La Jolla Pharmaceutical Company
Annual Report 2009

Plain-text annual report

Table of ContentsUNITED STATES SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 10-K þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934For the fiscal year ended DECEMBER 31, 2009OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission file number: 0-24274LA JOLLA PHARMACEUTICAL COMPANY(Exact name of registrant as specified in its charter) Delaware 33-0361285(State or other jurisdiction of incorporation or organization) (I.R.S. EmployerIdentification Number)4365 Executive Drive, Suite 300, San Diego, CA 92121(Address of principal executive offices, including Zip Code)Registrant’s telephone number, including area code: (858) 452-6600Securities registered pursuant to Section 12(b) of the Act:Securities registered pursuant to Section 12(g) of the Act:Common Stock, Par Value $0.01 per shareIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes o No þIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.Yes o No þIndicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No oIndicate 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 byreference in Part III of the Form 10-K or any amendment to this Form 10-K. oIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”in Rule 12b-2 of the Exchange Act. (Check one): Large acceleratedfiler o Accelerated filer o Non-accelerated filer o Smaller reporting company þ (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o No þThe aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant as of June 30,2009 totaled approximately $12,042,000 based on the closing price of $0.19 as reported by the Nasdaq Global Market. As ofApril 6, 2010, there were 65,722,648 shares of the Company’s common stock ($0.01 par value) outstanding.DOCUMENTS INCORPORATED BY REFERENCENone  TABLE OF CONTENTS PART I Item 1. Business 1 Item 1A. Risk Factors 3 Item 1B. Unresolved Staff Comments 5 Item 2. Properties 5 Item 3. Legal Proceedings 5 Item 4. Reserved 5 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 6 Item 6. Selected Financial Data 6 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 7 Item 8. Financial Statements and Supplementary Data 12 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 13 Item 9A(T). Controls and Procedures 13 Item 9B. Other Information 14 PART III Item 10. Directors, Executive Officers and Corporate Governance 15 Item 11. Executive Compensation 18 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 24 Item 14. Principal Accountant Fees and Services 25 PART IV Item 15. Exhibits, Financial Statement Schedules 27 Signatures 28 Exhibit 21.1 Exhibit 23.1 Exhibit 31.1 Exhibit 31.2 Exhibit 32.1 Table of ContentsFORWARD-LOOKING STATEMENTSThe forward-looking statements in this report involve significant risks, assumptions and uncertainties, and a numberof factors, both foreseen and unforeseen, could cause actual results to differ materially from our current expectations. Forward-looking statements include those that express a plan, belief, expectation, estimation, anticipation, intent, contingency, futuredevelopment or similar expression. Accordingly, you should not rely upon forward-looking statements as predictions of futureevents. The outcome of the events described in these forward-looking statements are subject to the risks, uncertainties and otherfactors described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the“Risk Factors” contained in this Annual Report on Form 10-K, and in other reports and registration statements that we file withthe Securities and Exchange Commission from time to time. We expressly disclaim any intent to update forward-lookingstatements. Table of ContentsPART IIn this report, all references to “we,” “our,” “us” and “the Company” refer to La Jolla Pharmaceutical Company, aDelaware corporation, and our wholly owned subsidiaries La Jolla Limited (dissolved during October 2009) and Jewel MergerSub, Inc.Item 1. BusinessOverviewLa Jolla Pharmaceutical Company was incorporated in Delaware in 1989. We are a biopharmaceutical company thathas historically focused on the development and testing of Riquent as a treatment for Lupus nephritis. Lupus is an antibody-mediated disease caused by abnormal B cell production of antibodies that attack healthy tissues. Current treatments for thisautoimmune disorder often address only symptoms of the disease, or nonspecifically suppress the normal operation of theimmune system, which can result in severe, negative side effects and hospitalization. From August 2004 to February 2009,Riquent was being studied in a double-blinded multicenter Phase 3 clinical trial, called the “ASPEN” trial.On January 4, 2009, we entered into a development and commercialization agreement (the “DevelopmentAgreement”) with BioMarin CF Limited (“BioMarin CF”), a wholly-owned subsidiary of BioMarin Pharmaceutical Inc.(“BioMarin Pharma”). Under the terms of the Development Agreement, BioMarin CF was granted co-exclusive rights to developand commercialize Riquent in the United States, Europe and all other territories of the world, excluding the Asia Pacific region,and the non-exclusive right to manufacture Riquent anywhere in the world. In January 2009, BioMarin CF paid us a non-refundable commencement payment of $7.5 million and BioMarin Pharma purchased $7.5 million of a newly designated seriesof our preferred stock. As described below, this agreement was terminated on March 27, 2009. See Note 4 to our auditedconsolidated financial statements included in Part IV.In February 2009, we were informed by an Independent Monitoring Board for the Riquent Phase 3 ASPEN study thatthe monitoring board completed their review of the first interim efficacy analysis of Riquent and determined that continuing thestudy was futile. We subsequently unblinded the data and found that there was no statistical difference in the primary endpoint,delaying time to renal flare, between the Riquent-treated group and the placebo-treated group, although there was a significantdifference in the reduction of antibodies to double-stranded DNA. There were 56 renal flares in 587 patients treated with either300-mg or 900-mg of Riquent, and 28 renal flares in 283 patients treated with placebo.Based on these results, we immediately discontinued the Riquent Phase 3 ASPEN study and the further developmentof Riquent. We had previously devoted substantially all of our research, development and clinical efforts and financialresources toward the development of Riquent. In connection with the termination of our clinical trials for Riquent, wesubsequently took steps to significantly reduce our operating costs, including a substantial reduction in personnel, which wascompleted in April 2009. We also ceased the manufacture of Riquent at our former facility in San Diego, California as well as allregulatory activities associated with Riquent. See Note 6 to our consolidated financial statements included in Part IV.Following the futile results of the first interim efficacy analysis of Riquent, BioMarin CF elected to not exercise itsfull license rights to the Riquent program under the Development Agreement. Thus, the Development Agreement between theparties terminated on March 27, 2009 in accordance with its terms. Pursuant to the Securities Purchase Agreement between usand BioMarin Pharma, all of the Company’s preferred shares purchased by BioMarin Pharma were converted into commonshares. Additionally, all rights to Riquent were returned to us. See Note 4 to our consolidated financial statements included inPart IV.In July 2009, we announced that, in light of the alternatives available to us at that time, a wind down of our businesswould be in the best interest of our stockholders. Although our Board of Directors approved a Plan of Complete Liquidation andDissolution (the “Plan of Dissolution”) in September 2009, it was subject to approval by holders of at least a majority in votingpower of our outstanding shares. We called a special meeting of stockholders to vote on the Plan of Dissolution; however, themajority of our stockholders failed to return their proxy cards or otherwise indicate their votes with respect to this proposal. As aresult, in November 2009, we cancelled the special meeting of stockholders and began to evaluate other strategic opportunities. 1Table of ContentsIn December 2009, we signed a definitive merger agreement with Adamis Pharmaceuticals Corporation (“Adamis”)and our direct wholly-owned subsidiary, Jewel Merger Sub, Inc. (“Merger Sub”) wherein Merger Sub would merge with and intoAdamis and Adamis would survive the merger as a wholly-owned subsidiary of La Jolla. The merger required certain proposalsto be approved by our stockholders including the issuance of our common stock to Adamis stockholders and effecting asignificant reverse split of our common stock. We called a special meeting of stockholders to vote on the merger-relatedproposals. In early March 2010, the Company and Adamis agreed to terminate the Merger Agreement as a result of too few ofour stockholders voting on the proposals related to the Merger such that we did not have the requisite quorum to hold thestockholders’ meeting.In light of our apparent inability to complete a strategic transaction that requires stockholder approval, we arecurrently evaluating what options are available to us to maximize the value of our assets, which may include the following: • Sell or out-license our Riquent program, although we may not receive any significant value upon any such saleor license; • Pursue potential other strategic transactions for new technologies, which could include mergers, licenseagreements or other collaborations, with third parties where we acquire new compounds for development andseek additional capital; or • Implement a wind down of the Company if other alternatives are not deemed viable and in the best interests ofthe Company.Following the negative results of the ASPEN trial, we recorded a significant charge for the impairment of our Riquentassets, including our Riquent-related patents, and we may not realize any significant value from these assets in the future.Additionally, there is a substantial risk that we may not successfully implement any of these strategic alternatives, and even ifwe determine to pursue one or more of these alternatives, we may be unable to do so on acceptable terms. Any such transactionsmay be highly dilutive to our existing stockholders and may deplete our limited remaining capital resources.Patents and Proprietary TechnologiesAll of our issued and pending patents were written off or sold during the year ended December 31, 2009. In order toconserve cash, we have stopped paying patent maintenance and prosecution costs on our Riquent related patents, and will needto either reinstate these patents by paying back fees or let them lapse. At the present time, we are considering whether therecontinues to be potential value in the Riquent patent estate. To the extent that there is believed to be value with these assets, wewould need to pay approximately $0.1 million in fees to reinstate these patents and patent applications.CompetitionThe biotechnology and pharmaceutical industries are extremely competitive. Many companies have substantiallygreater financial and other resources than we do. In addition, they may have substantially more experience in effecting strategiccombinations, in-licensing technology, developing drugs, obtaining regulatory approvals, and manufacturing and marketingproducts. We cannot give any assurances that we can effectively compete with these other pharmaceutical and biotechnologycompanies.Government RegulationGovernmental authorities in the U.S. and other countries extensively regulate, among other things, the research,development, testing, manufacture, labeling, promotion, advertising, distribution, and marketing of products produced by thebiotechnology and pharmaceutical industry. In the United States the Food and Drug Administration (the “FDA”) regulates drugsunder the Federal Food, Drug, and Cosmetic Act and its implementing regulations. Outside the U.S., the requirements governingconduct of clinical trials and marketing authorization vary widely from country to country, but involve a similar degree ofoversight and rigor as in the U.S. 2Table of ContentsEmployeesAs of March 5, 2010, we employed three regular full-time employees (including one person who has an M.D.). Otherpersonnel resources are used from time to time as consultants on an as-needed basis. In connection with the termination of theclinical trials for Riquent, we ceased all manufacturing and regulatory activities related to Riquent and took steps tosignificantly reduce our operating costs, including a reduction of force that resulted in the termination of the majority of ouremployees, primarily in April 2009. See Note 6 to our consolidated financial statements included in Part IV. None of ouremployees are covered by collective bargaining agreements and management considers relations with our employees to begood.Available InformationOur annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments tothose reports filed with or furnished to the Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of theSecurities Exchange Act of 1934, as amended, are available free of charge through our website at www.ljpc.com as soon asreasonably practicable after we electronically file or furnish the reports with or to the Securities and Exchange Commission.Item 1A. Risk FactorsI. RISK FACTORS RELATING TO LA JOLLA PHARMACEUTICAL COMPANY AND THE INDUSTRY IN WHICH WEOPERATE.We have only limited assets, no ongoing clinical trials and no products, and will need to raise additional capital if we are tocontinue as a going concern.As of December 31, 2009, we had approximately $4.2 million in working capital, no ongoing clinical trials and noproducts. Although we retain the rights to the Riquent patent estate, the value of the estate is uncertain and has been writtendown under United States generally accepted accounting principles (“GAAP”) to nearly zero. As a result, we have only limitedassets available to operate and develop our business. If we determine that Riquent has no remaining value, then we would eitherneed to acquire rights to another drug candidate for development or choose to liquidate the Company. If we determine thatRiquent does have potential value such that it merits further development efforts, we would need to find a development partnerand/or raise significant amounts of additional capital to attempt to develop the compound ourselves. Given the limited workingcapital that we have available, we will need to raise significant amounts of additional capital if we elect to not liquidate theCompany, Raising this capital may not be possible or, if possible, may be on terms that are highly unfavorable. For example,because our stock price is so depressed, raising a significant amount of capital would result in the issuance of a very largenumber of shares. This would greatly dilute the ownership of our existing stockholders and would likely provide the newinvestor with a controlling interest in the Company. Additionally, we may find it necessary to agree to unfavorable investmentterms, with terms such as preemptive rights, anti-dilution adjustments, special approval rights, and other terms that couldprovide new investors with a greater degree of control over the Company. The existence of these terms could negatively affectthe value of our common stock and could diminish the rights of our existing stockholders. We may not continue in business andmay liquidate the Company.Although we are attempting to pursue potential strategic transactions, there is no assurance that we will be successful.Following the failure of Riquent in February 2009 we have been exploring strategic alternatives to maximizestockholder value, as described above. There is a substantial risk that we may not successfully implement any of these strategicalternatives, particularly in light of our recent inability to obtain stockholder approval of various transactions, and even if wedetermine to pursue one or more of these alternatives, we may be unable to do so on acceptable financial terms. Any suchtransactions may require us to incur non-recurring or other charges and may pose significant integration challenges and/ormanagement and business disruptions, any of which could materially and adversely affect our business and financial results.Additionally, pursuing these transactions would deplete some portion of our limited capital resources and may not result in atransaction that is ultimately consummated. 3Table of ContentsStockholders should recognize that in our efforts to address our liabilities and fund the future development of ourCompany, we may pursue strategic alternatives that result in the stockholders of the Company having little or no continuinginterest in the assets or equity of the Company. We will continue to evaluate our alternatives in light of our cash position,including the possibility that we may ultimately seek to liquidate the Company.If we choose to liquidate the Company, it is unlikely that stockholders would receive any significant value for their shares.We have not generated any revenues from product sales, and have incurred losses in each year since our inception in1989. We expect that it will be very difficult to raise capital to continue our operations and our independent registered publicaccounting firm has issued an opinion with an explanatory paragraph to the effect that there is substantial doubt about ourability to continue as a going concern. We do not believe that we could succeed in raising additional capital needed to sustainour operations without some strategic transaction, such as a merger or other third-party collaboration. If we are unable toconsummate such a transaction, we expect that we would need to cease all operations and wind down. Although we arecurrently evaluating our strategic alternatives with respect to all aspects of our business, we cannot assure you that any actionsthat we take would raise or generate sufficient capital to fully address the uncertainties of our financial position. As a result, wemay be unable to realize value from our assets and discharge our liabilities in the normal course of business. If we are unable toconsummate a strategic transaction, we would likely need to liquidate the Company. The funds resulting from the liquidation ofour assets, net of amounts payable, would likely return only a small amount, if anything, to our stockholders. See “Liquidityand Capital Resources” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results ofOperations” and Note 1 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.II. RISK FACTORS RELATED SPECIFICALLY TO OUR STOCK.The recent delisting of our common stock could have a substantial effect on the price and liquidity of our common stock.On March 4, 2010, our common stock was delisted from the Nasdaq Capital Market and we began trading on ThePink OTC Markets, Inc. (“The Pink Sheets”). As a result of trading on The Pink Sheets, the market liquidity of our commonstock may be adversely affected and the market price of our common stock may decrease. Trading on The Pink Sheets may alsoadversely affect our ability to effect a strategic transaction, such as a merger with a third party. In addition, our stockholders’ability to trade or obtain quotations on our shares may be severely limited because of lower trading volumes and transactiondelays. These factors may contribute to lower prices and larger spreads in the bid and ask price for our common stock.Specifically, you may not be able to resell your shares at or above the price you paid for such shares or at all. Inaddition, class action litigation has often been instituted against companies whose securities have experienced periods ofvolatility in market price. Any such litigation brought against us could result in substantial costs and a diversion ofmanagement’s attention and resources, which could hurt our business, operating results and financial condition. 4Table of ContentsThe price of our common stock has been, and will be, volatile and may continue to decline.Our stock has experienced significant price and volume volatility since February 2009 due to, among other things,the futility determination of the Riquent clinical trial in February 2009 and the termination of our merger agreement withAdamis in March 2010. Our stock is currently trading below $0.10 per share and we could continue to experience furtherdeclines in our stock price. The market price of our common stock has been and is likely to continue to be highly volatile.Market prices for securities of biotechnology and pharmaceutical companies, including ours, have historically been highlyvolatile, and the market has from time to time experienced significant price and volume fluctuations that are unrelated to theoperating performance of particular companies. The following factors, among others, can have a significant effect on the marketprice of our securities: • limited financial resources; • announcements regarding mergers or other strategic transactions; • future sales of significant amounts of our common stock by us or our stockholders; • developments in patent or other proprietary rights; • developments concerning potential agreements with collaborators; and • general market conditions and comments by securities analysts.The realization of any of the risks described in these “Risk Factors” could have a negative effect on the market priceof our common stock.Anti-takeover devices may prevent changes in our board of directors and management.We have in place several anti-takeover devices, which may have the effect of delaying or preventing changes in ourmanagement or deterring third parties from seeking to acquire significant positions in our common stock. For example, one anti-takeover device provides for a board of directors that is separated into three classes, with their terms in office staggered overthree year periods. This has the effect of delaying a change in control of our board of directors without the cooperation of theincumbent board. In addition, our bylaws require stockholders to give us written notice of any proposal or director nominationwithin a specified period of time prior to the annual stockholder meeting, establish certain qualifications for a person to beelected or appointed to the board of directors during the pendency of certain business combination transactions, and do notallow stockholders to call a special meeting of stockholders.Item 1B. Unresolved Staff Comments.None.Item 2. Properties.None.Item 3. Legal Proceedings.We are not currently a party to any legal proceedings.Item 4. Reserved. 5Table of ContentsPART IIItem 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.Information About Our Common StockDuring the year ended December 31, 2009, our common stock traded on the Nasdaq Global and Capital Marketsunder the symbol “LJPC.” As of March 4, 2010, our common stock was delisted from the Nasdaq Capital Market and begantrading on the Pink OTC Markets, under the symbol “LJPC.PK.” Set forth below are the high and low sales prices for ourcommon stock for each full quarterly period within the two most recent fiscal years. Prices High Low Year Ended December 31, 2009 First Quarter $3.20 $0.04 Second Quarter 0.64 0.13 Third Quarter 0.36 0.14 Fourth Quarter 0.32 0.06 Year Ended December 31, 2008 First Quarter $4.25 $1.45 Second Quarter 2.35 1.59 Third Quarter 2.50 1.01 Fourth Quarter 1.20 0.43 We have never paid dividends on our common stock and we do not anticipate paying dividends in the foreseeablefuture. The number of record holders of our common stock as of March 5, 2010 was approximately 289.Information About Our Equity Compensation PlansInformation regarding our equity compensation plans is incorporated by reference in Item 12 of Part III of this annualreport on Form 10-K.Item 6. Selected Financial DataWe are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide theinformation required under this item. 6Table of ContentsItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.IntroductionManagement’s discussion and analysis of financial condition and results of operations is provided as a supplement tothe accompanying consolidated financial statements and footnotes to help provide an understanding of our financial condition,the changes in our financial condition and our results of operations. Our discussion is organized as follows: • Overview and recent developments. This section provides a general description of our business and operating historyand a general description of recent events and significant transactions that we believe are important in understandingour financial condition and results of operations. • Critical accounting policies and estimates. This section contains a discussion of the accounting policies that webelieve are important to our financial condition and results of operations and that require significant judgment andestimates on the part of management in their application. In addition, all of our significant accounting policies,including the critical accounting policies and estimates, are summarized in Note 1 to the accompanying consolidatedfinancial statements. • Results of operations. This section provides an analysis of our results of operations presented in the accompanyingconsolidated statements of operations by comparing the results for the year ended December 31, 2009 to the results forthe year ended December 31, 2008. • Liquidity and capital resources. This section provides an analysis of our cash flows as well as material subsequentchanges.Overview and Recent DevelopmentsSince our inception in May 1989, we have devoted substantially all of our resources to the research and developmentof technology and potential drugs to treat antibody-mediated diseases. We have never generated any revenue from product salesand have relied on public and private offerings of securities, revenue from collaborative agreements, equipment financings andinterest income on invested cash balances for our working capital.On January 4, 2009, we entered into a development and commercialization agreement (the “DevelopmentAgreement”) with BioMarin CF Limited (“BioMarin CF”), a wholly-owned subsidiary of BioMarin Pharmaceutical Inc.(“BioMarin Pharma”). Under the terms of the Development Agreement, BioMarin CF was granted co-exclusive rights to developand commercialize Riquent in the United States, Europe and all other territories of the world, excluding the Asia Pacific region,and the non-exclusive right to manufacture Riquent anywhere in the world. In January 2009, BioMarin CF paid us a non-refundable commencement payment of $7.5 million and BioMarin Pharma paid $7.5 million for a newly designated series ofour preferred stock. As described below, this agreement was terminated on March 27, 2009. See Note 4 to our consolidatedfinancial statements included in Part IV.Following the futile results of the first interim efficacy analysis of Riquent, BioMarin CF elected to not exercise itsfull license rights to the Riquent program under the Development Agreement. Thus, the Development Agreement between theparties terminated on March 27, 2009 in accordance with its terms. Pursuant to the Securities Purchase Agreement between usand BioMarin Pharma, all of the Company’s preferred shares purchased by BioMarin Pharma were converted into commonshares upon the termination of the Development Agreement. Additionally, all rights to Riquent were returned to us. See Note 4to our consolidated financial statements included in Part IV.In February 2009, we were informed by an Independent Monitoring Board for the Riquent Phase 3 ASPEN study thatthe monitoring board completed its review of the first interim efficacy analysis of Riquent and determined that continuing thestudy was futile. We subsequently unblinded the data and found that there was no statistical difference in the primary endpoint,delaying time to renal flare, between the Riquent-treated group and the placebo-treated group, although there was a significantdifference in the reduction of antibodies to double-stranded DNA. There were 56 renal flares in 587 patients treated with either300-mg or 900-mg of Riquent, and 28 renal flares in 283 patients treated with placebo. 7Table of ContentsBased on these results, we immediately discontinued the Riquent Phase 3 ASPEN study and the further developmentof Riquent. We had previously devoted substantially all of our research, development and clinical efforts and financialresources toward the development of Riquent. In connection with the termination of our clinical trials for Riquent, wesubsequently took steps to significantly reduce our operating costs, including a substantial reduction in personnel, which wascompleted in April 2009. We also ceased the manufacture of Riquent at our former facility in San Diego, California. See Note 6to our consolidated financial statements included in Part IV.In July 2009, we announced that, in light of the alternatives available to us at the time, a wind down of our businesswould be in the best interests of the Company and its stockholders. Although the Board of Directors (the “Board”) approved aPlan of Complete Liquidation and Dissolution (the “Plan of Dissolution”) in September 2009, it was subject to approval byholders of at least a majority in voting power of our outstanding shares. We called a special meeting of stockholders to vote onthe Plan of Dissolution, but the majority of our stockholders failed to return their proxy cards or otherwise indicate their voteswith respect to this proposal. Accordingly, we were not able to obtain the requisite quorum to conduct business at the specialmeeting and were therefore unable to proceed with dissolution.Because we were unable to obtain sufficient stockholder votes to proceed with dissolution, we entered into anAgreement and Plan of Reorganization (the “Merger Agreement”) by and among the Company, Jewel Merger Sub, Inc. (“MergerSub”) and Adamis Pharmaceuticals Corporation (“Adamis”) on December 4, 2009. The transaction contemplated by the MergerAgreement was structured as a reverse triangular merger, in which Merger Sub, a wholly-owned subsidiary of the Company,would merge with and into Adamis, with Adamis surviving (the “Merger”). On March 3, 2010, the Company and Adamis agreedto terminate the Merger Agreement as a result of too few of our stockholders voting on the proposals related to the Merger suchthat we did not have the requisite quorum to hold the stockholders’ meeting to approve the proposals related to the Merger. Thesolicitation of further votes was cancelled due to the delisting from Nasdaq.Effective at the open of business on March 4, 2010, the Company’s common stock was suspended and delisted fromThe NASDAQ Stock Market (“Nasdaq”) and began trading on The Pink OTC Markets, Inc. The delisting was the result ofNasdaq’s determination that the Company had nominal assets, other than cash, and nominal operations.In light of our inability to complete a strategic transaction that requires stockholder approval, we are currentlyevaluating what options are available to us, which may include the following: • Sell or out-license our Riquent program, although we may not receive any significant value upon such a sale orlicense; • Pursue potential other strategic transactions, which could include mergers, license agreements or othercollaborations, with third parties; or • Implement a wind down of the Company if other alternatives are not deemed viable and in the best interests ofthe Company.Following the negative results of the ASPEN trial, we recorded a significant charge for the impairment of our Riquentassets, including our Riquent-related patents, and we may not realize any significant value from these assets in the future.Additionally, there is a substantial risk that we may not successfully implement any of these strategic alternatives, and even ifwe determine to pursue one or more of these alternatives, we may be unable to do so on acceptable terms. Any such transactionsmay be highly dilutive to our existing stockholders and may deplete our limited remaining capital resources.In January 2009, we sold $10 million of face-value auction rate securities to our broker-dealer, UBS A.G. (“UBS”). Asof December 31, 2008, we had recognized a total impairment charge of $2.3 million as a result of the illiquidity of thesesecurities, which was fully offset by a $2.3 million realized gain from UBS’s repurchase agreement that provides for a put optionon these securities. Following the sale of these investments, we no longer hold any auction-rate securities. 8Table of ContentsCritical Accounting Policies and EstimatesThe discussion and analysis of our financial condition and results of operations are based on our consolidatedfinancial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financialstatements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues andexpenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. We baseour estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, theresults of which form the basis for making judgments about the carrying values of assets and liabilities that are not readilyapparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.We believe the following critical accounting policies involve significant judgments and estimates used in thepreparation of our consolidated financial statements (see also Note 1 to our consolidated financial statements included inPart IV).Revenue recognitionWe apply the revenue recognition criteria outlined in the ASC Topic of Revenue Recognition. Upfront product andtechnology license fees under multiple-element arrangements are deferred and recognized over the period of such services orperformance if such arrangements require on-going services or performance. Non-refundable amounts received for substantivemilestones are recognized upon achievement of the milestone. Any amounts received prior to satisfying our revenuerecognition criteria are recorded as deferred revenue in the accompanying consolidated balance sheets.Our sole source of revenue in the accompanying consolidated financial statements related to a January 4, 2009Development Agreement with BioMarin CF which contained multiple potential revenue elements, including non-refundableupfront fees. The Development Agreement was terminated on March 27, 2009 following the failure of the Phase 3 ASPEN trialat which time we had no remaining on-going services or performance. We recognized $8.1 million as collaboration revenueupon termination of the Development Agreement.Impairment of long-lived assetsIf indicators of impairment exist, we assess the recoverability of the affected long-lived assets by determining whetherthe carrying value of such assets can be recovered through the undiscounted future operating cash flows.As a result of the futility determination in the Phase 3 ASPEN trial, we discontinued the Riquent Phase 3 ASPENstudy and the development of Riquent. Based on these events, the future cash flows from our Riquent-related patents were nolonger expected to exceed their carrying values and the assets became impaired as of December 31, 2008. Accordingly, werecorded a non-cash charge for the impairment of long-lived assets of $2.8 million for the year ended December 31, 2008 towrite down the value of our long-lived assets to their estimated fair values. Although no impairment charges were recordedduring 2009, we sold, disposed of, or wrote off all of our remaining long-lived assets during the year ended December 31, 2009for a gain of $0.3 million.Accrued clinical/regulatory expensesAs a result of the discontinuation of the Riquent Phase 3 ASPEN study and the development of Riquent, all clinicaland regulatory activities were ceased and no related accruals were required as of December 31, 2009.We reviewed and accrued clinical trial and regulatory-related expenses based on work performed, which relied onestimates of total costs incurred based on patient enrollment, completion of studies and other events. We followed this methodsince reasonably dependable estimates of the costs applicable to various stages of a clinical trial could be made. 9Table of ContentsShare-based compensationShare-based compensation expense for the years ended December 31, 2009 and 2008 was approximately $2.7 millionand $4.4 million, respectively. As of December 31, 2009, there was approximately $1.0 million of total unrecognizedcompensation cost related to non-vested share-based payment awards granted under all equity compensation plans. As share-based compensation expense recognized for fiscal years 2009 and 2008 is based on awards ultimately expected to vest, share-based compensation expense has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant andrevised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Total unrecognized compensationcost will be adjusted for future changes in estimated forfeitures. We expect to recognize that cost over a weighted-averageperiod of 0.8 years. Additional share-based compensation expense for any new share-based payment awards granted afterDecember 31, 2009 under all equity compensation plans cannot be predicted at this time because it will depend on, amongother matters, the amounts of share-based payment awards granted in the future.Option-pricing models were developed for use in estimating the value of traded options that have no vesting orhedging restrictions and are fully transferable. Because the employee and director stock options granted by us havecharacteristics that are significantly different from traded options, and because changes in the subjective assumptions canmaterially affect the estimated value, in our opinion the existing valuation models may not provide an accurate measure of thefair value of the employee and director stock options granted by us. Although the fair value of the employee and director stockoptions granted by us using an option-pricing model, that value may not be indicative of the fair value observed in a willing-buyer/willing-seller market transaction.New Accounting PronouncementsIn June 2009, the Financial Accounting Standards Board (“FASB”) approved the FASB Accounting StandardsCodification (“the Codification”) when it issued Statement of Financial Accounting Standards No. 168, The FASB AccountingStandards Codification and the Hierarchy of Generally Accepted Accounting Principles, which is included in The AccountingStandards Codification (“ASC”) Topic of Generally Accepted Accounting Principles (the “Topic”). All existing accountingstandard documents, such as FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and otherrelated literature, excluding guidance from the Securities and Exchange Commission (“SEC”), have been superseded by theCodification. All other non-grandfathered, non-SEC accounting literature not included in the Codification has become non-authoritative. The Codification did not change GAAP, but instead introduced a new structure that combines all authoritativestandards into a comprehensive, topically-organized online database. The Topic is effective for financial statements issued forinterim and annual periods ending after September 15, 2009. The Topic impacts our financial statement disclosures as all futurereferences to authoritative accounting literature will be referenced in accordance with the Codification. As a result of theimplementation of the Codification during the quarter ended September 30, 2009, previous references to accounting standardsand literature are no longer applicable.Results of OperationsYears Ended December 31, 2009 and 2008Revenue. For the year ended December 31, 2009, revenue increased to $8.1 million as a result of the DevelopmentAgreement entered into with BioMarin CF in January 2009. The Development Agreement was terminated in March 2009following the negative results from our Riquent Phase 3 ASPEN study. There were no revenues for the year ended December 31,2008. 10Table of ContentsExpenses. During the year ended December 31, 2009, we negotiated settlements related to accounts payableobligations and accrued liabilities with a majority of our vendors to preserve our remaining cash and other assets. Thesenegotiations resulted in a reduction of approximately $2.7 million to accounts payable obligations and accrued liabilities fromamounts originally invoiced and accrued, which were recorded upon the execution of the settlement agreements. As a result ofthese settlements, during the year ended December 31, 2009, there were decreases of $2.6 million and $0.1 million to researchand development and general and administrative expenses, respectively.Research and Development Expense. For the year ended December 31, 2009, research and development expensesdecreased to $9.6 million from $51.0 million for the year ended December 31, 2008 as a result of the discontinuation of theRiquent Phase 3 ASPEN study, salary and benefits decreases due to the termination of all research personnel and the settlementof accounts payable obligations and accrued liabilities noted above. This decrease was partially offset by an increase intermination expense, mainly relating to severance, of approximately $0.7 million recorded as of March 31, 2009, as a result ofthe termination of 64 research and development personnel in April 2009. We expect minimal research and developmentexpenditures going forward.General and Administrative Expense. For the year ended December 31, 2009, general and administrative expensesdecreased to $7.2 million from $9.7 million for the year ended December 31, 2008. The decrease in general and administrativeexpenses is primarily the result of decreases in consulting and legal expense related to the BioMarin partnership for the yearended December 31, 2009 of $1.8 million. In addition, during April 2009, 10 general and administrative personnel wereterminated, resulting in salary and benefits decreases for the year ended December 31, 2009 of $0.8 million. The decrease ingeneral and administrative expense for year ended December 31, 2009 was partially offset by an increase in termination expenserecorded as of March 31, 2009 relating to severance of approximately $0.3 million as a result of the termination of personnel inApril 2009 and retention payments recorded as of December 31, 2009 of $0.1 million related to our remaining officers as ofDecember 31, 2009. We expect decreased general and administrative expenditures going forward.Asset Impairments. We recorded a $2.8 million impairment charge in 2008 (none in 2009) because we no longerbelieved that the estimated undiscounted future cash flows expected to result from the disposition of certain of the Company’slong-lived assets were sufficient to recover the carrying value of these assets. This impairment charge was due to the negativeresults from the Riquent Phase 3 ASPEN study announced in February 2009, which was an indicator of impairment.Interest Expense, Interest and Other Income. Interest expense decreased for the year ended December 31, 2009compared to the prior year due to the repayment of our notes payable and capital leases during the quarter ended June 30, 2009.Interest and other income decreased to less than $0.1 million for the year ended December 31, 2009, from $0.8 million for theyear ended December 31, 2008. This decrease is primarily due to moving all short-term investments to non-interest bearing cashaccounts during the quarter ended March 31, 2009.Net Operating Loss and Research Tax Credit Carryforwards. At December 31, 2008, we had federal and Californiaincome tax net operating loss carryforwards that are subject to Internal Revenue Code, or IRC, Section 382/383 limitations ofnet operating loss and research and development credit carryforwards. In February 2009, we experienced a change in ownershipat a time when our enterprise value was minimal. As a result of this ownership change and the low enterprise value, our federaland California net operating loss carryforwards and federal research and development credit carryforwards as of December 31,2009 will be subject to limitation under IRC Section 382/383 and more likely than not will expire unused.Liquidity and Capital ResourcesFrom inception through December 31, 2009, we have incurred a cumulative net loss of approximately $424.3 millionand have financed our operations through public and private offerings of securities, revenues from collaborative agreements,equipment financings and interest income on invested cash balances. From inception through December 31, 2009, we hadraised approximately $410.8 million in net proceeds from sales of equity securities. 11Table of ContentsAs of December 31, 2009, we had $4.3 million in cash, compared to $19.4 million in cash, cash equivalents and short-term investments as of December 31, 2008. Our working capital as of December 31, 2009 was $4.2 million, as compared to$3.0 million as of December 31, 2008. The decrease in cash, cash equivalents and short-term investments resulted from the useof our financial resources to fund our clinical trial and manufacturing activities during early 2009 and for other generalcorporate purposes. This decrease was partially offset by the non-refundable commencement payment of $7.5 million receivedfrom BioMarin CF under the Development Agreement and the proceeds of $7.5 million from the sale of 339,104 shares of ourpreferred stock to BioMarin Pharma under the concurrently executed Securities Purchase Agreement in January 2009.In January 2009, all of our auction rate securities were sold to UBS at par value of $10.0 million in accordance withthe terms of the November 2008 redemption offer from UBS (see Note 2 to our consolidated financial statements included inPart IV).In January 2009, the amount outstanding on the credit facility with UBS of $5.9 million was settled in full and theCredit Facility agreement with UBS was terminated.On March 27, 2009 and as a result of the termination of the Development Agreement with BioMarin CF, the Series BPreferred Stock issued to BioMarin Pharma converted into 10,173,120 shares of Common Stock.On July 31, 2009, our two building leases expired. Pursuant to the lease for one of these buildings, we wereresponsible for completing modifications to the leased building prior to lease expiration. In July 2009, approximately $0.3million was paid in accordance with the lease provisions. We exited the buildings upon the expiration of the leases inJuly 2009.During the year ended December 31, 2009, we paid off all remaining notes payable and capital lease obligations. Inaddition, we early terminated our operating leases during the quarter ended June 30, 2009. No notes payable, purchasecommitments, capital leases or material operating leases existed as of December 31, 2009.We intend to use our financial resources to fund our current obligations and to pursue other strategic alternatives thatmay become available to us. In the future, it is possible that we will not have adequate resources to support continuedoperations and we will need to cease operations.Our future capital uses and requirements depend on numerous forward-looking factors. These factors include but arenot limited to the following: • our ability to sell, out-license or otherwise dispose of our Riquent program; • our ability to consummate a strategic transaction such as a merger, license agreement or other collaboration witha third party; or • our implementation of a wind down of the Company if other alternatives are not deemed viable and in the bestinterests of the Company;There can be no assurance that we will be able to enter into any strategic transactions on acceptable terms, if any, andour negotiating position may worsen as we continue to utilize our existing resources.Off-Balance Sheet ArrangementsWe have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on ourconsolidated financial condition, changes in our consolidated financial condition, expenses, consolidated results of operations,liquidity, capital expenditures or capital resources.Item 8. Financial Statements and Supplementary Data.The financial statements and supplementary data required by this item are set forth under the caption “SelectedQuarterly Financial Data” on page F-21 and at the end of this report beginning on page F-2 and is incorporated herein byreference. 12Table of ContentsItem 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.None.Item 9A(T). Controls and Procedures.(a) Disclosure Controls and Procedures; Changes in Internal Control Over Financial ReportingOur management, with the participation of our principal executive and principal financial officers, has evaluated theeffectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the SecuritiesExchange Act of 1934 (the “Exchange Act”)) as of December 31, 2009. Based on this evaluation, our principal executive andprincipal financial officers concluded that our disclosure controls and procedures were effective as of December 31, 2009.There was no change in our internal control over financial reporting during the quarter ended December 31, 2009 thathas materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.(b) Management Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting.Internal control over financial reporting is defined in Rule 13a-15(f) and Rule 15d-15(f) promulgated under the Exchange Actas a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by ourboard of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples and includes those policies and procedures that: • Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions anddispositions of our assets; • Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, and that receipts and expenditures arebeing made only in accordance with authorizations of our management and directors; and • Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use ordisposition of our assets that could have a material effect on our financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2009.In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of theTreadway Commission in Internal Control-Integrated Framework.Based on our assessment, management concluded that, as of December 31, 2009, our internal control over financialreporting was effective based on those criteria.This annual report does not include an attestation report of the Company’s registered public accounting firmregarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’sregistered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit theCompany to provide only management’s report in this annual report. 13Table of ContentsItem 9B. Other Information.We called a special meeting of stockholders in October 2009 to vote on the Plan of Dissolution. However, themajority of our stockholders failed to return their proxy cards or otherwise indicate their votes with respect to this proposal. As aresult, we were unable to obtain the requisite quorum to conduct business at the special meeting and thus we cancelled thespecial meeting in November 2009.We called a special meeting of stockholders in February 2010 to vote on the Merger with Adamis. However, themajority of our stockholders failed to return their proxy cards or otherwise indicate their votes with respect to this proposal. As aresult, we were unable to obtain the requisite quorum to conduct business at the special meeting and thus we cancelled thespecial meeting in March 2010. 14Table of ContentsPART IIIItem 10. Directors, Executive Officers and Corporate Governance.Our directors and executive officers and their ages as of March 5, 2010 are set forth below. Name Age Position(s) Craig R. Smith, M.D. 64 Director, Chairman of the Board Deirdre Y. Gillespie, M.D. 53 President, Chief Executive Officer and Assistant Secretary Gail A. Sloan, CPA 47 Vice President of Finance and Secretary Robert A. Fildes, Ph.D. 71 Director Stephen M. Martin 63 Director Frank E. Young, M.D., Ph.D. 78 DirectorThe biographies of our directors and executive officers appear below.Craig R. Smith, M.D. has been a director since 2004 and Chairman of the Board since 2006. Dr. Smith is currentlyExecutive Vice President, Chief Operating Officer and director of Algenol Biofuels Inc., a privately held industrialbiotechnology company, and the President of Williston Consulting, LLC, a consulting firm providing advisory services topharmaceutical and biotechnology companies. From 1993 to 2004, Dr. Smith served as Chairman, President and ChiefExecutive Officer of Guilford Pharmaceuticals, Inc., a publicly held pharmaceutical company. From 1988 to 1992, Dr. Smithwas Vice President of Clinical Research and from 1992 to 1993, Senior Vice President of Business and Market Development atCentocor, Inc., a publicly held biotechnology company, which is now a wholly-owned subsidiary of Johnson & Johnson. From1975 to 1988, he served on the faculty of the Department of Medicine at the Johns Hopkins University School of Medicine.Dr. Smith is a member of the Johns Hopkins Alliance for Science and a member of the board of directors of Adams ExpressCompany, a publicly held closed-end equity investment company, Petroleum & Resources Corporation, a publicly held equityinvestment company specializing in energy and natural resources, and Depomed, Inc., a publicly held specialty pharmaceuticalcompany. Dr. Smith holds an M.D. from the State University of New York at Buffalo and trained in Internal Medicine at theJohns Hopkins Hospital from 1972 to 1975. Based on Dr. Smith’s executive experience and service on other boards of directorsin the biotechnology and pharmaceutical industries, as well as his experience in medicine and academia, the Board believesDr. Smith has the appropriate set of skills to serve as a member of our Board.Deirdre Y. Gillespie, M.D., President, Chief Executive Officer and Assistant Secretary, joined us in March 2006 as adirector, and as President and Chief Executive Officer. She was appointed Assistant Secretary in February 2007. Dr. Gillespiepreviously served as the President and Chief Executive Officer of Oxxon Therapeutics, Inc., a privately held pharmaceuticalcompany, from 2001 to 2005. Prior to that, she served as Chief Operating Officer of Vical, Inc., from 2000 to 2001, andExecutive Vice President & Chief Business Officer, from 1998 to 2000. Dr. Gillespie also held a number of positions at DuPontMerck Pharmaceutical Company, including Vice President of Marketing, from 1991 to 1996. Dr. Gillespie received her M.B.A.from the London Business School and her M.D. and B.Sc. from London University.Gail A. Sloan, CPA, Vice President of Finance and Secretary, joined us in 1996 as Assistant Controller, was promotedto Controller in 1997, to Senior Director of Finance in 2002 and to Vice President of Finance in 2004. She was appointedSecretary in 1999. Prior to joining us, from 1993 to 1996, Ms. Sloan served as Assistant Controller at Affymax ResearchInstitute, a publicly held drug-discovery research company and formerly a part of the Glaxo Wellcome Group. From 1985 to1993, she progressed to the position of Audit Manager with Ernst & Young LLP. Ms. Sloan holds a B.S. in BusinessAdministration from California Polytechnic State University, San Luis Obispo and is a Certified Public Accountant. 15Table of ContentsRobert A. Fildes, Ph.D. has been a director since 1991. Since January 1998, Dr. Fildes has served as President of SB2,Inc., a privately held company that licenses antibody technology. From June to December 1998, Dr. Fildes served as ChiefExecutive Officer of Atlantic Pharmaceuticals, a publicly held company in the field of biotechnology. From 1993 to 1997,Dr. Fildes was the Chairman and Chief Executive Officer of Scotgen Biopharmaceuticals, Inc., a privately held company in thefield of human monoclonal antibody technology. From 1990 to 1993, Dr. Fildes was an independent consultant in thebiopharmaceutical industry. He was the president and Chief Executive Officer of Cetus Corporation, a publicly heldbiotechnology company, from 1982 to 1990. From 1980 to 1982, Dr. Fildes was the President of Biogen, Inc., which mergedwith IDEC Pharmaceuticals Corporation in 2003 to form Biogen Idec, a publicly held biopharmaceutical company, and from1975 to 1980, he was the Vice President of Operations for the Industrial Division of Bristol-Myers Squibb Company . FromApril 2002 to April 2003, Dr. Fildes was a director of Polymerat Pty. Ltd., a privately held company (now Anteo DiagnosticsLtd., a publicly held company) that develops surfaces for carrying out biological reactions. Dr. Fildes is currently a director ofInimex Pharmaceuticals, Inc., a privately held Canadian biotechnology company. Dr. Fildes holds a D.C.C. degree in MicrobialBiochemistry and a Ph.D. in Biochemical Genetics from the University of London. Based on Dr. Fildes’ executive experience,specifically his experience as Chief Executive Officer at numerous companies in the biotechnology industry, as well as hisservice on other boards of directors in the biotechnology industries, the Board believes Dr. Fildes has the appropriate set ofskills to serve as a member of our Board.Stephen M. Martin has been a director since April 2000. Mr. Martin is currently CEO Partner of Hi Tech Partners,LLC, a privately held consulting firm for executive management of early stage technology businesses. In April 2009, he joinedQSpex Technologies, Inc., an early-stage private Ophthalmic (Spectacle) Lens manufacturing company as Chief BusinessOfficer and was promoted to Chief Executive Officer in June 2009. In June 2001, Mr. Martin retired from CIBA VisionCorporation, a Novartis Company engaged in the research, manufacture and sale of contact lenses, lens care products andophthalmic pharmaceuticals. Mr. Martin founded CIBA Vision in 1980. Mr. Martin was President of CIBA Vision Corporation,USA from 1995 to 1998 and President of Ciba Vision Ophthalmics, USA, the company’s ophthalmic pharmaceutical division,which he founded, from 1990 until 1998. He served as CIBA Vision’s Vice President of Venture Opportunities from 1998 untilhis retirement in 2001. Mr. Martin currently serves as a director of QSpex Technologies, Inc., a privately held spectaclemanufacturing company, OcuCure Therapeutics, Inc., a privately held ophthalmic pharmaceutical development company andNeoVista, Inc., a privately held medical device company. From 2003 to 2005, Mr. Martin served as a director of AlimeraSciences, Inc., a privately held ophthalmic pharmaceutical company. Mr. Martin is the inventor on six issued U.S. patents and anumber of European patents. Mr. Martin holds a B.A. degree from Wake Forest University and attended the Woodrow WilsonCollege of Law. Based on Mr. Martin’s executive experience, including his experience in senior management positions inbusiness development, as well as his service on other boards of directors, the Board believes Mr. Martin has the appropriate setof skills to serve as a member of our Board.Frank E. Young, M.D., Ph.D. has been a director since 2005. Dr. Young is a former Commissioner of the United StatesFood and Drug Administration (“FDA”) and has had over a 40-year career in medicine, academia and government. Afternumerous academic appointments, Dr. Young served as Chairman of the Department of Microbiology and Professor ofMicrobiology, of Pathology, and of Radiation Biology and Biophysics at the University of Rochester, New York. Subsequently,he became Dean of the School of Medicine and Dentistry, Director of the Medical Center and Vice President for Health Affairsat the University of Rochester. Dr. Young joined the Department of Health and Human Services as Commissioner of the FDAand Assistant Surgeon General (Rear Admiral, USPHS) in 1984. Under Presidents Ronald Reagan, George H.W. Bush, andWilliam J. Clinton, Dr. Young served as Commissioner of the FDA, Deputy Assistant Secretary and Director of the Office ofEmergency Preparedness, Director of the National Disaster Medical System and as a member of the Executive Board of theWorld Health Organization (presidential appointee). Dr. Young currently serves as the Chief Executive Officer of CosmosAlliance and is a partner of Essex Woodlands Health Ventures. In addition, Dr. Young is Vice Chairman of the board of AgennixAG, a publicly traded company, and serves on the boards of the following private companies: Elusys Therapeutics, Inc. andLight Sciences Oncology. Dr. Young attended Union College and holds an M.D. degree from the University of the State of NewYork, Upstate Medical Center, where he graduated cum laude, and a Ph.D. degree from Case Western Reserve University. Basedon Dr. Young’s experience as a Commissioner of the FDA, his experience in medicine and academia, and his service on otherboards of directors in the biotechnology industry, the Board believes Dr. Young has the appropriate set of skills to serve as amember of our Board. 16Table of ContentsDirector IndependenceOur Board has previously determined that each of Doctors Fildes, Smith and Young, and Mr. Martin are“independent” within the meaning of Nasdaq Marketplace Rules 5605(b) and 5605(a)(2) as adopted by the Nasdaq StockMarket, Inc. (“Nasdaq”). Dr. Gillespie was not deemed to be “independent” because she is our President and Chief ExecutiveOfficer.Committees of the Board of DirectorsOur Board has three standing committees: an audit committee; a compensation committee; and a corporategovernance and nominating committee. As discussed above, all committee members have been previously determined by ourBoard to be “independent.” The committees operate under written charters that are available for viewing on our website atwww.ljpc.com, then “Investor Relations.”Audit Committee. It is the responsibility of the audit committee to oversee our accounting and financial reportingprocesses and the audits of our financial statements. In addition, the audit committee assists the Board in its oversight of ourcompliance with legal and regulatory requirements. The specific duties of the audit committee include: monitoring the integrityof our financial process and systems of internal controls regarding finance, accounting and legal compliance; selecting ourindependent auditor; monitoring the independence and performance of our independent auditor; and providing an avenue ofcommunication among the independent auditor, our management and our Board. The audit committee has the authority toconduct any investigation appropriate to fulfill its responsibilities, and it has direct access to all of our employees and to theindependent auditor. The audit committee also has the ability to retain, at our expense and without further approval of theBoard, special legal, accounting or other consultants or experts that it deems necessary in the performance of its duties.The audit committee met five times during 2009, and otherwise accomplished its business without formal meetings.The members of the audit committee are Mr. Martin and Doctors Fildes and Smith. Mr. Martin currently serves as the chairmanof the audit committee. Our Board has previously determined that each of Doctors Fildes and Smith and Mr. Martin is“independent” within the meaning of the enhanced independence standards contained in Nasdaq Marketplace Rule 5605(c)(2)(A) and Rule 10A-3 under the Exchange Act that relate specifically to members of audit committees.Our Board has also previously determined that Dr. Smith has sufficient relevant attributes to be deemed the auditcommittee’s “audit committee financial expert” as defined in Item 407 of Regulation S-K.Compensation Committee. It is the responsibility of the compensation committee to assist the Board in dischargingthe Board of Director’s responsibilities regarding the compensation of our employees and directors. The specific duties of thecompensation committee include: making recommendations to the Board regarding the corporate goals and objectives relevantto executive compensation; evaluating our executive officers’ performance in light of such goals and objectives;recommending compensation levels to the Board based upon such evaluations; administering our incentive compensationplans, including our equity-based incentive plans; making recommendations to the Board regarding our overall compensationstructure, policies and programs; and reviewing the Company’s compensation disclosures. Additional information regarding theprocesses and procedures of the compensation committee is provided in Item 11 “Executive Compensation.”The compensation committee met three times during 2009, and otherwise accomplished its business without formalmeetings. The members of the compensation committee through September 3, 2009 were Doctors Fildes, Adams and Topper,and Mr. Martin. After the resignations of Doctors Adams and Topper on September 3, 2009, the compensation committee wascomprised of Dr. Fildes and Mr. Martin. Dr. Fildes currently serves as the chairman of the compensation committee. 17Table of ContentsCorporate Governance and Nominating Committee. It is the responsibility of the corporate governance andnominating committee to assist the Board: to identify qualified individuals to become Board members; to determine thecomposition of the Board and its committees; and to monitor and assess the effectiveness of the Board and its committees. Thespecific duties of the corporate governance and nominating committee include: identifying, screening and recommending tothe Board candidates for election to the Board; reviewing director candidates recommended by our stockholders; assisting inattracting qualified director candidates to serve on the Board; monitoring the independence of current directors and nominees;and monitoring and assessing the relationship between the Board and our management with respect to the Board’s ability tofunction independently of management.The corporate governance and nominating committee did not meet during 2009, but accomplished its businesswithout formal meetings. The members of the corporate governance and nominating committee through September 3, 2009 wereDoctors Young and Topper and Mr. Sutter. After the resignations of Dr. Topper and Mr. Sutter on September 3, 2009, thecorporate governance and nominating committee was comprised of Dr. Young,Meetings of Non-Management Directors. The non-management members of the Board regularly meet without anymembers of management present during regularly scheduled executive sessions of meetings of the Board.Section 16(a) Beneficial Ownership Reporting ComplianceUnder the securities laws of the United States, our directors and officers and persons who own more than 10% of ourequity securities are required to report their initial ownership of our equity securities and any subsequent changes in thatownership to the Securities and Exchange Commission and the Nasdaq Capital Market. Specific due dates for these reports havebeen established, and we are required to disclose any late filings during the fiscal year ended December 31, 2009. To ourknowledge, based solely upon our review of the copies of such reports required to be furnished to us during the fiscal yearended December 31, 2009, all of these reports were timely filed, except one report filed in March 2009 by former namedexecutive officer Josefina Elchico reporting the sale of common stock that occurred during February 2009.Code of ConductWe have adopted a code of conduct that describes the ethical and legal responsibilities of all of our employees and, tothe extent applicable, members of our Board. This code includes (but is not limited to) the requirements of the Sarbanes-OxleyAct of 2002 pertaining to codes of ethics for chief executives and senior financial and accounting officers. Our Board hasreviewed and approved this code. Our employees agree in writing to comply with the code at commencement of employmentand periodically thereafter. Our employees are encouraged to report suspected violations of the code. Our code of conduct isavailable for viewing on our website at www.ljpc.com, then “Investor Relations.” If we make substantive amendments to thecode or grant any waiver, including any implicit waiver, to our principal executive, financial or accounting officer, or personsperforming similar functions, we will disclose the nature of such amendment or waiver on our website and/or in a report on Form8-K in accordance with applicable rules and regulations.Item 11. Executive Compensation.Equity Compensation. Under the 2004 Equity Incentive Plan, the Compensation Committee may grant stock options,restricted stock, stock appreciation rights and performance awards. In granting these awards, the Committee may establish anyconditions or restrictions it deems appropriate. The grant of options is unrelated to any anticipated major announcements madeby the Company and is thus not influenced by any material, non-public information that may exist at the time of grant.The exercise price of stock options is set at the fair market value on the grant date using the closing market price onthe date of grant. New hire stock option awards granted in 2009 vest with respect to 25% of the underlying shares on the one-year anniversary from the date of grant and with respect to the remaining 75% of the underlying shares on a monthly pro ratabasis over the next three years. Stock option awards granted in 2009 as a part of the annual performance review process vestmonthly on a pro rata basis over 4 years. 18Table of ContentsThe annual stock option awards for executive performance in fiscal 2008 were made on January 22, 2009. No annualstock option awards for executive performance in fiscal 2009 were made.On December 31, 2009, we granted 2,021,024 restricted stock units (“RSUs”) to our three remaining employees whereeach RSU represents a contingent right to receive one share of the Company’s common stock. The RSUs vest upon the closingof the Merger, subject to the continued employment of the recipient through the closing date of the Merger. The RSUs werevalued at the fair market value of the Company’s common stock on the grant date. The value of the RSUs on December 31, 2009was $344,000 and no compensation expense for these RSUs was recognized during 2009. The RSUs were cancelled inMarch 2010 as a result of the termination of the Merger in March 2010.Benefits. Our 1995 Employee Stock Purchase Plan (the “1995 Plan”) provides employees with an opportunity toacquire increased equity ownership in the Company over time through periodic purchases of shares. Our 1995 Plan allowsemployees, including the Named Executive Officers, to purchase common stock every three months (in an amount notexceeding 10% of each employee’s base salary, or hourly compensation, and any cash bonus paid, subject to certainlimitations) over the offering period at 85% of the fair market value of the common stock at specified dates. The offering periodmay not exceed 24 months. No purchases under the 1995 Plan occurred during 2009.Our retirement savings plan (“401(k) Plan”) was terminated in March 2009. Prior to its termination, our retirementsavings plan was a tax-qualified retirement savings plan, pursuant to which all employees, including the Named ExecutiveOfficers, were able to contribute the lesser of 50% of their annual compensation or the limit prescribed by the Internal RevenueService to the 401(k) Plan on a before-tax basis. We did not match employee contributions or otherwise contribute to the 401(k)Plan.Our health and welfare programs were terminated in April 2009.We have not historically provided special benefits or perquisites to our executives and did not do so in 2009.Retention and Separation Agreements.On December 4, 2009, we entered into Retention and Separation Agreements and General Release of All Claims (the“Retention Agreements”) with our current Named Executive Officers. Our current Named Executive Officers are our ChiefExecutive Officer and our Vice President of Finance. The Retention Agreements supersede the severance provisions of theemployment agreements with the current Named Executive Officers that were effective prior to the signing of the RetentionAgreements (the “Prior Employment Agreements”), but otherwise the terms of the Prior Employment Agreements remain in fullforce and effect. The Retention Agreements do not alter the amount of severance that was to be awarded under the PriorEmployment Agreements, but rather change the events that trigger such payments.Pursuant to the Retention Agreements, on December 18, 2009 we made retention payments to the current NamedExecutive Officers (the “Retention Payments”) in the amounts of $202,800 to our Chief Executive Officer and $66,184 to ourVice President of Finance. If the current Named Executive Officers voluntarily resigned their employment prior to the earlier tooccur of (a) the closing of the Merger or (b) March 31, 2010, they were to immediately repay the Retention Payments to us. Thedate under (a) and (b) shall be referred to as the “Separation Date.”Under the Retention Agreements, each of the current Named Executive Officers agreed to execute an amendment tothe Retention Agreements (the “Amendment”) on or about the Separation Date to extend and reaffirm the promises andcovenants made by them in the Retention Agreements through the Separation Date. The Retention Agreements also providedfor severance payments to the Named Executive Officers (“Severance Payments”) payable in a lump sum on the eighth day afterthe current Named Executive Officers signed the Amendment. 19Table of ContentsIn April 2010, the Compensation Committee confirmed that pursuant to the terms of the Retention Agreements, theRetention Payments and Severance Payments were earned as of March 31, 2010 and agreed that the existing employment termswould remain in effect beyond March 31, 2010. As an incentive to retain the current Named Executive Officers to pursue astrategic transaction such as a merger, license agreement, third party collaboration or wind down of the Company, theCompensation Committee also approved a retention bonus for a total of up to approximately $600,000, depending on the typeof strategic transaction completed.In addition to the provisions of the Retention Agreements described above, effective information regardingapplicable payments under the Prior Employment Agreements for the current Named Executive Officers is provided below.Deirdre Y. Gillespie, M.D. Dr. Gillespie is entitled to (i) an annual base salary of $375,000 (which amount hasincreased since her commencement of employment with us such that her current annual base salary is $405,600); (ii) adiscretionary annual bonus with a target amount equal to 40% of her annual base salary (this target percentage has beenincreased to 50% as of December 31, 2008, although the exact amount will be determined each year based on Dr. Gillespie’sand the Company’s performance with respect to performance objectives established by the compensation committee); and (iii) agrant of an option to purchase 800,000 shares of common stock of the Company, with the option vesting with respect to200,000 of the underlying shares on the first anniversary of the date of the agreement and 1/36th of the remaining option topurchase 600,000 shares vesting each month thereafter. The agreements contain non-competition and non-interferenceprovisions; and all post-employment benefits are in exchange for a release agreement. If (i) the Company terminatesDr. Gillespie for cause, all options held by her, whether or not vested, will immediately terminate and become unexercisable(ii) Dr. Gillespie voluntarily resigns, all unvested options held by her will immediately terminate and become unexercisable andall vested options will remain exercisable until three months after the date of termination in the case of incentive stock optionsor six months in the case of non-qualified stock options, (iii) Dr. Gillespie’s employment ceases as a result of her death ordisability, then all unvested options held by her will immediately terminate and become unexercisable and all vested optionswill remain exercisable until the one year anniversary of the date of cessation of service; (iv) the Company terminates heremployment without cause or if she terminates her employment due to a constructive termination, then: (a) one-half of all of herthen unvested options will immediately vest and become exercisable; (b) the other one-half of her then unvested options willimmediately terminate and become unexercisable; and (c) all vested options (including those which vested pursuant to clause(a) shall expire on the two-year anniversary of the termination date; (v) Dr. Gillespie’s position is reduced such that she nolonger serves as CEO of the company on or within 360 days after the consummation of a change in control, then all of herunvested options shall immediately vest and become exercisable; and (vi) notwithstanding the foregoing, in no event shall anyoption be exercisable after the date of expiration set forth in the Plan.Gail A. Sloan Ms. Sloan is entitled to an annual base salary of $198,551 and a discretionary annual bonus in a targetamount equal to 30% of her base salary. Ms. Sloan is also eligible to receive periodic equity awards under the Company’sequity compensation plans. Ms. Sloan’s employment will be deemed to be terminated in connection with a change in control if,within 180 days of the date of the change in control: (i) her employment is terminated; (ii) her position is eliminated as a resultof a reduction in force made to reduce over-capacity or unnecessary duplication of personnel and she is not offered areplacement position with the Company or its successor as a vice president with compensation and functional dutiessubstantially similar to the compensation and duties in effect immediately before the change in control; or (iii) she resignsbecause she is required to be employed more than 50 miles from our current headquarters. Also, all employee stock optionsgranted to Ms. Sloan prior to her termination date will automatically vest and become fully exercisable as of her terminationdate if her termination of employment is without cause or is in connection with a change in control, and will remain exercisablefor a period of one year from her termination date or such longer period as provided by the applicable plan or grant pursuant towhich the options were granted. 20Table of ContentsSummary Compensation Table Non-Equity Stock Option Incentive Plan All Other Name and Salary Awards Awards Compensation Compensation Total Principal Position Year ($) Bonus ($) (1) ($) ($) (2) ($) (3) ($) ($) Current OfficersDeirdre Y. Gillespie, M.D. 2009 $421,200 $202,800 $— $1,167,161 $— $— $1,791,161 President, Chief Executive Officerand Assistant Secretary 2008 402,600 — — 1,093,763 200,772 — 1,697,135 Gail A. Sloan 2009 206,187 66,184 — 71,785 — — 344,156 Vice President of Finance andSecretary 2008 196,906 — — 307,483 53,609 — 557,998 Former Officers*Niv E. Caviar 2009 124,734 211,612 — 635,453 — — 971,799 Executive Vice President, ChiefBusiness and Financial Officer 2008 280,775 — — 226,995 111,097 25,000(4) 643,867 Michael Tansey, M.D., Ph.D. 2009 113,402 251,063 — 572,250 — — 936,715 Executive Vice President and ChiefMedical Officer 2008 332,875 — — 387,029 90,383 — 810,287 * These former officers were terminated on April 20, 2009 as part of the Company’s restructuring activities, as describedabove. (1) The amounts for Dr. Gillespie and Ms. Sloan are retention payments made on December 18, 2009 in accordance with theRetention Agreements dated December 4, 2009. See Note 6 to our audited consolidated financial statements. The amountfor Mr. Caviar is severance equal to nine months of Mr. Caviar’s annual base salary at December 31, 2008 pursuant to hisemployment agreement dated May 10, 2007. The amount for Dr. Tansey is severance equal to nine months of Dr. Tansey’sannual base salary at December 31, 2008 pursuant to his employment agreement dated December 4, 2006. These severancepayments were made to Mr. Caviar and Dr. Tansey following their respective terminations on April 20, 2009. (2) The amounts in this column reflect the dollar amount recognized for financial statement reporting purposes for the fiscalyears ended December 31, 2009 and December 31, 2008, for awards and thus may include amounts from awards granted inand prior to 2008. Assumptions used in the calculation of these amounts are included in Note 1 to our audited consolidatedfinancial statements. (3) These amounts represent the 2008 performance-based bonus awards which were paid in fiscal year 2009. (4) This amount represents a signing bonus paid to Mr. Caviar in January 2008 in accordance with his employment agreement. 21Table of ContentsOutstanding Equity Awards at 2009 Fiscal Year End Market or Number of Number of Payout Value of Securities Securities Number of Unearned Underlying Underlying Unearned Shares, Shares, Units or Unexercised Unexercised Option Units or Other Other Rights Options Options Exercise Option Rights that have not that have not (#) (#) Price Expiration Vested Vested Name Exercisable Unexercisable ($) Date(1) (#) ($) Current OfficersDeirdre Y.Gillespie 766,666 33,333(2) $5.26 03/15/2016 106,250 43,750(2) 3.08 02/05/2017 68,750 81,250(2) 2.42 02/21/2018 34,375 115,625(2) 1.42 01/22/2019 1,411,898(3) $240,023(4) Gail A. Sloan 972 — 18.44 01/28/2010 3,800 — 35.00 11/20/2010 3,000 — 38.25 07/19/2011 2,999 — 35.50 12/14/2011 5,999 — 25.45 07/18/2012 5,999 — 29.50 11/21/2012 5,999 — 14.85 05/12/2013 6,000 — 23.55 09/18/2013 14,000 — 14.80 05/21/2014 10,583 — 2.40 04/25/2015 5,415 — 2.15 05/19/2015 21,199 — 4.20 10/10/2015 184,548 — 4.46 04/17/2016 17,708 7,291(2) 3.08 02/05/2017 11,458 13,541(2) 2.42 02/21/2018 5,729 19,270(2) 1.42 01/22/2019 483,810(3) $82,248(4) Former Officer*Michael J.B.Tansey 113,000(5) — 3.61 07/17/2016 87,000(5) — 3.23 12/04/2016 50,000(5) — 5.47 05/23/2017 40,000(5) — 2.42 02/21/2018 200,000(5) — 1.82 05/22/2018 45,000(5) — 1.42 01/22/2019 * This former officer was terminated on April 20, 2009. (1) All stock options expire ten years from the date of grant. (2) The stock options vest and become exercisable ratably on a monthly basis over four years from the date of grant. (3) These are restricted stock units (“RSUs”) granted on December 31, 2009 where each RSU represents a contingent right toreceive one share of our common stock. The RSUs were to vest upon the closing of the Merger, subject to the continuedemployment of the recipient through the closing date of the Merger; however, the Merger was terminated in March 2010and accordingly, the RSUs were accordingly cancelled. (4) The value of each RSU is the closing price of our common stock on the date of grant, which was $0.17. (5) Pursuant to Dr. Tansey’s employment agreement dated December 4, 2006, all of Dr. Tansey’s unvested optionsautomatically vested upon his termination date of April 20, 2009 and remain exercisable for one year following thetermination date. If not exercised by April 20, 2010, all of Dr. Tansey’s stock options will be cancelled on April 20, 2010.Option Exercises and Stock Vested in Fiscal Year 2009No named executive officers exercised any options or had any restricted stock vest in fiscal year 2009. 22Table of ContentsDirector Compensation Table — 2009 Fees Earned or Paid in Cash Stock Awards Option Awards Total Name ($) ($) ($) (1) ($) Thomas H. Adams (2) $24,500 $— $19,139 $43,639 Robert A. Fildes 37,500 — 19,139 56,639 Stephen M. Martin 51,000 — 19,139 70,139 Craig R. Smith 62,750 — 18,619 81,369 Martin P. Sutter (2) — — 6,206 6,206 James N. Topper (2) — — 6,206 6,206 Frank E. Young 29,500 — 6,206 35,706 (1) The amounts in this column reflect the dollar amount recognized for financial statement reporting purposes for the fiscalyear ended December 31, 2009, and thus may include amounts from awards granted in and prior to 2009. Assumptions usedin the calculation of these amounts are included in Note 1 to our consolidated financial statements. (2) Doctors Adams and Topper and Mr. Sutter resigned as directors effective September 3, 2009.Director CompensationRetainers and Fees. Directors who are also our employees receive no extra compensation for their service on theBoard. In 2009, non-employee directors received $1,500 per Board meeting attended in person and $750 per Board meetingattended telephonically. Non-employee directors also receive $750 per committee meeting attended in person and $500 percommittee meeting attended telephonically. Directors are reimbursed for reasonable costs associated with attendance atmeetings of the Board and its committees. Non-employee directors receive an annual retainer of $20,000, which is paidquarterly. The Chairman of the Board, Dr. Smith, receives an additional annual retainer of $25,000, which is paid quarterly. In2009, the chairman of the audit committee received an annual fee of $10,000. In 2009, the chairman of the compensationcommittee received an annual fee of $5,000. All chairman fees are paid quarterly. All other members of the audit, compensationand corporate governance and nominating committees receive an annual retainer of $2,000, which is paid quarterly.Option Grants Under the 2004 Plan. Under the La Jolla Pharmaceutical Company 2004 Equity Incentive Plan, eachof our non-employee directors automatically receives, upon becoming a non-employee director, a one-time grant of a non-qualified stock option to purchase up to 40,000 shares of our common stock at an exercise price equal to the fair market value ofa share of the common stock on the date of grant. These non-employee director options have a term of 10 years and vest withrespect to 25% of the underlying shares on the grant date and with respect to an additional 25% of the underlying shares on thedate of each of the first three anniversaries of such grant, but only if the director remains a non-employee director for the entireperiod from the date of grant to such date. Upon re-election to our Board or upon continuing as a director after an annualmeeting without being re-elected due to the classification of the Board, each non-employee director automatically receives agrant of an additional non-qualified stock option to purchase up to 10,000 shares of our common stock. Due to the futility ofthe Riquent trial, the annual grants for 2009 were not made. These additional non-employee director options have a term of10 years and vest and become exercisable upon the earlier to occur of the first anniversary of the grant date or immediately priorto the annual meeting of stockholders next following the grant date; provided that the director remains a director for the entireperiod from the grant date to such earlier date. The exercise price for these additional non-employee director options is the fairmarket value of our common stock on the date of their grant. All outstanding non-employee director options vest in fullimmediately prior to any change in control. Each non-employee director is also eligible to receive additional options under the2004 Plan in the discretion of the compensation committee of the Board. These options vest and become exercisable pursuantto the 2004 Plan and the terms of the option grant. The Chairman of the Board receives an additional annual grant of non-qualified stock options to purchase 20,000 shares of our common stock. Due to the futility of the Riquent trial, this Chairman ofthe Board annual grant for 2009 was not made. These non-employee director options have a term of 10 years and vest andbecome exercisable upon the first anniversary of the grant date. 23Table of ContentsItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.Equity Compensation Plan InformationThe following table provides information as of December 31, 2009 with respect to shares of our common stock thatmay be issued under our equity compensation plans. Number of Securities Remaining Available for Number of Future Issuance Securities to be Weighted- Under Equity Issued upon Average Exercise Compensation Exercise of Price of Plans (Excluding Outstanding Outstanding Securities Options, Warrants Options, Warrants Reflected in and Rights and Rights Column (a)) Plan Category Equity Compensation plans approved by securityholders 5,529,591(1) $6.99 1,082,671(2)Equity Compensation plans not approved by securityholders — — — (1) Outstanding options to purchase shares of our common stock under the La Jolla Pharmaceutical Company 1994 StockIncentive Plan and the 2004 Plan. (2) Includes 1,065,694 shares subject to the 2004 Plan and 16,977 shares subject to the 1995 Plan (each stated as ofDecember 31, 2009).Security Ownership of Certain Beneficial Owners and ManagementThe following table sets forth information regarding beneficial ownership of our common stock as of March 5, 2010based on information available to us and filings with the SEC by: • each of our directors; • each of our “named executive officers” as defined by SEC rules; • all of our current directors and executive officers as a group; and • each person or group of affiliated persons known by us to be the beneficial owner of more than 5% of our commonstock. 24Table of ContentsBeneficial ownership and percentage ownership are determined in accordance with the rules of the SEC and includevoting or investment power with respect to shares of stock. This information does not necessarily indicate beneficial ownershipfor any other purpose. Under these rules, shares of our common stock issuable under stock options that are exercisable within60 days of March 5, 2010 are deemed outstanding for the purpose of computing the percentage ownership of the person holdingthe options, but are not deemed outstanding for the purpose of computing the percentage ownership of any other person.Unless otherwise indicated and subject to applicable community property laws, to our knowledge, each stockholdernamed in the following table possesses sole voting and investment power over their shares of our common stock, except forthose jointly owned with that person’s spouse. Percentage of beneficial ownership of our common stock is based on 65,722,648shares of common stock outstanding as of March 5, 2010. Unless otherwise noted below, the address of each person listed on thetable is c/o La Jolla Pharmaceutical Company, 4365 Executive Drive, Suite 300, San Diego, California 92121. Shares Shares of with Right to Common Acquire Total Percentage Stock within 60 Beneficial of Common Name and Address Owned Days Ownership Stock Essex Woodlands Health Ventures Fund VI, L.P. andaffiliates — 4,139,014 4,139,014 5.9%Craig R. Smith, M.D.(1) — 123,400 123,400 *%Robert A. Fildes, Ph.D.(1) — 97,759 97,759 *%Stephen M. Martin(1) 40 105,400 105,440 *%Frank E. Young, M.D., Ph.D.(1) 5,600 38,000 43,600 *%Deirdre Y. Gillespie, M.D.(1)(2) — 1,046,875 1,046,875 1.6%Gail A. Sloan(2) — 310,686 310,686 *%Michael J.B. Tansey, M.D.(3) — 535,000 535,000 *%All current executive officers and directors as a group(6 persons)(4) 5,640 1,722,120 1,727,760 2.6% * Less than one percent. (1) Current director as of March 5, 2010. (2) Current executive officer as of March 5, 2010. (3) Former executive officer terminated April 20, 2009. (4) The six current executive officers and directors are comprised of Dr. Smith, Dr. Fildes, Mr. Martin, Dr. Young, Dr. Gillespieand Ms. Sloan (each of whom is included within the table above).Item 14. Principal Accountant Fees and Services.The following table presents the aggregate fees agreed to by the Company for the annual and statutory audits forfiscal years ended December 31, 2008 and 2009, and all other fees paid by us during 2008 and 2009 to Ernst & Young LLP: 2008 2009 Audit Fees $298,861 $141,210 Audit Related Fees — — Tax Fees 87,000 17,000 All Other Fees 45,000 — Total $430,861 $158,210 25Table of ContentsAudit Fees. The fees identified under this caption were for professional services rendered by Ernst & Young LLP forthe audit of our annual financial statements and internal control over financial reporting and for the review of the financialstatements included in our quarterly reports on Form 10-Q. The amounts also include fees for services that are normallyprovided by the auditor in connection with regulatory filings and engagements for the years identified. Audit fees in 2008include an aggregate of $65,025 in fees paid in connection with our filing of registration statements on Form S-8 and Form S-3.Audit fees in 2009 include an aggregate of $26,210 in fees paid in connection with our filing of registration statements on FormS-3 and S-4.Tax Fees. Tax fees consist principally of assistance related to tax compliance and reporting.All Other Fees. These fees consist primarily of accounting consultation fees related to potential collaborativeagreements.Pre-approval Policy. Our audit committee approves in advance all services provided by our independent registeredpublic accounting firm. All engagements of our independent registered public accounting firm in 2008 and 2009 were pre-approved by the audit committee. 26Table of ContentsPART IVItem 15. Exhibits, Financial Statement Schedules.(a) Documents filed as part of this report.1. The following consolidated financial statements of La Jolla Pharmaceutical Company are filed as part of this report underItem 8 — Financial Statements and Supplementary Data: Report of Independent Registered Public Accounting Firm F-1 Consolidated Balance Sheets at December 31, 2009 and 2008 F-2 Consolidated Statements of Operations for the years ended December 31, 2009 and 2008 F-3 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2009 and 2008 F-4 Consolidated Statements of Cash Flows for the years ended December 31, 2009 and 2008 F-5 Notes to Consolidated Financial Statements F-6 2. Financial Statement Schedules.These schedules are omitted because they are not required, or are not applicable, or the required information is shown inthe consolidated financial statements or notes thereto.3. Exhibits.The exhibit index attached to this report is incorporated by reference herein. 27Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LA JOLLA PHARMACEUTICAL COMPANY By: /s/ Deirdre Y. Gillespie April 15, 2010 Deirdre Y. Gillespie, M.D. President, Chief Executive Officer and AssistantSecretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by thefollowing persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Deirdre Y. GillespieDeirdre Y. Gillespie, M.D President, Chief Executive Officer and Assistant Secretary(Principal Executive Officer) April 15, 2010 /s/ Gail A. SloanGail A. Sloan Vice President of Finance and Secretary (Principal Financialand Accounting Officer) April 15, 2010 /s/ Robert A. FildesRobert A. Fildes, Ph.D. Director April 15, 2010 /s/ Stephen M. MartinStephen M. Martin Director April 15, 2010 /s/ Craig R. SmithCraig R. Smith, M.D. Director April 15, 2010 /s/ Frank E. YoungFrank E. Young, M.D., Ph.D. Director April 15, 2010 28Table of ContentsReport of Independent Registered Public Accounting FirmThe Board of Directors and Stockholders of La Jolla Pharmaceutical CompanyWe have audited the accompanying consolidated balance sheets of La Jolla Pharmaceutical Company as of December 31, 2009and 2008, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the two yearsin the period ended December 31, 2009. These financial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control overfinancial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing auditprocedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, and evaluating the overall financial statementpresentation. 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 financialposition of La Jolla Pharmaceutical Company at December 31, 2009 and 2008, and the consolidated results of its operationsand its cash flows for each of the two years in the period ended December 31, 2009, in conformity with U.S. generally acceptedaccounting principles.The accompanying financial statements have been prepared assuming that La Jolla Pharmaceutical Company will continue as agoing concern. As more fully described in Note 1, La Jolla Pharmaceutical Company has incurred recurring operating losses, anaccumulated deficit of $424.3 million as of December 31, 2009 and has no current source of revenues or financing. Theseconditions, among others, as discussed in Note 1 to the consolidated financial statements, raise substantial doubt about La JollaPharmaceutical Company’s ability to continue as a going concern. Management’s plans in regard to these matters also aredescribed in Note 1. The 2009 consolidated financial statements do not include any adjustments to reflect the possible futureeffects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from theoutcome of this uncertainty./s/ Ernst & Young LLPSan Diego, CaliforniaApril 15, 2010 F-1Table of ContentsLa Jolla Pharmaceutical CompanyConsolidated Balance Sheets(In thousands, except share and par value amounts) December 31, 2009 2008 Assets Current assets: Cash and cash equivalents $4,254 $9,447 Short-term investments, available-for-sale — 10,000 Prepaids and other current assets 586 785 Total current assets 4,840 20,232 Property and equipment, net — 357 Patent costs and other assets, net — 250 $4,840 $20,839 Liabilities and stockholders’ equity Current liabilities: Accounts payable $125 $4,626 Accrued clinical/regulatory expenses — 3,957 Accrued expenses 323 1,008 Accrued payroll and related expenses 173 1,549 Credit facility — 5,933 Current portion of obligations under notes payable — 152 Current portion of obligations under capital leases — 11 Total current liabilities 621 17,236 Non-current portion of obligations under notes payable — 179 Non-current portion of obligations under capital leases — 34 Commitments Stockholders’ equity: Preferred stock, $0.01 par value; 8,000,000 shares authorized, no shares issued oroutstanding — — Common stock, $0.01 par value; 225,000,000 shares authorized, 65,722,648 and55,549,528 shares issued and outstanding at December 31, 2009 and 2008,respectively 657 555 Additional paid-in capital 427,883 418,522 Accumulated deficit (424,321) (415,687)Total stockholders’ equity 4,219 3,390 $4,840 $20,839 See accompanying notes. F-2Table of ContentsLa Jolla Pharmaceutical CompanyConsolidated Statements of Operations(In thousands, except per share amounts) Years Ended December 31, 2009 2008 Revenue from collaboration agreement $8,125 $— Expenses: Research and development 9,576 51,025 General and administrative 7,193 9,702 Asset impairments — 2,810 Total expenses 16,769 63,537 Loss from operations (8,644) (63,537) Interest expense (13) (96)Interest and other income 23 779 Net loss $(8,634) $(62,854) Basic and diluted net loss per share $(0.14) $(1.26) Shares used in computing basic and diluted net loss per share 63,326 49,689 See accompanying notes. F-3Table of ContentsLa Jolla Pharmaceutical CompanyConsolidated Statements of Stockholders’ EquityFor the Years Ended December 31, 2008 and 2009(In thousands) Additional Other Total Preferred stock Common stock paid-in comprehensive Accumulated stockholders’ Shares Amount Shares Amount capital income (loss) deficit equity Balance at December 31, 2007 — $— 39,630 $396 $385,944 $14 $(352,833) $33,521 Issuance of common stock, net — — 15,615 156 27,877 — — 28,033 Issuance of common stock underEmployee Stock Purchase Plan — — 304 3 287 — — 290 Exercise of stock options — — 1 — 3 — — 3 Share-based compensation expense — — — — 4,411 — — 4,411 Net loss — — — — — — (62,854) (62,854)Net unrealized losses on available-for-sale securities — — — — — (14) — (14)Comprehensive loss (62,868)Balance at December 31, 2008 — — 55,550 555 418,522 — (415,687) 3,390 Issuance of preferred stock 339 3 — — 6,807 — — 6,810 Conversion of preferred stock, net (339) (3) 10,173 102 (99) — — — Share-based compensation expense — — — — 2,653 — — 2,653 Net loss — — — — — — (8,634) (8,634)Balance at December 31, 2009 — $— 65,723 $657 $427,883 $— $(424,321) $4,219 See accompanying notes. F-4Table of ContentsLa Jolla Pharmaceutical CompanyConsolidated Statements of Cash Flows(In thousands) Years Ended December 31, 2009 2008 Operating activities Net loss $(8,634) $(62,854)Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 117 990 (Gain) loss on write-off/disposal of patents, property and equipment (347) 199 Loss on impairment of patents, property and equipment and licenses — 2,810 Share-based compensation expense 2,653 4,411 Expense reduction from settlement of vendor obligations (2,743) — Amortization of investment premium/discount — 240 Changes in operating assets and liabilities: Prepaids and other current assets 199 233 Accounts payable and accrued liabilities (6,400) 442 Accrued payroll and related expenses (1,376) 350 Net cash used for operating activities (16,531) (53,179) Investing activities Sales of short-term investments 10,000 24,665 Net proceeds from sale of patents and property and equipment 861 44 Additions to property and equipment (18) (506)Increase in patent costs and other assets (6) (116)Net cash provided by investing activities 10,837 24,087 Financing activities Net proceeds from issuance of common stock — 28,326 Net proceeds from issuance of preferred stock 6,810 — Proceeds from credit facility — 6,000 Payments on credit facility (5,933) — Payments on obligations under notes payable (331) (151)Payments on obligations under capital leases (45) (9)Net cash provided by financing activities 501 34,166 (Decrease) increase in cash and cash equivalents (5,193) 5,074 Cash and cash equivalents at beginning of period 9,447 4,373 Cash and cash equivalents at end of period $4,254 $9,447 Supplemental disclosure of cash flow information: Interest paid $13 $96 See accompanying notes. F-5Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements1. Organization and Summary of Significant Accounting PoliciesOrganization and Business ActivityLa Jolla Pharmaceutical Company (the “Company”) is a biopharmaceutical company formed to improve and preserve humanlife by developing innovative pharmaceutical products.Basis of PresentationThe accompanying consolidated financial statements have been prepared assuming that the Company will continue as a goingconcern. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in thenormal course of business and does not include any adjustments to reflect the possible future effects on the recoverability andclassification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable tocontinue as a going concern. While the basis of presentation remains that of a going concern, the Company has a history ofrecurring losses from operations, had an accumulated deficit of $424,321,000 as of December 31, 2009, and currently has nosource of revenues or financing. The Company is currently evaluating strategic alternatives which may include mergers, licenseagreements, third party collaborations to develop new products or a wind down of the Company. The Company’s currentinability to generate future cash flows and recent inability to consummate a strategic transaction raise substantial doubt aboutthe Company’s ability to continue as a going concern.On January 4, 2009, the Company entered into a development and commercialization agreement (the “DevelopmentAgreement”) with BioMarin CF, a wholly-owned subsidiary of BioMarin Pharmaceutical Inc. (“BioMarin Pharma”), grantingBioMarin CF co-exclusive rights to develop and commercialize Riquent (and certain potential follow-on products)(collectively, “Riquent”) in the “Territory,” and the non-exclusive right to manufacture Riquent anywhere in the world. The“Territory” includes all countries of the world except the “Asia-Pacific Territory” (i.e., all countries of East Asia, Southeast Asia,South Asia, Australia, New Zealand, and other countries of Oceania). Under the terms of the Development Agreement, BioMarinCF paid the Company a non-refundable commencement payment of $7,500,000 and through BioMarin Pharma, paid$7,500,000 for a newly designated series of preferred stock (the “Series B-1 Preferred Stock”), pursuant to a related securitiespurchase agreement described more fully at Note 4, below.In February 2009, the Company announced that an Independent Monitoring Board for the Riquent® Phase 3 ASPEN study hadcompleted its review of the first interim efficacy analysis and determined that continuing the study was futile. Based on theseresults, the Company immediately discontinued the Riquent Phase 3 ASPEN study and the development of Riquent. TheCompany had previously devoted substantially all of its research, development and clinical efforts and financial resourcestoward the development of Riquent. In connection with the termination of the clinical trials for Riquent, the Companysignificantly reduced its operating costs, ceased all Riquent manufacturing and regulatory activities and effected a reduction inforce in April 2009 (see Note 6).Following the futile results of the first interim efficacy analysis of Riquent received in February 2009, BioMarin CF elected notto exercise its full license rights to the Riquent program under the Development Agreement. Thus, the Development Agreementbetween the parties terminated on March 27, 2009 in accordance with its terms. Pursuant to the Securities Purchase Agreementbetween the Company and BioMarin Pharma, all of the Company’s preferred shares purchased by BioMarin Pharma wereconverted into common shares. All rights to Riquent were returned to the Company.In July 2009, the Company announced that, in light of the alternatives available to the Company at the time, a wind down ofthe Company’s business would be in the best interests of the Company and its stockholders. Although the Board of Directors(the “Board”) approved a Plan of Complete Liquidation and Dissolution (the “Plan of Dissolution”) in September 2009, it wassubject to approval by holders of at least a majority in voting power of the Company’s outstanding shares. The Company calleda special meeting of stockholders to vote on the Plan of Dissolution, but the majority of the Company’s stockholders failed toreturn their proxy cards or otherwise indicate their votes with respect to this proposal. As a result, the Company was not able toobtain the requisite quorum to conduct business at the special meeting and the special meeting was therefore cancelled. F-6Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsOn December 4, 2009, the Company entered into an Agreement and Plan of Reorganization (the “Merger Agreement”) by andamong the Company, Jewel Merger Sub, Inc. (“Merger Sub”) and Adamis Pharmaceuticals Corporation (“Adamis”). Thetransaction contemplated by the Merger Agreement was structured as a reverse triangular merger, in which Merger Sub, awholly-owned subsidiary of the Company, would merge with and into Adamis, with Adamis surviving (the “Merger”). OnMarch 3, 2010, the Company and Adamis agreed to terminate the Merger Agreement as a result of the failure of the Company’sstockholders to vote in sufficient quantities for there to be a quorum to hold the stockholders’ meeting to approve the proposalsrelated to the Merger. The solicitation of further votes was cancelled due to the delisting of the Company’s common stock fromNasdaq.Effective at the open of business on March 4, 2010, the Company’s common stock was suspended and delisted from TheNASDAQ Stock Market (“Nasdaq”) and began trading on The Pink OTC Markets, Inc. The delisting was the result of Nasdaq’sdetermination that the Company had nominal assets, other than cash, and had nominal operations.Principles of ConsolidationThe accompanying consolidated financial statements include the accounts of La Jolla Pharmaceutical Company and its wholly-owned subsidiaries, La Jolla Limited, which was incorporated in England in October 2004, and Jewel Merger Sub, Inc., whichwas incorporated in Delaware in December 2009. There have been no significant transactions related to either subsidiary sincetheir inception. La Jolla Limited was formally dissolved during October 2009 with no resulting accounting consequences.Use of EstimatesThe preparation of consolidated financial statements in conformity with United States generally accepted accounting principles(“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidatedfinancial statements and disclosures made in the accompanying notes to the consolidated financial statements. Actual resultscould differ materially from those estimates.Cash, Cash Equivalents and Short-Term InvestmentsThe Company considers all highly liquid investments with a maturity of three months or less when purchased to be cashequivalents. Short-term investments are classified as available-for-sale in accordance with The ASC Topic of Investments.Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in other comprehensiveincome (loss). The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion ofdiscounts to maturity. Such amortization is included in interest income. Realized gains and losses and declines in value judgedto be other-than-temporary, if any, on available-for-sale securities are included in interest income. The cost of securities sold isbased on the specific identification method. Interest and dividends on securities classified as available-for-sale are included ininterest income.Revenue RecognitionThe Company applies the revenue recognition criteria outlined in the ASC Topic of Revenue Recognition. Upfront product andtechnology license fees under multiple-element arrangements are deferred and recognized over the period of such services orperformance if such arrangements require on-going services or performance. Non-refundable amounts received for substantivemilestones are recognized upon achievement of the milestone. Any amounts received prior to satisfying the Company’s revenuerecognition criteria are recorded as deferred revenue in the accompanying consolidated balance sheets.The Company’s sole source of revenue in the consolidated financial statements related to a January 4, 2009 DevelopmentAgreement with BioMarin CF which contained multiple potential revenue elements, including non-refundable upfront fees. TheDevelopment Agreement was terminated on March 27, 2009 following the failure of the Phase 3 ASPEN trial at which time theCompany had no remaining on-going services or performance. The Company recognized $8,125,000 as collaboration revenueupon termination of the Development Agreement.Impairment of Long-Lived AssetsIf indicators of impairment exist, the Company assesses the recoverability of the affected long-lived assets by determiningwhether the carrying value of such assets can be recovered through the undiscounted future operating cash flows. F-7Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsAs a result of the futility determination in the Phase 3 ASPEN trial, the Company discontinued the Riquent Phase 3 ASPENstudy and the development of Riquent. Based on these events, the future cash flows from the Company’s Riquent-relatedpatents were no longer expected to exceed their carrying values and the assets became impaired as of December 31, 2008.Accordingly, the Company recorded a non-cash charge for the impairment of long-lived assets of $2,810,000 for the year endedDecember 31, 2008 to write down the value of the Company’s long-lived assets to their estimated fair values. Impairmentcharges included $2,061,000 for patents, $724,000 for property and equipment, and $25,000 for licenses. Although noimpairment charges were recorded during 2009, the Company sold, disposed of, or wrote off all of its remaining long-livedassets during the year ended December 31, 2009 for a gain of $347,000.Property and EquipmentProperty and equipment is stated at cost and has been depreciated using the straight-line method over the estimated useful livesof the assets (primarily five years). Leasehold improvements and equipment under capital leases are stated at cost and have beendepreciated on a straight-line basis over the shorter of the estimated useful life or the lease term.Property and equipment is comprised of the following (in thousands): December 31, 2009 2008 Laboratory equipment $— $6,171 Computer equipment and software 2,186 4,654 Furniture and fixtures — 477 Leasehold improvements — 3,275 2,186 14,577 Less: Accumulated depreciation (2,186) (14,220) $— $357 Depreciation expense for the years ended December 31, 2009 and 2008 was $115,000 and $737,000, respectively. Impairmentcharges of $724,000 during 2008 were reflected as a reduction to the above noted 2008 costs.PatentsDuring 2009, all remaining patents were sold, disposed of, or written off.Prior to 2009, the Company had filed numerous patent applications with the United States Patent and Trademark Office and inforeign countries. Legal costs and expenses incurred in connection with pending patent applications were capitalized. Costsrelated to issued patents were amortized using the straight-line method over the lesser of the remaining useful life of the relatedtechnology or the remaining patent life, commencing on the date the patent was issued.As a result of the sale, disposal, or write-off of all remaining patents as of December 31, 2009, total issued and pending patentapplication costs and accumulated amortization were $0 as of December 31, 2009. As of December 31, 2008, total issued patentapplication costs (net of 2008 impairment charges) and accumulated amortization were $1,159,000 and $1,116,000,respectively. Total pending patent application costs (less 2008 impairment charges) were $207,000 at December 31, 2008.Capitalized costs related to patent applications were charged to operations at the time a determination is made not to pursuesuch applications or they become impaired. Amortization expense for the years ended December 31, 2009 and 2008 was $2,000and $245,000, respectively.Accrued Clinical/Regulatory ExpensesAs a result of the Company discontinuing the Riquent Phase 3 ASPEN study and the development of Riquent, all clinical andregulatory activities were ceased and no related accruals were required as of December 31, 2009. F-8Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsThe Company reviewed and accrued clinical trial and regulatory-related expenses based on work performed, which relied onestimates of total costs incurred based on patient enrollment, completion of studies and other events. The Company followedthis method since reasonably dependable estimates of the costs applicable to various stages of a clinical trial could be made.Share-Based CompensationShare-based compensation expense for the years ended December 31, 2009 and 2008 was approximately $2,653,000 and$4,422,000, respectively. As of December 31, 2009, there was approximately $976,000 of total unrecognized compensationcost related to non-vested share-based payment awards granted under all equity compensation plans. As share-basedcompensation expense recognized for fiscal years 2009 and 2008 is based on awards ultimately expected to vest, share-basedcompensation expense has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, ifnecessary, in subsequent periods if actual forfeitures differ from those estimates. Total unrecognized compensation cost will beadjusted for future changes in estimated forfeitures. The Company expects to recognize that cost over a weighted-averageperiod of 0.8 years.Deferred charges for options granted to non-employees, other than non-employee directors, are periodically remeasured as theoptions vest. In December 2008, the Company granted non-qualified stock options to purchase a total of 15,000 shares ofcommon stock to a consultant at an exercise price equal to the fair market value of the stock at the date of the grant. TheCompany recognized compensation expense for these stock option grants of approximately ($1,000) and $1,000 for the yearsended December 31, 2009 and 2008, respectively. In September and October 2007, the Company granted non-qualified stockoptions to purchase a total of 12,000 shares of common stock to consultants at an exercise price equal to the fair market value ofthe stock at the date of each grant. For the year ended December 31, 2008, the Company recognized compensation(credit) expense for these stock option grants of approximately ($11,000). No compensation for these stock option grants wasrecognized during the year ended December 31, 2009.The Company utilizes the Black-Scholes option-pricing model as its method of valuation for stock options and purchases underthe ESPP. The Company’s determination of the fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex andsubjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over theterm of the awards and actual and projected employee stock option exercise behaviors.Share-Based Award Valuation and Expense InformationThe following table summarizes share-based compensation expense (in thousands) related to employee and director stockoptions and restricted stock for the years ended December 31, 2009 and 2008, as well as share-based compensation expenserelated to ESPP purchases for the year ended December 31, 2008: December 31, 2009 2008 Research and development $632 $1,961 General and administrative 2,021 2,461 Share-based compensation expense included in operating expenses $2,653 $4,422 For the years ended December 31, 2009 and 2008, the Company estimated the fair value of each option grant on the date ofgrant using the Black-Scholes option-pricing model with the following weighted-average assumptions: F-9Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsOptions: December 31, 2009 2008 Risk-free interest rate 0.6% 3.2%Dividend yield 0.0% 0.0%Volatility 295.0% 115.1%Expected life (years) 5.6 5.6 For the year ended December 31, 2008, the Company estimated the fair value of ESPP purchase rights on the date of grant usingthe Black-Scholes option-pricing model with the following weighted-average assumptions:ESPP: December 31, 2008 Risk-free interest rate 1.1%Dividend yield 0.0%Volatility 99.6%Expected life 3 months The weighted-average fair values of options granted were $1.72 and $1.70 for the years ended December 31, 2009 and 2008,respectively. The weighted-average purchase price of shares purchased through the ESPP was $0.95 for the year endedDecember 31, 2008. No ESPP purchases were made during 2009.The risk-free interest rate assumption is based on observed interest rates appropriate for the term of the Company’s employeeand director stock options and ESPP purchases. The dividend yield assumption is based on the Company’s history andexpectation of dividend payouts. The Company has never paid dividends on its common stock and the Company does notanticipate paying dividends in the foreseeable future.The Company used historical stock price volatility as the expected volatility assumption required in the Black-Scholes option-pricing model. The selection of the historical volatility approach was based on the availability of historical stock prices for theduration of the awards’ expected term and the Company’s assessment that historical volatility is more representative of futurestock price trends than other available methods.The expected life of employee and director stock options represents the weighted-average period the stock options are expectedto remain outstanding. Using historical option exercise data, the expected life for option grants made during the years endedDecember 31, 2009 and 2008 was 5.6 years for the new and existing employee grants and the director grants. The expected lifefor ESPP purchase rights represents the length of each purchase period. Because employees purchase stock quarterly, theexpected term for ESPP purchase rights is three months for shares purchased during the year ended December 31, 2008. No ESPPpurchases were made during 2009.Because share-based compensation expense recognized in the Consolidated Statement of Operations for fiscal years 2009 and2008 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimated atthe time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures wereestimated based on historical experience for compensation expense recognized for fiscal year 2008. During 2009, forfeitureswere estimated based on actual events; primarily the reduction in force that occurred during April 2009 (see Note 6).Restricted StockThere was no restricted stock issued during the years ended December 31, 2009 and 2008. In addition, no compensationexpense related to restricted stock was recognized during the years ended December 31, 2009 and 2008. F-10Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsRestricted Stock UnitsOn December 31, 2009, the Company granted 2,021,024 restricted stock units (“RSUs”) to the Company’s three remainingemployees where each RSU represented a contingent right to receive one share of the Company’s common stock. The RSUswere to vest upon the closing of the Merger, subject to the continued employment of the recipient through the closing date ofthe Merger. The RSUs were valued at the fair market value of the Company’s common stock on the grant date. The value of theRSUs on December 31, 2009 was $344,000 and no compensation expense for these RSUs was recognized during 2009. As aresult of the termination of the Merger in March 2010, the RSUs were cancelled.Net Loss Per ShareBasic and diluted net loss per share is computed using the weighted-average number of common shares outstanding during theperiods. Earnings per share (“EPS”) is calculated by dividing the net income or loss by the weighted-average number ofcommon shares outstanding for the period, without consideration for common share equivalents. Diluted EPS is computed bydividing the net income or loss by the weighted-average number of common share equivalents outstanding for the perioddetermined using the treasury-stock method. For purposes of this calculation, stock options and warrants are considered to becommon stock equivalents and are only included in the calculation of diluted earnings per share when their effect is dilutive.Because the Company has incurred a net loss for both of the two years presented in the Consolidated Statements of Operations,stock options and warrants are not included in the computation of net loss per share because their effect is anti-dilutive. Theshares used to compute basic and diluted net loss per share represent the weighted-average common shares outstanding.Comprehensive LossUnrealized gains and losses on available-for-sale securities are included in other comprehensive income (loss).Recently Issued Accounting StandardsIn June 2009, the Financial Accounting Standards Board (“FASB”) approved the FASB Accounting Standards Codification(“the Codification”) when it issued Statement of Financial Accounting Standards No. 168, The FASB Accounting StandardsCodification and the Hierarchy of Generally Accepted Accounting Principles, which is included in The Accounting StandardsCodification (“ASC”) Topic of Generally Accepted Accounting Principles (the “Topic”). All existing accounting standarddocuments, such as FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and other relatedliterature, excluding guidance from the Securities and Exchange Commission (“SEC”), have been superseded by theCodification. All other non-grandfathered, non-SEC accounting literature not included in the Codification has become non-authoritative. The Codification did not change GAAP, but instead introduced a new structure that combines all authoritativestandards into a comprehensive, topically-organized online database. The Topic is effective for financial statements issued forinterim and annual periods ending after September 15, 2009. The Topic impacts the Company’s financial statement disclosuresas all future references to authoritative accounting literature will be referenced in accordance with the Codification. As a resultof the implementation of the Codification during the quarter ended September 30, 2009, previous references to accountingstandards and literature are no longer applicable. F-11Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements2. Cash Equivalents and Short-term InvestmentsAs of December 31, 2009, the Company held cash of $4,254,000 and held no available-for-sale securities or short-terminvestments.The following is a summary of the Company’s available-for-sale securities as of December 31, 2008 (in thousands): Gross Gross Amortized Unrealized Unrealized Realized Realized Estimated Fair Cost Gains Losses Gains Losses Value December 31, 2008 Money market accounts $2,686 $— $— $— $— $2,686 Asset-backed auction rate securities 10,000 — — — (2,270) 7,730 Auction rate security rights — — — 2,270 — 2,270 $12,686 $— $— $2,270 $(2,270) $12,686 The amortized cost of debt securities held as of December 31, 2008 was adjusted for amortization of premiums and accretion ofdiscounts to maturity. Included in cash and cash equivalents at December 31, 2008 were $2,686,000 of securities classified asavailable-for-sale which were sold during 2009 to support current operations. As of December 31, 2008, available-for-salesecurities and cash equivalents of $2,686,000 had a maturity date of one year or less and $10,000,000 were due after one year.As of December 31, 2008, the Company’s investment securities consisted of money market funds invested in U.S. Treasury billsand student loan auction rate securities. During 2008, there was insufficient demand at auction for all four of the Company’sauction rate securities. As a result, these securities were not liquid. The Company recorded a realized impairment loss on thesesecurities of $2,270,000 in 2008. The Company’s auction rate securities were classified as short-term investments, and therealized impairment loss was included in the Company’s statement of operations for the year ended December 31, 2008.During the fourth quarter of 2008, the Company’s broker-dealer, UBS, extended an offer of Auction Rate Securities Rights(“ARS Rights”) to holders of illiquid auction rate securities that were maintained by UBS as of February 13, 2008. The ARSRights provided the holder with the ability to sell the auction rate securities, along with the ARS Rights, to UBS at the par valueof the auction rate securities, during an applicable exercise period. The ARS Rights were not transferable, not tradeable, andwere not quoted or listed on any securities exchange or other trading network.During November 2008, the Company executed a written agreement with UBS to participate in the ARS Rights program for all$10,000,000 of its outstanding auction rate securities, all of which were maintained by UBS. ARS Rights represent an asset akinto a put option, whereby the Company has the right to ‘put’ the auction rate securities back to the broker-dealer during theexercise period for a payment equal to the par value of the auction rate securities. As of December 31, 2008, the fair value of theARS Rights were recorded as a realized gain of $2,270,000 and a corresponding short-term investment. The realized gain fromrecording the ARS Rights fully offset the realized impairment loss on auction rate securities that was recorded during 2008.During January 2009, all of the Company’s auction rate securities were sold to UBS at par value of $10,000,000 pursuant to theARS Rights agreement. F-12Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements3. Fair Value of Financial InstrumentsFair value is defined under The ASC Topic of Fair Value Measurements and Disclosures as the exchange price that would bereceived for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset orliability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measurefair value under The ASC Topic of Fair Value Measurements and Disclosures must maximize the use of observable inputs andminimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of whichthe first two are considered observable and the last unobservable, that may be used to measure fair value which are thefollowing: • Level 1 — Quoted prices in active markets for identical assets or liabilities. • Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similarassets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can becorroborated by observable market data for substantially the full term of the assets or liabilities. • Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fairvalue of the assets or liabilities.As of December 31, 2009, cash and cash equivalents were comprised of cash in checking accounts. The Company held noinvestments as of December 31, 2009.As of December 31, 2008, cash and cash equivalents were comprised of short-term, highly liquid investments with maturities of90 days or less from the date of purchase. Investments were comprised of available-for-sale securities recorded at estimated fairvalue determined using level 3 inputs. Unrealized gains and losses associated with the Company’s investments, if any, werereported in stockholders’ equity.At December 31, 2008, short-term investments were comprised of $10,000,000 invested in auction rate securities, which weresold to UBS at par value in January 2009 pursuant to an Auction Rate Securities Agreement executed in November 2008.4. Development and Stock Purchase AgreementsOn January 4, 2009, the Company entered into the Development Agreement with BioMarin CF, a wholly-owned subsidiary ofBioMarin Pharma, granting BioMarin CF co-exclusive rights to develop and commercialize Riquent (and certain potentialfollow-on products) (collectively, “Riquent”) in the “Territory,” and the non-exclusive right to manufacture Riquent anywherein the world. The “Territory” includes all countries of the world except the “Asia-Pacific Territory” (i.e., all countries of EastAsia, Southeast Asia, South Asia, Australia, New Zealand, and other countries of Oceania).Under the terms of the Development Agreement, BioMarin CF paid the Company a non-refundable commencement payment of$7,500,000 and, through BioMarin Pharma, paid $7,500,000 for a newly designated series of preferred stock (the “Series B-1Preferred Stock”), pursuant to a related securities purchase agreement described more fully below. The stated amount paid forthe preferred stock was $625,000 in excess of its fair value, such amount was accounted for as additional consideration paid forthe development arrangement.Following the futile results of the first interim efficacy analysis of Riquent received in February 2009, BioMarin CF elected notto exercise its full license rights to the Riquent program under the Development Agreement. Thus, the Development Agreementbetween the parties terminated on March 27, 2009 in accordance with its terms. All rights to Riquent were returned to theCompany. Accordingly, the $8,125,000 related to the Development Agreement was recorded as revenue in the quarter endedMarch 2009. F-13Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsIn connection with the Development Agreement, the Company also entered into a securities purchase agreement, dated as ofJanuary 4, 2009 with BioMarin Pharma. In accordance with the terms of the agreement, on January 20, 2009, the Company sold339,104 shares of Series B-1 Preferred Stock at a price per share of $22.1171 and received $7,500,000 which was in excess ofthe fair value of the preferred stock. On March 27, 2009, in connection with the termination of the Development Agreement, theSeries B-1 Preferred Stock converted into 10,173,120 shares of Common Stock pursuant to the terms of the securities purchaseagreement. The premium over the fair value of the stock issued of $625,000 was added to the value of the DevelopmentAgreement.5. CommitmentsThe Company leased two adjacent buildings in San Diego, California covering a total of approximately 54,000 square feet.Both building leases expired in July 2009. Pursuant to one of the leases, the Company was responsible for completingmodifications to the leased building prior to lease expiration. In July 2009, approximately $315,000 was paid in accordancewith the lease provisions upon lease expiration and exit of the buildings.In addition, the Company early terminated its operating leases during the quarter ended June 30, 2009, and as a result paid atermination fee of $100,000 in September 2009. There were no material operating leases remaining as of December 31, 2009.Rent expense under all operating leases totaled $590,000 and $900,000 for the years ended December 31, 2009 and 2008,respectively. The Company held no equipment acquired under capital leases as of December 31, 2009. Equipment acquiredunder capital leases included in property and equipment as of December 31, 2008 totaled $43,000 (net of accumulatedamortization of $12,000) and amortization expense associated with this equipment was included in depreciation andamortization expense.The Company renewed certain of its liability insurance policies in March 2009 covering future periods.6. Restructuring CostsIn connection with the termination of the clinical trials for Riquent, the Company ceased all manufacturing and regulatoryactivities related to Riquent and initiated steps to significantly reduce its operating costs, including a reduction of force,resulting in the termination of 74 employees who received notification in February 2009 and were terminated in April 2009.The Company recorded a charge of approximately $1,048,000 in the quarter ended March 31, 2009, of which $668,000 wasincluded in research and development and $380,000 was included in general and administrative expense. The $1,048,000 waspaid in May 2009.On December 4, 2009, the Company entered into Retention and Separation Agreements and General Release of All Claims (the“Retention Agreements”) with its two remaining officers (the “Remaining Officers”). The Retention Agreements supersede theseverance provisions of the employment agreements with the Remaining Officers that were effective prior to the signing of theRetention Agreements (the “Prior Employment Agreements”), but otherwise the terms of the Prior Employment Agreementsremain in full force and effect. The Retention Agreements do not alter the amount of severance that was to be awarded under thePrior Employment Agreements, but rather changes the event that trigger such payments.Pursuant to the Retention Agreements, on December 18, 2009 the Company paid a total of $269,000, less applicablewithholding taxes, to the Remaining Officers (the “Retention Payments”). If the Remaining Officers voluntarily resigned theiremployment prior to the earlier to occur of (a) the closing of the Merger and (b) March 31, 2010, they were to immediately repaythe Retention Payments to the Company. The date under (a) and (b) shall be referred to as the “Separation Date.” The unearnedportion of the paid Retention Payments, including related employer taxes, of $222,000 was deferred as of December 31, 2009.Under the Retention Agreements, each of the Remaining Officers agreed to execute an amendment to the Retention Agreements(the “Amendment”) on or about the Separation Date to extend and reaffirm the promises and covenants made by them in theRetention Agreements through the Separation Date. The Retention Agreements provided for severance payments totaling$538,000, less applicable withholding taxes (the “Severance Payments”) payable in a lump sum on the eighth day after theRemaining Officers signed the Amendment. F-14Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsThe earned portion of the Severance Payments, including related employer taxes, of $94,000 was accrued as of December 31,2009.In April 2010, the Compensation Committee of the Board confirmed that pursuant to the terms of the Retention Agreements, theRetention Payments and Severance Payments were earned as of March 31, 2010 and agreed that the existing employment termswould remain in effect beyond March 31, 2010. As an incentive to retain the current Named Executive Officers to pursue astrategic transaction such as a merger, license agreement, third party collaboration or wind down of the Company, theCompensation Committee also approved a retention bonus for a total of up to approximately $600,000, depending on the typeof strategic transaction completed.7. Settlement of LiabilitiesDuring the year ended December 31, 2009, the Company negotiated settlements related to accounts payable obligations andaccrued liabilities with a majority of its vendors. These negotiations resulted in reductions to accounts payable obligations andaccrued liabilities from those amounts originally invoiced and accrued of approximately $2,743,000 for the year endedDecember 31, 2009, which were recorded as expense reductions upon the execution of the settlement agreements. As a result ofthese settlements, during the year ended December 31, 2009 there were decreases of $2,597,000 and $146,000 to research anddevelopment and general and administrative expenses, respectively.In April 2009, the Company settled its notes payable obligations at face value. No notes payable obligations exist as ofDecember 31, 2009.8. Stockholders’ EquityPreferred StockAs of December 31, 2009, the Company’s Board of Directors is authorized to issue 8,000,000 shares of preferred stock with a parvalue of $0.01 per share, in one or more series.The Company’s Certificate of Designation filed with the Secretary of State of the State of Delaware designated 500,000 sharesof preferred stock as nonredeemable Series A Junior Participating Preferred Stock. These shares were potentially issuable underthe Company’s Stockholder Rights Plan, which was terminated in September 2009.WarrantsIn connection with the December 2005 private placement, the Company issued warrants to purchase 4,399,992 shares of theCompany’s common stock. The warrants were immediately exercisable upon grant, have an exercise price of $5.00 per share andremain exercisable for five years.In connection with the May 2008 public offering, the Company issued warrants to purchase 3,903,708 shares of the Company’scommon stock. The warrants were immediately exercisable upon grant, have an exercise price of $2.15 per share and remainexercisable for five years.As of December 31, 2009, all of the warrants were outstanding and 8,303,700 shares of common stock are reserved for issuanceupon exercise of the warrants. F-15Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsStock Option PlansIn June 1994, the Company adopted the La Jolla Pharmaceutical Company 1994 Stock Incentive Plan (the “1994 Plan”) underwhich, as amended, 1,640,000 shares of common stock (post-reverse stock split) were authorized for issuance. The 1994 Planexpired in June 2004 and there were 474,504 options outstanding under the 1994 Plan as of December 31, 2009.In May 2004, the Company adopted the La Jolla Pharmaceutical Company 2004 Equity Incentive Plan (the “2004 Plan”) underwhich, as amended, 6,400,000 shares of common stock (post-reverse stock split) have been authorized for issuance. The 2004Plan provides for the grant of incentive and non-qualified stock options, as well as other share-based payment awards, toemployees, directors, consultants and advisors of the Company with up to a 10-year contractual life and various vesting periodsas determined by the Company’s compensation committee or the board of directors, as well as automatic fixed grants to non-employee directors of the Company. As of December 31, 2009, there were a total of 3,034,063 options outstanding and2,021,024 RSUs outstanding. As of December 31, 2009, 1,065,694 shares remained available for future grant under the 2004Plan.A summary of the Company’s stock option activity and related data follows: Outstanding Options Weighted- Number of Average Shares Exercise Price Balance at December 31, 2007 4,809,576 $8.56 Granted 1,481,900 $2.02 Exercised (1,097) $2.51 Forfeited / Expired (663,418) $8.91 Balance at December 31, 2008 5,626,961 $6.80 Granted 691,875 $1.73 Forfeited / Expired (2,810,268) $5.31 Balance at December 31, 2009 3,508,568 $6.99 As of December 31, 2009, options exercisable have a weighted-average remaining contractual term of 6.0 years. No stock optionexercises occurred during the year ended December 31, 2009. The total intrinsic value of stock option exercises, which is thedifference between the exercise price and closing price of the Company’s common stock on the date of exercise, during the yearended December 31, 2008 was $2,000. As of December 31, 2009 and 2008, the total intrinsic value, which is the differencebetween the exercise price and closing price of the Company’s common stock of options outstanding and exercisable, was $0. Years Ended December 31, 2009 2008 Weighted- Weighted- Average Average Exercise Exercise Options Price Options Price Exercisable at end of year 3,175,233 $7.47 3,522,747 $9.08 Weighted-average fair value of options granted duringthe year $1.72 $1.70 F-16Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsExercise prices and weighted-average remaining contractual lives for the options outstanding (excluding shares of restrictedstock) as of December 31, 2009 were: Weighted- Weighted- Average Average Remaining Weighted- Exercise Contractual Average Price of Options Range of Life Exercise Options Options Outstanding Exercise Prices (in years) Price Exercisable Exercisable 560,000 $0.64 – $1.82 8.71 $1.61 425,104 $1.67 539,498 $1.87 – $3.08 7.40 $2.60 374,393 $2.62 422,000 $3.23 – $3.99 6.52 $3.67 422,000 $3.67 475,105 $4.20 – $4.46 6.10 $4.36 475,105 $4.36 810,000 $5.26 6.20 $5.26 776,666 $5.26 356,094 $5.47 – $18.75 4.67 $11.11 356,094 $11.11 262,872 $19.00 – $35.25 2.24 $27.56 262,872 $27.56 15,999 $35.50 1.95 $35.50 15,999 $35.50 8,000 $36.75 1.13 $36.75 8,000 $36.75 58,999 $38.25 1.55 $38.25 58,999 $38.25 3,508,567 $0.64 – $38.25 6.25 $6.99 3,175,232 $7.47 At December 31, 2009, the Company has reserved 4,574,261 shares of common stock for future issuance upon exercise ofoptions granted or to be granted under the 1994 and 2004 Plans.Restricted Stock UnitsUnder the 2004 Plan, the Company granted 2,021,024 RSUs to the Company’s three remaining employees on December 31,2009, where each RSU represents a contingent right to receive one share of the Company’s common stock. The RSUs were tovest upon the closing of the Merger, subject to the continued employment of the recipient through the closing date of theMerger. As a result of the termination of the Merger in March 2010, the RSUs were cancelled.Stock-based compensation cost of RSUs is measured by the market value of the Company’s common stock on the date of grant.The grant date intrinsic value of awards granted is amortized on a straight-line basis over the requisite service periods of theawards, which are the vesting periods. The weighted average grant date intrinsic value was $0.17 per RSU. No stock-basedcompensation expense related to these RSUs was recognized during 2009.A summary of the Company’s RSU activity and related data follows: Weighted- Average Grant Date Fair Value Shares per Share Restricted stock units outstanding at December 31, 2008 — $— Granted 2,021,024 $0.17 Restricted stock units outstanding at December 31, 2009 2,021,024 $0.17 As of December 31, 2009, 2,021,024 shares of common stock are reserved for issuance upon vesting of the RSUs. F-17Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsEmployee Stock Purchase PlanEffective August 1, 1995, the Company adopted the ESPP under which, as amended, 850,000 shares of common stock arereserved for sale to eligible employees, as defined in the ESPP. Employees may purchase common stock under the ESPP everythree months (up to but not exceeding 10% of each employee’s base salary, or hourly compensation, and any cash bonus paid,subject to certain limitations) over the offering period at 85% of the fair market value of the common stock at specified dates.The offering period may not exceed 24 months. No shares of common stock were issued under the ESPP during the year endedDecember 31, 2009 and 303,937 shares of common stock were issued under the ESPP during the year ended December 31, 2008.As of December 31, 2009, 833,023 shares of common stock have been issued under the ESPP and 16,977 shares of commonstock are available for future issuance. Year Ended December 31, 2008 Weighted-average fair value of Employee Stock Purchase Plan purchases $0.71 Stockholder Rights PlanThe Company had adopted a Stockholder Rights Plan (the “Rights Plan”), which was amended and restated in December 2008,subsequently amended in January 2009 and terminated in September 2009. Among other provisions, the Rights Plan providedfor a dividend of one right (a “Right”) to purchase fractions of shares of the Company’s Series A Preferred Stock for each shareof the Company’s common stock.9. 401(k) PlanThe Company had a 401(k) defined contribution retirement plan (the “401(k) Plan”), which was terminated in March 2009. TheCompany did not match employee contributions or otherwise contribute to the 401(k) Plan.10. Income TaxesThe ASC Topic of Income Taxes prescribes a recognition threshold and measurement attribute criteria for the financial statementrecognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized,a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. An uncertain income taxposition will not be recognized if it has less than a 50% likelihood of being sustained. There were no unrecognized tax benefitsas of the date of adoption. As of December 31, 2009 and 2008, the total liability for unrecognized tax benefits was $45,000 and$0, respectively, and is included in current liabilities.A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands): Amount Unrecognized tax benefits balance at December 31, 2008 $— Increases related to current and prior year tax positions 45 Settlements and lapses in statutes of limitations — Unrecognized tax benefits balance at December 31, 2009 $45 Included in the balance of unrecognized tax benefits at December 31, 2009 are $45,000 of tax benefits that, if recognized,would affect the effective tax rate. F-18Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsThe Company is subject to taxation in the United States and various state jurisdictions. The Company’s tax years for 1995 andforward are subject to examination by the United States and California tax authorities due to the carry forward of unutilized netoperating losses and research and development credits.The Company has not completed its Section 382/383 analysis regarding the limitation of net operating loss and research anddevelopment credit carryforwards. The Company does not presently plan to complete its Section 382/383 analysis and unlessand until this analysis has been completed, the Company has removed the deferred tax assets for net operating losses andresearch and development credits generated through 2009 from its deferred tax asset schedule and has recorded a correspondingdecrease to its valuation allowance.At December 31, 2009, the Company had federal and California income tax net operating loss carryforwards of approximately$360,563,000 and $223,465,000, respectively. The difference between the federal and California tax loss carryforwards isprimarily attributable to the capitalization of research and development expenses for California income tax purposes. Inaddition, the Company has federal and California research and development tax credit carryforwards of $16,372,000 and$10,050,000, respectively. The federal net operating loss, research tax credit carryforwards and California net operating losscarryforwards will begin to expire in 2010 unless previously utilized. The California research and development creditcarryforwards will carry forward indefinitely until utilized. In February 2009, the Company experienced a change in ownershipat a time when its enterprise value was minimal. As a result of this ownership change and the low enterprise value, theCompany’s federal and California net operating loss carryforwards and federal research and development credit carryforwards asof December 31, 2009 will be subject to limitation under IRC Section 382/383 and more likely than not will expire unused.Significant components of the Company’s deferred tax assets as of December 31, 2009 and 2008 are listed below. A valuationallowance of $12,881,000 and $14,330,000 at December 31, 2009 and 2008, respectively, has been recognized to offset the netdeferred tax assets as realization of such assets is uncertain. Amounts are shown in thousands as of December 31 of therespective years (in thousands): December 31, 2009 2008 Deferred tax assets: Net operating loss carryforwards $— $— Research and development credits — — Capitalized research and development and other 12,881 14,330 Total deferred tax assets 12,881 14,330 Net deferred tax assets 12,881 14,330 Valuation allowance for deferred tax assets (12,881) (14,330)Net deferred taxes $— $— Income taxes computed by applying the U.S. Federal Statutory rates to income from continuing operations before income taxesare reconciled to the provision for income taxes set forth in the statement of operations as follows (in thousands): 2009 2008 Tax benefit at statutory federal rate $(3,022) $(21,999)State tax benefit, net of federal (496) (3,612)Generation of research and development credits (347) (1,461)Expired tax attributes 4,347 3,069 Removal of net operating losses and research and development credits 767 19,696 Stock compensation expense 281 733 Other (81) 166 Change in valuation allowance (1,449) 3,408 $— $— F-19Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements11. Subsequent EventsOn March 3, 2010, the Company and Adamis agreed to terminate the Merger Agreement as a result of the failure of theCompany’s stockholders to vote in sufficient quantities for there to be a quorum to hold the stockholders’ meeting to approvethe proposals related to the Merger. The solicitation of further votes was cancelled due to the Company’s delisting from Nasdaq.As a result of the termination of the Merger with Adamis, the RSUs granted in December 2009 were cancelled in March 2010.Effective at the open of business on March 4, 2010, the Company’s common stock was suspended and delisted from Nasdaq andbegan trading on The Pink OTC Markets, Inc. The delisting was the result of Nasdaq’s determination that the Company hadnominal assets, other than cash, and had nominal operations. F-20Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements12. Selected Quarterly Financial Data (unaudited)The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 2009 and 2008 (inthousands except per share amounts): Quarters Ended Mar. 31, Jun. 30, Sept. 30, Dec. 31, 2009 Revenue from collaborative agreement: $8,125 $— $— $— Expenses: Research and development 9,893 (85) (240) 8 General and administrative 2,487 2,124 992 1,590 Total expenses 12,380 2,039 752 1,598 Loss from operations (4,255) (2,039) (752) (1,598) Interest and other income (expense), net 3 (4) 54 (43) Net loss $(4,252) $(2,043) $(698) $(1,641) Basic and diluted net loss per share $(0.08) $(0.03) $(0.01) $(0.02) Shares used in computing basic and diluted net loss per share 56,115 65,723 65,723 65,723 2008 Expenses: Research and development $11,338 $12,732 $14,099 $12,856 General and administrative 1,906 2,069 2,791 2,936 Asset impairment 2,810 Loss from operations (13,244) (14,801) (16,890) (18,602) Interest income (expense), net (393) (134) (244) 1,454 Net loss $(13,637) $(14,935) $(17,134) $(17,148) Basic and diluted net loss per share $(0.34) $(0.31) $(0.31) $(0.31) Shares used in computing basic and diluted net loss per share 39,631 48,252 55,327 55,423 F-21Table of ContentsEXHIBIT INDEX Exhibit Number Description 2.1 Agreement and Plan of Reorganization, by and among La Jolla Pharmaceutical Company,Adamis Pharmaceuticals Corporation and Jewel Merger Sub, Inc., dated as of December 4, 2009(16) 3.1 Restated Certificate of Incorporation (1) 3.2 Amended and Restated Bylaws (2) 4.1 Form of Common Stock Certificate (3) 10.1 Form of Indemnification Agreement (4)* 10.2 La Jolla Pharmaceutical Company 1994 Stock Incentive Plan (Amended and Restated as ofMay 16, 2003) (5)* 10.3 La Jolla Pharmaceutical Company 1995 Employee Stock Purchase Plan (Amended andRestated as of June 20, 2008) (6)* 10.4 La Jolla Pharmaceutical Company 2004 Equity Incentive Plan (Amended and Restated as ofJune 20, 2008) (6)* 10.5 Form of Option Grant under the La Jolla Pharmaceutical Company 2004 Equity Incentive Plan(6)* 10.6 Amended and Restated Employment Agreement, dated February 23, 2006, by and between theCompany and Josefina Elchico (1)* 10.7 Amended and Restated Employment Agreement, dated February 23, 2006, by and between theCompany and Gail Sloan (1)* 10.8 Chief Executive Officer Employment Agreement, dated March 15, 2006, by and between theCompany and Deirdre Y. Gillespie, M.D. (7)* 10.9 Employment Offer Letter, dated July 10, 2006 and executed July 14, 2006, by and between theCompany and Michael Tansey, M.D. (8)* 10.10 Employment Agreement, dated December 4, 2006, by and between the Company and MichaelTansey, M.D. (9)* 10.11 Executive Employment Agreement, dated May 10, 2007, by and between the Company andNiv Caviar (10)* 10.12 First Amendment to Chief Executive Officer Employment Agreement, dated July 31, 2007, byand between the Company and Deirdre Y. Gillespie (11)* 10.13 Employment Offer Letter, dated March 4, 2008, by and between the Company and LukeSeikkula (12)* 10.14 Underwriting Agreement, dated as of May 6, 2008, between the Company and UBS Securities,LLC and Canaccord Adams, Inc. (13) 10.15 Form of Warrant Agreement (13) F-22Table of Contents Exhibit Number Description 10.16 Employment Offer Letter, dated March 4, 2008, by and between the Company and Lisa Koch-Hulle (14)* 10.17 First Amendment to Executive Employment Agreement, dated December 24, 2008, by andbetween the Company and Gail Sloan.(14)* 10.18 First Amendment to Executive Officer Employment Agreement, dated December 24, 2008, byand between the Company and Niv Caviar.(14)* 10.19 First Amendment to Employment Offer Letter, dated December 26, 2008, by and between theCompany and Vicki Motte.(14)* 10.20 First Amendment to Employment Offer Letter, dated December 26, 2008, by and between theCompany and Luke Seikkula.(14)* 10.21 First Amendment to Executive Employment Agreement, dated December 29, 2008, by andbetween the Company and Josefina Elchico.(14)* 10.22 First Amendment to Employment Offer Letter, dated December 29, 2008, by and between theCompany and Lisa Koch-Hulle.(14)* 10.23 First Amendment to Executive Employment Agreement, dated December 30, 2008, by andbetween the Company and Michael Tansey.(14)* 10.24 Second Amendment to Chief Executive Officer Employment Agreement, dated December 31,2008, by and between the Company and Deirdre Gillespie.(14)* 10.25 Development and Commercialization Agreement, dated as of January 4, 2009, by and betweenthe Company and BioMarin CF Limited (15)† 10.26 Securities Purchase Agreement, dated as of January 4, 2009, by and between the Company andBioMarin Pharmaceutical Inc.(15)† 10.27 Amendment No. 1 to Development and Commercialization Agreement, dated as of January 4,2009, by and between the Company and BioMarin CF Limited (15) 10.28 Amendment No. 1 to Securities Purchase Agreement, dated as of January 4, 2009, by andbetween the Company and BioMarin Pharmaceutical Inc.(15) 10.29 Retention and Separation Agreement and General Release of All Claims, dated December 4,2009, by and between the Company and Deirdre Y. Gillespie, M.D. (16)* 10.30 Retention and Separation Agreement and General Release of All Claims, dated December 4,2009, by and between the Company and Gail A. Sloan (16)* 10.31 Form of Voting Agreement (16) 21.1 Subsidiaries of La Jolla Pharmaceutical Company ** 23.1 Consent of Independent Registered Public Accounting Firm ** 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ** 31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ** 32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ** * This exhibit is a management contract or compensatory plan or arrangement. F-23Table of Contents ** Filed herewith. † Confidential treatment for certain provisions of this exhibit. (1) Previously filed with the Company’s Current Report on Form 8-K filed March 1, 2006 and incorporated by referenceherein. (2) Previously filed with the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 andincorporated by reference herein. (3) Previously filed with the Company’s Registration Statement on Form S-3 (Registration No. 333-131246) filed January 24,2006 and incorporated by reference herein. (4) Previously filed with the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 andincorporated by reference herein. (5) Previously filed with the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 and incorporatedby reference herein. (6) Previously filed with the Company’s Registration Statement on Form S-8 (Registration No. 333-151825) filed June 20,2008 and incorporated by reference herein. (7) Previously filed with the Company’s Current Report on Form 8-K filed March 20, 2006 and incorporated by referenceherein. (8) Previously filed with the Company’s Current Report on Form 8-K filed July 18, 2006 and incorporated by reference herein. (9) Previously filed with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006 andincorporated by reference herein. (10) Previously filed with the Company’s Current Report on Form 8-K filed May 10, 2007 and incorporated by referenceherein. (11) Previously filed with the Company’s Registration Statement on Form S-1 (Registration No. 33-76480) filed June 3, 1994and incorporated by reference herein. (12) Previously filed with the Company’s Current Report on Form 8-K filed March 4, 2008 and incorporated by referenceherein. (13) Previously filed with the Company’s Current Report on Form 8-K filed May 7, 2008 and incorporated by reference herein. (14) Previously filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporatedby reference herein. (15) Previously file with the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 and incorporatedby reference herein. (16) Previously filed with the Company’s Current Report on Form 8-K filed on December 7, 2009 and incorporated by referenceherein. F-23Exhibit 21.1Subsidiaries of La Jolla Pharmaceutical Company Name of Subsidiary State of Incorporation Jewel Merger Sub, Inc. Delaware EXHIBIT 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-106060, 333-116233,333-131248, 333-125427, 333-143677 and 333-151825, Form S-3 Nos. 333-101499, 333-31142, 333-43066, 333-55370, 333-81432, 333-131246, 333-145009 and 333-158750 and Form S-4 No. 333-163911) of La Jolla Pharmaceutical Company and inthe related Prospectus of our report dated April 15, 2010, with respect to the consolidated financial statements of La JollaPharmaceutical Company, included in this Annual Report (Form 10-K) for the year ended December 31, 2009. /s/ Ernst & Young LLP San Diego, CaliforniaApril 15, 2010 EXHIBIT 31.1SECTION 302 CERTIFICATIONI, Deirdre Y. Gillespie, certify that:1. I have reviewed this annual report on Form 10-K of La Jolla Pharmaceutical Company;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present inall material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periodspresented in this report;4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (asdefined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during the period inwhich this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reportingto be designed under our supervision, to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period coveredby this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurredduring the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annualreport) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controlover financial reporting; and5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financialreporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize andreport financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role inthe registrant’s internal control over financial reporting.Date: April 15, 2010 /s/ Deirdre Y. GillespieDeirdre Y. GillespiePresident, Chief Executive Officer andAssistant Secretary EXHIBIT 31.2SECTION 302 CERTIFICATIONI, Gail A. Sloan, certify that:1. I have reviewed this annual report on Form 10-K of La Jolla Pharmaceutical Company;2. Based on my knowledge, this report does not contain any untrue statements of a material fact or omit to state a material factnecessary to make the statement made, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present inall material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periodspresented in this report;4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (asdefined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during the period inwhich this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reportingto be designed under our supervision, to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period coveredby this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurredduring the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annualreport) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controlover financial reporting; and5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financialreporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize andreport financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role inthe registrant’s internal control over financial reporting. Date: April 15, 2010 /s/ Gail A. SloanGail A. Sloan Vice President of Finance and Secretary EXHIBIT 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002Each of the undersigned, in his or her capacity as an officer of La Jolla Pharmaceutical Company (the “Registrant”), herebycertifies, for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: • the annual report of the Registrant on Form 10-K for the year ended December 31, 2009 (the “Report”), whichaccompanies this certification, fully complies with the requirements of Section 13(a) or 15(d) of the SecuritiesExchange Act of 1934; and • the information contained in the Report fairly presents, in all material respects, the financial condition of theRegistrant at the end of such year and the results of operations of the Registrant of such year.Dated: April 15, 2010 /s/ Deirdre Y. GillespieDeirdre Y. GillespiePresident, Chief Executive Officer andAssistant Secretary /s/ Gail A. SloanGail A. SloanVice President of Finance and Secretary Note: A signed original of this written statement required by Section 906 has been provided to La Jolla PharmaceuticalCompany and will be retained by La Jolla Pharmaceutical Company and furnished to the Securities and Exchange Commissionor its staff upon request. 

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