novartis License and the Roche License in
order to facilitate the direct payment by such licensees of the Seragen Royalty
to the Pharma Affiliates.
2.04 Initial Purchase Price. Upon execution and delivery of this Agreement,
the Pharma Affiliates shall pay to Seller $3,250,000.00 (the "Purchase Price").
Bioventure shall make ***% of such payment and Pharma Royalties shall make ***%
of such payment. The payment will be made by federal funds wire transfer at the
Closing pursuant to wiring instructions received from Seller.
2.05 Contingent Purchase Price. In the circumstance where net sales (as
defined in the Roche License) reported by Roche to Seller under the Roche
License for any of calendar years 2001, 2002, 2003 or 2004 exceed *** , the
Pharma Affiliates will make a one-time payment to Seller equal to $3,250,000.00
within thirty (30) days of receipt from Seller of an invoice therefor; provided
that (a) Seller shall include with its invoice a copy (certified as true and
correct by an executive officer of Seller) of all applicable documentation
provided by
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
3
<PAGE>
Roche to Seller evidencing the amount of such net sales, (b) the Roche
License remains in full force and effect and there shall have been no breach or
default by Seller thereunder and Buyer shall have received a certificate signed
by an executive officer of Seller to such effect and (c) the payment obligation
of the Pharma Affiliates under this Section 2.05 shall not be triggered until 30
days after the date on which the Pharma Affiliates shall have received an amount
equal to the Seragen Royalty for such *** net sales for the applicable calendar
year. Bioventure shall make ***% of any such payment and Pharma Royalties shall
make ***% of any such payment.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer that:
3.01 Corporate Existence and Power. Seller is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and has all corporate powers and all licenses, authorizations,
consents and approvals required to carry on its business as now conducted.
3.02 Corporate Authorization. The execution, delivery and performance by
Seller of this Agreement, and the consummation by Seller of the transactions
contemplated hereby are within Seller's corporate powers and have been duly
authorized by all necessary corporate action on the part of Seller. This
Agreement has been duly executed and delivered and constitutes a valid and
binding agreement of Seller.
3.03 Corporate Authorization Governmental Authorization. The execution,
delivery and performance by Seller of this Agreement does not require any notice
to, action or consent by or in respect of, or filing with, any Governmental
Authority.
3.04 Corporate Authorization Non-Contravention. (a) The execution, delivery
and performance by Seller of this Agreement does not and will not (i) contravene
or conflict with the corporate charter or bylaws of Seller, (ii) contravene or
conflict with or constitute a violation of any provision of any law or
regulation binding upon or applicable to Seller or the Seragen Royalty which
contravention, conflict or violation could reasonably be expected to have a
material adverse effect on the Seragen Royalty; (iii) contravene or conflict
with or constitute a violation of any judgment, injunction, order or decree
binding upon or applicable to either of Seller or the Seragen Royalty which
contravention, conflict or violation could reasonably be expected to have a
material adverse effect on the Seragen Royalty; (iv) constitute a default under
or give rise to any right of termination, cancellation or acceleration of any
right or obligation of Seller or to a loss of any benefit relating to the
Seragen Royalty, or (v) result in the creation or imposition of any Lien on the
Seragen Royalty (except for any Lien in favor of the Buyer).
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
4
<PAGE>
(b) Seller has not granted, and there does not currently exist, any Lien on
the Seragen Royalty, on any of the Enabling Agreements or on any amounts payable
to Seller under the Novartis License or the Roche License.
3.05 No Undisclosed Material Liabilities. There are no material liabilities
related to Seragen Royalty of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, and there is no existing
condition, situation or set of circumstances which could reasonably be expected
to result in such a liability.
3.06 Litigation. There is no action, suit, investigation or proceeding (or
any basis therefor), of which Seller has received notice, pending or, to the
knowledge of Seller, threatened, before any Governmental Authority or arbitrator
that has or could materially affect the Seragen Royalty. There have been no
claims made by any Person with respect to, and no actions, suits or other
proceedings relating to the Seragen Royalty which could reasonably be expected
to have a material adverse effect thereon.
3.07 Compliance with Laws. Seller is not in violation of, has not violated,
and to the knowledge of Seller, is not under investigation with respect to and
has not been threatened to be charged with or given notice of any violation of,
any law, rule, ordinance or regulation, or judgment, order or decree entered by
any Governmental Authority applicable to the Seragen Royalty which could
reasonably be expected to have a material adverse effect thereon.
3.08 Intellectual Property. (a) Schedule A sets forth a true and complete
list of the Patents specifying as to each, as applicable (i) the owner of such
Patent; and (ii) the jurisdictions by or in which each Patent has issued or an
application for patent has been filed, including the respective patent or
application numbers.
(b) Seller has the right under the Beth Israel Agreement to procure and
maintain the Patents and has taken all material measures required to protect the
value of the Patents.
(c) Seller has an exclusive license to the Patents under the Beth Israel
Agreement. To its knowledge, Seller, Beth Israel, and each inventor of the
Patents has complied with the PTO duty of candor and good faith in dealing with
the PTO, including the duty to disclose to the PTO all information known to be
material to the patentability of each claim of the U.S. Patents. All assignments
from each inventor to, as the case may be, the owner thereof or to a predecessor
in interest to the owner thereof, have been executed and recorded with the PTO
for each of the U.S. Patents.
(d) The copies of the Enabling Agreements as provided by Seller to Buyer
are true and correct copies. There have been no amendments or modifications to
any of the Enabling Agreements. The Gross Royalty is not subject to any claim of
off-set for any other liability or obligation of Seller. Seller is in material
compliance with the Beth Israel Agreement and is not in breach of its
obligations with respect thereto which breach could reasonably be expected to
have a material adverse effect on its rights thereunder. Roche and Novartis are,
to the knowledge of Seller, in compliance with, respectively, the Roche License
and the Novartis License and Seller has no reason to believe that either Roche
or Novartis does not intend to comply with its obligations pursuant to the Roche
License and the Novartis License, respectively, including their
5
<PAGE>
respective obligations to pay royalties on products covered thereby. Except
for the Roche License and the Novartis License, Seller has not granted any
licenses or other rights and has no obligations to grant licenses or other
rights with respect to the Patents, and, except for the Enabling Agreements,
there are no other contracts, arrangements, or understandings relating to the
Seragen Royalty.
(e) Seller has taken all reasonable actions under all applicable foreign
jurisdictions to protect its license interests in the Patents in each such
jurisdiction where such Patents are filed.
3.09 Finders' Fees. There is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of
Seller who might be entitled to any fee or commission from Buyer or any of its
Affiliates upon consummation of the transactions contemplated by this Agreement.
3.10 Other Information. Neither this Agreement nor any of the exhibits and
schedules appended hereto contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller that:
4.01 Organization and Existence. Pharma Partners and each of the Pharma
Affiliates is duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization and has all applicable powers and all
material governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted.
4.02 Corporate Authorization. The execution, delivery and performance by
Buyer of this Agreement and the consummation by Buyer of the transactions
contemplated hereby are within the powers of Buyer and have been duly authorized
by all necessary action on the part of Buyer. This Agreement constitutes a valid
and binding agreement of Buyer.
4.03 Governmental Authorization. The execution, delivery and performance by
Buyer of this Agreement does not require any action by or in respect of, or
filing with, any Governmental Authority.
4.04 Non-Contravention. The execution, delivery and performance by Buyer of
this Agreement does not and will not (i) contravene or conflict with the
organizational documents of Pharma Partners or either of the Pharma Affiliates,
(ii) contravene or conflict with or constitute a violation of any provision of
any law or regulation binding upon or applicable to Buyer; or (iii) contravene
or conflict with or constitute a violation of any judgment, injunction, order or
decree binding upon or applicable to Buyer.
4.05 Finders' Fees. There is no investment banker, broker, finder or other
intermediary that has been retained by or is authorized to act on behalf of
Buyer who might be
6
<PAGE>
entitled to any fee or commission from Seller upon consummation of the
transactions contemplated by this Agreement.
4.06 Financing. At the Closing, Bioventure will have sufficient funds
available to pay ***% of the Purchase Price and Pharma Royalties will have
sufficient funds available to pay ***% of the Purchase Price.
4.07 Litigation. There is no action, suit, investigation or proceeding
pending against, or to the knowledge of Buyer threatened against or affecting,
Buyer before any court or arbitrator or any governmental body, agency or
official which in any matter challenges or seeks to prevent, enjoin, alter or
materially delay the transactions contemplated hereby.
ARTICLE V
COVENANTS
Buyer and Seller agree that:
5.01 Maintenance of Enabling Agreements. (a) Seller shall exercise fully
all of its rights, and comply fully with all of its obligations, under the
Enabling Agreements and shall not, without Pharma Partners' prior written
approval (not to be unreasonably withheld), permit any amendment or take any
other action (or omit to take any action) with respect thereto which could
reasonably be expected to impair the Seragen Royalty. For purposes of this
Section 5.01, it shall be reasonable for Pharma Partners to withhold its
approval with respect to any amendment, action or omission if, in the reasonable
opinion of Pharma Partners, such amendment, action or omission could have the
effect of reducing the Seragen Royalty.
(b) Without Pharma Partners' prior written approval, Seller shall not sell,
transfer, assign or otherwise dispose of, or grant any Lien on, the Novartis
License or the Roche License. Without Pharma Partners' prior written approval,
Seller shall not sell, transfer, assign or otherwise dispose of, or grant any
Lien on, the Beth Israel Agreement if such sale, transfer, assignment or
disposal could have the effect of reducing the Gross Royalty payable to Seragen.
(c) Seller shall pay all maintenance or annuity fees necessary to maintain
each issued patent included in the Patents in force for the full term of each
such patent. Seller shall in good faith exercise reasonable judgment in the
continued prosecution of each patent application included in the Patents, and of
any continuation or divisional patent application thereof. If Seller elects to
abandon any patent application included within the Patents, or of any
continuation or divisional patent application thereof, Seller shall notify Buyer
not less than ninety (90) days prior to such action.
5.02 Confidentiality. After the Closing, Buyer and Seller will hold, and
will use reasonable commercial efforts to cause their officers, directors,
employees, accountants, counsel, consultants, advisors and agents to hold, in
confidence, unless compelled to disclose by judicial or administrative process
or unless required by law or the rules and regulations of the Securities
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
7
<PAGE>
and Exchange Commission or any securities exchange or trading system, all
confidential documents and information concerning Buyer, Seller and the Seragen
Royalty.
5.03 Public Announcement. Except as required by law or the rules and
regulations of the Securities and Exchange Commission or any securities exchange
or trading system, the parties agree to consult with each other before issuing
any press release or making any public statement with respect to Buyer's
acquisition of the Seragen Royalty. Such press release or public statement
shall, to the extent possible, be a joint release.
5.04 Payment of Seragen Royalty. Within five (5) business days of a Payment
Event (as defined below) Seller will remit by federal funds wire transfer (a)
***% of the Seragen Royalty to Bioventure and (b) ***% of the Seragen Royalty to
Pharma Royalties. The amount of the Seragen Royalty payment shall be determined
based upon the amount of the Gross Royalty. Each remittance shall be made by
wire transfer pursuant to instructions received from Pharma Partners. Any
payment of the Seragen Royalty which is not paid when due shall bear interest at
the prime interest rate as announced by Citibank, N.A. plus ***%. By notice to
Seller, Pharma Partners may change the instructions or the amounts payable
hereunder to each of the Pharma Affiliates. As used herein, "Payment Event"
means the receipt by Seller or any of its Affiliates of a Gross Royalty payment
or, in the absence of such receipt, the making by Novartis or Roche of a Gross
Royalty payment to any other Person.
5.05 Roche and Novartis Royalty Reports. Seller has the right to receive
reports concerning royalties payable to Seller under the Roche and Novartis
Licenses. Seller shall provide Buyer with a copy (certified by an executive
officer of Seller) of each such report upon making the Seragen Royalty payment
applicable thereto which reports will be subject to the provisions of Section
5.02 and applicable confidentiality provisions of the Novartis and Roche
Licenses.
5.06 Roche and Novartis Audits. Seller has the right under the Roche and
Novartis Licenses to perform audits relative to assuring the accuracy of reports
related to royalty payments made thereunder. At Buyer's request and at Buyer's
expense, Seller shall cause such audits to be conducted on the terms provided in
the Roche and Novartis Licenses.
5.07 Breach of Roche or Novartis Licenses. Upon any occurrence of a breach
by Roche or Novartis under the Roche and Novartis Licenses, respectively, which
is not cured as provided in the applicable agreement and which affects the
Seragen Royalty, at Buyer's request and Buyer's expense, using counsel selected
by Buyer, Seller shall seek to enforce the applicable agreement with respect to
the breach thereof. Buyer shall be entitled to control such litigation,
including any counterclaim alleging invalidity of the Patents or otherwise
alleging that the Novartis License or Roche License is invalid or unenforceable.
Seller shall cooperate with Buyer and Buyer's counsel in such litigation
including, without limitation, (a) if requested by Buyer or its counsel, Seller
shall make available to Buyer and its counsel at Seller's offices all of
Seller's books and records reasonably related to such litigation, including
copies thereof and (b) if requested by Buyer or its counsel, Seller shall cause
its officers, directors, employees and agents (i) to execute and deliver all
true and correct affidavits and other documents as may be
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
8
<PAGE>
requested by Buyer or its counsel and (ii) to appear and testify at any
proceedings relating to such litigation, including any depositions or interim
appearances. All recoveries obtained by such enforcement shall be for the
benefit of Buyer and, if received by Seller, shall be immediately remitted,
without off-set or deduction, to the Pharma Affiliates. Notwithstanding the
foregoing in this Section 5.07, if Roche or Novartis makes any claim against
Seller or Ligand (whether as a counterclaim or otherwise) for damages which
could result in Seller or Ligand suffering an out-of-pocket loss in the form of
a damages award against Seller or Ligand in favor of Roche or Novartis, then
Seller or Ligand shall be entitled to control the defense of such claim, using
counsel selected by Ligand and at Seller's or Ligand's expense. In no event
shall Pharma Partners or any of the Pharma Affiliates be liable for any judgment
or damages awarded against Seller or Ligand in such circumstances.
ARTICLE VI
SURVIVAL; INDEMNIFICATION
6.01 Indemnification. Seller hereby indemnifies Buyer and its Affiliates
against and agrees to hold each of them harmless from any and all damage, loss,
liability and expense (including, without limitation, reasonable expenses of
investigation and reasonable attorneys' fees and expenses in connection with any
action, suit or proceeding) (collectively, "Loss") incurred or suffered by Buyer
or any of its Affiliates arising out of any misrepresentation or breach of
warranty, covenant or agreement made or to be performed by Seller pursuant to
this Agreement, including any failure by Seller to satisfy any of the Excluded
Liabilities and Obligations.
6.02 Procedures; No Waiver; Exclusivity. (a) The party seeking
indemnification under Section 6.01 (the "Indemnified Party") agrees to give
prompt notice to the party against whom indemnity is sought (the "Indemnifying
Party") of the assertion of any claim, or the commencement of any suit, action
or proceeding in respect of which indemnity may be sought under such Section;
provided that the failure to give such notice shall not affect the Indemnified
Party's rights hereunder except to the extent the Indemnifying Party is
materially prejudiced by such failure. The Indemnifying Party may, and at the
request of the Indemnified Party shall, participate in and control the defense
of any such third party suit, action or proceeding at its own expense. The
Indemnifying Party shall not be liable under Section 6.01 for any settlement
effected without its prior consent of any claim, litigation or proceeding in
respect of which indemnity may be sought hereunder; provided that such consent
may not be unreasonably withheld.
(b) No investigation by Buyer of the Enabling Agreements or otherwise shall
limit Buyer's rights to indemnification hereunder.
(c) After the Closing, Section 6.01 will provide the exclusive remedy for
any misrepresentation, breach of warranty, covenant or other agreement or other
claim arising out of this Agreement or the transactions contemplated hereby.
9
<PAGE>
(d) The representations, warranties, covenants and agreements contained
herein shall survive the Closing. The expiration of any term of this Agreement
shall not excuse any party hereto from its liability in respect of any breach
hereof prior to such expiration.
ARTICLE VII
TERM
7.01 Term. This Agreement will expire 90 days after the termination or
expiration of the Roche License and the Novartis License; provided that the
Pharma Affiliates shall have received all applicable Seragen Royalty payments.
7.02 Termination by Seller. This Agreement may be terminated by Seller
solely in the event that Buyer fails to make timely payment of the contingent
purchase price pursuant to Section 2.05 hereof, which failure is not cured
within sixty (60) days of written notice given by Seller to Buyer.
ARTICLE VIII
MISCELLANEOUS
8.01 Notices. All notices, requests and other communications to either
party hereunder shall be in writing (including telex, telecopy, or similar
writing) and shall be given,
(a) if to Pharma Partners or either of the Pharma Affiliates, to:
c/o Pharmaceutical Partners, L.L.C.
675 Third Avenue
Suite 3000
New York, NY 10017
Attention: Pablo Legorreta
David Madden
Telecopy: (917) 368-0021
with a copy to:
Testa, Hurwitz & Thibeault, LLP
125 High Street
Boston, MA 02110
Attention: F. George Davitt
Telecopy: (617) 248-7100
(b) if to Seller, to:
Seragen, Inc.
10275 Science Center Drive
San Diego, CA 92121
10
<PAGE>
Attention: General Counsel
Facsimile: (858) 550-1825
(c) if to Ligand, to:
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, CA 92121
Attention: General Counsel
Facsimile: (858) 550-1825
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
only be effective upon receipt. All notices and other communications given to
any party hereto in accordance with the provisions of this Agreement shall be
deemed to have been given on the date of receipt if delivered by hand or
overnight courier service or sent by fax prior to 4:00 p.m. (New York time) or
on the date five business days after dispatch by certified or registered mail if
mailed, in each case delivered, sent or mailed (properly addressed) to such
party as provided in this Section 10.01.
8.02 Amendments; No Waivers. (a) Any provisions of this Agreement may be
amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by Pharma Partners and each of the Pharma
Affiliates, Seller and, with respect to Article IX hereof, Ligand, or in the
case of a waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by either party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
8.03 Expenses. Except as otherwise provided herein, all costs and expenses
incurred in connection with this Agreement shall be paid by the party incurring
such cost or expense.
8.04 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. After the Closing, without limiting the generality of
the foregoing, nothing herein shall prohibit or restrict Pharma Partners or any
of the Pharma Affiliates from assigning any of its rights and obligations
hereunder to any Affiliate of Pharma Partners or any other Person; provided
that, without the consent of Seller and Ligand, no such assignment to a Person
who is not an Affiliate of Pharma Partners or the Pharma Affiliates shall
relieve Pharma Partners or the Pharma Affiliates from their obligations
hereunder.
8.05 Governing Law; Jurisdiction. This Agreement shall be construed in
accordance with and governed by the law of the State of New York. Process in any
such suit, action or proceeding may be served on any party anywhere in the
world, whether within or without the jurisdiction of any such court.
11
<PAGE>
8.06 Counterparts; Effectiveness. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Agreement shall become effective when each party hereto shall have received a
counterpart hereof signed by the other party hereto.
8.07 Entire Agreement. This Agreement and the Exhibits and Schedules hereto
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all prior agreements, understandings and
negotiations, both written and oral, between the parties with respect to the
subject matter of this Agreement. No representation, inducement, promise,
understanding, condition or warranty not set forth herein has been made or
relied upon by either party hereto. None of this Agreement, nor any provision
hereof, is intended to confer upon any Person other than the parties hereto any
rights or remedies hereunder.
8.08 Captions. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
ARTICLE IX
GUARANTY
9.1 The Guaranty. Ligand hereby unconditionally guarantees the full and
punctual performance of the obligations of Seller under this Agreement. Upon
failure by the Seller to pay punctually any such amount, Ligand shall forthwith
on demand pay the amount not so paid at the place and in the manner specified in
this Agreement.
9.2 Guaranty Unconditional. The obligations of Ligand hereunder shall be
unconditional and absolute and, without limiting the generality of the
foregoing, shall not be released, discharged or otherwise affected by:
(a) any extension, renewal, settlement, compromise, waiver or release in
respect of any obligation of Seller under this Agreement, by operation of law or
otherwise;
(b) any modification or amendment of or supplement to this Agreement or the
Enabling Agreements;
(c) any change in the corporate existence, structure or ownership of
Seller, or any insolvency, bankruptcy, reorganization or other similar
proceeding affecting the Seller or its assets or any resulting release or
discharge of any obligation of Seller contained in this Agreement;
(d) the existence of any claim, set-off or other rights which Ligand may
have at any time against Seller;
(e) any invalidity or unenforceability relating to or against Seller for
any reason of this Agreement, or any provision of applicable law or regulation
purporting to prohibit the payment by Seller of the Seragen Royalty; or
12
<PAGE>
(f) any other act or omission to act or delay of any kind by Seller or any
other corporation or Person or any other circumstance whatsoever which might,
but for the provisions of this paragraph, constitute a legal or equitable
discharge of Ligand's obligations hereunder.
9.3 Discharge Only Upon Payment in Full; Reinstatement in Certain
Circumstances. Ligand's obligations hereunder shall remain in full force and
effect until this Agreement shall have terminated and all amounts payable by
Seller under this Agreement shall have been paid in full. If any time any
payment of the Seragen Royalty or any other amount payable by the Seller under
this Agreement is rescinded or must be otherwise restored or returned upon the
insolvency, bankruptcy or reorganization of Seller or otherwise, Ligand's
obligations hereunder with respect to such payment shall be reinstated as though
such payment had been due but not made at such time.
9.4 Waiver by Ligand. Ligand irrevocably waives acceptance hereof,
presentment, demand, protest and any notice not provided for herein, as well as
any requirement that at any time any action be taken by any corporation or
Person against Seller or any other corporation or Person.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
SERAGEN, INC.
By: /s/ William L. Respess
Name: William L. Respess
Title: Vice President, General Counsel
LIGAND PHARMACEUTICALS INCORPORATED
By: /s/ William L. Respess
Name: William L. Respess
Title: Senior Vice President, General
Counsel, Government Relations
PHARMACEUTICAL PARTNERS, L.L.C.
By: /s/ David Madden
David Madden
Managing Member
BIOVENTURE INVESTMENTS, Kft
By: /s/ illegible
Name: illegible
Title: Managing Director
PHARMACEUTICAL ROYALTIES, LLC
By: PHARMACEUTICAL ROYALTIES, LLC
Managing Member
By: /s/ David Madden
David Madden
Managing Member
<PAGE>
SCHEDULE A
PATENT MATTERS
U.S. Pat. No. 5,011,684
U.S. Pat. No. 5,336,489
U.S. Pat. No. 5,510,105
U.S. Pat. No. 5,587,162
U.S. Pat. No. 5,607,675
U.S. Pat. No. 5,674,494
U.S. Pat. No. 5,916,559
***
Australian Pat. No. 575,210
Canadian Pat. No. 1,275,951
New Zealand Pat. No. 213,983
All patents and patent applications are owned by Beth Israel Hospital
Association (now known as Beth Israel Deaconess Medical Center).
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
15
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
LIGAND PHARMACEUTICALS, INCORPORATED
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
- -------- -----------------------------
<S> <C>
Glycomed Incorporated California
Ligand Pharmaceuticals (Canada) Incorporated Saskatchewan, Canada
Allergan Ligand Retinoid Therapeutics, Inc. Delaware
Ligand Pharmaceuticals International, Inc. Delaware
Ligand JVR, Inc. Delaware
Seragen Incorporated Delaware
Marathon Biopharmaceuticals, Inc. Delaware
Seragen Technology, Inc. Delaware
Seragen Biopharmaceuticals Ltd. Vancouver, Canada
</TABLE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements on Forms S-3 and Forms S-8 of our report dated February 22, 2000,
with respect to the consolidated financial statements of Ligand Pharmaceuticals
Incorporated included in its Annual Report (Form 10-K) for the year ended
December 31, 1999.
ERNST & YOUNG LLP
San Diego, California
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27.1
This schedule contains summary financial information extracted from SEC
Form 10-K for the twelve months ended December 31, 1999 and is qualified in its
entirety by reference to such financial statements. (in thousands except
earnings per share)
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 29,903
<SECURITIES> 19,263<F4>
<RECEIVABLES> 1,989
<ALLOWANCES> (332)
<INVENTORY> 5,732
<CURRENT-ASSETS> 56,679
<PP&E> 43,889
<DEPRECIATION> 23,347
<TOTAL-ASSETS> 134,645
<CURRENT-LIABILITIES> 20,701
<BONDS> 139,534<F1>
0
0
<COMMON> 53
<OTHER-SE> (25,643)<F2>
<TOTAL-LIABILITY-AND-EQUITY> 134,645
<SALES> 11,307
<TOTAL-REVENUES> 40,895
<CGS> 3,563
<TOTAL-COSTS> 10,489<F3>
<OTHER-EXPENSES> 59,442
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,979
<INCOME-PRETAX> (74,719)
<INCOME-TAX> 0
<INCOME-CONTINUING> (74,719)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (74,719)
<EPS-BASIC> (1.58)
<EPS-DILUTED> (1.58)
<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>
