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Exhibit 99.1
FINANCIAL INFORMATION EXTRACTED FROM ALRT'S
ANNUAL REPORT FILED ON FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1995
Report of Independent Auditors
The Board of Directors and Shareholders
Allergan Ligand Retinoid Therapeutics, Inc.
We have audited the accompanying balance sheets of Allergan Ligand Retinoid
Therapeutics, Inc. as of December 31, 1995 and 1994, the related statement of
operations for the period June 3, 1995 (date operations commenced) through
December 31, 1995, and the statements of changes in stockholders' equity, and
cash flows for the period December 16, 1994 (date of incorporation) through
December 31, 1995. 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 generally accepted auditing
standards. 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 statements 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 Allergan Ligand Retinoid
Therapeutics, Inc. at December 31, 1995 and 1994, and the results of its
operations for the period June 3, 1995 (date operations commenced) through
December 31, 1995, and its cash flows for the period December 16, 1994 (date of
incorporation) through December 31, 1995, in conformity with generally accepted
accounting principles.
Orange County, California
March 19, 1996
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Allergan Ligand Retinoid Therapeutics, Inc.
Balance Sheets
DECEMBER 31,
-----------------------------
1995 1994
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 79,792,554 $ 200
Interest receivable and other current assets 335,001 --
------------ ------------
Total current assets $ 80,127,555 $ 200
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable to Allergan, Inc. $ 1,038,409 $ --
Accounts payable to Ligand Pharmaceuticals
Incorporated 1,847,825 --
Accrued offering costs 434,759 --
Other accounts payable and accrued liabilities 330,611 --
------------ ------------
Total current liabilities 3,651,604 --
Stockholders' equity:
Callable Common Stock, $.001 par value,
3,250,000 shares authorized, issued
and outstanding 3,250 --
Special Common Stock, $1 par value,
1,000 shares authorized, 200 shares issued
and outstanding 200 200
Additional paid-in capital 94,256,046 --
Accumulated deficit (17,783,545) --
------------ ------------
Total stockholders' equity 76,475,951 200
------------ ------------
$ 80,127,555 $ 200
============ ============
See accompanying notes.
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Allergan Ligand Retinoid Therapeutics, Inc.
Statement of Operations
June 3, 1995 (date operations commenced)
to December 31, 1995
Interest income $ 2,863,989
Costs and expenses:
Research and development expenses 19,495,346
General and administrative expenses 1,152,188
-------------
Total costs and expenses 20,647,534
-------------
Net loss $ (17,783,545)
=============
Net loss per callable common share $ (5.47)
=============
Weighted average callable common shares outstanding 3,250,000
=============
See accompanying notes.
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Allergan Ligand Retinoid Therapeutics, Inc.
Statements of Stockholders' Equity
December 16, 1994 (date of incorporation) to December 31, 1995
CALLABLE SPECIAL
COMMON STOCK COMMON STOCK
------------ ------------ ------------ ------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
Shares issued upon incorporation -
December 16, 1994
(date of incorporation) -- $ -- 200 $ 200
------------ ------------ ------------ ------------
Balance at December 31, 1994 -- -- 200 200
Issuance of callable common
stock in initial public offering,
net of offering costs of $5,740,704 3,250,000 3,250 -- --
Contribution from Allergan, Inc. -- -- -- --
Contribution from Ligand
Pharmaceuticals Incorporated
-- -- -- --
Net loss -- -- -- --
------------ ------------ ------------ ------------
Balance at December 31, 1995 3,250,000 $ 3,250 200 $ 200
============ ============ ============ ============
ADDITIONAL TOTAL
PAID-IN ACCUMULATED STOCKHOLDERS'
CAPITAL DEFICIT EQUITY
------------ -------------- ---------------
Shares issued upon incorporation -
December 16, 1994
(date of incorporation) $ -- $ -- $ 200
------------ -------------- ---------------
Balance at December 31, 1994 -- -- 200
Issuance of callable common
stock in initial public offering,
net of offering costs of $5,740,704 26,756,046 -- 26,759,296
Contribution from Allergan, Inc. 50,000,000 -- 50,000,000
Contribution from Ligand
Pharmaceuticals Incorporated
17,500,000 -- 17,500,000
Net loss -- (17,783,545) (17,783,545)
------------ -------------- ---------------
Balance at December 31, 1995 $ 94,256,046 $ (17,783,545) $ 76,475,951
============ ============== ===============
See accompanying notes.
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Allergan Ligand Retinoid Therapeutics, Inc.
Statement of Cash Flows
December 16, 1994 (date of incorporation) to December 31, 1995
Operating activities:
Net loss $ (17,783,545)
Adjustments to reconcile net loss to net cash used in operating
activities:
Changes in operating assets and liabilities:
Interest receivable and other current assets (335,001)
Accounts payable to Allergan, Inc. 1,038,409
Accounts payable to Ligand Pharmaceuticals Incorporated 1,847,825
Accrued offering costs 434,759
Other accounts payable and accrued liabilities 330,611
--------------
Net cash used in operating activities (14,466,942)
Financing activities:
Proceeds from issuance of callable common stock in initial
public offering, net 26,759,296
Proceeds from issuance of special common stock 200
Contribution from Allergan, Inc. 50,000,000
Contribution from Ligand Pharmaceuticals Incorporated 17,500,000
--------------
Net cash provided by financing activities 94,259,496
--------------
Net increase in cash and cash equivalents 79,792,554
Cash and cash equivalents at beginning of period --
==============
Cash and cash equivalents at end of period $ 79,792,554
==============
See accompanying notes.
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Allergan Ligand Retinoid Therpeutics, Inc.
Notes to Financial Statements
December 31, 1995
1. ORGANIZATION AND BUSINESS OPERATIONS
BUSINESS
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 (the
Products).
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 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 rights to the 1057 product, jointly with Ligand.
2. SIGNIFICANT ACCOUNTING POLICIES
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 accompanying financial statements. Actual
results could differ from those estimates.
CONCENTRATIONS OF BUSINESS RISK
The Company conducts research and development for the purpose of identifying and
developing retinoid drugs for therapeutic uses and is subject to intense
competition and technological changes in the biotechnology industry. The Company
is also dependent upon Allergan and Ligand who are primarily responsible for
research, development, marketing and manufacturing on behalf of the Company.
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Allergan Ligand Retinoid Therpeutics, Inc.
Notes to Financial Statements
December 31, 1995
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid financial instruments. The
Company considers instruments purchased with a maturity of three months or less
to be cash equivalents.
CONCENTRATION OF CREDIT RISKS
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 diversification and
maturities designed to maintain safety and liquidity. Included in cash and cash
equivalents at December 31, 1995 is $79.0 million invested in four money market
funds.
RESEARCH AND DEVELOPMENT EXPENSES
The Company contracts with Allergan and Ligand to conduct research, development
and initial clinical testing. The costs of such work are expensed as incurred.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes. Under
the liability method, deferred taxes are determined based on the differences
between the financial statement and tax bases of assets and liabilities using
enacted tax rates. There are no significant temporary differences at December
31, 1995.
NET LOSS PER CALLABLE COMMON SHARE
Net loss per callable common share is calculated by dividing the net loss by the
number of callable common shares outstanding, which was 3,250,000 at all times
during the period from commencement of operations following the closing of the
initial public offering on June 3, 1995 to December 31, 1995.
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Allergan Ligand Retinoid Therpeutics, Inc.
Notes to Financial Statements
December 31, 1995
3. RELATIONSHIP WITH ALLERGAN AND LIGAND
TECHNOLOGY LICENSE AGREEMENT
Under a technology license agreement (the License), the Company has an exclusive
license to use the retinoid technologies developed first by Allergan and Ligand
and subsequently by the Joint Venture. The License granted is subject to certain
exceptions that allow Allergan and Ligand to pursue limited research activities
and development and commercialization of certain products. In consideration for
the License, the Company will pay to Allergan and Ligand a royalty aggregating
3% of net sales of Products under the License during the life of applicable
patents or, in certain circumstances, for 10 years.
RESEARCH AND DEVELOPMENT AGREEMENT
The Company entered into a research and development agreement (the Development
Agreement) under which Allergan and Ligand perform research and development for
the Company on retinoid compounds and products in accordance with annual budgets
and development plans jointly proposed by Allergan and Ligand and approved by
the Company's Board of Directors. Under the Development Agreement, the Company
has agreed to reimburse Allergan and Ligand for their internal costs plus 10%
and the cost of services performed by third parties. Total amounts charged to
the Company during 1995 by Allergan and Ligand under the Development Agreement
were $6.6 million and $12.7 million, respectively.
If the Company discontinues development of compounds meeting certain criteria,
Allergan and Ligand are entitled to develop and commercialize such compounds
using their own funds. The Company is entitled to receive a royalty equal to 6%
of net sales of any such independently developed products. The Company also has
the right to reacquire any such product prior to the earlier of the commencement
of Phase III clinical trials for such product or the exercise or expiration of
the Stock Purchase Option, for an amount equal to costs incurred by Allergan
and/or Ligand plus interest at 25% per year. Additionally, with respect to any
reacquired product, the Company will pay a royalty equal to 4% of net sales to
the developing party.
COMMERCIALIZATION AGREEMENT
The Company also entered into a commercialization agreement (the
Commercialization Agreement) which provides for the marketing, manufacture and
sale by Allergan and/or Ligand of the Products developed under the Development
Agreement which have received regulatory approval for commercial sale.
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Allergan Ligand Retinoid Therpeutics, Inc.
Notes to Financial Statements
December 31, 1995
3. RELATIONSHIP WITH ALLERGAN AND LIGAND (CONTINUED)
SERVICES AGREEMENT
The Company also entered into a services agreement (the Services Agreement)
under which Allergan and Ligand provide management and administrative services
to the Company at 110% of direct and indirect costs for services performed
internally by Allergan and Ligand and on a cost reimbursement basis for services
performed by third parties. Total amounts charged to the Company during 1995 by
Allergan and Ligand for these services under the Services Agreement were $0.1
million and $0.1 million, respectively.
1057 PURCHASE OPTION
The Company has granted Allergan and Ligand an option (the 1057 Purchase Option)
to acquire the Company's 1057 Product. Unless the 1057 Purchase Option has been
terminated as to either Allergan or Ligand as a result of default under the
agreement (in which case the 1057 Purchase Option will only be exercisable by
the party for which such option has not been terminated), Allergan and Ligand,
jointly, may exercise the 1057 Purchase Option beginning on the earlier of (i)
June 3, 1997 or (ii) the receipt of regulatory approval for commercial sale of
any Compound 1057 Product in the United States or in certain other major
countries and ending on the earlier of (a) 90 days after receipt of such
regulatory approval or (b) June 3, 2000. Additionally, the 1057 Purchase Option
will terminate on the date the Stock Purchase Option is exercised or expires.
The 1057 Purchase Option exercise price is $21.4 million prior to June 3, 1998
and increases in equal amounts on a quarterly basis to $27.8 million on March 3,
1999 and to $36.2 million on March 3, 2000. The exercise price may be paid in
cash, shares of Allergan or Ligand, or any combination thereof.
The Company may not distribute or otherwise expend any proceeds received upon
the exercise of the 1057 Purchase Option until the earlier of the exercise or
expiration of the Stock Purchase Option.
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Allergan Ligand Retinoid Therpeutics, Inc.
Notes to Financial Statements
December 31, 1995
4. STOCKHOLDERS' EQUITY
STOCK PURCHASE OPTION
The Company's Callable Common Stock is subject to a Stock Purchase Option
agreement pursuant to which Ligand and, in the event not exercised by Ligand,
Allergan may purchase all, but not less than all, of the Callable Common Stock
outstanding at specified prices, subject to adjustment. The option becomes
exercisable on the earlier of (i) June 3, 1997 or (ii) the quarter in which the
Company's available funds, as defined, decline below $10 million and expires on
the earlier of (a) June 3, 2000 or (b) 90 days subsequent to such a decline in
cash. The option is not exercisable prior to June 3, 1998 unless the available
funds are less than $60 million at the date of exercise.
The Stock Purchase Option exercise price is $21.97 per share prior to June 3,
1998 and increases in equal amounts on a quarterly basis to $28.56 per share on
March 3, 1999 and to $37.13 per share on March 3, 2000. The exercise price may
be paid in cash, shares of Allergan or Ligand, or any combination thereof.
The Company may not, until the expiration of the Stock Purchase Option, pay any
dividends, issue additional shares of capital stock, borrow money in excess of
$1 million, merge, liquidate or sell all or substantially all of its assets.
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Allergan Ligand Retinoid Therpeutics, Inc.
Notes to Financial Statements
December 31, 1995
4. STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS
Each unit sold by the Company in its initial public offering includes two
warrants, each warrant giving the holder the right to purchase one share of
Ligand common stock at a price of $7.12 per share. The warrants are exercisable
at any time from June 3, 1997 through June 2, 2000, subject to certain
acceleration provisions including the exercise or expiration of the Stock
Purchase Option. The warrants will trade with the Company's Callable Common
Stock as units until they become exercisable on June 3, 1997. After such date,
the warrants will separate from the Company's common stock and become
independently tradable.
SPECIAL STOCK
The Company has issued 200 shares of Special Stock to Allergan and Ligand. The
Special Stock does not entitle Allergan and Ligand to vote, except in certain
circumstances, or have the right to any profits of the Company. The Special
Stock, however, entitles Allergan and Ligand to elect two directors to the
Company's Board.
5. INCOME TAXES
Significant components of the Company's deferred tax assets as of December 31,
1995 are shown below. A valuation allowance of $7.6 million has been recognized
at December 31, 1995 as an offset to the deferred tax assets as realization of
such assets is uncertain.
DECEMBER 31,
1995
--------------
(In thousands)
Deferred tax assets:
Net operating loss carry forwards $ 6,777
Research and development credits 327
Start-up costs and other 482
--------------
Total deferred tax assets 7,586
Valuation allowance for deferred tax assets (7,586)
--------------
Net deferred tax assets $ --
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Allergan Ligand Retinoid Therpeutics, Inc.
Notes to Financial Statements
December 31, 1995
5. INCOME TAXES (CONTINUED)
At December 31, 1995, the Company had federal and California net operating loss
carryforwards of approximately $16.6 million and $16.1 million, respectively.
The federal and California tax loss carryforwards will expire in 2010 and 2003,
respectively, unless previously utilized. The Company also has California
research and development tax credit carryforwards totaling $0.5 million which
will expire in 2010 unless previously utilized.