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 June 30, l996 or
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period From _____ to _____ . Commission File Number: 0-20720
LIGAND PHARMACEUTICALS INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
Delaware 77-0160744
(State or Other Jurisdiction of (I.R.S. Employer
Incorporated or organization) Identification No.)
9393 Towne Centre Drive 92121
San Diego, CA (Zip Code)
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (619)535-3900
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No ___
As of June 30, 1996 the registrant had 28,110,711 shares of
Common Stock outstanding.
1
LIGAND PHARMACEUTICALS INCORPORATED
QUARTERLY REPORT
FORM 10-Q
TABLE OF CONTENTS
COVER PAGE...................................................................1
TABLE OF CONTENTS............................................................2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995....3
Consolidated Statements of Operations for the three and
six months ended June 30, l996 and 1995..................................4
Consolidated Statements of Cash Flows for the three and
six months ended June 30, l996 and 1995..................................5
Notes to Consolidated Financial Statements...............................6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................8
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings..............................................11
ITEM 2. Changes in Securities...........................................*
ITEM 3. Defaults upon Senior Securities.................................*
ITEM 4. Submission of Matters to a Vote of Security Holders............11
ITEM 5. Other Information...............................................*
ITEM 6. Exhibits and Reports on Form 8-K...............................12
SIGNATURE...................................................................13
* No information provided due to inapplicability of item.
2
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
LIGAND PHARMACEUTICALS INCORPORATED
Consolidated Balance Sheets
(in thousands, except share data)
June 30, December 31,
1996 1995
--------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 11,228 $ 15,963
Short-term investments 45,473 54,182
Receivable from a related party 1,978 2,286
Other current assets 784 577
---------- -----------
Total current assets 59,463 73,008
Restricted short-term investments 3,746 6,759
Property and equipment, net 11,922 12,272
Notes receivable from officers and employees 536 485
Other assets 1,006 1,070
----------- -----------
$ 76,673 $ 93,594
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,425 $ 3,940
Accrued liabilities 5,636 6,705
Deferred revenue 2,014 2,608
Current portion of obligations under
capital leases 2,551 2,406
---------- -----------
Total current liabilities 12,626 15,659
Long-term obligations under capital leases 8,714 8,585
Convertible subordinated debentures 32,616 31,279
Convertible note 10,000 10,000
Stockholders' equity:
Convertible preferred stock,
$.001 par value; 5,000,000 shares authorized;
none issued -- -- -- --
Common stock, $.001 par value;
80,000,000 shares authorized 28,146,386
shares and 27,800,597 shares issued at
June 30, l996 and December 31, 1995,
respectively 28 28
Paid-in capital 175,102 173,452
Warrant subscription receivable (3,718) (4,524)
Adjustment for unrealized gains (losses) on
available-for-sale securities (266) 217
Accumulated deficit (157,401) (140,281)
Deferred compensation and consulting fees (565) (819)
---------- ------------
13,180 28,073
Less treasury stock, at cost (35,675 shares)(463) (2)
---------- ------------
Total stockholders' equity 12,717 28,071
---------- ------------
$ 76,673 $ 93,594
========== ===========
<FN>
SEE ACCOMPANYING NOTES.
3
LIGAND PHARMACEUTICALS INCORPORATED
Consolidated Statements of Operations
(Unaudited)
(in thousands, except share data)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
--------- --------- --------- -----------
Revenues:
Collaborative research
and development:
Related parties $ 4,026 $ 2,324 $ 7,262 $ 4,455
Unrelated parties 4,403 2,994 9,878 5,476
Other 61 36 118 36
----------- ----------- ---------- ---------
8,490 5,354 17,258 9,967
Costs and expenses:
Research and development 14,811 9,065 27,081 16,026
Selling, general and
administrative 2,554 2,069 5,172 3,769
Write-off of in-process
technology -- -- 19,869 -- -- 19,869
ALRT contribution -- -- 17,500 -- -- 17,500
------------ ----------- ---------- -------
Total operating expenses 17,365 48,503 32,253 57,164
Loss from operations (8,875) (43,149) (14,995) (47,197)
Interest income 902 726 1,999 1,192
Interest expense (2,067) (926) (4,124) (1,292)
Equity in operations of
joint venture -- -- 1,805 -- -- -- --
------------ ----------- --------- ---------
Net loss $ (10,040) $ (41,544) $ (17,120)$ (47,297)
============ =========== ========== =========
Net loss per share $ (.36) $ (1.87) $ (.61) $ (2.33)
=========== =========== ========== =========
Shares used in computing
loss per share 28,070,756 22,179,926 27,990,368 20,271,040
========== =========== ========== ==========
<FN>
SEE ACCOMPANYING NOTES.
4
LIGAND PHARMACEUTICALS INCORPORATED
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1996 1995
---------- ----------
OPERATING ACTIVITIES
Net loss $ (17,120) $ (47,297)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 1,914 945
Amortization of notes receivable from
officers and employees 129 131
Write-off of in process technology -- -- 19,869
Amortization of deferred compensation
and consulting fees 254 365
Accretion of debt discount 1,337 317
Receipt of Company Stock for milestone
revenue payment (438) -- --
Change in operating assets and liabilities:
Other current assets (207) 801
Receivable from a related party 308 (363)
Accounts payable and accrued liabilities (2,584) 20
Deferred revenue (594) (311)
---------- ----------
Net cash used in operating activities (17,001) (25,523)
INVESTING ACTIVITIES
Purchase of short-term investments (35,127) (1,342)
Proceeds from short-term investments 43,352 16,560
Increase in notes receivable from officers
and employees (180) (110)
Increase in deposits and other assets -- -- (211)
Decrease in deposits and other assets 64 32
Purchase of property and equipment (252) (272)
Investment in joint venture -- -- (815)
Net cash acquired in Glycomed acquisition -- -- 10,225
---------- ----------
Net cash provided by investing activities 7,857 24,067
FINANCING ACTIVITIES
Principal payments on obligations under capital
leases and equipment notes payable (1,039) (689)
Net change in restricted cash 3,013 (1,795)
Net proceeds from sale of common stock 2,435 10,212
---------- -----------
Net cash provided by financing activities 4,409 7,728
---------- -----------
Net increase (decrease) in cash and cash equivalents (4,735) 6,272
Cash and cash equivalents at beginning of period 15,963 7,628
---------- ----------
Cash and cash equivalents at end of period $ 11,228 $ 13,900
========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 2,742 $ 504
Acquisition of short-term investments from
Glycomed merger -- -- 41,983
Acquisition of restricted cash from Glycomed merger -- -- 4,715
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Additions to obligations under capital leases $ 1,313 $ 2,781
Warrant subscription receivable issued
with ALRT offering $ -- -- $ 5,850
Stock issued from Glycomed merger $ -- -- $ 41,959
5
LIGAND PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 1996
1. BASIS OF PRESENTATION
The consolidated financial statements of Ligand Pharmaceuticals
Incorporated (the "Company") for the six months ended June 30,
1996 and 1995 are unaudited. These financial statements reflect
all adjustments, consisting of only normal recurring adjustments which,
in the opinion of management, are necessary to fairly present the
consolidated financial position as of June 30, 1996 and the
consolidated results of operations for the three and six months
ended June 30, 1996 and 1995. The results of operations for the
periods ended June 30, 1996 are not necessarily indicative of the
results to be expected for the year ending December 31, 1996. For
more complete financial information, these financial statements, and
the notes thereto, should be read in conjunction with the
consolidated audited financial statements for the year ended
December 31, 1995 included in the Ligand Pharmaceuticals
Incorporated Form 10-K filed with the Securities and Exchange
Commission.
In October 1995, the Financial Accounting Standards Board ("FASB")
issued SFAS 123, "Accounting for Stock-Based Compensation",
effective for fiscal years beginning after December 15, 1995. SFAS
123 establishes and encourages the use of the fair value based
method of accounting for stock-based compensation arrangements,
under which compensation cost is determined using the fair value of
stock-based compensation, determined as of the grant date, and is
recognized over the periods in which the related services are
rendered. The statement also permits companies to elect to continue
using the current implicit value accounting method specified in
Accounting Principles Board (ABP) Opinion No. 25 to account for
stock-based compensation. The Company has elected to retain its
current implicit value based method, and will be required to
disclose the pro forma effect of using the fair value based method
to account for its employee stock-based compensation. Pro-forma
disclosures reflecting the effects of the fair value method are not
required for interim financial statements.
In March 1995, the FASB issued Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," which requires impairment losses to be recorded on
longlived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount.
Statement 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The Company adopted Statement
121 in the first quarter of 1996 and such adoption has had no effect
on the Company's financial position and results of operations.
2. ALLERGAN LIGAND RETINOID THERAPEUTICS, INC.
On June 30, 1992, the Company entered into agreements with Allergan,
Inc. ("Allergan") whereby the Allergan-Ligand Joint Venture (the
"Joint Venture") was established to research, develop, license and
commercialize products related to the use of intracellular receptors
in the treatment of certain diseases and disorders.
In December 1994, the Company and Allergan, formed Allergan Ligand
Retinoid Therapeutics, Inc. ("ALRT") to continue the research and
development activities previously conducted by the Joint Venture.
In June 1995, the Company and ALRT completed a public offering of
3,250,000 units (the "Units") with aggregate proceeds of $32.5
million (the "ALRT Offering") and cash contributions by Allergan and
the Company of $50.0 million and $17.5 million, respectively,
providing for net proceeds of $94.3 million for retinoid product
research and development. Each Unit consisted of one share of
ALRT's callable Common Stock and two warrants, each warrant
entitling the holder to purchase one share of the Common Stock of
the Company. Immediately prior to the consummation of the ALRT
Offering on June 3, 1995, Allergan Pharmaceuticals (Ireland) Ltd.,
Inc. made a $6.0 million investmentin the Company's Common Stock.
The Company's $17.5 million cash contribution resulted in a one-time
charge to operations. The Company also recorded a warrant subscription
receivable and corresponding increase in paid-in capital of $5.9
million pursuant to the ALRT Offering. During the first six months
of 1996, $806,000 of the proceeds received from ALRT were applied to the
warrant subscription receivable. In conjunction with the
consummation of the ALRT Offering, all rights held by the Joint
Venture were licensed to ALRT. The Company, Allergan and ALRT
entered into various agreements in connection with the funding of
ALRT. After June 3, 1995, cash received from ALRT pursuant to the
agreements was prorated between contract revenue and the warrant
subscription receivable based on their respective values.
Contributions made by the Company to the Joint Venture related to
the period from January 1, 1995, through June 30, 1995 were
retroactively reimbursed by ALRT and previous equity losses
recognized for the six month period from the Joint Venture
operations were reversed.
6
3. MERGER WITH GLYCOMED
In May 1995, Glycomed Incorporated ("Glycomed") became a wholly-
owned subsidiary of the Company pursuant to the merger of a
subsidiary of the Company with and into Glycomed ("the Merger").
Glycomed is a biopharmaceutical company conducting research and
development of pharmaceuticals based on biological activities of
complex carbohydrates. Each outstanding share of Glycomed Common
Stock was converted into 0.5301 shares of Common Stock, resulting
in the issuance of 6,942,911 shares of the Common Stock to Glycomed
shareholders. The Merger was accounted for using the purchase
method of accounting. The excess of the purchase price over the
fair value of the net assets acquired was allocated to in-process
technology and was written off, resulting in a one time non-cash
charge to results of operations of approximately $20.0 million.
The results of operations of Glycomed are included in the Company's
consolidated results of operations from the date of the Merger.
4. PFIZER INC. LITIGATION
In December 1994, the Company filed suit against Pfizer Inc.
("Pfizer") in the Superior Court of California in San Diego County
for breach of contract and for a declaration of future rights as
they relate to droloxifene, a compound upon which the Company
performed work at Pfizer's request during a collaboration between
Pfizer and the Company to develop drugs in the field of
osteoporosis. Droloxifene is an estrogen antagonist/partial agonist
with potential indications in the treatment of osteoporosis and
breast cancer as well as other applications. The Company and
Pfizer entered into a settlement agreement with respect to the
lawsuit in April 1996. Under the terms of the settlement agreement,
the Company is entitled to receive milestone payments if Pfizer
continues development, and royalties if Pfizer commercializes
droloxifene. At the option of either party, milestone and royalty
payments owed to the Company can be satisfied by Pfizer
transferring to the Company shares of the Company's Common Stock
previously purchased by Pfizer, at an exchange ratio of $12.375 per
share. In May 1996, Pfizer transferred to the Company 28,272
shares of the Company's Common Stock for milestone payments which
resulted in revenues of $438,000. According to recent
announcements by Pfizer, droloxifene has entered Phase II clinical
trials for osteoporosis and Phase III clinical trials for breast
cancer.
7
PART I. FINANCIAL INFORMATION
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Since January 1989, the Company has devoted substantially all of
its resources to its intracellular receptor and Signal Transducers
and Activators of Transcription drug discovery and development
programs. The Company has been unprofitable since its inception and
expects to incur substantial additional operating losses for the
next several years, due to continued requirements for research and
development, preclinical testing, regulatory activities,
establishment of manufacturing processes and a sales and marketing
capabilities. The Company expects that losses will fluctuate from
quarter to quarter as a result of differences in the timing of
expenses incurred and the revenues earned from collaborative
arrangements. Some of these fluctuations may be significant. As of
June 30, 1996, the Company's accumulated deficit was $157.4
million.
In May 1995, Glycomed Incorporated ("Glycomed") became into a
wholly owned subsidiary of the Company pursuant to the merger of a
subsidiary of the Company with and into Glycomed ("the Merger").
Glycomed is a biopharmaceutical company conducting research and
development of pharmaceuticals based on biological activities of
complex carbohydrates. Each outstanding share of Glycomed Common
Stock was converted into 0.5301 shares of Common Stock, resulting
in the issuance of 6,942,911 shares of the Common Stock to Glycomed
shareholders. The Merger was accounted for using the purchase
method of accounting. The excess of the purchase price over the
fair value of the net assets acquired was allocated to in-process
technology and was written off, resulting in a one time non-cash
charge to operations of approximately $20.0 million. The results
of operations of Glycomed are included in the Company's results of
operations from the date of the Merger.
In December 1994, the Company and Allergan, Inc. ("Allergan")
formed Allergan Ligand Retinoid Therapeutics, Inc. ("ALRT") to
continue the research and development activities previously
conducted by the Allergan Ligand Joint Venture (the "Joint
Venture"). In June 1995, the Company and ALRT completed a public
offering of 3,250,000 units (the "Units") with aggregate proceeds
of $32.5 million ( the "ALRT Offering") and cash contributions by
Allergan and the Company of $50.0 million and $17.5 million,
respectively, providing for net proceeds of $94.3 million for
retinoid product research and development. Each Unit consisted of
one share of ALRT's callable Common Stock and two warrants, each
warrant entitling the holder to purchase one share of the Common
Stock of the Company. Immediately prior to the consummation of the
ALRT Offering on June 3, 1995, Allergan Pharmaceuticals (Ireland)
Ltd., Inc. made a $6.0 million investment in the Company's Common
Stock. The Company's $17.5 million cash contribution resulted in a
one-time charge to operations. The Company also recorded a warrant
subscription receivable and corresponding increase in paid-in capital
of $5.9 million pursuant to the ALRT Offering. During the first six
months of 1996, $806,000 of the proceeds received from ALRT were applied
to the warrant subscription receivable. In conjunction with the
consummation of the ALRT Offering, all rights held by the Joint
Venture were licensed to ALRT. The Company, Allergan and ALRT
entered into various agreements in connection with the funding of
ALRT. After June 3, 1995, cash received from ALRT pursuant to the
agreements was prorated between contract revenue and the warrant
subscription receivable based on their respective values.
Contributions made by the Company to the Joint Venture related to
the period from January 1, 1995, through June 30, 1995 were
retroactively reimbursed by ALRT and previous equity losses
recognized for the six month period from the Joint Venture
operations were reversed.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 ("1996"), COMPARED WITH THREE
MONTHS ENDED JUNE 30, 1995 ("1995")
The Company had revenues of $8.5 million for 1996 compared to
revenues of $5.4 million for 1995. The increase in revenues is due
to an expanded and amended research and development agreement
entered into in January 1996 with Wyeth-Ayerst Laboratories, the
pharmaceutical division of American Home Products Corporation
("AHP") (which began in September 1994), a full quarter effect of
the collaborative research agreement with Sankyo Company, Ltd.
("Sankyo") (which became effective the date of the Merger), and
increased revenue from ALRT. Revenues in 1996 were derived from
the Company's research and development agreements with (i) ALRT of
$4.0 million, (ii) AHP of $1.5 million, (iii) Abbott Laboratories
("Abbott") of $725,000, (iv) Sankyo of $666,000, (v) SmithKline
Beecham Corporation ("SmithKline") of $596,000, (vi) Glaxo-Wellcome
plc ("Glaxo") of $514,000, as well as from milestone revenue from
Pfizer Inc. ("Pfizer") of $438,000 and product sales of Ligand
(Canada) inlicensed products of $60,000. Revenues in 1995 were
derived from the Company's research and development agreements with
(i) ALRT of $2.3 million, (ii) AHP of $1.0 million, (iii) Abbott of
8
$625,000, (iv) SmithKline of $608,000, (v) Glaxo $544,000, (vi)
Sankyo of $311,000 and from product sales of Ligand (Canada) in-
licensed products of $36,000.
For 1996, research and development expenses increased to $14.8
million from $9.1 million in 1995. These expenses increased
primarily due to expansion of the Company's research and
development programs, additions of research and development
personnel, and inclusion of the cost of Glycomed's operations for a
full quarter in 1996. Selling, general and administrative expenses
increased to $2.6 million in 1996 from $2.1 million in 1995. The
increase was primarily due to the expansion of the Company's sales
and marketing activities, additions to personnel to support
expanded research and development programs, and legal expenses
related to the Pfizer litigation. Interest income increased to
$902,000 in 1996 from $726,000 in 1995. The increase in interest
income was a result of an increase in cash balances due to the
Merger, increased research revenues, and additional equity
investments, offset by net usage of cash to support expansion
activities. Interest expense increased to $2.1 million in 1996 from
$926,000 in 1995. The increase was primarily due to interest
required under Glycomed's Convertible Subordinated Debentures
("Debentures"), accretion of debt discount of the Debentures and
additional capital lease obligations used to finance equipment.
The 1995 equity gain in operations of the Joint Venture of $1.8
million was due to the dissolution of the Joint Venture and the
reversal of losses recognized in the Joint Venture from January
1995.
One time charges of $19.9 million and $17.5 million were incurred
in 1995 due to the Merger and the ALRT Offering respectively.
SIX MONTHS ENDED JUNE 30, 1996 ("1996"), COMPARED WITH SIX MONTHS
ENDED JUNE 30, 1995 ("1995")
The Company had revenues of $17.3 million for 1996 compared to
revenues of $10.0 million for 1995. The increase in revenues is
due to the, new, expanded and amended collaborative agreements
previously discussed, a full six-month effect of the collaboration
with SmithKline (which began in February 1995), and increased
revenue from ALRT. Revenues in 1996 were derived from the
Company's research and development agreements with (i) ALRT of $7.3
million, (ii) AHP of $4.4 million, (iii) Abbott of $1.4 million,
(iv) Sankyo of $1.4 million, (v) SmithKline of $1.2 million, (vi)
Glaxo of $1.1 million, as well as from milestone revenue from
Pfizer of $438,000, and product sales of Ligand (Canada) in-
licensed products, of $118,000. Revenues in 1995 were derived from
the Company's research and development agreements with (i) ALRT of
$4.4 million, (ii) AHP of $2.0 million, (iii) Glaxo of $1.1 million
(iv) Abbott of $1.2 million, (v) SmithKline of $910,000, (vi)
Sankyo of $311,000 and from products sales of Ligand (Canada) in-
licensed product of $36,000.
For 1996, research and development expenses increased to $27.1
million from $16.0 million in 1995. These expenses increased
primarily due to expansion of the Company's research and
development programs, additions of research and development
personnel, and inclusion of the cost of Glycomed's operations for a
full six months in 1996. Selling, general and administrative
expenses increased to $5.2 million in 1996 from $3.8 million in
1995. The increase was primarily attributable to legal expenses
related to the Pfizer litigation, expansion of the Company's sales
and marketing activities, and additions to personnel to support
expanded research and development programs. Interest income
increased to $2.0 million in 1996 from $1.2 million in 1995. The
increase in interest income was a result of an increase in cash
balances due to the Merger, increased research revenues and
additional equity investments, offset by net usage of cash to
support expansion activities. Interest expense increased to $4.1
million in 1996 from $1.3 million in 1995. The increase was
primarily due to interest required under the Debentures, accretion
of debt discount of the Debentures and additional capital lease
obligations used to finance equipment.
One time charges of $19.9 million and $17.5 million were incurred
in 1995 due to the Merger and the ALRT Offering respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations through private and public
offerings of its equity securities, collaborative research
revenues, capital and operating lease transactions, issuance of
convertible notes, product sales and investment income. From
inception through June 1996, the Company has raised $121.2 million
from sales of equity securities: $43.0 million from the Company's
initial public offering in November 1992 (of which $7.5 million
was provided by the Company's collaborators) and an aggregate of
$78.2 million from private placements (of which $64 million was
provided by the Company's collaborators, $11.4 million was provided
through venture capital financing and $2.8 million was provided by other
investors).
9
As of June 30, 1996, the Company had acquired an aggregate of $17.1
million in laboratory and office equipment, and $3.8 million in
tenant improvements, substantially all of which has been funded
through capital lease and equipment note obligations and which
includes laboratory and office equipment acquired in the Merger.
In addition, the Company leases its office and laboratory
facilities under operating leases. In July 1994, the Company
entered into a twenty-year lease related to the construction of a
new laboratory facility, which was completed and occupied in August
1995. In May 1996, the Company signed a master lease agreement to
finance future capital equipment up to $2.5 million.
Working capital decreased to $46.8 million as of June 30, 1996,
from $57.3 million at the end of 1995. The decrease in working
capital resulted from an increase in cash from collaborative
research agreements, offset by an increase in research and
development program expenses, the related increase in selling,
general and administrative expenses as described above, semi-annual
interest payments due on the Debentures and interest paid on the
convertible note. For the same reasons, cash and cash equivalents,
short-term investments, and restricted cash decreased to $60.4
million at June 30, 1996 from $76.9 million at December 31, 1995.
The Company primarily invests its cash in United States government
and investment grade corporate debt securities.
The Company believes that its available cash, cash equivalents,
marketable securities and existing sources of funding will be
adequate to satisfy its capital requirements through 1998. The
Company's future capital requirements will depend on many factors,
the pace of scientific progress in research and development
programs, the magnitude of these programs, the scope and results of
preclinical testing and clinical trials, the time and costs
involved in obtaining regulatory approvals, the costs involved in
preparing, filing, prosecuting, maintaining and enforcing patent
claims, competing technological and market developments, the
ability to establish additional collaborations, changes in the
existing collaborations, the cost of manufacturing scale-up and the
effectiveness of the Company's commercialization activities.
RISKS AND UNCERTAINTIES
The Company's potential products are in various stages of
development. Substantially all of the Company's revenues to date
have been derived from its research and development agreements with
major pharmaceutical collaborators. Prior to generating product
revenues, the Company must complete the development of its
products, including several years of human clinical testing, and
receive regulatory approvals prior to selling these products in the
human health care market. No assurance can be given that the
Company's products will be successfully developed, regulatory
approvals will be granted, or patient and physician acceptance of
these products will be achieved. There can be no assurance that
Ligand will successfully commercialize, manufacture or market its
products or ever achieve or sustain product revenues or
profitability.
The Company faces those risks associated with companies whose
products are in various stages of development. These risks
include, among others, the Company's need for additional financing
to complete its research and development programs and commercialize
its technologies. The Company expects to incur substantial
additional research and development expenses, including continued
increases in personnel and costs related to preclinical testing,
clinical trials and sales and marketing expenses related to the
product sales in Canada. The Company intends to seek additional
funding sources of capital and liquidity through collaborative
arrangements, collaborative research or through public or private
financing. There is no assurance such financing 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 pharmaceutical and
biotechnology firms, including the Company, are uncertain and
involve complex legal and technical questions for which important
legal principles are largely unresolved.
While the Company believes that its current collaborators have
sufficient economic motivation to continue their funding and
development efforts under these collaborations, there can be no
assurance that these collaborations will continue or be performed
by the parties or that they will be successful.
10
PART II. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
In December 1994, Ligand filed suit against Pfizer in the Superior
Court of California in San Diego County for breach of contract and
for a declaration of future rights as they relate to droloxifene, a
compound upon which the Company performed work at Pfizer's request
during a collaboration between Pfizer and the Company to develop
drugs in the field of osteoporosis. Droloxifene is an estrogen
antagonist/partial agonist with potential indications in the
treatment of osteoporosis and breast cancer as well as other
applications. The Company and Pfizer entered into a settlement
agreement with respect to the lawsuit in April 1996. Under the
terms of the settlement agreement, the Company is entitled to
receive milestone payments if Pfizer continues development, and
royalties if Pfizer commercializes droloxifene. At the option of
either party, milestone and royalty payments owed to the Company
can be satisfied by Pfizer transferring to the Company shares of
the Company's Common Stock previously purchased by Pfizer, an
exchange ratio of $12.375 per share. According to recent
announcements by Pfizer, droloxifene has entered Phase II clinical
trials for osteoporosis and Phase III clinical trials for breast
cancer.
ITEM 4 SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on May 21,
1996. The following elections and proposals were approved at the
Company's Annual Meeting:
Votes Votes Votes Votes Broker
For Against Withheld Abstaining Nonvote
1. Election of a Board of
Directors. The total number
of votes cast for, or
withheld for each nominee
was as follows:
Henry F. Blissenbach 21,410,367 -- -- 1,542,958 -- -- -- --
Alexander D. Cross, Ph.D. 21,410,367 -- -- 1,542,958 -- -- -- --
John Groom 21,412,622 -- -- 1,540,703 -- -- -- --
Irving S. Johnson, Ph.D. 21,409,502 -- -- 1,543,823 -- -- -- --
David E. Robinson 21,361,654 -- -- 1,591,671 -- -- -- --
William C. Shepherd 21,412,172 -- -- 1,541,153 -- -- -- --
2. Amendment of 1992 Stock
Option/Stock Issuance Plan
to increase the authorized
number of shares of Common
Stock from 5,628,457 to
6,428,457 18,311,193 3,709,437 5,102,347 67,749 864,946
3. Amendment of the 1992
Employee Stock Purchase
Plan, to increase the
authorized number of
shares of Common Stock
available for issuance
under such plan from
141,500 to 166,500. 20,861,563 1,331,881 5,102,347 66,592 693,289
4. Ratification of the
appointment of Ernst &
Young LLP as the
independent auditors for
the fiscal year ending
December 31, 1996. 22,899,828 22,143 5,102,347 31,354 -- --
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ITEM 6 (A) EXHIBITS
Exhibit 10.149 Successor Employment Agreement, signed May 1,
1996, between the Company and David E. Robinson.
Exhibit 10.150 Master Lease Agreement, signed May 30, 1996,between the
Company and USL Capital Corporation.
Exhibit 10.151(1) Settlement Agreement and Mutual Release of all Claims,
signed April 20, 1996 between the Company and Pfizer Inc.
(with certain confidential portions omitted).
Exhibit 10.152(1) Letter Amendment to Abbott Agreement dated, March 14, 1996,
between the Company and Abbott Laboratories(with certain
confidential portions omitted).
ITEM 6 (B) REPORTS ON FORMS 8-K
None.
(1) Certain confidential portions of the Exhibit were omitted by
means of blacking out the text (the "Mark"). This Exhibit has been
filed separately with the Secretary of the Commission without the Mark
pursuant to the Company's Application Requesting Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended.
12
LIGAND PHARMACEUTICALS INCORPORATED
June 30, 1996
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Ligand Pharmaceuticals Incorporated
Date: August 14, 1996 By /s/Paul V. Maier
----------------------------- -----------------------------------
Paul V. Maier
Vice President and Chief Financial
Officer
13