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1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
MARK ONE
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD COMMISSION FILE NUMBER: 0-20720
FROM ______ TO _______ .
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.)
9393 TOWNE CENTRE DRIVE 92121
SAN DIEGO, CA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (619) 535-3900
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Registrant's voting stock held by
non-affiliates as of February 28, l997 was $341,654,552. For purposes of this
calculation, shares of Common Stock held by directors, officers and 5%
stockholders known to Registrant have been deemed to be owned by affiliates.
As of February 28,1997 the registrant had 32,017,640 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement to be filed not later than 120 days
after December 31, 1996, in connection with the Registrant's 1997 Annual Meeting
of Stockholders, referred to herein as the "Proxy Statement", are incorporated
by reference into Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS
The discussion of the Company's business contained in this Annual
Report on Form 10-K may contain certain projections, 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
Ligand Pharmaceuticals Incorporated ("Ligand" or the "Company"), a
Delaware corporation, is a biopharmaceutical company and a leader in the
discovery and development of small-molecule drugs which mimic or block the
activities of various hormones and cytokines to regulate gene activity and the
genetic processes affecting many diseases. The Company's drug discovery and
development programs are based on its proprietary technologies involving two
natural mechanisms that regulate gene activity: (i) hormone-activated
Intracellular Receptors ("IRs") and (ii) cytokine-activated Signal Transducers
and Activators of Transcription ("STATs"). IRs play key roles in many disease
processes, including certain cancers, disorders of women's health,
cardiovascular diseases, metabolic diseases, inflammatory disorders and skin
diseases. Similarly, STATs influence many biological processes, including
cancer, metabolic diseases, inflammation and blood cell formation. In programs
acquired with the Glycomed Incorporated ("Glycomed") and Ligand merger in May
1995 ("the Merger"), Ligand is also seeking to develop orally active drugs to
modulate biological processes involving complex carbohydrates and other cell
surface components for the treatment of inflammation and cancer.
Ligand is developing new drugs through a combination of internal and
collaborative programs, including the formation of a new research and
development company, Allergan Ligand Retinoid Therapeutics, Inc. ("ALRT") with
Allergan, Inc. ("Allergan") and substantial collaborations with SmithKline
Beecham Corporation ("SmithKline Beecham"), American Home Products ("AHP"),
Abbott Laboratories ("Abbott"), Glaxo-Wellcome plc (formerly Glaxo, Inc.)
("Glaxo"), and Sankyo Company, Ltd. ("Sankyo"). Ligand has initiated human
clinical trials for five products: the retinoids Oral Panretin(TM) (ALRT1057),
Topical Panretin (ALRT1057) and Oral ALRT 1550 on behalf of ALRT, and a
combination of Oral Targretin(TM) (LGD1069) and Topical Targretin (LGD1069),
which are Ligand's first products. Ligand also has 24 non-retinoid lead
compounds in various stages of development, including a three compound series
being developed by AHP, as well as two compounds which are now under development
by Pfizer Inc ("Pfizer"). One is a preclinical osteoporosis development
candidate; the other is an advanced clinical compound for breast cancer and
osteoporosis.
IRs are members of a family of hormone-activated proteins that act
inside the cell to directly regulate gene expression and cellular function.
Although the effectiveness of IRs as drug targets has been demonstrated by drugs
acting through IRs already on the market, such as retinoids (e.g., Retin-A(R)
for acne and psoriasis) and sex steroid modulators (e.g., estrogens and
progesterones for hormone replacement therapy and contraception, tamoxifen for
breast cancer, flutamide for prostate cancer), the utility of these
first-generation drugs has been limited by their often significant side effects.
STATs are a recently discovered family of proteins that act inside cells to
regulate gene expression in response to various cytokines such as interferons,
interleukins and hematopoietic growth factors. Imbalances in the activity of
these cytokines can lead to various pathological conditions, such as
inflamation. While certain recombinant cytokines and other proteins which bind
to cell surface receptors have proven to have clinical utility in the treatment
of disease, they must be administered by injection and can be difficult to
manufacture.
Ligand and its exclusive academic collaborators have been leaders in
advancing the understanding of the activities of hormones and hormone-related
drugs and have made major scientific discoveries relating to IR and STATs
technologies. Ligand believes that its expertise in these technologies will
enable the Company to develop novel small-molecule pharmaceutical products
acting through IRs or STATs with more target-specific properties than currently
available products, resulting in either improved therapeutic and side effect
profiles and new indications for IRs or novel mechanisms of action and oral
bioavailability for STATs.
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Through a combination of internal and partnered programs, supplemented
by selective in-licensing of approved cancer products, Ligand has built a
pipeline of numerous products in advanced preclinical testing, clinical
development or commercialization stages. The most advanced of these products are
as follows:
PROGRAM PRODUCT DISEASE INDICATION DEVELOPMENT PHASE (1)
- -----------------------------------------------------------------------------------------------------------------------------------
Retinoids Topical Panretin(TM) (ALRT1057)(2) Kaposi's Sarcoma ("KS") III
Oral Panretin(TM) (ALRT1057)(2) Acute Promyelocytic Leukemia ("APL"), III
Cancers including KS, other cancers,
eye disease IIB
Psoriasis II
Proliferative vitreoretinopathy II
ALRT1550 Oral(2) Cancers I/IIA
Topical Targretin(TM) (LGD1069) Skin lymphoma, other malignancies of
skin III
Oral Targretin(TM) (LGD1069) Cutaneous T cell lymphoma II/III
Lung cancer II/III
Cancers, including, kidney, IIB
head and neck, KS
Metabolic diseases (diabetes) II(3)
Skin disease Preclinical
Sex steroids Droloxifene(4) Breast cancer III
Droloxifene(4) Osteoporosis II
CP336,156(5) Osteoporosis Preclinical (IND or
foreign
equivalent 4Q 96)
Inflammation Galardin(TM)(6) Eye injury II/III completed
II(8)
Oncology Proleukin(7) Kidney cancer Marketed in Canada
PHOTOFRIN(7) Bladder cancer, esophageal cancer Marketed in Canada
- ---------------
(1) "Development Phase" refers to the current stage of development of the
most advanced indication. See "Business - Product Development Program"
for a more detailed description of the stages of development for these
compounds.
(2) All rights currently owned by Allergan Ligand Retinoid Therapeutics,
Inc., an off-balance sheet financing entity. See "Business - Strategic
Alliances - Allergan, Inc."
(3) Oral Targretin (LGD1069) has entered Phase II human clinical trials in
diabetes in March 1997 in Europe.
(4) Droloxifene is a compound owned by Pfizer Inc ("Pfizer"). Ligand
performed work on droloxifene at Pfizer's request. Ligand and Pfizer
entered into a settlement agreement with respect to a lawsuit in April
1996. Under the terms of the settlement agreement, the Company is
entitled to receive milestone payments if Pfizer continues development
and royalties if Pfizer commercializes the product. See "Business -
Strategic Alliances - Pfizer Inc."
(5) A compound discovered through the Company's collaborative relationship
with Pfizer to which Pfizer has retained marketing rights. The Company
has been informed by Pfizer that Pfizer intends to file an IND or
foreign equivalent for CP336,156 in the fourth quarter of 1996. Ligand
is awaiting confirmation from Pfizer. See "Business - Strategic
Alliances - Pfizer Inc" and "Risks and Uncertainties - Uncertainties
Related to Clinical Trials."
(6) Ligand is seeking a partner to further the development and
commercialization of Galardin for ophthalmic use. See "Business -
Product Development Program - Inflammatory Disease."
(7) In-licensed product.
(8) Phase II trials ongoing in Japan. .
Ligand is conducting human clinical trials with five products. Oral
Panretin (ALRT1057), Topical Panretin (ALRT1057) and Oral ALRT 1550 are
retinoids that may be useful for the treatment of various cancers, such as KS,
and diseases of the skin and eyes and are being developed by Ligand and Allergan
on behalf of ALRT. See "Business - Strategic Alliances - Allergan, Inc." The
Company has initiated pivotal Phase III trials for Topical Panretin (ALRT1057)
in KS. Ligand intends to file a New Drug Application ("NDA") for this compound
in 1997 on behalf of ALRT, in the event that Phase III trials demonstrate
sufficient safety and efficacy. Oral Panretin (ALRT1057) has entered Phase III
clinical trials in APL and IIB clinical trials in various cancers. Ligand is
also performing clinical trials for the retinoids Oral Targretin (LGD1069) and
Topical Targretin (LGD1069), to which Ligand has worldwide exclusive rights.
Interim data from a Phase I/II study of Topical Targretin (LGD1069) in skin
lymphoma have demonstrated significant activity, and based on discussions with
the U.S. Food and Drug Administration ("FDA") on trial design, the Company has
launched pivotal Phase III clinical trials in this indication with Topical
Targretin (LGD1069) and pivotal Phase II/III trials in this indication with Oral
Targretin (LGD1069). The Company has launched Phase II/III clinical trials with
Oral Targretin (LGD1069) in various forms of cancer, including lung cancer.
There can be no assurance that the clinical trials will proceed as planned or
that any drugs will be successfully developed or commercialized. See "Risk and
Uncertainties - Uncertainties Related to Clinical Trials."
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To date, Ligand has entered into collaborations with seven corporate
partners which include, in addition to ALRT: SmithKline Beecham Corporation (for
hematopoietic growth factor mimetics for use in oncology and treatment of
anemia), the Wyeth-Ayerst Laboratories division of American Home Products
Corporation (for women's health, e.g., hormone replacement therapy,
osteoporosis, fertility control), Abbott Laboratories (for inflammatory
diseases, utilizing selected IR- and STAT-based approaches), Sankyo Company
Limited (for inflammatory diseases, utilizing selected Glycomed technologies),
Glaxo-Wellcome plc (for atherosclerosis and other diseases affecting the
cardiovascular system) and Pfizer (for osteoporosis). These partners provide
discovery resources complementary to those of Ligand and are expected to
facilitate the development and commercialization of potential products for
primary care markets. The collaborative partners have also been an important
funding source for Ligand, contributing approximately two-thirds of its invested
capital to date. In addition to ALRT, which was capitalized with $100.0 million
to accelerate research and development of certain retinoid compounds, Ligand's
research activities have been supported by commitments from its partners of up
to $87.9 million for research funding. Ligand's collaborative partners have also
committed up to $96.5 million of additional equity and convertible notes to
Ligand, of which $86.50 million has been received through December 31, 1996, and
the remaining $10.0 million is subject to Ligand attaining certain milestones.
In October 1996, the Company completed a public offering of 3,162,500
shares of common stock, par value $0.001 per share (the "Common Stock"), at a
price of $12.00 per share for aggregate net proceeds of approximately $35.3
million. The Company expects to use the net proceeds from the offering for
general corporate purposes, including product research and development programs,
preclinical testing and clinical trials, the acquisition and in-licensing of
products and complementary technologies, capital expenditures and working
capital.
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BUSINESS STRATEGY
Ligand's business strategy is to develop new drugs using its IR and
STATs technologies through both internal and collaborative programs. Ligand's
internal programs focus on the discovery, development and marketing of
small-molecule drugs that address cancer, gynecological diseases and male
hormonal imbalances, which are treated by medical specialists. An outgrowth of
these programs has led to a development program in metabolic disease. Ligand
also seeks to in-license or acquire products in these medical specialty markets
which are in late-stage clinical development or which have been previously
approved by regulatory authorities. Ligand's collaborative programs focus on
building a royalty-based business through partnerships with large pharmaceutical
companies that apply Ligand's technologies to discover drugs for primary care
markets, such as markets for certain cardiovascular, inflammatory, metabolic and
other diseases, as well as broad applications for women's health.
Ligand's internal efforts have been focused primarily on the discovery
and development of improved retinoids, sex steroid receptor agonists and
antagonists and cytokine agonists for use in specialty market applications,
principally cancer, gynecological disorders and male hormonal imbalances.
Products for these specialty markets typically require less resource-intensive
clinical trials and can be marketed by a targeted sales force. Ligand has
initiated human clinical trials for five products: the retinoids Oral Panretin
(ALRT1057), Topical Panretin (ALRT1057) and Oral ALRT1550 on behalf of ALRT, and
a combination of Oral Targretin (LGD1069) and Topical Targretin (LGD1069), which
are Ligand's first products. Glycomed internal programs focus on the development
of orally active drugs to modulate biological processes involving complex
carbohydrates and other cell surface components for the treatment of
inflammation and cancer.
Externally, Ligand is collaborating with large pharmaceutical
companies, with the goal of building a royalty-based business through the
application of its technologies to primary care markets, such as cardiovascular,
inflammatory, broad aspects of women's health and other diseases. In addition to
ALRT, Ligand has established six major collaborative arrangements to discover
and develop drugs that address disorders principally treated by primary care
physicians, specifically hematopoiesis with SmithKline Beecham, female health
disorders with AHP, inflammatory disease with Abbott, cardiovascular disease
with Glaxo, osteoporosis with Pfizer and has inherited a collaboration through
the Merger, with Sankyo in inflammation based on cell adhesion research. Ligand
believes its collaborators have the significant resources, including clinical
and regulatory experience, manufacturing capabilities and marketing
infrastructure, needed to develop and commercialize drugs for these markets.
Each of these arrangements provides for collaborative discovery programs funded
largely by the corporate partners aimed at discovering new therapies for
diseases treated by primary care physicians. In general, drugs resulting from
these collaborations will be developed, manufactured and marketed by the
corporate partners, with Ligand receiving research revenue during the drug
discovery stage, additional milestone revenue for successful compounds moving
through clinical development and milestone revenue as well as royalty revenue on
sales of drugs marketed by its collaborators.
SCIENTIFIC BACKGROUND AND DRUG DISCOVERY OPPORTUNITIES
INTRACELLULAR RECEPTORS ("IRs")
Hormones are natural chemicals within the body that control important
physiological processes, including reproduction and cell growth and
differentiation. The known non-peptide hormones are the retinoids, the sex
steroids (estrogens, progesterones and androgens), the adrenal steroids
(glucocorticoids and mineralocorticoids), vitamin D and thyroid hormone. The
understanding of hormones and their actions has increased substantially in the
last 10 years. Driving this rapid expansion of knowledge has been the discovery
of the family of IRs through which all the known small-molecule (i.e.,
non-peptide) hormones act. Dr. Ronald Evans at The Salk Institute of Biological
Studies ("The Salk Institute"), Ligand's scientific co-founder and exclusive
consultant, was the first to clone and characterize an IR in 1985. Since that
time, approximately 75 IRs have been defined and characterized, many by Ligand's
scientists or its exclusive collaborators. IRs play key roles in a variety of
diseases, including certain cancers, gynecological disorders, and
cardiovascular, metabolic inflammatory and skin diseases.
Hormones act by binding to their corresponding IRs to regulate the
expression of genes in order to maintain and restore balanced cellular function
within the body. Hormonal imbalances can lead to a variety of diseases. The
hormones themselves and drugs which mimic or block hormone action may be useful
in the treatment of these diseases. Furthermore, hormone mimics (agonists) or
blockers (antagonists) can be used in the treatment of diseases in which the
underlying cause is not hormonal imbalance.
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The effectiveness of the IRs as drug targets has been demonstrated by
currently available drugs acting through IRs for many of these diseases.
However, the use of most of these drugs has been limited by their often
significant side effects. Examples of currently marketed hormone-related drugs
acting on IRs are glucocorticoids (steroids used to treat inflammation),
estrogens and progesterones (used for hormone replacement therapy and
contraception), tamoxifen (an estrogen antagonist used in the treatment of
breast cancer), and various retinoids such as Accutane(R) and Retin-A(R) (used
to treat acne and psoriasis).
Ligand's early recognition of the drug discovery opportunities inherent
in emerging IR research has enabled it to build a strong proprietary position
and accumulate substantial expertise in IRs applicable to drug discovery and
development. Building on its recent scientific findings about the molecular
basis of hormone action, Ligand has created proprietary new tools to explore and
manipulate non-peptide hormone action for potential therapeutic benefit. The
Company has exclusive relationships in the field of IRs with Dr. Ronald Evans, a
professor in the Gene Expression Laboratory of The Salk Institute, and Dr. Bert
O'Malley, Professor and Chairman of the Center for Reproductive Biology at
Baylor College of Medicine ("Baylor"), where many of the core discoveries in IR
research have been made. The Company has exclusively licensed most of these
discoveries. Ligand has also developed proprietary IR assays that it believes
can rapidly and accurately predict the probable therapeutic and side effect
profiles of compounds with potential as drugs. The Company believes that its IR
expertise will enable it to discover and develop drugs that have equal or
greater therapeutic efficacy and reduced incidence and severity of side effects
compared to existing drugs acting through IRs. The Company also believes these
drugs will be orally bioavailable.
In many diseases, there is an imbalance of cytokine action. For
example, some inflammatory conditions may represent excessive actions of certain
interleukins or interferons. In these conditions, it may prove beneficial to
block the actions of specific cytokines. In other pathological states, there is
insufficient activity of specific cytokines. For example, in patients with
chronic renal failure, diminished erythropoietin ("EPO") release by the damaged
kidneys results in the inadequate production of red blood cells, resulting in
anemia. Recombinant human EPO protein (Epogen(R)) can be administered to
effectively correct this anemia, but must be injected. Many other cytokines are
useful as injected protein medicines, including interferons (Intron-A(R),
Roferon(R), Betaseron(R)), interleukins (Proleukin(R) which Ligand markets in
Canada), hematopoietic growth factors (Epogen(R), Neupogen(R)) and others. Each
of these and many other cytokines appears to exert their actions through
STAT/JAK signal transduction pathways. Ligand is utilizing STAT/JAK technology
to seek low molecular weight compounds which can mimic or block the actions of
medically relevant cytokines for uses in various pathological conditions,
including cancer, inflammation and disorders of blood cell formation. Because
these are small molecules, whereas the cytokines themselves are proteins, they
offer potential significant advantages, including oral activity and greater ease
of manufacture and stability. Ligand's STAT/JAK technology forms the basis for
the Company's collaboration with SmithKline seeking small molecule mimetics of
EPO, Granulocyte- Colony Stimulating Factor ("G-CSF"), and thrombopoietin and
for a portion of the collaboration with Abbott, seeking interferon antagonists
for the treatment of inflammation.
LIGAND'S IR DRUG DISCOVERY OPPORTUNITIES
Ligand and its collaborators have made major discoveries pertaining to
IRs and small molecule hormones and compounds which interact with these IRs.
These discoveries include: (i) the identification of the IR superfamily, (ii)
the recognition of IR subtypes, (iii) the discovery of orphan IRs and (iv) the
heterodimer biology of RXR selective compounds. Ligand believes that each of
these broad areas of knowledge provides important opportunities for drug
discovery.
IR Superfamily. The receptors for all the non-peptide hormones are
closely related members of a superfamily of proteins known as IRs. The IRs are
similar in both structure and mechanisms of action. Human IRs for all of the
known non-peptide hormones have now been cloned, primarily by Ligand's
scientists or its collaborators, building an understanding of the similar
underlying mechanisms of action shared by the non-peptide hormones.
Ligand believes that the relatedness of the IRs for the non-peptide
hormones has major implications for drug discovery. IRs share a common mechanism
of action, which often enables drug discovery insights about one IR to be
directly applied to other members of the IR superfamily, bringing synergy to
Ligand's IR-focused drug discovery efforts. First generation drugs were
developed and commercialized for their therapeutic benefits prior to the
discovery of IRs and often cross-react with the IRs for hormones other than the
intended target, resulting in often significant side effects. The understanding
that the IRs are structurally similar has enabled Ligand to determine the basis
for the side effects of some first generation drugs and to discover improved
drug candidates.
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IR Subtypes. For some of the non-peptide hormones, several closely
related but non-identical IRs, known as IR subtypes, have been discovered. These
include six subtypes of the IRs for retinoids and four subtypes of the IRs for
thyroid hormone. Patent applications covering most of these IR subtypes have
been exclusively licensed by Ligand. Ligand believes that drugs that activate a
subset of IR subtypes will allow more specific pharmacological intervention
better matched to therapeutic need. Ligand's clinical candidate Targretin
(LGD1069) was discovered as a result of Ligand's understanding of retinoid
receptor subtypes.
Orphan IRs. Over 50 additional members of the IR superfamily which do
not interact with the known non-peptide hormones or vitamin derivatives have
been discovered. Ligand has an exclusive license to many of these orphan IRs.
Ligand believes that among the orphan IRs may be receptors for uncharacterized
small molecule hormones and that the physiological roles of the various orphan
IRs are likely to be diverse. Ligand has devised strategies to isolate small
molecules that interact with orphan IRs and is working to identify new orphan
IRs as drug targets and to identify their natural and synthetic modulators as
possible drug candidates. For example, the Retinoid X Receptors ("RXRs"), one
subfamily of IRs activated by certain retinoids, were orphan IRs when initially
discovered. Panretin (ALRT1057), a compound being developed on behalf of ALRT,
was discovered by virtue of its activation of the RXR retinoid receptors.
RXR Heterodimer Biology. Retinoids that bind to the RXR family deliver
their therapeutic effects through partnered IRs. Recently scientists have
discovered that RXRs are obligate partners in these IR pairs through all
tissues. These IR pairs consist of one RXR and one of a variety of other IRs,
such as RARs, PPARs (peroxisome proliferator-activated receptors) or thyroid
hormone receptors. While RXRs are widely expressed, their IR partners are more
discreet, being expressed in selective tissues, such as liver, fat or muscle. As
a result, compounds that bind RXRs offer the unique potential to be broadly
active compounds that can treat a variety of diseases, including metabolic
diseases.
In animal models of type II diabetes, RXR agonists appear to stimulate
the physiological pathways responsive to RXR-PPAR receptor partners expressed in
key target tissues that are involved in glucose metabolism. As a result, a
discrete set of genes is activated in these tissues resulting in a decrease in
serum glucose levels, triglycerides and insulin.
LIGAND'S STAT DRUG DISCOVERY OPPORTUNITIES
SIGNAL TRANSDUCERS AND ACTIVATORS OF TRANSCRIPTION ("STATs")
STATs are a recently discovered family of proteins that are a key part
of the signal transduction pathway for a variety of biologically important
peptide hormones (e.g., interferons, interleukins, leptin and hematopoietic
growth factors) collectively termed Extracellular Signaling Proteins ("ESPs").
STATs play a role in the biology of ESPs functionally analogous to that played
by IRs in the biology of the non-peptide hormones: both STATs and IRs are
families of transcription factors which change cell function by selectively
turning on particular genes in response to circulating signals which impinge on
cells. When various cytokines bind to their receptors on the cell surface, this
triggers the activation of specific members of the Janus Kinase family of
tyrosine protein kinases ("JAKs"), which in turn activate specific STATs. The
activated STATs enter the cell nucleus and bind to the control regions of
specific target genes and increase their expression, thereby modulating
physiologic or pathophysiologic processes.
In many diseases, there is an imbalance of cytokine action. For
example, some inflammatory conditions may represent excessive actions of certain
interleukins or interferons. In these conditions it may prove beneficial to
block the actions of specific cytokines. In other pathological states there is
insufficient activity of specific cytokines. For example, in patients with
chronic renal failure, diminished erythropoietin EPO release by the damaged
kidneys results in the inadequate production of red blood cells, causing anemia.
Recombinant human EPO protein (Epogen) can be administered to correct this
anemia effectively, but must be injected. Many other cytokines are useful as
injected protein medicines, including interferons (Intron-A, Roferon,
Betaseron), interleukins (e.g., Proleukin, which Ligand markets in Canada),
hematopoietic growth factors (Epogen, Neupogen) and others. Each of these and
many other cytokines appear to exert their actions through STAT/JAK signal
transduction pathways.
Ligand believes that its STAT/JAK technologies may lead to the
discovery of low molecular weight compounds able to mimic or block the actions
of medically relevant cytokines for uses in various pathological conditions,
including cancer, inflammation and disorders of blood cell formation. Because
these compounds are small molecules, whereas the cytokines themselves are
proteins, they offer potentially significant advantages, including oral
bioavailability, greater ease of manufacture and improved stability.
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The discovery of STATs, the elucidation of their roles in interferon
signal transduction, and the first cloning of genes encoding STATs were all
accomplished by Ligand's exclusive collaborators Dr. James Darnell at
Rockefeller University and Dr. David Levy at New York University ("NYU"), and
were described initially in August 1992. Since then, over half a dozen members
of the STAT family have been identified and a large number of ESPs in addition
to interferons have also been shown to utilize STAT signal transduction. Among
the ESPs which have been shown to use STAT signaling pathways are the
interferons (alpha, beta and gamma), the hematopoietic colony stimulating
factors (interleukin-3, EPO, G-CSF, GM-CSF and thrombopoietin), many of the
interleukins (including IL-2, IL-4, IL-6, IL-12 and IL-13, the related ESPs
Oncostatin M and Leukemia Inhibitory Factor), the cytokine leptin and several
protein hormones (growth hormone and prolactin).
Based on insights into STAT/JAK signal transduction and the generation
of the necessary reagents, Ligand has developed STAT technologies for drug
discovery which include cell culture-based high throughput screens to identify
small molecule drugs and biochemical assays that define where in the STAT/JAK
signal transduction pathways the small molecules act. Ligand believes that its
STAT/JAK drug discovery technology can produce drug candidates to control gene
expression to address a broad range of uses, including treating cancer,
providing hematopoietic support for cancer patients undergoing chemotherapy or
bone marrow transplantation, combating inflammation and viral or other
infections, treating anemia in chronically ill patients (e.g., those with renal
failure), treating dwarfism and related disorders of stature and enhancing
immune function.
Ligand is using its high throughput screening assays to discover small
molecule drugs to act as interferon agonists for potential application in
various cancers and viral diseases. Ligand has also established collaborations
with Abbott using its STAT/JAK technology to discover small molecule antagonists
of interferons for the treatment of inflammation and with SmithKline Beecham to
discover and characterize small molecule drugs to modulate specific STAT/JAK
pathways to control the formation of red and white blood cells for treating
patients with cancer or anemia. Ligand has additional assays under development
to allow high throughput screening for and subsequent optimization of small
molecule drugs to act through STAT/JAK signaling pathways to block or mimic
other medically significant ESPs. See "Strategic Alliances."
GLYCOMED'S COMPLEX CARBOHYDRATES PROGRAMS
Ligand, through its wholly-owned subsidiary Glycomed, is seeking drugs
that modulate processes involving complex carbohydrates and other components of
the extracellular matrix. The cells in the body are in many cases embedded in
various gelatinous or fibrous background substances such as proteins (e.g.,
collagen) or glycoproteins and mucopolysaccharides (various complex biological
polymers containing amino acid and sugar building blocks). This background
substance, termed extracellular matrix, can exert important effects on cells,
modifying their function and controlling their migration. Additionally, related
complex carbohydrates, glycoproteins and mucopolysaccharides are located on the
surfaces of cells, where they can play important roles in controlling
interactions among various cells, including, for example, the attachment of
white blood cells to the inner linings of blood vessels, a necessary part of
some inflammatory responses.
Glycomed has expertise and core technology relating to the biology and
chemistry of complex carbohydrates and related components of the extracellular
matrix. Ligand is focusing Glycomed's expertise and core technologies to seek
small molecule, potentially orally active drugs to modulate the biological
processes involving complex carbohydrates and other cell surface and
extracellular matrix components for the treatment of inflammation and cancer.
Glycomed's research is currently focused on selectin antagonists for the
treatment of inflammation in a collaboration with Sankyo. One Glycomed compound
is Galardin(TM), a matrix metaloproteinase inhibitor in-licensed by Glycomed
prior to the Merger. In Phase II/III trials, Galardin(TM) treated patients had
significantly lower incidence of corneal perforation. Since the Merger, the
Company has sought a partner to further develop the product. Sankyo has
Galardin(TM) under development in Phase II trials in Japan for opthalmic
indications.
LIGAND'S DRUG DISCOVERY AND DEVELOPMENT PROCESS
Ligand's advanced molecular-based IR research focuses on analyzing the
biological systems regulated by IRs to choose the most promising molecular
targets for drug discovery. After selecting a target, the next critical step in
drug discovery is the identification of suitable lead compounds (chemical
structures suitable as starting points for optimization as drugs by the
application of medicinal chemistry). Traditional drug discovery generally uses
animal models or biochemical screening systems for lead compound identification.
Animal models are relatively slow, complicated and expensive; and results in
animals do not always correlate to those obtained in humans. Biochemical assays
are fast and inexpensive, but give limited information and frequently
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identify poor lead compounds. Ligand has developed a hybrid approach to lead
compound identification that retains the best features and avoids the pitfalls
of traditional methods to discover leads.
Ligand has developed a proprietary cell-culture based assay system for
IR-modulating small molecules, referred to as the co-transfection assay, that
simulates the actual cellular processes controlled by IRs. The system is (i)
fast, compared to animal models; (ii) capable of cost-effective, high throughput
screening of thousands of compounds per week; (iii) highly predictive of in vivo
pharmacology of both agonists and antagonists; (iv) able to separate complex
targets, such as receptor subtypes; and (v) conducted using the actual human
receptors which are the ultimate drug targets. Ligand's co-transfection assay is
a key component of Ligand's IR drug discovery and development programs, and
facilitates both the identification of lead compounds and their optimization as
clinical candidates.
The co-transfection assay is able to preclinically detect both agonists
and antagonists of specific IRs. It determines not only whether a compound
interacts with a particular human IR, but also whether this interaction mimics
or blocks the effects of the natural regulatory molecules on target gene
expression. The Company's assays also enable the Company to detect useful lead
compounds which could be missed by alternative biochemical screens or animal
models. Ligand has successfully automated its co-transfection assays for high
throughput screening of thousands of compounds per week. Ligand's screening in
co-transfection assays has resulted in the identification of lead compounds for
novel estrogen agonists, non-steroidal progestins and antiprogestins,
non-steroidal antiandrogens, non-steroidal glucocorticoid agonists, new retinoid
analogues and PPAR agonists that are now undergoing further investigation.
Ligand has developed similar automated high throughput assays to
identify lead compounds acting as agonists or antagonists of selected STAT/JAK
signaling pathways for particular ESPs such as interferons, certain interleukins
and selected hematopoietic growth factors. Additional STAT-based screening
assays are under development.
Once Ligand verifies a lead compound for a particular target, the next
critical process is optimization of the compound to achieve specificity and
appropriate properties as a drug. Specificity is achieved when the compound
interacts only with the intended target molecule and not with related but
unintended molecules. Ligand's unique and comprehensive ability to assess
compounds preclinically for interactions with all the known human IRs or in
various STAT pathways is a significant advantage in obtaining specificity in a
lead compound. Optimization of a lead compound is an iterative process in which
analogues of the lead compound, designed and synthesized by medicinal chemists,
are assayed for activity. The results obtained with each set of analogues guide
the medicinal chemists in the design of compounds with greater specificity. The
co-transfection assay produces results which enhance the accuracy and efficiency
of this iterative optimization process. Ligand believes the STAT-based assays
may have similar advantages.
Ligand believes that its combination of modern molecular and
traditional approaches to drug discovery will accelerate its progress to develop
new drug candidates. To that end, Ligand has built a strong multidisciplinary
team, consisting of molecular biologists, medicinal chemists, pharmacologists
and specialists in drug metabolism and distribution, and other pharmaceutical
scientists. Ligand believes the similarities between hormone and cytokine
mechanisms of action allow it to leverage its drug discovery resources
efficiently in the IR and STATs areas.
PRODUCT DEVELOPMENT PROGRAM
Ligand, as part of its overall business strategy, is developing new
drugs through a combination of internal and collaborative programs: (i)
internally, by focusing on the discovery, development and marketing of
small-molecule drugs that address diseases, such as cancer and gynecological
disease, treated by medical specialists, and by seeking to in-license or acquire
later-stage products in these medical specialties; and (ii) by collaborating
with large pharmaceutical companies, with the goal of building a royalty-based
business through the application of its technologies to primary care markets,
such as cardiovascular, inflammatory and other diseases, and broad aspects of
women's health.
Ligand is currently pursuing six major internally-funded and
collaborative drug discovery programs: two are based on specific IRs (the
retinoid and sex steroid receptor programs for cancer, skin and eye disease, and
women's health); two are based on a combination of disease indications and
transcription factor targets (cardiovascular and inflammatory diseases); one is
based on STATs; and one is based on Glycomed's inhibitors of cell adhesion
technology. Additionally, Ligand has in-licensed and is distributing two
anti-cancer products in Canada.
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The following table summarizes the current status of Ligand's product research,
development and marketing programs:
DEVELOPMENT
PROGRAM DISEASE INDICATION PHASE(1) MARKETING RIGHTS
- ------------------------------------------- ------------------------------ -------------------- -------------------------
ALRT RETINOIDS(2)
Topical Panretin (ALRT1057)(3) KS Phase III ALRT
Oral Panretin (ALRT1057)(3) APL Phase III ALRT
Cancers, including, Phase IIB ALRT
kidney cancer, non-Hodgkin's
lymphoma, KS
Psoriasis Phase II ALRT
Proliferative Phase II ALRT
vitreo-retinopathy
Oral ALRT1550(3) Cancer Phase I/IIA ALRT
ALRT1109 & analogues(3) Skin diseases and cancer Preclinical ALRT
ALRT1455 & analogues(3) Leukemia, lymphoma, breast Preclinical ALRT
cancer
ALRT268 & analogues(3) Cancer, skin and metabolic Preclinical ALRT
diseases (type II diabetes)
LIGAND RETINOIDS
Topical Targretin(LGD1069) Cutaneous T-cell lymphoma Phase III Ligand worldwide
and other malignancies of
skin
Skin disease Preclinical Ligand wordwide
Oral Targretin(LGD1069) Cutaneous T-cell lymphoma Phase II/III Ligand worldwide
Lung cancer Phase II/III Ligand worldwide
Cancers, including, kidney, Phase IIB Ligand worldwide
head and neck, KS
Skin and metabolic diseases Phase II Ligand worldwide
(type II diabetes)
SEX STEROIDS
Droloxifene(5) Breast cancer Phase III Pfizer
Osteoporosis Phase II Pfizer
Estrogen agonist Osteoporosis Preclinical Pfizer
(CP336,156)(6) (IND or foreign
equivalent 4Q 96)
Progesterone antagonists Cancer, endometriosis, Lead compounds AHP/Ligand(7)
(LG1447 series) uterine fibroids selected
Progesterone agonists Breast cancer, hormone Lead compounds AHP/Ligand(7)
(LG2527/2716 series) replacement therapy selected
Estrogen agonists Osteoporosis Lead compounds AHP/Ligand(7)
selected
Tissue selective estrogen or Gynecological disease, Lead compounds AHP/Ligand(7)
progesterone agonists and cardiovascular disease, selected
antagonists hormone replacement therapy
Androgen antagonists Prostate cancer, skin disease Lead compounds Ligand worldwide
(LG2293 series) selected
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Androgen agonists Male hormone replacement Lead compounds Ligand worldwide
therapy, osteoporosis identified
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DEVELOPMENT
PROGRAM DISEASE INDICATION PHASE(1) MARKETING RIGHTS
- ------------------------------------------- ------------------------------- ------------------ -------------------------
CARDIOVASCULAR/METABOLIC
DISEASE
Lipid regulators - LDL lowering Atherosclerosis Lead compounds Glaxo
selected
PPAR modulators Atherosclerosis and other Lead compounds Glaxo
disorders affecting the selected
cardiovascular system
Lipid regulators - HDL elevation Atherosclerosis Research Glaxo
INFLAMMATORY DISEASE
Glucocorticoid agonists Rheumatoid arthritis, Lead compounds Abbott/Ligand(7)
inflammatory bowel disease, selected
asthma, dermatitis
Interferon antagonists Rheumatoid arthritis, Lead compounds Abbott/Ligand(7)
inflammatory bowel disease, selected
asthma, dermatitis
GLYCOMED INFLAMMATORY
DISEASE
Galardin(TM) MMPI(GM6001) Ophthalmic inflammation Phase II/III Ligand; Sankyo in Far
Matrix metalloproteinase completed East (ophthalmic
inhibitor ("MMPI")(8) Phase II(9) indications)
GM1998 Acute and chronic inflammation Lead compounds Ligand; Sankyo in Far
Cell adhesion inhibitors selected East
GM1925, GM2296, GM1380 & Acute and chronic inflammation Lead compounds Ligand; Sankyo in Far
analogues selected East
Cell adhesion inhibitors
GM1892 Reperfusion injury Lead compounds Ligand worldwide
Endothelial protective agent selected
GLYCOMED CANCER
GM1474, GM1306 Cancer Lead compounds Ligand worldwide
Growth factor modulators selected
GM6001 & analogues Cancer Lead compounds Ligand worldwide
Matrix metalloproteinase inhibitors selected
GM1603 & analogues Cancer Lead compounds Ligand worldwide
Heparinase inhibitors selected
STATS
Interferon agonists Cancer, infectious disease Lead compounds Ligand worldwide
selected
Hematopoietic growth factors Oncological uses, anemia Lead compounds SmithKline
selected Beecham/Ligand(7)
Other cytokine agonists and Cancer, immunology, growth Research Ligand worldwide
antagonists control
IN-LICENSED
PHOTOFRIN(TM) Esophageal cancer, Market Ligand
superficial bladder cancer (Canada only)
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Proleukin(TM) Kidney cancer Market Ligand
(Canada only)
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- ---------------
(1) "Development Phase" refers to the current stage of development of the
most advanced indication.
"Research" activities include research related to specific
intracellular receptor and STATs targets and the identification of lead
compounds.
"Lead compounds" are chemicals that have been identified that meet
preselected criteria in cell culture models for activity and potency against IR
or STAT targets. More extensive evaluation is then undertaken to determine if
the compound should be selected to enter into preclinical development. Once lead
compound is selected, chemical modification of the compound is then undertaken
to create the best drug candidate.
"Preclinical" includes pharmacology and toxicology testing in
preclinical models (in vitro and in vivo), formulation work and manufacturing
scale-up to gather necessary data to comply with applicable regulations prior to
commencement of human clinical trials.
"Development candidates" are lead compounds that have successfully
undergone in vitro and in vivo evaluation to demonstrate that they have an
acceptable profile which justifies taking them through preclinical development
with the intention of filing an IND and initiating human clinical testing.
Clinical trials are typically conducted in three sequential phases that
may overlap. In "Phase I," the initial introduction of the pharmaceutical into
healthy human volunteers, the emphasis is on testing for safety (adverse
effects), dosage tolerance, metabolism, distribution, excretion and clinical
pharmacology. "Phase II" involves studies in a limited patient population to
determine the efficacy of the pharmaceutical for specific targeted indications,
to determine dosage tolerance and optimal dosage and to identify possible
adverse side effects and safety risks. Once a compound is found to be effective
and to have an acceptable safety profile in Phase II evaluations, "Phase III"
trials are undertaken to evaluate clinical efficacy further and to further test
for safety within an expanded patient population at multiple clinical study
sites sometimes Phase I and II trials or Phase II and III trials are combined.
The FDA reviews both the clinical plans and the results of the trials and may
discontinue the trials at any time if there are significant safety issues.
(2) Ligand and Allergan are engaged by ALRT to discover and develop
retinoid-related drugs. If Ligand and Allergan repurchase ALRT1057 and the rest
of the assets in ALRT, Ligand and Allergan will share profits from
commercialized products resulting from their activities, if any.
(3) All rights currently owned by ALRT.
(4) Oral Targretin (LGD1069) has entered Phase II human clinical trials in
diabetes in March 1997 in Europe.
(5) Droloxifene is a Pfizer compound. Ligand performed work on droloxifene at
Pfizer's request. Ligand and Pfizer entered into a settlement agreement with
respect to a lawsuit in April 1996. Under the terms of the settlement agreement,
the Company is entitled to receive milestones if Pfizer continues development
and royalties if Pfizer commercializes the product. See "Strategic Alliances -
Pfizer Inc."
(6) A compound discovered through the Company's collaborative relationship with
Pfizer to which Pfizer has retained marketing rights. The Company has been
informed by Pfizer that Pfizer intends to file an IND or foreign equivalent for
CP336,156 in the fourth quarter of 1996. Ligand is awaiting confirmation from
Pfizer. There can be no assurance that clinical trials will proceed as planned
or that any new drugs will be successfully developed. See "Government
Regulation."
(7) Ligand has retained certain compound rights. See "Strategic Alliances."
(8) Ligand is seeking a partner to further the development and commercialization
of Galardin for ophthalmic use. See "Inflammatory Disease. "
(9) Phase II trials ongoing in Japan.
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RETINOIDS
Retinoic acid, a derivative of Vitamin A, is one of the body's natural
regulatory hormones and has a broad range of biological actions, influencing
cell growth, differentiation, apoptosis and embryonic development. Many chemical
analogues of retinoic acid, also called retinoids, also have biological
activity. Specific retinoids have been approved by the FDA for the treatment of
psoriasis and certain severe forms of acne. Evidence also suggests that
retinoids can be used to arrest and, to an extent, reverse the effects of skin
damage arising from prolonged exposure to the sun. Other evidence suggests that
retinoids are useful in the treatment of a variety of cancers, including kidney
cancer and certain forms of leukemia. For example, all-trans-Retinoic-acid
("ATRA") has been approved by the FDA for the treatment of APL. Retinoids have
also shown an ability to reverse precancerous (premalignant) changes in tissues,
reducing the risk of development of cancer, and may have potential as preventive
agents for a variety of epithelial malignancies, including skin, head and neck,
bladder and prostate cancer.
Despite the therapeutic benefits of currently-marketed retinoids, their
use to date has been limited by their propensity to cause significant side
effects, such as severe birth defects if fetal exposure occurs, severe
irritation of the skin and mucosal surfaces, elevation of plasma lipids,
headache and skeletal abnormalities. Currently-marketed retinoids were developed
and commercialized for their therapeutic benefits prior to the discovery of
retinoid-responsive IRs ("RRs"), and were developed with suboptimal tools.
The six RRs that have been identified to date can be grouped in two
subfamilies: Retinoic Acid Receptors ("RARs") and RXRs (Retinoid X Receptors).
Patent applications covering members of both families of RRs have been licensed
exclusively to Ligand primarily from The Salk Institute, and have been further
sublicensed to ALRT as part of the ALRT Offering. The RR subtypes appear to have
different functions, based on their distribution in the various tissues within
the body and data arising from in vitro studies and from studies of transgenic
mice.
Several of the retinoids currently in commercial use are either
non-selective in their pattern of RR subtype activation or are not ideal drugs
for other reasons. Ligand, on its own and on behalf of ALRT, is developing
chemically synthesized retinoids which, by selectively activating RR subtypes,
may preserve desired therapeutic effects while reducing side effects. Because of
their subtype selectivity or other desirable activities, Ligand's and ALRT's
retinoid agonists are expected to have more specific pharmacological effects and
less side effects, thus providing a better therapeutic index than currently used
retinoids, many of which are not RR subtype specific or are suboptimal for other
reasons.
Ligand, on behalf of ALRT, has three retinoid products in clinical
trials, Topical Panretin (ALRT1057), Oral Panretin (ALRT1057) and Oral ALRT1550,
and three retinoid compounds in advanced preclinical evaluation. In addition,
Ligand has two retinoid products in clinical trials, Topical Targretin (LGD1069)
and Oral Targretin (LGD1069), which are the sole property of Ligand and have not
been licensed to ALRT. There were 45 clinical trials conducted with Panretin and
Targretin in 1996 and early 1997.
Topical Panretin (ALRT1057). 9-cis-Retinoic acid (Panretin (ALRT1057))
is a non-peptide hormone isolated and characterized by Ligand in 1992 in
collaboration with scientists at The Salk Institute and Baylor. This is the
first non-peptide hormone discovered in over 25 years and appears to be a
natural ligand for the RAR and RXR subfamilies of retinoid receptors.
9-cis-Retinoic acid has pharmacological properties which ALRT and Ligand believe
give it therapeutic utility.
In June 1994, prior to the formation of ALRT, Ligand initiated a Phase
I/II human clinical trial for Topical Panretin (ALRT1057) in AIDS-related,
cutaneous KS. Interim results of this Phase I/II clinical trial reported in
January 1996 showed that, when evaluated at 12 weeks after the start of each
patient's therapy, Topical Panretin (ALRT1057) induced a partial or complete
clinical response in 30% of 43 patients with AIDS-related, cutaneous KS
evaluated by AIDS Clinical Trial Group ("ACTG") criteria as applied to topical
therapy, compared with 9% of patients with untreated control lesions. This
interim assessment supports results of an earlier assessment reported in
September 1995. Final results of this Phase I/II clinical trial involving 115
patients were reported in December 1996 and were consistent with the interim
data. Following a meeting with the FDA in November 1995, ALRT launched in the
second quarter of 1996, a pivotal Phase III study to evaluate Topical Panretin
(ALRT1057) in over 200 patients with AIDS-related, cutaneous KS. In addition,
Topical Panretin (ALRT1057) began international Phase III trials for KS in the
third quarter of 1996. The Company intends to file an NDA for Topical Panretin
(ALRT1057) on behalf of ALRT for treating KS in 1997 in the event that Phase III
trials demonstrate sufficient safety and efficacy.
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Oral Panretin (ALRT1057). In completed Phase I/IIA human clinical
trials, Oral Panretin (ALRT1057) was well tolerated at doses as high as 140
mg/m(2)/day (milligram per square meter of body surface, per day), the maximum
tolerated dose ("MTD"). At the MTD level, side effects, including headaches,
elevated triglyceride levels, hypercalcemia and mucocutaneous irritation, were
dose limiting toxicities. Memorial Sloan-Kettering Cancer Center
("Sloan-Kettering") interim data indicate that nine of 39 patients with advanced
or otherwise untreatable cancer treated with Oral Panretin (ALRT1057)
experienced no disease progression for periods ranging from 14 to 28 weeks. The
Phase I/IIA clinical data also indicate that Oral Panretin (ALRT1057) has good
bioavailability. Patient exposure to Oral Panretin (ALRT1057) is proportional to
the administered dose of the compound over a broad range of doses.
United States and international Phase IIB trials have been launched on
behalf of ALRT with Oral Panretin (ALRT1057) in a number of cancer indications,
including kidney cancer (in combination with interferon alpha), ovarian cancer
(with cis-platin), KS, prostate cancer, non-Hodgkin's lymphoma and multiple
myeloma. In addition, a Phase III trial with Oral Panretin (ALRT1057) at a dose
of 140 mg/m(2)/day in APL was initiated in the fourth quarter of 1996. In a
Phase I/IIA trial, six out of 15 patients with APL treated with Oral Panretin
(ALRT1057) had complete remissions, of which three had relapsed from previous
ATRA treatment and/or chemotherapy and three were newly diagnosed. Cell culture
based analysis of leukemia cells from some of the patients in this study
indicated that resistance to ATRA was not overcome by Oral Panretin (ALRT1057
Oral Panretin (ALRT1057) entered a Phase II trial for psoriasis in the United
States in September 1995, a Phase IIB trial for myelodysplastic syndrome in
Europe in the second quarter of 1996 and a Phase II trial for proliferative
vitreo-retinopathy, a serious complication of retinal detachment which can lead
to blindness, in the United States in the third quarter of 1996, all on behalf
of ALRT. The FDA has approved an application by Ligand, on behalf of ALRT, to
have Oral Panretin (ALRT1057) designated an "Orphan Drug" for the treatment of
APL.
There is currently substantial interest among oncologists in the
potential of retinoids, as evidenced by the existence of over 60 open protocols
at the National Cancer Institute ("NCI") to examine the effects of retinoids on
a variety of cancers. A Phase I/II study is currently being conducted by the NCI
to evaluate the safety and efficacy of Oral Panretin (ALRT1057) in children with
malignancies, and trials are underway sponsored by the NCI to evaluate the
safety and efficacy of Oral Panretin (ALRT1057) in patients with lung cancer,
cervical cancer and those with breast cancer. There were 25 clinical trials
conducted with Panretin in 1996 and early 1997.
Oral ALRT1550. A very potent RAR agonist, ALRT1550 strongly inhibits
growth of several human cancer cell lines. In the fourth quarter of 1996, an IND
was submitted and was cleared with no regulatory delay to begin human testing.
Phase I/IIA Clinical Trials in advanced cancer began at Sloan-Kettering and
Lombardi Comprehensive Cancer Center at Georgetown University in the first
quarter of 1997.
Other ALRT Compounds. ALRT's drug development pipeline includes seven
additional retinoid compounds in preclinical evaluation. These include: (i)
ALRT1109 and analogues, RAR antagonists for topical use to ameliorate
mucocutaneous irritation accompanying therapy for cancer or skin disease with
systemic retinoids such as Accutane, Vesanoid, and Oral Panretin (ALRT1057);
(ii) ALRT1455 and analogues, RAR-alpha-selective retinoids for possible use in
treating leukemias, lymphoma, and breast cancer; (iii) RXR-selective retinoids
including ALRT268 with possible utilities in various metabolic disorders such as
diabetes mellitus; and (iv) four additional retinoid receptor selective
compounds with possible utilities in various cancers and skin disease.
Topical Targretin (LGD1069) and Oral Targetin (LGD1069). Ligand has
created synthetic retinoids that show distinctive patterns of RR subtype
selectivity. Ligand's research indicates that one of these retinoids, Targretin
(LGD1069), has a beneficial effect in squamous epithelial growth, showing
activity with human skin cells in culture and in a preclinical model of
psoriasis. Targretin (LGD1069), which is the first RXR-selective retinoid in
clinical development, has shown anti-cancer activity in vitro and in vivo
preclinically. Because Targretin (LGD1069) has attractive preclinical effects to
induce programmed cell death (apoptosis) in cancer cell lines, Ligand believes
it may have utility in solid tumors, such as breast, colon or lung cancer, which
grow relatively slowly and therefore respond poorly to conventional cytotoxic
chemotherapeutic agents. In vivo preclinical data indicate that Targretin
(LGD1069) is orally and topically active and well tolerated. Ligand's research
indicates that Targretin (LGD1069) has a pattern of RR subtype activation
distinct from that of Panretin (ALRT1057).
In June 1994, Ligand initiated Phase I/II clinical trials in patients
with a form of skin lymphoma or with cutaneous KS with Topical Targretin
(LGD1069). In interim data presented by investigations from the University of
Cincinnati in December 1996, Topical Targretin (LGD1069) induced responses in
41% of 27 evaluable patients with cutaneous T-cell lymphoma ("CTCL"). In January
1996, the Company presented interim data which showed that Topical Targretin
(LGD1069) induced responses in 15% of
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46 patients with AIDS-related KS, a result which confirmed earlier interim
results presented in September 1995. The Company met with the FDA on trial
design and in late 1996 and early 1997 initiated three Phase II/III and pivotal
Phase III clinical trials in CTCL; two studies with Oral Targretin (LGD1069) and
one with Topical Targretin (LGD1069). All rights to Topical Targretin (LGD1069)
are the sole property of Ligand and have not been licensed to ALRT.
Ligand initiated clinical trials for Oral Targretin (LGD1069) for
cancer indications in January 1994. Phase I/IIA trials in patients with advanced
cancer were conducted at centers including Sloan-Kettering and the Lombardi
Comprehensive Cancer Center at Georgetown University. These studies were
designed to gather human safety data and to determine the maximum tolerated dose
of Oral Targretin (LGD1069) to facilitate design of Phase IIB and later studies.
Phase I/IIA interim trial results of Oral Targretin (LGD1069) were presented by
Sloan-Kettering investigators at ASCO in May 1995. The Sloan-Kettering team
reported on 33 patients with various cancers treated at oral daily doses up to
140 mg/m(2)/day. No dose limiting toxicities were reported in the study and
investigators reported that the bioavailability of the drug is excellent. In
April 1996, clinical investigators reported stabiliation of disease in many of
their patients with non-small lung cancer (NSCLC). Investigators from the
Lombardi Comprehensive Cancer Center at Georgetown University reported eight of
15 lung cancer patients with stable disease in excess of three months.
Investigators at Memorial Sloan Kettering Cancer Center reported that eight of
20 lung patients demonstrated stabilization of disease for three to eight-plus
months. Georgetown investigators reported results of an ongoing Phase I-IIa
human clinical trial on Oral Targretin (LGD 1069) at the annual meeting of the
American Association for Cancer Research and investigators from Sloan Kettering
reported results of a close Phase I-IIa human clinical trial of Oral Targretin
(LGD1069) at the Cancer Institute (NCI) and European Organization for Research
and Treatment of Cancer (EORETC) Symposium on New Drugs in Cancer Therapy. The
safety profile of Oral Targretin (LGD1069) remains favorable. The drug also has
displayed milder side effects than those often seen with other retinoids, and it
appears to be well-tolerated at doses which are clinically active. Phase I/IIA
studies are continuing. A Phase II/III clinical trial has begun in lung cancer,
Phase IIB clinical trials have begun in KS, ovarian cancer, head and neck and
prostate cancer, and a Phase II clinical trial has begun in kidney cancer (in
combination therapy with interferon alpha). There were nearly 20 trials
conducted with Targretin in 1996 and early 1997. All rights to Oral Targretin
(LGD1069) are the sole property of Ligand and have not been licensed to ALRT.
Preclinical studies conducted in 1996 with RXR-selective retinoids such
as Oral Targretin (LGD1069) indicate possible utilities in breast cancer and
metabolic disorders such as diabetes mellitus. Preclinical studies conducted in
1996 in mouse models of human type II diabetes, a subset of diabetes mellitus,
and obesity demonstrated the ability of Targretin (LGD1069) to decrease blood
glucose, triglyceride and insulin levels. In a rat model of breast cancer
prevention conducted in 1996, Targretin (LGD1069) reduced incidence and tumor
frequency at least as well as an estrogen antagonist compared to control,
without the undesirable reduction in mean body weight produced by the estrogen
antagonist.
A Phase II multicenter trial in type II diabetes in Europe was
initiated with Oral Targretin in the first quarter of 1997. U.S. trials are also
expected to begin in 1997. The clinical studies have two main objectives: to
study the safety and tolerability of different dose levels of Targretin in type
II diabetic patients, and to determine the potential for this RXR agonist to
have positive metabolic effects on carbohydrate and /or lipid metabolism in this
population. If Phase II studies are successful Ligand expects to enter full
development on a registration tract during 1998. Ligand's goal is to initiate a
significant pharmaceutical partnership in type II diabetes in 1997 to conduct
the development.
SEX STEROIDS
The primary objective of Ligand's sex steroid program is to define
agonists, partial agonists and antagonists of the sex steroid receptors as drugs
for hormonally-responsive cancers of men and women, hormone replacement
therapies and the treatment and prevention of diseases affecting women's health
as well as hormonal disorders prevalent in men. Ligand's programs in the sex
steroid areas target (i) development of tissue-selective modulators of the
progesterone receptor ("PR") and estrogen receptor ("ER") for uses including
various chronic disease indications and (ii) the development of androgen
receptor ("AR") agonists and antagonists for use in cancer and other
indications. Lead compounds have been identified in each of these project areas.
Substantial medicinal chemistry efforts have yielded compounds active in animals
as PR and AR modulators. Ligand is pursuing these programs alone and in
collaboration with certain partners. In the research phase of a collaboration
with Pfizer, an advanced clinical compound in breast cancer and osteoporosis was
evaluated and potentially attractive ER modulators were identified as
development candidates and backup candidates. In a collaboration with AHP,
several advanced sex hormone receptor modulators are progressing in preclinical
evaluation. Ligand has filed a patent application on fundamental advances made
in understanding sex steroid receptor function with significant drug discovery
implications.
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Progesterone Receptor Antagonists and Agonists. The objective of this
program is to develop novel PR antagonists, partial agonists and agonists for
chronic therapies. As part of this program, Ligand is also pursuing PR agonists
and partial agonists with related chemical structures for use in hormone
replacement therapy, breast cancer, contraception and other applications in
women's health.
Exploratory clinical research indicates that PR antagonists may have
utility in a variety of chronic diseases, including endometriosis and cancer.
Although PR antagonists currently are used clinically for acute indications,
their use in chronic diseases is likely to be limited by their cross-reaction
with the glucocorticoid receptor, which is anticipated to produce adverse side
effects with chronic administration. Ligand believes that more selective PR
antagonists will be useful in the treatment of many hormone responsive diseases,
including gynecological and malignant disorders, such as breast and uterine
cancer, uterine fibroids (benign smooth muscle tumors) and endometriosis.
Because of the very close structural similarity of the IRs for progesterone and
glucocorticoids, it has proven difficult to find noncross-reactive compounds.
This has been made more difficult because medicinal chemists have been largely
constrained to steroid structures as lead compounds.
Ligand believes that it has an excellent opportunity, based on its
proprietary tools and approaches, to develop a specific PR antagonist that does
not cross-react with the IR for glucocorticoids. Ligand has discovered several
non-steroidal lead compounds that are PR antagonists. Ligand has also discovered
closely related compounds that are full agonists of the PR, which may be useful
in breast cancer, contraception and hormone replacement therapy. These lead
compounds were detected in Ligand's natural product and defined chemical
screening programs using the co-transfection assay and the cloned human PR.
Medicinal chemistry efforts at Ligand based on one of these non-steroidal
antiprogestin leads have yielded potent, selective compounds with demonstrable
antiprogestin pharmacological effects both in vitro in human breast cancer cells
and in vivo in rodents.
In January 1996, AHP exercised its option to include compounds that
Ligand had discovered that modulate PRs and to expand the collaboration to
encompass the treatment or prevention of osteoporosis through the ER. Ligand's
proprietary PR modulators added to the collaboration include three series:
LG1447 PR antagonists, and LG2527 and LG2716 PR agonists. In May 1996, AHP
expanded the collaboration further to include four advanced chemical compound
series from the Wyeth-Ayerst internal ER-osteoporosis program. See "Tissue
Selective Estrogen and Progesterone Agonists."
Estrogen Agonists. Osteoporosis is a disease characterized by
significant loss of bone mass. The disease, which predominantly affects
post-menopausal women, leads to a greater susceptibility to traumatic bone
fractures and can lead to curved spine ("dowager's hump") or hip fractures in
elderly women. The disease is ordinarily treated by giving women therapeutic
doses of estrogen or other steroidal analogues of estrogen. Estrogen therapy is
a suboptimal treatment of the disease because of significant side effects,
including an increased risk of developing uterine cancer. Estrogen therapy is
not well tolerated, and over 60% of women abandon the therapy within the first
year. Nevertheless, the market for estrogen therapy in the United States alone
exceeds $850 million annually and is estimated by Ligand to approximate $1.4
billion worldwide.
The objective of the collaboration between Ligand and Pfizer was to
discover and develop novel therapies for osteoporosis acting through IRs. The
program focused on estrogen agonists that have greater tissue specificity for
bone than current forms of estrogen replacement therapy. In November 1993,
Ligand and Pfizer announced the successful completion of the research phase of
their alliance with the identification of a development candidate and backups
for the prevention and treatment of osteoporosis. In preclinical studies, the
candidates from the program mimic the beneficial effects of estrogen on bone
(stabilization of bone mineral density and skeletal integrity) and have an
impact on serum lipids often associated with cardioprotection without increasing
uterine or breast tissue proliferation. Ligand has been informed that Pfizer
intended to file an IND or foreign equivalent for CP336,156 in the fourth
quarter of 1996. Ligand is awaiting confirmation from Pfizer.
Tissue Selective Estrogen and Progesterone Agonists. In addition to the
effects of estrogens and progesterones on the reproductive system, estrogens
exert a number of other influences in the body, including beneficial effects on
the cardiovascular and skeletal systems. After menopause, replacement of lost
estrogens is effective but not well tolerated due to adverse side effects.
Building on insights emerging from its research, Ligand believes that it has
developed a novel approach to achieving tissue selective estrogen or
progesterone agonist action. Ligand's approach is not dependent on the existence
of receptor subtypes, although subtypes have been demonstrated for the ER and PR
which may offer other drug discovery opportunities. Ligand has designed and
implemented novel screens which Ligand believes will detect sex steroid receptor
agonists with desirable pharmacological profiles. Ligand believes that these
compounds will be useful in treating a variety of hormone-responsive diseases,
such as endometriosis,
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uterine fibroids and cancers of the uterus and breast. Additionally, Ligand
believes that the compounds emerging from this program can be used in
reproductive medicine and hormone replacement therapy.
In September 1994, Ligand entered into a collaboration with AHP in the
area of ER and PR modulators for use in women's health. The objective of this
collaborative program is to discover and develop drugs which interact with the
ER or PR to produce tissue-selective actions. An important additional aspect of
this collaboration is Ligand's right to assay AHP's extensive chemical library
for activity against a selected set of targets of Ligand's internal programs.
Ligand may select up to 24 lead compounds for internal development to which
Ligand has worldwide rights. AHP has agreed to provide up to $21.5 million in
research funding to support up to 18 Ligand scientists during the term of the
collaboration.
Androgen Receptor Agonists and Antagonists. The primary objective of
this project is to develop novel AR agonists or antagonists for male hormone
replacement therapy and the treatment of skin disorders, osteoporosis, prostate
cancer and other diseases. The growth of most prostate cancers appears to be
stimulated by or dependent upon androgens. The use of androgen antagonists has
shown efficacy in the treatment of prostate cancer. Currently, the FDA has
approved two androgen antagonists for use in the treatment of prostate cancer
and a third is in clinical development. None of these are Ligand compounds.
These agents appear to have significant side effects. Ligand believes that there
is a substantial medical need for improved androgen modulators for use in the
treatment of prostate cancer.
AR agonists and antagonists with an improved side effect profile may
also provide utility in the treatment of benign prostatic hypertrophy, acne,
hirsutism, male-pattern baldness and cachexia associated with chronic disease
(e.g., cancer, auto-immune disorders and AIDS). Ligand has exclusively licensed
patent applications for the cloned human AR and is employing it to identify
novel AR agonists and antagonists. Ligand has identified non-steroidal lead
compounds from its internal screening programs. An internally directed medicinal
chemistry effort has produced potent, selective, patentable AR agonists and
antagonists which show pharmacological activity in vivo in rodents. Compounds
from these series are being optimized and will be further evaluated as potential
preclinical candidates. Ligand intends to pursue the specialty applications
emerging from these projects internally, but may seek a collaboration with a
pharmaceutical company to exploit broader clinical applications.
CARDIOVASCULAR/METABOLIC DISEASE
Ligand scientists are exploring the role of certain orphan IRs in
disorders affecting the cardiovascular system. Data suggest that these receptors
regulate the expression of apolipoprotein A1 ("ApoA1"). ApoA1 is the major
protein constituent of high-density lipoprotein ("HDL"), and recent data link
increased levels of ApoA1 to prevention of atherosclerosis.
Another subfamily of orphan IRs, Peroxisome Proliferator Activated
Receptors ("PPARs"), have been implicated in lowering plasma levels of very low
density lipoproteins and triglycerides. Data implicate PPARs in the mechanism of
action of lipid lowering drugs such as Lopid(R). Ligand has discovered three
subtypes of this PPAR class and defined novel aspects of their action. The
subtype PPAR alpha appears to regulate the metabolism of certain lipids. PPAR
alpha agonists may be useful to treat atherosclerosis and diabetes mellitus.
PPAR gamma plays roles in fat cell differentiation and cellular responses to
insulin. Modulators of PPAR gamma activity (e.g., the glitazone class of insulin
sensitizers) may have utilities in the management of diabetes mellitus and/or
obesity.
PPARs function in cells with RXRs as partner proteins. In addition to
compounds that act directly on PPARs, which may have utility in various
cardiovascular and metabolic disorders, certain retinoids able to activate RXRs
(e.g., Oral Targretin (LGD1069) and ALRT620) and indirectly activate PPARs may
also have utilities in these disorders. Preclinical animal studies have
demonstrated that Oral Targretin (LGD1069)has beneficial effects in animal
models of diabetes.
Ligand has established sophisticated high throughput assays to screen
for drug selectivity associated with structural classes of thyroid hormone
receptors to identify compounds which could selectively mimic the thyroid
hormone's cardioprotective lipid lowering effects without its impact on heart
rate and nervous system activity.
In September 1992, Ligand entered into a collaboration with Glaxo to
discover and develop drugs for the prevention or treatment of atherosclerosis
and other disorders affecting the cardiovascular system. In collaboration with
Glaxo, Ligand is working to discover drugs which produce beneficial alterations
in lipid and lipoprotein metabolism in projects focused on (i) regulation of
cholesterol biosynthesis and expression of a receptor which removes cholesterol
from the blood stream, (ii) the IRs influencing
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circulating ADL levels, and (iii) PPARs, the subfamily of IRs activated by the
clofibrate class of lipid lowering drugs, Lopid and Atromid-S. The collaboration
with Glaxo has also identified a novel lead structure that activates selected
PPAR subfamily members.
Ligand and Glaxo have screened compounds to identify potential lead
compounds. A lead compound showing in vivo activity in rodents has been selected
for lowering low-density lipoprotein ("LDL") cholesterol by up-regulating LDL
receptor gene expression in liver cells. Once leads are identified, Glaxo has
primary responsibility for pharmacology, medicinal chemistry to optimize the
drug candidates, preclinical testing and for conducting clinical trials of the
drug candidates for marketing approval by the FDA and certain other regulatory
agencies.
INFLAMMATORY DISEASE
Ligand is utilizing three innovative approaches to discover drugs for
the treatment of inflammation. Two approaches are being pursued in partnership
with Abbott and a third approach is being pursued in collaboration with Sankyo.
These programs and approaches target diseases such as rheumatoid arthritis,
asthma and reperfusion injury.
In collaboration with Abbott, Ligand is seeking novel small molecule
anti-inflammatory drugs. The collaborative program includes (i) several
approaches to discovering modulators of glucocorticoid receptor activity that
are better than currently known anti-inflammatory steroids such as
hydrocortisone and dexamethasone and (ii) approaches to the discovery of
blockers of the actions of the inflammation-promoting cytokines, interferon
alpha and interferon gamma, through inhibition of their STAT-mediated signal
transduction. A number of lead compounds have been identified and are currently
being optimized for further drug development.
In collaboration with Sankyo, Glycomed scientists are synthesizing and
testing compounds that block the adhesion of white blood cells to tissue. Some
forms of inflammation are thought to be maintained by continued accumulation of
white blood cells at sites of tissue injury. This accumulation is caused by
adhesion of the white cells to the endothelial linings of blood vessels in the
injured tissue. Research suggests the inflammatory process can be blocked by
interfering with white blood cell adhesion, thus reducing tissue localization of
the white cells. Inhibiting this process at its early stages by blocking the
action of selectins (cell surface proteins mediating adhesion) may provide
potent treatments for a variety of acute and chronic inflammatory diseases such
as rheumatoid arthritis and asthma. Two lead compound series show improved
potency over the natural adhesion ligands and a potential third lead series is
currently under evaluation.
Galardin(TM) (GM6001). MMPIs are also potent inhibitors of a class of
enzymes involved in the degradation of proteoglycans and collagen. Galardin, a
metalloproteinase inhibitor, is a small, easily-synthesizable molecule that has
demonstrated effectiveness at very low concentrations in the prevention of
corneal ulceration in animals following alkali injury to the eye. The MMPI
Galardin was the first compound for which Glycomed filed an IND. Glycomed
received Orphan Drug designation for Galardin in December 1991 and completed
enrollment for the Phase II/III clinical trials in July 1994. The study,
involving over 500 patients with corneal injury, produced the statistically
significant finding that Galardin treatment reduced the number of patients in
which perforation of the cornea developed in the period after injury. In
contrast, the results of this Phase II/III study of Galardin in corneal injury
did not demonstrate a statistically significant impact of Galardin, applied
topically in the eye, on the rate of healing of corneal ulcers, the principal
intended study endpoint. Perforation is caused by destruction of the full
thickness of the cornea. It is one of the most serious complications associated
with corneal ulcers and can lead to blindness. Corneal perforation is a
significant risk for an estimated 120,000 of the patients with corneal ulcers in
the United States each year. Sankyo has Galardin in Phase II trials in Japan and
Ligand is seeking a partner to further the development and commercialization of
Galardin for ophthalmic use. Composition of matter and use patents (in corneal
ulceration) have been issued in the United States.
In February 1994, Glycomed signed a License Agreement with Sankyo for
all ophthalmic indications in the Far East for Galardin and analogues, while
Glycomed has retained rights in the rest of the world.
STATs
The recent discovery of the role of STATs and JAKs explains the
mechanism through which many cytokines modulate gene expression and cellular
function. The cytokines that produce cellular responses through the STAT/JAK
pathway include the interferons, most of the interleukins, the hematopoietic
growth factors, growth hormone and leptin.
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Ligand's STAT/JAK signaling programs are focused on applications for
inflammation, infection, transplant rejection, allergy and blood cell
deficiencies induced in patients receiving chemotherapy. Ligand's first
collaborative effort to utilize the STAT/JAK approach to drug discovery is with
Abbott in the field of inflammation. Ongoing screening in this program has led
to the selection of a lead compound for interferon antagonist activity.
Ligand's second collaboration in the STAT/JAK area is with SmithKline
Beecham to discover and characterize small molecule, orally bioavailable drugs
to enhance the formation and development of blood cells (hematopoiesis). Working
together, Ligand and SmithKline Beecham scientists were able to validate a
STAT/JAK-based high throughput screen for hematopoietic growth factors, thus
achieving the first milestone of the collaboration in under nine months. Based
on this and additional collaborative work, the research teams of SmithKline
Beecham and Ligand are exploiting recent insights into the roles of JAKs and
STATs in mediating hematopoietic growth factor signal transduction and blood
cell formation. The Company's goal is to discover orally active compounds that
effectively enhance blood cell formation in a variety of anemias and after
cancer therapy. Several lead compounds have been identified. In January 1997,
SmithKline Beecham and Ligand expanded the collaboration to include screens
aimed at discovering small molecule mimics of thrombopoietin to stimulate blood
platelet production.
Ligand's internal STATs research group is focused on the discovery of
new leads with potential utility as cancer therapeutics and the development of
high throughput screens for agonists and/or antagonists of therapeutically
relevant cytokines that use the STAT/JAK pathway. Current efforts have allowed
the Company to identify the components required for high throughput screening
for IL-4 antagonists to treat allergy and asthma and IL-12 antagonists to treat
transplant rejections and autoimmine diseases such as rheumatoid arthritis.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were $59.5 million, $41.6 million and
$27.2 million in fiscal 1996, 1995 and 1994, respectively, of which
approximately 38%, 41% and 51%, respectively, was sponsored by the Company and
the remainder of which was funded pursuant to product development collaboration
arrangements. See "Strategic Alliances."
IN-LICENSED PRODUCTS
PHOTOFRIN(R)
In March 1995, Ligand acquired from QLT exclusive Canadian marketing
rights to PHOTOFRIN, porfimer sodium, a laser-activated drug for use in
photodynamic therapy for esophageal and superficial bladder cancer. In July
1995, Ligand, through its wholly-owned Canadian subsidiary Ligand Canada, began
distribution of PHOTOFRIN. There are over 3,500 new cases of superficial bladder
cancer and 1,200 new cases of esophageal cancer diagnosed each year in Canada.
Ligand Canada also has rights to sell the product for any other approved
indications in Canada. PHOTOFRIN has been approved in the United States in
esophageal cancer, in the Netherlands for lung and esophageal cancers and in
Japan for early-stage lung, esophageal, gastric and cervical cancers.
Proleukin(R)
In September 1994, Ligand entered into an agreement with Cetus Oncology
to exclusively market in Canada Proleukin, its recombinant human Interleukin-2
(aldesleukin) for the treatment of kidney cancer. In April 1995, Ligand Canada
began distribution of Proleukin. It is also being tested with alpha interferon
to determine if additional indications are feasible. There are nearly 5,000 new
cases of kidney cancer reported in Canada each year.
The Company has initiated Phase IV trials in Canada with both Proleukin
and PHOTOFRIN to further characterize the drugs clinically and facilitate
broader acceptance of both products.
STRATEGIC ALLIANCES
SmithKline Beecham Corporation. In February 1995, Ligand entered into a
collaborative agreement with SmithKline Beecham providing for a three-year
research program (with an option to extend the program for two years at
SmithKline Beecham's
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election) to utilize Ligand's proprietary STATs technology to discover and
characterize small molecule, orally bioavailable drugs to control hematopoiesis
(the formation and development of blood cells). Under the terms of the
agreement, SmithKline Beecham has been granted exclusive worldwide rights for
products resulting from the collaboration in certain targeted areas. In
exchange, SmithKline Beecham has agreed to provide Ligand up to $9.0 million in
research funding and up to $12.5 million in equity investments. This amount
includes an initial equity investment of $5.0 million in Common Stock. In
November 1995, a second equity investment of $2.5 million in Ligand's Common
Stock was provided to Ligand upon the achievement of certain milestones. A third
equity investment of $2.5 million would be provided to Ligand upon SmithKline
Beecham's election to expand the scope of research as defined. This election was
exercised by SmithKline Beecham in January 1997 to include screens aimed at
discovering small molecule mimics of thrombopoietin. The final installment of
$2.5 million will be provided at SmithKline Beecham's option as a convertible
note or an equity investment if SmithKline Beecham elects to further expand the
scope of research as defined or elects to extend the collaboration. SmithKline
Beecham will make additional milestone payments to Ligand as compounds progress
in clinical development and will also make royalty payments on product sales.
Ligand has the right to select up to three compounds related to hematopoietic
targets for development as anti-cancer products other than those compounds
selected for development by SmithKline Beecham. SmithKline Beecham has the
option to co-promote these products with Ligand in North America and to develop
and market them outside North America. SmithKline Beecham can terminate the
research program upon 60 days notice in the event of any breach by Ligand or
upon six months notice at any time after August 1996. As of December 31, 1996,
SmithKline Beecham had funded approximately $4.5 million of the total of $9.0
million in potential research funding under the agreement.
American Home Products Corporation. In September 1994, Ligand entered
into a collaborative research agreement with AHP providing for a three-year
research program (with an option to extend the program for two years at AHP's
election) to discover and develop drugs which interact with estrogen or
progesterone receptors for use in hormone replacement therapy, anti-cancer
therapy, gynecological diseases, central nervous system disorders associated
with menopause and fertility control. AHP has been granted exclusive worldwide
rights to all products discovered in the collaboration that are agonists or
antagonists to the PRs and ERs for application in the fields of women's health
and cancer therapy. Under the agreement, AHP agreed to provide up to $21.5
million in research funding and up to $25.0 million in equity and convertible
notes, in addition to milestone and royalty payments to Ligand for such
products. An important additional aspect of this collaboration is Ligand's right
to assay AHP's extensive chemical library for activity against a selected set of
targets of Ligand's internal programs. Ligand may select up to 24 lead compounds
for internal development to which Ligand has worldwide rights. AHP made a $5.0
million equity investment in Ligand and provided $10.0 million to Ligand in the
form of a convertible note. In the second quarter of 1995, Ligand had achieved
certain milestones which qualified the Company to receive the second installment
of a $5.0 million convertible note which the Company elected to receive in
December 1996. A final convertible note installment of $5.0 million will be
provided if AHP exercises its option to extend the period of collaboration from
three to five years. The first two notes issued to AHP are convertible into the
Company's Common Stock at $10.01 per share and the final note is convertible at
$10.88 per share. The conversion prices are subject to adjustment if certain
dilutive events occur to outstanding Common Stock. In July 1996 and again in
January 1997, the Company elected to convert $3.8 million of the convertible
notes outstanding into 374,626 shares of Common Stock for a total of 749,252
shares at the $10.01 conversion price.
In January 1996, AHP exercised its option to include compounds
discovered by Ligand that modulate PRs and to expand the collaboration to
encompass the treatment or prevention of osteoporosis through the ER. In
connection with the exercise of the option, the Company received $2.5 million in
additional research revenue and funding commitments. Ligand's proprietary PR
modulators added to the collaboration include three series: LG1447 PR
antagonists, LG2527 and LG2716 PR agonists. In May 1996, AHP expanded the
collaboration to include four advanced chemical compound series from its
internal ER-osteoporosis program. As of December 31, 1996, AHP had funded
approximately $12.6 million of the total of $21.5 million in potential research
funding under the agreement.
Abbott Laboratories. In July 1994, Ligand entered into a collaborative
research agreement with Abbott providing for a five-year research program to
discover and develop small molecule compounds for the prevention or treatment of
inflammatory diseases. Under the agreement, research funding provided by Abbott
may total up to approximately $16.0 million. Abbott has also committed
significant internal resources to the collaboration. Abbott was granted
exclusive worldwide rights for all products discovered in the collaboration for
use in inflammation. Ligand was granted exclusive worldwide rights for all
anti-cancer products discovered in the collaboration. Abbott will make milestone
and royalty payments on products targeted at inflammation resulting from the
collaboration, while Ligand will make milestone and royalty payments on products
targeted at anti-cancer resulting from the collaboration. Each party will be
responsible for the development, registration and commercialization of the
products in its respective field. Abbott made an initial $5.0 million equity
investment in Ligand and purchased an additional $5.0 million of equity in
August
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1995. Abbott can terminate the research program at any time upon 90 days notice
in the event of any breach by Ligand or upon four months notice at any time. As
of December 31, 1996, Abbott had funded approximately $6.3 million of the total
of $16.0 million in potential research funding under the agreement.
Sankyo Company Limited. As part of the Glycomed acquisition, the
Company acquired a collaborative research agreement with Sankyo which Glycomed
had entered into in June 1994 providing for a three-year research program. Under
the agreement, Sankyo reimburses a portion of the Company's research expenses
related to the collaboration up to an aggregate of $8.0 million. The agreement
also provides that upon being presented with a target compound arising from the
research collaboration with the Company, Sankyo will notify the Company whether
it wishes to pursue development of the compound. If Sankyo exercises its option
to develop the compound, the Company and Sankyo will negotiate in good faith the
terms and conditions for an option and license agreement and Sankyo will make
additional milestone payments. In connection with the collaborative research
agreement, in September 1995, Sankyo purchased $1.5 million of the Company's
Common Stock. Sankyo can terminate the research program at any time upon 30 days
notice in the event of any breach by Glycomed. As of December 31, 1996, Sankyo
had funded approximately $6.7 million, of which $4.4 million has been funded
since the Merger, of the total of $8.0 million in potential research funding
under the agreement.
Glaxo-Wellcome plc. In September 1992, Ligand entered into a five-year
collaborative research agreement with Glaxo to develop drugs for the prevention
or treatment of cardiovascular disease. The collaboration significantly enhances
Ligand's pharmacological, medicinal chemistry and clinical development resources
related to cardiovascular disease. Glaxo has committed significant internal
resources to the collaboration and will fund one-half of Ligand's research
expenses to support 18 Ligand scientists assigned to the collaboration. Ligand
and Glaxo will screen compounds to identify potential lead compounds. Once leads
have been identified, Glaxo will have primary responsibility for pharmacology,
medicinal chemistry to optimize the drug candidates and preclinical testing.
Glaxo also has responsibility for conducting clinical trials of the drug
candidates for marketing approval by the FDA and certain other regulatory
agencies. Ligand will receive milestone payments as compounds progress through
the development cycle and a royalty on any commercialized products. Ligand has
retained the right to develop and commercialize products arising from the
collaboration in markets not exploited by Glaxo or where Glaxo is not developing
a product for the same indication. Glaxo has made a total of $10.0 million in
equity investments in Ligand. Glaxo can terminate the research program at any
time upon 180 days notice in the event of any breach by Ligand. In connection
with the agreement, Glaxo purchased $7.5 million of the Company's Common Stock.
Glaxo also purchased $2.5 million of the Company's Common Stock as part of the
Company's initial public offering. As of December 31, 1996, Glaxo had funded
approximately $7.8 million of the total of $10.0 million in potential research
funding under the agreement.
Allergan, Inc. In June 1992, Ligand and Allergan formed the Joint
Venture, owned 50 percent by each party, to discover, develop and commercialize
retinoid drugs. In December 1994, the Company and Allergan formed ALRT to
continue the research and development activities previously conducted by the
Joint Venture. In June 1995, the Company and ALRT completed a public offering of
3,250,000 units (the "Units") with aggregate proceeds of $32.5 million (the
"ALRT Offering") and cash contributions by Allergan and Ligand of $50.0 million
and $17.5 million, respectively, providing for net proceeds of $94.3 million for
retinoid product research and development. Each Unit consisted of one share of
ALRT's callable common stock and two warrants, each warrant entitling the holder
to purchase one share of Common Stock of the Company. Immediately prior to the
consummation of the ALRT Offering, Allergan Pharmaceuticals (Ireland) Ltd., Inc.
("Allergan Ireland") made a $6.0 million investment in the Company's Common
Stock. As part of the ALRT Offering, all rights held by the Joint Venture were
licensed to ALRT. The Company, Allergan and ALRT entered into certain other
various agreements in connection with the funding of ALRT, including, a
Technology License Agreement, a Research and Development Agreement, a
Commercialization Agreement, Services and Administrative Agreements, an option
to acquire certain assets related to Oral and Topical Panretin (ALRT1057) (the
"ALRT1057 Option") and an option to acquire all the outstanding shares of ALRT
callable common stock (the "ALRT Stock Purchase Option"), pursuant to which
Ligand and Allergan perform development work on certain retinoid compounds. ALRT
can terminate the Research and Development Agreement at any time after a breach
by Ligand or Allergan, subject to the right of the nonbreaching party to assume
the obligations of the breaching party within 20 days of receipt of notice of
the breach. The ALRT1057 Option is exercisable at prices ranging from $21.4
million to $36.2 million (of which $18.7 million to $31.7 million is payable by
Ligand) at any time beginning June 1997 and ending the earlier of 90 days after
regulatory approval for the commercial sale of Oral Panretin (ALRT1057) or
Topical Panretin (ALRT1057) and June 2000. The ALRT1057 Option must be exercised
by both Ligand and Allergan. As a result, Ligand can exercise the ALRT1057
Option only if Ligand and Allergan each conclude that the exercise of the
ALRT1057 Option is in both of their best interests. In addition, pursuant to the
ALRT Stock Purchase Option Ligand is entitled to purchase all ALRT callable
common stock at prices ranging from $71.4 million to $120.7 million at any time
between June 1997
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and June 2000. If Ligand exercises the ALRT Stock Purchase Option, Allergan has
an option to purchase an undivided 50% interest in all of the assets of ALRT at
prices ranging from $8.9 million to $15.0 million. Since 1992, Allergan Ireland,
a wholly owned subsidiary of Allergan, has made $30.0 million in equity
investments in Ligand. As of December 31, 1996, ALRT had provided approximately
$30.6 million in research funding to Ligand under the Research and Development
Agreement. Based on the current level of product development expenditures, ALRT
has announced that it could use substantially all of the funds available for
research and development in late 1997 or early 1998, which would trigger the
ALRT Stock Purchase Option. The Company has made no determination concerning the
exercise of either the ALRT1057 option or the ALRT Stock Purchase Option.
Pfizer Inc. In May 1991, Ligand entered into a five-year collaborative
research and development and license agreement with Pfizer to develop better
alternative therapies for osteoporosis. Pfizer agreed to provide up to $3.0
million per year in research funding to Ligand in addition to committing
significant internal resources. In November 1993, Ligand and Pfizer announced
the successful completion of the research phase of their alliance with the
identification of a development candidate and backups for the prevention and
treatment of osteoporosis. In preclinical studies, the candidates from the
program mimic the beneficial effects of estrogen on bone and have an impact on
blood serum lipids often associated with cardiac benefits without increasing
uterine or breast tissue proliferation. Under the terms of the collaboration,
Pfizer has primary responsibility for pharmacology, medicinal chemistry to
optimize the drug candidates, preclinical testing, and clinical trials of drug
candidates for marketing approval by the FDA and certain other regulatory
agencies. Ligand has granted Pfizer exclusive worldwide rights to manufacture
and market any compounds jointly developed for osteoporosis. Ligand is to
receive up to $7.5 million in milestone payments as development objectives are
achieved, in addition to royalties on sales of successful drugs that emerge from
the alliance. As of December 31, 1993, Pfizer had made a total of $7.5 million
of equity investments in Ligand and had funded approximately $9.4 million in
research funding.
In December 1994, Ligand filed suit against Pfizer in the Superior
Court of California in San Diego County for breach of contract and for a
declaration of future rights as they relate to droloxifene, a compound upon
which Ligand performed work at Pfizer's request during the collaboration between
Pfizer and Ligand to develop drugs in the field of osteoporosis. Droloxifene is
an estrogen antagonist/partial agonist with potential indications in the
treatment of osteoporosis and breast cancer as well as other applications.
Ligand and Pfizer entered into a settlement agreement with respect to the
lawsuit in April 1996. Under the terms of the settlement agreement, Ligand is
entitled to receive milestone payments if Pfizer continues development and
royalties if Pfizer commercializes droloxifene. At the option of either party,
milestone and royalty payments owed Ligand can be satisfied by Pfizer
transferring to Ligand shares of Common Stock at an exchange ratio of $12.375
per share. To date, Ligand has received approximately $1.3 million in milestone
payments from Pfizer as a result of the continued development of droloxifene.
These milestones were paid in the form of an aggregate of 101,011 shares of
Common Stock, which were subsequently retired from treasury stock in September
1996. According to announcements by Pfizer, droloxifene has entered Phase II
clinical trials for osteoporosis and Phase III clinical trials for breast
cancer.
The Salk Institute of Biological Studies. In October 1988, Ligand
established an exclusive relationship with The Salk Institute which is one of
the leading research centers in the area of IR technology. Dr. Ronald Evans, who
cloned and characterized the first IR in 1985 and who invented the
co-transfection assay used by Ligand, is a professor in the Gene Expression
Laboratory of The Salk Institute and an Investigator of the Howard Hughes
Medical Institute. Under the agreement, Ligand has an exclusive, worldwide
license to the intracellular receptor technology developed by Dr. Evans'
laboratory at The Salk Institute. Subject to compliance with the terms of the
agreement, the term of the license extends for the life of the patents covering
such developments.
Under the agreement, Ligand made an initial payment to The Salk
Institute and issued shares of Common Stock as partial consideration for the
license. Ligand is also obligated to make certain royalty payments based on
sales of certain products developed using the licensed technology, as well as
certain minimum annual royalty payments.
Ligand also entered into exclusive consulting agreements with Dr. Evans
that continue through July 1998. Under these agreements, Dr. Evans has purchased
Common Stock and has been granted options to purchase Common Stock. As a
consultant, Dr. Evans meets on a regular basis with Company personnel to review
ongoing research and to assist Ligand in defining the technical objectives of
future research. Dr. Evans is also involved in identifying new developments made
in other leading academic laboratories which relate to Ligand's research
interests. Dr. Evans serves as Chairman of Ligand's Scientific Advisory Board.
Baylor College of Medicine. In January 1990, Ligand established an
exclusive relationship with Baylor, which is a leading center of IR technology.
Dr. Bert W. O'Malley is a professor and the Chairman of the Center for
Reproductive Biology at Baylor and
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leads IR research at that institution. Important features of Ligand's
co-transfection assay were developed in Dr. O'Malley's laboratory and are
exclusively licensed by Ligand. Ligand has entered into a series of agreements
with Baylor under which it has an exclusive, worldwide license to IR technology
developed at Baylor and to future improvements made in Dr. O'Malley's laboratory
through March 1997. Subject to compliance with the terms of the agreements, the
term of the license may extend for the life of the patents covering such
developments.
Ligand works closely with Dr. O'Malley and Baylor in scientific IR
research, particularly in the area of sex steroids and orphan IRs. Under the
agreement, Ligand is obligated to make payments to Baylor College of Medicine in
support of research done in Dr. O'Malley's laboratory for the period from April
1992 through March 1997. Ligand is also obligated to make certain royalty
payments based on the sales of products developed using the licensed technology.
Ligand also entered into an exclusive consulting agreement with Dr. O'Malley
through September 1996. Dr. O'Malley is a member of Ligand's Scientific Advisory
Board. Dr. O'Malley has purchased Common Stock and has been granted options to
purchase Common Stock.
Rockefeller University. In September 1992, Ligand entered into a
worldwide, exclusive license agreement with Rockefeller University and exclusive
consulting agreements with Dr. James Darnell of Rockefeller University and Dr.
David Levy of NYU to develop and commercialize certain technology involving
STATs to control gene expression. Dr. Darnell is one of the leading
investigators of the control of gene expression by STATs. Rockefeller University
will receive (i) payments upon the transfer of the technology to Ligand and upon
the first four anniversary dates of the agreement, (ii) a royalty on any
commercialized products and (iii) subject to a vesting schedule, shares of
Common Stock and warrants to purchase shares of Common Stock. In consideration
of related technology assigned by NYU to Rockefeller University and covered by
the license agreement with Ligand, NYU received, subject to a vesting schedule,
shares of Common Stock and warrants to purchase shares of Common Stock. Subject
to a vesting schedule tied to their consulting agreements, Dr. Darnell and Dr.
Levy received shares of Common Stock. In addition, in October 1994 Ligand
granted Dr. Darnell options to purchase shares of Common Stock.
In addition to the collaborations discussed above, the Company also has
a number of other consulting, licensing, development and academic agreements by
which it strives to advance its technology.
PATENTS AND PROPRIETARY RIGHTS
Ligand believes that patents and other proprietary rights are important
to its business. Ligand's policy is to file patent applications to protect
technology, inventions and improvements to its inventions that are considered
important to the development of its business. Ligand also relies upon trade
secrets, know-how, continuing technological innovations and licensing
opportunities to develop and maintain its competitive position.
To date, Ligand has filed or participated as licensee in the filing of
over 190 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. In addition, Ligand is the exclusive licensee to
rights covered by 150 patents issued or allowed worldwide to The Salk Institute,
Baylor and other licensors. Subject to compliance with the terms of the
respective agreements, Ligand's rights under its license with The Salk
Institute, and other exclusive licensors, extend for the life of the patents
covering such developments.
The patent positions of pharmaceutical and biotechnology firms,
including Ligand, are uncertain and involve complex legal and factual questions
for which important legal principles are largely unresolved. In addition, the
coverage claimed in a patent application can be significantly reduced before or
after a patent is issued. The situation is also affected by the fact that the
patent law of the United States is changed from time to time. For example,
during 1995, the patent term was changed from 17 years from patent grant to 20
years from the filing date of the application for patent. Since a patent has no
effect until granted, and because the time during which a patent application
spends before the Patent Office cannot be predicted, the actual term of a patent
cannot be known until it is granted and that term may be substantially less than
the 17 years allowed under former law. Also during 1995, certain advantages of
U.S. inventors over foreign inventors were eliminated from the patent law. There
are currently pending before the Congress other changes to the patent law which
may adversely affect pharmaceutical and biotechnology firms. The extent to which
the changes made in 1995 and changes which might occur if pending legislation is
adopted would affect the operations of Ligand cannot be ascertained. There can
be no assurance that any patent applications will result in the issuance of
patents or, if any patents are issued, that they will provide significant
proprietary protection or, instead, will be circumvented or invalidated. Since
under current law patent applications in the United States are maintained in
secrecy until foreign counterparts, if any, publish or patents issue and since
publication of discoveries in the scientific or patent literature often lag
behind actual discoveries, Ligand
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cannot be certain that it or any licensor was the first creator of inventions
covered by pending patent applications or that it or such licensor was the first
to file patent applications for such inventions. Moreover, Ligand might have to
participate in interference proceedings declared by the U.S. Patent and
Trademark Office to determine priority of invention, which could result in
substantial cost to Ligand, even if the eventual outcome were favorable to
Ligand. 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.
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 technologies, applications or patents may conflict with
Ligand's technologies or patent applications. 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, there can be no assurance
that Ligand would be able to obtain licenses to these patents at a reasonable
cost or be able to develop or obtain alternative technology.
Ligand also relies upon trade secret protection for its confidential
and proprietary information. There can be no assurance that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to Ligand's trade secrets or disclose such
technology or that Ligand can meaningfully protect its trade secrets.
It is Ligand's policy to require its employees, consultants, members of
the 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 provide that all
confidential information developed or made known during the course of the
relationship with Ligand is to be kept confidential and not disclosed to third
parties except in specific circumstances. In the case of employees, the
agreements provide that all inventions resulting from work performed for Ligand,
utilizing property of Ligand or relating to Ligand's business and conceived or
completed by the individual during employment shall be the exclusive property of
Ligand to the extent permitted by applicable law. There can be no assurance,
however, that these agreements will provide meaningful protection of Ligand's
trade secrets or adequate remedies in the event of unauthorized use or
disclosure of such information.
SALES AND MARKETING
The creation of infrastructure to commercialize products is a
difficult, expensive and time-consuming process. Ligand currently has no sales
and only limited marketing capability outside Canada. 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 distributions systems and
direct sales forces. There can be no assurance that the Company will be able to
establish direct or indirect sales and distribution capabilities or 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.
In September 1994, Ligand was appointed by Cetus Oncology as the sole
distributor of Proleukin(R), an oncology product, within Canada for a five-year
period beginning on the date of the first sale of Proleukin(R) by Ligand in
Canada. Ligand paid Cetus Oncology $250,000 upon execution of the agreement and
made an additional milestone payment of $250,000 to Cetus Oncology upon the
receipt of government approval for the sale of Proleukin(R) in Canada. In
accordance with the agreement, Ligand initially hired three sales
representatives to market Proleukin(R) in Canada.
In March 1995, Ligand was also appointed by QLT as the sole
distributor, within Canada of PHOTOFRIN(R), a product for the treatment of
esophageal and superficial bladder cancer. The agreement covers an initial 10
year period beginning on the date of the first sale of PHOTOFRIN(R) by Ligand in
Canada. Ligand paid QLT $180,800 upon execution of the agreement with future
payments based on sales volume.
MANUFACTURING
Ligand currently has no manufacturing facilities, and accordingly
relies on third parties, including its collaborative partners, for clinical or
commercial production of any compounds under consideration as products. Ligand
is currently constructing
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and validating a current Good Manufacturing Practices ("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.
GOVERNMENT REGULATION
The manufacturing and marketing of Ligand's products and its ongoing
research and development activities are subject to regulation for safety and
efficacy by numerous governmental authorities in the United States and other
countries. In the United States, pharmaceuticals are subject to rigorous
regulation by federal and various state authorities, including FDA. The Federal
Food, Drug, and Cosmetic Act and the Public Health Service Act govern the
testing, manufacture, safety, efficacy, labeling, storage, record keeping,
approval, advertising and promotion of Ligand's products. There are often
comparable regulations which apply at the state level. Product development and
approval within this regulatory framework takes a number of years and involves
the expenditure of substantial resources.
The steps required before a pharmaceutical agent may be marketed in the
United States include (i) preclinical laboratory and animal tests, (ii) the
submission to the FDA of an IND, which must become effective before human
clinical trials may commence, (iii) adequate and well-controlled human clinical
trials to establish the safety and efficacy of the drug, (iv) the submission of
a New Drug Application ("NDA") to the FDA and (v) the FDA approval of the NDA
prior to any commercial sale or shipment of the drug. A company must pay a one
time user fee for NDA submissions, and annually pay user fees for each approved
product and manufacturing establishment. In addition to obtaining FDA approval
for each product, each domestic drug manufacturing establishment must be
registered with the FDA and in California, with the Food and Drug Branch of
California. Domestic manufacturing establishments are subject to preapproved
inspections by the FDA prior to marketing approval and then to biennial
inspections and must comply with cGMP. To supply products for use in the United
States, foreign manufacturing establishments must comply with cGMP and are
subject to periodic inspection by the FDA or by regulatory authorities in such
countries under reciprocal agreements with the FDA.
Preclinical tests include laboratory evaluation of product chemistry
and animal studies to assess the safety and efficacy of the product and its
formulation. The results of the preclinical tests are submitted to the FDA as
part of an IND, and unless the FDA objects, the IND will become effective 30
days following its receipt by the FDA.
Clinical trials involve the administration of the pharmaceutical
product to healthy volunteers or to patients identified as having the condition
for which the pharmaceutical is being tested. The pharmaceutical is administered
under the supervision of a qualified principal investigator. Clinical trials are
conducted in accordance with protocols previously submitted to the FDA as part
of the IND that detail the objectives of the study, the parameters used to
monitor safety and the efficacy criteria that are being evaluated. Each clinical
study is conducted under the auspices of an Institutional Review Board ("IRB")
at the institution at which the study is conducted. The IRB considers, among
other things, ethical factors, the safety of the human subjects and the possible
liability risk for the institution.
Clinical trials are typically conducted in three sequential phases that
may overlap. In Phase I, the initial introduction of the pharmaceutical into
healthy human volunteers, the emphasis is on testing for safety (adverse
effects), dosage tolerance, metabolism, distribution, excretion and clinical
pharmacology. Phase II involves studies in a limited patient population to
determine the efficacy of the pharmaceutical for specific targeted indications,
to determine dosage tolerance and optimal dosage and to identify possible
adverse side effects and safety risks. Once a compound is found to be effective
and to have an acceptable safety profile in Phase II evaluations, Phase III
trials are undertaken to evaluate clinical efficacy further and to further test
for safety within an expanded patient population at multiple clinical study
sites. The FDA reviews both the clinical plans and the results of the trials and
may discontinue the trials at any time if there are significant safety issues.
The results of the preclinical and clinical trials are submitted to the
FDA in the form of an NDA for marketing approval. The testing and approval
process is likely to require substantial time and effort and there can be no
assurance that any approval will
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be granted on a timely basis, if at all. The approval process is affected by a
number of factors, including the severity of the disease, the availability of
alternative treatments and the risks and benefits demonstrated in clinical
trials. Additional animal studies or clinical trials may be requested during the
FDA review process and may delay marketing approval. After FDA approval for the
initial indications, further clinical trials would be necessary to gain approval
for the use of the product for any additional indications. The FDA may also
require post-marketing testing to monitor for adverse effects, which can involve
significant expense.
The results of preclinical studies and initial clinical trials are not
necessarily predictive of results that will be obtained from large-scale
clinical trials, and there can be no assurance that clinical trials of any
product under development will demonstrate the safety and efficacy of such
product or will 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. 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 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. In
addition, some of the Company's current corporate partners have certain rights
to control the planning and execution of product development and clinical
programs, and there can be no assurance that such corporate partners' rights to
control aspects of such programs will not 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 will submit an NDA
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.
For both currently marketed and future products, failure to comply with
applicable regulatory requirements after obtaining regulatory approval can,
among other things, result in the suspension of regulatory approval, as well as
possible civil and criminal sanctions. In addition, changes in existing
regulations could have a material adverse effect on Ligand.
A drug that receives Orphan Drug designation by the FDA and is the
first product to receive FDA marketing approval for its product claim is
currently entitled to a seven-year exclusive marketing period in the United
States for that product claim. A drug that is considered by the FDA to be
different than a particular Orphan Drug, however, is not barred from sale in the
United States during such seven-year exclusive marketing period. The FDA has
approved an application by Ligand on behalf of ALRT to have Oral Panretin
(ALRT1057) designated an "Orphan Drug" for the treatment of APL. Ligand is
preparing additional applications for Orphan Drug designations in other
indications. Congress is currently considering significant changes to the Orphan
Drug Act, including a reduction in the exclusive marketing period from seven
years to four years, with the possibility of a three-year extension for certain
drugs.
For marketing outside the United States before FDA approval to market,
the Company must submit an export permit application to the FDA. The Company
also will be subject to foreign regulatory requirements governing human clinical
trials and marketing approval for drugs. The requirements relating to the
conduct of clinical trials, product licensing, pricing and reimbursement vary
widely from country to country and there can be no assurance that the Company or
any of its partners will meet and sustain any such requirements.
COMPETITION
Some of the drugs which Ligand is developing will be competing 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. A number of pharmaceutical and biotechnology companies are
pursuing IR-related or STAT-related approaches to drug discovery and
development. Furthermore, academic institutions, government agencies, and other
public and private organizations conducting research may seek patent protection
with respect to potentially competing products or technologies and may establish
collaborative arrangements with competitors of Ligand.
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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. These companies 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 pharmaceuticals could render these
pharmaceuticals noncompetitive or obsolete.
Ligand's products under development are expected to address 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 its future corporate partners can develop products,
complete the clinical trials and regulatory approval processes, and supply
commercial quantities of the products to the market are expected to be important
competitive factors. 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 for
the often substantial period between technological conception and commercial
sales.
PRODUCT LIABILITY AND INSURANCE
Ligand's business exposes it to potential product liability risks which
are inherent in the testing, manufacturing and marketing of human therapeutic
products. 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.
HUMAN RESOURCES
As of December 31, 1996, Ligand had 329 full-time employees, of whom
249 were involved directly in scientific research and development activities. Of
these employees, approximately 85 hold Ph.D. or M.D. degrees.
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 and its wholly-subsidiaries Glycomed Inc. and Ligand (Canada)
Inc. ("Ligand" or "the Company") and its business.
EARLY STAGE OF PRODUCT DEVELOPMENT; TECHNOLOGICAL UNCERTAINTY. 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 product development efforts are not expected to be available for sale
for at least several years, if at all.
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.
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
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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. 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. No assurance can be
given that the Company's product development efforts will be successful, that
required regulatory approvals from the FDA or equivalent foreign authorities for
any indication will be obtained or that any products, if introduced, will be
capable of being produced in commercial quantities at reasonable costs or will
be successfully marketed. 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, there can be no assurance that
the Company will be able to develop such capabilities or successfully market
such products.
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 December 31, 1996, Ligand had an
accumulated deficit of approximately $177.6 million. To date, substantially all
of Ligand's revenues have consisted of amounts received under collaborative
arrangements. The Company expects to incur additional losses at least over the
next several years and expects losses to increase as the Company's research and
development efforts and clinical trials progress.
The discovery and development 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. There
can be no assurance that Ligand independently or through its collaborations will
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 1998, assuming the Company does not exercise for cash its
options to acquire either the assets related to Oral Panretin (ALRT1057) and
Topical Panretin (ALRT1057) or the outstanding callable common stock of ALRT.
Based on the current level of product development expenditures, ALRT has
announced it could use substantially all of the funds available for research and
development in late 1997 or early 1998, which would trigger the ALRT Stock
Purchase Option. The Company has made no determination concerning the exercise
of either the ALRT1057 Option or the ALRT Stock Purchase Option.
Glycomed's outstanding indebtedness includes $50 million principal
amount of 7 1/2% Convertible Subordinated Debentures Due 2003 (the
"Debentures"). There can be no assurance that Glycomed will 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.
The Company expects that it will seek any additional capital needed to
fund its operations through new collaborations, the extension of existing
collaborations, or through public or private equity or debt financings. There
can be no assurance that additional financing will be available on acceptable
terms, if at all. Any inability of the Company to obtain additional financing or
of Glycomed to service its obligations under the Debentures could have a
material adverse effect on the Company.
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,
and there can be no assurance that clinical trials of any product under
development will demonstrate the safety and efficacy of such product or will
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
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of the product and could have a material adverse effect on the Company. 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 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. In
addition, some of the Company's current corporate partners have certain rights
to control the planning and execution of product development and clinical
programs, and there can be no assurance that such corporate partners' rights to
control aspects of such programs will not 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 will submit an NDA
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 SmithKline, AHP, Abbott, Sankyo,
Glaxo, ALRT (which collaboration continues the work previously undertaken with
Allergan, Inc. through the Allergan Ligand Joint Venture) and Pfizer. These
collaborations provide Ligand with funding and research and development
resources for potential products for the treatment or control of cardiovascular
disease, cancer and skin disease, osteoporosis, hematopoiesis, women's health
disorders, and inflammation, respectively. The Company's collaborative
agreements allow its collaborative partners significant discretion in electing
to pursue or not to pursue any development program. There can be no assurance
that the Company's collaborations will continue or that the collaborations will
be successful. In addition, there can be no assurance that Ligand's
collaborators will 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 collaboration 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 or terminated. The delay or termination of any of
the collaborations could have a material adverse effect on Ligand.
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.
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 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
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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, there can be no assurance
that Ligand would be 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, 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 exclusively licensed over 190 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.
There can be no assurance that patents will issue from any of these applications
or, if patents do issue, that claims allowed will be sufficient to protect
Ligand's technology. In addition, Ligand is the owner or exclusive licensee of
rights covered by approximately 150 worldwide patents issued or allowed to it or
to The Salk Institute of Biological Studies, Baylor College of Medicine and
other licensors. Further, there can be no assurance that any patents issued to
Ligand or to licensors of Ligand's technology will not 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, or that the
rights granted under any such patents will 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.
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
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. 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 (ALRT1057)) 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's rights under its patent application have
been exclusively licensed to ALRT. Ligand and ALRT are currently investigating
the scope and validity of this patent to determine its impact upon the Oral and
Topical Panretin (ALRT1057) products. The PTO has informed Ligand that the
overlapping claims are patentable to Ligand and stated its intention to initiate
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 for the Oral and Topical Panretin (ALRT1057)
products. While the Company believes that the Roche patent does not cover the
use of Oral and Topical Panretin (ALRT1057) 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 Oral and Topical Panretin (ALRT1057) in certain
cancers, and the Company may not be able to obtain patent protection for the
Oral and Topical Panretin (ALRT1057) products.
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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 of 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. There can be no assurance that
these agreements will not be breached, that they will provide meaningful
protection of Ligand's trade secrets or adequate remedies in the event of
unauthorized use or disclosure of such information or that Ligand's trade
secrets will not otherwise become known or be independently discovered by its
competitors.
EXERCISE OF PANRETIN (ALRT 1057) OPTION AND ALRT STOCK PURCHASE OPTION.
As part of the ALRT Offering all of the technologies previously developed by the
Joint Venture were contributed to ALRT, an off-balance sheet entity. In exchange
for Ligand's and Allergan's contributions of cash and technology, they each
received the ALRT1057 Option. The ALRT1057 Option is exercisable at prices
ranging from $21.4 million to $36.2 million (of which $18.7 million to $31.7
million is payable by Ligand) at any time beginning June 1997 and ending the
earlier of 90 days after regulatory approval for the commercial sale of Oral or
Topical Panretin (ALRT1057) and June 2000. The ALRT1057 Option must be exercised
by both Ligand and Allergan. As a result, Ligand can exercise the ALRT1057
Option only if Ligand and Allergan each conclude that the exercise of the
ALRT1057 Option is in both of their best interests. In addition, Ligand received
the ALRT Stock Purchase Option . The ALRT Stock Purchase Option is exercisable
at prices ranging from $71.4 million to $120.7 million at any time between June
1997 and June 2000. If Ligand exercises the ALRT Stock Purchase Option, Allergan
has an option to purchase an undivided 50% interest in all of the assets of ALRT
at prices ranging from $8.9 million to $15.0 million. The purchase prices for
the ALRT1057 Option and the ALRT Stock Purchase Option may be paid by Ligand and
Allergan in shares of Common Stock, Allergan common stock, cash or any
combination thereof. If Ligand exercises the ALRT1057 Option or the ALRT Stock
Purchase Option, it will be required to make a substantial cash payment or to
issue shares of Common Stock, or both. Any cash payment would reduce Ligand's
capital resources. The Company may not have sufficient capital resources to
exercise the ALRT1057 Option or the ALRT Stock Purchase Option for cash, which
will require the Company to issue shares of Common Stock to exercise either of
such options. Any payment in shares of Common Stock would result in a decrease
in the percentage ownership of the Company held by Ligand's stockholders at that
time. The exercise of the ALRT1057 Option may result in, and the exercise of the
ALRT Stock Purchase Option will likely require, the recording of a significant
charge to the Company's earnings. Based on the current level of product
development expenditures, ALRT has announced it could use substantially all of
the funds available for research and development in late 1997 or early 1998,
which would trigger the ALRT Stock Purchase Option.
In addition, continuation of development and commercialization of Oral
and Topical Panretin (ALRT1057) and other products under development by ALRT may
require substantial additional expenditures by Ligand. If Ligand does not
exercise the ALRT1057 Option or ALRT Stock Purchase Option prior to expiration,
the Company may lose valuable rights, including rights to Oral and Topical
Panretin (ALRT1057) and other ALRT assets. Ligand and Allergan also have the
option to provide funding for the development of ALRT products in certain
circumstances. In the event that such funding is not provided and other funds
available to ALRT are less than $10.0 million, the contractual relationship
among ALRT, Allergan and Ligand may be terminated by ALRT. In such an event,
ALRT would retain its rights to the products currently under development by
ALRT, which could have a material adverse effect on Ligand. As of the date of
this filing, Ligand has no plans to provide additional funding to ALRT and has
made no determination concerning the exercise of either the ALRT1057 Option or
the ALRT Stock Purchase Option. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Strategic Alliances -
Allergan, Inc."
LACK OF MANUFACTURING CAPABILITY; RELIANCE ON THIRD-PARTY
MANUFACTURERS. Ligand currently has no manufacturing facilities and,
accordingly, relies on third parties, including 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.
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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 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. There can be no
assurance that the Company will be able to establish direct or indirect sales
and distribution capabilities or 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, STAT-related and complex carbohydrate-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 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
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inspections, and subsequent 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. 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
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.
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 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.
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
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the Common Stock. Such announcements might include the results of research,
development testing, technological innovations, new commercial products,
government regulation, 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
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 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 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 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
Common Stock and September 13, 2006.
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. 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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ITEM 2. PROPERTIES
Ligand currently leases and occupies five facilities: three in San
Diego, California, and two in Alameda, California.
In San Diego, the Company leased an approximately 42,000 square foot
laboratory and administrative office space pursuant to a lease that continues
through September 1997 and contains a renewal option of five years. In July
1994, the Company entered into a 20 year lease related to the construction of a
new laboratory facility. This 52,800 square foot facility was completed and
occupied in August 1995. The third facility in San Diego is for administrative
office space pursuant to a sublease of approximately 10,000 square feet which
continues through December 1997.
In Alameda, Glycomed leases two buildings totaling approximately 56,000
square feet, for laboratory and administrative office usage. The leases expire
in October 1997 and contain a renewal option of five years. As of December 1996,
Glycomed had sub-let approximately 25,800 square feet in one of these buildings.
The Company believes these facilities will be adequate to meet the
Company's near-term space requirements. At the end of 1997, two of the Company's
San Diego lease agreements for office and research facilities expire. The
Company plans to occupy a build-to-suit facility prior to the termination of
those leases. In March 1997, the Company entered into a 15 year lease, with a 5
year extension option, related to the build-to-suit facility.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is a party to other litigation arising in
the normal course of business. As of the date of the filing, the Company is not
a party to any litigation which would have a material effect on its financial
position or business operations taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders in the
fourth quarter ended December 31, l996.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION
The Common Stock trades on the Nasdaq National Market tier of the Nasdaq
Stock Market under the symbol "LGND." The following table sets forth the high
and low sales prices for the Common Stock on the Nasdaq National Market for the
periods indicated.
PRICE RANGE
-----------
HIGH LOW
---- ---
YEAR ENDED DECEMBER 31, 1995:
1st Quarter .......... $ 8 1/2 $ 6
2nd Quarter .......... 8 3/4 5 1/2
3rd Quarter .......... 10 1/4 7 3/4
4th Quarter .......... 11 3/8 7 5/8
YEAR ENDED DECEMBER 31, 1996:
1st Quarter .......... $13 3/4 $ 9 3/4
2nd Quarter .......... 19 3/4 11 1/8
3rd Quarter .......... 16 1/8 10 3/8
4th Quarter .......... 15 11/16 11 1/4
(b) HOLDERS
As of February 28, 1997, there were approximately 1,107 holders of record
of the Common Stock.
(c) DIVIDENDS
The Company has never declared or paid any dividends on its capital stock
and does not intend to pay any cash dividends in the foreseeable future. The
Company currently intends to retain its earnings, if any, to finance future
growth.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
consolidated statements of operations for each of the years in the three-year
period ended December 31, 1996, and with respect to the consolidated balance
sheets at December 31, 1996 and 1995, are derived from the audited financial
statements that have been examined by Ernst & Young LLP, independent auditors,
which are included elsewhere in this filing and are qualified by reference to
such financial statements. The statements of operations data for the years ended
December 31, 1993 and 1992, and the balance sheet data at December 31, 1994,
1993 and 1992, are derived from audited financial statements not included in
this filing. The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements and related
notes included elsewhere in this filing.
YEARS ENDED DECEMBER 31,
------------ ------------ ------------ ------------ ------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT NET LOSS PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Collaborative research and development
Related parties .................... $ 18,641 $ 11,972 $ 8,342 $ 9,974 $ 2,128
Unrelated parties .................. 17,994 12,424 4,893 6,138 3,417
Other 207 120 74 150 338
------------ ------------ ------------ ------------ ------------
Total revenues ............. 36,842 24,516 13,309 16,262 5,883
------------ ------------ ------------ ------------ ------------
Costs and expenses:
Research and development .............. 59,494 41,636 27,205 24,301 14,220
Selling, general and administrative ... 10,205 8,181 6,957 6,192 4,144
Write-off of acquired in-process
technology ............................ -- 19,564 -- -- --
ALRT contribution -- 17,500 -- -- --
------------ ------------ ------------ ------------ ------------
Total operating expenses ... 69,699 86,881 34,162 30,493 18,364
------------ ------------ ------------ ------------ ------------
Loss from operations ...................... (32,857) (62,365) (20,853) (14,231) (12,481)
Interest income ........................... 3,704 3,603 1,298 2,005 523
Interest expense .......................... (8,160) (5,410) (679) (353) (325)
Equity in operations of Joint Venture ..... -- -- (6,845) (6,879) (1,724)
------------ ------------ ------------ ------------ ------------
Net loss .................................. $ (37,313) $ (64,172) $ (27,079) $ (19,458) $ (14,007)
============ ============ ============ ============ ============
Net loss per share ........................ $ (1.30) $ (2.70) $ (1.57) $ (1.19) $ (3.96)
============ ============ ============ ============ ============
Shares used in computing net
loss per share ..................... 28,780,914 23,791,542 17,240,535 16,356,656 3,537,494
============ ============ ============ ============ ============
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DECEMBER 31,
--------------- ------------- -------------- --------------- --------------
1996 1995 1994 1993 1992
--------------- ------------- -------------- --------------- --------------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents, short term
investments and restricted cash ........ $84,179 $76,903 $38,403 $42,354 $55,605
Working capital ............................. 71,680 57,349 33,567 40,588 55,117
Total assets ................................ 102,140 93,594 46,696 50,790 62,261
Long-term debt .............................. 19,961 18,585 12,285 2,324 1,750
Convertible subordinated debentures ......... 33,953 31,279 - - -
Accumulated deficit ......................... (177,594) (140,281) (76,108) (49,029) (29,571)
Total stockholders' equity .................. 34,461 28,071 26,335 42,934 57,250
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This annual report on Form 10-K may contain predictions, estimates and other
forward-looking statements that involve a number of risks and uncertainties,
including those discussed in Item 1 above 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 and Signal Transducers and Activators of
Transcription drug discovery and development programs. The Company has been
unprofitable since its inception and expects to incur substantial additional
operating losses for the next several years, due to continued requirements for
research and development, preclinical testing, regulatory activities,
establishment of manufacturing processes and sales and marketing capabilities.
The Company expects that losses will fluctuate from quarter to quarter as a
result of differences in the timing of expenses incurred and the revenues earned
from collaborative arrangements. Some of these fluctuations may be significant.
As of December 31, 1996, the Company's accumulated deficit was approximately
$177.6 million. In October 1996, the Company completed a public offering of
3,162,500 shares of common stock at $12.00 per share, for net proceeds of
approximately $35.3 million.
In May 1995, Glycomed Incorporated ("Glycomed") was merged into a wholly-owned
subsidiary of the Company ("the Merger"). Glycomed is a biopharmaceutical
company conducting research and development of pharmaceuticals based on
biological activities of complex carbohydrates. Each outstanding share of
Glycomed common stock was converted into 0.5301 shares of the Company's common
stock, resulting in the issuance of 6,942,911 shares of the Company's common
stock to Glycomed shareholders. The Merger was accounted for using the purchase
method of accounting. The excess of the purchase price over the fair value of
the net assets acquired was allocated to in-process technology and was written
off, resulting in a one time non-cash charge to results of operations of
approximately $19.6 million. The results of operations of Glycomed are included
in the Company's consolidated results of operations from the date of the Merger.
In December 1994, the Company and Allergan, Inc. ("Allergan") formed Allergan
Ligand Retinoid Therapeutics, Inc. ("ALRT") to continue the research and
development activities previously conducted by the Allergan Ligand Joint Venture
(the "Joint Venture"). In June 1995, the Company and ALRT completed a public
offering of 3,250,000 units (the "Units") with aggregate proceeds of $32.5
million ( the "ALRT Offering") and cash contributions by Allergan and the
Company of $50.0 million and $17.5 million, respectively, providing for net
proceeds of $94.3 million for retinoid product research and development. Each
Unit consisted of one share of ALRT's callable common stock and two warrants,
each warrant entitling the holder to purchase one share of the common stock of
the Company. Immediately prior to the consummation of the ALRT Offering on June
3, 1995, Allergan Pharmaceuticals (Ireland) Ltd., Inc. made a $6.0 million
investment in the Company's common stock. The Company's $17.5 million cash
contribution resulted in a one-time charge to operations. The Company also
recorded a warrant subscription receivable and corresponding increase in paid-in
capital of $5.9 million pursuant to the ALRT Offering. Since June 3, 1995, cash
received from ALRT pursuant to a Research and Development Agreement was prorated
between contract revenue and the warrant subscription receivable based on their
respective values. For the years ended 1996 and 1995, $2.1 million and $1.3
million, respectively, of the revenue proceeds received from ALRT were applied
to the warrant subscription receivable. In conjunction with the consummation of
the ALRT Offering, all rights held by the Joint Venture were licensed to ALRT.
The Company, Allergan and ALRT entered into certain other agreements in
connection with the funding of ALRT, including, a Technology License Agreement,
a Commercialization Agreement and Services and Administrative Agreements and
ALRT granted to Ligand and Allergan an option to acquire certain assets related
to Oral and Topical Panretin (ALRT 1057) (the "ALRT 1057 Option") and an option
to acquire all the outstanding shares of ALRT callable common stock (the "ALRT
Stock Purchase Option").
RESULTS OF OPERATIONS
Year Ended December 31, 1996 ("1996"), Compared with Year Ended December 31,
1995 ("1995")
The Company had revenues of $ 36.8 million for 1996 compared to revenues of
$24.5 million for 1995. The increase in revenues is primarily due to increased
revenues from ALRT, milestone revenues from Pfizer Inc. ("Pfizer"), increased
revenues under an expanded and amended research and development agreement
entered into in January 1996 (which began in September 1994) with Wyeth-Ayerst
Laboratories, the pharmaceutical division of American Home Products Corporation
("AHP"), and a full year effect of
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the collaborative research agreement with Sankyo Company, Ltd. ("Sankyo") (which
became effective the date of the Merger). Revenues in 1996 were derived from the
Company's research and development agreements with (i) ALRT of $18.6 million,
(ii) AHP of $6.9 million, (iii) Sankyo of $2.7 million, (iv) Abbott Laboratories
("Abbott") of $2.5 million, (v) SmithKline Beecham Corporation ("SmithKline
Beecham") of $2.4 million, (vi) Glaxo-Wellcome plc ("Glaxo") of $2.1 million, as
well as from milestone revenues from Pfizer of $1.3 million, product sales of
Ligand (Canada) in-licensed products of $207,000 and revenues from a National
Institute of Health ("NIH") grant of $99,000. Revenues in 1995 were derived from
the Company's research and development agreements with (i) ALRT of $12.0
million, (ii) AHP of $4.0 million, (iii) Abbott of $2.6 million, (iv) Glaxo of
$2.1 million, (v) SmithKline Beecham of $2.1 million, (vi) Sankyo of $1.7
million, and from product sales of Ligand (Canada) in-licensed products of
$120,000.
For 1996, research and development expenses increased to $59.5 million from
$41.6 million in 1995. These expenses increased primarily due to expansion of
the Company's clinical, development and research programs, related additions of
clinical, development and research personnel and inclusion of the cost of
Glycomed's operations for a full year in 1996. Selling, general and
administrative expenses increased to $10.2 million in 1996 from $8.2 million in
1995. The increase was primarily due to additions to personnel to support
clinical, development and research programs, as well as expanded sales and
marketing activities. Interest income increased slightly to $3.7 million in 1996
from $3.6 million in 1995. Increases in interest income were a result of the
completion of a public offering of approximately $35.3 million in October 1996,
and increased research revenues, offset by usage of cash to support expansion
activities. Interest expense increased to $8.2 million in 1996 from $5.4 million
in 1995. The increase was primarily due to interest required under Glycomed's
Convertible Subordinated Debentures ("Debentures"), accretion of debt discount
under the Debentures and capital lease obligations used to finance equipment.
One-time charges of $19.6 million and $17.5 million were incurred in 1995 due to
the Merger and the ALRT Offering, respectively.
Year Ended December 31, 1995 ("1995"), Compared with Year Ended December 31,
1994 ("1994")
The Company had revenues of $24.5 million for 1995 compared to revenues of $13.3
million for 1994. The increase is due to the full year effect of new
collaborative research agreements with AHP (which began in September 1994),
SmithKline Beecham (which began in February 1995), Abbott (which began in July
1994), Sankyo (with effect from the date of the Merger), as well as increased
revenue from ALRT. Revenues in 1995 were derived from the Company's research and
development agreements with (i) ALRT of $12.0 million, (ii) AHP of $4.0 million,
(iii) Abbott of $2.6 million, (iv) SmithKline Beecham of $2.1 million, (v) Glaxo
of $2.1 million and (vi) Sankyo of $1.7 million, and product sales of Ligand
Pharmaceuticals (Canada), Inc. in-licensed products of $120,000. Revenues in
1994 were derived from the Company's research and development agreements with
(i) the Joint Venture of $8.3 million, (ii) AHP of $1.7 million, (iii) Glaxo of
$2.0 million and (iv) Abbott of $1.2 million and other research grants of
$74,000.
For 1995, research and development expenses increased to $41.6 million from
$27.2 million in 1994. These expenses increased primarily due to additions of
research and development personnel, expansion of the Company's research and
development programs, and inclusion of the cost of Glycomed's operations from
the date of the Merger. Selling, general and administrative expenses increased
to $8.1 million in 1995 from $7.0 million in 1994. The increase was attributable
to additions to personnel to support expanded research and development programs
and expansion of the Company's sales and marketing activities. Interest income
increased to $3.6 million in 1995 from $1.3 million in 1994. The increase in
interest income was a result of an increase in cash balances due to the Merger,
increased research revenues, additional equity investments, and convertible
notes from collaborators, offset by net usage of cash to support expansion
activities. Interest expense increased to $5.4 million in 1995 from $679,000 in
1994. The increase was primarily due to the acquisition of the Debentures, and
accretion of debt discount under the Debentures, as well as interest required
under a convertible note issued in connection with the AHP collaborative
agreement. The 1994 equity loss in the Joint Venture of $6.8 million was the
Company's share of the losses of the Joint Venture.
One-time charges of $19.6 million and $17.5 million were incurred in 1995 due to
the Merger and ALRT Offering, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations through private and public offerings of
its equity securities, collaborative research revenues, capital and operating
lease transactions, issuance of convertible notes, investment income and product
sales. From inception through December 1996, the Company has raised $158.5
million from sales of equity securities: $43.0 million from the Company's
initial public offering in November 1992 (of which $7.5 million was provided by
the Company's collaborators), $35.3 million from a secondary public offering of
3,162,500 shares of common stock at a price of $12.00 per share in October 1996
and an aggregate of $79.8 million from private placements (of which $64.0
million was provided by the Company's collaborators, $11.4
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43
million was provided through venture capital financing and $4.4 million was
provided by other investors and the exercise of options and warrants).
In July 1996 and again in January 1997, the Company elected to convert $3.8
million of the convertible notes outstanding to AHP into 374,626 shares of the
Company's Common Stock, for a total of 749,252 shares, at the $10.01 conversion
price. In the second quarter of 1995, the Company achieved certain milestones
which qualified the Company to receive the second installment of a $5.0 million
convertible note from AHP, which the Company elected to receive in December
1996. In February 1997, a third installment equity investment of $2.5 million
was provided to the Company by SmithKline Beecham as a result of their election
to expand the scope of research as defined.
As of December 31, 1996, the Company had acquired an aggregate of $18.9 million
in laboratory and office equipment, and $3.8 million in tenant improvements,
substantially all of which has been funded through capital lease and equipment
note obligations and which also includes laboratory and office equipment
acquired in the Merger. In addition, the Company leases its office and
laboratory facilities under operating leases. In July 1994, the Company entered
into a 20 year lease related to the construction of a new laboratory facility,
which was completed and occupied in August 1995. At the end of 1997, one of the
Company's main operating lease agreements for office and research facilities
expires, at which time the Company plans to move into its second build-to-suit
facility. In March 1997, the Company entered into a 15 year lease, with a 5 year
extension option, related to the build-to-suit facility, and loaned the
construction partnership $3.7 million which will be paid back with interest over
a 10 year period. In February 1997, the Company signed a master lease agreement
to finance future capital equipment up to $1.5 million, and the Company intends
to obtain additional financing for 1997 capital equipment.
Working capital increased to $71.7 million as of December 31, 1996, from $57.3
million at the end of 1995. The increase in working capital resulted from an
increase in cash from the additional public offering completed in October 1996,
collaborative research agreements and convertible notes from collaborators,
offset by an increase in clinical, research development program expenses, the
inclusion of the cost of Glycomed's operations for a full year in 1996, the
related increase in selling, general and administrative expenses as described
above, semi-annual interest payments due on the Debentures and interest paid on
the convertible note. For the same reasons, cash and cash equivalents,
short-term investments, and restricted cash increased to $84.2 million at
December 31, 1996 from $76.9 million at December 31, 1995. The Company primarily
invests its cash in United States government and investment grade corporate debt
securities.
The Company believes that its available cash, cash equivalents, marketable
securities and existing sources of funding will be adequate to satisfy its
anticipated capital requirements through 1998, assuming the Company does not
exercise either the ALRT1057 Option or the ALRT Stock Purchase Option. Based on
the current level of product development expenditures, ALRT could use
substantially all of the funds available for research and development in late
1997 or early 1998, which would trigger the ALRT Stock Purchase Option. The
Company has made no determination concerning the exercise of either the ALRT1057
Option or the ALRT Stock Purchase Option. 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.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data of
the Company required by this item are set forth at the pages indicated in Item
14 (a)(1).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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44
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The sections labeled "Election of Directors", "Executive Officers" and
"Section 16(a) Beneficial Ownership Reporting Compliance" appearing in the
Company's Proxy Statement to be delivered to stockholders in connection with the
1997 Annual Meeting of Stockholders are incorporated herein by reference (the
"Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The section labeled "Executive Compensation and Other Information"
appearing in the Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The sections labeled "Principal Stockholders" and "Security Ownership
of Directors and Management" appearing in the Proxy Statement are incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The sections labeled "Executive Compensation and Other Information" and
"Certain Relationships and Related Transactions" appearing in the Proxy
Statement are incorporated herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The financial statements required by this item are submitted in a
separate section beginning on Page F-1 of this report.
Consolidated Financial Statements of Ligand Pharmaceuticals
Incorporated
Report of Ernst & Young LLP, Independent Auditors F-1
Consolidated Balance Sheets at December 31, 1996 and 1995 F-2
Consolidated Statements of Operations for each of the three years in
the period ended December 31, 1996 F-3
Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended December 31, 1996 F-4
Consolidated Statements of Cash Flows for each of the three years in
the period ended December 31, 1996 F-6
Notes to Consolidated Financial Statements F-7
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed by the Registrant during the
fourth quarter of the fiscal year ended December 31, 1996.
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46
(c) Exhibits.
Exhibit
No. Description
- --------------------------------------------------------
#2.1 Agreement of Merger, dated February 7, 1995 by and among Ligand
Pharmaceuticals Incorporated, LG Acquisition Corp. and Glycomed
Incorporated (other Exhibits omitted, but will be filed by the
Company with the Commission upon request).
#2.2 Form of Plan of Merger.
#3.2 Amended and Restated Certificate of Incorporation of the Company.
&3.3 Bylaws of the Company, as amended.
x3.4 Certificate of Designation of Rights, Preferences and Privileges
of Series A Participating Preferred Stock of Ligand
Pharmaceuticals Incorporated (Exhibit 3.1).
*4.1 Specimen stock certificate for shares of Common Stock of the
Company.
#10.1 The Company's 1992 Stock Option/Stock Issuance Plan, as amended.
+*10.2 Form of Stock Option Agreement.
+*10.3 Form of Stock Issuance Agreement.
+*10.4 The Company's Restricted Stock Purchase Plan, as amended.
+*10.5 Form of the Company's Employee Restricted Stock Purchase
Agreement.
*10.6 Form of Consultant Restricted Stock Purchase Agreement.
+*10.7 The Company's 1988 Stock Option Plan, as amended.
+*10.8 Form of Incentive Stock Option Agreement (Installment Vesting).
+*10.9 Form of Non-Qualified Stock Option Agreement (Installment
Vesting).
*10.10 Form of Consultant Non-Qualified Stock Option Agreement
(Immediate Vesting).
+*10.12 1992 Employee Stock Purchase Plan.
+*10.13 Form of Stock Purchase Agreement.
*10.26 Lease, dated December 1, 1988, between the Company and Nippon
Landic (U.S.A.), Inc., the assignee of Nexus/Gadco-UTC, as
amended by an agreement dated December 1, 1988, First Amendment
to Lease dated August 19, 1991, and Third Amendment to Lease
dated August 22, 1991.
+*10.28 Employment Agreement, dated October 4, 1991, between the Company
and David E. Robinson, as amended by the First Amendment to
Employment Agreement, dated October 5, 1991.
*10.29 Consulting Agreement, dated October 20, 1988, between the Company
and Dr. Ronald M. Evans, as amended by Amendment to Consulting
Agreement, dated August 1, 1991, and Second Amendment to
Consulting Agreement, dated March 6, 1992.
*10.30 Form of Proprietary Information and Inventions Agreement.
*10.31 Research and License Agreement, dated March 9, 1992, between the
Company and Baylor College of Medicine (with certain confidential
portions omitted).
*10.32 License Agreement, dated January 27, 1992, between the Company
and HSC Research and Development Limited Partnership and Mount
Sinai Hospital (with certain confidential portions omitted).
*10.33 License Agreement, dated November 14, 1991, between the Company
and Rockefeller University (with certain confidential portions
omitted).
*10.34 License Agreement and Bailment, dated July 22, 1991, between the
Company and the Regents of the University of California (with
certain confidential portions omitted).
*10.35 Agreement, dated May 1, 1991, between the Company and Pfizer Inc
(with certain confidential portions omitted).
*10.36 License Agreement, dated July 3, 1990, between the Company and
the Brigham and Woman's Hospital, Inc. (with certain confidential
portions omitted).
*10.37 Compound Evaluation Agreement, dated May 17, 1990, between the
Company and SRI International (with certain confidential portions
omitted).
*10.38 License Agreement, dated January 5, 1990, between the Company and
the University of North Carolina at Chapel Hill (with certain
confidential portions omitted).
*10.39 License Agreement, dated January 4, 1990, between the Company and
Baylor College of Medicine (with certain confidential portions
omitted).
*10.40 License Agreement, dated January 4, 1990, between the Company and
Baylor College of Medicine (with certain confidential portions
omitted).
*10.41 License Agreement, dated October 1, 1989, between the Company and
Institut Pasteur (with certain confidential portions omitted).
*10.42 Sublicense Agreement, dated September 13, 1989, between the
Company and AndroBio Corporation (with certain confidential
portions omitted).
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Exhibit
No. Description
- --------------------------------------------------------
*10.43 License Agreement, dated June 23, 1989, between the Company and
La Jolla Cancer Research Foundation (with certain confidential
portions omitted).
*10.44 License Agreement, dated October 20, 1988, between the Company
and The Salk Institute for Biological Studies, as amended by
Amendment to License Agreement dated September 15, 1989, Second
Amendment to License Agreement, dated December 1, 1989 and Third
Amendment to License Agreement dated October 20, 1990 (with
certain confidential portions omitted).
*10.45 Agreement dated June 12, 1989, between the Company and the
Regents of the University of California.
+*10.46 Form of Indemnification Agreement between the Company and each of
its directors.
+*10.47 Form of Indemnification Agreement between the Company and each of
its officers.
*10.50 Consulting Agreement, dated October 1, 1991, between the Company
and Dr. Bert W. O'Malley.
*10.53 Stock and Warrant Purchase Agreement, dated June 30, 1992 between
the Company and Allergan, Inc. and Allergan Pharmaceuticals
(Ireland) Ltd., Inc.
*10.58 Stock Purchase Agreement, dated September 9, 1992, between the
Company and Glaxo, Inc.
*10.59 Research and Development Agreement, dated September 9, 1992,
between the Company and Glaxo, Inc. (with certain confidential
portions omitted).
*10.60 Stock Transfer Agreement, dated September 30, 1992, between the
Company and the Rockefeller University.
*10.61 Stock Transfer Agreement, dated September 30, 1992, between the
Company and New York University.
*10.62 License Agreement, dated September 30, 1992, between the Company
and the Rockefeller University (with certain confidential
portions omitted).
*10.63 Professional Services Agreement, dated September 30, 1992,
between the Company and Dr. James E. Darnell.
+*10.64 Letter Agreement, dated August 24, 1992, between the Company and
Dr. Howard T. Holden.
+*10.65 Letter Agreement, dated August 20, 1992, between the Company and
Dr. George Gill.
+*10.66 Letter Agreement, dated September 3, 1992, between the Company
and Dr. Lloyd E. Flanders.
+*10.67 Letter Agreement, dated September 11, 1992, between the Company
and Mr. Paul Maier.
%*10.68 Master Equipment Lease, dated October 27, 1992 and related Master
Equipment Lease Agreement Schedule between the Company and AT&T
Commercial Finance Corporation.
!!10.69 Form of Automatic Grant Option Agreement.
**10.73 Supplementary Agreement, dated October 1, 1993, between the
Company and Pfizer, Inc to Agreement, dated May 1, 1991.
***10.74 Loan and Security Agreement, dated November 11, 1993, between the
Company and Household Commercial of California, Inc.
***10.75 Stock Purchase Agreement, dated July 6, 1994, between the Company
and Abbott Laboratories (with certain confidential portions
omitted).
!10.76 Amended Registration Rights Agreement, dated June 24, 1994,
between the Company and the individuals listed on attached
Schedule A, as amended ( Exhibit 4.1).
!10.77 First Addendum to Amended Registration Rights Agreement, dated
July 6, 1994, between the Company and Abbott Laboratories
(Exhibit 4.2)
***10.78 Research, Development and License Agreement, dated July 6, 1994,
between the Company and Abbott Laboratories (with certain
confidential portions omitted) (Exhibit 10.75).
***10.79 Stock and Note Purchase Agreement, dated September 2, 1994,
between the Company and American Home Products Corporation (with
certain confidential portions omitted).
***10.80 Unsecured Convertible Promissory Note dated September 2, 1994, in
the face amount of $10,000,000 executed by the Company in favor
of American Home Products Corporation (with certain confidential
portions omitted) (Exhibit 10.78).
***10.81 Second Addendum to Amended Registration Rights Agreement, dated
September 2, 1994, between the Company and American Home Products
Corporation.
***10.82 Research, Development and License Agreement, dated September 2,
1994, between the Company and American Home Products Corporation,
as represented by its Wyeth-Ayerst Research Division (with
certain confidential portions omitted) (Exhibit 10.77).
***10.83 Option Agreement, dated September 2, 1994, between the Company
and American Home Products Corporation, as represented by its
Wyeth-Ayerst Research Division (with certain confidential
portions omitted) (Exhibit 10.80).
***10.84 Distribution and Marketing Agreement, dated September 16, 1994,
between the Company and Cetus Oncology Corporation, a wholly
owned subsidiary of the Chiron Corporation (with certain
confidential portions omitted) (Exhibit 10.82).
&10.85 Technology License Agreement, dated June 3, 1995, between the
Company, Allergan, Inc. and Allergan Ligand Retinoid
Therapeutics, Inc.
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48
Exhibit
No. Description
- --------------------------------------------------------
&10.86 Research and Development Agreement, dated June 3, 1995, between
the Company, Allergan, Inc. and Allergan Ligand Retinoid
Therapeutics, Inc.
&10.87 Commercialization Agreement, dated June 3, 1995, between the
Company, Allergan, Inc. and Allergan Ligand Retinoid
Therapeutics, Inc.
&10.88 Administrative Agreement, dated June 3, 1995, between the
Company, Allergan, Inc. and Allergan Ligand Retinoid
Therapeutics, Inc.
&10.89 Services Agreement, dated June 3, 1995, between the Company,
Allergan, Inc. and Allergan Ligand Retinoid Therapeutics, Inc.
&10.90 1057 Purchase Option Agreement, dated June 3, 1995, between the
Company, Allergan, Inc. and Allergan Ligand Retinoid
Therapeutics, Inc.
&10.91 Asset Purchase Option Agreement, dated June 3, 1995, between the
Company, Allergan, Inc. and Allergan Ligand Retinoid
Therapeutics, Inc.
&10.92 Joint Venture Dissolution Agreement, dated June 3, 1995, between
the Company, Allergan, Inc. and Allergan Ligand Retinoid
Therapeutics, Inc.
&10.93 Indemnity Agreement, dated June 3, 1995, between the Company,
Allergan, Inc. and Allergan Ligand Retinoid Therapeutics, inc.
&10.94 Tax Allocation Agreement, dated June 3, 1995, between the
Company, Allergan, Inc. and Allergan Ligand Retinoid
Therapeutics, Inc.
&10.95 Stock Purchase Agreement, dated June 3, 1995, between the
Company, Allergan, Inc. and Allergan Pharmaceuticals (Ireland),
Ltd.
&10.97 Research, Development and License Agreement, dated December 29,
1994, between SmithKline Beecham Corporation and the Company
(with certain confidential portions omitted).
&10.98 Stock and Note Purchase Agreement, dated February 2, 1995,
between SmithKline Beecham Corporation, S.R. One Limited and the
Company (with certain confidential portions omitted).
&10.99 Third Addendum to Amended Registration Rights Agreement, dated
February 3, 1995, between S. R. One, Limited and the Company.
#10.100 PHOTOFRIN(R) Distribution Agreement, dated March 8, 1995, between
the Company and Quadra Logic Technologies Inc. (with certain
confidential portions omitted).
10.101(2) Stock Rights Agreement, dated December 28, 1990, among Glycomed,
Genentech, Inc. and specified shareholders (Exhibit 10.1).
10.119(2) Option and Development Agreement, dated August 15, 1990, between
Glycomed and Dr. Richard E. Galardy and Dr. Damian Grobelny with
exhibit thereto (with certain confidential portions omitted)
(Exhibit 10.20).
10.120(2) Option and Development Agreement, dated November 27, 1989,
between Glycomed and the President and Fellows of Harvard College
with appendices thereto (with certain confidential portions
omitted) (Exhibited 10.21).
10.121(2) Option and Development Agreement, dated January 1, 1991, between
Glycomed and UAB Research Foundation with exhibits thereto (with
certain confidential portions omitted) (Exhibit 10.22).
10.122(2) Joint Venture Agreement, dated December 18, 1990, among Glycomed,
Glyko, Inc., Millipore Corporation, Astroscan, Ltd., Astromed,
Ltd., Gwynn R. Williams and John Klock, M.D., with exhibits
thereto (with certain confidential portions omitted) (Exhibit
10.23).
10.124(2) Master Lease Agreement, dated June 22, 1990, between Glycomed and
Lease Management Services with Addendum and Security Deposit
Pledge Agreement (Exhibit 10.25).
10.125(3) Marina Village Office/R & D Industrial Gross Leases, dated August
5, 1988 and August 8, 1988, between Glycomed and Alameda Real
Estate Investments, with Exhibits, Addendum and Amendment No. 1
thereto (Exhibit 10.26).
10.126(3) Marina Village Office/R & D Industrial Gross Office Tech Leases,
dated May 1, 1992, between Glycomed and Alameda Real Estate
Investments, with exhibits and Addenda for the space at 860
Atlantic and 2061 Challenger (Exhibit 10.27).
10.127(3) Research and License Agreement, dated April 29, 1992, between
Glycomed and the Alberta Research Council with Appendix thereto
(with certain confidential portions omitted) (Exhibit 10.28).
10.130(6) Amendment to Research and License Agreement, dated July 12, 1993,
between Glycomed and the Alberta Research Council (with certain
confidential portions omitted) (Exhibit 10.32).
10.131(7) Amendments to Research and License Agreement, dated October 22,
1993, December 16, 1993, and May 9, 1994 between Glycomed and the
Alberta Research Council (with certain confidential portions
omitted) (Exhibit 10.33).
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Exhibit
No. Description
- --------------------------------------------------------
10.132(7) License Agreement, dated February 14, 1994 between Glycomed and
Sankyo Company, Ltd., for the Far East marketing rights of
ophthalmic indications of Galardin(TM) MPI and analogs (with
certain confidential portions omitted) (Exhibit 10.34).
10.133(7) Collaborative Technology Research and Development Agreement
between Glycomed and Sankyo Company, Ltd., dated June 27, 1994
(with certain confidential portions omitted) (Exhibit 10.35).
10.136(8) Amendment to Research and License Agreement, dated September 22,
1994 between Glycomed and Alberta Research Council (with certain
confidential portions omitted) (Exhibit 10.38).
#10.137 First Supplemental Indenture among the Company, Glycomed and
Chemical Trust Company of California, Trustee (Exhibit 10.133).
#10.138 Form of Dominion Warrant upon assumption by the Company (Exhibit
10.134).
#10.139 Form of Genentech Warrant upon assumption by the Company (Exhibit
10.135).
%%10.140 Promissory Notes, General Security Agreements and a Credit Terms
and Conditions letter dated March 31, 1995, between the Company
and Imperial Bank (Exhibit 10.101).
-10.141 Fourth Addendum to Amended Registration Rights Agreement, dated
May 18, 1995, between the Company and Genentech, Inc.
-10.142 Stock Purchase Agreement, dated June 27, 1995, between the
Company and Sankyo Company, Ltd.
-10.143 Fifth Addendum to Amended Registration Rights Agreement, dated
September 11, 1995, between the Company and Sankyo Company
Limited.
-10.144 Stock Purchase Agreement, dated August 28, 1995, between the
Company and Abbott Laboratories.
-10.145 Sixth Addendum to Amended Registration Rights Agreement, dated
August 31, 1995, between the Company and Abbott Laboratories.
-10.146 Amendment to Research and Development Agreement, dated January
16, 1996, between the Company and American Home Products
Corporation, as amended.
-10.147 Amendment to Stock Purchase Agreement, dated January 16, 1996,
between the Company and American Home Products Corporation.
-10.148 Lease, dated July 6, 1994, between the Company and Chevron/Nexus
partnership, First Amendment to lease dated July 6, 1994.
+x10.149 Successor Employment Agreement, signed May 1, 1996, between the
Company and David E. Robinson.
10.150 Master Lease Agreement, signed May 30, 1996, between the Company
and USL Capital Corporation.
x10.151 Settlement Agreement and Mutual Release of all Claims, signed
April 20, 1996, between the Company and Pfizer, Inc. (with
certain confidential portions omitted).
x10.152 Letter Amendment to Abbott Agreement, dated March 14, 1996,
between the Company and Abbott Laboratories (with certain
confidential portions omitted).
+xx10.153 Letter Agreement, dated August 8, 1996, between the Company and
Dr. Andres Negro-Vilar.
--10.154 Preferred Shares Rights Agreement, dated as of September 13,
1996, by and between Ligand Pharmaceuticals Incorporated and
Wells Fargo Bank, N.A, (Exhibit 10.1)
+10.155 Letter Agreement, dated November 4, 1996, between the Company and
William Pettit.
+10.156 Letter Agreement, dated February 6, 1997, between the Company and
Russell L. Allen.
10.157 Master Lease Agreement, signed February 13, 1997, between the
Company and Lease Management Services.
10.158 Lease, dated March 7, 1997, between the Company and Nexus Equity
VI LLC.
10.159 Eighth Addendum to amended registration rights agreement, dated
June 24, 1994, as amended between Ligand Pharmaceuticals and S.R.
One, Limited and is effective as of February 10, 1997.
10.160 Seventh Addendum to amended registration rights agreement, dated
June 24, 1994, as amended between Ligand Pharmaceuticals and S.R.
One, Limited and is effective November 10, 1995.
21.1 Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (See signature page)
27.1 Financial Data Schedule
48
50
Exhibit
No. Description
- --------------------------------------------------------
* These exhibits were previously filed as part of, and are hereby
incorporated by reference to, the same numbered exhibit filed
with the Company's Registration Statement on Form S-1 (No.
33-47257) filed on April 16, 1992 as amended.
+ Management contract or compensation plan or arrangement.
% These exhibits were previously filed as part of, and are hereby
incorporated by reference to, the same numbered exhibit filed wit
the Company's Annual Report on Form 10-K for the year ended
December 31, 1992.
** These exhibits were previously filed as part of, and are hereby
incorporated by reference to, the same numbered exhibit filed
with the Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
*** These exhibits were previously filed as part of, and are hereby
incorporated by reference to, the same numbered exhibit (except
as otherwise noted) filed with the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1994.
! These exhibits were previously filed as part of, and are hereby
incorporated by reference to, the exhibit filed with the
Company's Form 8-K, filed on July 14, 1994.
!! This exhibit was previously filed as part of, and is hereby
incorporated by reference to Exhibit 99.1 filed with the
Company's Form S-8 (No. 33-85366), filed on October 17, 1994.
& These exhibits were previously filed as part of, and are hereby
incorporated by reference to, the same 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.
# These exhibits were previously filed as part of, and are hereby
incorporated by reference to, the same numbered exhibit filed
with the Registration Statement on Form S-4 (No. 33-90160) filed
on March 9, 1995, as amended.
%% This exhibit was previously filed as part of, and are hereby
incorporated by reference to, the same numbered exhibit filed
with the Company's Quarterly report on Form 10-Q for the period
ended September 30, 1995.
- - These exhibits were filed previously, and are hereby incorporated
by reference to, the same numbered exhibit filed with the
Company's Annual Report on Form 10-K for the year ended December
31, 1995.
x These exhibits were previously filed as part of, and are hereby
incorporated by reference to, the same numbered exhibit filed
with the Company's Quarterly report on Form 10-Q for the period
ended June 30, 1996.
xx This exhibit was previously filed as part of, and are hereby
incorporated by reference to, the same numbered exhibit filed
with the Company's Quarterly report on Form 10-Q for the period
ended September 30, 1996.
(1) Filed as an exhibit to Glycomed's Annual Report on Form 10-K
(File No. 0-19161) filed on September 27, 1991 and incorporated
herein by reference.
(2) Filed as an exhibit to Glycomed's Registration Statement on Form
S-1 (No. 33-39961) filed on or amendments thereto and
incorporated herein by reference.
(3) Filed as an exhibit to Glycomed's Annual Report on Form 10-K
(File No. 0-19161) filed on September 25, 1992 and incorporated
herein by reference.
(4) Filed as an exhibit to Glycomed's Registration Statement on Form
S-3 (No. 33-55042) filed on November 25, 1992 or amendments
thereto and incorporated herein by reference.
(5) Filed as an exhibit to Glycomed's Registration Statement on Form
S-8 (No. 33-68620) filed on September 13, 1993 and incorporated
herein by reference.
(6) Filed as an exhibit to Glycomed's Annual Report on Form 10-K
(File No. 0-19161) filed on September 13, 1993 and incorporated
herein by reference.
(7) Filed as an amendment to Glycomed's Annual Report on Form 10-K
(File No. 0-19161) filed on September 27, 1994 and incorporated
herein by reference.
(8) Filed as an exhibit to Glycomed's Quarterly Report on Form 10-Q
(File No. 0-19161) filed on February 10, 1995 and incorporated
herein by reference.
- -- These exhibits were previously filed as part of, and are hereby
incorporated by reference, the same numbered exhibit filed with
the Company's Registration Statement on Form S-3 (No. 333-12603)
filed on September 25, 1996, as amended.
49
51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LIGAND PHARMACEUTICALS INCORPORATED
Date: 3/27/97 By: /s/ David E. Robinson
-----------------------------
David E. Robinson, President and Chief Executive Officer
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature
appears below constitutes and appoints David E. Robinson or Paul V. Maier, his
or her attorney-in-fact, with power of substitution in any and all capacities,
to sign any amendments to this Annual Report on Form 10-K, and to file the same
with exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that the
attorney-in-fact or his or her substitute or substitutes may do or cause to be
done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
Signature Title Date
--------- ----- ----
/s/ David E. Robinson Chairman of the Board, President, 3/27/97
- ----------------------------- Chief Executive Officer and Director
(David E. Robinson) (Principal Executive Officer)
/s/ Paul V. Maier Senior Vice President, Chief 3/27/97
- ----------------------------- Financial Officer and Treasurer
(Paul V. Maier) (Principal Financial and
Accounting Officer)
/s/ Henry F. Blissenbach Director 3/27/97
- -----------------------------
(Henry F. Blissenbach)
/s/ Alexander D. Cross Director 3/27/97
- -----------------------------
(Alexander D. Cross)
/s/ John Groom Director 3/27/97
- -----------------------------
(John Groom)
/s/ Irving S. Johnson Director 3/27/97
- -----------------------------
(Irving S. Johnson)
/s/ William C. Shepherd Director 3/27/97
- -----------------------------
(William C. Shepherd)
50
52
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
Ligand Pharmaceuticals Incorporated
We have audited the accompanying consolidated balance sheets of Ligand
Pharmaceuticals Incorporated as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ligand
Pharmaceuticals Incorporated at December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
San Diego, California
January 29, 1997
53
Ligand Pharmaceuticals Incorporated
Consolidated Balance Sheets
(in thousands, except share data)
DECEMBER 31,
1996 1995
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 34,830 $ 15,963
Short-term investments 45,822 54,182
Receivable from a related party 3,087 2,286
Other current assets 1,706 577
--------- ---------
Total current assets 85,445 73,008
Restricted short-term investments 3,527 6,759
Property and equipment, net 11,680 12,272
Notes receivable from officers and employees 534 485
Other assets 954 1,070
--------- ---------
$ 102,140 $ 93,594
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,137 $ 3,940
Accrued liabilities 4,870 6,705
Deferred revenue 2,151 2,608
Current portion of obligations under capital leases 2,607 2,406
--------- ---------
Total current liabilities 13,765 15,659
Long-term obligations under capital leases 8,711 8,585
Convertible subordinated debentures 33,953 31,279
Convertible note 11,250 10,000
Commitments
Stockholders' equity :
Convertible preferred stock, $0.001 par value,
5,000,000 shares authorized; none issued -- --
Common stock, $0.001 par value; 80,000,000 shares authorized,
31,799,617 shares and 27,800,597 shares issued at December 31,
1996 and 1995, respectively 32 28
Paid-in capital 214,887 173,452
Warrant subscription receivable (2,453) (4,524)
Adjustment for unrealized gains (losses) on
available-for-sale securities (78) 217
Accumulated deficit (177,594) (140,281)
Deferred compensation and consulting (322) (819)
--------- ---------
34,472 28,073
Less treasury stock, at cost (1,114 shares and 4,986
shares in 1996 and 1995, respectively) (11) (2)
--------- ---------
Total stockholders' equity 34,461 28,071
--------- ---------
$ 102,140 $ 93,594
========= =========
See accompanying notes.
F-2
54
Ligand Pharmaceuticals Incorporated
Consolidated Statements of Operations
(in thousands, except share data)
YEARS ENDED DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
Revenues:
Collaborative research and development:
Related parties $ 18,641 $ 11,972 $ 8,342
Unrelated parties 17,994 12,424 4,893
Other 207 120 74
------------ ------------ ------------
36,842 24,516 13,309
Costs and expenses:
Research and development 59,494 41,636 27,205
Selling, general and administrative 10,205 8,181 6,957
Write-off of acquired in-process technology
-- 19,564 --
ALRT contribution -- 17,500 --
------------ ------------ ------------
Total operating expenses 69,699 86,881 34,162
------------ ------------ ------------
Loss from operations (32,857) (62,365) (20,853)
Interest income 3,704 3,603 1,298
Interest expense (8,160) (5,410) (679)
Equity in operations of joint venture -- -- (6,845)
------------ ------------ ------------
Net loss $ (37,313) $ (64,172) $ (27,079)
============ ============ ============
Net loss per share $ (1.30) $ (2.70) $ (1.57)
============ ============ ============
Shares used in computing loss per share 28,780,914 23,791,542 17,240,535
============ ============ ============
See accompanying notes.
F-3
55
Ligand Pharmaceuticals Incorporated
Consolidated Statements of Stockholders' Equity
For the three years ended December 31, 1996
(in thousands, except share data)
Adjustment
for unrealized
gains
Class A Class B (losses) on
Common stock Common stock Warrant available
------------------- ------------------ Paid-in subscription for-sale
Shares Amount Shares Amount capital receivable securities
--------- ------ --------- ------ ------- ------------ --------------
Balance at December 31, 1993 6,872,156 $ 7 7,622,275 $ 8 $ 94,148 $ -- $ --
Issuance of Common Stock 885,463 1 14,156 -- 10,538 -- --
Amortization of deferred
compensation and consulting
fee -- -- -- -- -- -- --
Cumulative effect of adjustment
for unrealized losses on
available-for-sale securities -- -- -- -- -- -- (112)
Adjustment for unrealized
losses on available-for-sale
securities -- -- -- -- -- -- (615)
Purchase of treasury stock -- -- -- -- -- -- --
Conversion of Class A
Common Stock to Class B
Common Stock (7,757,619) (8) 10,317,633 10 (2) -- --
Net loss -- -- -- -- -- -- --
--------- ------ ---------- ----- -------- ----------- --------------
Balance at December 31, 1994 -- -- 17,954,064 18 104,684 -- (727)
Issuance of Common Stock -- -- 2,903,622 3 20,966 -- --
Issuance of Common Stock for
merger net of transaction
costs of $1,235,000 -- -- 6,942,911 7 41,952 -- --
Amortization deferred
compensation and consulting
fees -- -- -- -- -- -- --
Adjustment
for unrealized
gains
Class A Class B (losses) on
Common stock Common stock Warrant available
------------------- ------------------ Paid-in subscription for-sale
Shares Amount Shares Amount capital receivable securities
--------- ------ --------- ------ ------- ------------ --------------
Adjustment for unrealized gains
(losses) on available-for-sale
securities -- -- -- -- -- -- 944
Purchase of treasury stock -- -- -- -- -- -- --
Warrant subscription receivable -- -- -- -- 5,850 (5,850) --
Cash received from ALRT and
applied to warrant subscription
receivable -- -- -- -- -- 1,326 --
Net Loss -- -- -- -- -- -- --
--------- ------- ----------- ----- -------- ------- --------------
Balance at December 31, 1995 -- -- 27,800,597 28 173,452 (4,524) 217
Issuance of common stock -- -- 3,999,020 4 41,082 -- --
Amortization of deferred
compensation and consulting
fees -- -- -- -- -- -- --
Adjustment for unrealized gains
(losses) on available-for-sale
securities -- -- -- -- -- -- (295)
Receipt of common stock for
milestone revenue -- -- -- -- -- -- --
Retirement of shares -- -- -- -- -- -- --
Purchase of treasury shares -- -- -- -- -- -- --
Issuance of common stock held in
treasury -- -- -- -- -- -- --
Option term extension -- -- -- -- 353 -- --
Amortization of warrant
subscription -- -- -- -- -- 2,071 --
Net loss -- -- -- -- -- -- --
--------- ------- ----------- ----- -------- ------- --------------
Balance at December 31, 1996 -- $ -- 31,799,617 32 $214,887 $(2,453) $(78)
========= ======= =========== ===== ======== ======= ==============
F-4
56
Ligand Pharmaceuticals Incorporated
Consolidated Statements of Stockholders' Equity
For the three years ended December 31, 1996
(in thousands, except share data)
Deferred
compensation Treasury stock Total
Accumulated and consulting ---------------------------- stockholders'
deficit fees Shares Amount equity
--------- -------------- ---------------------------- -------------
Balance at December 31, 1993 $(49,030) $(2,198) (3,784) $(1) $42,934
Issuance of Common Stock -- -- -- -- 10,539
Amortization of deferred
compensation and consulting
fees -- 668 -- -- 668
Cumulative effect of adjustment
for unrealized losses on
available-for-sale securities -- -- -- -- (112)
Adjustment for unrealized
losses on available-for-sale
securities -- -- -- -- (615)
Purchase of treasury stock
Conversion of Class A -- -- (1,168) (1) (1)
Common Stock to Class B
Common Stock -- -- -- -- --
Net loss (27,079) -- -- -- (27,079)
--------- -------------- ------------- ------------- ------------
Balance at December 31, 1994 (76,109) (1,530) (4,952) (2) 26,334
Issuance of Common Stock -- -- -- -- 20,969
Issuance of Common Stock for
merger net of transaction
costs of $1,235,000 -- -- -- -- 41,959
Amortization deferred
compensation and consulting
fees -- 711 -- -- 711
Deferred
compensation Treasury stock Total
Accummulated and consulting -------------------- stockholders'
deficit fees Shares Amount equity
------------ -------------- --------- -------- -----------
Adjustment for unrealized gains
(losses) on available-for-sale
securities -- -- -- -- 944
Purchase of treasury stock -- -- (34) -- --
Warrant subscription receivable -- -- -- -- --
Cash received from ALRT and
applied to warrant subscription
receivable -- -- -- -- 1,326
Net Loss (64,172) -- -- -- (64,172)
------------ ----------- --------- ------- -----------
Balance at December 31, 1995 (140,281) (819) (4,986) (2) 28,071
Issuance of common stock -- -- -- -- 41,086
Amortization of deferred
compensation and consulting
fees -- 497 -- -- 497
Adjustment for unrealized gains
(losses) on available-for-sale
securities -- -- -- -- (295)
Receipt of common stock for
milestone revenue -- -- (101,011) (1,320) (1,320)
Retirement of shares -- -- 101,011 1,320 1,320
Purchase of treasury shares -- -- (3,164) (23) (23)
Issuance of common stock held in
treasury -- -- 7,036 14 14
Option term extension -- -- -- -- 353
Amortization of warrant
subscription -- -- -- -- 2,071
Net loss (37,313) -- -- -- (37,313)
------------ ----------- --------- -------- --------
Balance at December 31, 1996 $(177,594) $(322) (1,114) $ (11) $ 34,461
============ =========== ========= ======== ========
F-5
57
Ligand Pharmaceuticals Incorporated
Consolidated Statements of Cash Flows
(in thousands)
YEARS ENDED DECEMBER 31,
1996 1995 1994
-------- -------- --------
OPERATING ACTIVITIES
Net loss $(37,313) $(64,172) $(27,079)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 3,879 2,687 1,536
Equity in operations of joint venture -- -- 6,845
Amortization of notes receivable from officers
and employees 235 339 265
Amortization of warrant subscription receivable 2,071 1,326 --
Write-off of acquired in-process technology -- 19,564 --
Research and development and consulting fees paid
through issuance of stock -- -- 242
Amortization of deferred compensation and
consulting fees 497 711 669
Accretion of debt discount 2,674 1,654 --
Company stock received for milestone revenue (1,320) -- --
Change in operating assets and liabilities, net
of Glycomed merger:
Other current assets (1,129) 1,626 (905)
Receivable from a related party (801) (1,128) 1,432
Accounts payable and accrued liabilities (1,638) 380 2,020
Deferred revenue (457) 465 666
-------- -------- --------
Net cash used in operating activities (33,302) (36,548) (14,309)
INVESTING ACTIVITIES
Purchases of short-term investments (53,123) (17,684) (18,336)
Proceeds from short-term investments 61,188 37,205 27,546
Purchase of property and equipment (399) (175) (587)
Increase in note receivable from officers and employees (350) (135) (20)
Payment of notes receivable from officers and employees
66 -- --
Increases in deposits and other assets (2) (33) (540)
Decreases in deposits and other assets 118 60 125
Investment in joint venture -- (822) (7,125)
Net cash acquired in Glycomed acquisition -- 10,225 --
-------- -------- --------
Net cash provided by investing activities 7,498 28,641 1,063
FINANCING ACTIVITIES
Principal payments on obligations under capital leases (2,561) (1,448) (1,064)
Net change in restricted short-term investment 3,232 (2,043) --
Net proceeds from the issuance of convertible note 5,000 -- 10,000
Net proceeds from sale of common stock 39,000 19,733 10,296
-------- -------- --------
Net cash provided by financing activities 44,671 16,242 19,232
-------- -------- --------
Net increase in cash and cash equivalents 18,867 8,335 5,986
Cash and cash equivalents at beginning of period 15,963 7,628 1,642
-------- -------- --------
Cash and cash equivalents at end of period $ 34,830 $ 15,963 $ 7,628
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 5,559 $ 3,178 $ 421
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Additions to obligations under capital leases $ 2,888 $ 8,415 $ 1,162
Warrant subscription receivable issued with ALRT
offering $ -- $ 5,850 $ --
Conversion of note to common stock $ 3,750 $ -- $ --
Retirement of treasury stock $ 1,320 $ -- $ --
See accompanying notes.
F-6
58
Ligand Pharmaceuticals Incorporated
Notes to Consolidated Financial Statements
December 31, 1996
1. THE COMPANY
Ligand Pharmaceuticals Incorporated, a Delaware corporation, (the "Company") is
a biopharmaceutical company primarily committed to the discovery and development
of new drugs that regulate hormone activated intracellular receptors and Signal
Transducers and Activators of Transcription. The Company includes its
wholly-owned subsidiaries, Glycomed Incorporated ("Glycomed"), and Ligand
Pharmaceuticals (Canada) Incorporated.
The Company's potential products are in various stages of development.
Substantially all of the Company's revenues to date have been derived from its
research and development agreements with major pharmaceutical collaborators.
Prior to generating product revenues, the Company must complete the development
of its products, including several years of human clinical testing, and receive
regulatory approvals prior to selling these products in the human health care
market. No assurance can be given that the Company's products will be
successfully developed, regulatory approvals will be granted, or patient and
physician acceptance of these products will be achieved. There can be no
assurance that Ligand will successfully commercialize, manufacture or market its
products or ever achieve or sustain product revenues or profitability.
The Company faces those risks associated with companies whose products are in
various stages of development. These risks include, among others, the Company's
need for additional financing to complete its research and development programs
and commercialize its technologies. The Company expects to incur substantial
additional research and development expenses, including continued increases in
personnel and costs related to preclinical testing, clinical trials and sales
and marketing expenses related to the product sales in Ligand Pharmaceuticals
(Canada) Incorporated. The Company intends to seek additional funding sources of
capital and liquidity through collaborative arrangements, collaborative research
or through public or private financing. No assurance can be given that such
financing will be available to the Company when required or under favorable
terms.
The Company believes that patents and other proprietary rights are important to
its business. The Company's policy is to file patent applications to protect
technology, inventions and improvements to its inventions that are considered
important to the development of its business. The patent positions of
pharmaceutical and biotechnology firms, including the Company, are uncertain and
involve complex legal and factual questions for which important legal principles
are largely unresolved.
F-7
59
Ligand Pharmaceuticals Incorporated
Notes to Consolidated Financial Statements(continued)
December 31, 1996
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and disclosures made in
the accompanying notes to the consolidated financial statements. Actual results
could differ from those estimates.
Cash , Cash Equivalents and Short-term Investments
Cash and cash equivalents consist primarily of cash, certificates of deposits,
treasury securities and repurchase agreements with original maturities at the
date of acquisition of less than three months.
The Company invests its excess cash principally in United States government debt
securities, investment grade corporate debt securities and certificates of
deposit. The Company has established guidelines relative to diversification and
maturities that maintain safety and liquidity. These guidelines are periodically
reviewed and modified to take advantage of trends in yields and interest rates.
Net Loss Per Share
Net loss per share is computed using the weighted average number of common
shares outstanding.
Research and Development Revenues and Expenses
Collaborative research and development revenues are recorded as earned based on
the performance criteria of each contract. Payments received which have not met
the appropriate criteria are recorded as deferred revenue. Research and
development costs are expensed as incurred.
F-8
60
Ligand Pharmaceuticals Incorporated
Notes to Consolidated Financial Statements(continued)
December 31, 1996
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For the years ended December 31, 1996, 1995 and 1994, costs and expenses related
to collaborative research and development agreements were $36.6 million, $24.4
million and $13.2 million, respectively.
Property and Equipment
Property and equipment is stated at cost and consists of the following (in
thousands):
DECEMBER 31,
1996 1995
-------- --------
Equipment and leasehold improvements $ 22,674 $ 19,387
Less accumulated depreciation and amortization (10,994) (7,115)
-------- --------
Net property and equipment $ 11,680 $ 12,272
======== ========
Depreciation of equipment and leasehold improvements is computed using the
straight-line method over the estimated useful lives of the assets which range
from three to fifteen years. Assets acquired pursuant to capital lease
arrangements and leasehold improvements are amortized over their estimated
useful lives or their related lease term, whichever is shorter.
Stock Compensation
In October 1994, the Financial Accounting Standards Board issued SFAS 123,
"Accounting for Stock-Based Compensation", effective for fiscal years beginning
after December 15, 1995. SFAS 123 establishes the use of the fair value based
method of accounting for stock-based compensation arrangements, under which
compensation cost is determined using the fair value of stock-based compensation
determined as of the grant date, and is recognized over the periods in which the
related services are rendered. The statement also permits companies to elect to
continue using the current implicit value accounting method specified in
Accounting Principles Board (APB) Opinion No. 25 to account for stock-based
compensation. The Company has decided to retain the current implicit value based
method, and has disclosed the pro forma effect of using the fair value based
method to account for its stock based compensation (see Note 8).
F-9
61
Ligand Pharmaceuticals Incorporated
Notes to Consolidated Financial Statements(continued)
December 31, 1996
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Long-Lived Assets
In March 1995, the FASB issued Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted Statement 121 in
the first quarter of 1996 and such adoption has had no effect on the Company's
financial position and results of operations.
3. INVESTMENTS
Investments are recorded at estimated fair market value at December 31, 1996 and
1995, and consist principally of United States government debt securities,
investment grade corporate debt securities and certificates of deposit with
maturities at the date of acquisition of three months or longer. The Company has
classified all of its investments as available-for-sale securities. The
following table summarizes the various investment categories at (in thousands):
DECEMBER 31, 1996
-----------------------------------------
GROSS
UNREALIZED
GAINS ESTIMATED
COST (LOSSES) FAIR VALUE
-------- ---------- ----------
Available-for-Sale:
U.S. Government Securities $ 18,541 $ (52) $ 18,489
Corporate Obligations 22,005 (16) 21,989
Certificates of Deposit 5,354 (10) 5,344
-------- -------- --------
45,900 (78) 45,822
Certificates of Deposit- restricted 3,527 -- 3,527
Equity securities 440 -- 440
-------- -------- --------
$ 49,867 $ (78) $ 49,789
======== ======== ========
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Ligand Pharmaceuticals Incorporated
Notes to Consolidated Financial Statements(continued)
December 31, 1996
3. INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
---------------------------------------
GROSS
UNREALIZED
GAINS ESTIMATED
COST (LOSSES) FAIR VALUE
--------- ---------- ----------
Available-for-Sale:
U.S. Government Securities $ 37,073 $ 209 $ 37,282
Corporate Obligations 14,055 13 14,068
Certificates of Deposit 2,837 (5) 2,832
-------- -------- --------
53,965 217 54,182
Certificates of Deposit- restricted 4,058 -- 4,058
U.S. Government Securities- restricted 2,701 -- 2,701
Equity securities 440 -- 440
-------- -------- --------
$ 61,164 $ 217 $ 61,381
======== ======== ========
The realized gains (losses) on sales of available-for-sale securities for the
years ended December 31, 1996 and 1995 have not been material.
The amortized cost and estimated fair value of debt and marketable securities at
December 31, 1996 and 1995, by contractual maturity, are shown below (in
thousands). Expected maturities will differ from contractual maturities because
the issuers of the securities may have the right to prepay obligations without
prepayment penalties.
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------- ------------------------
ESTIMATED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
---- ---------- ---- ----------
Due in one year or less $15,941 $15,938 $57,509 $57,692
Due after one year through three
years 33,388 33,315 3,119 3,156
Due after three years 98 96 96 93
------- ------- ------- -------
49,427 49,349 60,724 60,941
Equity securities 440 440 440 440
------- ------- ------- -------
$49,867 $49,789 $61,164 $61,381
======= ======= ======= =======
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Ligand Pharmaceuticals Incorporated
Notes to Consolidated Financial Statements(continued)
December 31, 1996
4. MERGER WITH GLYCOMED
In May 1995, Glycomed, Incorporated ("Glycomed") was merged into a wholly-owned
subsidiary of the Company ("the Merger"). Glycomed is a biopharmaceutical
company conducting research and development of pharmaceuticals based on
biological activities of complex carbohydrates. The results of operations of
Glycomed are included in the Company's consolidated results of operations with
effect from the date of the Merger. Each outstanding share of Glycomed Common
Stock was converted into .5301 shares of the Company's Common Stock, resulting
in the issuance of 6,942,911 shares of the Company's Common Stock to Glycomed
shareholders. The Merger was accounted for using the purchase method of
accounting. The excess of the purchase price over the fair value of the net
assets acquired was allocated to in-process technology and was written off,
resulting in a one time non-cash charge to results of operations of $19.6
million.
Details of the merger are as follows (in thousands):
Total consideration:
Common stock $ 43,193
Convertible debentures assumed 29,625
Other liabilities assumed 6,897
--------
79,715
Less:
Fair value of assets acquired, including cash, restricted cash and
short-term investments of $46,698 49,926
Write-off of in-process technology 19,564
--------
Net cash acquired $ 10,225
========
The following unaudited pro forma data reflects the Company's 1995 results of
operations as if the Glycomed acquisition occurred on January 1, 1995 (in
thousands, except per share data):
Revenues $ 25,711
Net loss (51,690)
Loss per share $ (1.96)
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Ligand Pharmaceuticals Incorporated
Notes to Consolidated Financial Statements(continued)
December 31, 1996
5. ACCRUED LIABILITIES
Accrued liabilities are comprised of the following (in thousands):
DECEMBER 31,
1996 1995
------ ------
Accrued legal $ 463 $1,463
Accrued interest 2,116 2,292
Accrued compensation 925 1,100
Other 1,366 1,850
------ ------
$4,870 $6,705
====== ======
6. CONVERTIBLE SUBORDINATED DEBENTURES
In conjunction with the Glycomed acquisition, the Company adjusted the carrying
value of the Glycomed 7-1/2% Convertible Subordinated Debentures due 2003 (the
"Debentures") issued by Glycomed in 1992 in the original amount of $50 million
to $29.6 million, which was their fair market value at the date of the Merger.
The Company has entered into a supplemental indenture which provides for
conversion of the Debentures into the Company's Common Stock at $26.52 per
share. The Debentures pay interest semi-annually at 7.5% per annum and are due
in 2003. The difference between the face value and the fair market value at the
acquisition date will be accreted up to the face value over the remaining term
of the Debentures and will be charged to interest expense. In accordance with
terms of the indenture, a trustee held U.S. Government Securities of
approximately $2.7 million in escrow until January 1, 1996 for future interest
payments. This amount is included in restricted short-term investments at
December 31, 1995.
7. COMMITMENTS
Leases and Equipment Notes Payable
The Company has entered into capital lease and equipment note payable agreements
which require monthly payments through December 2002. Equipment under these
agreements at December 31, 1996 and 1995 was $19.0 million and $16.1 million,
respectively. At December 31, 1996 and 1995, accumulated amortization was $9.7
million and $6.9 million, respectively.
F-13
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Ligand Pharmaceuticals Incorporated
Notes to Consolidated Financial Statements(continued)
December 31, 1996
7. COMMITMENTS (CONTINUED)
The Company has also entered into operating lease agreements for office and
research facilities with varying terms through August 2015. The agreements also
provide for increases in annual rentals based on changes in the Consumer Price
Index or fixed percentage increases varying from three to six percent. One of
these leases requires an irrevocable standby letter of credit of $1.3 million to
secure the performance of the Company's lease obligations.
Rent expense for the years ended December 31, 1996, 1995 and 1994 was $3.1
million, $2.5 million and $1.7 million, respectively.
At December 31, 1996, annual minimum rental payments due under the Company's
leases and equipment notes payable are as follows (in thousands):
OBLIGATIONS
UNDER CAPITAL
LEASES AND
EQUIPMENT NOTES
PAYABLE OPERATING LEASES
--------------- ----------------
1997 $ 3,515 $ 2,778
1998 2,930 1,582
1999 2,613 1,430
2000 2,583 1,433
2001 1,491 1,476
Thereafter 624 22,742
------- -------
Total minimum lease payments 13,756 $31,441
=======
Less amounts representing interest 2,438
-------
Present value of minimum lease payments 11,318
Less current portion 2,607
-------
$ 8,711
=======
At the end of 1997, one of the Company's main operating lease agreements for
office and research facilities expires, at which time the Company plans to move
into a build-to-suit facility. In March 1997, the Company entered into a
fifteen-year lease, with a five year extension option, related to the
build-to-suit facility, and loaned the construction partnership $3.7 million
which will be paid back with interest over a ten year period.
F-14
66
67
Ligand Pharmaceuticals Incorporated
Notes to Consolidated Financial Statements(continued)
December 31, 1996
7. COMMITMENTS (CONTINUED)
Royalty Agreements
The Company has entered into royalty agreements requiring payments ranging from
2% to 10% of net sales and 10% to 30% of license and other income for certain
products developed by the Company. Currently, the Company is making minimum
royalty payments under three agreements, which increase annually to a maximum of
$235,000 per year and aggregate $1.2 million through 2001. Royalty expense under
the agreements for the years ended December 31, 1996, 1995 and 1994 were
$261,000, $195,000 and $160,000, respectively.
No royalty payments have been received by the Company.
8. STOCKHOLDERS' EQUITY
Public Offering
In October 1996, the Company completed a public offering of 3,162,500 shares of
common stock at a price of $12.00 per share, for net proceeds of approximately
$35.3 million.
Warrants
At December 31, 1996, the Company had outstanding warrants to purchase 6,635,965
shares of the Company's Common Stock, of which 6,500,000 warrants relate to the
ALRT transaction (see Note 9). The warrants have exercise prices ranging from
$1.80 to $14.00 per share and expire at various dates through September 30,
2001.
Stock Plans
The Company's 1992 Stock Option/Stock Issuance Plan incorporates all outstanding
stock options and unvested share issuances under a prior plan. In May of years
1993 through 1996 inclusive, this Plan was amended to increase the aggregate
shares available for grant or issuance to 6,428,457 shares of common stock. The
large majority of the options granted have 10 year terms and vest and become
fully exercisable at the end of 4 years of continued employment. In addition to
this Plan, on the date of the Merger, all outstanding in-the-money stock options
from Glycomed's stock option plan were converted into options to purchase
470,008 shares of the Company's Common Stock. The Company's employee stock
purchase plan also provides for the sale of up to 166,500 shares of the
Company's Common Stock.
F-15
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Ligand Pharmaceuticals Incorporated
Notes to Consolidated Financial Statements(continued)
December 31, 1996
8. STOCKHOLDERS' EQUITY (CONTINUED)
Pro forma information regarding net income and earnings per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the dates of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995:
1996 1995
---- ----
Risk free interest rates 5.3% - 6.6% 5.7% - 7.6%
Dividend yields - -
Volatility 44.40% 44.40%
Weighted average expected life 5 or 7 years 5 or 7 years
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information is as follows (in thousands, except for earnings per share
information):
1996 1995
---------- ----------
Net loss as reported $ (37,313) $ (64,172)
Net loss pro forma (39,210) (65,082)
Net loss per share as reported (1.30) (2.70)
Net loss per share pro forma (1.36) (2.74)
The pro forma effect on net loss for 1996 and 1995 is not representative of the
pro forma effect on net loss in future years because it does not take into
consideration pro forma compensation expense related to grants made prior to
1995.
F-16
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Ligand Pharmaceuticals Incorporated
Notes to Consolidated Financial Statements(continued)
December 31, 1996
8. STOCKHOLDERS' EQUITY (CONTINUED)
Following is a summary of the Company's stock option plans activity and related
information:
WEIGHTED AVERAGE
SHARES PRICE RANGE EXERCISE PRICE
------ ----------- --------------
Balance at December 31, 1993 1,409,977 $.22 - $ 9.60 $8.05
Granted 1,046,217 8.62 - 11.59 9.69
Exercised (1,782) 7.70 - 7.90 4.52
Cancelled (35,508) .22 - 10.55 8.52
---------------------------------------------------------
Balance at December 31, 1994 2,418,904 .22 - 11.59 8.75
Merger options granted 470,008 .68 - 6.37 3.37
Granted 1,077,540 4.68 - 10.00 7.36
Exercised (215,530) .29 - 7.97 4.10
Cancelled (146,816) 3.89 - 11.59 7.57
---------------------------------------------------------
Balance at December 31, 1995 3,604,106 .29 - 11.59 7.33
Granted 974,015 10.31 - 16.38 12.85
Exercised (498,456) .22 - 12.75 5.61
Cancelled (282,783) 3.89 - 13.31 7.91
---------------------------------------------------------
Balance at December 31, 1996 3,796,882 $.68 - $16.38 $9.55
=========================================================
Options exercisable at
December 31, 1996 2,038,930 $.68 - $16.38
======================================
Of the total options granted from 1994 through 1996, 3,509,018 were granted at a
price equal to the fair value of the options at the time of grant, and 58,762
were granted at a price below the fair value of the options at the time of
grant.
Following is a further breakdown of the options outstanding as of December 31,
1996:
WEIGHTED AVERAGE
OPTIONS REMAINING LIFE IN WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING YEARS EXERCISE PRICE
- ------------------------ ------------ ----------------- ---------------
Glycomed Plan:
$ .68 - $ .79 19,846 3.21 $0.73
$3.77 - $5.31 61,357 7.75 $4.07
Ligand Plan:
$ 4.51 - $ 6.75 420,541 8.23 $6.08
$ 7.14 - $10.67 2,241,982 6.17 $8.90
$11.26 - $16.38 1,053,156 9.40 $12.82
--------- ------
3,796,882 $9.55
========= ======
F-17
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Ligand Pharmaceuticals Incorporated
Notes to Consolidated Financial Statements(continued)
December 31, 1996
8. STOCKHOLDERS' EQUITY (CONTINUED)
At December 31, 1996, 447,589 shares were available under all plans for future
grants of stock options or sale of stock.
For certain shares issued under these plans and certain other issuances of
stock, the Company has recognized as compensation and consulting fees expense
the excess of the deemed value for accounting purposes over the aggregate issue
price for such shares. The compensation expense is amortized ratably over the
vesting period of each share.
Amortization of deferred compensation and consulting fees for the years ended
December 31, 1996, 1995 and 1994 was $497,000, $711,000 and $669,000,
respectively.
Shareholder's Rights Plan
In September 1996, the Company's Board of Directors adopted a preferred
shareholder rights plan which provides for a dividend distribution of one
preferred share purchase right (a "Right") on each outstanding share of the
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 an acquisition of 20% or more of the
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
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 common stock and
September 13, 2006.
9. COLLABORATIVE RESEARCH AGREEMENTS
SmithKline Beecham Corporation
In February 1995, the Company entered into a research collaboration with
SmithKline Beecham Corporation ("SmithKline Beecham") to discover and
characterize small molecule drugs to control hematopoiesis. Revenues under the
agreement are recognized ratably over the term of the agreement. The revenue
recognized under the agreement for the years ended December 31, 1996 and 1995
was $2.4 million and $2.1 million, respectively. SmithKline Beecham has agreed
to provide the Company up to $21.5 million in research funding and equity
investments. SmithKline Beecham made an investment of $5.0 million in the
Company's Common Stock at the inception of the agreement. In November 1995, a
second equity investment of $2.5 million in the
F-18
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Ligand Pharmaceuticals Incorporated
Notes to Consolidated Financial Statements(continued)
December 31, 1996
9. COLLABORATIVE RESEARCH AGREEMENTS (CONTINUED)
Company's Common Stock was provided to the Company upon the achievement of
certain milestones. A third installment of equity investment of $2.5 million
would be provided to the Company upon SmithKline Beecham's election to expand
the scope of research as defined. This election was exercised by SmithKline
Beecham in January 1997. The final installment of $2.5 million will be provided
at SmithKline Beecham's option as a convertible note or an equity investment if
SmithKline Beecham elects to further expand the scope of research as defined.
American Home Products Corporation
In September 1994, the Company entered into a collaborative research agreement
with the Wyeth-Ayerst division of American Home Products ("AHP") to discover and
develop drugs which interact with the estrogen or progesterone receptors. AHP
agreed to support up to $19.0 million of the Company's research activities, to
purchase $5.0 million of the Company's Common Stock, and to provide, in three
installments, up to $20.0 million in convertible notes over the life of the
agreement.
In January 1996, the Company and AHP expanded and amended the research and
development collaboration. The Company received $1.5 million in additional
research revenue from AHP, AHP expanded the research funding by $1.0 million in
years two and three of the agreement, the contract-specified milestone payments
increased, AHP granted rights to the Company to cause the conversion of the
convertible note into Ligand Common Stock, and the parties agreed to extend the
period for Ligand to draw down the second convertible note installment until
December 1996.
Revenues under the agreement are recognized ratably over the term of the
agreement. The revenue recognized under the agreement for the years ended
December 31, 1996, 1995 and 1994 was $6.9 million, $4.0 million and $1.7
million, respectively. The $5.0 million equity investment plus the initial $10.0
million convertible note was provided to the Company upon inception of the
agreement. In the second quarter of 1995, the Company achieved certain
milestones which qualified the Company to receive the second installment of a
$5.0 million convertible note, which the Company elected to receive in December
1996. The final convertible note installment of $5.0 million will be provided if
the collaboration agreement is extended from three to five years. The first two
notes are convertible into the Company's Common Stock at $10.01 per share and
the final note is convertible at $10.88 per share. The conversion prices are
subject to adjustment if certain dilutive events occur to the Company's
outstanding Common Stock. In July 1996 and again in January 1997, the Company
elected to convert $3.8 million of the convertible
F-19
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Ligand Pharmaceuticals Incorporated
Notes to Consolidated Financial Statements(continued)
December 31, 1996
9. COLLABORATIVE RESEARCH AGREEMENTS (CONTINUED)
notes outstanding into 374,626 shares of Common Stock, for a total of 749,252
shares, at the $10.01 conversion price. The notes bear interest at 7.75% payable
semi-annually and are due September 1999 unless converted into the Company's
Common Stock. If conversion has not occurred by September 1999, the Company may
extend the due date of the notes to September 2001.
Abbott Laboratories
In July 1994, the Company entered into a collaborative research agreement with
Abbott Laboratories ("Abbott") to discover and develop drugs for the prevention
or treatment of inflammatory diseases. Abbott agreed to support up to $16.0
million of the Company's research activities over a five-year period in
connection with the agreement.
Revenues under the agreement are recognized ratably over the term of the
agreement and for the years ended December 31, 1996, 1995 and 1994 revenues were
$2.5 million, $2.6 million and $1.2 million, respectively. Abbott made an equity
investment of $5.0 million by purchasing shares of the Company's Common Stock at
the inception of the agreement, and in August 1995 Abbott made another equity
investment of $5.0 million in the Company's Common Stock, which was stipulated
in the July 1994 agreement.
Sankyo Company, Limited
As part of the Glycomed acquisition, the Company acquired a collaborative
research agreement with Sankyo Company, Limited ("Sankyo") which Glycomed had
entered into in June 1994. Under the agreement, Sankyo reimburses a portion of
the Company's research expenses related to the collaboration up to an aggregate
of $8.0 million. Revenues under the agreement are recognized ratably over the
term of the agreement. The revenue recognized under the agreement in 1996 and
since the date of Merger through December 31, 1995 was $2.7 million and $1.7
million, respectively. The agreement also provides that upon being presented by
the Company with a target compound arising from the research collaboration,
Sankyo shall notify the Company whether it wishes to pursue development of the
compound. If Sankyo exercises its option to develop the compound, the Company
and Sankyo shall negotiate in good faith the terms and conditions for an option
and license agreement within 180 days of Sankyo's exercise. Sankyo shall pay the
Company an initial payment of $1.0 million within 30 days after execution of
each option and license agreement as a license fee. Sankyo shall make additional
payments of license fees as follows: $1.0 million within 30 days after Sankyo
decides to initiate Phase II clinical trials of the approved compound in
F-20
73
Ligand Pharmaceuticals Incorporated
Notes to Consolidated Financial Statements(continued)
December 31, 1996
9. COLLABORATIVE RESEARCH AGREEMENTS (CONTINUED)
Japan; $1.0 million within 30 days after the filing of an NDA for the approved
compound in Japan; and $2.0 million within 30 days after the date of approval of
an NDA for the approved compound in Japan.
In connection with the collaborative research agreement, in September 1995,
Sankyo purchased $1.5 million of the Company's Common Stock.
Glaxo-Wellcome plc
In September 1992, the Company entered into a five-year collaborative research
agreement with Glaxo-Wellcome plc ("Glaxo") to develop drugs for the treatment
of cardiovascular disease. Under the agreement, Glaxo reimburses a portion of
the Company's research expenses related to the collaboration up to a maximum of
approximately $2.0 million annually. Revenues under the agreement are recognized
ratably over the term of the agreement. The revenue recognized under the
agreement for the years ended December 31, 1996, 1995 and 1994 was $2.1 million,
$2.1 million and $2.0 million, respectively. In connection with the agreement,
Glaxo purchased $7.5 million of the Company's Common Stock. Glaxo also purchased
$2.5 million of the Company's Common Stock as part of the Company's initial
public offering.
Allergan Ligand Retinoid Therapeutics , Inc.
On June 30, 1992, the Company entered into agreements with Allergan, Inc.
("Allergan") whereby Allergan-Ligand Joint Venture ("the Joint Venture") was
established to discover, develop and commercialize retinoid drugs.
In December 1994, the Company and Allergan formed Allergan Ligand Retinoid
Therapeutics, Inc. ("ALRT") to continue the research and development activities
previously conducted by the Joint Venture. In June 1995, the Company and ALRT
completed a public offering of 3,250,000 units ( the "Units") with aggregate
proceeds of $32.5 million (the "ALRT Offering") and cash contributions by
Allergan and Ligand of $50.0 million and $17.5 million, respectively, providing
for net proceeds of $94.3 million for retinoid product research and development.
Each Unit consisted of one share of ALRT's callable common stock and two
warrants, each warrant entitling the holder to purchase one share of the
Company's Common Stock. Immediately prior to the consummation of the ALRT
Offering, Allergan Pharmaceuticals (Ireland) Ltd., Inc. made a $6.0 million
investment in the Company's Common Stock. The Company's $17.5 million cash
contribution resulted in a one-time charge to operations. The Company also
recorded a warrant subscription receivable and corresponding increase in paid-in
capital
F-21
74
Ligand Pharmaceuticals Incorporated
Notes to Consolidated Financial Statements(continued)
December 31, 1996
9. COLLABORATIVE RESEARCH AGREEMENTS (CONTINUED)
of $5.9 million (6,500,000 warrants valued at $.90 per warrant) pursuant to the
ALRT Offering. Since June 3, 1995, cash received from ALRT pursuant to a
Research and Development Agreement was prorated between contract revenue and the
warrant subscription receivable based on their respective values. In 1996 and
1995, $2.1 million and $1.3 million respectively, of the proceeds received from
ALRT were applied to the warrant subscription receivable. In conjunction with
the consummation of the ALRT Offering, all rights held by the Joint Venture were
licensed to ALRT. The Company, Allergan and ALRT entered into certain other
agreements in connection with the funding of ALRT, including, a Technology
License Agreement, a Commercialization Agreement and Services and Administrative
Agreements, and ALRT granted to Ligand and Allergan an option to acquire certain
assets related to Oral and Topical Panretin (ALRT1057) and an option to acquire
all the outstanding shares of ALRT callable common stock. If Ligand exercises
the option, to acquire all ALRT callable common stock, Allergan has an option to
purchase an undivided 50% interest in all of the assets of ALRT.
Pfizer Inc
In 1991, the Company entered into a collaborative research and development and
license agreement with Pfizer Inc ("Pfizer") to perform services related to the
joint development of pharmaceuticals for the treatment of osteoporosis. In
November 1993, Ligand and Pfizer announced the successful completion of the
research phase of their alliance with the identification of a development
candidate and backups for the prevention and treatment of osteoporosis. Due to
the early success in meeting research-stage objectives for drug candidates, the
two companies phased out the ongoing research collaboration by July 1, 1994.
In connection with the collaborative research agreement, Pfizer purchased $7.5
million of the Company's Common Stock.
In December 1994, the Company filed suit against Pfizer in the Superior Court of
California in San Diego County for breach of contract and for a declaration of
future rights as they relate to droloxifene, a compound upon which the Company
performed work at Pfizer's request during a collaboration between Pfizer and the
Company to develop drugs in the field of osteoporosis. Droloxifene is an
estrogen antagonist/partial agonist with potential indications in the treatment
of osteoporosis and breast cancer as well as other applications. The Company and
Pfizer entered into a settlement agreement with respect to the lawsuit in April
1996. Under the terms of the settlement agreement,
F-22
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Ligand Pharmaceuticals Incorporated
Notes to Consolidated Financial Statements(continued)
December 31, 1996
9. COLLABORATIVE RESEARCH AGREEMENTS (CONTINUED)
the Company is entitled to receive milestone payments if Pfizer continues
development and royalties if Pfizer commercializes droloxifene. At the option of
either party, milestone and royalty payments owed the Company can be satisfied
by Pfizer transferring to the Company shares of Common Stock at an exchange
ratio of $12.375 per share. To date, the Company has received approximately $1.3
million in milestone payments from Pfizer as a result of the continued
development of droloxifene. These milestones were paid in the form of an
aggregate of 101,011 shares of Common Stock, which were subsequently retired
from treasury stock in September 1996. According to recent announcements by
Pfizer, droloxifene has entered Phase II clinical trials for osteoporosis and
Phase III clinical trials for breast cancer.
10. LICENSE AGREEMENT
In September 1992, the Company acquired certain licenses and technology rights
from Rockefeller University and New York University in exchange for an initial
cash payment, shares of Common Stock and warrants to purchase Common Stock of
the Company. Under the terms of the agreements, the Company acquired worldwide
licensing rights to certain transcription technology developed by Rockefeller
University. The agreements also provide for certain additional payments if
certain milestones are achieved. In connection with these agreements, the
Company entered into consulting agreements whereby two scientists received
shares of Common Stock from the Company's restricted stock plan. These shares
were issued at par value and resulted in deferred consulting fees of $2.2
million which are being recognized over the five-year vesting period.
11. NOTES RECEIVABLE FROM OFFICERS AND EMPLOYEES
The Company has advanced funds to certain officers and employees in connection
with various employment agreements. The agreements provide for forgiveness of
the advances over four and five-year periods. If an individual terminates the
relationship with the Company, the unforgiven portion of the advances and any
accrued interest are due and payable upon termination. The notes are secured by
shares of the Company's Common Stock owned by the individual or second trust
deeds on the personal residences of the respective employees.
12. INCOME TAXES
At December 31, 1996, the Company had consolidated federal and combined
California income tax net operating loss carryforwards of approximately $173
million and $21 million, respectively. The difference between the federal and
California tax loss
F-23
76
Ligand Pharmaceuticals Incorporated
Notes to Consolidated Financial Statements(continued)
December 31, 1996
12. INCOME TAXES (CONTINUED)
carryforwards is primarily attributable to the capitalization of research and
development expenses for California income tax purposes and the fifty percent
limitation on California loss carryforwards.
The federal tax loss carryforward will begin to expire in 2002, unless
previously utilized. The California tax loss carryforwards began expiring in
1996 (approximately $465,000 expired in 1996). The Company also had consolidated
federal and combined California research tax credit carryforwards of
approximately $6.2 million and $3.1 million respectively, which will begin to
expire in 2002 unless previously utilized.
Pursuant to Internal Revenue Code Sections 382 and 383, use of a portion of net
operating loss and credit carryforwards will be limited because of cumulative
changes in ownership of more than 50% which occurred within three year periods
during 1989, 1992 and 1996. However, the Company does not believe the
limitations will have a material impact upon the future utilization of these
carryforwards. In addition, use of Glycomed's preacquisition tax net operating
and credit carryforwards will also be limited because the acquisition by the
Company represents a change in ownership of more than 50%. Such tax net
operating losses and credit carryforwards have been reduced, including the
related deferred tax assets.
Significant components of the Company's deferred tax assets as of December 31,
1996 and 1995 are shown below (in thousands). A valuation allowance has been
recognized to fully offset the deferred tax assets as of December 31, 1996 and
1995 as realization of such assets is uncertain.
1996 1995
-------- --------
(in thousands)
Deferred tax liability:
Acquired subordinated debt $ 6,579 $ 7,676
Deferred tax assets:
Net operating loss carryforwards 62,615 53,191
Research and development credits 8,260 5,284
Capitalized research and development 8,655 7,556
Other - net 5,100 3,651
-------- --------
Total deferred tax assets 84,630 69,682
Valuation allowance for deferred tax assets (78,051) (62,006)
-------- --------
Net deferred tax assets 6,579 7,676
-------- --------
Net deferred taxes $ -- $ --
======== ========
Approximately $1.7 million of the valuation allowance for deferred tax assets
relates to benefits of stock option deductions which, when recognized will be
allocated directly to paid-in capital.
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