<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
______________________________________________________________________________
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
____________________________________________________________________________
COMMISSION FILE NUMBER
0-25970
ALLERGAN LIGAND RETINOID THERAPEUTICS, INC.
A DELAWARE CORPORATION IRS EMPLOYER IDENTIFICATION
33-0642614
2525 DUPONT DRIVE, IRVINE, CALIFORNIA 92612
TELEPHONE NUMBER 714/246-4500
Indicate by a 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.
(1) X yes no
----- -----
(2) X yes no
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of October 31, 1996 there were 3,250,000 shares of callable common stock
outstanding, and 200 shares of special common stock outstanding.
1
<PAGE> 2
ALLERGAN LIGAND RETINOID THERAPEUTICS, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Statement of Operations -
Three and Nine Months ended September 30, 1996
and Three Months and Period ended
September 30, 1995 3
Condensed Balance Sheets at September 30, 1996
and December 31, 1995 4
Statement of Cash Flows -
Nine Months ended September 30, 1996
and Period ended September 30, 1995 5
Notes to Financial Statements 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7-9
PART II - OTHER INFORMATION
ITEM 6 10
Signature 11
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Allergan Ligand Retinoid Therapeutics, Inc.
Statement of Operations
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months
ended Nine Months Period
September 30, ended ended
--------------------- September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Interest income $ 926 $ 1,274 $ 3,014 $ 1,677
Costs and expenses:
Research and development 9,379 5,436 22,089 13,516
General and administrative
expenses 404 369 1,192 703
------- ------- -------- --------
Total costs and expenses 9,783 5,805 23,281 14,219
------- ------- -------- --------
Net loss $(8,857) $(4,531) $(20,267) $(12,542)
======= ======= ======== ========
Net loss per callable
common share $ (2.73) $ (1.39) $ (6.24) $ (3.86)
======= ======= ======== ========
Weighted average callable
common shares outstanding 3,250 3,250 3,250 3,250
</TABLE>
See accompanying notes.
3
<PAGE> 4
Allergan Ligand Retinoid Therapeutics, Inc.
Condensed Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 38,953 $ 79,793
Marketable securities 20,351 --
Other assets 882 335
-------- --------
$ 60,186 $ 80,128
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Payable to Allergan, Inc. and Ligand
Pharmaceuticals Incorporated $ 3,987 $ 2,886
Accounts payable and accrued liabilities 203 766
-------- --------
Total current liabilities 4,190 3,652
Stockholders' equity:
Callable Common stock, $.001 par value;
3,250,000 shares authorized, issued
and outstanding 3 3
Additional paid-in capital 94,256 94,256
Accumulated deficit (38,050) (17,783)
Unrealized holding loss on
marketable securities (213) --
-------- --------
Total stockholders' equity 55,996 76,476
-------- --------
$ 60,186 $ 80,128
======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
Allergan Ligand Retinoid Therapeutics, Inc.
Statement of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Nine Months Period
ended ended
September 30, September 30,
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(20,267) $(12,542)
Changes in operating assets
and liabilities:
Other assets (547) (438)
Payable to Allergan, Inc. and
Ligand Pharmaceuticals
Incorporated 1,101 3,774
Accounts payable and
accrued liabilities (563) 814
-------- --------
Net cash used in
operating activities (20,276) (8,392)
INVESTING ACTIVITIES:
Purchase of marketable securities (20,564) --
Net proceeds from offering of units -- 27,245
Contribution from Allergan, Inc. -- 50,000
Contribution from Ligand
Pharmaceuticals Incorporated -- 17,500
-------- --------
Net cash provided by (used in)
investing activities (20,564) 94,745
-------- --------
Net increase (decrease) in cash
and cash equivalents (40,840) 86,353
Cash and cash equivalents at beginning
of period 79,793 --
-------- --------
Cash and cash equivalents at end
of period $ 38,953 $ 86,353
======== ========
</TABLE>
See accompanying notes.
5
<PAGE> 6
Allergan Ligand Retinoid Therapeutics, Inc.
Notes to Financial Statements
1. Allergan Ligand Retinoid Therapeutics, Inc. (the Company) was
incorporated in Delaware in 1994 and commenced operations on June 3, 1995 to
continue the efforts of the Allergan Ligand Joint Venture (Joint Venture),
established by Allergan, Inc. (Allergan) and Ligand Pharmaceuticals
Incorporated (Ligand) in June 1992, to discover, develop and commercialize
drugs based on retinoids.
On June 3, 1995, the Company and Ligand completed a public offering (the
Offering) of 3.25 million units, each unit consisting of one share of the
Company's callable common stock (Callable Common Stock) and two warrants, each
to purchase one share of Ligand common stock. The Offering raised net proceeds
for the Company of $26.8 million. At the completion of the Offering, Ligand
contributed $17.5 million in cash, as well as warrants in exchange for (i) a
right to acquire all of the Callable Common Stock at specified future dates and
amounts and (ii) a right to acquire all rights to the 1057 product, jointly
with Allergan, currently under development by the Company. At the same time,
Allergan contributed $50.0 million in cash to the Company in exchange for (i)
the right to acquire one-half of technologies and other assets in the event
Ligand exercises its right to acquire all of the Callable Common Stock, (ii) a
similar right to acquire all of the Callable Common Stock if Ligand does not
exercise its right and (iii) a right to acquire all rights to the 1057 product,
jointly with Ligand.
2. In the opinion of management, the accompanying unaudited
financial statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial information
contained therein. These statements do not include all disclosures required by
generally accepted accounting principles. The results of operations for the
quarter and nine months ended September 30, 1996 are not necessarily indicative
of the results to be expected for the year ending December 31, 1996. Net loss
per callable common share is computed by dividing the net loss by the number of
callable common shares outstanding, which was 3,250,000 at all times during the
quarter.
3. The Company invests its excess cash in money market funds and
debt instruments of financial institutions and corporations with strong credit
ratings. The Company has established guidelines with respect to the
diversification and maturities in order to maintain safety and liquidity. The
Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. The Company's investments are
classified as available-for-sale and are carried at fair value, with unrealized
gains and losses reported as a separate component of stockholders' equity. The
investments are adjusted for amortization of premiums and discounts to maturity
and such amortization is included in interest income.
6
<PAGE> 7
ALLERGAN LIGAND RETINOID THERAPEUTICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1996
Allergan Ligand Retinoid Therapeutics, Inc. (ALRT) commenced operations in June
1995 and received net proceeds of approximately $26.8 million upon issuance of
3.25 million Units (the Offering), each of which consists of one share of
Callable Common Stock and two Warrants, each to purchase one share of Ligand
Pharmaceuticals Incorporated (Ligand) common stock. At that time, ALRT also
received cash contributions of $50.0 million from Allergan, Inc. (Allergan) and
$17.5 million from Ligand (the Contributions). ALRT is utilizing substantially
all of the net proceeds of the Offering and the Contributions to continue the
research and development of potential retinoid compounds.
The shares of Callable Common Stock are subject to a stock purchase option (the
Stock Purchase Option), pursuant to which Ligand, and in the event not
exercised by Ligand, Allergan, has an irrevocable option to purchase all, but
not less than all, of the Callable Common Stock outstanding at the time such
option is exercised at stated exercise prices from June 3, 1997 until the
expiration of the Stock Purchase Option on the earlier of June 3, 2000 or a
limited period of time after a major agreement among ALRT, Ligand and Allergan
is terminated due to an event of default. Ligand and Allergan also have the
option, which must be exercised together, to acquire assets related to the
development of the 1057 product.
RESULTS OF OPERATIONS
- ---------------------
The Company incurred a net loss of $8.9 million for the quarter and $20.3
million for the nine months ended September 30, 1996. Interest income was $0.9
million for the third quarter and $3.0 million for the nine months ended
September 30, 1996 as a result of investment of the remaining unexpended cash
held by ALRT. Interest income was $1.3 million for the third quarter of 1995.
Interest income of $1.7 million for the period ended September 30, 1995 was
earned on cash held during the period from completion of the offering on June
3, 1995. The decrease in interest income in the third quarter of 1996 compared
to 1995 is the result of the decrease in unexpended funds as ALRT funds its
operating activities. Interest income will continue to decrease in future
periods as funds are used in performance of research and development
activities, subject to general interest rate trends.
Research and development expenses were $9.4 million in the third quarter and
$22.1 million for the nine months ended September 30, 1996. Such expenses were
$5.4 million for the quarter and $13.5 million for the period ended September
30, 1995. Expenses in 1995 include research and development costs incurred
from January 1 to June 3 by a joint venture operated by Allergan and Ligand
which were reimbursed by ALRT following completion of the Offering. Research
and development activities have been performed primarily by Ligand and Allergan
under contracts with ALRT since June 1995. Research and development expenses
in 1996 have exceeded comparable expenses incurred in 1995 due to the
acceleration of development activities.
General and administrative expenses were $0.4 million in the third quarter of
1996 and $1.2 million for the nine months ended September 30, 1996. In 1995,
general and administrative expenses were $0.4 million for the quarter
7
<PAGE> 8
Allergan Ligand Retinoid Therapeutics, Inc.
RESULTS OF OPERATIONS (Continued)
- ---------------------------------
and $0.7 million for the period ended September 30, 1995, and related primarily
to the period from completion of the Offering on June 3, 1995.
The Company's activities will be limited to conducting research and development
under the agreements with Ligand and Allergan. The Company does not expect to
generate any revenues other than interest income during subsequent periods.
Consequently, it expects to continue to incur net losses in subsequent periods.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of September 30, 1996, ALRT had cash and cash equivalents of $39.0 million
and marketable securities of $20.3 million. Although ALRT believes that the
proceeds of the Offering together with the Contributions will be sufficient to
enable it to continue development of a limited number of products in accordance
with the Development Agreement among ALRT, Ligand and Allergan, and to
commercialize formulations of ALRT1057, if it proves safe and efficacious,
there can be no assurance that this will be the case. Until the expiration of
the Stock Purchase Option, ALRT is significantly restricted from raising
additional funds without Allergan's and Ligand's consent and there can be no
assurance that ALRT will have sufficient funds to successfully develop any
retinoid products (Products). While Allergan and Ligand may, at their option,
provide funds for further development of the Products, they are not obligated
to do so. Such funds will be advanced to ALRT, if at all, at the option of
Allergan and Ligand and the decision to make such advances must be a joint
decision. As a result, ALRT does not anticipate any future cash inflows other
than earnings on unexpended cash balances. Substantial funding will be
necessary to complete the development of and to commercialize the Products.
If the Stock Purchase Option is not exercised, ALRT would have to raise
substantial funding from third parties through the sale of securities or the
licensing of Product or technology rights. There can be no assurance that such
funds will be available or, if available, will be on commercially reasonable
terms.
In addition, until the termination of the Stock Purchase Option, ALRT is not
able to issue additional capital stock, borrow more than $1 million in the
aggregate, declare or pay dividends or make other distributions to
stockholders, merge, consolidate or reorganize or liquidate or sell all or
substantially all of its assets without the prior written approval of Allergan
and Ligand.
If ALRT does not use the available funds as provided in the Development
Agreement or otherwise breaches any of its material obligations under any of
the major agreements among ALRT, Ligand and Allergan, Allergan and Ligand may
have the right to terminate the technology license agreement among ALRT, Ligand
and Allergan, and thereby reacquire rights to all technology licensed to ALRT
thereunder, including improvements made to such technology using funds provided
by ALRT. In the event of such a termination by Allergan and Ligand, ALRT will
not receive any royalty or other compensation and it is unlikely that Ligand or
Allergan would exercise either the 1057 Purchase Option or the Stock Purchase
Option.
8
<PAGE> 9
Allergan Ligand Retinoid Therapeutics, Inc.
LIQUIDITY AND CAPITAL RESOURCES (Continued)
- -------------------------------------------
During the third quarter of 1996, ALRT invested its excess cash in money market
funds and debt instruments of financial institutions and corporations with
strong credit ratings. ALRT has established guidelines relative to
diversification and maturities designed to maintain safety and liquidity. The
guidelines are periodically reviewed and modified to take advantage of trends
in yields and interest rates. The net proceeds from the Offering, combined
with the Contributions and income on unexpended cash balances, are anticipated
to provide funding for research and development and related administrative
activities through the middle of the year 2000.
The Company does not currently maintain any line of credit agreements. The
Company believes the impact of inflation on its business activities has not
been significant to date.
This discussion may contain certain forward-looking statements. Actual results
could differ materially from those currently anticipated due to a number of
factors, including: (i) the Company's ability to commercialize and market its
products will be subject to the regulatory approval of government authorities
in the United States and elsewhere; such regulatory approval cannot be assured;
(ii) the Company's products are in an early stage of development and will
require extensive and time consuming clinical testing prior to
commercialization; (iii) the Company competes against a number of companies
with superior resources; (iv) the Company has announced certain interim
clinical trial results; there can be no assurance that the final results
obtained from any such trial will be substantially the same as such interim
results, or that such final results will support the regulatory filings
necessary for commercial sale.
9
<PAGE> 10
Allergan Ligand Retinoid Therapeutics, Inc.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- Exhibits
(numbered in accordance with Item 601 of Regulation S-K)
Exhibit 27 - Financial Data Schedule
- Reports on Form 8-K. None.
10
<PAGE> 11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 1, 1996 ALLERGAN LIGAND RETINOID THERAPEUTICS, INC.
/s/ DWIGHT J. YODER
---------------------------
Dwight J. Yoder
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEETS AND THE STATEMENT OF OPERATIONS OF ALLERGAN LIGAND
RETINOID THERAPEUTICS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 38,953
<SECURITIES> 20,351
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 60,186
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 60,186
<CURRENT-LIABILITIES> 4,190
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 55,993
<TOTAL-LIABILITY-AND-EQUITY> 60,186
<SALES> 0
<TOTAL-REVENUES> 3,014
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 22,089
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (20,267)
<INCOME-TAX> 0
<INCOME-CONTINUING> (20,267)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,267)
<EPS-PRIMARY> (6.24)
<EPS-DILUTED> (6.24)
</TABLE>
