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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[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
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 0-24274
LA JOLLA PHARMACEUTICAL COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 33-0361285
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
6455 NANCY RIDGE DRIVE, SAN DIEGO, CA 92121
(Address of principal executive offices)
Registrant's telephone number, including area code: (858) 452-6600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $0.01
Warrants
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 the Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, computed by reference to the closing price of such stock on the
Nasdaq Stock Market on January 31, 2000, was $78,542,398. The number of shares
of the Registrant's common stock, $.01 par value, outstanding at January 31,
2000 was 20,269,006.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the
Registrant's definitive proxy statement for its annual meeting of stockholders
to be held on May 11, 2000, which proxy statement will be filed on or about
April 11, 2000.
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FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements, including without
limitation those dealing with La Jolla Pharmaceutical Company's (the "Company"
or "LJP") drug development plans and clinical trials, and other matters
described in terms of our plans and expectations. The forward-looking statements
in this report involve risks and uncertainties, and a number of factors, both
foreseen and unforeseen, could cause actual results to differ from our current
expectations. The analysis of data from our terminated Phase II/III clinical
trial of LJP 394, our drug candidate for the treatment of systemic lupus
erythematosus ("lupus"), could result in a finding that LJP 394 is not effective
in large patient populations or does not provide a meaningful clinical benefit.
Our other potential drug candidates are at earlier stages of development and
involve comparable risks. Analysis of our clinical trials could have negative or
inconclusive results. Even if results are promising, the Food and Drug
Administration ("FDA") may require additional clinical trials. Additional risk
factors include the uncertainty of: obtaining required regulatory approvals;
successfully marketing products; receiving future revenue from product sales or
other sources such as collaborative relationships; future profitability; the
need for additional financing; the Company's dependence on patents and other
proprietary rights; the Company's limited manufacturing capabilities; and the
Company's lack of marketing experience. Readers are cautioned to not place undue
reliance upon forward-looking statements, which speak only as of the date
hereof, and the Company undertakes no obligation to update forward-looking
statements to reflect events or circumstances occurring after the date hereof.
Interested parties are urged to review the risks described below under the
heading "Certain Risk Factors" and elsewhere in this report and in other reports
and registration statements of the Company filed with the Securities and
Exchange Commission ("SEC") from time to time.
PART I
ITEM 1. BUSINESS.
OVERVIEW
La Jolla Pharmaceutical Company is a biopharmaceutical company focused
on the research and development of highly specific therapeutics for the
treatment of certain life-threatening antibody-mediated diseases. These
diseases, including autoimmune conditions such as lupus and antibody-mediated
stroke, are caused by abnormal B cell production of antibodies that attack
healthy tissues. Current therapies for these autoimmune disorders address only
symptoms of the disease, or nonspecifically suppress the normal operation of the
immune system, which often results in severe, adverse side effects and
hospitalization. Founded in 1989, the Company believes that its drug candidates,
called Toleragens(R), will treat the underlying cause of many antibody-mediated
diseases without these severe, adverse side effects. We are currently analyzing
data from a Phase II/III clinical trial of our lupus drug candidate, LJP 394,
and plan to meet with the FDA in the near future to discuss requirements for
approval including the possibility of a Phase III trial.
ANTIBODY-MEDIATED DISEASES
The immune system is the major biological defense mechanism responsible
for recognizing and fighting disease. The immune system identifies antigens,
such as bacteria,
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viruses and other disease-causing substances, and seeks to rid the body of these
antigens. There are two fundamental types of immune responses: cell-mediated and
antibody-mediated. Cell-mediated immunity is primarily responsible for ridding
the body of cells that have become infected. Antibody-mediated immunity is
primarily responsible for eliminating circulating antigens. These immune
responses are controlled by the activities of white blood cells called T cells
and B cells. T cells provide cell-mediated immunity and regulate B cells. B
cells produce antibodies that recognize and help to eliminate antigens.
Each B cell produces antibodies against a specific structure on the
antigen's surface called an epitope. The B cell is triggered to produce
antibodies when the specific epitope is recognized by and binds to the antibody
receptors on the surface of the B cell, and only when the B cell receives an
appropriate signal from a T cell. When an epitope binds to the B cell with no
corresponding T cell signal, the B cell may become "tolerized" and cease to
produce antibodies.
A properly functioning immune system distinguishes between foreign
antigens and the body's healthy tissues. In a malfunctioning immune system,
healthy tissue may trigger an immune response that causes B cells to produce
disease-causing antibodies, resulting in antibody-mediated autoimmune disease.
For example, B cells can produce disease-causing antibodies that are associated
with the destruction of the kidneys in lupus and the wasting of muscles in
myasthenia gravis. Other antibody-mediated disorders include antibody-mediated
stroke, heart attack, deep vein thrombosis, recurrent fetal loss, as well as
organ rejection in xenotransplantation, myasthenia gravis and Rh hemolytic
disease of the newborn.
Current therapies for antibody-mediated diseases have significant
shortcomings, including severe side effects and a lack of specificity. Mild
forms of antibody-mediated diseases are generally treated with drugs that
address only the disease symptoms and fail to suppress disease progression,
because such drugs do not control the production of disease-causing antibodies.
Severe antibody-mediated diseases like lupus are treated with high levels of
corticosteroids and immunosuppressive therapy (primarily anti-cancer drugs)
which broadly suppress the normal function of the entire immune system. These
therapies can leave patients susceptible to potentially life-threatening
infections that may require hospitalization. Repeated dosing with
corticosteroids may cause other serious conditions, including diabetes,
hypertension, cataracts, osteonecrosis, and psychosis, which may limit the use
of this therapy. The use of chemotherapy may lead to acute problems, including
weight loss and nausea, and long-term adverse effects, including sterility and
an increased risk of malignancies.
LJP'S TOLERANCE TECHNOLOGY(R) PROGRAM
Our Tolerance Technology program focuses on the discovery and
development of proprietary therapeutics, called Toleragens, which target and
suppress the production of specific disease-causing antibodies without affecting
the protective functions of the immune system. The Company believes that its
Toleragens will be able to treat the underlying causes of antibody-mediated
diseases, and that its Tolerance Technology may be applied broadly wherever
antibodies are involved in the disease process.
Since the 1970s, hundreds of papers have been published describing
animal studies and a Nobel Prize was awarded for research in B cell tolerance.
The underlying science supporting the Company's Tolerance Technology is based on
these discoveries as well as on our own patented research.
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Toleragens are composed of disease-specific epitopes and a carrier
platform, which are proprietary chemical structures developed and synthesized by
LJP. To mimic the unique epitopes on an antigen's surface, LJP identifies and
synthesizes epitopes specific to particular antibody-mediated diseases and
attaches or conjugates these epitopes to the carrier platform, which serves as a
vehicle for presenting the epitopes to the antibody receptors on the targeted B
cell. When the epitope binds to the antibody receptors on the B cell in the
absence of a T cell signal, the B cell may become tolerized and cease to produce
disease-causing antibodies. We believe that the Toleragen carrier platform, or a
modification thereof, can be used with epitopes specific to various diseases to
create therapeutics targeted at different antibody-mediated diseases.
We design our Toleragens to bind selectively to disease-causing B cells
without affecting the function of disease-fighting B cells. This process
involves: (1) collecting and purifying the disease-causing antibodies from
patients with the targeted disease; (2) generating and selecting an epitope that
strongly binds to the purified antibodies; (3) modifying the epitope's structure
to maximize its binding properties (optimization), and (4) linking the optimized
epitope to the carrier platform. We believe this process enables us to create
Toleragens that will preferentially tolerize and shut down B cells that generate
antibodies with the highest binding affinity, and which are believed to be the
most harmful.
BUSINESS STRATEGY
Our objective is to become the leading developer of highly specific
therapeutics for the treatment of life-threatening, antibody-mediated diseases
such as lupus, antibody-mediated stroke, heart attack, deep vein thrombosis,
recurrent fetal loss, as well as organ rejection in xenotransplantation,
myasthenia gravis and Rh hemolytic disease of the newborn. Our strategy includes
the following key elements:
Complete the Clinical Development of LJP 394. Our primary near-term goal
is to complete development of LJP 394 to treat lupus. Following our analysis of
the Phase II/III clinical trial of LJP 394, we plan to meet with the FDA to
discuss their requirements for approval of the drug including the possible need
for a Phase III clinical trial.
Apply Tolerance Technology to Life-threatening Antibody-mediated
Diseases. We are focusing on chronic, life-threatening diseases and conditions
caused by antibodies, such as lupus, antibody-mediated thrombosis and organ
rejection in xenotransplantation, for which there are no existing treatments or
for which current therapeutics have significant limitations. We intend to use
our Tolerance Technology to design therapeutics that specifically address other
targeted antibody-mediated diseases without adversely affecting normal immune
system function.
Utilize Strategic Collaborations to Develop and Commercialize Product
Candidates. We intend to seek appropriate collaborations with pharmaceutical
companies to provide support for our research programs and for the clinical
development and commercialization of other drug candidates.
Expand Intellectual Property Leadership Position. We own 87 issued
patents and have 52 pending patent applications covering our various
technologies and drug candidates, including our Tolerance Technology, our lupus,
antibody-mediated thrombosis, and xenotransplantation drug candidates, and our
platform and linkage technologies for our Toleragens. We hope to broaden our
position with future discoveries and additional patent filings.
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PRODUCTS UNDER DEVELOPMENT
The Lupus Program
Systemic lupus erythematosus is a life-threatening, antibody-mediated
disease where disease-causing antibodies damage various tissues. According to
recent statistics compiled by the Lupus Foundation of America, epidemiological
studies and other sources, the number of lupus patients in the United States is
estimated to be between 250,000 and 1,000,000, and approximately 16,000 new
cases are diagnosed each year. Approximately nine out of 10 lupus patients are
women, who usually develop the disease during their childbearing years. Lupus is
characterized by a multitude of symptoms, including chronic kidney inflammation
(which can lead to kidney failure), serious episodes of cardiac and
central-nervous-system inflammation, as well as extreme fatigue, arthritis and
rashes. Approximately 80% of all lupus patients will progress to serious
symptoms. Approximately 50% of lupus patients have kidney disease.
Antibodies to dsDNA can be detected in approximately 90% of untreated
lupus patients. These antibodies are widely believed to cause kidney disease
(nephritis), often resulting in morbidity and mortality in lupus patients. These
antibodies are also associated with episodes of potentially life-threatening
inflammation -- called "flares" -- that may occur more than once per year and
usually require intensive-care hospitalization. Significant kidney destruction
occurs during a flare. Lupus nephritis can lead to deterioration of kidney
function and to end-stage kidney disease, requiring long-term renal dialysis or
kidney transplantation to sustain the patient's life.
Current treatments for lupus patients with kidney disease and other
serious symptoms usually include repeated administration of corticosteroids,
often at high levels that can have toxic effects when used as a chronic
treatment regimen. Many patients with advanced disease are also treated with
immunosuppressive therapy, including anti-cancer drugs that have a general
suppressive effect on the immune system and may be carcinogenic. This
immunosuppressive treatment leaves the patient vulnerable to serious infection
and is a significant cause of morbidity and mortality.
LJP has designed LJP 394 to suppress the production of antibodies to
dsDNA in lupus patients without suppressing the normal function of the immune
system. The design of LJP 394 is based upon scientific evidence of the role of
antibodies to dsDNA in lupus. Published studies of lupus patients indicate that
a rise in the level of antibodies to dsDNA may be predictive of flares in lupus
patients with renal involvement, and that suppressing antibodies to dsDNA by
treating with corticosteroids that non-specifically lower antibody levels
prevents relapses in a majority of patients. In a mouse model of lupus nephritis
that generates elevated levels of antibodies to dsDNA, administration of LJP 394
reduced the production of antibodies to dsDNA; reduced the number of
antibody-forming cells; reduced kidney disease; and extended the life of the
animals. We believe that our own and other studies provide evidence that
inhibiting antibodies to dsDNA may provide an effective therapy for lupus
nephritis.
Certain studies of lupus patients indicate that antibodies to dsDNA with
the highest binding affinity are associated with the most damage to the kidneys.
We believe that our Tolerance Technology drug candidate preferentially targets
these antibodies.
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Results of Clinical Trials
Based on its preclinical findings, we filed an Investigational New Drug
("IND") application for LJP 394 with the FDA in August 1994. In a double-blind,
placebo-controlled Phase I clinical trial conducted in December 1994, healthy
volunteers received LJP 394 and displayed no significant drug-related adverse
effects and no immune reaction to the drug.
Our Phase II clinical trials included a single-dose trial; a repeat
escalating-dose trial; and a dose-ranging trial.
The single-dose clinical trial evaluated the safety of a single, 100 mg
intravenous dose of LJP 394 in four female lupus patients by monitoring antibody
levels, blood chemistry, vital signs and complement (inflammation-promoting
proteins) levels for 28 days after dosing. LJP 394 was well tolerated by all
four patients, with no drug-related adverse clinical symptoms and no clinically
significant complement level changes. In addition, no clinically significant
immune complex formation (inflammation-promoting accumulation of antibodies and
antigens) was observed, indicating the absence of an adverse immune response to
LJP 394. A transient reduction in dsDNA antibody levels was also observed. These
results were presented at the American College of Rheumatology's Annual
International Conference in October 1996.
The repeat escalating-dose clinical trial involved two female patients,
each receiving doses of 10, 10, 50, 50, 100 and 100 mg of LJP 394 at two-week
intervals. After the 10-week dosing regimen, patients were followed for six
weeks. LJP 394 was well tolerated with no drug-related adverse clinical
symptoms, no clinically significant complement changes, and no significant
immune complex formation. Six weeks after the last dose, the antibody levels in
both patients remained suppressed below baseline levels.
The dose-ranging trial evaluated 58 patients with mild lupus symptoms
(53 females and five males). All patients were clinically stable and had dsDNA
antibody levels exceeding those generally found in healthy individuals. The
patients were organized into nine treatment groups at three dose levels (1 mg,
10 mg and 50 mg), and three frequencies (once per week, once every two weeks and
once every four weeks). Patients were randomized to one of the nine treatment
groups so that at each dose and frequency, four to seven patients received LJP
394 and one patient received a placebo.
Patients in the weekly treatment groups showed a dose-response
correlation between increasing doses of LJP 394 and reductions of levels of
dsDNA antibodies. In patients treated weekly with 10 mg or 50 mg doses of LJP
394, antibodies to dsDNA were reduced by statistically significant levels and
remained suppressed in certain patients for up to two months after the last
dose. In the patient group treated weekly with 50 mg, the reductions in median
levels of dsDNA antibodies were accompanied by increases in median levels of two
important inflammation-related complement proteins, C3 and C4, which normally
decrease during active lupus renal disease and increase with clinical
improvement. These study data suggest that complement levels and antibody levels
were normalizing in parallel.
Throughout the dose-ranging trial, the drug was well tolerated with no
clinically significant dose-related adverse reactions observed. Three patients
experienced lupus flares, and three other patients were hospitalized as a result
of transient adverse events that the treating clinicians believed were unrelated
to the underlying disease or to LJP 394. Two of the patients with flares
withdrew from the study, as did four patients who experienced exacerbations of
lupus,
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and one patient who experienced herpes rash. However, no relationship was
observed between the development of an adverse event and the dose or frequency
of administration of LJP 394.
In December 1996, we initiated a double-blind, placebo-controlled
multicenter Phase II/III clinical trial of LJP 394. The purpose of the trial was
to evaluate the safety of the drug and its potential to prevent renal flares,
reduce disease severity and the need for immunosuppressive steroids/chemotherapy
drugs and improve patients' quality of life. The trial enrolled over 200
patients and was conducted by LJP and Abbott Laboratories in North America and
Europe in accordance with our joint development agreement with Abbott.
In May 1999, an interim analysis indicated that the trial was unlikely
to reach statistical significance for the primary endpoint, time to renal flare
and it was decided to stop the study and evaluate the data. In September 1999,
based on an initial analysis of mean summary data, LJP 394 appeared to have no
clinical benefit, although it did lower mean antibody levels compared to
placebo. There were no statistically significant serious safety issues, and
clinical site investigators did not report that any thrombotic events were
related to drug administration. Results of another Phase II dose-ranging study
completed in 1999 showed that 50 mg per week had less effect than 100 mg per
week, as measured by mean levels of antibodies to dsDNA. In September 1999,
Abbott terminated the joint development agreement with LJP for LJP 394.
Following additional analyses of the data in late November 1999, LJP
announced encouraging results for LJP 394 from the Phase II/III clinical trial.
These results were based on an analysis of the trial using a new blood test
developed at LJP that appears to predict which patients would respond to drug
treatment. In 1998, we developed this new blood assay and found that it
predicted which patients in a previous Phase II trial responded to drug
treatment. More than 80% of lupus patients evaluated in the Phase II/III trial
tested positive in this blood assay. The new blood test measured the strength of
the binding between LJP 394 and a patient's antibodies to double-stranded DNA
(dsDNA). The responder group was defined as those patients whose antibodies to
dsDNA exhibited a high affinity for LJP 394.
Based on an analysis of all tested samples, time to renal flare for
patients whose antibodies had high affinity for LJP 394 was increased in the
drug-treated group when compared to the placebo-treated group in a statistically
significant manner (p< 0.024). At 16 months, 14% of the drug-treated patients
experienced a flare, compared to 35% in the placebo-treated group.
The number of renal flares in the high-affinity patients treated with
LJP 394 was less than half of the number of renal flares in high-affinity
patients treated with placebo. In high-affinity patients tested, 30% or six out
of 20 flares occurred in the drug treatment group, vs. 70% or 14 out of 20
flares in the placebo treated group (Fischer's Exact Test, p = 0.085).
In addition, in the high-affinity population, placebo treated patients
received three times as many treatments with high-dose corticosteroids or
cyclophosphamide as drug-treated patients. Of the 32 times that patients with
high-affinity antibodies for LJP 394 received high-dose corticosteroids or
cyclophosphamide, 25% of the occurrences were in the drug-treated group versus
75% in the placebo-treated group. This result was statistically significant
(Fischer's Exact Test, p < 0.001).
In the Phase II/III study, mean levels of circulating antibodies to
dsDNA in patients treated with LJP 394 were reduced by a statistically
significant amount relative to placebo during drug treatment. Levels of an
important complement protein, C3, improved when antibodies were reduced. In
lupus patients, this inflammation-related protein decreases during active renal
disease
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and increases with clinical improvement. The concurrent reduction of antibodies
to dsDNA and increase in C3 complement levels is biologically consistent. This
effect had been observed in a previous Phase II study of LJP 394 in 58 lupus
patients.
Results from the Phase II/III lupus study suggest ways to improve the
clinical trial design of a Phase III trial. The Phase II/III trial design
included periods during which patients received no drug for approximately two
months (the "off" periods). When patients were on drug, mean levels of
antibodies to dsDNA decreased. Unfortunately, mean levels of antibodies to dsDNA
increased when patients were off drug. During the first four months, when
patients were treated with 100 mg per week, there were approximately half as
many flares in all patients treated with drug as compared to placebo. There were
nine flares in the placebo-treated group and four in the drug-treated group.
After the initial four-month induction period with doses of 100 mg per
week, patients were treated with doses of only 50 mg per week during each of the
three-month "on" periods for the duration of the study. A Phase II dose-ranging
study that we completed in 1999 showed that 50 mg per week had less effect than
100 mg per week, as measured by mean levels of antibodies to dsDNA. We believe
that eliminating the "off" periods and using 100 mg per week could increase the
number of patients who respond.
We believe that we have developed a blood test that can identify lupus
patients who are most likely to respond to LJP 394 and are considering the use
of this test to screen lupus patients for entry into a Phase III clinical trial.
We have filed a patent application on this new blood assay.
The clinical trial, and the development of LJP 394 in general, involve
many risks and uncertainties, and there can be no assurance that any previous
clinical results can be replicated in further clinical testing or that LJP 394
will be effective in inducing and sustaining antibody suppression; will prove to
be clinically safe or effective; will receive required regulatory approvals, or
if the FDA will require further clinical testing in addition to a Phase III
clinical trial. If the continued development of LJP 394 produces negative or
inconclusive results, our business and financial condition will be adversely
affected and it may be difficult or impossible for LJP to survive.
Antibody-Mediated Thrombosis, Including Stroke, Heart Attack, Deep Vein
Thrombosis and Recurrent Fetal Loss
Researchers believe that anticardiolipin antibodies promote arterial and
venous blood clots, which can cause a variety of life-threatening medical
problems. For example, blood clots that lodge in the brain may cause stroke and
those that lodge in the legs may cause deep vein thrombosis. There are multiple
conditions associated with these antibodies: antibody-mediated stroke, heart
attack, deep vein thrombosis, recurrent fetal loss, and complications following
cardiovascular surgery. Our program to develop a Toleragen to treat
anticardiolipin antibodies targets stroke, myocardial infarction, deep vein
thrombosis, recurrent fetal loss, and post-operative complications. These
antibodies are associated with the formation of blood clots leading to multiple,
recurring, and potentially life-threatening conditions. We estimate that there
are about 2,000,000 patients in the United States and Europe with
antibody-mediated thrombosis.
Stroke is a leading cause of death in the United States. In 1996, there
were approximately two million stroke patients in the United States,
approximately 700,000 new episodes occurred,
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and in 1994, approximately 150,000 people died from stroke. This debilitating
condition results from acute neurological injury caused by the blockage or
rupture of blood vessels in the brain. Many of the blockages are caused by
thromboses (blood clots), which many clinicians believe may be caused by a
number of factors including a class of antibodies called anticardiolipin
antibodies, which can be identified and measured by a clinical laboratory assay.
It is estimated that about 10% of the strokes in the United States (affecting
100,000 to 200,000 patients) are caused by these antibodies. Antibody-mediated
stroke is thought to occur in younger individuals and with greater frequency
than non-antibody-mediated stroke. The cost of treatment for a survivor of a
serious stroke is approximately $30,000 per year for life, to provide
hospitalization and home nursing care.
Anticardiolipin antibodies are also associated with recurrent fetal
loss, a syndrome of repeated miscarriage. Published clinical reports estimate
that many women with elevated anticardiolipin antibody levels experience
multiple miscarriages, delayed fetal development or premature childbirth. Recent
academic research suggests that elevated levels of anticardiolipin antibodies
are also found in approximately 10 to 30% of patients with other clotting
disorders, including myocardial infarction (heart attack), deep vein thrombosis
and cardiac valve lesion, as well as in approximately 30% of lupus patients. In
myocardial infarction, recent research suggests the relative risk of having a
thrombotic event or death is twice as high in people with high anticardiolipin
antibodies, and this risk is independent of other risk factors. In deep vein
thrombosis, research indicates anticardiolipin antibody-positive patients have
recurring deep vein thromboses twice as often as anticardiolipin
antibody-negative patients.
Current treatments for antibody-mediated thrombosis involve the use of
chronic, potentially life-long anticoagulant therapy with drugs such as heparin
or warfarin to prevent the formation of blood clots. Patients must be carefully
monitored to minimize serious bleeding episodes that can occur because of the
therapy. If patients are removed from anticoagulant therapy, they are at an
increased risk of stroke or another thrombotic episode. Warfarin is not
recommended in the treatment of recurrent fetal loss because it is toxic to the
developing fetus.
We believe that a Toleragen to treat this antibody-mediated thrombosis
would be a major step forward in specifically targeting the cause of this
clotting disorder, thereby avoiding the side effects of current therapy.
Our research supports the finding that specific antibodies in
antibody-mediated thrombosis enhance blood-clot formation by interfering with
the natural breakdown of a blood component - Factor Va - that accelerates
clotting. The target of these clot-promoting antibodies is a small region on a
blood component called b2-glycoprotein I. To date, our scientists have shown
that approximately 90% of patients studied with antibody-mediated thrombosis
have antibodies that bind to this region. The identification of a disease target
for antibody-mediated thrombosis has allowed us to begin building new drug
candidates that bind to these antibodies with high affinity and are designed to
tolerize, or shut down, the B cells that produce them.
We have synthesized a family of candidate antibody-mediated thrombosis
Toleragens for testing. We have also developed a mouse model of the disease,
where the animals produce antibodies to b2-glycoprotein I and develop a clotting
defect similar to that seen in patients with antibody-mediated thrombosis. In
this animal model, several candidate molecules have been shown to reduce the
production of pathogenic antibodies, a key step in the development of a drug to
treat this disorder.
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Xenotransplantation
Xenotransplantation, the use of animals as a source of donor organs for
human transplantation, has become an area of great interest due to the worldwide
shortage of human organs available for transplantation. According to the
American Society of Transplant Physicians, approximately 100,000 patients in the
United States are on waiting lists for organ transplants. More than 5,000
patients die annually, many of whom are too sick to qualify for waiting lists. A
typical organ transplant can cost more than $100,000.
Hyperacute rejection, or the immediate destruction of the transplanted
animal organ by the recipient's antibodies, is a major barrier to
xenotransplantation. Human antibodies recognize and bind to an epitope called
alpha galactose found on the tissues of transplanted animal organs. This binding
causes massive blood clots that block the blood supply to the transplanted
organ, destroying it within minutes.
We believe that a Toleragen that binds to B cells producing antibodies
to alpha galactose may suppress antibody production and prevent or reduce
antibody-mediated organ rejection in xenotransplantation. We also believe that
such a Toleragen may provide benefit on a long-term basis by reducing the amount
of immunosuppressive drugs needed to control the B cell production of antibodies
to alpha galactose. In this disorder, the target of the pathogenic antibodies,
alpha galactose, has already been identified. We have designed a Toleragen
candidate intended to arrest the production of antibodies responsible for
rejection of transplanted animal organs.
In laboratory studies, this Toleragen inhibited the binding of both
human and primate pathogenic antibodies. No measurable activation of complement
proteins, which promote organ rejection, was observed during in vitro testing.
In a placebo-controlled study in primates, our Toleragen reduced levels
of antibodies associated with organ rejection and was well tolerated on a
short-term basis.
In mice receiving the experimental xenotransplantation drug, LJP 920,
average levels of IgM and IgG alpha galactose antibodies associated with organ
rejection remained near the pretreatment levels for three months, whereas
antibody levels in the untreated group rose at least four-fold. Moreover, at the
end of the study, the drug-treated mice had fewer B cells producing antibodies
to alpha galactose than the control group.
Other Antibody-Mediated Diseases
We believe our Tolerance Technology may be applicable to additional
diseases and conditions caused by the production of disease-causing antibodies,
including myasthenia gravis and Rh hemolytic disease of the newborn.
Myasthenia gravis is a form of muscular paralysis in which neuromuscular
receptors are attacked by antibodies, which can lead to a wasting of muscles,
progressive loss of strength and life-threatening respiratory arrest. This
disease affected an estimated 20,000 people in the United States in 1994.
Rh hemolytic disease of the newborn is a life-threatening fetal
condition characterized by the hemolysis (destruction) of fetal red blood cells.
This condition occurs in Rh-incompatible pregnancies in which maternal
antibodies to Rh cross the placenta, bind to fetal red blood cells
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and cause their destruction. Each year approximately 500,000 women in the United
States have Rh-incompatible pregnancies. LJP believes that a Toleragen that
binds to the appropriate maternal B cells will suppress Rh antibody production,
and that once the level of antibodies to Rh(+) red blood cells is reduced, the
risk of life-threatening hemolysis will be reduced.
COLLABORATIVE ARRANGEMENTS
As part of our business strategy, we attempt to pursue collaborations
with pharmaceutical companies in an effort to access their research, drug
development, manufacturing, marketing and financial resources. In December 1996,
we entered into a collaborative relationship with Abbott for worldwide
development and commercialization of LJP 394. This agreement was terminated in
September 1999 following the initial analysis of the Phase II/III lupus trial,
and all rights to LJP 394 were returned to us.
Concurrently with the formation of the collaborative relationship,
Abbott had made an initial $4.0 million license payment to LJP and purchased
1,000,050 shares of our common stock for gross proceeds of $4.0 million. In
September 1997 and October 1998, Abbott also purchased 831,152 and 1,538,402
shares of our common stock, respectively, for gross proceeds of $4.0 million on
each purchase date. We incurred research and development costs for the
development of LJP 394 of approximately $9.9 million in 1997, $8.6 million in
1998 and $4.7 million in 1999 under the collaborative agreement with Abbott.
We intend to pursue collaborative arrangements with other pharmaceutical
companies to assist in our research programs and the clinical development and
commercialization of our drug candidates. There can be no assurance that we will
be able to negotiate arrangements with any other collaborative partners on
acceptable terms, if at all. Once a collaborative relationship is established,
there can be no assurance that the collaborative partner will continue funding
any particular program or will not pursue alternative technologies or develop
alternative drug candidates, either individually or in collaboration with
others, including our competitors, as a means for developing treatments for the
diseases targeted by LJP. Furthermore, competing products, either developed by a
collaborative partner or to which a collaborative partner has rights, may result
in the withdrawal of support by the collaborative partner with respect to all or
a portion of our technology.
Failure to establish or maintain collaborative arrangements will require
us to fund our own research and development activities, resulting in accelerated
depletion of capital, and will require us to develop our own marketing
capabilities for any drug candidate that may receive regulatory approval. The
failure of any collaborative partner to continue funding any particular LJP
program, or to commercialize successfully any product, could delay or halt the
development or commercialization of any products involved in such program. As a
result, failure to establish or maintain collaborative arrangements could hurt
our business, financial condition and results of operations.
MANUFACTURING
We have constructed and are currently operating a pilot production
facility for the manufacture of LJP 394 that is large enough to exceed
anticipated research and clinical trial needs for LJP 394. Through internal
development programs and external collaborations, we have made several
improvements to the manufacturing process for LJP 394 that have reduced our
costs and increased capacity. We have developed proprietary synthesis and
conjugation technologies that are being used in the development of our other
Toleragen candidates. We intend to further
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develop these technologies in order to increase our manufacturing efficiencies
and apply our expertise to the development and manufacture of other potential
products.
However, our current facilities are not yet adequate for commercial
production. In order to meet the supply of LJP 394 in bulk form for packaging
and commercial resale, we will be required to invest substantial amounts of
capital in the expansion of our facilities. The manufacture of our potential
products for clinical trials and the manufacture of any resulting products for
commercial purposes is subject to current Good Manufacturing Practices ("cGMP"),
as defined by the FDA. We have never operated an FDA-approved manufacturing
facility, and there can be no assurance that we will obtain the necessary
approvals. We have limited manufacturing experience, and no assurance can be
given that we will be able to make the transition to commercial production
successfully. We may enter into arrangements with contract manufacturers to
expand our own production capacity in order to meet requirements for our
products, or to attempt to improve our manufacturing efficiency. If the we
choose to contract for manufacturing services and encounter delays or
difficulties in establishing relationships with manufacturers to produce,
package and distribute finished products, clinical trials, market introduction
and subsequent sales of such products would be adversely affected. Moreover,
contract manufacturers must operate in compliance with the FDA's cGMP
requirements. Our potential dependence upon others for the manufacture of LJP
products may adversely affect our profit margins and our ability to develop and
deliver such products on a timely and competitive basis.
MARKETING AND SALES
In order to commercialize any drug candidate approved by the FDA, we
must either develop a marketing and sales force or enter into marketing
arrangements with others. These arrangements may be exclusive or nonexclusive
and may provide for marketing rights worldwide or in a specific market. We
currently have no arrangements with others for the marketing of any of our drug
candidates. There can be no assurance that we will be able to enter into any
additional marketing agreements on favorable terms, if at all, or that any such
agreements that we may enter into will result in payments to LJP. Under any
co-promotion or other marketing and sales arrangements that we may enter into
with other companies, any revenues that we may receive will be dependent on the
efforts of others and there can be no assurance that such efforts will be
successful. To the extent that we choose to attempt to develop our own marketing
and sales capability, we will compete with other companies that currently have
experienced and well-funded marketing and sales operations. Furthermore, there
can be no assurance that LJP or any collaborative partner will be able to
establish sales and distribution capabilities without undue delays or
expenditures or gain market acceptance for any of our drug candidates.
PATENTS AND PROPRIETARY TECHNOLOGIES
The Company files patent applications in the United States and in
foreign countries, as it deems appropriate, for protection of its proprietary
technologies and drug candidates. We own 87 issued patents and have 58 pending
patent applications covering various technologies and drug candidates, including
our Tolerance Technology, our lupus and antibody-mediated stroke drug
candidates, and our linkage technologies for our Toleragens. Our issued patents
include:
(1) four issued United States patents, one issued Australian patent,
one granted Portuguese patent, one granted Norwegian patent, and
one granted European patent which has been unbundled as thirteen
European national patents concerning its lupus
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Toleragens (expiring in 2009, 2011, 2013, 2014, 2007, 2013, 2011
and 2011, respectively);
(2) two issued United States patents, two issued Australian patents,
one granted European patent which has been unbundled as fifteen
European national patents, one granted Japanese patent, one
granted Canadian patent, and one granted South Korean patent
concerning its Tolerance Technology (expiring in 2010, 2014,
2008, 2014, 2012, 2012, 2012 and 2012, respectively);
(3) four issued United States patents, three issued Australian
patents one granted European patent which has been unbundled
into 15 countries, and one issued Japanese patent concerning
linkage technologies for its Toleragens (expiring in 2012, 2015,
2015, 2016, 2014, 2012, 2012, 2012, and 2012, respectively); and
(4) one issued U.S. patent concerning its antibody-mediated stroke
drug candidates (expiring in 2016).
The Company has received a Notice of Allowance from the Canadian Patent
Office for a patent application for its lupus Toleragens, a Notice of Allowance
from the United States Patent and Trademark Office (USPTO) for a patent
application for its Tolerance Technology, as well as a Notice of Allowance from
the USPTO and a Notice of Allowance from the Australian Patent Office for patent
applications for antibody-mediated stroke drug candidates.
COMPETITION
The biotechnology and pharmaceutical industries are subject to rapid
technological change. Competition from domestic and foreign biotechnology
companies, large pharmaceutical companies and other institutions is intense and
expected to increase. A number of companies are pursuing the development of
pharmaceuticals in our targeted areas. These include companies that are
conducting clinical trials and preclinical studies for the treatment of lupus.
In addition, there are many academic institutions, both public and
private, engaged in activities relating to the research and development of
therapeutics for autoimmune, inflammatory and other diseases. Most of these
companies and institutions have substantially greater facilities, resources,
research and development capabilities, regulatory compliance expertise, and
manufacturing and marketing capabilities than LJP. In addition, other
technologies may in the future be the basis of competitive products. There can
be no assurance that our competitors will not develop or obtain regulatory
approval for products more rapidly than LJP, or develop and market technologies
and products that are more effective than those being developed by LJP or that
would render our technology and proposed products obsolete or noncompetitive.
We believe that our ability to compete successfully will depend upon our
ability to attract and retain experienced scientists, develop patented or
proprietary technologies and products, obtain regulatory approvals, manufacture
and market products either alone or through third parties, and secure additional
capital resources to fund anticipated net losses for at least the next several
years. We expect that competition among products approved for marketing will be
based in large part upon product safety, efficacy, reliability, availability,
price and patent position.
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GOVERNMENT REGULATION
Our research and development activities and the future manufacturing and
marketing of any products developed by LJP are subject to significant regulation
by numerous government authorities in the United States and other countries. In
the United States, 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 any products we
may develop. In addition to FDA regulations, we are subject to other federal,
state and local regulations, such as the Occupational Safety and Health Act and
the Environmental Protection Act, as well as regulations governing the handling,
use and disposal of radioactive and other hazardous materials used in research
activities. Product development and approval within this regulatory framework
takes a number of years and involves the expenditure of substantial resources.
In addition, this regulatory framework is subject to changes that may affect
approval, delay an application or require additional expenditures.
The steps required before a pharmaceutical compound may be marketed in
the United States include (1) preclinical laboratory and animal testing; (2)
submission to the FDA of an Investigational New Drug ("IND") application, which
must become effective before clinical trials may commence; (3) adequate and
well-controlled clinical trials to establish the safety and efficacy of the
drug; (4) submission to the FDA of a New Drug Application ("NDA"); and (5) FDA
approval of the NDA prior to any commercial sale or shipment of the drug. In
addition to obtaining FDA approval for each product, each domestic drug
manufacturing establishment must be registered with, and approved by, the FDA.
Drug product manufacturing establishments located in California also must be
licensed by the State of California in compliance with separate regulatory
requirements.
Preclinical testing includes laboratory evaluation of product chemistry
and animal studies to assess the safety and efficacy of the product and its
formulation. The results of preclinical testing are submitted to the FDA as part
of an IND and, unless the FDA objects, the IND will become effective 30 days
following its receipt by the FDA.
Clinical trials involve administration of the drug to healthy volunteers
or to patients diagnosed with the condition for which the drug is being tested
under the supervision of a qualified clinical investigator. Clinical trials are
conducted in accordance with protocols that detail the objectives of the study,
the parameters to be used to monitor safety, and the efficacy criteria to be
evaluated. Each protocol is submitted to the FDA as part of the IND. Each
clinical trial is conducted under the auspices of an independent Institutional
Review Board ("IRB"). The IRB will consider, among other matters, ethical
factors, the safety of human subjects and the possible liability of the
institution.
Clinical trials are typically conducted in three sequential phases, but
the phases may overlap. In Phase I, the initial introduction of the drug into
healthy human subjects, the drug is tested for safety (adverse effects), dosage
tolerance, metabolism, distribution, excretion and clinical pharmacology. Phase
II involves trials in a limited patient population to (1) characterize the
actions of the drug in targeted indications, (2) determine drug tolerance and
optimal dosage and (3) identify possible adverse side effects and safety risks.
When a compound is found to be effective and to have an acceptable safety
profile in Phase II clinical trials, Phase III clinical trials are undertaken to
further evaluate and confirm clinical efficacy and safety within an expanded
patient population at multiple clinical trial sites. The FDA reviews both the
clinical plans and the results of the trials and may discontinue the trials at
any time if significant safety issues arise.
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The results of preclinical testing and clinical trials are submitted to
the FDA in the form of an NDA or Product License Application for marketing
approval. The testing and approval process is likely to require substantial time
and effort and there can be no assurance that any approval will be granted on a
timely basis, if at all. In addition, we will be required to obtain separate
regulatory approval for each indicated use of a drug. The approval process is
affected by a number of factors, including the severity of the disease, the
availability of alternative treatments, and the risks and benefits demonstrated
in clinical trials.
Additional preclinical testing or clinical trials may be requested
during the FDA review period and may delay marketing approval. After FDA
approval for the initial indications, further clinical trials may be necessary
to gain approval for the use of the product for additional indications. The FDA
mandates that adverse effects be reported to the FDA and may also require
post-marketing testing to monitor for adverse effects, which can involve
significant expense.
Among the conditions for FDA approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
to the FDA's cGMP requirements. Domestic manufacturing facilities are subject to
biennial FDA inspections and foreign manufacturing facilities are subject to
periodic inspections by the FDA or foreign regulatory authorities.
We are also subject to numerous and varying foreign regulatory
requirements governing the design and conduct of clinical trials and marketing
approval for pharmaceutical products to be marketed outside of the United
States. The approval procedure varies among countries and can involve additional
testing, and the time required to obtain approval may differ from that required
to obtain FDA approval. The foreign regulatory approval process includes all of
the risks associated with obtaining FDA approval, and approval by the FDA does
not ensure approval by the health authorities of any other country.
EMPLOYEES
LJP currently has 53 full-time employees (including 11 Ph.D.s), 40 of
whom are involved full-time in research, development and manufacturing scale-up
activities. All of our management have had prior experience with pharmaceutical,
biotechnology or medical product companies. We believe that we have been
successful in attracting skilled and experienced scientific personnel, but
competition for such personnel is intense and there can be no assurance that we
will be able to attract and retain the individuals needed. None of our employees
are covered by collective bargaining agreements and management considers
relations with our employees to be good.
CERTAIN RISK FACTORS
In this section, all references to "we," "our," and "us," refer to La
Jolla Pharmaceutical Company, a Delaware corporation.
I. RISK FACTORS RELATED TO THE INDUSTRY IN WHICH WE OPERATE.
Our success depends partially on healthcare reimbursement policies.
The continuing efforts of government and healthcare insurance companies
to reduce the costs of healthcare may negatively impact our business. For
example, in certain foreign markets,
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pricing and profitability of prescription pharmaceuticals are subject to
government control. In the United States, we expect that there will continue to
be a number of federal and state proposals to implement similar government
controls. In addition, increasing emphasis on managed care in the United States
will continue to put pressure on pharmaceutical pricing. Cost control
initiatives could decrease the revenue that we receive for any products we may
develop and sell in the future and negatively impact our business. In addition,
these cost control measures may impact our commercial partners and our ability
to continue to work with these partners.
Our business depends in part on the reimbursement policies of Medicare and
healthcare companies. These policies can be unpredictable.
Newly approved drugs may not be accepted for reimbursement by health
insurers or Medicare. It is possible that these organizations will not offer
coverage for our products. Government and other third-party payors increasingly
attempt to contain healthcare costs by limiting both coverage and the level of
reimbursement for new therapeutic products. If adequate coverage and
reimbursement levels are not provided by government and other third-party payors
for our products, the market acceptance of these products would be adversely
affected.
Our industry has numerous other companies that compete with LJP and we face
rapid technological change from within our industry.
The biotechnology and pharmaceutical industries are subject to rapid
technological change. Competition from domestic and foreign biotechnology
companies, large pharmaceutical companies and other institutions is intense and
is expected to increase. A number of companies and institutions are pursuing the
development of pharmaceuticals in our targeted areas. These include companies
that are conducting clinical trials and preclinical studies for the treatment of
lupus. Our competitors may develop or obtain regulatory approval for products
more rapidly than we do, or develop and market technologies and products that
are more effective than those being developed by us or that would render our
technology and proposed products obsolete or noncompetitive.
II. RISK FACTORS RELATING TO LA JOLLA PHARMACEUTICAL PARTICULARLY.
Our drug candidates may not perform well in clinical trials and we may not be
permitted to conduct further clinical trials. Without successful clinical
trials, we will not be able to market or sell any products.
We must demonstrate in clinical trials that LJP 394, our only drug
candidate that has advanced to the clinical trial stage, is safe and effective
for use before we apply for any regulatory approvals. We announced on May 12,
1999, that Abbott and the Company, in discussion with the FDA, elected to stop
the enrollment and treatment of the more than 200 patients enrolled in the
jointly conducted Phase II/III clinical trial of LJP 394 until the data could be
validated and analyzed. This announcement was made following a planned interim
analysis of the Phase II/III clinical trial in which an independent data
monitoring committee reported lower than expected efficacy. No major safety
concerns were observed, and patients receiving LJP 394 appeared to have a
reduction in circulating antibodies to double-stranded DNA that are associated
with lupus nephritis. In September 1999, Abbott and LJP terminated the
collaborative agreement for the development of LJP 394.
We are continuing to analyze the results of this clinical program and
expect to complete this analysis by the end of the first quarter of 2000. Early
analysis of these results seems to
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indicate that those patients who exhibited a certain trait (high antibody
affinity for LJP 394) suffered fewer renal flares, the chosen endpoint for the
Phase II/III clinical studies. A Phase II dose-ranging study of LJP 394
involving 75 lupus patients was recently completed, and we are currently
analyzing the data from this study. We must understand the effects of LJP 394 on
endpoints from these studies before deciding whether any further development is
warranted.
If LJP 394 is ultimately not found to be safe and effective, we would be
unable to obtain regulatory approval for its commercialization. If that were to
occur, there is no assurance that we would be able to develop an alternative
drug candidate. Because LJP 394 is our only drug candidate that has advanced to
clinical trials, our inability to commercialize it would have a material adverse
effect on our business, financial condition and results of operation.
Our products are in the early stage of development and the technology underlying
our products is uncertain and unproven.
All of our product development efforts are based on unproven
technologies and therapeutic approaches that have not been widely tested or
used. LJP 394 has not been proven to be effective in humans and its tolerance
technology has been used only in our preclinical tests and clinical trials.
Application of LJP 394's tolerance technology to antibody-mediated diseases
other than lupus is in even earlier research stages.
LJP 394 and our other potential drug candidates require significant
additional research and development and are subject to significant risks. For
example, potential products that appear to be promising at early stages of
development may be ineffective or cause harmful side effects during preclinical
testing or clinical trials, not receive necessary regulatory approvals, be
difficult to manufacture, be uneconomical to produce, not be accepted by
consumers, or be precluded from commercialization by the proprietary rights of
others. We may not successfully complete development of LJP 394 or any other
drug candidate or may not obtain required regulatory approvals. If introduced,
LJP 394 or any other drug candidate may not generate sales.
Even if proven effective, our products may never reach market.
Potential products that appear to be promising at early stages of
development may nevertheless fail to reach market or become profitable for
reasons such as the following:
- products may be ineffective or cause harmful side effects during
preclinical testing or clinical trials,
- products may fail to receive necessary regulatory approvals,
- products may be difficult to manufacture,
- products may be uneconomical to produce particularly if high dosages
are required, and
- products may fail to achieve market acceptance or be precluded from
commercialization because of proprietary rights of third parties.
There can be no assurance that our product development efforts with
respect to LJP 394 or any other drug candidate will be successfully completed,
that required regulatory approvals
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will be obtained, or that any product, if introduced, will be successfully
marketed or achieve commercial acceptance.
The technology underlying LJP 394 appears effective in humans. However,
no therapeutic products have been developed to date that utilize this
technology. There can be no assurance that LJP 394 will work as intended.
Furthermore, clinical trials of LJP 394 may be viewed as a test of the Company's
entire Tolerance Technology approach. If the data from these clinical trials
indicate that LJP 394 is ineffective, the applicability of our Tolerance
Technology to other antibody-mediated diseases will be highly uncertain.
Therefore, there is significant risk that our therapeutic approaches will not
prove to be successful, and there can be no assurance that our drug discovery
technologies will result in any commercially successful products.
We may need to establish collaborative agreements.
We may seek to collaborate with pharmaceutical companies to access their
research, drug development, manufacturing, marketing and financial resources. In
December 1996, we entered into a collaborative agreement with Abbott. This
agreement granted Abbott the exclusive right to market and sell LJP 394
throughout the world in exchange for royalties on sales, development financing,
and milestone payments. Abbott's obligations to make payments to us and to
conduct development activities were conditioned on the progress of clinical
trials and the attainment of milestones related to regulatory approvals and
sales levels. Following the May 1999 suspension of the jointly conducted Phase
II/III clinical trial, Abbott and LJP terminated their collaborative agreement
in September 1999.
We may pursue collaborative arrangements with other pharmaceutical
companies to assist in our research programs and the clinical development and
commercialization of our other drug candidates. However, we may not be able to
negotiate arrangements with any other collaborative partners on acceptable
terms, if at all. Any additional collaborative relationships that we enter into
may include conditions comparable to those in the Abbott agreement. Once a
collaborative arrangement is established, the collaborative partner may not
continue funding any particular program or may pursue alternative technologies
or develop alternative drug candidates, either alone or with others, to develop
treatments for the diseases we are targeting. Competing products, developed by a
collaborative partner or to which a collaborative partner has rights, may result
in the collaborative partner withdrawing support as to all or a portion of our
technology.
Without collaborative arrangements, we must fund our own research and
development activities, accelerating the depletion of our capital and requiring
us to develop our own marketing capabilities. Therefore, if we are unable to
establish and maintain collaborative arrangements, we could experience a
material adverse effect on our business, financial condition and results of
operations.
We will need additional funds to support operations and may need to reduce
operations, sell stock or assets, or merge with another entity to continue
operations.
Our operations to date have consumed substantial capital resources, and
we will continue to expend substantial and increasing amounts of capital for
research, product development, preclinical testing and clinical trials of drug
candidates, to establish commercial-scale manufacturing capabilities, and to
market potential products.
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Our future capital requirements will depend on many factors, including:
- continued scientific progress in our research and development programs
and the size and complexity of these programs,
- the scope and results of preclinical testing and clinical trials,
- the time and costs involved in applying for regulatory approvals,
- the costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims,
- competing technological and market developments,
- our ability to establish and maintain collaborative research and
development arrangements, and
- the cost of manufacturing scale-up and effective commercialization
activities and arrangements.
We expect to incur substantial and increasing losses each year for at
least the next several years as our clinical trial, research, development and
manufacturing scale-up activities increase. We expect our existing capital
resources (including the capital raised through the sale of stock that may be
offered for resale under this prospectus) to be sufficient to fund our
activities, as currently planned, for approximately the next 15 months. However,
the amounts expended by the Company for various purposes may vary significantly,
and it is possible that our cash requirements will exceed current projections
and that we will therefore need additional financing sooner than currently
expected. In the future, it is possible that we will not have adequate resources
to support our business activities.
We actively seek additional funding, including through collaborative
arrangements and public and private financings. Our choice of financing
alternatives may vary from time to time depending upon various factors,
including the market price of our securities, conditions in the financial
markets, and the interest of other entities in strategic transactions with LJP.
There can be no assurance that additional financing will be available on
acceptable terms, if at all, whether through collaborative arrangement, issuance
of securities, or otherwise. If adequate funds are not available, we may be
required to delay, scale back or eliminate one or more of our research and
development programs or obtain funds through arrangements with collaborative
partners or others that require us to relinquish rights to certain technologies
or potential products. This could have a negative impact on our business.
We have a history of losses and may not become profitable.
We have incurred operating losses each year since our inception in 1989
and had an accumulated deficit of approximately $71.8 million as of December 31,
1999. Our losses are likely to exceed those experienced in prior years due to
the termination of the Abbott collaborative relationship, unless we are
successful in establishing additional collaborative relationships to help
finance our research and development costs. To achieve profitability we must,
among other things, complete the development of our products, obtain all
necessary regulatory approvals and establish commercial manufacturing and
marketing capabilities. We expect to incur significant losses each year for at
least the next several years as our clinical trial,
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research, development and manufacturing scale-up activities increase. The amount
of losses and the time required by us to reach sustained profitability are
highly uncertain, and we do not expect to generate revenues from the sale of
products, if any, for at least several years. We may never achieve product
revenues or profitability.
If LJP 394 fails in clinical trials, we will be unable to obtain FDA approval
and will not be able to sell those products.
In order to sell our products that are under development, we must first
receive regulatory approval. To obtain those approvals, we must conduct clinical
studies demonstrating that our products are safe and effective. If we cannot
obtain FDA approval for LJP 394, currently our sole drug candidate, our business
will be significantly impacted and our prospects for profitable sales will
significantly decrease.
Although LJP 394 appears promising, it may not be successful in future
clinical trials. Our prior clinical study of LJP 394, in collaboration with
Abbott, was halted, and any renewed clinical study may also be delayed or halted
for various reasons, including:
- the product is not effective, or physicians think that it is not
effective,
- patients experience severe side effects during treatment,
- patients do not enroll in the study at the rate we expect, or
- product supplies are not sufficient to treat the patients in the
study.
In addition, the FDA and foreign regulatory authorities have substantial
discretion in the approval process. The FDA and foreign regulatory authorities
may not agree that we have demonstrated that LJP 394 is safe and effective after
we complete clinical trials. Even if the results of prior clinical trials are
positive, the FDA may require us to design and conduct new Phase II and Phase
III clinical trials, which will result in significant expense and delay. The FDA
may require new clinical trials because of inconclusive results from earlier
trials, a possible failure to conduct prior trials in complete adherence to FDA
good clinical practice standards, and identification of new clinical trial
endpoints.
Our success depends significantly upon our ability to obtain patent protection
for our therapeutic approach, LJP 394, and any other developed products. In
addition, we will need to successfully preserve our trade secrets and operate
without infringing on the rights of others.
We own 87 issued Patents and 58 pending patent applications covering
various technologies and drug candidates. However, there can be no assurance
that any additional patents will be issued, or that the scope of any patent
protection will be sufficient, or that any current or future issued patent will
be held valid if subsequently challenged. There is a substantial backlog of
biotechnology patent applications at the U.S. Patent and Trademark Office that
may delay the review and issuance of any patents. The patent position of
biotechnology firms like ours generally is highly uncertain and involves complex
legal and factual questions, and no consistent policy has emerged regarding the
breadth of claims covered in biotechnology patents or protection afforded by
these patents. Presently, we have a number of patent applications pending in the
United States relating to our technology, as well as foreign counterparts to
some of our U.S. patent applications. We intend to continue to file applications
as appropriate for patents covering
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both our products and processes. There can be no assurance that patents will be
issued from any of these applications, or that the scope of any issued patents
will protect our technology.
Patent applications in the United States are kept secret until a patent
is issued. As a result, we do not know if others, including competitors, have
filed patent applications for technology covered by our pending applications,
nor can we be certain that we were the first to invent or to file patent
applications for our technologies. Competitors may have patents or patent
applications pending that relate to compounds or processes that overlap or
compete with our intellectual property. In particular, we are aware of one
currently pending U.S. patent application that, if allowed, may contain claims
covering subject matter that may compete or conflict with some of our patents
and patent applications. Any conflict between our patents and patent
applications, and patents or patent applications of third parties, could result
in a significant reduction of the coverage of our existing patents or any future
patents that may be issued. In addition, we may have to incur significant
expenses in defending our patents. If the U.S. Patent Office or any foreign
counterpart issues to a competitor patents containing competitive or conflicting
claims, and if these claims are valid, there can be no assurance that we would
be able to obtain licenses to these patents, that any licensing fees would be
reasonable, or that we would be able to develop or obtain alternative
technology.
We also rely on unpatented intellectual property such as trade secrets
and improvements, know-how, and continuing technological innovation. While we
seek to protect these rights, it is possible that: (i) inventions relevant to
our business will be developed by a person not bound by an LJP invention
assignment agreement, (ii) binding LJP confidentiality agreements will be
breached and we will not have adequate remedies for such a breach, or (iii) our
trade secrets will otherwise become known or be independently discovered by
competitors. We could incur substantial costs in defending suits brought against
the Company by others for infringement of intellectual property rights or in
prosecuting suits that we might bring against others to protect our intellectual
property rights.
We currently have only limited manufacturing capabilities.
The manufacture of our potential products for clinical trials and the
manufacture of any resulting products for commercial purposes are subject to
certain FDA standards. While we are producing limited quantities of LJP 394 for
clinical trials, our current facilities are not FDA approved for commercial
production of our potential products. Substantial capital investment in the
expansion and build-out of our manufacturing facilities will be required to
enable manufacture of any products in commercial quantities. While we have
initiated the process of obtaining FDA approval for our facilities, we have
never operated an FDA-approved manufacturing facility and may not obtain
necessary approvals. We have limited manufacturing experience, and we may be
unable to successfully transition to commercial production. We may enter into
arrangements with contract manufacturing companies to expand our own production
capacity in order to meet requirements for our products, or to attempt to
improve manufacturing efficiency. If we choose to contract for manufacturing
services and encounter delays or difficulties in establishing relationships with
manufacturers to produce, package and distribute our finished products, the
clinical trials, market introduction and subsequent sales of these products
would be adversely affected. If we become dependent on third parties for the
manufacture of our products, our profit margins and our ability to develop and
deliver products on a timely and competitive basis may be adversely affected.
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We lack experience in marketing products for commercial sale.
In order to commercialize any drug candidate approved by the FDA, we
must either develop a marketing and sales force or enter into marketing
arrangements with others. We currently have no marketing arrangements with
others, and there can be no assurance that we will be able to enter into any
marketing agreements on favorable terms, or that any such agreements that will
result in payments to LJP. To the extent that we enter into co-promotion or
other marketing and sales arrangements with other companies, any revenues that
we may receive will be dependent on the efforts of others. There can be no
assurance that these efforts will be successful. If we attempt to develop our
own marketing and sales capabilities, we will compete with other companies that
have experienced and well-funded marketing and sales operations. Furthermore, if
we attempt to establish sales and distribution capabilities, we may experience
delays and expenditures and have difficulty in gaining market acceptance for our
drug candidates.
The use of LJP 394 and other potential products in clinical trials, and the sale
of any approved products may expose us to liability claims resulting from the
use of these products.
We have not received marketing approval from the FDA for any drug
candidates and we currently use LJP 394 only in clinical trials. The use and
possible sale of LJP 394 and other potential products may expose us to legal
liability and generate negative publicity. These claims might be made directly
by consumers, pharmaceutical companies, or others. We maintain $10.0 million of
product liability insurance for claims arising from the use of LJP products in
clinical trials. However, coverage is becoming increasingly expensive, and there
can be no assurance that we will be able to maintain insurance or that insurance
can be acquired at a reasonable cost or in sufficient amounts to protect us
against possible losses. Furthermore, it is possible that our financial
resources would be insufficient to satisfy potential product liability claims. A
successful product liability claim or series of claims brought could negatively
impact our business and financial condition.
Our research and development and operations depend in part on certain key
employees and consultants. Losing these employees or consultants would
negatively impact our product development and operations.
We are highly dependent upon the principal members of our scientific and
management staff, the loss of whose services would delay the achievement of our
research and development objectives. Our anticipated growth and expansion into
areas requiring additional expertise, such as clinical trials, government
approvals, manufacturing, and marketing, is expected to place increased demands
on our resources and require the addition of new management personnel as well as
the development of additional expertise by existing management personnel.
Retaining our current key employees and recruiting additional qualified
scientific personnel to perform research and development work in the future will
also be critical to our success. Because competition for experienced scientists
among numerous pharmaceutical and biotechnology companies and research and
academic institutions is intense, we may not be able to attract and retain these
people. In addition, we rely upon consultants and advisors to assist us in
formulating our research and development, clinical, regulatory and manufacturing
strategies. All of our consultants and advisors are employed outside the Company
and may have commitments or consulting or advisory contracts with other entities
that may affect their ability to contribute to our business.
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<PAGE> 23
It is possible that we may face environmental liabilities related to certain
hazardous materials used in our operations.
Due to the nature of our manufacturing processes, we are subject to
stringent federal, state and local laws, rules, regulations and policies
governing the use, generation, manufacture, storage, emission, discharge,
handling and disposal of certain materials and wastes. It is possible that we
may have to incur significant costs to comply with environmental regulations as
manufacturing is increased to commercial volumes. Our operations may be
significantly impacted by current or future environmental laws, rules,
regulations and policies or by any releases or discharges of hazardous
materials. In our research activities, we utilize radioactive and other
materials that could be hazardous to human health, safety, or the environment.
These materials and various wastes resulting from their use are stored at our
facility pending ultimate use and disposal. The risk of accidental injury or
contamination from these materials cannot be eliminated. In the event of such an
accident, we could be held liable for any resulting damages, and any such
liability could exceed our resources.
III. RISK FACTORS RELATED SPECIFICALLY TO OUR STOCK.
Our common stock price has historically been very volatile.
The market prices for securities of biotechnology and pharmaceutical
companies, including ours, have historically been highly volatile, and the
market has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. Factors such as the following can have a negative effect on the
market price of our securities:
- announcements of technological innovations or new therapeutic products
by LJP or others,
- clinical trial results,
- developments concerning agreements with collaborators,
- government regulation,
- developments in patent or other proprietary rights,
- public concern as to the safety of drugs discovered or developed by LJP
or others,
- future sales of substantial amounts of our common stock by existing
stockholders, and
- comments by securities analysts and general market conditions.
The realization of any of the risks described in these "Risk Factors"
could have an adverse effect on the market price of our common stock.
In the future, our stock may be removed from listing on the Nasdaq quotation
system and may not qualify for listing on any stock exchange.
Currently our securities are traded on the Nasdaq National Market.
Nasdaq has certain continued listing requirements, including a minimum trading
price. Previously, we have received
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<PAGE> 24
notice from Nasdaq that our stock price fell below this minimum trading price.
While we have since come back into compliance with this Nasdaq requirement, it
is possible that we will fall out of compliance with this and/or other Nasdaq
continued listing criteria at some point in the future. Failure to comply with
any one of several Nasdaq requirements may cause our stock to be removed from
listing on Nasdaq. Should this happen, we may not be able to secure listing on
other exchanges or quotation systems. This would have a negative effect on the
price and liquidity of our stock.
Potential adverse effects of shares eligible for future sale.
Sales of our common stock in the public market, or the perception that
such sales could occur, could negatively impact the market price of our
securities and impair our ability to complete equity financings.
Certain anti-takeover plans and statutes may prevent hostile takeovers or
prevent or delay the change in control within the Company.
There are certain anti-takeover devices in place that may discourage or
deter a potential acquirer from attempting to gain control of us. Certain
provisions of the Delaware General Corporation Law may have the effect of
deterring hostile takeovers or delaying or preventing changes in the control or
management of us, including transactions in which stockholders might otherwise
receive a premium for their shares over then-current market prices.
We may also issue shares of preferred stock without stockholder approval
and upon such terms as our Board of Directors may determine. The issuance of
preferred stock could have the effect of making it more difficult for a third
party to acquire a majority of our outstanding stock, and the holders of such
preferred stock could have voting, dividend, liquidation and other rights
superior to those of holders of the common stock. In 1998, we designated 75,000
shares of preferred stock as Series A Junior Participating Preferred Stock in
connection with our Rights Plan. The Rights Plan could cause an unapproved
takeover to be much more expensive to an acquirer, resulting in a strong
incentive to negotiate with our Board of Directors.
Our certificate of incorporation was recently amended to provide for a
board of directors that is separated into three classes, with their respective
terms in office staggered over three year periods. This has the effect of
delaying a change in control of the board of directors without the cooperation
of the incumbent board. In addition, our bylaws do not allow stockholders to
call a special meeting of stockholders, require stockholders to give written
notice of any proposal or director nomination to us within a certain period of
time prior to the stockholder annual meeting, and establish certain
qualifications for a person to be elected or appointed to the Board of Directors
during the pendency of certain business combination transactions.
Absence of dividends.
The Company has not paid any cash dividends since its inception and does
not anticipate paying any cash dividends in the foreseeable future.
ITEM 2. PROPERTIES.
LJP leases two adjacent buildings in San Diego, California for a total
of approximately 54,000 square feet. One building contains research and
development labs and clinical manufacturing facilities, and the other contains
general offices and our warehouse. Each building
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<PAGE> 25
is subject to a lease, one that expires in 2001 and one that expires in 2004.
Each lease includes an option to extend the term of the agreement for an
additional five years and is subject to escalation clauses that provide for
annual rent increases based on the U.S. Consumer Price Index. We believe that
these facilities will be adequate to meet its needs for the near term. Over the
longer term, management believes additional space can be secured at commercially
reasonable rates.
ITEM 3. LEGAL PROCEEDINGS.
The Company is currently not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the three
month period ended December 31, 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and key employees of the Company and their ages
are set forth below.
<TABLE>
<S> <C> <C>
Steven B. Engle 45 Chairman of the Board, Chief Executive Officer
Matthew D. Linnik, Ph.D. 40 Executive Vice President of Research and
Assistant Secretary
Andrew Wiseman, Ph.D. 51 Senior Director of Business Development
Paul Jenn, Ph.D. 48 Director of Operations
Theodora Reilly 50 Director of Human Resources
Gail A. Sloan, CPA 37 Controller, Secretary
</TABLE>
STEVEN B. ENGLE, Chairman of the Board and Chief Executive Officer,
joined the Company in 1993 as Executive Vice President and Chief Operating
Officer. He assumed the offices of President, Director and Secretary in 1994,
and became Chief Executive Officer in 1995, and Chairman of the Board in 1997.
From 1991 to 1993, Mr. Engle served as Vice President of Marketing and in other
senior management positions while at Cygnus Inc., a publicly held company that
develops drug-delivery systems for therapeutic drugs. From 1987 to 1991, he was
Chief Executive Officer of Quantum Management Company, a privately held
management consulting firm serving the pharmaceutical industry. From 1984 to
1987, he was Vice President of Marketing and Divisional General Manager for
Micro Power Systems Inc., a privately held company that manufactures high
technology products including medical devices. From 1979 to 1984, he was a
management consultant at Strategic Decisions Group and SRI International where
he advised pharmaceutical, high technology and other companies. Mr. Engle is the
Chairman of BIOCOM, a regional trade association for the biotechnology and
medical devices industries, and as a Director of CareLinc Corporation, a
privately held developer of clinical information
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<PAGE> 26
management systems. Mr. Engle holds an M.S.E.E. and a B.S.E.E. with a focus in
biomedical engineering from the University of Texas.
MATTHEW D. LINNIK, Ph.D., Executive Vice President of Research, joined
the Company in 1998 as Director of Research and Development and became Vice
President of Research in 1999. Prior to joining the Company, from 1989 to 1998,
Dr. Linnik served as Senior Pharmacologist, Scientist, Research Scientist and
Project Leader for Hoechst Marion Roussel, formerly Marion Merrell Dow and
Marion Laboratories, a pharmaceutical company. From 1996 to 1998, he also served
as Adjunct Associate Professor of Neurosurgery at the University of Cincinnati
School of Medicine. From 1986 to 1988, he served as Postdoctoral Fellow, then
Instructor, in the Departments of Neurology and Neurosurgery at Massachusetts
General Hospital and Harvard Medical School. Dr. Linnik holds a B.A. in
Physiology from Southern Illinois University and a Ph.D. in Physiology and
Pharmacology from Southern Illinois University School of Medicine.
ANDREW WISEMAN, Ph.D., Senior Director of Business Development, joined
the Company in May 1989 as Director of Business Development and was one of the
Company's original founders. Dr. Wiseman has also served as head of investor
relations since 1994. From 1983 to 1989, Dr. Wiseman held several positions with
Quidel Corporation, including Manager of Business Development, Project Manager
in Diagnostic Research and Development and Senior Research Scientist. Dr.
Wiseman was an Assistant Professor at the Medical Biology Institute and an
Assistant Member at the Scripps Clinic and Research Foundation. He received a
doctorate in Genetics from Duke University.
PAUL JENN, Ph.D., Director of Operations, joined the Company in 1994 as
Associate Director of Production & Process Development. In 1999 he was promoted
to Director of Operations. Prior to joining the Company, from 1992 to 1994, Dr.
Jenn was Director of Peptide Manufacturing at Telios Pharmaceuticals, Inc. a
pharmaceutical company, and held several other positions. From 1988 to 1992, he
served as Senior Research Associate at Mallinckrodt Specialty Chemicals, a
specialty chemical company. From 1984 to 1988, Dr. Jenn served as a Research
Scientist at International Minerals and Chemical Corp., a chemical company. From
1982 to 1984, he performed his Post-doctoral research at the Lawrence Berkeley
Laboratory at the University of California at Berkley. Dr. Jenn holds a B.S. in
Chemistry from Fu-Jen Catholic University, Taipei, Taiwan and a Ph.D. in
Chemistry from New York State University at Buffalo.
THEODORA REILLY, Director of Human Resources, joined the Company in
1998. Prior to joining the Company, from 1997 to 1998, Ms. Reilly was Director
of Human Resources at ThermoLase Corporation, a public subsidiary of Thermo
Electron Corporation, which developed laser-based systems for laser-based skin
resurfacing. From 1994 to 1997, Ms. Reilly served as Director of Human Resources
at Solectek Corporation, a privately held high tech manufacturer of wireless
interconnectivity products. Ms. Reilly received a B.S. in Psychology from the
Christian Bible College and Seminary, Independence, MO.
GAIL A. SLOAN, Controller, joined the Company in 1996 as Assistant
Controller. Prior to joining the Company, from 1993 to 1996, Ms. Sloan served as
Assistant Controller at Affymax Research Institute, a drug discovery research
company and a part of the Glaxo Wellcome Group. From 1985 to 1993, she
progressed to the position of Audit Manager with Ernst & Young, LLP. Ms. Sloan
holds a B.S. in Business Administration from California Polytechnic State
University at San Luis Obispo and is a Certified Public Accountant.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock trades on the Nasdaq National Market under
the symbol "LJPC." Set forth below are the high and low sales prices for the
Company's Common Stock for each full quarterly period within the two most recent
fiscal years.
<TABLE>
<CAPTION>
Prices
Year Ended December 31, 1999 High Low
---------- --------
<S> <C> <C>
First Quarter 5-3/8 2-1/8
Second Quarter 3-3/4 11/16
Third Quarter 31/32 7/16
Fourth Quarter 3-1/8 7/32
Year Ended December 31, 1998
First Quarter 4-15/16 3-5/16
Second Quarter 4-5/16 3-7/16
Third Quarter 3-10/16 1-10/16
Fourth Quarter 5 2-1/4
</TABLE>
The Company has not paid dividends on its Common Stock and does not
anticipate paying dividends in the foreseeable future.
The number of record holders of the Company's Common Stock as of January
31, 2000 was approximately 3,800.
On February 16, 2000, the Company sold 4,040,000 shares of its Common
Stock to private investors for an aggregate price of $13.6 million. The sale was
a privately negotiated sale to selected institutional investors and other
accredited investors and the Company expects that it will file a resale
registration statement for these shares on Form S-3 on or about February 28,
2000.
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<PAGE> 28
ITEM 6. SELECTED FINANCIAL DATA.
The following Selected Financial Data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in Item 7 below and the financial statements of the Company
and related notes thereto beginning at page F-1 of this report.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue from collaborative
agreements $ 3,000 $ 4,000 $ 9,860 $ 8,600 $ 4,690
Expenses:
Research and development 9,804 11,663 14,676 14,627 11,686
General and administrative 2,390 2,920 2,937 3,076 2,944
-------- -------- -------- -------- --------
Loss from operations (9,194) (10,583) (7,753) (9,103) (9,940)
Interest expense (301) (183) (56) (6) (20)
Interest income 941 1,170 1,441 1,232 811
-------- -------- -------- -------- --------
Net loss $ (8,554) $ (9,596) $ (6,368) $ (7,877) $ (9,149)
======== ======== ======== ======== ========
Basic and diluted net loss
per share $ (0.79) $ (0.63) $ (0.36) $ (0.42) $ (0.45)
======== ======== ======== ======== ========
Shares used in computing
basic and diluted net loss
per share 10,883 15,150 17,547 18,649 20,135
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Working capital $ 21,949 $ 25,886 $ 23,705 $ 19,911 $ 10,661
Total assets $ 26,375 $ 31,687 $ 29,646 $ 25,815 $ 14,043
Noncurrent portion of
obligations under capital
leases $ 892 $ 168 $ -- $ -- $ 44
Stockholders' equity $ 23,568 $ 27,938 $ 25,715 $ 21,859 $ 12,793
</TABLE>
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<PAGE> 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Since its inception in May 1989, LJP has devoted substantially all of
its resources to the research and development of technology and potential drugs
to treat antibody-mediated diseases. We have never generated any revenue from
product sales and have relied upon private and public investors, revenue from
collaborative agreements, equipment lease financings and interest income on
invested cash balances for its working capital. We have been unprofitable since
inception and we expect to incur substantial additional expenses and net
operating losses for at least the next several years as we increase our clinical
trial and manufacturing scale-up activities including the production of LJP 394
for clinical trials, and increase our research and development expenditures on
additional drug candidates, and general and administrative expenditures to
support increased clinical trial, research and development and manufacturing
scale-up activities. Our activities to date are not as broad in depth or scope
as the activities we must undertake in the future and our historical operations
and the financial information included in this report are not necessarily
indicative of our future operating results or financial condition.
We expect that losses are likely to exceed those experienced in prior
years due to the termination of the Abbott collaborative relationship in
September 1999. In addition, we expect losses to fluctuate from quarter to
quarter as a result of differences in the timing of expenses incurred. Some of
these fluctuations may be significant. As of December 31, 1999, our accumulated
deficit was approximately $71.8 million.
Our business is subject to significant risks including, but not limited
to, the risks inherent in research and development efforts, including clinical
trials, uncertainties associated with both obtaining and enforcing patents and
with the patent rights of others, the lengthy, expensive and uncertain process
of seeking regulatory approvals, uncertainties regarding government reforms and
of product pricing and reimbursement levels, technological change and
competition, manufacturing uncertainties, our lack of marketing experience and
the uncertainty of receiving future revenue from product sales or other sources
such as collaborative relationships, future profitability and the need for
additional financing. Even if our product candidates appear promising at an
early stage of development, they may not reach the market for numerous reasons.
Such reasons include the possibilities that the products will be ineffective or
unsafe during clinical trials, will fail to receive necessary regulatory
approvals, will be difficult to manufacture on a large scale, will be
uneconomical to market or will be precluded from commercialization by
proprietary rights of third parties.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Revenue. We earned revenue of $4.7 million, $8.6 million, and $9.9
million for the years ended December 31, 1999, 1998 and 1997, respectively. In
December 1996, we entered into a collaborative agreement with Abbott for the
worldwide development and commercialization of LJP 394, our lupus drug
candidate. All revenue in 1999, 1998 and 1997 was attributable to the funding
from Abbott for the development of LJP 394. The collaborative agreement with
Abbott granted Abbott the exclusive right to market and sell LJP 394 throughout
the world in exchange for development funding, royalties on sales and milestone
payments. Abbott's obligations to make payments to LJP and to conduct
development activities were conditioned on the progress of clinical trials and
the attainment of milestones related to regulatory approvals and sales levels.
In May 1999, Abbott and LJP elected to stop the enrollment and treatment of the
more than 200 patients enrolled in the jointly conducted Phase II/III clinical
trial of LJP 394. In September
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<PAGE> 30
1999, Abbott and LJP terminated their agreement and all rights to LJP 394 were
returned to us. There can be no assurance that we will realize any further
revenue from any other collaborative arrangement.
Research and Development Expenses. Our research and development expenses
decreased to $11.7 million for the year ended December 31, 1999 from $14.6
million for the same period in 1998 and from $14.7 million for the same period
in 1997. The decrease in research and development expense in 1999 from 1998 was
primarily due to the decrease in expenses as a result of stopping our Phase
II/III clinical trial for LJP 394. Research and development expenses for 1998
were comparable to those incurred in 1997. Although we experienced an increase
in expenses in 1998 from 1997 due to the expansion of our research and
development programs, these increases were offset by the decrease in expenses
related to clinical trials that were paid directly by Abbott in 1998 and the
timing of purchases for the production of LJP 394 for use in clinical trials.
Our research and development expenses are expected to increase significantly in
the future as clinical trial and manufacturing scale-up activities including the
production of LJP 394 for clinical trials are increased, efforts to develop
additional drug candidates are intensified, and other potential products
progress into and through clinical trials.
General and Administrative Expenses. Our general and administrative
expenses of $2.9 million for the year ended December 31, 1999 decreased slightly
from $3.1 million for the same period in 1998 and were comparable to $2.9
million for the same period in 1997. The slight decrease in general and
administrative expense in 1999 compared to 1998 was due to the reduction in
investor relations activities. Several factors contributed to the increase in
general and administrative expense from 1997 to 1998, including expanded
business development and investor relations activities. We expect general and
administrative expenses to increase in the future to support increased clinical
trial, manufacturing scale-up and research and development activities.
Interest Income and Expense. Our interest income decreased to $0.8
million for the year ended December 31, 1999 from $1.2 million in 1998 and from
$1.4 million in 1997. The decrease in interest income in 1999 from 1998 and 1997
was due to lower investment balances. Interest expense increased to $20,000 for
the year ended December 31, 1999 from $6,000 in 1998 and decreased from $56,000
in 1997. The increase in interest expense in 1999 was due to our new capital
lease obligations entered into in 1999. The decrease in interest expense from
1997 to 1998 was the result of decreases in our capital lease obligations.
Net Operating Loss Carryforwards. At December 31, 1999, we had available
net operating loss carryforwards and research tax credit carryforwards of
approximately $68.8 million and $8.3 million, respectively, for federal income
tax purposes, which will begin to expire in 2005 unless previously utilized.
Because of "change in ownership" provisions of the Tax Reform Act of 1986, our
net operating loss and tax credit carryforwards will be subject to an annual
limitation regarding utilization against taxable income in future periods. We
believe that such limitation will not have a material impact on the benefits
that may arise out of our net operating loss and tax credit carryforwards.
However, we cannot be certain that additional limitations arising from any
future changes in ownership will not have a material impact on us. For more
information concerning the provision for income taxes, see Note 8 of the Notes
to Financial Statements.
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<PAGE> 31
LIQUIDITY AND CAPITAL RESOURCES
From inception through December 31, 1999, we have incurred a cumulative
net loss of approximately $71.8 million and have financed our operations through
private and public offerings of securities, revenues from collaborative
agreements, capital and operating lease transactions, and interest income on
invested cash balances. As of December 31, 1999, we have raised $83.7 million in
net proceeds since inception from sales of equity securities.
At December 31, 1999, we had $11.4 million in cash, cash equivalents and
short-term investments, as compared to $23.4 million at December 31, 1998. Our
working capital at December 31, 1999 was $10.7 million, as compared to $19.9
million at December 31, 1998. The decrease in cash, cash equivalents and
short-term investments resulted from the decrease in funding received from
Abbott for the development of LJP 394, the continued use of cash for operating
activities, termination benefits paid for restructuring, patent expenditures and
the purchase of property and equipment. We received $9.1 million in funding and
proceeds of $3.8 million for the sale of 1,538,402 shares of our common stock to
Abbott in 1998, as compared to $2.9 million in similar funding received in 1999.
The decrease in payments received in 1999 was due to the stopping of the
clinical trial for LJP 394 in May 1999 and the termination of our collaborative
agreement with Abbott in September 1999. We invest our cash in corporate and
United States Government-backed debt instruments.
As of December 31, 1999, we had acquired an aggregate of $4.4 million in
property and equipment, of which approximately $564,000 of total equipment costs
is financed under capital lease obligations. In addition, we lease our office
and laboratory facilities and certain equipment under operating leases. We have
no material commitments for the acquisition of property and equipment. However,
we anticipate increasing our investment in property and equipment in connection
with the enhancement of our research and development and manufacturing
facilities and capabilities.
We intend to use our financial resources to fund clinical trials and
manufacturing scale-up activities including the production of LJP 394 for
clinical trials, research and development efforts, and for working capital and
other general corporate purposes. The amounts actually expended for each purpose
may vary significantly depending upon numerous factors, including the results of
clinical trials, the analysis of the Phase II/III clinical trial data, the
timing of regulatory applications and approvals, and technological developments.
Expenditures also will depend upon the establishment and progression of
collaborative arrangements and contract research as well as the availability of
other financings. There can be no assurance that these funds will be available
on acceptable terms, if at all.
We anticipate that our existing capital along with the net proceeds of
approximately $12.8 million received from the sale of 4,040,000 shares of our
common stock to private investors in February 2000, and interest earned thereon,
will be sufficient to fund our operations as currently planned into 2001. Our
future capital requirements will depend on many factors, including continued
scientific progress in our research and development programs, the size and
complexity of these programs, the scope and results of clinical trials, the
analysis of data from the Phase II/III clinical trial, the time and costs
involved in applying for regulatory approvals, the costs involved in preparing,
filing, prosecuting, maintaining and enforcing patent claims, competing
technological and market developments, ability to establish and maintain
collaborative relationships, and the cost of manufacturing scale-up and
effective commercialization activities and arrangements. We expect to incur
significant net operating losses each year for at least the next several years
as we expand our current research and development programs, including clinical
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<PAGE> 32
trials and manufacturing scale-up activities, and increase our general and
administrative expenses to support a larger, more complex organization. It is
possible that our cash requirements will exceed current projections and that we
will therefore need additional financing sooner than currently expected.
We have no current means of generating cash flow from operations. Our
lead drug candidate, LJP 394, will not generate revenues, if at all, until it
has been proven safe and effective, has received regulatory approval and has
been successfully commercialized, a process that is expected to take at least
the next several years. Our other drug candidates are much less developed than
LJP 394. There can be no assurance that our product development efforts with
respect to LJP 394 or any other drug candidate will be successfully completed,
that required regulatory approvals will be obtained, or that any product, if
introduced, will be successfully marketed or achieve commercial acceptance.
Accordingly, we must continue to rely upon outside sources of financing to meet
our capital needs for the foreseeable future.
We anticipate increasing expenditures on the clinical trials and
manufacturing scale-up activities as well as the development of other drug
candidates and, over time, our consumption of cash will necessitate tapping
additional sources of financing. Furthermore, we have no internal sources of
liquidity, and termination of the Abbott arrangement has had an adverse effect
on our ability to generate sufficient cash to meet our needs. In February, we
raised approximately $12.8 million in net proceeds from the sale of 4,040,000
shares of common stock to private investors.
We will continue to seek capital through any appropriate means,
including issuance of our securities and establishment of additional
collaborative arrangements. However, there can be no assurance that additional
financing will be available on acceptable terms and our negotiating position in
capital-raising efforts may worsen as we continue to use existing resources.
There is no assurance that we will be able to enter into further collaborative
relationships.
IMPACT OF YEAR 2000
In prior years, we discussed the nature and progress of our plans to
become Year 2000 ready. In late 1999, we completed our remediation and testing
of systems. As a result of those planning and implementation efforts, we
experienced no significant disruptions in our mission critical information
technology and non-information technology systems and we believe those systems
successfully responded to the Year 2000 date change. We incurred approximately
$95,000 during 1999 in connection with remediating systems. We are not aware of
any material problems resulting from Year 2000 issues, either with our internal
systems, or the products and services of third parties. We will continue to
monitor our mission critical computer applications and those of our suppliers
and vendors throughout the year 2000 to ensure that any latent Year 2000 matters
that may arise are addressed promptly.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We invest our excess cash in interest-bearing investment-grade
securities that we hold for the duration of the term of the respective
instrument. We do not utilize derivative financial instruments, derivative
commodity instruments or other market risk sensitive instruments, positions or
transactions in any material fashion. Accordingly, we believe that, while the
investment-grade securities we hold are subject to changes in the financial
standing of the issuer of such securities, we are not subject to any material
risks arising from changes in interest rates,
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<PAGE> 33
foreign currency exchange rates, commodity prices or other market changes that
affect market risk sensitive instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data required by this item
are at the end of this report beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information concerning our executive officers is included under the
caption "Executive Officers" following Part I, Item 4 of this report. Other
information for Item 10 is incorporated by reference from portions of our
definitive proxy statement for the annual meeting of stockholders to be held on
May 11, 2000 under the captions "Proposal 1 - Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance," which will be filed
with the Securities and Exchange Commission no later than 120 days after the
close of the fiscal year ended December 31, 1999.
ITEM 11. EXECUTIVE COMPENSATION.
Information for Item 11 is incorporated by reference from portions of
our definitive proxy statement for the annual meeting of stockholders to be held
on May 11, 2000 under the captions "Executive Compensation and Other
Information," "Report of the Compensation Committee on Executive Compensation,"
"Compensation Committee Interlocks and Insider Participation," and "Stock
Performance Graph," which will be filed with the Securities and Exchange
Commission no later than 120 days after the close of the fiscal year ended
December 31, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information for Item 12 is incorporated by reference from the portion of
our definitive proxy statement for the annual meeting of stockholders to be held
on May 11, 2000 entitled "Security Ownership of Certain Beneficial Owners and
Management," which will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the fiscal year ended December 31, 1999.
33
<PAGE> 34
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Abbott owns approximately 3,369,000 shares of our common stock,
representing more than 5% of our common stock and is considered a related party.
Under our collaborative agreement with Abbott, in 1999, we recorded revenue of
approximately $4.7 million from Abbott for the development of LJP 394, of which
$2.9 million was received in cash in 1999 and $1.8 million was revenue
recognized from previously deferred revenue.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
<TABLE>
<S> <C> <C>
1. Financial Statements.
The following financial statements of La Jolla Pharmaceutical
Company are included in Item 8:
Report of Independent Auditors ............................... F-1
Balance Sheets at December 31, 1999 and 1998 ................. F-2
Statements of Operations for each of the three years in the
periods ended December 31, 1999, 1998 and 1997 ............... F-3
Statements of Stockholders' Equity for each of the three years
in the periods ended December 31, 1999, 1998 and 1997 ........ F-4
Statements of Cash Flows for each of the three years in the
periods ended December 31, 1999, 1998 and 1997 ............... F-5
Notes to Financial Statements ................................ F-6
2. Financial Statement Schedules.
No financial statement schedules are required.
</TABLE>
34
<PAGE> 35
3. Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
3.1 Intentionally omitted
3.2 Amended and Restated Bylaws of the Company(14)
3.3 Amended and Restated Certificate of Incorporation of the Company(14)
4.0 Rights Agreement dated as of December 3, 1998 between the Company and
American Stock Transfer & Trust Company(11)
4.1 Certificate of Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock of the Company(13)
10.1 Intentionally omitted
10.2 Stock Option Agreement dated February 4, 1993 entitling Joseph
Stemler to purchase 35,000 shares of Common Stock(1)*
10.3 Intentionally omitted
10.4 Intentionally omitted
10.5 Intentionally omitted
10.6 Steven B. Engle Employment Agreement(1), Amendment No. 1(9) and
Amendment No. 2(15)*
10.7 Form of Directors and Officers Indemnification Agreement(1)
10.8 Intentionally omitted
10.9 Intentionally omitted
10.10 Option and Collaborative Research Agreement dated June 10, 1991
regarding certain compounds for potential treatment of muscular
dystrophies or myasthenia gravis between the Company and CepTor
Corporation(1)
10.11 Intentionally omitted
10.12 Intentionally omitted
10.13 Form of Employee Invention and Confidential Information Agreement(1)
10.14 Industrial Real Estate Lease(1)
10.15 Intentionally omitted
10.16 Master Lease Agreement dated June 22, 1993 with Aberlyn Capital
Management Limited Partnership ("ACM") and related Agreements to Issue
Warrant with Warrants issued to ACM and Aberlyn Holding Company, Inc.(1)
10.17 La Jolla Pharmaceutical Company 1989 Incentive Stock Option Plan and
1989 Nonstatutory Stock Option Plan(1)*
10.18 Form of Stock Option Agreement under the 1989 Nonstatutory Stock Option
Plan(1)
10.19 Amended La Jolla Pharmaceutical Company 1994 Incentive Stock Option
Plan(13)*
10.20 Intentionally omitted
10.21 Letter of Agreement dated June 7, 1993 between the Company and
Vector Securities International regarding Vector's engagement as
financial advisor to the Company with respect to potential
corporate strategic alliances(1)
10.22 Intentionally omitted
</TABLE>
35
<PAGE> 36
<TABLE>
<S> <C>
10.23 Intentionally omitted
10.24 Intentionally omitted
10.25 Second Amendment to Lease dated June 30, 1994 by and between the Company
and BRE Properties, Inc.(2)
10.26 Intentionally omitted
10.27 Third Amendment to Lease dated January 26, 1995 by and between the
Company and BRE Properties, Inc.(3)
10.28 Intentionally omitted
10.29 Master Lease Agreement dated September 13, 1995 by and between the
Company and Comdisco Electronics Group(4)
10.30 Intentionally omitted
10.31 Agreement dated September 22, 1995 between the Company and Joseph
Stemler regarding option vesting(5)*
10.32 Intentionally omitted
10.33 Building Lease Agreement effective November 1, 1996 by and between the
Company and WCB II-S BRD Limited Partnership(6)
10.34 Master Lease Agreement dated December 20, 1996 by and between the
Company and Transamerica Business Credit Corporation(8)
10.35 License and Supply Agreement dated December 23, 1996 by and between the
Company and Abbott Laboratories(7),(8)
10.36 Stock Purchase Agreement dated December 23, 1996 by and between the
Company and Abbott Laboratories(8)
10.37 Intentionally omitted
10.38 Master Lease Agreement No. 2 dated June 23, 1998 by and between the
Company and Transamerica Business Credit Corporation(10)
10.39 William J. Welch Employment Agreement and Attachment A(12)*
10.40 Supplement to employment offer letter for Matthew Linnik, Ph.D.(15)*
23.1 Consent of Independent Auditors(15)
27 Financial Data Schedule(15)
</TABLE>
- ---------------
* This exhibit is a management contract or compensatory plan or arrangement.
(1) Previously filed with the Company's Registration Statement on Form S-1 (No.
33-76480) as declared effective by the Securities and Exchange Commission
on June 3, 1994.
(2) Previously filed with the Company's quarterly report on Form 10-Q for the
quarter ended June 30, 1994 and incorporated by reference herein.
(3) Previously filed with the Company's quarterly report on Form 10-Q for the
quarter ended March 31, 1995 and incorporated by reference herein.
(4) Previously filed with the Company's quarterly report on Form 10-Q for the
quarter ended September 30, 1995 and incorporated by reference herein.
(5) Previously filed with the Company's annual report on Form 10-K for the
fiscal year ended December 31, 1995 and incorporated by reference herein.
(6) Previously filed with the Company's quarterly report on Form 10-Q for the
quarter ended September 30, 1996 and incorporated by reference herein.
(7) Portions of the Exhibit 10.35 have been omitted and filed separately with
the Securities and Exchange Commission pursuant to a request for
confidential treatment under Rule 24b-2 of the Securities Exchange Act of
1934.
36
<PAGE> 37
(8) Previously filed with the Company's annual report on Form 10-K for the
fiscal year ended December 31, 1996 and incorporated by reference herein.
(9) Previously filed with the Company's quarterly report on Form 10-Q for the
quarter ended June 30, 1997 and incorporated by reference herein.
(10) Previously filed with the Company's quarterly report on Form 10-Q for the
quarter ended June 30, 1998 and incorporated by reference herein.
(11) Previously filed with the Company's Registration Statement on Form 8-A
(No. 000-24274) as filed with the Securities and Exchange Commission on
December 4, 1998.
(12) Previously filed with the Company's annual report on Form 10-K for the
fiscal year ended December 31, 1998 and incorporated by reference herein
(13) Previously filed with the Company's quarterly report on Form 10-Q for the
quarter ended June 30, 1999 and incorporated by reference herein.
(14) Previously filed with the Company's quarterly report on Form 10-Q for the
quarter ended September 30, 1999 and incorporated by reference herein.
(15) Filed herein.
(b) Reports on Form 8-K:
None.
37
<PAGE> 38
Report of Independent Auditors
The Board of Directors and Stockholders
La Jolla Pharmaceutical Company
We have audited the accompanying balance sheets of La Jolla Pharmaceutical
Company as of December 31, 1999 and 1998, and the related statements of
operations, stockholders' equity, 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 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 financial position of La Jolla Pharmaceutical Company
at December 31, 1999 and 1998, and the 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 11, 2000
F-1
<PAGE> 39
La Jolla Pharmaceutical Company
Balance Sheets
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,409 $ 11,176
Short-term investments 6,994 12,174
Other current assets 464 517
-------- --------
Total current assets 11,867 23,867
Property and equipment, net 658 659
Patent costs and other assets, net 1,518 1,289
-------- --------
$ 14,043 $ 25,815
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 225 $ 1,254
Accrued expenses 520 575
Accrued payroll and related expenses 262 355
Current portion of obligations under capital leases 199 3
Deferred revenue - related party - 1,769
-------- --------
Total current liabilities 1,206 3,956
Noncurrent portion of obligations under capital leases 44 -
Commitments
Stockholders' equity:
Preferred stock, $.01 par value; 8,000,000 shares
authorized, no shares issued or outstanding - -
Common stock, $.01 par value; 100,000,000 shares
authorized, 20,204,424 and 20,106,303 shares
issued and outstanding at December 31, 1999 and
1998, respectively 202 201
Additional paid-in capital 84,358 84,276
Accumulated deficit (71,767) (62,618)
-------- --------
Total stockholders' equity 12,793 21,859
-------- --------
$ 14,043 $ 25,815
======== ========
</TABLE>
See accompanying notes.
F-2
<PAGE> 40
La Jolla Pharmaceutical Company
Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Revenue from collaborative agreement -
related party $ 4,690 $ 8,600 $ 9,860
Expenses:
Research and development 11,686 14,627 14,676
General and administrative 2,944 3,076 2,937
-------- -------- --------
Total expenses 14,630 17,703 17,613
-------- -------- --------
Loss from operations (9,940) (9,103) (7,753)
Interest expense (20) (6) (56)
Interest income 811 1,232 1,441
-------- -------- --------
Net loss $ (9,149) $ (7,877) $ (6,368)
======== ======== ========
Basic and diluted net loss per share $ (0.45) $ (0.42) $ (0.36)
======== ======== ========
Shares used in computing basic and diluted
net loss per share 20,135 18,649 17,547
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 41
La Jolla Pharmaceutical Company
Statements of Stockholders' Equity
For the Years Ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
(In thousands) COMMON STOCK ADDITIONAL TOTAL
----------------------- PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT EQUITY
-------- -------- -------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 17,279 $ 173 $ 76,307 $ (169) $(48,373) $ 27,938
Issuance of common stock 831 8 3,852 - - 3,860
Issuance of common stock under
Employee Stock Purchase Plan 41 1 150 - - 151
Exercise of stock options 9 - 11 - - 11
Amortization of deferred compensation - - - 123 - 123
Adjustment to deferred compensation
for terminations - - (16) 16 - -
Net loss - - - - (6,368) (6,368)
-------- -------- -------- -------- -------- --------
Balance at December 31, 1997 18,160 182 80,304 (30) (54,741) 25,715
Issuance of common stock 1,538 15 3,767 - - 3,782
Issuance of common stock under
Employee Stock Purchase Plan 43 - 128 - - 128
Exercise of stock options 365 4 85 - - 89
Amortization of deferred compensation - - - 22 - 22
Adjustment to deferred compensation
for terminations - - (8) 8 - -
Net loss - - - - (7,877) (7,877)
-------- -------- -------- -------- -------- --------
Balance at December 31, 1998 20,106 201 84,276 - (62,618) 21,859
Issuance of common stock under
Employee Stock Purchase Plan 78 1 53 - - 54
Exercise of stock options 20 - 29 - - 29
Net loss - - - - (9,149) (9,149)
-------- -------- -------- -------- -------- --------
Balance at December 31, 1999 20,204 $ 202 $ 84,358 $ - $(71,767) $ 12,793
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 42
La Jolla Pharmaceutical Company
Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (9,149) $ (7,877) $ (6,368)
Adjustments to reconcile net loss to net cash used
for operating activities:
Depreciation and amortization 357 367 642
Write-off of patent costs - - 7
Write-off of property and equipment - 8 76
Deferred compensation amortization - 22 123
Changes in operating assets and liabilities:
Receivable - related party - - 4,000
Other current assets 53 141 434
Accounts payable and accrued expenses (1,084) (307) (509)
Accrued payroll and related expenses (93) (22) 83
Deferred revenue - related party (1,769) 492 1,277
-------- -------- --------
Net cash used for operating activities (11,685) (7,176) (235)
INVESTING ACTIVITIES
Purchases of short-term investments (12,289) (20,576) (21,842)
Sales of short-term investments 6,667 2,500 5,493
Maturities of short-term investments 10,802 20,881 18,991
Additions to property and equipment (180) (55) (124)
Deletions to property and equipment 275 - -
Increase in patent costs and other assets (275) (258) (250)
-------- -------- --------
Net cash provided by investing activities 5,000 2,492 2,268
FINANCING ACTIVITIES
Net proceeds from issuance of common stock 83 217 162
Net proceeds from issuance of common stock to related
party - 3,782 3,860
Payments on obligations under capital leases (165) (138) (669)
-------- -------- --------
Net cash (used for) provided by financing
activities (82) 3,861 3,353
-------- -------- --------
(Decrease) increase in cash and cash equivalents (6,767) (823) 5,386
Cash and cash equivalents at beginning of period 11,176 11,999 6,613
-------- -------- --------
Cash and cash equivalents at end of period $ 4,409 $ 11,176 $ 11,999
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 20 $ 6 $ 56
======== ======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Capital lease obligations incurred for property and
equipment $ 405 $ - $ -
======== ======== ========
Adjustment to deferred compensation for terminations $ - $ 8 $ 16
======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 43
La Jolla Pharmaceutical Company
Notes to Financial Statements
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS ACTIVITY
La Jolla Pharmaceutical Company (the "Company") is a biopharmaceutical company
focused on the research and development of highly specific therapeutics for the
treatment of certain life-threatening antibody-mediated diseases. These
diseases, including autoimmune conditions such as systemic lupus erythematosus
("lupus") and antibody-mediated stroke, are caused by abnormal B cell production
of antibodies that attack healthy tissues. Current therapies for these
autoimmune disorders target the symptoms of the disease or nonspecifically
suppress the normal operation of the immune system, frequently resulting in
severe, adverse side effects and hospitalization. The Company's drug candidates,
called Toleragens(R), are designed to treat the underlying cause of many
antibody-mediated diseases without these severe, adverse side effects. The
Company's clinical drug candidate is known as LJP 394, a lupus treatment drug.
All of the Company's revenues to date have been primarily derived from its
former collaborative agreement with Abbott Laboratories ("Abbott"), a related
party (See Note 2). As part of its planned business operations, the Company
seeks to pursue collaborations with pharmaceutical companies in an effort to
access their research, drug development, manufacturing and financial resources.
Prior to generating product revenues, the Company must complete the development
of its products, including several years of clinical testing, and receive
regulatory approvals prior to selling these products commercially. There can be
no assurance that the Company's product development efforts with respect to LJP
394 or any other drug candidate will be successfully completed, that required
regulatory approvals will be obtained, or that any product, if introduced, will
be successfully marketed or achieve commercial acceptance. In addition, there
can be no assurance that the Company can successfully manufacture and market any
such products at prices that would permit the Company to operate profitably. In
May 1999, Abbott and the Company elected to stop enrollment and treatment of the
more than 200 patients enrolled in the jointly conducted Phase II/III clinical
trial of LJP 394. In September 1999, Abbott and the Company terminated their
agreement and all rights to LJP 394 were returned to the Company.
The Company actively seeks additional financing to fund its research and
development efforts and commercialize its technologies. There is no assurance
such financing will be available to the Company when required or that such
financing would be available under favorable terms.
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
biotechnology firms, including the Company, are uncertain and involve complex
legal and factual questions for which important legal principles are largely
unresolved. There can be no assurance that any additional patents will be
issued, or that the scope of any patent protection will be sufficient, or that
any current or future issued patent will be held valid if subsequently
challenged.
F-6
<PAGE> 44
La Jolla Pharmaceutical Company
Notes to Financial Statements
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 financial statements. Actual results could differ
from those estimates.
RECLASSIFICATION
Certain amounts in the 1998 and 1997 financial statements have been reclassified
to conform with the 1999 presentation.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents consist of cash and highly liquid investments which
include debt securities with remaining maturities when acquired of three months
or less and are stated at market. Short-term investments mainly consist of debt
securities with maturities greater than three months. Management has classified
the Company's cash equivalents and short-term investments as available-for-sale
securities in the accompanying financial statements. Available-for-sale
securities are stated at fair value, with unrealized gains and losses reported
as a separate component of stockholders' equity. Realized gains and losses and
declines in value judged to be other-than-temporary on available-for-sale
securities are included in interest income. The cost of securities sold is based
on the specific identification method. Interest and dividends on securities
classified as available-for-sale are included in interest income.
CONCENTRATION OF RISK
Cash, cash equivalents and short-term investments are financial instruments
which potentially subject the Company to concentrations of credit risk. The
Company deposits its cash in financial institutions. At times, such deposits may
be in excess of insured limits. The Company invests its excess cash in United
States Government securities and debt instruments of financial institutions and
corporations with strong credit ratings. The Company has established guidelines
relative to diversification of its cash investments and their maturities in an
effort to maintain safety and liquidity. These guidelines are periodically
reviewed and modified to take advantage of trends in yields and interest rates.
To date, the Company has not experienced any impairment losses on its cash, cash
equivalents and short-term investments.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. SFAS 133 is effective January 1, 2001. The adoption of this
statement is not expected to have a significant effect on the financial position
or results of operations of the Company.
F-7
<PAGE> 45
La Jolla Pharmaceutical Company
Notes to Financial Statements
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated using the straight-line
method over the estimated useful lives of the assets (primarily five years).
Leasehold improvements and equipment under capital leases are stated at cost and
amortized on a straight-line basis over the shorter of the estimated useful life
or the lease term.
Property and equipment is comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------- -------
<S> <C> <C>
Laboratory equipment $ 3,279 $ 2,972
Computer equipment 297 291
Furniture and fixtures 108 134
Leasehold improvements 702 718
------- -------
4,386 4,115
Less: Accumulated depreciation and amortization (3,728) (3,456)
------- -------
$ 658 $ 659
======= =======
</TABLE>
IMPAIRMENT OF LONG-LIVED ASSETS
The Company records impairment losses on long-lived assets used in operations
when events and circumstances indicate that assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amount of those assets. The Company also records the assets to be
disposed of at the lower of their carrying amount or fair value less cost to
sell. To date, the Company has not experienced any impairment losses on its
long-lived assets used in operations. 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 support the carrying value of its
long-lived assets and accordingly, the Company has not recognized any impairment
losses as of December 31, 1999.
PATENTS
The Company has filed several patent applications with the United States Patent
and Trademark Office and in foreign countries. Legal costs and expenses incurred
in connection with pending patent applications have been deferred. Costs related
to successful patent applications are amortized using the straight-line method
over the lesser of the remaining useful life of the related technology or the
remaining patent life, commencing on the date the patent is issued. Accumulated
amortization at December 31, 1999 and 1998 was $166,000 and $120,000,
respectively. Deferred costs related to patent applications are charged to
operations at the time a determination is made not to pursue such applications.
F-8
<PAGE> 46
La Jolla Pharmaceutical Company
Notes to Financial Statements
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
As allowed under Statement of Financial Accounting Standard No. 123, "Accounting
and Disclosure of Stock-Based Compensation" ("SFAS 123"), the Company has
elected to continue to account for stock option grants in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related interpretations. Under APB 25, if the exercise
price of the Company's employee and director stock options equals or exceeds the
deemed fair value of the underlying stock on the date of grant, no compensation
expense is recognized.
When the exercise price of the employee or director stock options is less than
the deemed fair value of the underlying stock on the grant date, the Company
records deferred compensation for the difference and amortizes this amount to
expense in accordance with FASB Interpretation No. 28 over the vesting period of
the options. Options or stock awards issued to non-employees have been
determined in accordance with SFAS 123 and EITF 96-18. Deferred charges for
options granted to non-employees are periodically remeasured as the options
vest.
REVENUE RECOGNITION
Revenue from collaborative agreements typically consists of ongoing research and
development funding and milestone, royalty and other payments. Revenue from
ongoing research and development funding is recorded as the expenses are
incurred. Revenue from milestone, royalty and other payments will be recognized
as earned. Payments received in advance under these agreements are recorded as
deferred revenue until earned. The Company believes that the deferral of
up-front fees received in connection with collaborative agreements would not
have a material impact on the Company's financial statements as of December 31,
1999.
NET LOSS PER SHARE
Basic and diluted net loss per share is computed using the weighted-average
number of common shares outstanding during the periods in accordance with
Statement of Financial Accounting Standard No. 128, "Earnings per Share". As the
Company has incurred a net loss for all three years presented, stock options and
warrants are not included in the computation of net loss per share since their
effect is anti-dilutive.
COMPREHENSIVE LOSS
Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive
Income (Loss)" ("SFAS 130"), requires that all components of comprehensive
income (loss), including net income (loss), be reported in the financial
statements in the period in which they are recognized. Comprehensive income
(loss) is defined as the change in equity during the period from transactions
and other events and circumstances from non-owner sources. Net income (loss) and
other comprehensive income (loss), including unrealized gains and losses on
investments, shall be reported, net of their related tax effect, to arrive at
comprehensive income (loss). The Company's comprehensive net loss and net loss
are the same and therefore the adoption of SFAS 130 did not have an impact on
the financial statements.
F-9
<PAGE> 47
La Jolla Pharmaceutical Company
Notes to Financial Statements
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEGMENT INFORMATION
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standard No. 131, "Segment Information" ("SFAS 131"). SFAS 131 redefines
segments and requires companies to report financial and descriptive information
about their operating segments. The Company has determined that it operates in
one business segment.
2. COLLABORATIVE AGREEMENTS
In December 1996, the Company entered into a collaborative agreement with
Abbott, a diversified health-care company. Under this agreement, in exchange for
an exclusive, worldwide license to market and sell LJP 394, Abbott agreed to pay
an initial license fee of $4,000,000 upon signing, and agreed to fund the
development of the Company's lupus drug candidate, LJP 394, in accordance with a
mutually agreed upon budget, and to make certain payments to the Company upon
the attainment of specific milestones, as well as royalty and sales incentive
payments to the Company on sales of LJP 394. The Company retained worldwide
manufacturing rights and ownership rights of all of its patents relating to the
drug. Under a separate stock purchase agreement, Abbott also purchased common
stock of the Company in December 1996, September 1997 and October 1998 for an
aggregate purchase price of $4,000,000 on each date. Both Abbott and the Company
had the right to terminate the collaborative agreement under certain
circumstances. In September 1999, Abbott and the Company terminated this
collaborative agreement and all rights to LJP 394 were returned to the Company
following the May 1999 suspension of the jointly conducted Phase II/III clinical
trial of LJP 394.
Under the collaborative agreement with Abbott, the Company incurred research and
development costs of approximately $4,690,000, $8,600,000 and $9,860,000 during
the years ended December 31, 1999, 1998 and 1997, respectively, for the
development of LJP 394. In 1999, the Company recorded revenue of $4,690,000 from
Abbott for the development of LJP 394, of which $2,921,000 was received in cash
in 1999 and $1,769,000 was revenue recognized from previously deferred revenue.
In 1998, the Company received $9,077,000 from Abbott for the development of LJP
394, of which $8,600,000 was recorded as revenue. In 1997, the Company received
$11,137,000 from Abbott for the development of LJP 394, of which $9,860,000 was
recorded as revenue.
3. RESTRUCTURING CHARGES
As a result of the termination of the Company's collaborative agreement with
Abbott in September 1999, the Company restructured its operations in order to
reduce expenses and to focus its resources on its remaining potential drug
candidates. In September 1999, the Company recorded estimated restructuring
charges of approximately $742,000. The restructuring was completed in December
1999 and actual charges recorded were approximately $640,000, which are included
in both research and development and general and administrative expense,
representing termination benefits paid to 38 employees.
F-10
<PAGE> 48
La Jolla Pharmaceutical Company
Notes to Financial Statements
4. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The following is a summary of the estimated fair value of available-for-sale
securities (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------- -------
<S> <C> <C>
Money market accounts $ 570 $ 1,117
United States corporate debt securities 4,899 16,181
Government-asset-backed securities 4,500 5,000
------- -------
$ 9,969 $22,298
======= =======
</TABLE>
As of December 31, 1999 and 1998, the difference between cost and estimated fair
value of available-for-sale securities was not significant. Included in cash and
cash equivalents at December 31, 1999 and 1998 were $2,975,000 and $10,124,000,
respectively, of securities classified as available-for-sale. As of December 31,
1999, available-for-sale securities of $9,969,000 mature in one year or less.
5. COMMITMENTS
LEASES
In July 1992, the Company entered into a non-cancellable operating lease for the
rental of its office and research and development facilities, which expires in
July 2004. The lease is subject to an escalation clause that provides for annual
increases based on the Consumer Price Index. The lease also contains an option
to extend the lease term for an additional five years and a one-time
cancellation option effective any time after August 1, 1998 with the payment of
certain penalties. The lease also contains a construction allowance in the
amount of $1,434,000 for approved tenant improvements to the facility.
In October 1996, the Company entered into a non-cancellable operating lease for
the rental of office and research and development facilities, which expires in
October 2001. The lease contains a provision for scheduled annual rent increases
and an option to extend the lease term for an additional five years. The lease
also contains a construction allowance in the amount of $168,000 for approved
tenant improvements to the facility.
The Company leases certain equipment under capital leases. The total amount of
equipment financed under these capital leases as of December 31, 1999 was
$564,000.
The Company leases certain other equipment and leasehold improvements under
operating leases. As of December 31, 1999, the total amount of equipment and
leasehold improvements financed under these operating leases was $5,908,000.
F-11
<PAGE> 49
La Jolla Pharmaceutical Company
Notes to Financial Statements
5. COMMITMENTS (CONTINUED)
Annual future minimum lease payments as of December 31, 1999, which include
$885,000 for the effect of exercising the facility operating lease cancellation
option, are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEARS ENDED DECEMBER 31, LEASES LEASES
- ------------------------ ---------- ---------
<S> <C> <C>
2000 $ 3,145 $ 205
2001 1,475 44
2002 434 --
2003 18 --
2004 -- --
---------- ---------
Total $ 5,072 249
==========
Less amount representing interest (6)
---------
Present value of net minimum lease payments 243
Less current portion (199)
---------
Noncurrent portion of capital lease obligations $ 44
=========
</TABLE>
Rent expense under all operating leases totaled $2,360,000, $2,179,000, and
$1,853,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Equipment acquired under capital leases included in property and equipment
totaled $233,000 and $44,000 (net of accumulated amortization of $331,000 and
$152,000) at December 31, 1999 and 1998, respectively.
6. STOCKHOLDERS' EQUITY
PREFERRED STOCK
As of December 31, 1999, the Company is authorized to issue 8,000,000 shares of
preferred stock with a par value of $0.01 per share, in one or more series.
The Board of Directors has designated 75,000 of preferred stock as nonredeemable
Series A Junior Participating Preferred Stock ("Series A Preferred Stock"). In
the event of liquidation, each share of Series A Preferred Stock is entitled to
receive a preferential liquidation payment of $1,000 per share plus the amount
of accrued unpaid dividends. The Series A Preferred Stock is subject to certain
anti-dilution adjustments, and the holder of each share is entitled to 1,000
votes, subject to adjustments. Cumulative quarterly dividends of the greater of
$0.25 or, subject to certain adjustments, 1,000 times any dividend declared on
shares of common stock, are payable when, as and if declared by the Board of
Directors, from funds legally available for this purpose.
COMMON STOCK
In May 1999, the Company increased the number of shares of common stock the
Company is authorized to issue to 100,000,000 shares with a par value of $0.01
per share.
F-12
<PAGE> 50
La Jolla Pharmaceutical Company
Notes to Financial Statements
6. STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS
In connection with the Company's initial public offering ("IPO") in June 1994,
including the conversion of the principal and accrued interest on stockholder
bridge notes, the Company issued 3,823,517 redeemable warrants. The redeemable
warrant holders are entitled to purchase one-half of one share of common stock
for each warrant at an exercise price of $3.00 per one-half share. In May 1999,
the Company extended the expiration date of these warrants to June 3, 2000. The
Company is entitled to redeem the warrants on not less than 30 days written
notice at $0.05 per warrant if the average closing bid price of the common stock
exceeds 150% of the then-effective warrant exercise price for one share of
common stock, over a period of 20 consecutive trading days, ending within 15
days of the date of notice of redemption. At December 31, 1999, 3,822,617
redeemable warrants were outstanding to purchase 1,911,309 shares of common
stock.
The terms of the stockholder bridge notes also provided for the granting of
additional warrants to the holders. Those additional warrants permit the holders
to purchase 166,697 shares of common stock at $5.00 per share. In May 1999, the
Company extended the expiration date of these warrants to June 3, 2000. At
December 31, 1999, warrants to purchase 154,460 shares of common stock were
outstanding.
Also in connection with the IPO, the Underwriter was granted the option to
purchase up to 260,000 additional shares of common stock and 260,000 redeemable
warrants to purchase one-half of one share of common stock at an exercise price
of $3.60 per one-half share. In May 1999, the Company extended the expiration
date of the purchase option to June 3, 2000. At December 31, 1999, warrants to
purchase 130,000 shares of common stock were outstanding.
As of December 31, 1999, 4,237,077 warrants were outstanding and 2,195,769
shares of common stock are reserved for issuance upon exercise of warrants.
STOCK OPTION PLANS
In May 1989, the Company adopted the 1989 Stock Option Plan and the 1989
Nonstatutory Stock Option Plan (the "1989 Plan"), under which 904,000 shares of
common stock have been authorized for issuance upon exercise of options granted
by the Company. The 1989 Plan expired in 1999.
In June 1994, the Company adopted the 1994 Stock Incentive Plan (the "1994
Plan"), under which 2,500,000 shares of common stock have been authorized for
issuance upon exercise of options granted by the Company. The 1994 Plan provides
for the grant of incentive and non-qualified stock options, as well as other
stock-based awards, to employees, consultants and advisors of the Company with
various vesting periods as determined by the compensation committee, as well as
automatic fixed grants to non-employee directors of the Company.
F-13
<PAGE> 51
La Jolla Pharmaceutical Company
Notes to Financial Statements
6. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of the Company's stock option activity and related data follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-----------------------------
AVAILABLE NUMBER OF PRICE PER
FOR GRANT SHARES SHARE
---------- ---------- -----------
<S> <C> <C> <C>
Balance at December 31, 1996 327,542 1,715,084 $1.00-$8.31
Additional shares authorized 500,000 -- --
Granted (312,700) 312,700 $4.00-$5.38
Exercised -- (8,620) $1.00-$4.31
Cancelled 56,101 (56,101) $1.00-$7.88
---------- ----------
Balance at December 31, 1997 570,943 1,963,063 $1.00-$8.31
Granted (723,800) 723,800 $2.41-$4.38
Exercised -- (364,903) $1.00-$3.75
Cancelled 388,192 (388,192) $1.00-$7.88
---------- ----------
Balance at December 31, 1998 235,335 1,933,768 $1.00-$8.31
Additional shares authorized 750,000 -- --
Expired (225,743) -- --
Granted (905,206) 905,206 $0.34-$4.81
Exercised -- (19,919) $1.00-$4.75
Cancelled 559,204 (559,204) $1.00-$7.88
---------- ----------
Balance at December 31, 1999 413,590 2,259,851 $0.34-$8.31
========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
------------------------------------------------------------------------------------
WEIGHTED- WEIGHTED WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning
of year 1,933,768 $3.75 1,963,063 $3.25 1,715,084 $3.00
Granted 905,206 $0.64 723,800 $3.54 312,700 $4.82
Exercised (19,919) $1.49 (364,903) $1.06 (8,620) $1.38
Forfeited (559,204) $3.89 (388,192) $3.37 (56,101) $4.55
--------- --------- ---------
Outstanding - end of
year 2,259,851 $2.49 1,933,768 $3.75 1,963,063 $3.25
========= ========= =========
Exercisable at end of
year 1,660,777 $2.43 879,502 $3.55 1,171,376 $2.43
Expired 225,743 $1.00 - - - -
Weighted-average fair
value of options
granted during the year $0.52 $1.62 $2.72
</TABLE>
F-14
<PAGE> 52
La Jolla Pharmaceutical Company
Notes to Financial Statements
6. STOCKHOLDERS' EQUITY (CONTINUED)
Exercise prices and weighted-average remaining contractual lives for the options
outstanding as of December 31, 1999 follow:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
OPTIONS RANGE OF CONTRACTUAL EXERCISE OPTIONS EXERCISE
OUTSTANDING EXERCISE PRICES LIFE PRICE EXERCISABLE PRICE
- ------------------ ----------------- --------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
119,786 $0.34 9.84 $0.34 83,621 $0.34
732,020 $0.48 9.74 $0.48 561,056 $0.48
666,745 $1.00 - $3.63 7.07 $2.65 419,188 $2.20
469,400 $3.75 - $4.75 6.67 $4.22 350,212 $4.18
271,900 $4.88 - $8.31 6.70 $5.49 246,700 $5.47
- ------------------ ----------------
2,259,851 $0.34 - $8.31 7.95 $2.49 1,660,777 $2.43
================== ================
</TABLE>
At December 31, 1999, the Company has reserved 2,666,635 shares of common stock
for future issuance under the 1989 and 1994 Plans.
EMPLOYEE STOCK PURCHASE PLAN
Effective August 1, 1995, the Company adopted the 1995 Employee Stock Purchase
Plan (the "Purchase Plan") which was amended in July 1996. Under the amended
Purchase Plan, a total of 300,000 shares of common stock are reserved for sale
to full-time employees with six months of service. Employees may purchase common
stock under the Purchase Plan every six months (up to but not exceeding 10% of
each employee's earnings) over the offering period at 85% of the fair market
value of the common stock at certain specified dates. The offering period may
not exceed 24 months. For the year ended December 31, 1999, 78,202 shares of
common stock had been issued under the Purchase Plan (43,191 shares for the year
ended December 31, 1998). To date, 189,893 shares of common stock have been
issued under the Purchase Plan and 110,107 shares of common stock are available
for issuance.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
Weighted-average fair value of employee stock
purchase plan purchases $0.91 $1.54 $1.87
</TABLE>
F-15
<PAGE> 53
La Jolla Pharmaceutical Company
Notes to Financial Statements
6. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK-BASED COMPENSATION
Pro forma information regarding net loss and net loss per share is required by
SFAS 123, which also requires that the information be determined as if the
Company has accounted for its employee stock plans granted after December 31,
1994 under the fair value method of that statement. The fair value was estimated
at the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions for 1999, 1998 and 1997, respectively:
risk-free interest rate of 6.8%, 4.8% and 5.5%; volatility factor of the
expected market price of the Company's common stock of 1.09, 0.60 and 0.60; and
a dividend yield of 0% and a weighted-average expected life of five years for
all three years presented.
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 follows (in thousands except for net loss per share
information):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Pro forma net loss $ (9,985) $ (8,500) $ (6,873)
=========== =========== ===========
Pro forma basic and diluted net
loss per share $ (0.50) $ (0.46) $ (0.39)
=========== =========== ===========
</TABLE>
The effects of applying SFAS 123 for either recognizing compensation expense or
providing pro forma disclosures are not likely to be representative of the
effects on reported net loss for future years.
STOCKHOLDER RIGHTS PLAN
The Company has adopted a Stockholder Rights Plan (the "Rights Plan"). The
Rights Plan provides for a dividend of one right (a "Right") to purchase
fractions of shares of the Company's Series A Preferred Stock for each share of
the Company's common stock. Under certain conditions involving an acquisition by
any person or group of 15% or more of the common stock, the Rights permit the
holders (other than the 15% holder) to purchase the Company's common stock at a
50% discount upon payment of an exercise price of $30 per Right. In addition, in
the event of certain business combinations, the Rights permit the purchase of
the common stock of an acquirer at a 50% discount. Under certain conditions, the
Rights may be redeemed by the Board of Directors in whole, but not in part, at a
price of $.001 per Right.
F-16
<PAGE> 54
La Jolla Pharmaceutical Company
Notes to Financial Statements
6. STOCKHOLDERS' EQUITY (CONTINUED)
The Rights have no voting privileges and are attached to and automatically trade
with the Company's common stock. The Rights expire on December 2, 2008.
7. 401(k) PLAN
The Company has established a 401(k) defined contribution retirement plan (the
"401(k) Plan"), which was amended in July 1997, to cover all employees with six
months of service. The 401(k) Plan provides for voluntary employee contributions
up to 20% of annual compensation (as defined). The Company does not match
employee contributions or otherwise contribute to the 401(k) Plan.
8. INCOME TAXES
At December 31, 1999, the Company had federal and California income tax net
operating loss carryforwards of approximately $68,789,000 and $8,297,000,
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% percent
limitation on California loss carryforwards. The Company also had federal and
California research tax credit carryforwards of $3,067,000 and $1,462,000,
respectively. The federal net operating loss and tax credit carryforwards will
begin to expire in 2005 unless previously utilized. A portion of the California
net operating loss carryforwards totaling $1,272,000 expired in 1999, and will
continue to expire in 2000.
Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use of the
Company's net operating loss and credit carryforwards may be limited if a
cumulative change in ownership of more than 50% occurs within a three-year
period.
Significant components of the Company's deferred tax assets are shown below (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 24,553 $ 21,100
Research and development credits 4,017 3,300
Capitalized research and development 416 2,800
-------- --------
Total deferred tax assets 28,986 27,200
Valuation allowance for deferred tax assets (28,986) (27,200)
-------- --------
Net deferred tax assets $ - $ -
======== ========
</TABLE>
A valuation allowance of $28,986,000 has been recognized to offset the deferred
tax assets as realization of such assets is uncertain.
F-17
<PAGE> 55
La Jolla Pharmaceutical Company
Notes to Financial Statements
9. SUBSEQUENT EVENT
In February 2000, the Company issued 4,040,000 shares of common stock in a
private placement to selected institutional investors and other accredited
investors for gross proceeds of approximately $13,635,000.
F-18
<PAGE> 56
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.
LA JOLLA PHARMACEUTICAL COMPANY
By: /s/ Steven B. Engle
-------------------------------
February 24, 2000 Name: Steven B. Engle
Title: Chairman of the Board and
Chief Executive Officer
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/ Steven B. Engle Chairman of the Board and February 24, 2000
- ------------------------------ Chief Executive Officer
Steven B. Engle (PRINCIPAL EXECUTIVE OFFICER
AND DIRECTOR)
/s/ Gail A. Sloan Controller and Secretary February 24, 2000
- ------------------------------ (PRINCIPAL FINANCIAL AND
Gail A. Sloan ACCOUNTING OFFICER)
/s/ Thomas H. Adams Director February 24, 2000
- ------------------------------
Thomas H. Adams, Ph.D.
/s/ William E. Engbers Director February 24, 2000
- ------------------------------
William E. Engbers
/s/ Robert A. Fildes Director February 24, 2000
- ------------------------------
Robert A Fildes, Ph.D.
/s/ W. Leigh Thompson Director February 24, 2000
- ------------------------------
W. Leigh Thompson, M.D., Ph.D.
</TABLE>
38
<PAGE> 57
La Jolla Pharmaceutical Company
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
10.6 Steven B. Engle Employment Agreement Amendment No. 2
10.40 Supplement to employment offer letter for Matthew Linnik,
Ph.D.
23.1 Consent of Independent Auditors
27 Financial Data Schedule
</TABLE>
39
<PAGE> 1
EXHIBIT 10.6
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
This Amendment No. 2 to Employment Agreement (this "AMENDMENT NO. 2") is
made effective as of September 16, 1999, by and between La Jolla Pharmaceutical
Company, a Delaware corporation (the "COMPANY") and Steven B. Engle
("EXECUTIVE").
Executive and the Company are parties to that certain Employment
Agreement dated as of December 30, 1993 (the "AGREEMENT"), as amended by
Amendment No. 1 to Employment Agreement dated as of June 26, 1997 ("AMENDMENT
NO. 1") pursuant to which Executive is employed by the Company, and desire to
amend the Agreement as set forth herein in consideration of Executive's ongoing
employment. The Agreement and Amendment No. 1 are collectively referred to
herein as the "AMENDED AGREEMENT."
Therefore, notwithstanding anything in the Amended Agreement to the
contrary, the Company and Executive hereby agree as follows:
1. This Amendment No. 2 replaces Amendment No. 1 in its entirety, which
is superseded in all respects by this Amendment No. 2.
2. Executive shall be employed by the Company as its President and Chief
Executive Officer, shall perform such duties as are consistent with such
position, and shall report to the Company's Board of Directors.
3. As compensation for his services to the Company, Executive shall
receive a base salary of at least $273,000 per annum (as such amount may be
increased from time to time by the Company's Board of Directors, the "BASE
SALARY").
4. (a) If Executive's employment with the Company is terminated by the
Company other than for cause as defined in Section 6.1 of the Agreement, or if a
Change in Control of the Company (as defined in the Company's 1994 Stock
Incentive Plan in its form as of the date hereof) occurs and Executive's
employment with the Company or its successor is terminated by the Company or its
successor, or if such a Change in Control occurs and Executive's employment with
the Company or its successor is terminated by Executive following any change in
Executive's title to any position other than President and CEO of the surviving
company, or any change in Executive's reporting responsibility such that he does
not report directly to the board of directors of the surviving company on all
matters, or any material reduction by the Company or its successor in
Executive's responsibilities, or any requirement that Executive's place of
employment be in other than the San Diego area, or any material breach by the
Company or its successor of the Agreement, as amended hereby, then, in addition
to any other benefits provided under the Agreement or this Amendment No. 2 that
may be applicable:
(i) the Company (or its successor, as the case may be) shall pay
to Executive a severance payment (the "SEVERANCE PAYMENT") equal to the
then-current Base Salary for a period of twelve full calendar months from the
date of termination of Executive's employment (the "TERMINATION DATE"); and
<PAGE> 2
(ii) the Company (or its successor, as the case may be) shall
continue, at its sole expense, all medical, dental and life insurance coverage
for Executive and his family on similar terms until the earlier of (A) twelve
full calendar months from the Termination Date, or (B) such time as Executive
receives similar paid coverage from another employer; and
(iii) all employee stock options and other performance awards
granted to Executive before the Termination Date shall automatically vest and
become fully exercisable as of the Termination Date, notwithstanding any vesting
or performance conditions applicable thereto, and shall remain exercisable for a
period equal to the remaining term of the employee stock option or other
performance award as is provided by the plan or grant pursuant to which such
options or awards were received, provided that in no case will such options or
awards be exercisable beyond the duration of the original term thereof, and
provided further that nothing herein is intended to require the extension of the
exercise period of any option that qualifies as an incentive stock option under
the Internal Revenue Code and applicable regulations thereunder, and the
exercise period thereof shall not be extended beyond the termination date
otherwise provided by the award grant unless Executive, in his sole and
unqualified discretion, elects to forego incentive stock option treatment and
extend the exercise period thereof as provided herein; and
(iv) if, within one (1) year of the Termination Date, employee
stock options granted to any executive officer of the Company (or its successor,
as the case may be) or non-employee directors' options granted to any member of
the Company's Board of Directors (or members of the board of directors of its
successor, as the case may be) are repriced, then, in addition to any other
benefits provided under the Agreement or this Amendment No. 2 that may be
applicable, the Company shall provide similar repricing at the election of the
Executive for all employee stock options granted to Executive before the
Termination Date that have not expired and remain unexercised. If necessary to
accomplish any extension, repricing or vesting of options under the Agreement,
as amended hereby, the Company will engage the Executive as a consultant on
customary and reasonable terms, to the extent required under applicable laws and
regulations and any documents governing the employee stock options to make
Executive eligible to have his employee stock options similarly repriced.
Notwithstanding anything to the contrary in this Amendment No. 2 or the plan or
awards under which employee stock options were or are granted to Executive, the
Company shall have no obligation to register Executive's repriced employee stock
options or the shares of Common Stock underlying such repriced options under the
Securities Act of 1933, as amended (the "Securities Act"), and shall have no
obligation to make Executive a consultant or advisor of the Company solely for
the purpose of making Executive's repriced employee stock options or shares of
Common Stock underlying such repriced options eligible for inclusion in any
registration statement under the Securities Act that the Company has otherwise
filed or is otherwise filing with respect to stock options granted to
individuals other than Executive or the shares of Common Stock underlying such
options.
(b) If Executive's employment by the Company is terminated by Executive
for any reason other than under circumstances where the Company would be
entitled to terminate Executive's employment for cause as defined in Section 6.1
of the Agreement, all employee stock options granted to Executive before the
Termination Date that have vested or that vest upon or
2
<PAGE> 3
following the Termination Date shall remain exercisable for a period of one year
following the Termination Date or such longer period as is provided by the plan
or grant pursuant to which such options were received, provided that in no case
will such options be exercisable beyond the duration of the original term
thereof, provided further that nothing herein is intended to require the
extension of the exercise period of any option that qualifies as an incentive
stock option under the Internal Revenue Code and applicable regulations
thereunder, and the exercise period thereof shall not be extended beyond the
termination date otherwise provided by the award grant unless Executive, in his
sole and unqualified discretion, elects to forego incentive stock option
treatment and extend the exercise period thereof as provided herein, and
provided further, that if Section 4(a)(iii) hereto is applicable, Section
4(a)(iii) hereto shall control.
(c) The Severance Payment shall be payable in equal periodic
installments from the Termination Date consistent with the normal payroll
practices of the Company (or its successor, as the case may be), provided,
however, that Executive shall have the right, at any time in his discretion, to
receive the remaining balance of the Severance Payment in a lump sum discounted
to present value at a rate equal to the "Reference Rate" announced by Bank of
America NT & SA as of the time of Executive's election to receive a lump sum.
Executive shall exercise his right to receive a lump sum payment of the
Severance Payment by delivering written notice to the Company, and the Company
shall pay the lump sum within ten (10) days of receipt of such notice.
6. (a) If a Corporate Transaction, as defined below, is consummated and
the day immediately prior to the effective date thereof Executive is employed by
the Company, or if a Corporate Transaction is consummated and Executive is
employed up to thirty (30) days prior to the effective date of the Corporate
Transaction and has substantially contributed towards making the Corporate
Transaction occur, then on the effective date of such Corporate Transaction or
such earlier date as determined by the Board of Directors of the Company in its
sole discretion, the Company shall pay to Executive a bonus payment equal to
$100,000.
(b) For purposes of this Section 6, "Corporate Transaction" shall
mean the following:
(i) any acquisition or series of related acquisitions resulting
in any person, entity or "group," within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act of 1934, as amended (the "Exchange Act")
beneficially owning (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) forty percent (40%) or more of either the then outstanding shares
of Common Stock of the Company or the combined voting power of the Company's
then outstanding voting securities entitled to vote generally in the election of
directors; or
(ii) a reorganization, merger or consolidation with any other
person, entity or corporation, other than a merger or consolidation which would
result in the owners of voting securities of the Company outstanding immediately
prior thereto continuing to own more than fifty percent (50%) of the combined
voting power of the voting securities of the Company and such other entity
outstanding immediately after such merger or consolidation, or
3
<PAGE> 4
(iii) the sale or other disposition by the Company, in one
transaction or a series of related transactions, of all or substantially all of
the Company's assets or all or substantially all of the Company's intellectual
property,
provided that a Corporate Transaction shall not be deemed to have
occurred if the "person" described in the preceding provisions of this Section 6
is an underwriter or underwriting syndicate that has acquired the ownership of
50% or more of the combined voting power of the Company's then outstanding
voting securities solely in connection with a public offering of the Company's
securities.
7. Notwithstanding anything to the contrary in any document awarding
employee stock options to Executive, the exercise price of all employee stock
options granted by the Company (or its successor, as the case may be) to
Executive prior or subsequent to the date hereof may be paid through conversion
of shares of the Common Stock of the Company (or its successor, as the case may
be) (the "Option Shares") underlying employee stock options granted to Executive
(a "Cashless Exercise"). Upon Cashless Exercise, Executive shall receive a
number of Option Shares equal to the number of Option Shares for which employee
stock options are being exercised less that number of Option Shares having an
aggregate value equal to the total exercise price of the employee stock options
being exercised by Executive that is due upon such exercise. The value of an
Option Share for purposes of Cashless Exercise shall be the average of the last
reported sale prices (or, if no sale has occurred, the closing price) of the
Option Shares on the Nasdaq National Market System ("NMS") or the principal
national securities exchange upon which the Option Shares are listed, as the
case may be, for each of the ten (10) trading days prior to the date of
Executive's employee stock option exercise, or, if the Option Shares are not
listed or admitted to trading on the NMS or any national securities exchange,
the average of the last quoted prices (or, if not so quoted, the average of the
high bid and low asked prices) in the over-the-counter market, as reported by
NASDAQ or such other system then in use, for each of the ten (10) trading days
prior to the date of Executive's employee stock option exercise, or, if the
Option Shares are not quoted by any such organization, the fair value of such
Option Shares on the date of exercise by Executive as determined in good faith
by the Board of Directors of the Corporation, which shall be conclusive for all
purposes.
8. To the extent of any inconsistency between the text of the original
Agreement and this Amendment No. 2, Amendment No. 2 shall govern, provided that
nothing in Amendment No. 2 shall be construed to limit benefits to which
Executive is entitled under the Agreement in addition to those conferred by
Amendment No. 2, and to the extent not subsumed within the benefits provided by
Amendment No. 2, benefits provided under the Agreement shall remain in effect.
4
<PAGE> 5
IN WITNESS WHEREOF, Executive and the Company have entered into this
Amendment No. 2 as of the date written above.
LA JOLLA PHARMACEUTICAL COMPANY
By: /s/ Wood Erwin /s/ Steven B. Engle
---------------------------- -----------------------------
Name: Wood Erwin STEVEN B. ENGLE
--------------------------
Title: V.P. Finance & CFO
-------------------------
5
<PAGE> 1
EXHIBIT 10.40
August 5, 1999
Matthew Linnik, Ph.D.
PO Box 91081
San Diego, CA 92191-0181
Dear Matt,
As a supplement to the offer letter and agreement dated January 13, 1998
between La Jolla Pharmaceutical Company ("LJP") and Matthew Linnik, Ph.D.
("Linnik") related to Linnik's employment by LJP, Linnik and LJP hereby agree as
follows:
In connection with his employment with LJP, Linnik's new title will be
Executive Vice President of Research.
If Linnik's employment is terminated by LJP without cause (as defined
below), or if a Change in Control of LJP (as defined below) occurs and Linnik's
employment with LJP or its successor "terminates in connection with" (as defined
below) that Change in Control and in the absence of any event or circumstance
constituting Cause, then:
(i) Linnik will be entitled to receive from LJP a severance payment
equal to his then-current base salary for a period of nine full
calendar months from the date of termination, payable consistent
with LJP's normal payroll practices, provided that such payment
will be contingent upon execution and delivery by Linnik and LJP
of a mutual release, in form satisfactory to LJP, of all claims
arising in connection with Linnik's employment with LJP and
termination thereof, and
(ii) LJP will be entitled to receive for a period of nine full
calendar months from the date of termination medical and dental
benefits coverage for Linnik and/or his dependents through the
Company's available plans at the time and Linnik will be
responsible to continue payment of all applicable deductions for
premium costs. After the Company's obligation to pay the
premiums for health and dental coverage Linnik and/or his
dependents will be eligible to continue plan participation under
COBRA.
(iii) Notwithstanding anything to the contrary in the option plan (the
"PLAN") pursuant to which all of Linnik's existing options were
granted, the Options shall automatically vest and become fully
exercisable as of the date of termination of Executive's
employment (the TERMINATION DATE"), notwithstanding any vesting
or performance conditions applicable thereto, and shall remain
exercisable for a period of one year following the Termination
Date or such longer period as is provided by the Plan or grant
pursuant to which the Options were granted. However,
notwithstanding the foregoing, in no case will the Options be
exercisable beyond the duration of the original term thereof,
and if the Options qualify
<PAGE> 2
as an incentive stock option under the Internal Revenue Code and
applicable regulations thereunder, the exercise period thereof
shall not be extended in such a manner as to cause the Options
to cease to qualify as an incentive stock option unless
Executive elects to forego incentive stock option treatment and
extend the exercise period thereof as provided herein.
For purposes hereof, "CHANGE IN CONTROL" of LJP has the meaning set
forth in the Plan in its form as the date of grant of the Options.
For purposes hereof, "CAUSE" means Linnik has (i) engaged in serious
criminal activity or other wrongful conduct that has an adverse impact
on LJP, (ii) disregarded instructions given to him under the authority
of LJP's Board of Directors, (iii) performed services for any person or
entity other than LJP and appropriate civic organizations, or (iv)
otherwise materially breached his employment or fiduciary
responsibilities to LJP.
For purposes hereof, Linnik's employment with LJP or its successor will
be deemed to "TERMINATE IN CONNECTION WITH" a Change in Control if,
within 180 days after the consummation of the Change of Control, (i)
Linnik is removed from Linnik's employment by, or resigns his employment
upon the request of, a person exercising practical voting control over
LJP or its successor following the Change in Control or a person acting
upon authority or at the instruction of such person; or (ii) Linnik's
position is eliminated as a result of a reduction in force made to
reduce over-capacity or unnecessary duplication of personnel and Linnik
is not offered a replacement position with LJP or its successor as a
Vice President with compensation and functional duties substantially
similar to the compensation and duties in effect immediately before the
Change in Control; or (iii) Linnik resigns his employment with the
Company or its successor rather than comply with a relocation of his
primary work site more than 50 miles from LJP's headquarters.
In Witness Whereof, LJP and Linnik have entered into this
agreement as of August 5, 1999.
LA JOLLA PHARMACEUTICAL COMPANY
By: /s/ Steven B. Engle /s/ Matthew Linnik
-------------------------- ---------------------------
Steven B. Engle Matthew Linnik, Ph.D.
Chairman & CEO Executive Vice President of
Research
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in (i) the Registration Statement
(Form S-8 No. 33-82664) pertaining to the 1994 Stock Incentive Plan, (ii) the
Registration Statement (Form S-8 No. 33-94830) pertaining to the 1995 Employee
Stock Purchase Plan, and (iii) the Registration Statement (Form S-8 No.
333-14285) pertaining to the 1994 Stock Incentive Plan of La Jolla
Pharmaceutical Company of our report dated February 11, 2000, with respect to
the financial statements of La Jolla Pharmaceutical Company included in the
Annual Report (Form 10-K) for the year ended December 31, 1999.
ERNST & YOUNG LLP
San Diego, California
February 24, 2000
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