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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, 1998 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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10275 SCIENCE CENTER DRIVE 92121-1117
SAN DIEGO, CA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (619) 535-7500
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 October 31, 1998 the registrant had 42,526,245 shares of Common
Stock outstanding.
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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 September 30, 1998 and December 31, 1997..................................3
Consolidated Statements of Operations for the three and nine months ended September 30, 1998 and 1997......4
Consolidated Statements of Cash Flows for the nine months ended September 30, 1998 and 1997.................5
Notes to Consolidated Financial Statements..................................................................6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..............9
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.........................................*
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings..................................................................................*
ITEM 2. Changes in Securities and Use of Proceeds..........................................................23
ITEM 3. Defaults upon Senior Securities....................................................................*
ITEM 4. Submission of Matters to a Vote of Security Holders................................................*
ITEM 5. Other Information..................................................................................23
ITEM 6. Exhibits and Reports on Form 8-K...................................................................24
SIGNATURE..........................................................................................................25
* No information provided due to inapplicability of item.
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PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
September 30, December 31,
1998 1997
--------- ---------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 24,939 $ 62,252
Short-term investments 15,852 20,978
Inventory 1,533 65
Other current assets 3,628 799
--------- ---------
Total current assets 45,952 84,094
Restricted short-term investments 2,809 3,057
Property and equipment, net 30,387 14,853
Notes receivable from officers and employees 562 559
Acquired technology 37,317 --
Other assets 8,709 4,860
--------- ---------
$ 125,736 $ 107,423
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,547 $ 10,717
Accrued liabilities 5,792 5,609
Deferred revenue 4,311 2,616
Current portion of obligations under capital leases 3,056 2,753
--------- ---------
Total current liabilities 18,706 21,695
Long-term obligations under capital leases 8,593 8,501
Convertible note 2,500 6,250
Convertible subordinated debentures 38,634 36,628
Accrued acquisition obligation 50,000
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; 42,526,245 shares and 38,504,459 shares issued
at September 30, 1998 and December 31, 1997, respectively 43 39
Paid-in capital 362,141 311,681
Adjustment for unrealized gains on available-for-sale securities 101 384
Accumulated deficit (354,971) (277,744)
--------- ---------
7,314 34,360
Less treasury stock, at cost (1,114 shares
at September 30, 1998 and December 31, 1997) (11) (11)
--------- ---------
Total stockholders' equity 7,303 34,349
--------- ---------
$ 125,736 $ 107,423
========= =========
See accompanying notes.
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LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
-------- -------- -------- --------
Revenues:
Collaborative research and development:
Related parties $ -- $ 6,710 $ -- $ 18,923
Unrelated parties 3,844 3,363 13,117 10,652
Other 103 99 282 325
-------- -------- -------- --------
3,947 10,172 13,399 29,900
Costs and expenses:
Research and development 16,985 18,038 49,222 51,353
Selling, general and administrative 3,825 2,501 9,924 7,379
Write-off of acquired in-process technology 30,000 -- 30,000 --
-------- -------- -------- --------
Total operating expenses 50,810 20,539 89,146 58,732
-------- -------- -------- --------
Loss from operations (46,863) (10,367) (75,747) (28,832)
Interest income 521 798 2,406 2,800
Interest expense (1,933) (1,995) (5,886) (6,085)
Realized gain on investments 2,000 -- 2,000 --
-------- -------- -------- --------
Net loss $(46,275) $(11,564) $(77,227) $(32,117)
======== ======== ======== ========
Basic and diluted loss per share $ (1.15) $ (.35) $ (1.97) $ (.99)
======== ======== ======== ========
Shares used in computing net loss per share 40,333 32,800 39,256 32,484
======== ======== ======== ========
See accompanying notes.
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LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Nine Months Ended
September 30,
------------------------
1998 1997
-------- --------
OPERATING ACTIVITIES
Net loss $(77,227) $(32,117)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 3,215 3,037
Amortization of notes receivable from officers and employees 144 185
Amortization of deferred compensation and consulting -- 322
Amortization of warrant subscription receivable -- 1,529
Accretion of debt discount 2,006 2,006
Gain on sale of property and equipment (24) (69)
Write off of acquired in-process technology 30,000 --
Change in operating assets and liabilities:
Other current assets (2,796) 696
Receivable from a related party -- (59)
Accounts payable and accrued liabilities (7,070) (674)
Deferred revenue 1,695 (1,242)
-------- --------
Net cash used in operating activities (50,057) (26,386)
INVESTING ACTIVITIES
Purchase of short-term investments (28,777) (18,584)
Proceeds from short-term investments 33,620 27,367
Increase in/payment of notes receivable from officers and employees (147) (204)
Increase in other assets (7,422) (3,668)
Decrease in other assets 3,577 89
Purchase of property and equipment (1,113) (3,727)
Seragen assets acquired (5,756) --
Proceeds from sale of property and equipment 24 32
-------- --------
Net cash provided by/(used in) investing activities (5,994) 1,305
-------- --------
FINANCING ACTIVITIES
Principal payments on obligations under capital leases (2,232) (2,366)
Net change in restricted short-term investment 249 471
Net proceeds from sale of common stock 20,721 5,583
-------- --------
Net cash provided by financing activities 18,738 3,688
-------- --------
Net decrease in cash and cash equivalents (37,312) (21,393)
Cash and cash equivalents at beginning of period 62,252 34,830
-------- --------
Cash and cash equivalents at end of period $ 24,939 $ 13,437
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 4,958 $ 5,142
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Additions to obligations under capital leases $ 2,627 $ 2,676
Conversion of note to common stock $ 3,750 $ 6,250
Common stock issued to purchase Seragen $ 25,996 --
See accompanying notes
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LIGAND PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1998
1. BASIS OF PRESENTATION
The consolidated financial statements of Ligand Pharmaceuticals Incorporated
(the "Company") for the three and nine months ended September 30, 1998 and 1997
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 September
30, 1998 and the consolidated results of operations for the three and nine
months ended September 30, 1998 and 1997. The results of operations for the
periods ended September 30, 1998 are not necessarily indicative of the results
to be expected for the year ending December 31, 1998. For more complete
financial information, these financial statements, and the notes thereto, should
be read in conjunction with the audited consolidated financial statements for
the year ended December 31, 1997 included in the Ligand Pharmaceuticals
Incorporated Form 10-K filed with the Securities and Exchange Commission.
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
Reporting Comprehensive Income, and SFAS 131, Segment Information. Both of these
standards are effective for fiscal years beginning after December 15, 1997. SFAS
130 requires that all components of comprehensive income, including net income,
be reported in the financial statements in the period in which they are
recognized. SFAS 130 requires the change in net unrealized gains (losses) on
available-for-sale securities to be included in comprehensive income. As
adjusted for this item, comprehensive net loss for the nine month periods ended
September 30, 1998 and 1997 is $(77.5) million and $(32.0) million,
respectively. SFAS 131 amends the requirements for a public enterprise to report
financial and descriptive information about its reportable operating segments.
The Company currently operates in one business and operating segment and does
not believe adoption of this standard will have a material impact on the
Company's financial statements as reported.
INVENTORIES
In August 1998, the Company acquired Seragen, Inc. ("Seragen") (See Note 3.) In
December 1997, Seragen submitted a Biologic License Application ("BLA") to the
U.S. Food and Drug Administration ("FDA") for ONTAK(TM) (DAB(389)IL-2,
Interleukin-2 Fusion Protein or denileukin diftitox). In June 1998 the FDA
issued a Complete Review Letter to Seragen in respect to its BLA. Seragen
responded to the issues set out in the Complete Review Letter in August 1998 and
is awaiting final FDA action. In preparation for the approval by the FDA, if
received, Seragen has manufactured commercial quantities of ONTAK(TM) and in
purchase accounting for the Merger the Company has capitalized approximately
$1.5 million of work-in-process inventory as of September 30, 1998. If the FDA
does not approve the BLA, and ONTAK(TM) is not approved for commercial sale, any
capitalized costs related to ONTAK(TM) will be expensed.
2. NET LOSS PER SHARE
Basic and diluted net loss per share is computed using the weighted average
number of common shares outstanding.
3. MERGER AGREEMENT
On August 12, 1998, a wholly owned subsidiary of the Company was merged into
Seragen, with Seragen as the surviving corporation (the "Merger"). In addition,
the Company had previously announced that it had signed a definitive asset
purchase agreement to acquire substantially all the assets of Marathon
Biopharmaceuticals, LLC, ("Marathon") which currently provides manufacturing
services to Seragen under a service agreement. Finally, in August 1998 Seragen
signed an agreement with the Company and Eli Lilly and Company ("Lilly") under
which Lilly assigned to the Company Lilly's rights and obligations under its
agreements with Seragen, including its sales and marketing rights to ONTAK(TM).
Under the terms of the merger agreement, Ligand paid merger consideration at
closing in the amount of $30.0 million, $4.0 million of which was in cash and
$26.0 million of which was in the form of approximately 1,858,515 shares of the
Company's Common Stock valued at $13.99 per share. The valuation of the
Company's Common Stock for this portion of the transaction is based on the
average closing share price for the five trading days prior to signing of the
definitive agreement in May 1998. From the upfront payment, Seragen's common
shareholders received at the time of closing
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approximately 0.036 of a share of the Company's Common Stock for every share of
Seragen common stock owned immediately prior to closing. The remainder of the
$30.0 million in merger consideration paid at closing was used to settle claims
of Seragen's creditors and obligees.
The merger agreement also calls for an additional $37.0 million payment in cash
and/or the Company's Common Stock, at the Company's option, to be paid six
months after the date of receipt of final FDA clearance to market ONTAK(TM). The
$37.0 million payment will not be made, however, if ONTAK(TM) is not cleared by
the FDA by August 12, 2000. From the $37.0 million, Seragen's common
shareholders will receive $0.23 in, at the Company's option, cash or equivalent
value of the Company's Common Stock (based on the average closing price for the
10 trading days immediately preceding the second closing), for every Seragen
common share owned prior to the Merger. The remainder of the $37 million payment
will be used to settle claims of Seragen's creditors and obligees.
Additionally, the Company's agreement with Lilly calls for up to $5.0 million,
payable in cash or the Company's Common Stock, at the Company's option, in
potential milestone payments to Lilly, if ONTAK(TM) is approved by the FDA, and
upon certain other events. Upon certain other events, Lilly could receive an
additional $5.0 million in milestone payments.
The agreement with Marathon, the organization which provides manufacturing
services to Seragen, provides for Ligand's acquisition of substantially all of
Marathon's assets for $5.0 million, with an additional $3.0 million to be paid
six months after FDA approval of ONTAK(TM). The Company may purchase the assets
of Marathon at any time before January 31, 1999. The purchase payments can be
paid in cash or the Company's Common Stock, at the Company's option.
The Merger was accounted for using the purchase method of accounting. The
purchase price, totaling $83.8 million, which includes liabilities assumed of
$2.0 million was allocated to the fair value of the assets acquired, including
an allocation to in-process technology which was written off, resulting in a
one-time non-cash charge to results of operations of approximately $30.0
million. As of September 30, 1998, subject to a valuation of tangible and
intangible assets in order to properly allocate the total purchase price to all
of the assets acquired and liabilities assumed in the Merger as required by
Accounting Principles Board Opinion No. 16, the Company recorded $50.0 million
for accrued contingent payments, $40.0 million related to the approval of
ONTAK(TM) and $10.0 million for payments to Marathon and Lilly, $15.0 million
for the value of Marathon property and equipment and has capitalized a value of
$37.3 million for the acquired technology related to ONTAK(TM), as Seragen had
received its Complete Review Letter from the FDA at the time of acquisition.
The following pro forma condensed statement of operations information has been
prepared to give effect to the merger as if such transaction had occurred at the
beginning of the periods presented. The historical results of operations have
been adjusted to reflect (i) elimination of the one-time charge to operations
for the purchase of acquired in-process technology: (ii) adjustment for
depreciation resulting from adjusting the basis of property and equipment to
fair value and amortization over 25 years, (iii) amortization of acquired
technology over 15 years, (iv) elimination of Seragen stock issuance costs
(1997) and compensation expense amortization (1998), (v) elimination of interest
income for Seragen and reduction of Ligand interest income resulting from use of
$6.0 million for the Merger at an annual interest rate of 5.5% and (vi)
Elimination of interest expense related to the amortization of Seragen's
Ajinomoto liability. The information presented is not necessarily indicative of
the results of future operations of the merged companies.
Pro Forma Results Of Operations
(Unaudited)
In thousands
Year ended Nine Months ended
December 31, September 30,
1997 1998
--------- ---------
Revenues $ 56,413 $ 16,203
Net loss $(118,675) $ (56,236)
Weighted average shares outstanding 34,987 39,256
Loss per share $ (3.39) $ (1.43)
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4. STRATEGIC ALLIANCE AND FINANCING
On September 29, 1998, the Company and Elan Corporation, plc ("Elan") signed a
binding letter of agreement. Elan purchased approximately $20.0 million of the
Company's Common Stock in two installments. On September 29, 1998, Elan
purchased 1,278,970 shares of the Company's Common Stock for $14.9 million
($11.65 per share). The second installment to purchase 437,768 shares for $5.1
million ($11.65 per share) occurred at the closing of the transaction on
November 9, 1998.
Elan purchased from the Company at the closing, $40.0 million in issue price of
Zero Coupon Convertible Senior Notes, due 2008 with an 8.0% per annum yield to
maturity (the "Notes"). Of these Notes $30.0 million are convertible into the
Company's Common Stock at $14.00 per share. The balance issued of $10.0 million
along with up to an additional $70.0 million of Notes which Elan may also
purchase will be convertible into the Company's Common Stock at a price which is
the average of the closing prices of the Company's Common Stock for the 20
trading days immediately prior to the issuance of a Note plus a premium;
however, in no event will the conversion price be less than $14.00 per share or
more than $20.00 per share. Interest will accrue during the term of the Notes,
and the Notes may be used to finance the final payments for the Seragen Merger
expected in 1999 as well as other acquisitions of complementary technologies,
subject to the consent of Elan.
Elan also agreed to exclusively license to the Company in the United States and
Canada its proprietary product Morphelan(TM). For the rights to Morphelan(TM),
the Company will pay Elan certain license fees at the closing of the
transaction, and milestone payments upon the occurrence of certain events up to
and including the approval of the New Drug Application ("NDA") in the United
States. Payment may be in cash or subject to certain conditions in the Company's
Common Stock or Notes. At closing, the Company paid Elan $5.0 million through
the issuance of 429,185 shares of the Company's Common Stock ($11.65 per share)
and $10.0 million from the issuance of Notes.
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PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This quarterly report may contain predictions, estimates and other
forward-looking statements that involve a number of risks and uncertainties,
including those discussed below at "Risks and Uncertainties." While this outlook
represents management's current judgment on the future direction of the
business, such risks and uncertainties could cause actual results to differ
materially from any future performance suggested below. The Company undertakes
no obligation to release publicly the results of any revisions to these
forward-looking statements to reflect events or circumstances arising after the
date hereof.
OVERVIEW
Since January 1989, the Company has devoted substantially all of its resources
to its intracellular receptor ("IR") and Signal Transducers and Activators of
Transcription ("STATs") drug discovery and development programs. The Company has
been unprofitable since its inception and expects to incur substantial
additional operating losses due to continued requirements for research and
development, preclinical testing, clinical trials, regulatory activities,
establishment of manufacturing processes and sales and marketing capabilities
until the approval and commercialization of the Company's products generate
sufficient revenues, expected in 1999. The Company expects that losses will
fluctuate from quarter to quarter as a result of differences in the timing of
expenses incurred, the revenues earned from collaborative arrangements and
future product sales. Some of these fluctuations may be significant. As of
September 30, 1998, the Company's accumulated deficit was approximately $355.0
million.
On August 12, 1998, a wholly owned subsidiary of the Company was merged into
Seragen, with Seragen as the surviving corporation (the "Merger"). In addition,
the Company had previously announced that it had signed a definitive asset
purchase agreement to acquire substantially all the assets of Marathon
Biopharmaceuticals, LLC, ("Marathon") which currently provides manufacturing
services to Seragen under a service agreement. Finally, in August 1998 Seragen
signed an agreement with the Company and Eli Lilly and Company ("Lilly") under
which Lilly assigned to the Company Lilly's rights and obligations under its
agreements with Seragen, including its sales and marketing rights to ONTAK(TM).
Under the terms of the merger agreement, Ligand paid merger consideration at
closing in the amount of $30.0 million, $4.0 million of which was in cash and
$26.0 million of which was in the form of approximately 1,858,515 shares of the
Company's Common Stock valued at $13.99 per share. The valuation of the
Company's Common Stock for this portion of the transaction is based on the
average closing share price for the five trading days prior to signing of the
definitive agreement in May 1998. From the upfront payment, Seragen's common
shareholders received at the time of closing approximately 0.036 of a share of
the Company's Common Stock for every share of Seragen common stock owned
immediately prior to closing. The remainder of the $30.0 million in merger
consideration paid at closing was used to settle claims of Seragen's creditors
and obligees.
The merger agreement also calls for an additional $37.0 million payment in cash
and/or the Company's Common Stock, at the Company's option, to be paid six
months after the date of receipt of final FDA clearance to market ONTAK(TM). The
$37.0 million payment will not be made, however, if ONTAK(TM) is not cleared by
the FDA by August 12, 2000. From the $37.0 million, Seragen's common
shareholders will receive $0.23 in, at the Company's option, cash or equivalent
value of the Company's Common Stock (based on the average closing price for the
10 trading days immediately preceding the second closing), for every Seragen
common share owned prior to the Merger. The remainder of the $37 million payment
will be used to settle claims of Seragen's creditors and obligees.
Additionally, the Company's agreement with Lilly calls for up to $5.0 million,
payable in cash or the Company's Common Stock, at the Company's option, in
potential milestone payments to Lilly, if ONTAK(TM) is approved by the FDA, and
upon certain other events. Upon certain other events, Lilly could receive an
additional $5.0 million in milestone payments.
The agreement with Marathon, the organization which provides manufacturing
services to Seragen, provides for Ligand's acquisition of substantially all of
Marathon's assets for $5.0 million, with an additional $3.0 million to be paid
six months after FDA approval of ONTAK(TM). The Company may purchase the assets
of Marathon at any time before January 31, 1999. The purchase payments can be
paid in cash or the Company's Common Stock, at the Company's option.
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The Merger was accounted for using the purchase method of accounting. The
purchase price, totaling $83.8 million, which includes liabilities assumed of
$2.0 million was allocated to the fair value of the assets acquired, including
an allocation to in-process technology which was written off, resulting in a
one-time non-cash charge to results of operations of approximately $30.0
million. As of September 30, 1998, subject to a valuation of tangible and
intangible assets in order to properly allocate the total purchase price to all
of the assets acquired and liabilities assumed in the Merger as required by
Accounting Principles Board Opinion No. 16, the Company recorded $50.0 million
for accrued contingent payments, $40.0 million related to the approval of
ONTAK(TM) and $10.0 million for payments to Marathon and Lilly, $15.0 million
for the value of Marathon property and equipment and has capitalized a value of
$37.3 million for the acquired technology related to ONTAK(TM), as Seragen had
received its Complete Review Letter from the FDA at the time of acquisition.
On September 29, 1998, the Company and Elan Corporation, plc ("Elan") signed a
binding letter of agreement. Elan purchased approximately $20.0 million of the
Company's Common Stock in two installments. On September 29, 1998, Elan
purchased 1,278,970 shares of the Company's Common Stock for $14.9 million
($11.65 per share). The second installment to purchase 437,768 shares for $5.1
million ($11.65 per share) occurred at the closing of the transaction on
November 9, 1998.
Elan purchased from the Company at the closing, $40.0 million in issue price of
Zero Coupon Convertible Senior Notes, due 2008 with an 8.0% per annum yield to
maturity (the "Notes"). Of these Notes $30.0 million are convertible into the
Company's Common Stock at $14.00 per share. The balance issued of $10.0 million
along with up to an additional $70.0 million of Notes which Elan may also
purchase will be convertible into the Company's Common Stock at a price which is
the average of the closing prices of the Company's Common Stock for the 20
trading days immediately prior to the issuance of a Note plus a premium;
however, in no event will the conversion price be less than $14.00 per share or
more than $20.00 per share. Interest will accrue during the term of the Notes,
and the Notes may be used to finance the final payments for the Seragen Merger
expected in 1999 as well as other acquisitions of complementary technologies,
subject to the consent of Elan.
Elan also agreed to exclusively license to the Company in the United States and
Canada its proprietary product Morphelan(TM). For the rights to Morphelan(TM),
the Company will pay Elan certain license fees at the closing of the
transaction, and milestone payments upon the occurrence of certain events up to
and including the approval of the New Drug Application ("NDA") in the United
States. Payment may be in cash or subject to certain conditions in the Company's
Common Stock or Notes. At closing, the Company paid Elan $5.0 million through
the issuance of 429,185 shares of the Company's Common Stock ($11.65 per share)
and $10.0 million from the issuance of Notes.
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 ("Callable Common Stock") and two
warrants, each warrant entitling the holder to purchase one share of the Common
Stock of the Company. In September 1997, the Company and Allergan exercised
their respective options to purchase all of the Callable Common Stock (the
"Stock Purchase Option") and certain assets (the "Asset Purchase Option") of
ALRT. The Company's exercise of the Stock Purchase Option required the issuance
of 3,166,567 shares of the Company's Common Stock along with cash payments
totaling $25.0 million, to holders of the Callable Common Stock in November
1997. Allergen's exercise of the Asset Purchase Option required a cash payment
of $8.9 million to ALRT in November 1997, which was used by the Company to pay a
portion of the Stock Purchase Option. Prior to September 1997, cash received
from ALRT was recorded as contract revenue. As a result of the ALRT buyback,
research expenditures incurred related to ALRT activities are no longer
reimbursed, eliminating the ALRT contract revenue recognition. The buyback of
ALRT was accounted for using the purchase method of accounting. The excess of
the purchase price over the fair value of net assets acquired was allocated to
in-process technology and written off resulting in a one time non-cash charge to
results of operations of $65.0 million in 1997.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 ("1998"), as Compared with Three Months
Ended September 30, 1997 ("1997")
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The Company had revenues of $3.9 million for 1998 compared to revenues of $10.2
million for 1997. The decrease in revenues is primarily due to the buyback of
ALRT which resulted in reduced revenue of $6.7 million in 1998 compared to 1997,
completion of the Glaxo-Wellcome, plc ("Glaxo") and Sankyo Company Ltd.
("Sankyo") collaborations in 1997 resulting in reduced revenues in 1998 of
$432,000 and $667,000, respectively compared to 1997, completion of the American
Home Products Corporation ("AHP") collaboration in 1998 resulting in reduced
revenue of $917,000 compared to 1997, offset by increased revenues of $2.6
million in 1998 from a new research and development collaboration with Lilly
which began in November 1997. Revenues in 1998 were derived from the Company's
research and development agreements with (i) Lilly of $2.6 million, (ii)
SmithKline Beecham Corporation ("SmithKline Beecham") of $886,000, (iii) Abbott
Laboratories ("Abbott") of $300,000, (iv) AHP of $99,000, as well as from
product sales of in-licensed products by Ligand's Canadian subsidiary of
$103,000. Revenues for 1997 were derived from the Company's research and
development agreements with (i) ALRT of $6.7 million, (ii) AHP of $1.0 million,
(iii) SmithKline Beecham of $1.0 million, (iv) Sankyo of $667,000, (v) Glaxo of
$432,000, (vi) Abbott of $300,000, as well as from product sales of in-licensed
products by Ligand's Canadian subsidiary of $99,000.
For 1998, research and development expenses decreased to $17.0 million from
$18.0 million in 1997. The decrease in expenses was primarily due to initial
drug product validation costs incurred in 1997 and the closure of Glycomed's
Alameda facility and completion of the research portion of the Sankyo
collaboration in October 1997. Selling, general and administrative expenses
increased to $3.8 million in 1998 from $2.5 million in 1997. The increase was
primarily attributable to personnel additions and increased expenses in
preparation for commercialization activities. Interest income decreased to
$521,000 in 1998 from $798,000 in 1997 due to a decrease in cash as a result of
cash used to fund development and clinical programs and to support the growth in
commercialization activities. Interest expense was $2.0 million for 1998 and
1997. A realized gain of $2.0 million was due to the sale of equity securities
in 1998.
A one-time charge of $30.0 million was incurred in 1998 due to the Merger.
The Company has significant net operating loss carryforwards for federal and
state income taxes which are available subject to Internal Revenue Code Sections
382 and 383 carryforward limitations.
Nine Months Ended September 30, 1998 ("1998"), as Compared with Nine Months
Ended September 30, 1997 ("1997")
The Company had revenues of $13.4 million for 1998 compared to revenues of $29.9
million for 1997. The decrease in revenues is primarily due to the buyback of
ALRT which resulted in reduced revenue of $18.9 million in 1998 compared to
1997, completion of the Glaxo and Sankyo collaborations in 1997, resulting in
reduced revenues in 1998 of $1.3 million and $2.1 million, respectively compared
to 1997, completion of the AHP collaboration resulting in a revenue decrease of
$2.3 million in 1998 compared to 1997, offset by increased revenues of $7.5
million in 1998 from the new collaboration with Lilly which began in November
1997. Revenues in 1998 were derived from the Company's research and development
agreements with (i) Lilly of $7.5 million, (ii) SmithKline Beecham of $2.7
million, (iii) AHP of $1.3 million, (iv) Abbott of $900,000, product sales of
in-licensed products by Ligand's Canadian subsidiary of $282,000 and a one-time
license fee payment of $686,000. Revenues for 1997 were derived from the
Company's research and development agreements with (i) ALRT of $18.9 million,
(ii) AHP of $3.4 million, (iii) SmithKline Beecham of $2.5 million, (iv) Sankyo
of $2.1 million, (v) Abbott of $1.4 million, (vi) Glaxo of $1.3 million as well
as from product sales of in-licensed products by Ligand's Canadian subsidiary of
$325,000.
For 1998, research and development expenses decreased to $49.2 million in 1998
from $51.4 million in 1997. The decrease in expenses was primarily due to
initial drug product validation costs incurred in 1997 and the closure of
Glycomed's Alameda facility and completion of the research portion of the Sankyo
collaboration in October 1997, offset by increased expenses related to
completion of phase III trials and NDA preparation and submission for the
Company's lead product candidate. Selling, general and administrative expenses
increased to $9.9 million in 1998 from $7.4 million in 1997. The increase was
primarily attributable to personnel additions and increased expenses in
preparation for commercialization activities. Interest income decreased to $2.4
million in 1998 from $2.8 million in 1997. The decrease is due to the usage of
cash to fund development and clinical programs and support the growth in
commercialization activities. Interest expense decreased to $5.9 million in
1998, from $6.1 million in 1997 due to the conversion of convertible notes. A
realized gain of $2.0 million was due to the sale of equity securities in 1998.
A one-time charge of $30.0 million was incurred in 1998 due to the Merger.
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The Company has significant net operating loss carryforwards for federal and
state income taxes which are available subject to Internal Revenue Code Sections
382 and 383 carryforward limitations.
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, investment income and product
sales. From inception through September 30, 1998, the Company has raised cash
proceeds of $216.5 million from sales of equity securities: $78.2 million from
the Company's public offerings and an aggregate of $138.3 million from private
placements and the exercise of options and warrants.
As of September 30, 1998, the Company had acquired an aggregate of $43.3 million
in property, laboratory and office equipment (including Marathon) and $4.8
million in tenant leasehold improvements. Of these totals, $15.0 million was
recorded in the Seragen Merger and will be paid in cash or common stock, at the
Company's option, while substantially all of the balance has been funded through
capital lease and equipment note obligations. In addition, the Company leases
its office and laboratory facilities under operating leases. In July 1994, the
Company entered into a long-term lease related to the construction of a new
laboratory facility, which was completed and occupied in August 1995. In March
1997, the Company entered into a long-term lease, related to a second
build-to-suit facility and loaned the construction partnership $3.7 million at
an annual interest rate of 8.5% which will be paid back monthly over a 10-year
period. The second build-to-suit facility was completed and occupied in December
1997. In February 1997, the Company signed a master lease agreement to finance
future capital equipment up to $1.5 million, and in July 1997, the master lease
agreement was extended to December 1998 to include up to an additional $4.5
million. Each individual schedule under the extended master lease agreement will
be paid back monthly with interest over a five-year period. As of September 30,
1998, the company had $1.0 million available to finance future capital
equipment.
Working capital decreased to $27.2 million as of September 30, 1998, from $62.4
million at the end of 1997. The decrease in working capital resulted from a
decrease in cash payments in 1998 due to increases in clinical trials and
product development expenses and accruals in late 1997, increased selling
expenses, semi-annual interest payments due on convertible subordinated
debentures and convertible notes and the Merger obligations, offset by the $14.9
million equity investment by Elan in September 1998. For the same reasons, cash
and cash equivalents, short-term investments and restricted cash decreased to
$43.6 million at September 30, 1998 from $86.3 million at December 31, 1997. The
Company primarily invests its cash in United States government and investment
grade corporate debt securities.
In April 1998, SmithKline Beecham plc. and the Company initiated a new
collaboration to develop small molecule drugs for the treatment or prevention of
obesity. As part of the collaboration, SmithKline Beecham plc. purchased 274,423
shares of Ligand Common Stock for $5.0 million ($18.22 per share), a 20% premium
over a 15-day average of the daily closing price of the Company's Common Stock
prior to execution of the agreement. The premium has been deferred and will be
recognized as revenue over the two-year period in which services will be
provided under the collaborative agreement. SmithKline Beecham plc. also
purchased for $1.0 million a warrant to purchase 150,000 shares of Ligand Common
Stock at $20.00 per share. The warrant expires in five years, and Ligand may
require SmithKline Beecham plc. to exercise the warrant under certain
circumstances after three years. SmithKline Beecham plc. will also purchase
additional Ligand Common Stock at a 20% premium if a certain research milestone
is achieved and will make cash payments to Ligand if subsequent milestones are
met.
In June 1998, the Company converted $3.8 million of the convertible notes
outstanding to AHP into 374,625 shares of the Company's Common Stock at a $10.01
conversion price.
In August 1998, the Company paid merger consideration in the amount of $30.0
million, $4.0 million of which was cash and $26.0 million of which was in the
form of approximately 1,858,515 shares of the Company's Common Stock valued at
$13.99 per share under the terms of the Merger. The merger agreement also calls
for an additional $37.0 million payment in cash and/or Company Common Stock, at
the Company's option, to be paid six months after the date of receipt of final
FDA clearance to market ONTAK(TM). The $37.0 million payment will not be made,
however, if ONTAK(TM) is not cleared by the FDA by August 12, 2000.
On September 29, 1998, Elan purchased 1,278,970 shares of the Company's Common
Stock for $14.9 million ($11.65 per share), an additional 437,768 shares for
$5.1 million ($11.65 per share) was purchased by Elan upon closing of the
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transaction. Elan purchased from the Company, at the closing, $40.0 million in
issue price of Zero Coupon Convertible Senior Notes, due 2008 with an 8.0% per
annum yield to maturity. Elan may also purchase up to an additional $70.0
million of Notes which will be convertible into the Company's Common Stock at
$14.00 to $20.00 per share.
Upon the closing, Elan also licensed its proprietary product, Morphelan(TM) to
the Company in the U.S. and Canada. The Company agreed to pay certain upfront
license fees on the closing and milestones upon the occurrence of certain
events. Payments may be in cash or subject to certain conditions in the
Company's Common Stock or Notes.
The Company believes that its available cash, cash equivalents, marketable
securities and existing sources of funding will be adequate to satisfy its
anticipated capital requirements through 1999. The Company's future capital
requirements will depend on many factors, including 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.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, many companies' software and computer systems
may need to be upgraded or replaced in order to comply with such "Year 2000"
requirements. The impact of the Year 2000 issue may affect other systems that
utilize imbedded computer chip technology, including, but not limited to,
building controls, security systems or laboratory equipment. It may also impact
the ability to obtain products or services if the provider encounters and fails
to resolve "Year 2000" related problems.
The Company has established an active program to identify and resolve Year 2000
related issues. This program includes the review and assessment of information
technology and non-information technology systems, as well as third parties with
which the Company has a material relationship. This program consists of four
phases: inventory, risk assessment, problem validation, and problem resolution.
The inventory phase identified potential risks posed to the company. They
include, but are not limited to, computer software, computer hardware,
telecommunications systems, laboratory equipment, facilities systems (security,
environment control, alarm), service providers (contract research organizations,
consultants, product distribution), and other third parties. The risk assessment
phase categorized and prioritized each risk by potential impact to the
organization. The problem validation phase tests each potential risk, according
to priority, to determine if an action risk exists. In the case of critical
third parties this step will include a review of their Year 2000 plans and
activities. The problem resolution phase will, for each validated risk,
determine the method/strategy for alleviating the risk. It may include anything
from replacement of hardware or software to process modification to selection of
alternative vendors. This step also includes the development of contingency
plans. The Company initiated this program earlier in the year and is currently
working on the problem validation phase. It is expected that this phase will be
completed by the end of 1998 at which time contingency plans will be determined
and that the problem resolution phase will be completed by the end of the third
quarter in 1999.
To date, certain of the Company's internal information technology and
non-information technology systems have been identified as not being Year 2000
compliant. In addition, the Company utilizes critical third-party service
providers, for which full assessment of their Year 2000 compliance has not yet
been completed. This assessment is taking place as part of the current problem
validation phase. The Company is actively correcting problems as they are
identified. These corrections include the replacement of hardware and software
systems, the identification of alternative service providers, and the creation
of contingency plans. Current estimated cost of identified problems is
approximately $100,000 for hardware and software upgrades or modifications. In
addition it is estimated that approximately $400,000 of internal personnel costs
will be required to complete the remaining phases of the project. The Company
does not believe that the cost of these actions will have a material adverse
affect on the Company's business. It is expected that any problems identified in
the remaining phases of the project will be able to be resolved as part of
normal operating expenses.
A failure of the Company's internal computer systems or of third-party equipment
or software used by the Company, or of systems maintained by the Company's
suppliers, to be Year 2000 compliant may have a material adverse effect on the
Company's business. In addition, adverse changes in the purchasing patterns of
the Company's potential customers as a
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result of Year 2000 issues affecting such customers may have a material adverse
effect on the Company's business. These expenditures by potential customers may
result in reduced funds available to purchase the Company's products, which
could have a material adverse effect on the Company's business.
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RISKS AND UNCERTAINTIES
In addition to the other business information contained herein, the following
are among the factors that should also be considered carefully in evaluating
Ligand, its wholly-owned subsidiaries, Glycomed Inc., Seragen, Inc., Ligand
Pharmaceuticals (Canada) Incorporated and Allergan Ligand Retinoid Therapeutics,
Inc. ("Ligand" or the "Company") and its business.
Uncertainty of Product Development and Commercialization and Related Technology.
Ligand was founded in 1987 and has not generated any revenues from the sale of
products developed by Ligand or its collaborative partners. To achieve
profitable operations, the Company, alone or with others, must successfully
develop, clinically test, market and sell its products. Any products resulting
from the Company's or its collaborative partners' product development efforts
are not expected to be available for sale until the end of the year, if at all.
No assurance can be given that required regulatory approvals from the FDA or
equivalent foreign authorities for their intended indications or any other
indication with respect to ONTAK(TM), Panretin gel (alitretinoin) 0.1%,
Morphelan(TM), or any other potential products will be obtained in a timely
manner or at all. If any such approvals are not obtained, it could have a
material adverse effect on the Company's business.
The development of new pharmaceutical products is highly uncertain and subject
to a number of significant risks. Potential products that appear to be promising
at early stages of development may not reach the market for a number of reasons.
Such reasons include the possibilities that potential products are found during
preclinical testing or clinical trials to be ineffective or to cause harmful
side effects, that they fail to receive necessary regulatory approvals, are
difficult or uneconomical to manufacture on a large scale, fail to achieve
market acceptance or are precluded from commercialization by proprietary rights
of third parties. To date, Ligand's resources have been substantially dedicated
to the research and development of potential pharmaceutical products based upon
its expertise in IR and STATs technologies, while Seragen has concentrated its
efforts on potential pharmaceutical products based on its fusion protein
technology. Even though certain pharmaceutical products act through IRs, some
aspects of the Company's IR technologies have not been used to produce marketed
products. In addition, the Company is not aware of any drugs that have been
developed and successfully commercialized that interact directly with STATs.
Much remains to be learned about the location and function of IRs and STATs. The
Company expects that its potential products, ONTAK(TM) for cutaneous T-cell
lymphoma CTCL and Panretin gel for AIDS-related Kaposi's Sarcoma ("KS") will not
be available for commercial sale until the end of the year, if at all. Potential
products tested in preclinical trials may not be successful in human clinical
trials. Products currently in, or which in the future advance to, various phases
of human clinical trials may not prove to be efficacious, or unintended or
unacceptably high levels of toxic side effects may occur. Most of the Company's
potential products will require extensive additional development, including
preclinical testing and clinical trials, as well as regulatory approvals, prior
to commercialization. A number of factors may prevent successful
commercialization, including a failure of the Company's product development
efforts, failure to obtain required regulatory approvals from the FDA or
equivalent foreign authorities for any indication, failure to produce any
products, if introduced, in commercial quantities at reasonable costs or failure
to successfully market such products. Further, the Company has no sales and only
limited marketing capabilities outside Canada, and even if the Company's
products in internal development are approved for marketing, the Company may not
be able to develop such capabilities or successfully market such products.
Uncertainties Related to Regulatory Review of ONTAK(TM) and Panretin Gel. In
December 1997, Seragen submitted a Biologic License Application ("BLA") to the
FDA requesting clearance to market its lead molecule, ONTAK(TM), for the
treatment of patients with advanced CTCL who have received previous treatment
with other agents. In May 1998, Ligand announced the submission of a New Drug
Application ("NDA") to the FDA for Panretin gel (altitretinoin) 0.1% for the
treatment of AIDS-related KS and was granted priority review by the FDA in July,
1998. Panretin gel will be reviewed by the Oncologic Drug Advisory Committee
("ODAC") on November 16, 1998.
On June 2, 1998, Ligand and Seragen announced that ODAC had voted favorably on
questions put to it by the FDA regarding the efficacy of, and the acceptability
of the incidence and severity of toxicity associated with, ONTAK(TM) for the
treatment of patients with recurrent or persistent CTCL. ODAC also recommended
that treating physicians should decide the appropriate doses within a prescribed
dose range. ODAC's votes, although not binding, will be considered by the FDA in
its review of the BLA.
On June 9, 1998, the FDA issued a Complete Review Letter to Seragen in respect
to its BLA. The Center for Biologics Evaluation and Research ("CBER"), the
division of the FDA responsible for reviewing Seragen's application, no longer
issues so-called "approvable" or "non-approvable" letters at the conclusion of
their formal review of license applications
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when the action is not an approval. Instead, the CBER issues letters signifying
that a complete review of all information and data submitted has been carried
out. Per the CBER's January 22, 1998 correspondence to applicants, a complete
review letter "summarizes all of the deficiencies and describes actions
necessary to place the application in a condition for approval."
The Complete Review Letter fulfills the FDA's commitment under the Prescription
Drug User Fee Act to a six-month review of the BLA, which was designated for
priority review. Upon the issuance of the Complete Review Letter, the review
clock was suspended with respect to the BLA and will not be reactivated until
all deficiencies have been addressed by Seragen.
The Complete Review Letter identified certain deficiencies in the BLA related to
safety, efficacy, manufacturing and product characterization. Seragen believes
it addressed and responded to the issues set out in the Complete Review Letter
and is awaiting final FDA action.
The short-term future financial results of the Company and the price of the
Company's Common Stock will be highly dependent on the timely receipt of
regulatory approvals required to market these products in the United States and
other jurisdictions and the subsequent successful commercial introduction of
such products. Any failure to obtain required regulatory approvals on a timely
basis could have a material adverse effect on the Company and a significant
impact on the trading price of the Company's Common Stock. Generally, only a
small percentage of new pharmaceutical products are approved for sale. Moreover,
if regulatory approval of a product is granted, the approval may limit the
indicated uses for which the product may be marketed. Such regulatory approvals
may be conditioned upon the performance of additional clinical trials or other
requirements established by the regulatory authorities. Even if regulatory
approval is obtained, a marketed product and its manufacturer are subject to
continual review. Discovery of previously unknown problems with a product or
manufacturer may result in restrictions on the use of the product or its
manufacturer, including withdrawal of the product from market. Also, prior to
marketing, the Company will be required to finalize labeling requirements and
satisfy the regulatory authorities that all manufacturing facilities meet
regulatory requirements.
History of Operating Losses; Accumulated Deficit; Future Capital Needs;
Uncertainty of Additional Funding. Ligand has experienced significant operating
losses since its inception in 1987. As of September 30, 1998, Ligand had an
accumulated deficit of approximately $355.0 million. To date, substantially all
of Ligand's revenues have consisted of amounts received under collaborative
arrangements. The Company expects to incur additional losses due to continued
requirements for research and development, preclinical testing, clinical trials,
regulatory activities, establishment of manufacturing processes and sales and
marketing capabilities.
The discovery, development and commercialization of products will require the
commitment of substantial resources to conduct research, preclinical testing and
clinical trials, to establish pilot scale and commercial scale manufacturing
processes and facilities, and to establish and develop quality control,
regulatory, marketing, sales and administrative capabilities. The future capital
requirements of the Company will depend on many factors, including the pace of
scientific progress in its 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 existing collaborations, the
cost of manufacturing scale-up and the effectiveness of the Company's
commercialization activities. To date, Ligand has not generated any revenue from
the sales of products developed by Ligand or its collaborative partners. Ligand
may not be able to, independently or through its collaborations, successfully
develop, manufacture or market any products or ever achieve or sustain revenues
or profitability from the commercialization of such products. Moreover, even if
profitability is achieved, the level of that profitability cannot be accurately
predicted. Ligand expects that operating results will fluctuate from quarter to
quarter as a result of differences in the timing of expenses incurred and the
revenues received from collaborative arrangements and other sources. Some of
these fluctuations may be significant. The Company believes that its available
cash, cash equivalents, marketable securities and existing sources of funding
will be adequate to satisfy its anticipated capital requirements through 1999.
Glycomed's outstanding indebtedness includes $50.0 million principal amount of
7 1/2% Convertible Subordinated Debentures Due 2003 (the "Debentures"). Glycomed
may not have the funds necessary to pay the interest on and the principal of the
Debentures or, if not, that it will be able to refinance the Debentures when
due. If Glycomed does not have such funds, it will be forced to refinance the
Debentures and may not be successful in doing so. In November 1998,
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Ligand issued $40.0 million in issue price of Notes to Elan. Failure to make
payments when due under the Debentures would trigger an event of default under
the Notes.
The Company has incurred negative cash flow from operations since inception and
does not expect to generate positive cash flow to fund its operations for at
least the next year. As a result, additional equity or debt financings may be
required in the near future to fund the Company's operations. Additional equity
or debt financings may not be available on acceptable terms, if at all. In
addition, such financings, if consummated, may not be adequate to meet the
Company's capital requirements. Any additional equity or convertible debt
financings could result in substantial dilution to Ligand's stockholders. For
instance, the Notes are convertible into Common Stock at the option of Elan. If
adequate funds are not available, the Company may be required to delay, reduce
the scope of or eliminate one or more of their drug development programs or
attempt to continue development by entering into arrangements with collaborative
partners or others that may require the Company to relinquish some or all of its
rights to certain technologies or drug candidates that the Company would not
otherwise relinquish. Any inability of the Company to obtain additional
financing or of the Company or Glycomed to service its obligations under
outstanding indebtedness could have a material adverse effect on the Company's
business.
Uncertainties Related to Clinical Trials. Before obtaining required regulatory
approvals for the commercial sale of each product under development, the Company
and its collaborators must demonstrate through preclinical studies and clinical
trials that such product is safe and efficacious for use. The results of
preclinical studies and initial clinical trials are not necessarily predictive
of results that will be obtained from large-scale clinical trials. Clinical
trials of any product under development may not demonstrate the safety and
efficacy of a product to the satisfaction of the regulatory authorities, or at
all, or may not result in a marketable product. The safety and efficacy of a
therapeutic product under development by the Company must be supported by
extensive data from clinical trials. A number of companies have suffered
significant setbacks in advanced clinical trials, despite promising results in
earlier trials. The failure to demonstrate adequately the safety and efficacy of
a therapeutic drug under development would delay or prevent regulatory approval
of the product and could have a material adverse effect on the Company's
business. In addition, the FDA may require additional clinical trials, which
could result in increased costs and significant development delays.
The rate of completion of clinical trials of the Company's potential products is
dependent upon, among other factors, obtaining adequate clinical supplies and
the rate of patient accrual. Patient accrual is a function of many factors,
including the size of the patient population, the proximity of patients to
clinical sites and the eligibility criteria for the trial. Delays in planned
patient enrollment in clinical trials may result in increased costs, program
delays or both, which could have a material adverse effect on the Company's
business. In addition, some of the Company's current collaborative partners have
certain rights to control the planning and execution of product development and
clinical programs. These may impede the Company's ability to conduct such
programs in accordance with the schedules and in the manner currently
contemplated by the Company for such programs. There can be no assurance that,
if clinical trials are completed, the Company or its collaborative partners will
submit an NDA or BLA with respect to any potential products or that any such
application will be reviewed and approved by the FDA in a timely manner, if at
all.
Reliance on Collaborative Relationships. The Company's strategy for the
development, clinical testing, manufacturing and commercialization of certain of
its potential products includes entering into collaborations with corporate
partners, licensors, licensees and others. To date, Ligand has entered into drug
discovery and development collaborations with Lilly, SmithKline Beecham, AHP,
Abbott, Sankyo, Glaxo, Allergan and Pfizer Inc. These collaborations provide
Ligand with funding and research and development resources for potential
products for the treatment or control of metabolic diseases, hematopoiesis,
women's health disorders, inflammation, cardiovascular disease, cancer and skin
disease, and osteoporosis, respectively. The Company's collaborative agreements
allow its collaborative partners significant discretion in electing to pursue or
not to pursue any development program. The Company's collaborations may not
continue and may not be successful. In addition, Ligand's collaborators may not
pursue alternative technologies either on their own or in collaboration with
others as a means of developing drugs competitive with the types of drugs
currently being developed in collaboration with Ligand, and any such action may
result in the withdrawal of support and increased competition for the Company's
programs. In addition, if products are approved for marketing under these
programs, any revenues to Ligand from these products will be dependent on the
manufacturing, marketing and sales efforts of its collaborators, which generally
retain commercialization rights under the collaborative agreements. Ligand's
current collaborators also generally have the right to terminate their
respective collaborations under certain circumstances. If any of the Company's
collaborative partners were to breach or terminate its agreements with the
Company or otherwise fail to conduct its collaborative activities successfully,
the development of the Company's products under such agreements would be delayed
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or terminated. The delay or termination of any of the collaborations could have
a material adverse effect on the Company's business.
There can be no assurance that disputes will not arise in the future with
Ligand's collaborators, including with respect to the ownership of rights to any
technology developed. For example, the Company was involved in litigation with
Pfizer, which was settled in April 1996, with respect to Ligand's rights to
receive milestones and royalties based on the development and commercialization
of droloxifene. These and other possible disagreements between collaborators and
the Company could lead to delays in the achievement of milestones or receipt of
milestone payments or research revenue, to delays or interruptions in, or
termination of, collaborative research, development and commercialization of
certain potential products, or could require or result in litigation or
arbitration, which could be time consuming and expensive and could have a
material adverse effect on the Company's business.
Uncertainty of Patent Protection; Dependence on Proprietary Technology. The
patent positions of pharmaceutical and biopharmaceutical firms, including
Ligand, are uncertain and involve complex legal and technical questions for
which important legal principles are largely unresolved. In addition, the
coverage sought in a patent application can be significantly reduced before or
after a patent is issued. This uncertain situation is also affected by revisions
to the United States patent law adopted in recent years to give effect to
international accords to which the United States has become a party. The extent
to which such changes in law will affect the operations of Ligand cannot be
ascertained. In addition, there is currently pending before Congress legislation
providing for other changes to the patent law which may adversely affect
pharmaceutical and biopharmaceutical firms. If such pending legislation is
adopted, the extent to which such changes would affect the operations of the
Company cannot be ascertained.
Ligand's success will depend in part on its ability to obtain patent protection
for its technology both in the United States and other countries. A number of
pharmaceutical and biotechnology companies and research and academic
institutions have developed technologies, filed patent applications or received
patents on various technologies that may be related to Ligand's business. Some
of these patent applications, patents or technologies may conflict with Ligand's
technologies or patent applications. Any such conflict could limit the scope of
the patents, if any, that Ligand may be able to obtain or result in the denial
of Ligand's patent applications. In addition, if patents that cover Ligand's
activities are issued to other companies, Ligand may not able to obtain licenses
to such patents at a reasonable cost, if at all, or be able to develop or obtain
alternative technology. The Company has from time to time had, continues to have
and may have in the future discussions with its current and potential
collaborators regarding the scope and validity of the Company's patent and other
proprietary rights to its technologies, including the Company's co-transfection
assay. If a collaborator or other party were successful in having substantial
patent rights of the Company determined to be invalid, it could adversely affect
the ability of the Company to retain existing collaborations beyond their
expiration or could where contractually permitted, encourage their termination.
Such a determination could also adversely affect the Company's ability to enter
into new collaborations. If any disputes should arise in the future with respect
to the rights in any technology developed with a collaborator or with respect to
other matters involving the collaboration, there could be delays in the
achievement of milestones or receipt of milestone payments or research revenues,
or interruptions or termination of collaborative research, development and
commercialization of certain potential products, and litigation or arbitration
could result. Any of the foregoing matters could be time consuming and expensive
and could have a material adverse effect on the Company.
Ligand owns or has exclusive rights to more than 130 currently pending patent
applications in the United States relating to Ligand's technology, as well as
foreign counterparts of certain of these applications in many countries. Patents
may not be issued from any of these applications or, if patents do issue,
sufficient claims to protect Ligand's technology may not be allowed. In
addition, Ligand is the owner or exclusive licensee of rights covered by
approximately 290 worldwide patents issued or allowed to it or to The Salk
Institute of Biological Studies ("The Salk Institute"), Baylor College of
Medicine ("Baylor") and other licensors. Further, patents issued to Ligand or to
licensors of Ligand's technology may be challenged, invalidated, circumvented or
rendered unenforceable based on, among other things, subsequently discovered
prior art, lack of entitlement to the priority of an earlier, related
application, or failure to comply with the written description, best mode,
enablement or other applicable requirements. In addition, rights granted under
any such patents may not provide significant proprietary protection or
commercial advantage to Ligand. The invalidation, circumvention or
unenforceability of any of Ligand's patent protection could have a material
adverse effect on the Company' business.
The commercial success of Ligand will also depend in part on Ligand's not
infringing patents issued to competitors and not breaching technology licenses
that cover technology used in Ligand's products. It is uncertain whether any
third-party patents will require Ligand to develop alternative technology or to
alter its products or processes, obtain licenses or cease
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certain activities. If any such licenses are required, there can be no assurance
that Ligand will be able to obtain such licenses on commercially favorable
terms, if at all. Failure by Ligand to obtain a license to any technology that
it may require to commercialize its products could have a material adverse
effect on Ligand's business. Litigation, which could result in substantial cost
to Ligand, may also be necessary to enforce any patents issued or licensed to
Ligand or to determine the scope and validity of third-party proprietary rights.
There can be no assurance that Ligand's patents or those of its licensors, if
issued, would be held valid by a court or that a competitor's technology or
product would be found to infringe such patents. If any of its competitors have
filed patent applications in the United States which claim technology also
invented by Ligand, Ligand may be required to participate in interference
proceedings declared by the U.S. Patent and Trademark Office ("PTO") in order to
determine priority of invention and, thus, the right to a patent for the
technology, which could result in substantial cost to Ligand to determine its
rights.
Ligand has learned that a United States patent has been issued to, and foreign
counterparts have been filed by, Hoffman LaRoche ("Roche") that include claims
to a formulation of 9-cis-Retinoic acid (Panretin) and use of that compound to
treat epithelial cancers. Ligand had previously filed an application which has
an earlier filing date than the Roche patent and which has claims that the
Company believes are broader than but overlap in part with claims under the
Roche patent. Ligand is currently investigating the scope and validity of this
patent to determine its impact upon the Panretin capsules and gel products. The
PTO has informed Ligand that the overlapping claims are patentable to Ligand and
initiated an interference proceeding to determine whether Ligand or Roche is
entitled to a patent by having been first to invent the common subject matter.
The Company cannot be assured of a favorable outcome in the interference
proceeding because of factors not known at this time upon which the outcome may
depend. In addition, the interference proceeding may delay the decision of the
PTO regarding the Company's application with claims covering the Panretin
capsules and gel products. While the Company believes that the Roche patent does
not cover the use of Panretin capsules and gel to treat leukemias such as APL
and sarcomas such as KS, or the treatment of skin diseases such as psoriasis, if
the Company does not prevail in the interference proceeding, the Roche patent
might block the Company's use of Panretin capsules and gel in certain cancers,
and the Company may not be able to obtain patent protection for the Panretin
capsules and gel products.
Ligand also relies upon trade secrets, know-how, continuing technological
innovations and licensing opportunities to develop and maintain its competitive
position. There can be no assurance that others will not independently develop
substantially equivalent proprietary information or otherwise gain access to or
disclose such information regarding Ligand. It is Ligand's policy to require its
employees, certain contractors, consultants, members of its Scientific Advisory
Board and parties to collaborative agreements to execute confidentiality
agreements upon the commencement of employment or consulting relationships or a
collaboration with Ligand. These agreements may be breached by the other parties
to the agreements, or they may not provide meaningful protection of Ligand's
trade secrets or adequate remedies in the event of unauthorized use or
disclosure of such information. As a result of these and other factors Ligand's
trade secrets may become known or be independently discovered by its
competitors.
Lack of Manufacturing Capability; Reliance on Third-Party Manufacturers. Ligand
currently has no manufacturing facilities and, accordingly, relies on third
parties including Marathon and its collaborative partners, for clinical or
commercial production of any compounds under consideration as products. Ligand
is currently constructing and validating a cGMP pilot manufacturing capability
in order to produce sufficient quantities of products for preclinical testing
and initial clinical trials. If Ligand is unable to develop or contract on
acceptable terms for manufacturing services, Ligand's ability to conduct
preclinical testing and human clinical trials will be adversely affected,
resulting in the delay of submission of products for regulatory approval and
delay of initiation of new development programs, which in turn could materially
impair Ligand's competitive position. Although drugs acting through IRs and
STATs have been manufactured on a commercial scale by other companies, there can
be no assurance that Ligand will be able to manufacture its products on a
commercial scale or that such products can be manufactured by Ligand or any
other party on behalf of Ligand at costs or in quantities to make commercially
viable products.
Under a Service Agreement which expires January 31, 1999, Seragen depends on
Marathon's ability to provide certain services relating to product research,
development, manufacturing, clinical trials, quality control and quality
assurance. The Marathon employees providing such services are comprised
primarily of former employees of Seragen. In addition, neither Seragen nor
Marathon, have ever engaged in large-scale manufacturing.
Limited Sales and Marketing Capability. The creation of infrastructure to
commercialize pharmaceutical products is a difficult, expensive and
time-consuming process. Ligand currently has no sales and only limited marketing
capability outside Canada. In Canada, Ligand has been appointed as the sole
distributor of two oncology products, Proleukin, which
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was developed by Cetus Oncology Corporation and PHOTOFRIN, which was developed
by QLT PhotoTherapeutics, Inc. To market any of its products directly, the
Company will need to develop a marketing and sales force with technical
expertise and distribution capability or contract with other pharmaceutical
and/or health care companies with distribution systems and direct sales forces.
The Company may not be able to establish direct or indirect sales and
distribution capabilities or may not be successful in gaining market acceptance
for proprietary products or for other products. To the extent the Company enters
into co-promotion or other licensing arrangements, any revenues received by the
Company will be dependent on the efforts of third parties, and there can be no
assurance that any such efforts will be successful.
Substantial Competition; Risk of Technological Obsolescence. Some of the drugs
which Ligand is developing will compete with existing therapies. In addition, a
number of companies are pursuing the development of novel pharmaceuticals which
target the same diseases that Ligand is targeting as well as IR-related and
STAT-related approaches to drug discovery and development. Many of Ligand's
existing or potential competitors, particularly large pharmaceutical companies,
have substantially greater financial, technical and human resources than Ligand
and may be better equipped to develop, manufacture and market products. In
addition, many of these companies have extensive experience in preclinical
testing and human clinical trials, obtaining FDA and other regulatory approvals
and manufacturing and marketing pharmaceutical products. Academic institutions,
governmental agencies and other public and private research organizations are
conducting research to develop technologies and products that may compete with
those under development by the Company. These institutions are becoming
increasingly aware of the commercial value of their findings and are becoming
more active in seeking patent protection and licensing arrangements to collect
royalties for the use of technology that they have developed. These institutions
also may market competitive commercial products on their own or through joint
ventures and will compete with the Company in recruiting highly qualified
scientific personnel. Any of these companies, academic institutions, government
agencies or research organizations may develop and introduce products and
processes competitive with or superior to those of Ligand. The development by
others of new treatment methods for those indications for which Ligand is
developing products could render Ligand's products noncompetitive or obsolete.
Ligand's products under development target a broad range of markets. Ligand's
competition will be determined in part by the potential indications for which
Ligand's products are developed and ultimately approved by regulatory
authorities. For certain of Ligand's potential products, an important factor in
competition may be the timing of market introduction of Ligand's or competitors'
products. Accordingly, the relative speed at which Ligand or its existing or
future corporate partners can develop products, complete the clinical trials and
regulatory approval processes, and supply commercial quantities of the products
to the market is expected to be an important competitive factor. Ligand expects
that competition among products approved for sale will be based, among other
things, on product efficacy, safety, reliability, availability, price and patent
position.
Ligand's competitive position also depends upon its ability to attract and
retain qualified personnel, obtain patent protection or otherwise develop
proprietary products or processes, and secure sufficient capital resources.
Extensive Government Regulation; No Assurance of Regulatory Approval. The
manufacturing and marketing of Ligand's products and its ongoing research and
development activities are subject to and regulation for safety and efficacy by
numerous governmental authorities in the United States and other countries.
Prior to marketing, any drug developed by the Company must undergo rigorous
preclinical and clinical testing and an extensive regulatory approval process
mandated by the FDA and equivalent foreign authorities. These processes can take
a number of years and require the expenditure of substantial resources.
The time required for completing such testing and obtaining such approvals is
uncertain, and there is no assurance that any such approval will be obtained.
The Company or its collaborative partners may decide to replace a compound in
testing with a modified or optimized compound, thus extending the test period.
In addition, delays or rejections may be encountered based upon changes in FDA
policy during the period of product development and FDA review of each submitted
new drug application or product license application. Similar delays may also be
encountered in other countries. There can be no assurance that even after such
time and expenditures, regulatory approval will be obtained for any products
developed by the Company. Moreover, prior to receiving FDA or equivalent foreign
authority approval to market its products, the Company may be required to
demonstrate that its products represent improved forms of treatment over
existing therapies. If regulatory approval of a product is granted, such
approval may entail limitations on the indicated uses for which the product may
be marketed. Further, even if such regulatory approval is obtained, a marketed
product, its manufacturer and its manufacturing facilities are subject to
continual review and periodic inspections, and subsequent
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discovery of previously unknown problems with a product, manufacturer or
facility may result in restrictions on such product or manufacturer, including
withdrawal of the product from the market.
Dependence on Third-Party Reimbursement and Health Care Reform. Ligand's
commercial success will be heavily dependent upon the availability of
reimbursement for the use of any products developed by the Company or its
collaborative partners. There can be no assurance that Medicare and third-party
payors will authorize or otherwise budget reimbursement for the prescription of
any of Ligand's potential products. Additionally, third-party payors, including
Medicare, are increasingly challenging the prices charged for medical products
and services and may require additional cost-benefit analysis data from the
Company in order to demonstrate the cost-effectiveness of its products. There
can be no assurance that the Company will be able to provide such data in order
to gain market acceptance of its products with respect to pricing and
reimbursement.
In the United States, the Company expects that there will continue to be a
number of federal and state proposals to implement government control of pricing
and profitability of prescription pharmaceuticals. In addition, increasing
emphasis on managed health care will continue to put pressure on such pricing.
Cost control initiatives could decrease the price that the Company or any of its
collaborative partners or other licensees receives for any drugs it or they may
discover or develop in the future and, by preventing the recovery of development
costs, which could be substantial, and an appropriate profit margin, could have
a material adverse effect on the Company. Further, to the extent that cost
control initiatives have a material adverse effect on the Company's
collaborative partners, the Company's ability to commercialize its products and
to realize royalties may be adversely affected. Furthermore, federal and state
regulations govern or influence the reimbursement to health care providers of
fees and capital equipment costs in connection with medical treatment of certain
patients. If any actions are taken by federal and/or state governments, such
actions could adversely affect the prospects for sales of the Company's
products. There can be no assurance that action taken by federal and/or state
governments, if any, with regard to health care reform will not have a material
adverse effect on the Company.
Product Liability and Insurance Risks. Ligand's business exposes it to potential
product liability risks which are inherent in the testing, manufacturing and
marketing of human therapeutic products. Certain of the compounds the Company is
investigating could be injurious to humans. For example, retinoids as a class
are known to contain compounds which can cause birth defects. Ligand currently
has limited product liability insurance; however, there can be no assurance that
Ligand will be able to maintain such insurance on acceptable terms or that such
insurance will provide adequate coverage against potential liabilities. The
Company expects to procure additional insurance when its products progress to a
later stage of development and if any rights to later-stage products are
in-licensed in the future. To the extent that product liability insurance, if
available, does not cover potential claims, the Company will be required to
self-insure the risks associated with such claims. A successful product
liability claim or series of claims brought against the Company could have a
material adverse effect on the Company's business.
Dependence on Key Employees. Ligand is highly dependent on the principal members
of its scientific and management staff, the loss of whose services might impede
the achievement of development objectives. Furthermore, Ligand is currently
experiencing a period of rapid growth which requires the hiring of significant
numbers of scientific, management and operational personnel. Accordingly,
recruiting and retaining qualified management, operations and scientific
personnel to perform research and development work in the future will also be
critical to Ligand's success. Although Ligand believes it will be successful in
attracting and retaining skilled and experienced management, operational and
scientific personnel, there can be no assurance that Ligand will be able to
attract and retain such personnel on acceptable terms given the competition
among numerous pharmaceutical and biotechnology companies, universities and
other research institutions for such personnel.
Use of Hazardous Materials. Ligand's research and development involves the
controlled use of hazardous materials, chemicals and various radioactive
compounds. For example, retinoids as a class are known to contain compounds
which can cause birth defects. Although the Company believes that its current
safety procedures for handling and disposing of such materials, chemicals and
compounds comply with the standards prescribed by state and federal regulations,
the risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of any accident, the Company could be held
liable for any damages that result and any such liability could be significant.
The Company may incur substantial costs to comply with environmental
regulations. Any such event could have a material adverse effect on the
Company's business.
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Volatility of Stock Price. The market prices and trading volumes for securities
of emerging companies, like Ligand, have historically been highly volatile and
have experienced significant fluctuations unrelated to the operating performance
of such companies. Future announcements concerning the Company or its
competitors may have a significant impact on the market price of the Common
Stock. Such announcements might include the results of research, development
testing, technological innovations, new commercial products, government
regulation, receipt of regulatory approvals by competitors, failure to receive
regulatory approvals by Ligand, developments concerning proprietary rights,
litigation or public concern as to the safety of the products.
Absence of Cash Dividends. No cash dividends have been paid on the Company's
Common Stock to date, and Ligand does not anticipate paying cash dividends in
the foreseeable future.
Effect of Shareholder Rights Plan and Certain Anti-Takeover Provisions. In
September 1996, the Company's Board of Directors adopted a preferred shares
rights plan (the "Shareholder Rights Plan") which provides for a dividend
distribution of one preferred share purchase right (a "Right") on each
outstanding share of the Company's Common Stock. Each Right entitles
stockholders to buy 1/1000th of a share of Ligand Series A Participating
Preferred Stock at an exercise price of $100, subject to adjustment. The Rights
will become exercisable following the tenth day after a person or group
announces acquisition of 20% or more of the Company's Common Stock, or announces
commencement of a tender offer, the consummation of which would result in
ownership by the person or group of 20% or more of the Company's Common Stock.
The Company will be entitled to redeem the Rights at $0.01 per Right at any time
on or before the earlier of the tenth day following acquisition by a person or
group of 20% or more of the Company's Common Stock and September 13, 2006. In
connection with the Elan transactions, the Company amended the Shareholder
Rights Plan to exclude Elan's ownership of Ligand securities, in certain
circumstances, from the operation of the plan.
Ligand's Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") includes a provision that requires the approval of the holders
of 66 2/3% of Ligand's voting stock as a condition to a merger or certain other
business transactions with, or proposed by, a holder of 15% or more of Ligand's
voting stock, except in cases where certain directors approve the transaction or
certain minimum price criteria and other procedural requirements are met (the
"Fair Price Provision"). The Certificate of Incorporation also requires that any
action required or permitted to be taken by stockholders of Ligand must be
effected at a duly called annual or special meeting of stockholders and may not
be effected by any consent in writing. In addition, special meetings of the
stockholders of Ligand may be called only by the Board of Directors, the
Chairman of the Board or the President of Ligand or by any person or persons
holding shares representing at least 10% of the outstanding Common Stock of the
Company. The Shareholder Rights Plan, the Fair Price Provision and other charter
provisions may discourage certain types of transactions involving an actual or
potential change in control of Ligand, including transactions in which the
stockholders might otherwise receive a premium for their shares over then
current market prices, and may limit the ability of the stockholders to approve
transactions that they may deem to be in their best interests. In addition, the
Board of Directors has the authority to fix the rights and preferences of and
issue shares of preferred stock, which may have the effect of delaying or
preventing a change in control of Ligand without action by the stockholders.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On November 9, 1998 (the "Closing"), the Company completed the issuance and sale
of an aggregate of 2,145,923 shares of the Company's Common Stock (the "Shares")
to an affiliate of Elan, a non-U.S. entity (the "Investor"). The Shares were
issued pursuant to a stock purchase agreement at $11.65 per Share. 1,716,738 of
the Shares, representing an aggregate consideration of $20.0 million, were paid
by the Investor in cash. The remaining 429,185 Shares, representing an aggregate
consideration of $5.0 million, were issued by the Company for payment of certain
licensing fees. There were no underwriting discounts or commissions. On the
Closing, the Investor also purchased from the Company $40.0 million in issue
price of Zero Coupon Convertible Senior Notes, due 2008 with an 8.0% per annum
yield to maturity (the "Notes"), pursuant to a securities purchase agreement. Of
these Notes, $30.0 million are convertible into the Company's Common Stock at
$14.00 per share and the balance of $10 million are convertible into the
Company's Common Stock at a price which is the average of the closing prices of
the Company's Common Stock for the 20 trading days immediately prior to the
issuance of the Notes, plus a premium; however, in no event will the conversion
price be less than $14.00 per share or more than $20.00 per share. The Company
received $30.0 million in cash under the Notes. The remaining $10.0 million in
Notes were issued by the Company for payment of certain licensing fees. There
were no underwriting discounts or commissions.
The offers and sales of the Shares and the Notes to the Investor were made
pursuant to a claim of exemption under Regulation S promulgated by the
Securities and Exchange Commission. The sales of the Shares and the Notes to the
Investor were made in "Offshore Transactions" (as defined in Regulation S) and
no "Directed Selling Efforts" (as defined in Regulation S) were made by the
Company or any of its affiliates. The Investor represented and warranted among
other things, that it was not a "U.S. Persons" (as defined in Regulation S), and
that it was purchasing the Shares and the Notes for investment only and not with
a view to distribution. Appropriate legends in compliance with Regulation S were
affixed to the certificates for the Shares and the Notes. In addition, the
Company did not use any general advertisement or solicitation in connection with
the offer or sale of the Shares or the Notes to the Investor.
ITEM 5. OTHER INFORMATION
The information set forth in Item 2, Part II is hereby incorporated by
reference.
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ITEM 6. (A) EXHIBITS
Exhibit 3.1(1) Amended and Restated Certificate of Incorporation of the
Company (filed as Exhibit 3.2).
Exhibit 3.2(1) Bylaws of the Company, as amended (filed as Exhibit 3.3).
Exhibit 3.3(2) Certificate of Designation of Rights, Preferences and
Privileges of Series A Participating Preferred Stock of Ligand
Pharmaceuticals Incorporated (Exhibit 3.1).
Exhibit 10.1 Secured Promissory Note, dated March 7, 1997, in the face
amount of $3,650,000, payable to the Company by Nexus Equity
VI LLC.
Exhibit 10.2 Amended memorandum of Lease effective March 7, 1997, between
the Company and Nexus Equity VI LLC.
Exhibit 10.3 First Amendment to Lease, dated March 7, 1997, between the
Company and Nexus Equity VI LLC.
Exhibit 10.4 First Amendment to secured Promissory Note, dated March 7,
1997, payable to the Nexus Equity VI LLC.
Exhibit 10.5* Letter of Agreement dated September 28, 1998 among the
Company, Elan Corporation, plc and Elan International
Services, Ltd.
Exhibit 10.6* Stock Purchase Agreement dated September 30, 1998 between the
Company and Elan International Services, Ltd.
Exhibit 10.7 Tenth Addendum to Registration Rights Agreement dated
September 30, 1998 between the Company and Elan International
Services Ltd.
Exhibit 27.1 Financial Data Schedule
(1) These exhibit was previously filed as part of, and are hereby incorporated
by reference to the numbered exhibit filed with, the Registration Statement on
Form S-4 (No. 33-90160) filed on March 9, 1995, as amended.
(2) This exhibit was previously filed as part of, and is hereby incorporated
by reference to the numbered exhibit filed with, the Registration Statement on
Form S-1/S-3 (No. 33-87598 and 33-87600) filed on December 20, 1994, as amended.
* Certain confidential portions of these Exhibits were omitted by means of
marking such portions with an asterisk (the "Mark"). These Exhibits have been
filed separately with the Secretary of the Commission without the Mark pursuant
to the Company's Application Requesting Confidential Treatment under Rule 24b-2
of the Securities Exchange Act of 1934.
ITEM 6. (B) REPORTS ON FORMS 8-K
The Company filed a Report on Form 8-K on August 25, 1998
relating to the Seragen Merger transaction.
The Company filed a Report on Form 8-K/A on September 25, 1998
relating to the Seragen Merger transaction.
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LIGAND PHARMACEUTICALS INCORPORATED
September 30, 1998
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: November 16, 1998 By /s/ PAUL V. MAIER
-------------------------------
Paul V. Maier
Senior Vice President and Chief
Financial Officer
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