La Jolla Pharmaceutical Company
Annual Report 2012

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549 FORM 10-K xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended DECEMBER 31, 2012OR ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the transition period from to Commission file number: 0-24274 LA JOLLA PHARMACEUTICAL COMPANY(Exact name of registrant as specified in its charter) California 33-0361285(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification Number)4660 La Jolla Village Drive, Suite 1070, San Diego, CA 92122(Address of principal executive offices, including Zip Code)Registrant’s telephone number, including area code: (858) 207-4264Securities registered pursuant to Section 12(b) of the Act:Securities registered pursuant to Section 12(g) of the Act:Common Stock, Par Value $0.0001 per share Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the SecuritiesAct. Yes ¨ No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of theAct. Yes ¨ No xIndicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files). Yes x No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, tothe best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment tothis Form 10-K. ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller 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 accelerated filer ¨ Accelerated filer ¨Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company xIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct). Yes ¨ No xThe aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant as of June 30, 2012 totaled approximately$741,731. As of March 22, 2013, there were 18,881,242 shares of the Company’s common stock, $0.0001 par value, outstanding.DOCUMENTS INCORPORATED BY REFERENCENone Table of ContentsTABLE OF CONTENTS PART I Item 1. Business 1 Item 1A. Risk Factors 7 Item 1B. Unresolved Staff Comments 12 Item 2. Properties 12 Item 3. Legal Proceedings 12 Item 4. Mine Safety Disclosures 12 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 13 Item 6. Selected Financial Data 13 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 14 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 18 Item 8. Financial Statements and Supplementary Data 18 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 18 Item 9A. Controls and Procedures 18 Item 9B. Other Information 19 PART III Item 10. Directors, Executive Officers and Corporate Governance 20 Item 11. Executive Compensation 24 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 27 Item 13. Certain Relationships and Related Transactions, and Director Independence 29 Item 14. Principal Accountant Fees and Services 29 PART IV Item 15. Exhibits, Financial Statement Schedules 31 Signatures 32 Table of ContentsFORWARD-LOOKING STATEMENTSThis report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements canbe identified by words such as “intends,” “believes,” “anticipates,” “indicates,” “plans,” “intends,” “expects,” “suggests,” “may,” “should,” “potential,”“designed to,” “will” and similar references. Such statements include, but are not limited to, statements about: our ability to successfully develop GCS-100,LJPC-501 and our other product candidates; the future success of our clinical trials with GCS-100 and LJPC-501; the timing for the commencement andcompletion of clinical trials; and our ability to implement cost-saving measures. Forward-looking statements are neither historical facts nor assurances offuture performance. These statements are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plansand strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future,they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Ouractual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any ofthese forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in theforward-looking statements include, among others: the risk that our clinical trials with GCS-100 and LJPC-501 may not be successful in evaluating the safetyand tolerability of GCS-100 and LJPC-501 or providing preliminary evidence of efficacy; the successful and timely completion of clinical trials;uncertainties regarding the regulatory process; the availability of funds and resources to pursue our research and development projects, including our clinicaltrials with GCS-100 and LJPC-501; general economic conditions; and those identified in this Annual Report on Form 10-K under the heading “Risk Factors”and in other filings the Company periodically makes with the Securities and Exchange Commission. Forward-looking statements contained in this AnnualReport on Form 10-K speak as of the date hereof and the Company does not undertake to update any of these forward-looking statements to reflect a changein its views or events or circumstances that occur after the date of this Annual Report on Form 10-K.Table of ContentsPART IIn this report, all references to “we,” “our,” “us” and “the Company” refer to La Jolla Pharmaceutical Company, a California corporation, ourwholly-owned subsidiary, SL JPC Sub, Inc., and our formerly wholly-owned subsidiary, Jewel Merger Sub, Inc.Item 1. BusinessOverviewLa Jolla Pharmaceutical Company is a biopharmaceutical company focused on the discovery, development and commercialization of innovativetherapeutics for chronic organ failure and cancer. Our drug development efforts are focused on two product candidates: GCS-100 and LJPC-501. GCS-100targets the galectin-3 protein, which, when overproduced by the human body, has been associated with chronic organ failure and cancer. In January 2013, weinitiated a Phase 1/2 clinical trial with GCS-100 for the treatment of chronic kidney disease (“CKD”). LJPC-501 is a peptide agonist of the renin-angiotensinsystem, which is designed to help restore kidney function in patients with hepatorenal syndrome (“HRS”). We plan to file an Investigational New DrugApplication (“IND”) with the Food and Drug Administration (“FDA”) for LJPC-501 in the third quarter of 2013 and initiate a Phase 1 clinical trial in HRS bythe end of 2013. We also plan to evaluate other opportunities for potential product candidates for the treatment of unmet medical needs.Product PortfolioWe have a broad product portfolio consisting of both development-stage and discovery-stage products. We strive to maintain a robust pipelineof products to bring through development and to the market.Our products, their target indications and their development status are summarized in the table below: Some of our product candidates may prove to be beneficial in disease indications beyond those we are now pursuing. We may out-license ourproduct candidates to third parties or in-license other product candidates that are synergistic with our current programs. 1Table of ContentsGCS-100Scientific BackgroundGCS-100 is a complex polysaccharide derived from pectin that binds to, and blocks the activity of galectin-3, a type of galectin. Galectins are amember of a family of proteins in the body called lectins. These proteins interact with carbohydrate sugars located in, on the surface of, and in-between cells.This interaction causes the cells to change behavior, including cell movement, multiplication, and other cellular functions. The interactions between lectinsand their target carbohydrate sugars occur via a carbohydrate recognition domain, or CRD, within the lectin. Galectins are a subfamily of lectins that have aCRD that bind specifically to ß-galactoside sugar molecules. Galectins have a broad range of functions, including regulation of cell survival and adhesion,promotion of cell-to-cell interactions, growth of blood vessels, regulation of the immune response and inflammation.Over-expression of galectin-3 has been implicated in a number of human diseases, including chronic organ failure and cancer. This makesmodulation of the activity of galectin-3 an attractive target for therapy in these diseases.Chronic Kidney DiseaseThe initial clinical focus of our development program for GCS-100 is CKD. The United States Renal Data System estimated that, in 2010,approximately 49 million adults in the United States suffered from CKD, 547,982 were being treated for end-stage renal disease (“ESRD”), and 88,630 died asa result of CKD. It was estimated that CKD costs the United States health care system $41 billion per year for Medicare patients alone. There are no FDA-approved therapies for CKD.Several recent studies have shown that increased circulating levels of galectin-3 are associated with poorer outcomes in patients with chronicorgan failure, including kidney disease. Additionally, a number of preclinical studies using multiple animal models have demonstrated a direct, causal role ofgalectin-3 expression and secretion in the scar formation (tissue fibrosis) leading to kidney failure. Specifically, animals that have been geneticallyengineered to lack galectin-3 produce less harmful scar formation after kidney injury or transplantation and have reduced inflammatory cytokine expressionand better kidney function. By blocking the activity of galectin-3 pharmacologically, GCS-100 has the potential to reduce the tissue fibrosis that leads to theworsening of kidney function.Chronic Liver DiseaseGCS-100 also has the potential to treat various forms of chronic liver disease also characterized by tissue fibrosis. In 2006, The National Instituteof Diabetes and Digestive and Kidney Diseases (“NIDDK”) estimated that NASH affects between two and five percent of Americans. In 2004, NIDDKestimated that 5.5 million Americans had chronic liver disease or cirrhosis, and that $1.6 billion was spent annually on the treatment for chronic liver diseaseand cirrhosis. Chronic liver disease and cirrhosis were estimated to be the 12th leading cause of death in the United States, accounting for approximately27,000 deaths annually.In December 2012, the Company announced the results of a preclinical study that examined the effect of GCS-100 on liver fibrosis in mice. Thestudy, which was performed in collaboration with the Stelic Institute, was conducted in an established, benchmark preclinical model for non-alcoholicsteatohepatitis-hepatocellular carcinoma, or NASH-HCC. When compared to placebo-treated control animals, GCS-100-treated animals showed a statisticallysignificant reduction in liver fibrosis and a statistically significant improvement in the score of non-alcoholic fatty liver disease (“NAFLD”). A statisticallysignificant improvement in liver function was also observed, as measured by the liver enzyme alanine transaminase (“ALT”), which in some cases returned tonear normal levels.CancerBy modulating galectin-3’s effects on cell survival, blood vessel growth and the immune response, GCS-100 has the potential to treat variousforms of cancer. The American Cancer Society estimated that, in 2013, approximately 1.7 million new cases of cancer are expected to be diagnosed in theUnited States, and cancer will be the cause of death of approximately 600,000 Americans.A number of preclinical studies have demonstrated the positive effects of GCS-100 as a potential anticancer agent. For example, in November2012, a study published in the journal Blood demonstrated the mechanism by which GCS-100 improves the response to chemotherapy in lymphoma, a typeof blood cancer. In this study conducted by researchers at UCLA entitled, “Galectin-3 binds to CD45 on diffuse large B cell lymphoma cells to regulatesusceptibility to cell death,” it was demonstrated that galectin-3 binds to an enzyme on the surface of lymphoma cells called CD45, and that it is this protein-enzyme combination that regulates the susceptibility of the cells to chemotherapy drugs. The researchers showed that treating the lymphoma cells with GCS-100 can inhibit the protective effect of galectin-3, thus allowing the cancer cells to be killed effectively by chemotherapy agents such as dexamethasone,rituximab and etoposide. 2Table of ContentsIn a Phase 2 clinical study investigating the safety and activity of GCS-100 administered as a single agent in 24 patients with relapsed, chroniclymphocytic leukemia (“CLL”), GCS-100 was shown to be safe and well tolerated. In addition, 25% of these patients experienced a clinical benefit asmeasured by a partial reduction in their tumor burden. The results of this study were presented at the American Society of Clinical Oncology 2009 AnnualMeeting.Current Clinical StudyIn December 2012, we announced that the FDA’s Division of Cardiovascular and Renal Products had accepted our IND, which included aclinical trial protocol designed to study GCS-100 in patients with CKD. In January 2013, we initiated a Phase 1/2 clinical trial with GCS-100 in patients withCKD. The trial is designed in two parts. Part A (Phase 1) will evaluate the safety of single, ascending doses of GCS-100 and determine a maximum tolerateddose. Part B (Phase 2), will evaluate the safety and activity of multiple doses of GCS-100. Part B is designed to measure activity and will include variousmarkers of kidney function. The trial is currently enrolling patients in Part A.LJPC-501LJPC-501 is a peptide agonist of the renin-angiotensin system that acts to help the kidneys balance body fluids and electrolytes. Studies haveshown that LJPC-501 may improve renal function in patients with HRS. HRS is a life-threatening form of progressive renal failure in patients with livercirrhosis or fulminant liver failure. In these patients, the diseased liver secretes vasodilator substances (e.g., nitric oxide and prostaglandins) into thebloodstream that cause under-filling of blood vessels. This low-blood-pressure state causes a reduction in blood flow to the kidneys. As a means to restoresystemic blood pressure, the kidneys induce both sodium and water retention, which contribute to ascites, a major complication associated with HRS.HRS is categorized into two types, based on the rapidity of the progression of renal failure as measured by marker called serum creatinine. Type 1HRS is the more rapidly progressing type and is characterized by a 100% increase in serum creatinine to > 2.5 mg/dL within two weeks. Fewer than 10% ofpeople with Type 1 HRS survive hospitalization, and the median survival is only a few weeks. Type 2 HRS is slower progressing, with serum creatinine risinggradually; however, patients with Type 2 HRS can develop sudden renal failure and progress to Type 1 HRS. Although ascites occurs in both Type 1 andType 2 HRS, recurrent ascites is a major clinical characteristic of Type 2 HRS patients, and median survival is only four to six months. We estimate that HRSaffects an estimated 90,000 people in the United States, and most of these patients will die from this disease.In February 2013, we conducted a meeting with the FDA to discuss the design for a clinical trial studying LJPC-501 in patients suffering fromHRS. Based on feedback from this meeting, we plan to file an IND by the end of the third quarter of 2013 and initiate a Phase 1 clinical trial with LJPC-501 inHRS by the end of 2013.Other Product CandidatesIn addition to GCS-100 and LJPC-501, we have several product candidates in the early development stage. These product candidates includeLJPC-101, a subcutaneous formulation of GCS-100, LJPC-201, an oral galectin-3 inhibitor and LJPC-301, a monoclonal antibody designed to neutralizegalectin-3. We continuously evaluate opportunities to efficiently and effectively advance new product candidates into development for significant unmetmedical needs. 3Table of ContentsFinancial ConditionAt December 31, 2012, we had $3.4 million in cash and equivalents and positive working capital of $3.2 million. We believe that our currentcash resources are sufficient to fund planned operations for at least the next 12 months.Patents and Proprietary TechnologiesAs of March 22, 2013, the Company had: (i) three issued patents, one allowed patent and three pending patent applications in the United States;(ii) two pending patent applications in Canada; and (iii) one pending patent application in Europe. The issued and allowed patents provide, and if issued, thepending patent applications will provide, protection for our lead drug candidate GCS-100, including claims for compositions of modified pectin solutions,methods for manufacturing modified pectins and modified pectin solutions, and compositions and uses of galectin antagonists. The issued and allowedpatents expire between 2025 and 2028, not taking into account any potential patent-term extensions that may be available in the future.In addition to the above, we plan to file additional patent applications that, if issued, would provide further protection for GCS-100 and LJPC-501.CompetitionThe biotechnology and pharmaceutical industries are subject to rapid technological change. Competition from domestic and foreignbiotechnology companies, large pharmaceutical companies and other institutions is intense and expected to increase. A number of companies are pursuingthe development of pharmaceuticals in our targeted areas. These include companies that are conducting preclinical studies and clinical trials in the field ofgalectin mediation, including Galectin Therapeutics Inc. and Galecto Biotech AB.In addition, there are a number of pharmaceutical companies, biotechnology companies and academic institutions engaged in activities relatingto the research and development of potential treatments for chronic organ failure and cancer, as well as galectin regulation as a potential target for therapy.Most of these companies and institutions have substantially greater facilities, resources, research and development capabilities, regulatory complianceexpertise, and manufacturing and marketing capabilities than we do. In addition, other technologies in the future may be the basis of competitive products.There can be no assurance that our competitors will not develop or obtain regulatory approval for products more rapidly than we can, or develop and markettechnologies and products that are more effective than those we are developing or that would render our technology and proposed products obsolete ornoncompetitive.Government RegulationUnited StatesOur research and development activities and the future manufacturing and marketing of any products we develop are subject to significantregulation by numerous government authorities in the United States and other countries. In the United States, the Federal Food, Drug and Cosmetic Act andthe Public Health Service Act govern the testing, manufacture, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion, anddistribution of our drug candidates and any products we may develop. In addition, this regulatory framework is subject to changes that may adversely affectapproval, delay an application or require additional expenditures.The steps required before a pharmaceutical compound may be marketed in the United States include: preclinical laboratory and animal testing;submission of an IND to the FDA, which must become effective before clinical trials may commence; conducting adequate and well-controlled clinical trialsto establish the safety and efficacy of the drug; submission of a New Drug Application (“NDA”) or Biologics License Application (“BLA”) for biologics tothe FDA; satisfactory completion of an FDA preapproval inspection of the manufacturing facilities to assess compliance with current good manufacturingpractices (“cGMP”); and FDA approval of the NDA or BLA prior to any commercial sale or shipment of the drug. In addition to obtaining FDA approval foreach product, each drug-manufacturing establishment used must be registered with the FDA and be operated in conformity with cGMP. Drug productmanufacturing facilities may also be subject to state and local regulatory requirements. 4Table of ContentsPreclinical testing includes laboratory evaluation of product chemistry and animal studies to assess the safety and efficacy of the product and itsformulation. The results of preclinical testing are submitted to the FDA as part of an IND, and, unless the FDA objects, the IND becomes effective 30 daysfollowing its receipt by the FDA.Clinical trials involve administration of the drug to healthy volunteers and to patients diagnosed with the condition for which the drug is beingtested under the supervision of qualified clinical investigators. Clinical trials are conducted in accordance with protocols that detail the objectives of thestudy, the parameters to be used to monitor safety, and the efficacy criteria to be evaluated. Each protocol is submitted to the FDA as part of the IND. Eachclinical trial is conducted under the auspices of an independent Institutional Review Board (“IRB”) in the United States, or Ethics Committee (“EC”) outsidethe United States, for each trial site. The IRB or EC considers, among other matters, ethical factors and the safety of human subjects.Clinical trials are typically conducted in three sequential phases, but the phases may overlap or be repeated. In Phase 1 clinical trials, the drug isinitially introduced into healthy human subjects or patients and is tested for adverse effects, dosage tolerance, metabolism, distribution, excretion andclinical pharmacology. Phase 2 clinical trials involve the testing of a limited patient population in order to characterize the actions of the drug in targetedindications, in order to determine drug tolerance and optimal dosage and to identify possible adverse side effects and safety risks. When a compound appearsto be effective and have an acceptable safety profile in Phase 2 clinical trials, Phase 3 clinical trials are undertaken to further evaluate and confirm clinicalefficacy and safety within an expanded patient population at multiple clinical trial sites. The FDA reviews the clinical plans and monitors the results of thetrials and may discontinue the trials at any time if significant safety issues arise. Similarly, an IRB or EC may suspend or terminate a trial at a study site that isnot being conducted in accordance with the IRB or EC’s requirements or that has been associated with unexpected serious harm to subjects.The results of preclinical testing and clinical trials are submitted to the FDA for marketing approval in the form of an NDA or BLA. Thesubmission of an NDA or BLA also requires the payment of user fees, but a waiver of the fees may be obtained under specified circumstances. The testing andapproval process is likely to require substantial time, effort and resources and there can be no assurance that any approval will be granted on a timely basis, ifat all, or that conditions of any approval, such as warnings, contraindications, or scope of indications will not materially impact the potential marketacceptance and profitability of the drug product. Data obtained from clinical trials are not always conclusive, and the FDA may interpret data differently thanwe interpret the same data. The FDA may refer the application to an advisory committee for review, evaluation and recommendation as to whether theapplication should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it generallyfollows such recommendations. The approval process is affected by a number of factors, including the severity of the disease, the availability of alternativetreatments, and the risks and benefits of the product demonstrated in clinical trials.Additional preclinical testing or clinical trials may be requested during the FDA review period and may delay any marketing approval. AfterFDA approval for the initial indications, further clinical trials may be necessary to gain approval for the use of the product for additional indications. Inaddition, after approval, some types of changes to the approved product, such as manufacturing changes, are subject to further FDA review and approval. TheFDA mandates that adverse effects be reported to the FDA and may also require post-marketing testing to monitor for adverse effects, which can involvesignificant expense. Adverse effects observed during the commercial use of a drug product or which arise in the course of post-marketing studies can result inthe need for labeling revisions, including additional warnings and contraindications, and, if the findings significantly alter the risk/benefit assessment, thepotential withdrawal of the drug from the market.Among the conditions for FDA approval is the requirement that the prospective manufacturer’s quality control and manufacturing proceduresconform to the FDA’s cGMP requirements. Domestic manufacturing facilities are subject to biannual FDA inspections and foreign manufacturing facilities aresubject to periodic inspections by the FDA or foreign regulatory authorities. If the FDA finds that a company is not operating in compliance with cGMPs, thecontinued availability of the product can be interrupted until compliance is achieved and, if the deficiencies are not corrected within a reasonable time frame,the drug could be withdrawn from the market. In addition, the FDA strictly regulates labeling, advertising and promotion of drugs. Failure to conform torequirements relating to licensing, manufacturing, and promoting drug products can result in informal or formal sanctions, including warning letters,injunctions, seizures, civil and criminal penalties, adverse publicity and withdrawal of approval. 5Table of ContentsForeignWe are also subject to numerous and varying foreign regulatory requirements governing the design and conduct of clinical trials and marketingapproval for pharmaceutical products to be marketed outside of the United States. The approval process varies among countries and regions and can involveadditional testing, and the time required to obtain approval may differ from that required to obtain FDA approval.The steps to obtain approval to market a pharmaceutical compound in the European Union include: preclinical laboratory and animal testing;conducting adequate and well controlled clinical trials to establish safety and efficacy; submission of a Marketing Authorization Application (the “MAA”);and the issuance of a product marketing license by the European Commission prior to any commercial sale or shipment of drug. In addition to obtaining aproduct marketing license for each product, each drug manufacturing establishment must be registered with the European Medicines Agency (the “EMA”),must operate in conformity with European good manufacturing practice and must pass inspections by the European health authorities.Upon receiving the MAA, the Committee for Human Medicinal Products (the “CHMP”), a division of the EMA, will review the MAA and mayrespond with a list of questions or objections. Answers to questions posed by the CHMP may require additional tests to be conducted. Responses to the list ofquestions or objections must be provided to and deemed sufficient by the CHMP within a defined timeframe. Ultimately, a representative from each of theEuropean Member States will vote whether to approve the MAA.Foreign regulatory approval processes include all of the risks associated with obtaining FDA approval, and approval by the FDA does not ensureapproval by the health authorities of any other country.EmployeesAs of March 22, 2013, we employed four regular full-time employees, three of whom are engaged in research and clinical development activities,two of whom have an M.D. and/or a Ph.D., and one working in finance, information technology, human resources and administration.We consider our relations with our employees to be good. None of our employees are covered by a collective bargaining agreement.Corporate HistoryWe were incorporated in 1989 in Delaware and reincorporated in California in 2012. We were historically focused on the development andtesting of Riquent, a drug candidate being studied for the treatment of lupus nephritis, an antibody-mediated disease. From August 2004 to February 2009,Riquent was being studied in a double-blinded multicenter Phase 3 clinical trial, which was determined to be futile in February 2009. Accordingly, thedevelopment of Riquent was discontinued in 2009. In May 2010, we entered into a Securities Purchase Agreement with certain institutional and accreditedinvestors, pursuant to which we issued various series of preferred stock, which have been subsequently exchanged for preferred stock designated in a differentseries. A summary of the preferred stock issuances and subsequent exchanges is set forth in Note 4 of the notes to the consolidated financial statementsincluded elsewhere in this annual report. In March 2011, we acquired rights to certain compounds known as Regenerative Immunophilin Ligands. Followingthe acquisition of these compounds, we initiated a confirmatory preclinical animal study, which was completed in May 2011 and showed that thepredetermined study endpoints were not met. Accordingly, we halted the further development of those compounds at that time and sold them back to theparty from whom we had initially purchased them, for a return of the same consideration initially paid.In January 2012, we acquired the worldwide exclusive rights to GCS-100 from privately held Solana Therapeutics, Inc. (“Solana”). Solana iswholly owned by our largest holder of Series C-1 Convertible Preferred Stock, and we paid only nominal consideration for the assets. As a result of ouracquisition of these assets, we are now focused on the development of therapeutic agents that inhibit the activity of galectins as a means of treating humandiseases such as chronic organ failure and cancer. 62Table of ContentsAvailable InformationOur annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed with orfurnished to the Securities and Exchange Commission (the “SEC”) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, areavailable free of charge through our website at www.ljpc.com as soon as reasonably practicable after we electronically file or furnish the reports with or to theSecurities and Exchange Commission.Item 1A. Risk FactorsI. RISK FACTORS RELATING TO THE COMPANY AND THE INDUSTRY IN WHICH WE OPERATE.An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below and the otherinformation before deciding to invest in our common stock. The risks described below are not the only ones facing our company. Additional risks notpresently known to us or that we currently consider immaterial may also adversely affect our business. We have attempted to identify below the major factorsthat could cause differences between actual and planned or expected results, but we cannot assure you that we have identified all of those factors.If any of the following risks actually happen, our business, financial condition and operating results could be materially adversely affected. Inthis case, the trading price of our common stock could decline, and you could lose all or part of your investment.We have only limited assets.As of December 31, 2012, we had no revenue sources, an accumulated deficit of $447.4 million and available cash and cash equivalents of $3.4million. Although we acquired the GCS-100 patent estate in January 2012 for nominal consideration, the values of these assets are highly uncertain. As aresult, we have only limited assets available to operate and develop our business. We are utilizing our existing cash balances to conduct clinical studies ofGCS-100 and to evaluate whether or not GCS-100 should be developed further. If we determine that GCS-100 does not warrant further development, wewould have only limited cash and would likely be forced to liquidate the Company. In that event, the funds resulting from the liquidation of our assets, net ofamounts payable, would likely return only a small amount, if anything, to our stockholders. We believe that our current cash resources are sufficient to fundplanned operations for at least the next 12 months.The technology underlying our compounds is uncertain and unproven.The development efforts for GCS-100 and LJPC-501 are based on unproven technologies and therapeutic approaches that have not been widelytested or used. To date, no products that use the GCS-100 or LJPC-501 technology have been approved or commercialized. Application of our technology totreat chronic organ failure and cancer is in early stages. Preclinical studies and future clinical trials of GCS-100 and LJPC-501 may be viewed as a test of ourentire approach to developing chronic organ failure and cancer therapeutics. If GCS-100 or LJPC-501 do not work as intended, or if the data from our futureclinical trials indicate that GCS-100 or LJPC-501 are not safe and effective, the applicability of our technology for successfully treating chronic organ failureor cancer will be highly uncertain. As a result, there is a significant risk that our therapeutic approaches will not prove to be successful, and there can be noguarantee that our drug technologies will result in any commercially successful products. 7Table of ContentsOur ability to raise additional capital and enter into strategic transactions requires the approval of our preferred stockholders.The terms of our Articles of Incorporation (the “Articles”) impose certain restrictions on the Company and our ability to engage in selectedactions that may be out of the ordinary course of business. For example, the Articles provide that without the approval from holders of at least 80% of thethen-outstanding preferred stock, the Company may not: issue capital stock; enter into a definitive agreement that, if consummated, would effect a change ofcontrol; amend the Articles; or take corporate action that, if consummated, would represent a strategic transaction. Accordingly, even if we identify anopportunity to further develop GCS-100, LJPC-501 or another drug candidate, our ability to enter into an appropriate arrangement to continue our operationsmay be more difficult than in the absence of these restrictions. We may be prohibited from developing a partnership to further develop GCS-100 or LJPC-501,or entering into an agreement to acquire rights to another drug candidate for development, if we do not receive approval from the requisite investors. If wecannot develop a product candidate, our resources will continue to be depleted and our ability to continue operations will be adversely affected.Results from any future clinical trials we may undertake may not be sufficient to obtain regulatory approvals to market our drug candidates in the UnitedStates or other countries on a timely basis, if at all.Drug candidates are subject to extensive government regulations related to development, clinical trials, manufacturing and commercialization.In order to sell any product that is under development, we must first receive regulatory approval. To obtain regulatory approval, we must conduct clinicaltrials and toxicology studies that demonstrate that our drug candidates are safe and effective. The process of obtaining FDA and foreign regulatory approvalsis costly, time consuming, uncertain and subject to unanticipated delays.The FDA and foreign regulatory authorities have substantial discretion in the approval process and may not agree that we have demonstratedthat our drug candidates are safe and effective. If our drug candidates are ultimately not found to be safe and effective, we would be unable to obtainregulatory approval to manufacture, market and sell them. We can provide no assurances that the FDA or foreign regulatory authorities will approve GCS-100or LJPC-501, or, if approved, what the approved indication for GCS-100 or LJPC-501 might be.Future clinical trials that we may undertake may be delayed or halted.Any clinical trials of our drug candidates that we may conduct in the future may be delayed or halted for various reasons, including: • we do not have sufficient financial resources; • supplies of drug product are not sufficient to treat the patients in the studies; • patients do not enroll in the studies at the rate we expect; • the products are not effective; • patients experience negative side effects or other safety concerns are raised during treatment; • the trials are not conducted in accordance with applicable clinical practices; • there is political unrest at foreign clinical sites; or • there are natural disasters at any of our clinical sites.If any future trials are delayed or halted, we may incur significant additional expenses, and our potential approval of our drug candidates may bedelayed, which could have a severe negative effect on our business. 8Table of ContentsIf the third-party manufacturers upon which we rely fail to produce our drug candidates that we require on a timely basis, or to comply with stringentregulations applicable to pharmaceutical drug manufacturers, we may face delays in the trials, regulatory submissions, required approvals orcommercialization of our drug candidates.We do not manufacture our drug candidates nor do we plan to develop any capacity to do so. We plan to contract with third-party manufacturersto manufacture GCS-100 and LJPC-501. The manufacture of pharmaceutical products requires significant expertise and capital investment, including thedevelopment of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties inproduction, which include difficulties with production costs and yields, quality control and assurance and shortages of qualified personnel, as well ascompliance with strictly enforced federal, state and foreign regulations. The third-party manufacturers we may contract with may not perform as agreed ormay terminate their agreements with us.In addition to product approval, any facility in which GCS-100 or LJPC-501 is manufactured or tested for its ability to meet requiredspecifications must be approved by the FDA and/or the EMA before a commercial product can be manufactured. Failure of such a facility to be approvedcould delay the approval of GCS-100 and LJPC-501.Any of these factors could cause us to delay or suspend any future clinical trials, regulatory submissions, required approvals orcommercialization of GCS-100 and LJPC-501, entail higher costs and result in our being unable to effectively commercialize products.Our success in developing and marketing our drug candidates depends significantly on our ability to obtain patent protection. In addition, we will need tosuccessfully preserve our trade secrets and operate without infringing on the rights of others.We depend on patents and other unpatented intellectual property to prevent others from improperly benefiting from products or technologiesthat we may have developed or acquired. Our patents and patent applications cover various technologies and drug candidates, including GCS-100. There canbe no assurance, however, that any additional patents will be issued, that the scope of any patent protection will be sufficient to protect us or our technology,or that any current or future issued patent will be held valid if subsequently challenged. There is a substantial backlog of biotechnology patent applicationsat the United States Patent and Trademark Office that may delay the review and issuance of any patents. The patent position of biotechnology firms like oursis highly uncertain and involves complex legal and factual questions, and no consistent policy has emerged regarding the breadth of claims covered inbiotechnology patents or the protection afforded by these patents. Additionally, a recent U.S. Supreme Court opinion further limits the scope of patentableinventions in the life sciences space and has added increased uncertainty around the validity of certain patents that have been issued or may be the subject ofpending patent applications. We intend to continue to file patent applications as we believe is appropriate to obtain patents covering both our products andprocesses. However, there can be no assurance that patents will be issued from any of these applications, or that the scope of any issued patents will protectour technology.We do not necessarily know if others, including competitors, have patents or patent applications pending that relate to compounds or processesthat overlap or compete with our intellectual property or which may affect our freedom to operate.There can be no assurance that patents will not ultimately be found to impact the advancement of our drug candidates, including GCS-100 andLJPC-501. If the United States Patent and Trademark Office or any foreign counterpart issues or has issued patents containing competitive or conflictingclaims, and if these claims are valid, the protection provided by our existing patents or any future patents that may be issued could be significantly reduced,and our ability to prevent competitors from developing products or technologies identical or similar to ours could be negatively affected. In addition, therecan be no guarantee that we would be able to obtain licenses to these patents on commercially reasonable terms, if at all, or that we would be able to developor obtain alternative technology. Our failure to obtain a license to a technology or process that may be required to develop or commercialize one or more ofour drug candidates may have a material adverse effect on our business. In addition, we may have to incur significant expense and management time indefending or enforcing our patents.We also rely on unpatented intellectual property, such as trade secrets and improvements, know-how, and continuing technological innovation.While we seek to protect these rights, it is possible that: • others, including competitors, will develop inventions relevant to our business; 9Table of Contents • our confidentiality agreements will be breached, and we may not have, or be successful in obtaining, adequate remedies for such a breach; or • our trade secrets will otherwise become known or be independently discovered by competitors.We could incur substantial costs and devote substantial management time in defending suits that others might bring against us for infringementof intellectual property rights or in prosecuting suits that we might bring against others to protect our intellectual property rights.Because a number of companies compete with us, many of which have greater resources than we do, and because we face rapid changes in technology inour industry, we cannot be certain that our products will be accepted in the marketplace or capture market share.Competition from domestic and foreign biotechnology companies, large pharmaceutical companies and other institutions is intense and isexpected to increase. A number of companies and institutions are pursuing the development of pharmaceuticals in our targeted areas. Many of thesecompanies are very large, and have financial, technical, sales and distribution and other resources substantially greater than ours. The greater resources ofthese competitors could enable them to develop competing products more quickly than we are able to, and to market any competing product more quickly oreffectively so as to make it extremely difficult for us to develop a share of the market for our products. These competitors also include companies that areconducting clinical trials and preclinical studies in the field of cancer therapeutics. Our competitors may develop or obtain regulatory approval for productsmore rapidly than we do. Also, the biotechnology and pharmaceutical industries are subject to rapid changes in technology. Our competitors may developand market technologies and products that are more effective or less costly than those we are developing or that would render our technology and proposedproducts obsolete or noncompetitive.II. RISK FACTORS RELATED SPECIFICALLY TO OUR STOCK.We currently have 18.8 million shares of common stock outstanding and currently may be required to issue up to 4.5 billion shares of common stock uponconversion of existing preferred stock and preferred stock warrants. Such an issuance would be significantly dilutive to our existing common stockholders.As of December 31, 2012, there were 5,792 shares of Series C-1 Preferred Stock, 500 shares of Series C-2 Preferred Stock and 4,615 shares ofSeries D-1 Preferred Stock issued and outstanding. In light of the conversion rate of our preferred stock (213,083 shares of common stock are issuable uponthe conversion of one share of Series C-1 Preferred Stock, Series C-2 Preferred Stock and Series D-1 Preferred Stock), the presence of such a large number ofpreferred shares may dilute the ownership of our existing stockholders and provide the preferred investors with a sizeable interest in the Company.Giving effect to the potential exercise of the outstanding preferred warrants, and assuming the conversion of all preferred stock into commonstock at the current conversion rate, we would have approximately 4.5 billion shares of common stock issued and outstanding, although the issuance of thecommon stock upon the conversion of our preferred stock is limited by a 9.999% beneficial ownership cap for each preferred stockholder. Withapproximately 18.8 million shares of common stock issued and outstanding as of the date of this report, the issuance of this number of shares of commonstock underlying the preferred stock would represent approximately 99% dilution to our existing stockholders. It is possible that our current stock price doesnot reflect our fully diluted and as-converted capital structure, which means that the conversion of preferred stock into common stock could significantlyreduce our stock price. 10222222Table of ContentsOur stock has only limited trading volume, which may adversely impact the ability of stockholders to sell shares at a desired price, or to fully liquidatetheir holdings.Our stock currently trades on the OTC Markets Group, Inc.’s OTCQB tier. As a result, the market liquidity of our common stock may be adverselyaffected, as certain investors may not trade in securities that are quoted on the OTCQB, due to considerations including low price, illiquidity, and the absenceof qualitative and quantitative listing standards.In addition, our stockholders’ ability to trade or obtain quotations on our shares may be severely limited because of lower trading volumes andtransaction delays. These factors may contribute to lower prices and larger spreads in the bid and ask price for our common stock. Specifically, you may notbe able to resell your shares at or above the price you paid for such shares or at all.The price of our common stock has been, and will be, volatile and may continue to decline.Our stock has historically experienced significant price and volume volatility and could continue to be volatile. Market prices for securities ofbiotechnology and pharmaceutical companies, including ours, have historically been highly volatile, and the market has from time to time experiencedsignificant price and volume fluctuations that are unrelated to the operating performance of particular companies. The following factors, among others, canhave a significant effect on the market price of our securities: • significant conversions of preferred stock into common stock and sales of those shares of common stock; • results from our preclinical studies and clinical trials; • limited financial resources; • announcements regarding financings, mergers or other strategic transactions; • future sales of significant amounts of our capital 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 price of our common stock. Inaddition, class action litigation is sometimes instituted against companies whose securities have experienced periods of volatility in market price. Any suchlitigation brought against us could result in substantial costs and a diversion of management’s attention and resources, which could hurt our business,operating results and financial condition. 11Table of ContentsOur common stock is considered a “penny stock” and does not qualify for exemption from the “penny stock” restrictions, which may make it more difficultfor you to sell your shares.Our common stock is classified as a “penny stock” by the SEC and is subject to rules adopted by the SEC regulating broker-dealer practices inconnection with transactions in “penny stocks.” The SEC has adopted regulations which define a “penny stock” to be any equity security that has a marketprice of less than $5.00 per share, or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a pennystock, unless exempt, these rules require delivery, prior to any transaction in a penny stock, of a disclosure schedule relating to the penny stock market.Disclosure is also required to be made about current quotations for the securities and about commissions payable to both the broker-dealer and the registeredrepresentative. Finally, broker-dealers must send monthly statements to purchasers of penny stocks disclosing recent price information for the penny stockheld in the account and information on the limited market in penny stocks. As a result of our shares of common stock being subject to the rules on pennystocks, the liquidity of our common stock may be adversely affected.Item 1B. Unresolved Staff Comments.None.Item 2. Properties.On March 15, 2013, we entered into a lease agreement for 1,954 square feet at 4660 La Jolla Village Dr., Suite 1070, San Diego, CA 92122. Thislease commences on April 12, 2013 and will continue until March 31, 2018. Annual rent expense for the facilities is approximately $62,856. Until March 31,2013, we maintained our operations in a temporary space under a short-term arrangement.Item 3. Legal Proceedings.We are not currently a party to any legal proceedings.Item 4. Mine Safety Disclosures.Not applicable. 12Table of ContentsPART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.Information about Our Common StockOur common stock trades on the OTC Markets Group, Inc.’s OTCQB tier, under the symbol “LJPC.” Set forth below are the high and low salesprices for our common stock for each full quarterly period within the two most recent fiscal years, adjusted to reflect the two 1-for-100 reverse splits of ourcommon stock, which were implemented on April 14, 2011 and February 17, 2012. Prices High Low Year Ended December 31, 2012 First Quarter $1.00 $0.03 Second Quarter 0.09 0.038 Third Quarter 0.14 0.05 Fourth Quarter 0.07 0.04 Year Ended December 31, 2011 First Quarter $420 $200 Second Quarter 315 0.55 Third Quarter 2.90 0.20 Fourth Quarter 0.42 0.20 We have never paid dividends on our common stock and we do not anticipate paying dividends in the foreseeable future. The number of sharesof common stock outstanding as of March 22, 2013 was 18,881,242. As of March 22, 2013, there were approximately 171 holders of record of our commonstock.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 the information requiredunder this item. 13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 to the accompanyingconsolidated financial statements and footnotes to help provide an understanding of our financial condition, the changes in our financial condition and ourresults of operations. Our discussion is organized as follows: • Overview and recent developments. This section provides a general description of our business, operating history, recent events and significanttransactions that we believe are important in understanding our financial condition and results of operations. • Critical accounting policies and estimates. This section contains a discussion of the accounting policies that we believe are important to ourfinancial condition and results of operations and that require significant judgment and estimates 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 theaccompanying consolidated financial statements. • Results of operations. This section provides an analysis of our results of operations presented in the accompanying consolidated statements ofcomprehensive loss by comparing the results for the year ended December 31, 2012, to the results for the year ended December 31, 2011. • Liquidity and capital resources. This section provides an analysis of our historical cash flows as well as our future capital requirements.Overview and Recent DevelopmentsWe are a biopharmaceutical company focused on the discovery, development and commercialization of innovative therapeutics for chronicorgan failure and cancer. Our drug development efforts are focused on two product candidates: GCS-100 and LJPC-501. GCS-100 targets the galectin-3protein, which, when overproduced by the human body, has been associated with chronic organ failure and cancer. In January 2013, we initiated a Phase 1/2clinical trial with GCS-100 for the treatment of CKD. LJPC-501 is a peptide agonist of the renin-angiotensin system, which is designed to help restore kidneyfunction in patients with HRS. We plan to file an IND with the FDA for LJPC-501 in the third quarter of 2013 and initiate a Phase 1 clinical trial in HRS bythe end of 2013. We also plan to evaluate other opportunities for potential product candidates for the treatment of unmet medical needs.In January 2012, we acquired rights to GCS-100 from privately held Solana. The GCS-100 compound was acquired pursuant to an asset purchaseagreement for nominal consideration. As a result of this acquisition, we began to incur expenses related to preclinical and clinical development of GCS-100,which such expenses are expected to continue for the foreseeable future.At the same time of the acquisition of GCS-100, we also entered into a Consent and Amendment Agreement (the “Third AmendmentAgreement”) with certain of our Series C-1 Convertible Preferred Stock holders to amend the terms of the Securities Purchase Agreement, dated as of May 24,2010 (the “Securities Purchase Agreement”), and the forms of Cash Warrants and Cashless Warrants (as defined in the Securities Purchase Agreement), as wellas to adopt the Certificate of Designations, Preferences and Rights of Series C-1 Convertible Preferred Stock (the “Series C-1 Stock”), Series C-2Convertible Preferred Stock (the “Series C-2 Stock”), Series D-1 Convertible Preferred Stock (the “Series D-1 Stock”) and Series D-2 Convertible PreferredStock (the “Series D-2 Stock”) (the “Series C/D Certificate”). Under the Third Amendment Agreement, the termination date of the Cash Warrants andCashless Warrants was amended to extend the termination date to the date that is three years following the closing of the acquisition of GCS-100 (i.e.,January 19, 2015).On February 17, 2012, we amended our Certificate of Incorporation to effect a 1-for-100 reverse split of our outstanding common stock. 14122222222Table of ContentsEffective December 31, 2012, we entered into a Consent, Waiver and Amendment Agreement (the “Second Waiver Agreement”) with ourpreferred stockholders. Pursuant to the Second Waiver Agreement, the preferred stockholders waived their redemption rights for the Series C-1 Stock andSeries C-2 Stock, removed the “full-ratchet” anti-dilution from the Series C-1 Stock Series C-2 Stock and Series D-1 Stock and relinquished their right toreceive warrants to purchase Series D-2Stock (the “Series D-2 Warrants”) upon the exercise of the warrants to purchase Series C-2Stock (the “Series C-2Warrants”). Our preferred stockholders also exercised a portion of their Series C-2 Warrants, which resulted in us receiving $500,000 in net proceeds and thepreferred stockholders receiving 500 shares of Series C-2 Stock.Critical Accounting Policies and EstimatesThe discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which havebeen prepared in accordance with the United States generally accepted accounting principles (“GAAP”). The preparation of these consolidated financialstatements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure ofcontingent assets and liabilities. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on other assumptionsthat we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets andliabilities that are not readily apparent 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 the preparation of our consolidatedfinancial statements (see also Note 1 to our consolidated financial statements included in Part IV).Share-based compensationShare-based compensation expense for the years ended December 31, 2012 and 2011 was approximately $8.6 million and $0.3 million,respectively. As of December 31, 2012, there was approximately $27.8 million of total unrecognized compensation cost related to non-vested share-basedpayment awards granted under our equity compensation plans. Share-based compensation expense recognized for fiscal years 2012 and 2011 is based onawards ultimately expected to vest, net of estimated forfeitures, if any. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequentperiods if actual forfeitures differ from those estimates. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. Weexpect to recognize that cost over a weighted-average period of 1.2 years.Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fullytransferable. Because the employee and director stock options granted by us have characteristics that are significantly different from traded options, andbecause changes in the subjective assumptions can materially affect the estimated value, in our opinion, the existing valuation models may not provide anaccurate measure of the fair value of the employee and director stock options granted by us. Although the fair value of the employee and director stockoptions granted by us is determined using an option-pricing model, that value may not be indicative of the fair value observed in a willing-buyer/willing-seller market transaction.Derivative LiabilitiesIn conjunction with the financing we closed in May 2010 (the “May 2010 Financing”), we issued Series C-1 Preferred Stock that containedcertain embedded derivative features, as well as warrants that were accounted for as derivative liabilities (see Note 4 to our consolidated financial statementsincluded in Part IV). These derivative liabilities were determined to be ineligible for equity classification due to provisions of the underlying preferred stock,which were also ineligible for equity classification because redemption was outside our sole control. As of December 31, 2012, the derivative liabilities areno longer present in the Series C Stock and Series D Stock.These derivative liabilities were initially recorded at their estimated fair value on the date of issuance and were subsequently adjusted to reflectthe estimated fair value at each period end, with any decrease or increase in the estimated fair value being recorded as other income or expense, accordingly.The fair value of these liabilities was estimated using option pricing models that are based on the individual characteristics of the common stock andpreferred stock, the derivative liability on the valuation date, probabilities related to our operations and clinical development (based on industry data), aswell as assumptions for volatility, remaining expected life, risk-free interest rate and, in some cases, credit spread. The option pricing models of our derivativeliabilities are estimates and are sensitive to changes to certain inputs used in the options pricing models. To better estimate the fair value of the derivativeliabilities at each reporting period, the binomial option pricing models and their inputs were refined based on information available to the Company. Suchchanges did not have a significant impact on amounts recorded in previous interim reporting periods. 15222222 22 22222Table of ContentsNew Accounting PronouncementsEffective January 1, 2012, we adopted Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”) No. 2011-05,Comprehensive Income (Topic 220): Presentation of Comprehensive Income and ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of theEffective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU No. 2011-5. Inthese updates, an entity has the option to present the total of comprehensive income, the components of net income, and the components of othercomprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, anentity is required to present each component of net income along with total net income, each component of other comprehensive income along with a totalfor other comprehensive income, and a total amount for comprehensive income. ASU No. 2011-05 eliminates the option to present the components of othercomprehensive income as part of the statement of changes in stockholders’ equity. The amendments in ASU No. 2011-05 do not change the items that mustbe reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments in theseupdates are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of ASU Nos. 2011-05 and2011-12 did not have a material impact on our consolidated financial position or results of operations. We have presented comprehensive loss in theCompany’s consolidated statements of comprehensive loss.Effective January 1, 2012, we prospectively adopted FASB’s ASU No. 2011-04, “Fair Value Measurement (Topic 820) — Amendments toAchieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS”. The amendments in ASU 2011-04 result in common fairvalue measurement and disclosure requirements in GAAP and International Financial Reporting Standards (“IFRS”). Consequently, the amendments changethe wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements.This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of ASU No. 2011-04 did not have a material effect on the Company’s consolidated financial position or results of operations.Results of OperationsYears Ended December 31, 2012 and 2011Revenue. There was no revenue for the years ended December 31, 2012 and 2011.Research and Development Expense. During the year ended December 31, 2012, we incurred $1.4 million in research and development expense,which was primarily related to $0.8 million in stock compensation expense and costs associated with the preclinical study of GCS-100, compared to $0.2million in research and development expense during the year ended December 31, 2011, which was primarily related to costs associated with the preclinicalstudy of LJP1485. We expect research and development expenditures to continue to increase going forward as we continue to develop GCS-100 andcommence clinical studies of LJPC-501.General and Administrative Expense. During the year ended December 31, 2012, general and administrative expense increased to $9.4 million,compared with $2.1 million for the year ended December 31, 2011. The increase is primarily due to an $7.6 million increase in stock compensation expense,which was partially offset by lower salaries of $0.2 million.Non-Operating Income and Expense. During the year ended December 31, 2012, non-operating income as a result of adjustments to the fairvalue of derivative liabilities was $3.0 million. This decrease in value was recorded as non-operating income for the year ended December 31, 2012. Allderivative liabilities were removed effective December 31, 2012. The removal of the derivative liabilities was due to the removal of the redemption features,removal of the full-ratchet anti-dilution features of the Series C-1 Stock, Series C-2 Stock and the Series D-1 Stock and the relinquishment of the Series D-2Warrants. 162222Table of ContentsNon-operating expense as a result of adjustments to the estimated fair value of derivative liabilities was $9.5 million for the year endedDecember 31, 2011. The derivative liabilities issued in the May 2010 Financing were remeasured to their estimated fair value as of December 31, 2011,resulting in a net increase in value of $9.5 million for the year ended December 31, 2011. This increase in value was recorded as non-operating expense forthe year ended December 31, 2011. The increase was primarily due to changes in variables and underlying shares for revaluation in our binomial pricingmodels.The non-operating income and expense recorded as a result of adjustments to the estimated fair value of derivative liabilities is non-cash incomeand expense. Accounting rules require that our derivative instruments be adjusted to their fair values at each reporting date. Prior results may not beindicative of future results. As a result of the Second Waiver Agreement, we do not expect to generate non-operating income or expense relating to thesederivative liabilities in the foreseeable future.Other Income/Expense. Other income and other expense, net, decreased to $4,000 for the year ended December 31, 2012, compared to$0.2 million of income for the same period in 2011. The income in 2011 was due to reclassification of $0.2 million received from the preferred stockholdersin April 2011 to miscellaneous income, as a result of the failure of the preclinical study of LJP1485 in May 2011.Preferred Stock Dividend. We paid dividends in-kind of $0.4 million and $0.1 million in November 2012 and 2011, respectively, and $0.4million in May 2012, on the outstanding Series C-1 Stock issued in the May 2010 Financing. As of December 31, 2012 and 2011, we accrued dividendspayable in-kind on the outstanding Series C-1 Stock of $0.1 million.Net Operating Loss and Research Tax Credit Carryforwards. At December 31, 2012, we had federal and California income tax net operating losscarryforwards of approximately $354.0 million and $292.6 million, respectively. In addition, we had federal and California research and development taxcredit carryforwards of $21.2 million and $11.2 million, respectively. These income tax net operating loss carryforwards and research and development taxcredit carryforwards are subject to annual limitations under Section 382/383 of the Internal Revenue Code of 1986, as amended (the “IRC”). In February2009 and May 2010, we experienced changes in ownership at times when our enterprise value was minimal. As a result of these ownership changes and thelow enterprise value, our federal and California net operating loss carryforwards and federal research and development credit carryforwards as ofDecember 31, 2012 will be subject to annual limitations under IRC Section 382/383 and, more likely than not, will expire unused.Liquidity and Capital ResourcesFrom inception through December 31, 2012, we have incurred a cumulative net loss of approximately $447.4 million and have financed ouroperations through public and private offerings of securities, revenues from collaborative agreements, equipment financings and interest income on investedcash balances. From inception through December 31, 2012, we have raised approximately $418.0 million in net proceeds from sales of equity securities.At December 31, 2012, we had $3.4 million in cash, as compared to $5.0 million of cash at December 31, 2011. At December 31, 2012 we hadpositive working capital of $3.2 million, compared to negative working capital of $10.4 million at December 31, 2011. Our working capital has largely beendriven by our derivative liability obligations, which have been eliminated entirely as of December 31, 2012. The decrease in cash resulted from the use of ourfinancial resources to fund our general corporate operations. 1722Table of ContentsIn March 2011, we received funding of approximately $0.2 million from certain of our preferred investors to help defray the costs of aconfirmatory preclinical study of LJP1485. In addition, we preserved cash through a temporary reduction in the salaries of our former officers.In February 2013, we signed a lease agreement for office space. From June 2011 until March 2013, we had a short-term lease for temporary officespace. No notes payable, purchase commitments, capital leases or other material operating leases existed as of December 31, 2012.Effective December 31, 2012, our preferred stockholders exercised a portion of their Series C-2 Warrants, which resulted in the Companyreceiving $500,000 in net proceeds.We believe that our current cash resources are sufficient to fund planned operations for at least the next 12 months.Off-Balance Sheet ArrangementsWe have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our consolidated financialcondition, changes in our consolidated financial condition, expenses, consolidated results of operations, liquidity, capital expenditures or capital resources.Item 7A. Quantitative and Qualitative Disclosures About Market Risk.We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information requiredunder this item.Item 8. Financial Statements and Supplementary Data.The financial statements required by this item are set forth at the end of this Report beginning on page F-2 and are incorporated herein byreference. We are not required to provide the supplementary data required by this item as we are a smaller reporting company as defined by Rule 12b-2 of theExchange Act.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.None.Item 9A. 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 officer, has evaluated the effectiveness of ourdisclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as ofDecember 31, 2012. Based on this evaluation, our principal executive and principal financial officer concluded that our disclosure controls and procedureswere effective as of December 31, 2012.(b) Management Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control overfinancial reporting is defined in Rule 13a-15(f) and Rule 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervisionof, our principal executive and principal financial officer and effected by our board of directors, management and other personnel, to provide reasonableassurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generallyaccepted accounting principles and includes those policies and procedures that: 182Table of Contents • Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; • Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance withgenerally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations ofour management and directors; and • Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets thatcould 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 anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with the policies or procedures may deteriorate.Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. In making this assessment,our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-IntegratedFramework.Based on our assessment, management concluded that, as of December 31, 2012, our internal control over financial reporting was effective basedon those criteria.There was no change in our internal control over financial reporting during the quarter ended December 31, 2012 that has materially affected, oris reasonably likely to materially affect, our internal control over financial reporting.Item 9B. Other Information.On March 28, 2013, we entered into a Consent, Waiver and Amendment Agreement (the “Agreement”) with certain holders of our preferredstock, as set forth in the Agreement (the “Holders”).Pursuant to the Agreement, the Holders irrevocably waived their right to the redemption features of the Series C-1 Convertible Preferred Stockand the Series C-2 Convertible Preferred Stock (the “Series C-2 Stock”) such that Article IV(d)(6) of our Articles of Incorporation (the “Articles”) no longerhas any force or effect. In light of the waiver of the redemption features, the Holders also irrevocably waived the provisions set forth under Article IV(d)(9)(E)of the Articles. The Holders also irrevocably waived the anti-dilution protections set forth in Article IV(d)(9)(F) of the Articles. By virtue of such consent andwaiver, the provisions of Article IV(d)(9)(F) of the Articles no longer have any force or effect.Pursuant to the Agreement, the Holders also agreed to amend the warrants to purchase the Series C-2 Stock (the “Series C-2 Warrants”) torelinquish the warrants to purchase Series D-2 Convertible Preferred Stock that are issuable upon exercise of the Series C-2 Warrants.Finally, the Holders agreed to partially exercise the Series C-2 Warrants, which resulted in $500,000 net proceeds to us.The foregoing description of the Agreement does not purport to be complete and is qualified in its entirety by reference to the Agreement, a copyof which is attached as an exhibit to this report and is incorporated herein by reference. 1922222222Table of ContentsPART IIIItem 10. Directors, Executive Officers, Key Employees and Corporate Governance.Our directors, executive officers and key employees and their ages as of March 22, 2013 are set forth below. Name Age PositionGeorge Tidmarsh, M.D., Ph.D. 53 President, Chief Executive Officer, Secretary and DirectorSaiid Zarrabian 60 DirectorJames Rolke 44 Senior Director of Research and DevelopmentStacey Ruiz, Ph.D. 34 Director of Research and DevelopmentChester Zygmont, III 33 Director of FinanceThe biographies of our directors and executive officers appear below.George F. Tidmarsh, M.D., Ph.D., has been our President, Chief Executive Officer, Secretary and a Director since January 2012. Prior to joiningthe Company, Dr. Tidmarsh was the Chief Executive Officer of Solana Therapeutics, Inc. since August 2011. Dr. Tidmarsh served as Senior Vice President andChief Scientific Officer of Spectrum Pharmaceuticals, Inc. from July 2010 to July 2011. He has been an Associate Professor of Neonatology at StanfordUniversity School of Medicine since October 2010, founded and was the Chief Executive Officer of Metronome Therapeutics, Inc. from March 2006 to July2010 and founded and was the Chief Executive Officer of Horizon Pharma, Inc. from September 2005 to July 2008. Dr. Tidmarsh currently serves on theboard of directors of Citizens Oncology Foundation, a non-profit organization. Dr. Tidmarsh received his M.D. and Ph.D. from Stanford University, where healso completed fellowship training in Pediatric Oncology and remains a Consulting Professor of Pediatrics and Neonatology. The Board has concluded thatDr. Tidmarsh should serve on our Board based on his positions as President and Chief Executive Officer of our company, as well as his substantial experiencein the pharmaceutical industry.Saiid Zarrabian has over 35 years of operational experience in the biotechnology, pharmaceutical, informatics, software &instrumentation/hardware industries. Mr. Zarrabian currently serves as President of the Protein Production Division and Senior Vice President of Intrexon, Inc.Previously, Mr. Zarrabian served as President and Chief Executive Officer of Cyntellect, Inc. Prior to Cyntellect, Mr. Zarrabian served as President and ChiefOperating Officer of Senomyx, Inc., a public biotechnology company focused on the discovery and commercialization of new flavor ingredients, as ChiefOperating Officer of publicly held Pharmacopeia, Inc., a leading provider of combinatorial chemistry discovery services and compounds, and President andChief Operating of Molecular Simulations Inc., a provider of discovery and development software tools for the pharmaceutical and chemical industries.Mr. Zarrabian has performed executive consulting services for a variety of companies including BioBlocks, Inc., eMolecules, Inc., Invitrogen Corporation,and SciTegic, Inc., where he served as executive consultant and acting Chief Operating Officer until the company was acquired by Accelrys, Inc.Mr. Zarrabian currently serves on the board of Exemplar Pharma LLC. The Board has determined that Mr. Zarrabian should serve on our Board in light of hissubstantial experience in the pharmaceutical industry.James Rolke has been our Senior Director of Research and Development since Feburary 2012. Mr. Rolke has twenty years of experience in thebiotechnology industry and particular expertise in the development of polymer- and polysaccharide-based drugs and products. Prior to joining La Jolla,Mr. Rolke held several key positions, including Chief Technology Officer at Pluromed Inc. (acquired by Sanofi), Director of Operations at ProspectTherapeutics, Inc., Associate Director of Pharmaceutical Development at Mersana Therapeutics, Inc., Manager of Process Development at GlycoGenesys, Inc.,Principal Scientist at Surgical Sealants, Inc., Scientist at GelTex, Inc., and Associate Scientist at Alpha-Beta Technology, Inc. Mr. Rolke received hisBachelor’s degree in chemistry from Keene State College. 20Table of ContentsStacey Ruiz, Ph.D. has been our Director of Research and Development since January 2013. Dr. Ruiz comes to the Company after five years atReata Pharmaceuticals, most recently working on bardoxolone methyl for the treatment of chronic kidney disease. Dr. Ruiz brings a breadth of experience inproduct development and translational research, having led pharmacology and toxicology preclinical programs for therapeutics targeting diseases such aschronic kidney disease, cancer, idiopathic pulmonary fibrosis, and multiple sclerosis. Dr. Ruiz has also contributed to both early and late-stage clinicaldevelopment and has leveraged her scientific background to assist both medical affairs and commercial initiatives. Dr. Ruiz completed her post-doctoralfellowship in Medical Oncology at Harvard Medical School/Dana-Farber Cancer Institute. She received her Ph.D. in Cancer Biology from UT/MD AndersonCancer Center and B.S. from the University of Notre Dame.Chester S. Zygmont, III has been our Director of Finance since January 2013. Prior to becoming Director of Finance, Mr. Zygmont was aconsultant for the Company in the same role since June 2012. Mr. Zygmont brings 10 years of experience in finance with a wide range of industryapplications to the Company. Previously, Mr. Zygmont served as Managing Director at Z3 Capital, LLC. Z3 Capital, LLC is a privately held investment firmfocused on investment acquisition and venture funding of startup real estate, medical device and biotechnology companies. Mr. Zygmont also served as vicepresident at Symmetry Advisors, a private equity leveraged buyout firm. While at Symmetry, he managed finance for the public sector fund, was a key teammember on a $600 million buyout of a portfolio company, and subsequently led the restructuring of its manufacturing division. Mr. Zygmont earned his M.S.in Finance from Baruch College Zicklin School of Business and his B.A. from Eastern University.Director IndependenceOur Board has previously determined that Mr. Zarrabian is “independent” within the meaning of Nasdaq Marketplace Rules 5605(b) and 5605(a)(2) as adopted by the Nasdaq Stock Market, Inc. Dr. Tidmarsh was not deemed to be “independent” because he is our President and Chief Executive Officer.Board LeadershipBecause our Board is currently comprised of only two directors, we do not currently have a Chairman of the Board. Mr. Zarrabian, however, is anindependent director, and his involvement as a director assists in allowing Dr. Tidmarsh to focus on our day-to-day business, as Mr. Zarrabian is able toprovide advice to, and independent oversight of, management. Our Board believes its administration of its risk oversight function has not affected itsleadership structure. Our Board believes that having two directors, including an independent outside director who serves alongside Dr. Tidmarsh, is theappropriate leadership structure for us at this time, given the Company’s stage of development and focus on development of its product candidates. As theCompany furthers the development of its clinical assets, it expects that it will increase the size of the Board as needed.Board of Directors’ Role in Risk ManagementThe Board has overall responsibility for the oversight of the Company’s risk management process, which is designed to support the achievementof organizational objectives, including strategic objectives, to improve long-term organizational performance and enhance stockholder value. Riskmanagement includes not only understanding company specific risks and the steps management implements to manage those risks, but also what level of riskis acceptable and appropriate for the Company. Management is responsible for establishing our business strategy, identifying and assessing the related risksand implementing appropriate risk management practices. The Board periodically reviews our business strategy and management’s assessment of the relatedrisk, and discusses with management the appropriate level of risk for the Company.Committees of the Board of DirectorsDue to the number of directors currently authorized to serve on our Board, and the inapplicability of the Nasdaq listing standards due to ourquotation on the OTC Market, the Board has determined that, at this time, there is not a need for a standing audit committee, compensation committee orcorporate governance and nominating committee. Our Board currently assumes the responsibilities of the respective committee roles.In assuming the responsibilities of the audit committee, the Board oversees our accounting and financial reporting processes and the audits ofour financial statements. In addition, the Board: oversees our compliance with legal and regulatory requirements; monitors the integrity of our financialprocess and systems of internal controls regarding finance, accounting and legal compliance; selects our independent auditor; and monitors theindependence and performance of our independent auditor. 21Table of ContentsIn assuming the responsibilities of the compensation committee, the Board: reviews and administers all compensation arrangements forexecutive officers; establishes and reviews general policies relating to the compensation and benefits of our officers and employees; administers ourincentive compensation plans, including our equity-based incentive plans; and reviews our compensation disclosures.In assuming the responsibilities of the corporate governance and nominating committee, the Board: identifies qualified individuals to becomeBoard members; determines the composition of the Board; monitors and assesses the effectiveness of the Board (including monitoring the independence ofcurrent directors and nominees); and reviews director candidates recommended by our stockholders.Corporate Governance GuidelinesWe have adopted a set of Corporate Governance Guidelines that describe a number of our corporate governance practices. The CorporateGovernance Guidelines are available for viewing on our website at www.ljpc.com, then “Investor Relations.”Code of ConductWe have adopted a code of conduct that describes the ethical and legal responsibilities of all of our employees and, to the extent applicable,members of our Board. This code includes (but is not limited to) the requirements of the Sarbanes-Oxley Act of 2002 pertaining to codes of ethics for chiefexecutives and senior financial and accounting officers. Our Board has reviewed and approved this code. Our employees agree in writing to comply with thecode at commencement of employment and periodically thereafter. Our employees are encouraged to report suspected violations of the code. Our code ofconduct is available for viewing on our website at www.ljpc.com, then “Investor Relations.” If we make substantive amendments to the code or grant anywaiver, including any implicit waiver, to our principal executive, financial or accounting officer, or persons performing similar functions, we will disclose thenature of such amendment or waiver on our website and/or in a report on Form 8-K in accordance with applicable rules and regulations.Communications with the Board of DirectorsOur stockholders may communicate with our Board or a particular director by sending a letter addressed to the Board or a particular director to:c/o Corporate Secretary, La Jolla Pharmaceutical Company, 4660 La Jolla Village Drive, Suite 1070, San Diego, California 92122. All communications willbe compiled by our Corporate Secretary and forwarded to the Board or the director accordingly.Director NominationsOur Board, in performing the functions of the corporate governance and nominating committee, regularly assesses the appropriate size of theBoard and whether any vacancies on the Board are expected due to retirement or otherwise. In the event that vacancies are anticipated or otherwise arise, theBoard utilizes a variety of methods for identifying and evaluating director candidates. Candidates may come to the attention of the Board through currentdirectors, professional search firms, stockholders or other persons. Once the Board has identified a prospective nominee, the Board will evaluate theprospective nominee in the context of the then current constitution of the Board and will consider a variety of other factors, including the prospectivenominee’s business, technology, finance and financial reporting experience, and attributes that would be expected to contribute to an effective Board. TheBoard seeks to identify nominees who possess a wide range of experience, skills, and areas of expertise, knowledge and business judgment. Our Board thusconsiders a broad range of factors relating to the qualifications and background of nominees, which may include diversity, which is not only limited to race,gender or national origin, but also includes diversity of experience and skills. We have no formal policy regarding board diversity. Our Board’s priority inselecting board members is identification of persons who will further the interests of our stockholders through his or her established record of professionalaccomplishment, the ability to contribute positively to the collaborative culture among board members, and professional and personal experiences andexpertise relevant to our growth strategy. Successful nominees must have a history of superior performance or accomplishments in their professionalundertakings and should have the highest personal and professional ethics and values. The Board does not evaluate stockholder nominees differently thanany other nominee. 22Table of ContentsPursuant to procedures set forth in our Bylaws, our Board will consider stockholder nominations for directors if we receive timely written notice,in proper form, of the intent to make a nomination at a meeting of stockholders. To be timely, the notice must be received within the time frame discussed inour Bylaws. To be in proper form, the notice must, among other matters, include each nominee’s written consent to serve as a director if elected, a descriptionof all arrangements or understandings between the nominating stockholder and each nominee and information about the nominating stockholder and eachnominee. A copy of our Bylaws will be provided upon written request to our Corporate Secretary.Director Attendance at Annual MeetingsOur Board has adopted a policy that encourages our directors to attend our annual stockholder meeting. We held our annual stockholder meetingfor the calendar year ended December 31, 2012 on May 22, 2012.Report of the Audit CommitteeThe Board currently acts as our standing audit committee and oversees our financial reporting process. Management has the primaryresponsibility for the financial statements and the reporting process, including our system of internal control over financial reporting. In fulfilling itsoversight responsibilities, the Board reviewed and discussed the audited financial statements in our Annual Report on Form 10-K for the year endedDecember 31, 2012 with management, including a discussion of the quality, not merely the acceptability, of the accounting principles, the reasonableness ofsignificant judgments and the clarity of disclosures in the financial statements.The Board reviewed with the independent auditor, which is responsible for expressing an opinion on the conformity of those audited financialstatements with accounting principles generally accepted in the United States, its judgments as to the quality, not merely the acceptability, of our accountingprinciples and such other matters as are required to be discussed under auditing standards generally accepted in the United States. In addition, the Board hasdiscussed with the independent auditor the auditor’s independence, including Statement on Auditing Standards No. 61, as amended (Communication withAudit Committees), from us and our management, including the matters in the written disclosures received by us required by the Independence StandardsBoard Standard No. 1 (Independence Discussions with Audit Committees). The Board has also considered the compatibility of the independent auditor’sprovision of non-audit services to us with the auditor’s independence.The Board discussed with our independent auditor the overall scope and plan for its audit. The Board met with the independent auditor, with andwithout management present, to discuss the results of its examinations, its evaluations of our internal controls and the overall quality of our financialreporting.Based upon the reviews and discussions referred to above, the Board recommended that our audited financial statements be included in ourAnnual Report on Form 10-K for the year ended December 31, 2012 for filing with the SEC. This report is provided by the following directors, who compriseall of our directors and who perform the functions of the audit committee:George F. TidmarshSaiid ZarrabianSection 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 our equity securities are requiredto report their initial ownership of our equity securities and any subsequent changes in that ownership to the Securities and Exchange Commission. Specificdue dates for these reports have been established, and we are required to disclose any late filings during the fiscal year ended December 31, 2012. To ourknowledge, based solely upon our review of the copies of such reports required to be furnished to us during the fiscal year ended December 31, 2012, all ofthese reports were timely filed except for a Form 3 filed by Dr. Tidmarsh on January 31, 2012. 23Table of ContentsItem 11. Executive Compensation.Equity Compensation. Under each of the 2004 Equity Incentive Plan (the “2004 Plan”) and the 2010 Equity Incentive Plan (the “2010 Plan”),the Board may grant stock options, restricted stock, stock appreciation rights and performance awards. In granting these awards, the Board may establish anyconditions or restrictions it deems appropriate. The grant of options is unrelated to any anticipated major announcements made by the Company and is thusnot influenced by any material, non-public information that may exist at the time of grant. Additionally, the Board may periodically authorize the issuance ofequity awards outside of existing stockholder-approved equity plans, as described below under the caption “Employment Agreements.”In April 2012, Dr. Tidmarsh was granted a stock option for 506,300,087 shares of our common stock at an exercise price of $0.06 per share,which was the closing price of our common stock on April 10, 2012. The option vests with respect to 25% of the underlying shares on the first anniversary ofDr. Tidmarsh’s employment start date, with the remainder vesting monthly, in equal installments, over the three years thereafter. In addition, he was granted arestricted stock award of 1,180,442 shares. The option and the restricted stock awards were granted outside of the Company’s existing stockholder-approvedequity compensation plans, but are subject in all material respects to the terms and conditions of the 2010 Plan, as if granted under that plan.Benefits.We have not historically provided special benefits or perquisites to our executives and did not do so in 2012.Employment Agreements.George F. Tidmarsh, M.D., Ph.D. On January 19, 2012, we entered into an employment agreement (the “Employment Agreement”) withDr. Tidmarsh. Dr. Tidmarsh’s annual base salary was $240,000 for the first year of his employment and increased to $420,000 on the one-year anniversary ofhis employment start date. On April 10, 2012, Dr. Tidmarsh received an option to purchase up to 506,300,087 shares of common stock (the “First Option”)and was granted 1,180,442 shares of restricted stock, which awards taken together, equaled 7.5% of the number of shares of common stock then issued andoutstanding, determined on a fully diluted and as-converted basis. The First Option and the restricted stock awards were granted outside of the Company’sexisting stockholder-approved equity compensation plans, but are subject in all material respects to the terms and conditions of the 2010 Plan, as if grantedunder that plan. Subject to applicable terms and conditions, the First Option vests with respect to 25% of the underlying shares on the first anniversary ofDr. Tidmarsh’s employment start date, with the remainder vesting monthly, in equal installments, over the three years thereafter. The First Option isexercisable at an exercise price of $0.06 per share, which is equal to the fair market value of a share of common stock on the date of the grant of the FirstOption. Dr. Tidmarsh will also be eligible to receive an additional option to purchase a number of shares of common stock, if any, equal to the differencebetween 7.5% of our fully diluted, as-converted shares on the second anniversary of Dr. Tidmarsh’s employment start date, less the number of shares subjectto the First Option (the “Second Option”). The Second Option will be subject to the same terms and conditions as the First Option, provided that 50% of theunderlying shares of the Second Option will be fully vested on the date of the grant, with the remainder vesting monthly, in equal monthly installments, overthe two years thereafter. The Second Option will be exercisable at a price equal to the fair market value of a share of common stock on the date of the grant ofthe Second Option.Separation Agreements.On January 19, 2012, Deirdre Y. Gillespie, M.D. resigned as our President and Chief Executive Officer, and Gail A. Sloan, C.P.A., resigned as ourChief Financial Officer. We entered into a separation agreement (collectively, the “Separation Agreements”) with each of Dr. Gillespie and Ms. Sloan,pursuant to which we agreed to make separation payments to Dr. Gillespie of $77,778 and to Ms. Sloan of $62,222. Under the Separation Agreements,Dr. Gillespie and Ms. Sloan agreed to waive their respective rights to all stock options awarded under their respective employment agreements that were inplace at the time of resignation and agreed to relinquish all vested and unvested stock options. The Separation Agreements superseded the severanceprovisions in paragraphs 3.6(a), (b) and (c) in the employment agreements of Dr. Gillespie and Ms. Sloan. 24Table of ContentsSummary Compensation Table Name and Principal Position Year Salary OptionAwards(1) OtherComp Total Current Officer* George F. Tidmarsh, M.D., Ph.D. 2012 $226,462 $30,347,572 — $30,574,034 President, Chief Executive Officer and Secretary 2011 $— $— $— Former Officer** Deirdre Y. Gillespie, M.D. 2012 $15,600 $— 77,778 $93,378 President, Chief Executive Officer and Assistant Secretary 2011 $356,300 $— $356,300 *Dr. Tidmarsh was appointed President and Chief Executive Officer of the Company on January 19, 2012 and thus did not receive compensation for thefiscal year ended December 31, 2011.**This former officer resigned, effective January 19, 2012, in connection with the closing of the Company’s acquisition of assets from SolanaTherapeutics, Inc.(1)This column reflects the aggregate grant date fair value of equity awards granted in 2012 or 2011 and calculated in accordance with FASB ASC 718,excluding the effect of estimated forfeitures. Assumptions used in the calculations for these amounts are set forth in the notes to our financialstatements included in this report and our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.Outstanding Equity Awards at 2012 Fiscal Year EndWe effected two 1-for-100 reverse stock splits on April 14, 2011 and February 17, 2012. The information set forth in the table below is listed on a post-splitbasis. 25Table of ContentsName Number ofSecuritiesUnderlyingUnexercisedOptions(#)Exercisable Number ofSecuritiesUnderlyingUnexercisedOptions(#)Unexercisable OptionExercisePrice($) OptionExpirationDate (1) Number ofUnearnedShares,Units or OtherRights that havenot Vested(#) Market orPayout Value ofUnearnedShares, Unitsor OtherRightsthat have notVested($) Current Officer George F. Tidmarsh, M.D., Ph.D. — 506,300,087 (2) 0.06 4/10/2022 — — — — — — 1,180,442 70,827 Former Officer* Deirdre Y. Gillespie, M.D. — — — — — — *This former officer resigned effective January 19, 2012 and relinquished all vested and unvested options upon such resignation.(1)All stock options expire ten years from the date of grant.(2)The stock option vested and became exercisable with respect to 25% of the underlying shares on the one-year anniversary of his employment date andthen vests and becomes exercisable ratably on a monthly basis over the three years thereafter.Option Exercises and Stock Vested in Fiscal Year 2012No named executive officers exercised any options or had any options or restricted stock vest in fiscal year 2012.Director Compensation Table — 2012 Name Fees Earned orPaid in Cash StockAwards OptionsAwarded(1) Total Saiid Zarrabian $35,000 $ 692,480 $ 1,130,668 $1,858,148 Robert A. Fildes* $2,292 $— $— $2,292 Bertrand C. Liang, M.D., Ph.D.* $1,250 $— $— $1,250 *Mr. Fildes resigned as director effective January 19, 2012, and Dr. Liang resigned as director effective January 17, 2012.(1)This column reflects the aggregate grant date fair value of equity awards granted in 2012 and calculated in accordance with FASB ASC 718, excludingthe effect of estimated forfeitures. Assumptions used in the calculations for these amounts are set forth in the notes to our financial statements includedin this report.Director CompensationRetainers and Fees. Directors who are also our employees receive no extra compensation for their service on the Board. In 2012, our non-employee director received an annual fee of $35,000, which is paid quarterly.Option Grants under the 2010 Plan. Each of our non-employee directors is eligible to automatically receive, upon becoming a non-employeedirector, a one-time grant of a non-qualified stock option under the 2010 Plan in an amount to be determined by the Board at an exercise price equal to thefair market value of a share of the common stock on the date of grant. These non-employee director options have a term of 10 years and vest with respect to25% of the underlying shares on the grant date and with respect to an additional 25% of the underlying shares on the date of each of the first threeanniversaries of such grant, but only if the director remains a non-employee director for the entire period from the date of grant to such date. No such awardswere made in fiscal 2012. Upon re-election to our Board or upon continuing as a director after an annual meeting without being re-elected due to theclassification of the Board, each non-employee director automatically receives a grant of an additional non-qualified stock option in an amount to bedetermined by the Board. These additional non-employee director options have a term of 10 years and vest and become exercisable upon the earlier to occurof the first anniversary of the grant date or immediately prior to the annual meeting of stockholders next following the grant date; provided that the directorremains a director for the entire period from the grant date to such earlier date. The exercise price for these additional non-employee director options is thefair market value of our common stock on the date of their grant. All outstanding non-employee director options vest in full immediately prior to any changein control. No annual grants were made in 2012. Each non-employee director is also eligible to receive additional options under the 2010 Plan in thediscretion of the Board. These options vest and become exercisable pursuant to the 2010 Plan and the terms of the option grant. 26Table of ContentsIn connection with his appointment to the Board in January 2012, the Company issued Mr. Zarrabian: (i) a non-qualified option to purchase upto 18,907,498 shares of common stock, which option is exercisable at an exercise price of $0.06 per share and vested with respect to one-quarter of theunderlying shares on each of April 20, 2012, July 20, 2012, October 20, 2012 and January 20, 2013; and (ii) full-value stock awards, comprised of 1,180,442shares of restricted stock and 10,360,892 restricted stock units, representing the right to receive a total of up to 11,541,334 shares of common stock. Therestricted stock units vested with respect to one-quarter of the underlying shares on each of April 20, 2012, July 20, 2012, October 20, 2012 and January 20,2013.Related Party TransactionsNo director or executive officer, nor any beneficial holder of more than five percent of our outstanding capital stock, nor any immediate familymember of the foregoing, had any material interest, direct or indirect, in any reportable transaction with us during the 2012 fiscal year, or any reportablebusiness relationship with us during such time.Item 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, 2012 with respect to shares of our common stock that may be issued under our equitycompensation plans. We effected a 1-for-100 reverse stock split on each of April 14, 2011 and February 17, 2012. The information set forth in the table belowis listed on a post-split basis. Plan Category Number of Securitiesto Be Issued uponExercise ofOutstanding Options,Warrants and Rights Weighted-AverageExercise Price ofOutstandingOptions, Warrantsand Rights Number of SecuritiesRemaining Availablefor Future IssuanceUnder EquityCompensation Plans(Excluding SecuritiesReflected in Column(a)) Equity compensation plans approved by securityholders 96(1) $34, 288.37 1,357,259 (2) Equity compensation plans not approved bysecurity holders 592,230,471 $0.06 — (1)Outstanding options to purchase shares of our common stock under the La Jolla Pharmaceutical Company 1994 Stock Incentive Plan, the 2004 Planand the 2010 Plan.(2)Includes 537 shares subject to the 2004 Plan and 1,356,722 shares subject to the 2010 Plan (each stated as of December 31, 2012)(3)Outstanding options to purchase shares of our common stock granted to our Chief Executive Officer, a board member and an employee outside of ourstockholder-approved equity compensation plans. These stock option grants did not require stockholder approval and are treated in all respects as ifgranted under the 2010 Plan. 27Table of ContentsSecurity Ownership of Certain Beneficial Owners and ManagementThe following table sets forth information regarding beneficial ownership of our common stock as of March 22, 2013, based on informationavailable 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 common stock.Beneficial ownership and percentage ownership are determined in accordance with the rules of the SEC and include voting or investment powerwith respect to shares of stock. This information does not necessarily indicate beneficial ownership for any other purpose. Under these rules, shares ofcommon stock issuable under stock options that are exercisable within 60 days of March 22, 2013 are deemed outstanding for the purpose of computing thepercentage ownership of the person holding the options, but are not deemed outstanding for the purpose of computing the percentage ownership of any otherperson.Unless otherwise indicated and subject to applicable community property laws, to our knowledge, each stockholder named in the followingtable possesses sole voting and investment power over his, her or its shares of common stock, except for those jointly owned with that person’s spouse.Percentage of beneficial ownership of common stock is based on 18,881,242 shares of common stock outstanding as of March 22, 2013. Unless otherwisenoted below, the address of each person listed on the table is c/o La Jolla Pharmaceutical Company, 4660 La Jolla Village Drive, Suite 1070, San Diego,California 92122. We effected a 1-for-100 reverse stock split on each of April 14, 2011 and February 17, 2012. The information set forth in the table below islisted on a post-split basis. Name and Address Shares ofCommonStockOwned Shares withRight toAcquire within60 days TotalBeneficialOwnership Percentageof CommonStock RTW Investments, LLC (1) — 2,097,682 2,097,682 9.999% Tang Capital Partners, LP (2) — 2,097,682 2,097,682 9.999% Boxer Capital, LLC (3) 119,724 1,964,657 2,084,381 9.999% Deirdre Y. Gillespie, M.D. (4) — — — — George F. Tidmarsh, M.D., Ph.D. 1,180,442 168,766,696 169,947,138 90.567% Saiid Zarrabian 1,180,442 18,907,498 20,087,940 53.159% All current executive officers and directors as a group (2 persons) (5) 2,360,884 187,674,194 190,035,078 92.002% *Less than one percent.(1)Based upon a Schedule 13G/A filed with the SEC on February 14, 2013, with an update for outstanding shares as of March 22, 2013. The Schedule13G/A was jointly filed by RTW Investments, LLC, RTW Master Fund, Ltd. and Roderick Wong. The address of RTW Investments, LLC is 1350Avenue of the Americas, 28th Floor, New York, New York 10019. Roderick Wong is the Managing Member of RTW Investments, LLC. (2)Based upon a Schedule 13G/A filed with the SEC on February 14, 2013, with an update for outstanding shares as of March 22, 2013. The Schedule13G/A was jointly filed by Tang Capital Partners, LP, Tang Capital Management, LLC and Kevin C. Tang. Tang Capital Partners, LP shares voting anddispositive power over such shares with Tang Capital Management, LLC and Kevin C. Tang. Mr. Tang disclaims beneficial ownership of all sharesreported herein except to the extent of his pecuniary interest therein. The address of Tang Capital Partners, LP is 4747 Executive Drive, Suite 510, SanDiego, California 92121. 28Table of Contents(3)Based upon a Schedule 13G/A filed with the SEC on February 13, 2013, with and update for outstanding shares as of March 22, 2013. TheSchedule 13G/A was jointly filed by Boxer Capital, LLC (“Boxer Capital”), Boxer Asset Management Inc. (“Boxer Management”), Joseph Lewis, andMVA Investors, LLC (“MVA”) (together with Boxer Capital and Boxer Management, and Joseph Lewis, the “Reporting Persons”), using 13,567,383shares of common stock (pre-reverse stock split) outstanding as of November 2, 2012 to calculate beneficial ownership. Boxer Management is themanaging member and majority owner of Boxer Capital. Joseph Lewis is the sole indirect owner and controls Boxer Management. MVA is theindependent, personal investment vehicle of certain employees of Boxer Capital and Tavistock Life Sciences Company, which is a Delawarecorporation and an affiliate of Boxer Capital. As such, MVA is not controlled by Boxer Capital, Boxer Management and Joseph Lewis. The principalbusiness address of both Boxer Capital and MVA is: 440 Stevens Avenue, Suite 100, Solana Beach, CA 92075. The principal business address of bothBoxer Management and Joseph Lewis is: c/o Cay House P.O. Box N-7776 E.P. Taylor Drive Lyford Cay, New Providence, Bahamas.(4)Former executive officer who resigned effective January 19, 2012.(5)The current executive officers and directors are comprised of Dr. Tidmarsh and Mr. Zarrabian.Item 13. Certain Relationships and Related Transactions, and Director Independence.There are no related transactions to report for the fiscal year ended December 31, 2012.Item 14. Principal Accountant Fees and Services.The following table presents the aggregate fees agreed to by the Company for the annual and statutory audit for the fiscal year endedDecember 31, 2011, and all other fees paid by us for services rendered by BDO USA, LLP during 2012 and 2011, as well as the aggregate fees agreed to bythe Company for the annual and statutory audit for the fiscal year ended December 31, 2012 for services rendered by Squar, Milner, Peterson, Miranda &Williamson, LLP: 2012 2011 Audit Fees — BDO USA LLP $34,000 $90,781 Audit Fees — Squar, Milner, Peterson, Miranda & Williamson, LLP 41,000 — Audit Related Fees — E&Y LLP — 10,000 Audit Related Fees — BDO USA LLP 11,000 3,000 Tax Fees — BDO USA LLP — 8,259 Tax Fees — Squar, Milner, Peterson, Miranda & Williamson, LLP 5,000 — All Other Fees — — Total $91,000 $112,040 BDO USA, LLP was our independent registered public accounting firm through January 8, 2013, at which time Squar, Milner, Peterson,Miranda & Williamson, LLP was appointed as our new independent registered public accounting firm.Audit Fees. The fees identified under this caption were for professional services rendered by BDO USA, LLP or Squar, Milner, Peterson,Miranda & Williamson, LLP for the audit of our annual financial statements. The fees identified under this caption also include fees for professional servicesrendered by BDO USA, LLP for the review of the financial statements included in our quarterly reports on Forms 10-Q. In addition, the amounts include feesfor services that are normally provided by the auditor in connection with regulatory filings and engagements for the years identified. Audit fees in 2012include an aggregate of $5,000 in fees paid in connection with our filing of a registration statement on Form S-8.Audit Related Fees. Audit related fees in 2012 consist of an aggregate of $11,000 in fees paid to BDO in connection with their consent and thetransition of the audit engagement to Squar, Milner. Audit related fees in 2011 consist of an aggregate of $10,000 in fees paid to E&Y in connection withtheir consent and the transition of the audit engagement to BDO. Additionally, $3,000 in audit related fees were paid to BDO in connection with their reviewof certain derivative valuation reports in 2011. 29Table of ContentsTax 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 collaborative agreements. There were no suchfees in 2012 or 2011.Pre-approval Policy. Our audit committee approves in advance all services provided by our independent registered public accounting firms. Allengagements of our independent registered public accounting firm for 2012 and 2011 were pre-approved by the audit committee. 30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 under Item 8 — FinancialStatements and Supplementary Data: Report of Independent Registered Public Accounting Firm – Squar, Milner, Peterson, Miranda & Williamson LLP F-1 Report of Independent Registered Public Accounting Firm – BDO USA, LLP F-2 Consolidated Balance Sheets at December 31, 2012 and 2011 F-3 Consolidated Statements of Comprehensive Loss for the years ended December 31, 2012 and 2011 F-4 Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the years ended December 31, 2012 and 2011 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2012 and 2011 F-6 Notes to Consolidated Financial Statements F-7 2.Financial Statement Schedules.These schedules are omitted because they are not required, or are not applicable, or the required information is shown in the consolidated financialstatements or notes thereto. 3.Exhibits.The exhibit index attached to this report is incorporated by reference herein. 31Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized. LA JOLLA PHARMACEUTICAL COMPANY By: /s/ George TidmarshApril 1, 2013 George Tidmarsh, M.D., Ph.D. President, Chief Executive Officer and SecretaryPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated. Signature Title Date/s/ George Tidmarsh Director, President, Chief Executive Officer and George Tidmarsh, M.D., Ph.D. Secretary (Principal Executive, Financial andAccounting Officer) April 1, 2013/s/ Saiid Zarrabian Director April 1, 2013Saiid Zarrabian 32Table of ContentsReport of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders ofLa Jolla Pharmaceutical CompanyWe have audited the accompanying consolidated balance sheet La Jolla Pharmaceutical Company as of December 31, 2012 and the related consolidatedstatements of comprehensive loss, redeemable convertible preferred stock and stockholders’ equity (deficit) and cash flows for the year then ended. Theseconsolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidatedfinancial statements based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is notrequired to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal controlover financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinionon the effectiveness of the Company’s internal control over financial reporting. Accordingly, we do not express an opinion thereon. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonablebasis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of La Jolla PharmaceuticalCompany as of December 31, 2012 and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally acceptedaccounting principles.SQUAR, MILNER, PETERSON, MIRANDA & WILLIAMSON, LLP/s/ Squar, Milner, Peterson, Miranda & Williamson, LLPSan Diego, CaliforniaApril 1, 2013 F-1Table of ContentsReport of Independent Registered Public Accounting FirmBoard of Directors and StockholdersLa Jolla Pharmaceutical CompanySan Diego, CaliforniaWe have audited the accompanying consolidated balance sheet of La Jolla Pharmaceutical Company as of December 31, 2011 and the related consolidatedstatements of operations, redeemable convertible preferred stock and stockholders’ equity (deficit), and cash flows for the year then ended. These financialstatements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is notrequired to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal controlover financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinionon the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining,on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis forour opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of La Jolla PharmaceuticalCompany at December 31, 2011, and the results of its operations and its cash flows for the year then ended in conformity with accounting principlesgenerally accepted in the United States of America.The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to thefinancial statements, the Company has suffered recurring losses from operations, has an accumulated deficit of $439.6 million and a stockholders’ deficit of$15.6 million as of December 31, 2011 and has no current source of revenues. These factors, among others discussed in the Notes to the 2011 financialstatements, raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in theNotes to the 2011 financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty./s/ BDO USA, LLPSan Diego, CaliforniaMarch 30, 2012 F-2Table of ContentsLa Jolla Pharmaceutical CompanyConsolidated Balance Sheets(In thousands, except share and par value amounts) December 31, 2012 2011 Assets Current assets: Cash and cash equivalents $3,405 $5,040 Prepaids and other current assets 25 60 Total current assets 3,430 5,100 $3,430 $5,100 Liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit) Current liabilities: Accounts payable $92 $8 Accrued expenses 107 240 Accrued payroll and related expenses 17 7 Derivative liabilities — 15,270 Total current liabilities 216 15,525 Series C-1 redeemable convertible preferred stock, $0.0001 par value; 11,000 shares authorized, 5,043 shares issued andoutstanding at December 31, 2011, (redemption value and liquidation preference in the aggregate of $5,116 atDecember 31, 2011) (See Notes 1 and 4) — 5,133 Commitments Stockholders’ equity (deficit): Common stock, $0.0001 par value; 12,000,000,000 shares authorized, 14,267,383 and 874,746 shares issued andoutstanding at December 31, 2012 and 2011, respectively 1 — Series C-1 convertible preferred stock, $0.0001 par value; 11,000 shares authorized, 5,792 shares issued andoutstanding at December 31, 2012 5,792 — Series C-2 convertible preferred stock, $0.0001 par value; 22,000 shares authorized, 500 and no shares issued andoutstanding at December 31, 2012 and 2011, respectively 500 — Series D-1 convertible preferred stock, $0.0001 par value; 5,134 shares authorized, 4,615 and no shares issued andoutstanding at December 31, 2012 and 2011, respectively 4,615 — Additional paid-in capital 439,672 424,071 Accumulated deficit (447,366) (439,629) Total stockholders’ equity (deficit) 3,214 (15,558) $3,430 $5,100 See accompanying notes. F-32222Table of ContentsLa Jolla Pharmaceutical CompanyConsolidated Statements of Comprehensive Loss(In thousands, except per share amounts) Years EndedDecember 31, 2012 2011 Expenses: Research and development $1,353 $177 General and administrative 9,386 2,097 Total expenses 10,739 2,274 Loss from operations (10,739) (2,274) Other income (expense): Adjustments to fair value of derivative liabilities 2,998 (9,508) Other income (expense), net 4 234 Net loss (7,737) (11,548) Preferred stock dividends earned, net of forfeits (780) (119) Comprehensive net loss attributable to common stockholders $(8,517) $(11,667) Net loss per share basic and diluted $(0.84) $(31.59) Shares used in computing basic and diluted net loss per share 10,196 369 See accompanying notes. F-4Table of ContentsLa Jolla Pharmaceutical CompanyConsolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)For the Years Ended December 31, 2012 and 2011(In thousands) Series C-1RedeemableConvertiblePreferred Stock Series C-1ConvertiblePreferred Stock Series C-2ConvertiblePreferred Stock Series D-1ConvertiblePreferred Stock Common Stock AdditionalPaid-inCapital AccumulatedDeficit TotalStockholders’(Deficit)Equity Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Balance at December 31, 2010 6 $47 — $— — $— — $— 9 $— $428,563 $(428,081) $482 Issuance of Series C-1 PreferredStock dividends — 58 — — — — — — — — — — — Conversion of Series C-1Preferred Stock (1) (588) — — — — — — 865 — 904 — 904 Share-based compensation expense — — — — — — — — — — 254 — 254 Series C-1 Preferred Stockdividends — 90 — — — — — — — — (197) — (197) Forfeit of Series C-1 PreferredStock dividend — (5) — — — — — — — — 78 — 78 Adjustment to redemption value — 5,531 — — — — — — — — (5,531) — (5,531) Net loss — — — — — — — — — — — (11,548) (11,548) Balance at December 31, 2011 5 5,133 — — — — — — 874 — 424,071 (439,629) (15,558) Issuance of Series C-1 PreferredStock dividends 1 780 — — — — — — — — (780) — (780) Series C-1 Preferred Stockdividends — (90) — — — — — — — — (56) — (56) Conversion of Series C-1Preferred Stock — (31) — — — — — — 6,358 1 30 — 31 Exercised Series C-2 warrants forSeries C-2 Preferred Stock — — — — 1 500 — — — — — — 500 Exercised Series D-1 warrants forSeries D-1 Preferred Stock — — — — — — 5 4,631 — — (4,631) — — Conversion of Series D-1Preferred Stock — — — — — — — (16) 3,347 — 16 — — Share-based compensation expense — — — — — — — — — — 8,604 — 8,604 Issuance of restricted stock awards — — — — — — — — 3,688 — — — — Removal of redemption andcertain conversion features (6) (5,792) 6 5,792 — — — — — — 12,418 — 18,210 Net income — — — — — — — — — — — (7,737) (7,737) Balance at December 31, 2012 — $— 6 $5,792 1 $500 5 $4,615 14,267 $1 $439,672 $(447,366) $3,214 See accompanying notes. F-52222111122222222Table of ContentsLa Jolla Pharmaceutical CompanyConsolidated Statements of Cash Flows(In thousands) Years Ended December 31, 2012 2011 Operating activities Net loss $(7,737) $(11,548) Adjustments to reconcile net loss to net cash used for operating activities: Share-based compensation expense 8,604 254 (Gain)/loss on adjustment to fair value of derivative liabilities (2,998) 9,508 Changes in operating assets and liabilities: Prepaids and other current assets 35 7 Accounts payable and accrued expenses (49) 31 Accrued payroll and related expenses 10 (78) Net cash used for operating activities (2,135) (1,826) Financing Activities Exercise of Series C-2 Warrants for Preferred Shares 500 — Net cash provided by financing activities 500 — Net decrease in cash and cash equivalents (1,635) (1,826) Cash and cash equivalents at beginning of period 5,040 6,866 Cash and cash equivalents at end of period $3,405 $5,040 Supplemental disclosure of cash flow information: Issuance of Series D-1 Preferred Stock $4,631 $— Conversion of Series C-1 and D-1 Preferred Stock into common stock $47 $904 Reclassification of preferred stock no longer redeemable $5,792 $— Reclassification of preferred stock currently redeemable $— $5,531 Reclassification of Derivative Liabilities value due to removal of redemption and certain conversion features $12,418 $— Dividends paid in Series C-1 Preferred Stock $780 $58 Series C-1 Preferred Stock dividends forfeited $— $17 See accompanying notes F-6222222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 focused on the discovery and development of novel therapeutics for thetreatment of chronic organ failure and cancer. The Company was incorporated in 1989 as a Delaware corporation. On June 7, 2012, the Companyreincorporated in the State of California.Basis of PresentationThe Company has a history of recurring losses from operations and, as of December 31, 2012, the Company had no revenue sources, an accumulated deficit of$447,366,000 and available cash and cash equivalents of $3,405,000. Management believes that its current cash resources are sufficient to fund plannedoperations for at least the next 12 months.Significant 2012 EventsOn January 19, 2012, the Company entered into an Asset Purchase Agreement (the “Agreement”), dated as of January 19, 2012, with Solana Therapeutics,Inc., a Delaware corporation (“Solana”) (the “Strategic Transaction”). Pursuant to the Agreement, the Company agreed to acquire from Solana the globaldevelopment and commercialization rights to an investigational new drug referred to as GCS-100 (“GCS-100”), which included patents and patent rights,regulatory registrations and study drug supplies (collectively, the “Purchased Assets”). The acquisition of the Purchased Assets was completed on January 19,2012 (the “Closing”). In consideration for the Purchased Assets, the Company agreed to pay a nominal amount at the Closing and agreed to use commerciallyreasonable efforts to complete a Phase 2a clinical study of GCS-100. GCS-100 is a first-in-class inhibitor of galectin-3, a novel molecular target implicated inchronic organ failure and cancer.On January 19, 2012, the Company entered into a Consent and Amendment Agreement (the “Third Amendment Agreement”) with certain of its Series C-1Convertible preferred stockholders to amend the terms of the Securities Purchase Agreement, dated as of May 24, 2010 (“Securities Purchase Agreement”),and the forms of Cash Warrants and Cashless Warrants (as defined in the Securities Purchase Agreement), as well as to adopt the Certificate of Designations,Preferences and Rights of Series C-1 Convertible Preferred Stock (the “Series C-1 Stock”), Series C-2 Convertible Preferred Stock (the “Series C-2 Stock”),Series D-1 Convertible Preferred Stock (the “Series D-1 Stock”) and Series D-2 Convertible Preferred Stock (the “Series D-2 Stock”) (the “Series C/DCertificate”). Under the Third Amendment Agreement, the Termination Date (as defined in the Cash Warrants and Cashless Warrants) was amended to extendthe Termination Date to the date that is three years following the Closing of the asset purchase.As part of the Third Amendment Agreement, the Company designated four new series of preferred stock on January 19, 2012: its Series C-1 Stock, Series C-2 Stock, Series D-1 Stock, and Series D-2 Stock (collectively, the “2012 New Preferred Stock”). It exchanged on a one-for-one exchange ratio each share ofits existing Series C-1 Convertible Preferred Stock that was outstanding for a new share of Series C-1 Stock. Each holder of 2012 New Preferred Stock mayconvert its 2012 New Preferred Stock shares into the Company’s common stock, par value $0.0001 per share (“Common Stock”), subject to a weeklyconversion cap equal to the product of the face amount of the outstanding Series C-1 Stock held by the stockholder on the Closing multiplied by theConversion Cap (as defined in the Series C/D Certificate) for such week. Depending on the Volume-Weighted Closing Price, or VWCP, for the last 3 TradingDays during the previous calendar week, the Conversion Cap can range from 0% to 3.76%. Each holder of the 2012 New Preferred Stock may only convertsuch preferred shares into Common Stock to the extent that after such conversion such holder owns less than 9.999% of the Company’s issued andoutstanding Common Stock. F-71222222222222122Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements The Company’s Board of Directors, approved a reverse stock split effective on February 17, 2012, with such reverse stock split having an exchange ratio of 1-for-100 (the “2012 Reverse Stock Split”). No fractional shares were issued and, instead, stockholders received the cash value of any fractional shares thatwould have been issued. Share amounts in the consolidated financial statements are shown post-split and therefore have been retroactively adjusted to reflectthe 2012 Reverse Stock Split.On December 12, 2012, the Company entered into a Consent and Waiver Agreement (the “Waiver Agreement”), with its preferred stockholders. Pursuant tothe Waiver Agreement, the preferred stockholders waived their 12-month redemption right and the requirement for the Company to keep net cash of $2.9million.Effective December 31, 2012, the Company entered into a Consent, Waiver and Amendment Agreement (the “Second Waiver Agreement”) with its preferredstockholders. Pursuant to the Second Waiver Agreement, the preferred stockholders waived their redemption rights for the Series C-1 Stock and Series C-2Stock, removed the “full-ratchet” anti-dilution from the Series C-1 Stock, Series C-2 Stock and Series D-1 Stock and relinquished their right to receivewarrants to purchase Series D-2Stock (the “Series D-2 Warrants”) upon the exercise of the warrants to purchase Series C-2Stock (the “Series C-2Warrants”). The Company’s preferred stockholders also exercised a portion of their Series C-2 Warrants, which resulted in the Company receiving $500,000in net proceeds and the preferred stockholders receiving 500 shares of Series C-2 Stock.Significant 2011 EventsIn March 2011, the Company and its formerly wholly-owned subsidiary, Jewel Merger Sub, Inc. acquired the rights to compounds known as RegenerativeImmunophilin Ligands (“RILs” or “Compounds”) from privately held GliaMed, Inc. (“GliaMed”). The Compounds were acquired pursuant to an AssetPurchase Agreement (the “Asset Agreement”) for a nominal amount, and if certain development and regulatory milestones were met, the Company wouldhave paid GliaMed additional consideration consisting of up to 8,205 shares of newly designated Series E Convertible Preferred Stock (the “Series EPreferred”), which would have been convertible into approximately 20% of the Company’s fully diluted outstanding common stock on an as-converted basis.GliaMed would have also been eligible for a potential cash payment from the Company if a Compound was approved by the Food and Drug Administration,or FDA, or European Medicines Agency, or EMA, in two or more clinical indications (see Note 3).Also in March 2011, the Company entered into a Consent and Amendment Agreement (the “Consent Agreement”), dated as of March 29, 2011, with certainholders of convertible redeemable Series C-1 Stock, in order to amend certain terms of the Securities Purchase Agreement (see Note 4). The purpose of theConsent Agreement was to revise certain terms of the Company’s outstanding preferred securities in connection with the Company’s acquisition of theCompounds. Additionally, as part of the Consent Agreement, the Company designated five new series of preferred stock: its Series C-1 Convertible PreferredStock (the “Series C-1 Preferred”), Series C-2 Convertible Preferred Stock (the “Series C-2 Preferred”), Series D-1 Convertible Preferred Stock (the“Series D-1 Preferred”), Series D-2 Convertible Preferred Stock (the “Series D-2 Preferred” and collectively with the Series C-1 Preferred, the Series C-2Preferred and the Series D-1 Preferred, the “New Preferred Stock”) and Series E Preferred. The Company exchanged on a one-for-one basis each share of itsexisting Series C-1 Preferred that was outstanding for a new share of Series C-1 Preferred (see Note 4). Unless otherwise indicated, references herein toSeries C-1 Preferred reflect the one-for-one exchange.Following the acquisition of the Compounds, the Company initiated a confirmatory preclinical animal study in April 2011 studying the lead RIL compound,LJP1485. This study was completed in May 2011, after which the Company received final data from Charles River Laboratories, the Company’s clinicalresearch organization (the “CRO”), which showed that the predetermined study endpoints, as set forth in the Asset Agreement, were not met and that theLJP1485 compound did not show statistically significant improvement in the study endpoints as compared to vehicle (placebo).In June 2011 and August 2011, the Company and the Purchasers entered into two amendment agreements, which, among other things, prolonged thetemporary suspension of dividends on the Series C-1 Preferred and Series C-2 Preferred and provided additional working capital to the Company.Pursuant to the Consent Agreement, the Company’s existing holders of Series C-1 Preferred were not required to exercise their Cash Warrants due to thefailure of the LJP1485 study. The preferred stockholders elected to not exercise the Cash Warrants, which then provided GliaMed with the right to reacquirethe Compounds through the purchase of the outstanding capital stock of Jewel Merger Sub, Inc. (which held title to the Compounds) for the same nominalconsideration that GliaMed received at the closing of the Company’s acquisition of the Compounds. F-8222222 22 2221111111111111111Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements The cost for this preclinical study, including the Company’s operating costs, of approximately $712,000 was funded through cash on hand, which was madeavailable for this expense due to the forfeiture of dividends on the Company’s outstanding Series C-1Preferred and Series C-2 Preferred (together, the“Series C Preferred”) for the period from November 26, 2010 to May 31, 2011 (the “Forfeited Dividend”), the receipt of cash from certain current investorspursuant to the Consent Agreement, and a temporary reduction in the salaries of the Company’s then current officers. The stockholders no longer have anyrights to receive stock for their Forfeited Dividend or any consideration for the cash payment made pursuant to the Consent Agreement.The Company’s Board of Directors, approved a reverse stock split effective on April 14, 2011, with such reverse stock split having an exchange ratio of 1-for-100 (the “2011 Reverse Stock Split”). No fractional shares were issued and, instead, stockholders received the cash value of any fractional shares that wouldhave been issued. Share amounts in the consolidated financial statements are shown post-split and therefore have been retroactively adjusted to reflect the2011 Reverse Stock Split.Principles of ConsolidationThe accompanying consolidated financial statements include the accounts of La Jolla Pharmaceutical Company and its wholly-owned subsidiaries, SL JPCSub, Inc., which was incorporated in Delaware in December 2011, and Jewel Merger Sub, Inc., which was incorporated in Delaware in December 2009. InMarch 2011, the Company and Jewel Merger Sub, Inc. acquired assets related to certain Compounds from GliaMed. In June 2011, GliaMed repurchased theCompounds by acquiring all of the outstanding capital stock of Jewel Merger Sub for the same nominal amount that it received from the Company for theCompounds.Use of EstimatesThe preparation of consolidated financial statements in conformity with United States generally accepted accounting principles (“GAAP”) requiresmanagement to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and disclosures made in theaccompanying notes to the consolidated financial statements. Actual results could differ materially from those estimates.Property and EquipmentProperty and equipment is stated at cost and has been depreciated using the straight-line method over the estimated useful lives of the assets (primarily fiveyears). As of December 31, 2012 and 2011, property and equipment was comprised of $2,186,000 of fully depreciated computer equipment and software.There was no depreciation expense for the years ended December 31, 2012 and 2011.PatentsThe Company received notice of patents being issued for GCS-100 in May of 2012 and in January of 2013. During January 2012, the Company acquiredcertain patents and patent rights for GCS-100 as part of the Purchased Assets from Solana. The Company will file patent applications in the United States andin foreign countries for the protection of these and other proprietary technologies and drug candidates as deemed appropriate.Share-Based CompensationThe Company records compensation expense associated with stock options and other share-based awards in accordance with the authoritative guidance forstock-based compensation. The cost of employee services received in exchange for an award of an equity instrument is measured at the grant date, based onthe estimated fair value of the award, and is recognized as expense on a straight-line basis, net of estimated forfeitures, over the requisite service period of theaward. Share-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimatelyexpected to vest during the period and has been reduced for estimated forfeitures. The guidance requires forfeitures to be estimated at the time of grant andrevised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Pre-vesting forfeitures were estimated to be 0% for employees inthe years ended December 31, 2012 and 2011, based on the Company’s historical experience and expected future activities. F-91 11Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements Total share-based compensation expense related to share-based awards for the years ended December 31, 2012 and 2011 was comprised of the following (inthousands): December 31, 2012 2011 Research and development $805 $— General and administrative 7,799 254 Share-based compensation expense included in operating expenses $8,604 $254 Share-based compensation expense from: Stock options $7,640 $254 Restricted stock awards and restricted stock units 964 — Share-based compensation expense included in operating expenses $8,604 $254 The cost of non-employee services received in exchange for an award of equity instrument is measured based on either the fair value of the considerationreceived or the fair value of the equity instruments issued, whichever is more reliably measurable. There were two awards of restricted stock units to non-employees outstanding at December 31, 2012. There were no non-employee stock options outstanding at December 31, 2011.Reverse Stock SplitsThe Board of Directors approved the 2012 Reverse Stock Split of the Company’s Common Stock, which became effective on February 17, 2012, with anexchange ratio of 1-for-100. The Board of Directors approved the 2011 Reverse Stock Split of the Company’s Common Stock, which became effective onApril 14, 2011, with an exchange ratio of 1-for-100.All Common Stock share and per share information in the accompanying consolidated financial statements and notes included in this report have beenrestated to reflect retrospective application of the two reverse stock splits for all periods presented, except for par value per share and the number ofauthorized shares, which were not affected by either the 2012 Reverse Stock Split or 2011 Reverse Stock Split.Net Income (Loss) Per ShareBasic and diluted net income (loss) per share is computed using the weighted-average number of common shares outstanding during the periods. Basicearnings per share (“EPS”) is calculated by dividing the net income or loss by the weighted-average number of common shares outstanding for the period,without consideration for Common Stock equivalents. Diluted EPS is computed by dividing the net income or loss by the weighted-average number ofcommon shares and Common Stock equivalents outstanding for the period issuable upon the conversion of preferred stock and exercise of stock options andwarrants. These Common Stock equivalents are included in the calculation of diluted EPS only if their effect is dilutive. There is no difference between basicand diluted net loss per share for the year ended December 31, 2012 or December 31, 2011, as potentially dilutive securities have been excluded from thecalculation of diluted net loss per common share because the inclusion of such securities would be antidilutive.At December 31, 2012 and 2011, the potentially dilutive securities include 4.5 billion and 6.7 billion shares, respectively, reserved for the conversion ofconvertible preferred stock, including accrued dividends, and the exercise of outstanding stock options and warrants.Segment ReportingManagement has determined that the Company operates in one business segment, which is the development of pharmaceutical products. F-10Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements Derivative LiabilitiesIn May 2010, the Company entered into definitive agreements with institutional investors and affiliates for a private placement of Common Stock,redeemable convertible preferred stock and warrants to purchase redeemable convertible preferred stock for initial proceeds of $6,003,000 (the “May 2010Financing”). In conjunction with the May 2010 Financing, the Company issued redeemable convertible preferred stock that contained certain embeddedderivative features, as well as warrants that are accounted for as derivative liabilities. During 2012 warrants from the May 2010 Financing were exercisedresulting in the issuance of Series D-1 Stock which had certain embedded derivative features (see Notes 2 and 4).The Company’s derivative liabilities were initially recorded at their estimated fair value on the date of issuance and were subsequently adjusted to reflect theestimated fair value at each period end, with any decrease or increase in the estimated fair value being recorded as other income or expense, accordingly. Thefair value of these liabilities was estimated using option pricing models that are based on the individual characteristics of the Common Stock and preferredstock, the derivative liability on the valuation date, probabilities related to the Company’s operations and clinical development (based on industry data), aswell as assumptions for volatility, remaining expected life, risk-free interest rate and, in some cases, credit spread. The option pricing models were particularlysensitive to changes in probabilities and the closing price per share of the Company’s Common Stock.Adoption of Recent Accounting PronouncementsEffective January 1, 2012, we adopted Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”) No. 2011-05,Comprehensive Income (Topic 220): Presentation of Comprehensive Income and ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of theEffective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU No. 2011-5. Inthese updates, an entity has the option to present the total of comprehensive income, the components of net income, and the components of othercomprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, anentity is required to present each component of net income along with total net income, each component of other comprehensive income along with a totalfor other comprehensive income, and a total amount for comprehensive income. ASU No. 2011-05 eliminates the option to present the components of othercomprehensive income as part of the statement of changes in stockholders’ equity. The amendments in ASU No. 2011-05 do not change the items that mustbe reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments in theseupdates are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of ASU Nos. 2011-05 and2011-12 did not have a material impact on our consolidated financial position or results of operations. We have presented comprehensive loss in theCompany’s Consolidated Statements of Comprehensive Loss.Effective January 1, 2012, we prospectively adopted FASB’s ASU No. 2011-04, “Fair Value Measurement (Topic 820) — Amendments to Achieve CommonFair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS”. The amendments in ASU 2011-04 result in common fair value measurementand disclosure requirements in GAAP and International Financial Reporting Standards (“IFRS”). Consequently, the amendments change the wording used todescribe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. This pronouncementis effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of ASU No. 2011-04 did not have amaterial effect on the Company’s consolidated financial position or results of operations.2. Fair Value of Financial InstrumentsFinancial assets and liabilities are measured at fair value, which is defined as the exchange price that would be received for an asset or paid to transfer aliability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on themeasurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.The following is a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may beused to measure fair value: F-112Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements • 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 similar assets or liabilities; quotedprices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially thefull 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 fair value of the assets orliabilities.As of December 31, 2012 and 2011, cash and cash equivalents were comprised of cash in checking accounts.In conjunction with the May 2010 Financing, the Company issued convertible preferred stock with certain embedded derivative features, as well as warrantsto purchase various types of convertible preferred stock and units. These instruments were accounted for as derivative liabilities until the Second WaiverAgreement (see Note 4).The Company used Level 3 inputs for its valuation methodology for the embedded derivative liabilities and warrant derivative liabilities. The estimated fairvalues were determined using a binomial option pricing model based on various assumptions (see Note 4). The Company’s derivative liabilities wereadjusted to reflect estimated fair value at each period end, with any decrease or increase in the estimated fair value being recorded in other income or expense,accordingly, as adjustments to fair value of derivative liabilities.At December 31, 2012, as a result of the Second Waiver Agreement, the embedded derivatives from the securities issued in the May 2010 Financing whichconsist of Series C-1 Stock, Series C-2 Stock and Series D-1 Stock were removed, and, as such, the Company’s derivative liabilities from the May 2010Financing were eliminated.At December 31, 2011, the estimated fair values of the liabilities measured on a recurring basis are as follows (in thousands): Fair Value Measurements at December 31, 2011 Balance atDecember 31,2011 Quoted Prices inActive Markets(Level 1) Significant OtherObservable Inputs(Level 2) SignificantUnobservable Inputs(Level 3) Embedded derivative liabilities $3,680 $— $— $3,680 Warrant derivative liabilities 11,590 — — 11,590 Total $15,270 $— $— $15,270 The following table presents the activity for liabilities measured at estimated fair value using unobservable inputs for the years ended December 31, 2012 and2011 (in thousands): F-12222Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements Fair Value Measurements Using SignificantUnobservable Inputs (Level 3) Embedded Derivative Warrant Derivative Liabilities Liabilities Total Balance at December 31, 2010 $5,170 $932 $6,102 Adjustments to estimated fair value (1,150) 10,658 9,508 Decrease of the embedded derivative liabilities forpreferred shares converted into common stock (361) — (361) Reversal of previously accrued dividends (72) — (72) Dividends paid in Series C-1 Preferred Stock 41 — 41 Accrued dividends payable in Series C-1 PreferredStock 52 — 52 Balance at December 31, 2011 3,680 11,590 15,270 Adjustments to estimated fair value 834 (3,832) (2,998) Reversal of previously accrued dividends 146 — 146 Transfer due to the removal of the derivative features (4,660) (7,758) (12,418) Balance at December 31, 2012 $— $— $— During the year ended December 31, 2012, the estimated fair value of derivative liabilities decreased by $2,998,000, which was recorded as non-cash otherincome, and $12,418,000 was reclassified to additional paid-in capital for the estimated fair value of the derivatives. During the year ended December 31,2011, the estimated fair value of derivative liabilities increased by $9,508,000, which was recorded as non-cash other expense.3. GliaMed Asset PurchaseIn March 2011, the Company and Jewel Merger Sub acquired assets related to certain RIL compounds from GliaMed. The Compounds were acquiredpursuant to the Asset Agreement for a nominal amount, and if certain milestones noted below were met, the Company would have paid GliaMed additionalconsideration of up to 8,205 shares of newly designated convertible Series E Preferred, which would have been convertible into approximately 20% of theCompany’s fully diluted outstanding Common Stock on an as-converted basis. The issuance of the shares was tied to the achievement of certain developmentand regulatory milestones. GliaMed was also eligible to receive a cash payment from the Company of $5,000,000 if a Compound was approved by the FDAor EMA in two or more clinical indications.In May 2011, the Company received final data from the Company’s CRO, which showed that the predetermined study endpoints, as set forth in the AssetAgreement, were not met and that the LJP1485 compound did not show statistically significant improvement in the study endpoints as compared to vehicle(placebo).The purchase was originally recorded as a long-term other asset for the intangible rights received related to the Compounds equal to the nominal amount paidto GliaMed, plus the asset acquisition costs incurred for legal services and due diligence related to the investigation of the underlying technology. As a resultof the negative results in the confirmatory preclinical study in May 2011, the Company discontinued the development of LJP1485 in May 2011 and, inJune 2011, the Company sold the Compounds back to GliaMed by selling all of the outstanding capital stock of Jewel Merger Sub to GliaMed for the samenominal amount that it had paid for the Compounds.Jewel Merger Sub had no other assets or liabilities other than those relating to the Compounds and related assets and contract rights. F-13Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements 4. Securities Purchase AgreementOn May 24, 2010, the Company entered into the Securities Purchase Agreement by and among the Company and the purchasers named therein (the“Purchasers”). The Purchasers included institutional investors as well as the Company’s Chief Executive Officer, Chief Financial Officer and an additionalCompany employee. The total investment by these Company employees represented less than 3% of the proceeds received by the Company in the May 2010Financing. Pursuant to the Securities Purchase Agreement, on May 26, 2010 (the “Closing Date”), for total consideration of $6,003,000, the Purchaserspurchased: (i) an aggregate of 289,704 shares of the Company’s Common Stock, par value $0.0001 per share, at a contractually stated price of $3.00 pershare; and (ii) 5,134 shares of the Company’s Series C-1 Convertible Preferred Stock (the “Series C Preferred”), par value $0.0001 per share, at a contractuallystated price of $1,000 per share. The Purchasers also received: (i) warrants to purchase 5,134 shares of the Company’s Series D-1 Convertible Preferred Stock(the “Series D-1 Preferred”), par value $0.0001 per share, at an exercise price of $1,000 per share, which warrants were exercisable on a cashless basis (the“Series D-1 Warrants”); and (ii) warrants to purchase 10,268 units, at an exercise price of $1,000 per unit, which warrants are exercisable only in cash, witheach unit consisting of one share of the Company’s Series C-2 Convertible Preferred Stock (the “Series C-2 Preferred”), par value $0.0001 per share, and anadditional Series D-2 Warrant to purchase one share of the Company’s Series D-2 Convertible Preferred Stock (the “Series D-2 Preferred), par value $0.0001per share, at an exercise price of $1,000 per share (the “Series C-2 Warrants”).In March 2011, the Company entered into the Consent Agreement, which amended the terms of the Securities Purchase Agreement. Under the ConsentAgreement, the Purchasers agreed to the following, among other changes: (i) a temporary suspension of dividends on Series C-1 Preferred and Series C-2Preferred; (ii) to provide an additional cash payment of approximately $236,000 in exchange for the right to receive Series C-2 Preferred upon theachievement of certain pre-specified results in the preclinical study of one of the Compounds (the “Preclinical Milestone”); (iii) to increase the number ofunits to be issued upon exercise of the Series C-2 Warrant from 10,268 to 10,646 units; (iv) the mandatory exercise of $7,452,000 of the Series C-2 Warrantsupon the achievement of the Preclinical Milestone; (v) the mandatory exercise of the remaining $3,194,000 of Series C-2 Warrants upon the achievement of afuture clinical milestone; and (vi) an automatic one-time downward conversion price adjustment to the preferred stock following the 2011 Reverse StockSplit. In connection with the Consent Agreement, the Company adopted a Certificate of Designations that established the rights, preferences and privilegesfor its Series C-1Convertible Preferred Stock, Series C-2 Convertible Preferred Stock, Series D-1 Convertible Preferred Stock and Series D-2 ConvertiblePreferred Stock. In connection with the adoption of the new Certificate of Designations: (i) the Company filed a Certificate of Elimination for its Series C-1Preferred, Series C-2 Preferred, Series D-1 Preferred and Series D-2 Preferred; (ii) the holders of shares of the Company’s Series C-1 Preferred exchanged eachshare (including fractional shares) of Series C-1 Preferred for an equal number of shares of Series C-1 Convertible Preferred Stock; and (iii) all references inthe Securities Purchase Agreement and the Warrants (as defined in the Certificate of Designations) to the Series C-1 Preferred, Series C-2 Preferred, Series D-1Preferred and Series D-2 Preferred were changed to refer to Series C-1 Convertible Preferred Stock (the “Series C-1 Preferred”), Series C-2 ConvertiblePreferred Stock (the “Series C-2 Preferred”), Series D-1 Convertible Preferred Stock (the “Series D-1 Preferred”) and Series D-2 Convertible Preferred Stock(the “Series D-2 Preferred”), respectively.In June 2011 and August 2011, the Company and the Purchasers entered into two amendment agreements, which, among other things, prolonged thetemporary suspension of dividends on the Series C-1 Preferred and Series C-2 Preferred and provided additional working capital to the Company.On January 19, 2012, the Company entered into the Third Amendment Agreement with certain of its Series C-1 Convertible Preferred stockholders to amendthe terms of the Securities Purchase Agreement, and the forms of Cash Warrants and Cashless Warrants (as defined in the Securities Purchase Agreement).Under the Third Amendment Agreement, the Termination Date (as defined in the Cash Warrants and Cashless Warrants) was amended to extend theTermination Date to the date that is three years following the closing of the asset purchase. Additionally, the mandatory redemption provision of the CashWarrants was removed. The Company was required to perform a 1-for-100 reverse stock split with an automatic one-time downward conversion priceadjustment following the 2012 Reverse Stock Split. In connection with the Third Amendment Agreement, the Company adopted a Certificate ofDesignations that established the rights, preferences and privileges for its Series C-1Stock, Series C-2 Stock, Series D-1 Stock and Series D-2 Stock. Inconnection with the adoption of the new Certificate of Designations: (i) the Company filed a Certificate of Elimination for its Series C-1 Preferred, Series C-2 Preferred, Series D-1 Preferred and Series D-2 Preferred; (ii) the holders of shares of the Company’s Series C-1 Preferred exchanged each share (includingfractional shares) of Series C-1 Preferred for an equal number of shares of Series C-1 Stock; and (iii) all references in the Securities Purchase Agreement andthe Warrants (as defined in the Certificate of Designations) to the Series C-1 Preferred, Series C-2 Preferred, Series D-1 Preferred and Series D-2 Preferredwere changed to refer to Series C-1 Stock, Series C-2 Stock, Series D-1 Stock and Series D-2 Stock, respectively. F-141 1111111111111112 222111111211112222Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements On December 12, 2012, the Company entered into the Waiver Agreement with its Preferred Stockholders. Pursuant to the Waiver Agreement, the PreferredStockholders waived their 12-month redemption right and the requirement for the Company to keep a net cash balance of at least $2.9 million.Effective December 31, 2012, the Company entered into a Consent, Waiver and Amendment Agreement (the “Second Waiver Agreement”) with its preferredstockholders. Pursuant to the Second Waiver Agreement, the preferred stockholders waived their redemption rights for the Series C-1 Stock and Series C-2Stock, removed the “full-ratchet” anti-dilution from the Series C-1 Stock Series C-2 Stock and Series D-1 Stock and relinquished their right to receivewarrants to purchase Series D-2Stock (the “Series D-2 Warrants”) upon the exercise of the warrants to purchase Series C-2Stock (the “Series C-2Warrants”). The Company’s preferred stockholders also exercised a portion of their Series C-2 Warrants, which resulted in the Company receiving $500,000in net proceeds and the preferred stockholders receiving 500 shares of Series C-2 Stock.Allocation of ProceedsAt May 26, 2010, the estimated fair value of the Series C-2 Warrants for units, Series D-1 Warrants, and the embedded derivatives included within the SeriesC-1 Preferred exceeded the proceeds from the May 2010 Financing of $6,003,000 (see the valuations of these derivative liabilities under the heading,“Derivative Liabilities” below). As a result, all of the proceeds were allocated to these derivative liabilities and no proceeds remained for allocation to theCommon Stock and Series C-1 Preferred issued in the financing.Preferred StockAs of December 31, 2012, the Company’s Board of Directors is authorized to issue 8,000,000 shares of preferred stock, with a par value of $0.0001 per share,in one or more series, of which 11,000 are designated for Series C-1 Stock, 22,000 are designated Series C-2 Stock, 5,134 are designated Series D-1 Stockand 10,868 are designated Series D-2 Stock. As of December 31, 2012, 5,793 shares of Series C-1 Stock, 500 shares of Series C-2 Stock and 4,615 shares ofSeries D-1 Stock were issued and outstanding. As of December 31, 2011, 5,043 shares of Series C-1 Stock were issued and outstanding.Voting RightsThe holders of preferred stock do not have voting rights, other than for general protective rights required by the California General Corporation Law or as setforth below.DividendsCumulative dividends are payable on the Series C-1 Stock and the Series C-2 Stock (collectively, the “Series C Stock”) at an annual rate of 15% from thedate of issuance through the date of conversion, payable semi-annually on November 25 and May 25, in shares of Series C Stock. There is no limit to thenumber of shares of Series C Preferred that may be issued as dividends. The Series D-1 Stock is not entitled to dividends.Conversion RightsThe New Preferred Stock was convertible into Common Stock, initially at a rate of approximately 6.667 shares of Common Stock for each share of NewPreferred Stock, subject to certain limitations discussed below, at the election of the holders of New Preferred Stock. The conversion rate would be adjustedfor certain events, such as stock splits, stock dividends, reclassifications and recapitalizations, and the New Preferred Stock was subject to full-ratchet anti-dilution protection, such that if the Company issued or granted any Common Stock or warrants, rights, options to subscribe or purchase Common Stock orCommon Stock equivalents (the “Options”) and the price per share for which the Common Stock issuable upon the exercise of such Options was below theeffective conversion price of the New Preferred Stock at the time of such issuance, then the conversion rate of the New Preferred Stock automatically adjustedto increase the number of Common Shares into which it could convert. There were also limits on the amount of New Preferred Stock that could be convertedand the timing of such conversions. In accordance with the Consent Agreement, after the 2011 Reverse Stock Split, the conversion ratio for the New PreferredStock was adjusted based on the trading price of the Company’s Common Stock over a period of time after the 2011 Reverse Stock Split was implemented.Accordingly, effective May 7, 2011, each share of New Preferred Stock was then convertible into approximately 166,667 shares of Common Stock. Followingthe 2012 Reverse Stock Split, effective March 3, 2012, each share of the 2012 New Preferred Stock is now convertible into approximately 213,083 shares ofCommon Stock following the implementation of the 2012 Reverse Stock Split. F-15222222 22 22222222221222thth222Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements As part of the Third Amendment Agreement, the Company designated four new series of Preferred Stock on January 19, 2012: its Series C-1 Stock, Series C-2 Stock, Series D-1 Stock, and Series D-2 Stock (collectively, the “2012 New Preferred Stock”). It exchanged on a one-for-one basis each share of itsexisting Series C-1 Convertible Preferred Stock that was outstanding for a new share of Series C-1 Stock. Each holder of 2012 New Preferred Stock mayconvert its 2012 New Preferred Stock shares into the Company’s Common Stock, par value $0.0001 per share, subject to a weekly conversion cap equal to theproduct of the face amount of the outstanding Series C-1 Stock held by the stockholder on the Closing multiplied by the Conversion Cap (as defined in theSeries C/D Certificate) for such week. Depending on the Volume-Weighted Closing Price, or VWCP, for the last three Trading Days during the previouscalendar week, the Conversion Cap can range from 0% to 3.76%. Each 2012 New Preferred Stockholder may only convert such preferred shares into CommonStock to the extent that after such conversion such holder owns less than 9.999% of the Company’s issued and outstanding Common Stock. For the yearsended December 31, 2012 and 2011, 31 and 588 shares of Series C-1 Preferred had been converted into Common Stock, respectively. For the year endedDecember 31, 2012, 16 shares of Series D-1 Preferred had been converted into Common Stock.Liquidation PreferenceUpon a Liquidation Event (as defined in the Company’s Articles of Incorporation), no other class or series of capital stock can receive any payment unless the2012 New Preferred Stock has first received a payment in an amount equal to $1,000 per share, plus all accrued and unpaid dividends, if applicable.Redemption RightsAs of December 31,2012 all redemption rights have been waived irrevocably. At December 31, 2011, the Company could have been required to redeem theSeries C-1 Preferred if a redemption event had occurred. Since the Company did not consummate a Strategic Transaction by February 26, 2011, the Series C-1Preferred was redeemable, and therefore the Company adjusted the carrying value of the Series C-1 Preferred to the redemption value of the shares. As ofDecember 31, 2011, the redemption value was $5,116,000. The Requisite Holders did not elected this redemption feature through December 31, 2011 or theperiod prior to the Asset Purchase Agreement on January 19, 2012. In connection with the Asset Purchase Agreement, the January 2012 transaction wasdesignated as a Strategic Transaction and any redemption events associated with the original definition of a Strategic Transaction in the Series C/DCertificate are irrevocably waived.RestrictionsSo long as at least 1,000 shares of 2012 New Preferred Stock remain outstanding (or at least 3,000 shares of New Preferred Stock remain outstanding if theSeries C-2 Warrants have been exercised), the Company may not take a variety of actions (such as altering the rights, powers, preferences or privileges of the2012 New Preferred Stock so as to affect the 2012 New Preferred Stock adversely, amending any provision of the Company’s Articles of Incorporation,entering into an agreement for a Strategic Transaction or Change of Control, consummating any financing or filing a registration statement with theSecurities and Exchange Commission,) without the prior approval of the Requisite Holders (as defined the in 2012 New Preferred Stock) .Accounting TreatmentAt May 26, 2010, the Company issued 5,134 shares of Series C-1 Preferred and recorded the par value of $0.0001 per share with a corresponding reduction topaid-in capital, given that there was no allocated value from the proceeds to the Series C-1 Preferred.Under accounting guidance covering accounting for redeemable equity instruments, preferred securities that are redeemable for cash or other assets are to beclassified outside of permanent equity (within the mezzanine section between liabilities and equity on the condensed consolidated balance sheets) if they areredeemable at the option of the holder or upon the occurrence of an event that is not solely within the control of the issuer. At December 31, 2012 allredemption rights have been waived irrevocably and the Series C-1 preferred stock has been reclassified to permanent equity. F-162222122222222Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements As of December 31, 2012, the outstanding Series C-1 Stock and Series C-2 Stock was convertible into approximately 1,340,851,000 shares of CommonStock. As of December 31, 2012, the outstanding Series D-1 Stock was convertible into approximately 983,419,000 shares of Common Stock.As of December 31, 2012, accrued dividends on the Series C-1 Stock were $84,000, which consisted of 84 shares of Series C-1 Stock. The accrued dividendswere convertible into approximately 18,000,000 shares of Common Stock.As of December 31, 2011, accrued dividends on the Series C-1 Preferred were $74,000, which consisted of 74 shares of Series C-1 Preferred. The accrueddividends were convertible into approximately 123,000 shares of Common Stock.Derivative LiabilitiesThe Series C-1 Stock, Series D-1 Stock and the underlying securities of the Series C-2 Warrants contain conversion features. In addition, the Series C-1Stock and the underlying securities of the Series C-2 Warrants were subject to redemption provisions. As of December 31, 2012, redemption features andcertain conversion features were eliminated, removing the derivative liabilities.The Series C-2 Warrants were exercisable starting on the issuance date and expire in January 2015. The Series C-2 Warrants must be exercised in cash andbeginning in June 2011, they were no longer subject to mandatory exercise terms. The Series D-1 Warrants were exercisable on a cashless basis and wereexercised in full during the year ended 2012.Accounting TreatmentEffective December 31, 2012, there were no derivative liabilities related to the 2012 New Preferred Stock and the balance of the derivative liability wasreclassified to additional paid-in capital.In 2011, the Company accounted for the conversion and redemption features embedded in the Series C-1 Stock (the “Embedded Derivatives”) in accordancewith accounting guidance covering derivatives. Under this accounting guidance, companies may be required to bifurcate conversion and redemption featuresembedded in redeemable convertible preferred stock from their host instruments and account for these embedded derivatives as free-standing derivativefinancial instruments. If the underlying security of the embedded derivative requires net cash settlement, in the event of circumstances that are not solelywithin the Company’s control, the embedded derivative should be classified as a liability, measured at fair value at issuance and adjusted to their current fairvalue at each period. As there were redemption triggering events for net cash settlement for Series C-1 Stock that were not solely within the Company’scontrol, and the conversion feature is a derivative, the Embedded Derivatives were classified as liabilities and are accounted for using fair value accounting ateach reporting date (also see Note 2).In 2011, the Company accounted for the Series C-2 Warrants for units in accordance with accounting guidance covering derivatives. If the underlyingsecurity of the warrant: (i) requires net cash settlement in the event of circumstances that are not solely within the Company’s control; or (ii) if they are notindexed to the Company’s own stock, the warrants should be classified as liabilities, measured at fair value at issuance and adjusted to their current fair valueat each period. As there were redemption triggering events for Series C-1 Stock that were not solely within the Company’s control, the Series C-2 Warrantsfor units were classified as liabilities and were accounted for using fair value accounting at each reporting date. The Embedded Derivatives and Series C-2Warrants for units were collectively referred to as the “Derivative Liabilities”.The estimated fair values of the Derivative Liabilities as of December 31, 2011 are summarized as follows (in thousands): F-17222221122222222222222Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements Fair Value Measurements at December 31, 2012 December 31, 2011 Embedded Derivatives of Series C-1 Stock (includingdividends paid in Series C-1Stock) $ — $3,628 Embedded Derivatives of accrued dividends payable in SeriesC-1 Stock — 52 Series D-1 Warrants — 2,539 Series C-2 Warrants for: Series C-2 Stock — 3,785 Series D-2 Warrants — 5,266 $ — $15,270 The Derivative Liabilities were valued using binomial option pricing models with various assumptions detailed below. Due to the six-month tradingrestriction on the unregistered shares of Common Stock issued or issuable from the conversion of the 2012 New Preferred Stock and the weekly conversionlimitation on 2012 New Preferred Stock, the price per share of the Company’s Common Stock used in the binomial option pricing models for the DerivativeLiabilities was discounted from the closing market prices of $0.27 on December 31, 2011. The expected lives that were used to value each of the DerivativeLiabilities were based on the individual characteristics of the underlying 2012 New Preferred Stock, which impact the expected timing of conversion intoCommon Stock. In addition, the probabilities associated with the clinical development of a drug candidate based on industry data were used in each of thebinomial option pricing models. The models used to value the Series C-2 Warrants and Series D-1 Warrants were particularly sensitive to such probabilities,as well as to the closing price per share of the Company’s Common Stock. In addition, as noted above, the model included the effect of the two automaticone-time downward conversion price adjustment following the 2012 Reverse Stock Split and the 2011 Reverse Stock Splits. To better estimate the fair valueof the Derivative Liabilities at each reporting period, the binomial option pricing models and their inputs were refined based on information available to theCompany. Such changes did not have a significant impact on amounts recorded in previous interim reporting periods.The Embedded Derivatives were valued at December 31, 2011 using a binomial option pricing model, based on the value of the Series C-1 Stock with andwithout embedded derivative features, with the following assumptions: December 31, 2012 December 31, 2011 Closing price per share of Common Stock $— $0.27 Conversion price per share $— $0.60 Volatility — % 88.0% Risk-free interest rate — % 0.83% Credit spread — % 20.9% Remaining expected lives of underlying securities (years) — 5.0 On December 31, 2011, the Series D-1 Warrants were recorded at estimated fair value of $2,539,000. On December 31, 2012, there were no Series D-1Warrants, as they had been fully exercised during the year ended 2012.The Series D-1 Warrants were valued at December 31, 2011 using a binomial option pricing model with the following assumptions: F-182222222222222Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements December 31, 2012 December 31, 2011 Closing price per share of Common Stock $— $0.27 Conversion price per share $— $0.60 Volatility — % 67.5% Risk-free interest rate — % 0.28% Remaining expected lives of underlying securities (years) — 2.2 Probability of Strategic Transaction — % 70% On December 31, 2011, the Series C-2 Warrants (which consisted of rights to purchase Series C-2 Preferred and Series D-2 Warrants) were recorded at anestimated fair value of $9,051,000. The decrease in value was primarily due to the significant decrease in the Company’s Common Stock price and theupdates to the assumptions used in the option pricing models.The portion of the Series C-2 Warrants that represent the rights to purchase Series C-2 Stock were valued at December 31, 2011 using a binomial optionpricing model, discounted for the lack of dividends until the Series C-2 Warrants are exercised, with the following assumptions: December 31, 2012 December 31, 2011 Closing price per share of Common Stock $— $0.27 Conversion price per share $— $0.60 Volatility — % 88.0% Risk-free interest rate — % 0.83% Credit spread — % 20.9% Remaining expected lives of underlying securities (years) — 5.0 Time to Exercise (months) — 24 On December 31, 2012, there were no Series D-2 Warrants, as they had been fully exercised during the year ended 2012.The Series D-2 Warrants were valued at December 31, 2011 using a binomial option pricing model with the same assumptions used in the valuation of theSeries D-1 Warrants. The decrease in the value of the Series D-2 Warrants was primarily due to the significant decrease in the Company’s Common Stockprice and the updates to the assumptions used in the option pricing models.5. CommitmentsAs of December 31, 2012, there were no material operating leases, notes payable, purchase commitments or capital leases.On March 15, 2013, the Company entered into a lease (the “Office Lease”), with La Jolla Centre I LLC, to lease office space in the building known as La JollaCentre I, located at 4660 La Jolla Village Drive, San Diego, California, covering approximately 1,954 square feet. The premises will be used by the Companyfor office space.The Company leases certain properties under operating leases expiring at various dates through 2018. Future minimum annual lease payments under theseexisting lease agreements are as follows as of March 22, 2013: F-192222222222Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements Year Ended December 31, OperatingLease 2013 $42,208 2014 65,418 2015 68,406 2016 71,454 2017 74,682 Thereafter 18,876 Total minimum payments $341,044 6. Separation Agreements and Employment AgreementAs part of the Agreement described in Note 1, the Company entered into an employment agreement with a new President and Chief Executive Officer onJanuary 19, 2012. The annual base salary was to be $240,000 for the first year of employment with the Company and was to increase to $420,000 on the one-year anniversary of the employment start date. In addition, an option to purchase the number of shares of Common Stock equal to 7.5% of the Company’sfully diluted, as-converted shares was awarded (the “First Option”), subject to the terms and conditions of any applicable award agreements and otherrestrictions and limitations generally applicable to Common Stock or equity awards held by Company executives or otherwise imposed by law. Subject toapplicable terms and conditions, the First Option shall vest with respect to 25% of the underlying shares on the one-year anniversary of the employment startdate, with the remainder vesting monthly, in equal monthly installments, over the three years thereafter. The First Option is exercisable at a price equal to$0.06 per share of Common Stock. An additional option will be awarded to purchase the number of shares of Common Stock equal to 7.5% of the Company’sfully diluted, as-converted shares on the second anniversary of the employment start date, less the number of shares subject to the First Option on the FirstOption grant date (the “Second Option”), and the Second Option will also be subject to the same terms and conditions as the First Option. Subject toapplicable terms and conditions, 50% of the underlying shares of the Second Option will be fully vested on the date of the grant, with the remainder vestingmonthly, in equal monthly installments, over the two years thereafter. The Second Option will be exercisable at a price equal to the fair market value of ashare of Common Stock on the date of the grant of the Second Option.On January 19, 2012, effective upon the closing of the Agreement, the former Chief Executive Officer and Chief Financial Officer resigned. Both of theCompany’s former officers entered into separation agreements with the Company, and the Company agreed to make separation payments of $77,778 and$62,222, respectively.7. Stockholders’ EquityReverse Stock SplitsThe Board of Directors approved the 2012 Reverse Stock Split of the Company’s Common Stock, which became effective on February 17, 2012, with anexchange ratio of 1-for-100. As a result of the 2012 Reverse Stock Split, each 100 shares of the Company’s issued and outstanding Common Stock wereautomatically reclassified as, and changed into, one share of the Company’s Common Stock. No fractional shares were issued in connection with the 2012Reverse Stock Split. Stockholders who were entitled to fractional shares instead became entitled to receive a cash payment in lieu of receiving fractionalshares (after taking into account and aggregating all shares of the Company’s Common Stock then held by such stockholder) equal to the fractional shareinterest. The 2012 Reverse Stock Split affected all of the holders of the Company’s Common Stock uniformly. Shares of the Company’s Common Stockunderlying outstanding options and warrants were proportionately reduced and the exercise prices of outstanding options and warrants were proportionatelyincreased in accordance with the terms of the agreements governing such securities. Shares of the Company’s Common Stock underlying outstandingconvertible preferred stock and warrants were proportionately reduced and the conversion rates were proportionately decreased in accordance with the termsof the agreements governing such securities. F-20Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements The Board of Directors approved the 2011 Reverse Stock Split of the Company’s Common Stock, which became effective on April 14, 2011, with anexchange ratio of 1-for-100. As a result of the 2011 Reverse Stock Split, each 100 shares of the Company’s issued and outstanding Common Stock wereautomatically reclassified as, and changed into, one share of the Company’s Common Stock. No fractional shares were issued in connection with the 2011Reverse Stock Split. Stockholders who were entitled to fractional shares instead became entitled to receive a cash payment in lieu of receiving fractionalshares (after taking into account and aggregating all shares of the Company’s Common Stock then held by such stockholder) equal to the fractional shareinterest. The 2011 Reverse Stock Split affected all of the holders of the Company’s Common Stock uniformly. Shares of the Company’s Common Stockunderlying outstanding options and warrants were proportionately reduced and the exercise prices of outstanding options and warrants were proportionatelyincreased in accordance with the terms of the agreements governing such securities. Shares of the Company’s Common Stock underlying outstandingconvertible preferred stock and warrants were proportionately reduced and the conversion rates were proportionately decreased in accordance with the termsof the agreements governing such securities.All Common Stock share and per share information in the accompanying consolidated financial statements and notes included in this report have beenrestated to reflect retrospective application of the two reverse stock splits for all periods presented, except for par value per share and the number ofauthorized shares, which were not affected by the 2012 Reverse Stock Split or 2011 Reverse Stock Split.Preferred StockAs of December 31, 2012, the Company’s Board of Directors is authorized to issue 8,000,000 shares of preferred stock, with a par value of $0.0001 per share,in one or more series, of which 11,000 are designated for Series C-1 Stock, 22,000 are designated Series C-2 Stock, 5,134 are designated Series D-1 Stockand 10,868 are designated Series D-2 Stock. As of December 31, 2012, 5,792 shares of Series C-1 Stock, 500 shares of Series C-2 Stock and 4,615 shares ofSeries D-1 Stock were issued and outstanding. As of December 31, 2011, 5,043 shares of Series C-1 Preferred were issued and outstanding.WarrantsIn connection with the May 2008 public offering, the Company issued warrants to purchase 390 shares of the Company’s Common Stock. The warrants wereimmediately exercisable upon issuance, have an exercise price of $21,500 per share and remain exercisable for five years. As of December 31, 2012, all ofthese warrants were outstanding and 390 shares of Common Stock are reserved for issuance upon exercise of the warrants.Stock Option PlansIn June 1994, the Company adopted the La Jolla Pharmaceutical Company 1994 Stock Incentive Plan (the “1994 Plan”), under which, as amended, 164shares of Common Stock were authorized for issuance. The 1994 Plan expired in June 2004, and as shares have forfeited or expired, they have been retiredreducing the number of shares authorized for issuance. As of December 31, 2012, there were a total of 5 options outstanding and authorized for issuanceunder the1994 Plan.In May 2004, the Company adopted the La Jolla Pharmaceutical Company 2004 Equity Incentive Plan (the “2004 Plan”), under which, as amended, 640shares of Common Stock were authorized for issuance. The 2004 Plan provides for the grant of incentive and non-qualified stock options, as well as othershare-based payment awards, to employees, directors, consultants and advisors of the Company with up to a 10-year contractual life and various vestingperiods as determined by the Company’s Compensation Committee or the Board of Directors, as well as automatic fixed grants to non-employee directors ofthe Company. As of December 31, 2012, there were a total of 75 options outstanding and 537 shares remained available for future grant under the 2004 Plan.In May 2010, the Company granted options to purchase a total of 580 shares of Common Stock to two employees. These grants were made outside of theCompany’s existing stockholder-approved equity compensation plans but were otherwise legally binding awards and did not require stockholder approval.These stock options were treated in all respects as if granted under the Company’s 2010 Equity Incentive Plan (the “2010 Plan”). During the first quarter of2012, following termination of the two employees, the options were forfeited and are no longer available for grant. F-2122222221Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements In August 2010, the Company adopted the 2010 Plan under which 960 shares of Common Stock were authorized for issuance. The 2010 Plan is similar to the2004 Plan. The 2010 Plan provided for automatic increases to the number of authorized shares available for grant; and as such, in May and September 2011,the authorized shares were increased by 33 and 16,007 shares, respectively, to the maximum authorized allowed of 17,000 shares. In May 2012, thestockholders approved an amendment to the 2010 Plan that increased the amount of shares authorized to 1,188,414, with automatic quarterly increases on thefirst day of each quarter based on 10% of the outstanding shares of Common Stock as of the last day of the previous quarter end. The authorized shares wereincreased by 47,804 and 120,520 at July and October 2012, respectively. The adjustments will continue through to the quarter ending June 30, 2015, but inno event will the number of shares issuable exceed 676,640,705. As of December 31, 2012, there were a total of 16 options outstanding and 1,356,722 sharesremained available for future grant under the 2010 Plan. On January 1, 2013, the authorized shares automatically increased by 70,000 shares.In April 10, 2012, the Company awarded options to purchase up to 592,230,471 shares of Common Stock to the Chief Executive Officer, a board member andan employee. The inducement options were granted outside of the 2010 Plan, but are subject to the terms and conditions of the 2010 Plan. The inducementoptions were granted at an exercise price of $0.06. Two of the grants vest 25% on the one-year anniversary date of the grants and 1/48 of the shares monthlythereafter. The grant to the board member vests quarterly over a one-year period.Options granted under each of the Plans must have an exercise price equal to at least 100% of the fair market value of the Company’s Common Stock on thedate of grant. The options will generally have a maximum contractual term of ten years and vest at the rate of one-fourth of the shares on the first anniversaryof the date of grant and 1/48 of the shares monthly thereafter.A summary of the Company’s stock option award activity as of and for the years ended December 31, 2012 and 2011 is as follows: Outstanding Options SharesUnderlyingStock Options Weighted-AverageExercise Price perShare Weighted-AverageRemainingContractualTerm (yrs) AggregateIntrinsicValue Outstanding at December 31, 2010 980 $20,370 Granted — $— Forfeited/Expired (86) $50,529 Outstanding at December 31, 2011 894 $17,462 Granted 592,230,471 $0.06 Forfeited/Expired (798) $12,095 Outstanding at December 31, 2012 592,230,567 $0.0655 9.27 $2,961,152 Vested and expected to vest at December 31, 2012 592,230,567 $0.0655 1.17 $2,961,152 Exercisable at December 31, 2012 14,180,719 $0.2917 9.27 $70,903 The weighted-average grant date fair value of options granted during the year ended December 31, 2012 was $0.0598 per share. As of December 31, 2012,approximately $27,832,000 of total unrecognized compensation costs related to non-vested stock option awards is expected to be recognized over aweighted average period of approximately 1.2 years. No stock option exercises occurred during the years ended December 31, 2012 and 2011.The fair value of each option award is estimated on the date of grant using a Black-Scholes option pricing model (“Black-Scholes model”) that uses theassumptions noted in the following table. Expected volatility is based on historical volatility of the Company’s Common Stock. In determining the expectedlife of the options, the Company uses the “simplified” method. Under this method, the expected life is presumed to be the mid-point between the vesting dateand the end of the contractual term. The Company will continue to use the “simplified” method until it has sufficient historical exercise data to estimate theexpected life of the options. The risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effectat the time of the grant. The dividend yield assumption is based on the expectation of no future dividend payments by the Company. F-22Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements The Company estimated the fair value of each option grant on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: December 31, 2012 2011 Risk-free interest rate 1.1% 0% Dividend yield 0% 0% Volatility 236% 0% Expected life (years) 6.04 years 0% Share-based compensation expense recognized in the Consolidated Statements of Operations for fiscal years 2012 and 2011 is based on awards ultimatelyexpected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.Forfeitures for 2012 and 2011 were estimated to be zero for both years.At December 31, 2012, the Company has reserved 607,318,125 shares of Common Stock for future issuance upon exercise of all options granted or to begranted under the 1994, 2004 and 2010 Plans, as well as for awards granted outside of the Company’s equity compensation plans.Restricted Stock AwardsIn April 2012, the Company issued restricted stock awards (“RSAs”) to the Chief Executive Officer, a board member and an employee. RSAs are grants thatentitle the holder to acquire shares of the Company’s Common Stock for no cash consideration. The shares covered by RSAs cannot be sold, pledged, orotherwise disposed of until the award vests, and any unvested shares are subject to a reacquisition right following the awardee’s termination of service. Noconsideration is paid for the redemption of the shares under the reacquisition right, but the holder is required to return to the Company any cash dividendspaid or payable with respect to the shares.The RSAs were issued outside of the 2010 Plan but are subject to the terms and conditions of the 2010 Plan. The total restricted shares of 2,987,850 vested onJanuary 19, 2013. The stock-based compensation cost of RSAs is measured by the market value of the Company’s Common Stock on the date of grant. Thegrant date value of the award is amortized on a straight-line basis over the vesting period. The weighted-average grant date value was $0.06 per share. Theshare-based compensation expense for the year ended December 31, 2012 by expense category was $132,000 and $35,000 for general and administrativeexpense and research and development expense, respectively. The remaining unamortized share-based compensation expense to be recognized throughJanuary 19, 2013 is $12,000.Restricted Stock UnitsOn April 10, 2012, the Company granted restricted stock units (“RSUs”) of 14,219 units to an employee and 10,360,892 units to a board member, where eachRSU represents a contingent right to receive one share of the Company’s Common Stock. The RSUs are to vest according to a defined schedule in eachagreement. Upon the designated vesting dates, the holders will receive Common Stock of the Company. The RSU for the board member vests quarterlybeginning on April 20, 2012 and ending on January 20, 2013. Twenty-five percent of the RSU for the employee vested on January 19, 2013 with theremainder vesting monthly thereafter for 36 months.On August 17, 2012, the Company granted RSUs of 2,700,000 units to two non-employee consultants, where each RSU represents a contingent right toreceive one share of the Company’s Common Stock. The RSUs are to vest according to a defined schedule in each agreement. Upon the designated vestingdates, the holders will receive Common Stock of the Company. The RSU for one consultant vested monthly beginning on August 20, 2012 and ending onJanuary 20, 2013. The RSU for the second consultant vested forty-five and one half percent (45.5%) on August 20, 2012 and the remainder vested monthlythereafter until January 20, 2013. F-23Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements The 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 value ofthe award is amortized on a straight-line basis over the vesting period. The weighted-average grant date value was $0.06 per RSU for the April 10, 2012 grantand $0.069 per RSU for the August 17, 2012 grant. The share-based compensation expense relating to RSU’s for the year ended December 31, 2012 byexpense category was $755,000 and $205 for general and administrative expense and for research and development expense, respectively. The remainingunamortized share-based compensation expense to be recognized up through January 20, 2013 is $24,000 for the board member’s RSU and $18,000 for theconsultants’ RSUs. The employee’s RSU has unamortized share-based compensation expense of $648 to be recognized over the remaining service period ofthree years.Employee Stock Purchase PlanDuring 2011 the Company suspended all activity under the Employee Stock Purchase Plan (“ESPP”), which was adopted in 1995. There were no employeestock purchases in 2012 or 2011.8. 401(k) PlanDuring September 2010, the Company adopted the La Jolla Pharmaceutical Company Retirement Savings Plan (the “401(k) Plan”), which qualifies underSection 401(k) of the Internal Revenue Code of 1986, as amended (the “Code”). The 401(k) Plan is a defined contribution plan established to provideretirement benefits for employees and is employee funded up to an elective annual deferral. The 401(k) Plan is available for all employees who havecompleted one year of service with the Company.Following guidance in IRS Notice 98-52 related to the “safe harbor,” 401(k) plan method, non-highly compensated employees will receive a contributionfrom the Company equal to 3% of their annual salaries, as defined in the Code. Such contributions vest immediately and are paid annually following eachyear end. These “safe harbor” contributions by the Company were less than $2,000 and $8,000 for the years ended December 31, 2012 and 2011,respectively.9. Income TaxesThe FASB Topic on Income Taxes prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition andmeasurement 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 tobe sustained upon examination by taxing authorities. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of beingsustained. There were no unrecognized tax benefits as of the date of adoption. As of December 31, 2012 and 2011, the total liability for unrecognized taxbenefits was $45,000 and is included in current liabilities.The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual forinterest or penalties on the Company’s consolidated balance sheets at December 31, 2012 or December 31, 2011, and has not recognized interest and/orpenalties in the consolidated statements of operations for the years ended December 31, 2012 and 2011.A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands): F-24Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements Amount Unrecognized tax benefits balance at December 31, 2011 $45 Increases related to current and prior year tax positions — Settlements and lapses in statutes of limitations — Unrecognized tax benefits balance at December 31, 2012 $45 Included in the balance of unrecognized tax benefits at December 31, 2012 are $45,000 of tax benefits that, if recognized, would affect the effective tax rate.The Company is subject to taxation in the United States and various state jurisdictions. The Company’s tax years for 1996 and forward are subject toexamination by the United States and California tax authorities due to the carry forward of unutilized net operating losses and research and developmentcredits.The Company has not completed a formal Section 382/383 analysis regarding the limitation of net operating loss and research and development creditcarryforwards. The Company does not presently plan to complete a formal Section 382/383 analysis, and until this analysis has been completed, theCompany has removed the deferred tax assets for net operating losses and research and development credits generated through 2012 from its deferred taxasset schedule and has recorded a corresponding increase to its valuation allowance.At December 31, 2012, the Company had federal and California income tax net operating loss carryforwards of approximately $353,974,000 and$292,648,000, respectively. The difference between the federal and California tax loss carryforwards is primarily attributable to the capitalization of researchand development expenses for California income tax purposes. In addition, the Company has federal and California research and development tax creditcarryforwards of $15,958,000 and $10,081,000, respectively. The federal net operating loss, research tax credit carryforwards and California net operatingloss carryforwards will begin to expire in 2013 unless previously utilized. The California research and development credit carryforwards will carry forwardindefinitely until utilized. The Company believes that, in May 2010 and February 2009, it experienced ownership changes at times when its enterprise valuewas minimal. As a result of these ownership changes and the low enterprise values at such times, the Company’s federal and California net operating losscarryforwards and federal research and development credit carryforwards as of December 31, 2012 will likely be subject to annual limitations under IRCSection 382/383 and, more likely than not, will expire unused.Significant components of the Company’s deferred tax assets as of December 31, 2012 and 2011 are listed below (in thousands): December 31, 2012 2011 Deferred tax assets: Net operating loss carryforwards $— $— Research and development credits — — Capitalized research and development and other 21,193 11,156 Total deferred tax assets 21,193 11,156 Net deferred tax assets 21,193 11,156 Valuation allowance for deferred tax assets (21,193) (11,156) Net deferred taxes $— $— A valuation allowance of $21,193,000 and $11,156,000 at December 31, 2012 and 2011, respectively, has been recognized to offset the net deferred taxassets as realization of such assets is uncertain. F-25Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements Income taxes computed by applying the U.S. Federal Statutory rates to income from continuing operations before income taxes are reconciled to theprovision for income taxes set forth in the statement of operations as follows (in thousands): December 31, 2012 2011 Income tax benefit at statutory federal rate $(2,708) $(4,042)State tax expense (benefit), net of federal (445) (664) Fair Value of Derivative (1,221) — Expired tax attributes 3,008 3,709 Removal of net operating losses and research and development credits (2,522) 2,644 Stock compensation expense — 22 Change in valuation allowance 10,037 167 Other (6,149) (1,836) Provision for income taxes $— $— 10. Subsequent EventsThe Company has completed an evaluation of all subsequent events through the issuance date of these consolidated financial statements and there are nosubsequent events for disclosure. F-26Table of ContentsEXHIBIT INDEX Exhibit Number Description2.1 Asset Purchase Agreement by and among La Jolla Pharmaceutical Company, GliaMed, Inc., and Jewel Merger Sub, Inc., dated asof March 29, 2011 (1)2.2 Asset Purchase Agreement by and among La Jolla Pharmaceutical Company and Solana Therapeutics, Inc., dated as ofJanuary 19, 2012 (2)2.3 Agreement and Plan of Merger of La Jolla Pharmaceutical Company, a Delaware corporation and LJPC Merger Sub, Inc., aCalifornia corporation (3)3.1 Articles of Incorporation (3)3.2 Bylaws (3)10.1 Form of Indemnification Agreement (4)*10.2 La Jolla Pharmaceutical Company 1994 Stock Incentive Plan (Amended and Restated as of May 16, 2003) (5)*10.3 La Jolla Pharmaceutical Company 1995 Employee Stock Purchase Plan (Amended and Restated as of June 20, 2008) (6)*10.4 La Jolla Pharmaceutical Company 2004 Equity Incentive Plan (Amended and Restated as of June 20, 2008) (6)*10.5 Form of Option Grant under the La Jolla Pharmaceutical Company 2004 Equity Incentive Plan (6)*10.6 La Jolla Pharmaceutical Company 2010 Equity Incentive Plan, as amended* (7)10.7 Form of Warrant Agreement (8)10.8 Confidential Separation Agreement and General Release of All Claims by and between La Jolla Pharmaceutical Company andDeirdre Y. Gillespie, M.D., dated as of January 13, 2012 (9)*10.9 Confidential Separation Agreement and General Release of All Claims by and between La Jolla Pharmaceutical Company andGail A. Sloan, dated as of January 13, 2012 (9)*10.10 Securities Purchase Agreement, dated as of May 24, 2010 by and among the Company and the Purchasers named therein (10)10.12 Form of Series C-2 Preferred Stock Purchase Warrant (10)10.13 Form of Series D-1 Preferred Stock Purchase Warrant (10)10.14 La Jolla Pharmaceutical Company Retirement Savings Plan (11)*10.15 Consent and Amendment Agreement by and among La Jolla Pharmaceutical Company and the undersigned parties thereto, datedas of March 29, 2011 (12)10.16 Consent and Amendment Agreement by and among La Jolla Pharmaceutical Company and the undersigned parties thereto, datedas of June 30, 2011 (13)Table of ContentsExhibit Number Description10.17 Second Amendment Agreement by and among La Jolla Pharmaceutical Company and the undersigned parties thereto, dated as ofAugust 24, 2011 (14)10.18 Consent and Amendment Agreement by and among La Jolla Pharmaceutical Company and the undersigned parties thereto, dated asof January 19, 2012 (2)10.19 Employment Offer Letter by and between La Jolla Pharmaceutical Company and George Francis Tidmarsh, M.D., Ph.D., dated as ofJanuary 19, 2012 (2)*10.20 Consent and Waiver Agreement, dated December 7, 2012 (15)10.21 Consent, Waiver and Amendment Agreement, dated March 28, 2013**16.1 Letter from BDO to the SEC, dated January 9, 2013 (16)21.1 Subsidiaries of La Jolla Pharmaceutical Company **23.1 Consent of Independent Registered Public Accounting Firm BDO LLP **23.2 Consent of Independent Registered Public Accounting Firm Squar, Milner, Peterson, Miranda & Williamson LLP **31.1 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 **101.INS XBRL Instance Document*101.SCH XBRL Taxonomy Extension Schema Document*101.CAL XBRL Taxonomy Extension Calculation Linkbase Document*101.DEF XBRL Taxonomy Extension Definition Linkbase Document*101.LAB XBRL Taxonomy Extension Label Linkbase Document*101.PRE XBRL Taxonomy Extension Presentation Linkbase Document* *This exhibit is a management contract or compensatory plan or arrangement.**Filed herewith.(1)Previously filed with the Company’s Current Report on Form 8-K filed April 5, 2011 and incorporated by reference herein.(2)Previously filed with the Company’s Current Report on Form 8-K, filed January 20, 2012 and incorporated by reference herein.(3)Previously filed with the Company’s Current Report on Form 8-K, filed June 20, 2012 and incorporated herein by reference.(4)Previously filed with the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 and incorporated by reference herein.(5)Previously filed with the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 and incorporated by 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 byreference herein.(7)Previously filed as Appendix A to the Company’s Definitive Revised Proxy Statement filed April 23, 2012, and incorporated by reference herein.(8)Previously filed with the Company’s Current Report on Form 8-K filed May 7, 2008 and incorporated by reference herein.(9)Previously filed with the Company’s Current Report on Form 8-K, filed January 20, 2012 and incorporated by reference herein.(10)Previously filed with the Company’s Current Report on Form 8-K filed May 28, 2010 and incorporated by reference herein.Table of Contents(11)Previously filed with the Company’s Current Report on Form 10-Q for the quarter ended September 30, 2010 and incorporated by reference herein.(12)Previously filed with the Company’s Current Report on Form 8-K filed April 5, 2011 and incorporated by reference herein.(13)Previously filed with the Company’s Current Report on Form 8-K, filed July 5, 2011 and incorporated by reference herein.(14)Previously filed with the Company’s Current Report on Form 8-K, filed August 25, 2011 and incorporated by reference herein.(15)Previously filed with the Company’s Current Report on Form 8-K, filed December 10, 2012 and incorporated by reference herein.(16)Previously filed with the Company’s Current Report on Form 8-K, filed January 14, 2013 and incorporated by reference herein.Exhibit 10.21CONSENT, WAIVER AND AMENDMENT AGREEMENTThis Consent, Waiver and Amendment Agreement (this “Agreement”), entered into as of March 28, 2013, is made by and among La JollaPharmaceutical Company, a California corporation (the “Company”), and the undersigned holders of the Company’s Preferred Stock (defined below) (each a“Holder” and collectively the “Holders”).WHEREAS, the Company and the Holders entered into a Securities Purchase Agreement dated as of May 24, 2010 (the “Securities PurchaseAgreement”);WHEREAS, the Company and the Holders entered into a Consent and Amendment Agreement dated as of March 29, 2011 (the “Consent andAmendment Agreement”), amending certain of the rights and obligations of the parties arising under the Securities Purchase Agreement;WHEREAS, the Company and the Holders entered into an Amendment Agreement dated as of June 30, 2011 (the “First Amendment Agreement”),amending certain of the rights and obligations of the parties arising under the Securities Purchase Agreement and the certificate of designations under whichthe preferred stock held by the Holders was designated and issued (the “Prior Certificate of Designations”);WHEREAS, the Company and the Holders entered into an Amendment Agreement dated as of August 24, 2011 (the “Second AmendmentAgreement”), amending certain of the rights and obligations of the parties arising under the Securities Purchase Agreement and the Prior Certificate ofDesignations;WHEREAS, the Company and the Holders entered into a Consent and Amendment Agreement dated as of January 19, 2012 (the “Third AmendmentAgreement”), amending certain of the rights and obligations of the parties arising under the Securities Purchase Agreement, approving the entry into theAsset Purchase Agreement (as defined in the Third Amendment Agreement) between the Company and Solana Therapeutics, Inc. and approving the adoptionof a “New Certificate of Designations” (as defined in the Third Amendment Agreement);WHEREAS, subsequent to the closing of the transactions contemplated under the Asset Purchase Agreement, the Company changed its corporatedomicile from Delaware to California, whereupon the Company filed Articles of Incorporation with the California Secretary of State (the “Articles ofIncorporation”), which effectively replaced the New Certificate of Designations and established the rights, preferences and privileges of the following seriesof preferred stock, which, upon effectiveness of the Articles of Incorporation, was and is currently the preferred stock held by the Holders: Series C-1Convertible Preferred Stock (the “Series C-1 Preferred”); Series C-2 Convertible Preferred Stock (the “Series C-2 Preferred” and, together with the Series C-1 Preferred the “Series C Preferred”); Series D-1 Convertible Preferred Stock (the “Series D-1 Preferred”); and Series D-2 Convertible Preferred Stock (the“Series D-2 Preferred” and, together with the Series D-1 Preferred, the “Series D Preferred,” and the Series C Preferred, together with the Series D Preferred,the “Preferred Stock”);WHEREAS, the Company and the Holders entered into a Consent and Waiver Agreement, dated as of December 7, 2012 (the “Fourth AmendmentAgreement”), whereby the Holders waived certain rights arising under the Articles of Incorporation;2222222222WHEREAS, the Holders currently own warrants to purchase “Units,” with each Unit consisting of: (i) one share Series C-2 Preferred; and (ii) a warrantto purchase one share of Series D-2 Preferred (the “Series C-2 Warrants”);WHEREAS, the Holders wish to waive certain other rights arising under the Articles of Incorporation and also wish to amend the Series C-2 Warrants,with such waiver and amendment being effective as of December 31, 2012, as set forth below;WHEREAS, the undersigned Holders represent the required threshold to effect such a waiver under the Articles of Incorporation and to amend theSeries C-2 Warrants; andWHEREAS, the undersigned Holders wish to exercise a portion of the Series C-2 Warrants, as amended pursuant to this Agreement, with such exercisebeing effective as of December 31, 2012.NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in this Agreement, and for other good and valuableconsideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:1. Capitalized Terms. Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to such terms in the FourthAmendment Agreement.2. Representations and Warranties of the Holders. Each of the Holders hereby represents and warrants to the Company that, with respect solely toitself and not with respect to any other Holder, each Holder has the requisite power and authority to enter into the Agreement, and if the Holder is an entity,such Holder is a corporation, limited liability company or partnership duly incorporated or organized, validly existing and in good standing under the lawsof the jurisdiction of its incorporation or organization.3. Waiver of Certain Rights. The Holders, constituting the Requisite Holders under the Articles of Incorporation, hereby consent to the followingactions and hereby irrevocably waive the following rights arising under the Articles of Incorporation, with such waiver being effective as of December 31,2012:(a) Pursuant to Article IV(d)(6)(E)(iii) of the Articles of Incorporation, the holders of the Series C Preferred hereby irrevocably waive theprovisions set forth under Article IV(d)(6) of the Articles of Incorporation and, accordingly, Article IV(d)(6) of the Articles of Incorporation shall hereafter beof no force or effect.(b) In light of the waiver of the provisions set forth under Article IV(d)(6) of the Articles of Incorporation, pursuant to Article IV(d)(13)(G) of theArticles of Incorporation, the Requisite Holders hereby irrevocably waive the provisions set forth under Article IV(d)(9)(E) of the Articles of Incorporation.(c) In light of the waiver of the provisions set forth under Article IV(d)(6) of the Articles of Incorporation, pursuant to Article IV(d)(13)(G) of theArticles of Incorporation, the Requisite Holders hereby irrevocably waive the provisions set forth under Article IV(d)(9)(F) of the Articles of Incorporation. -2-2222224. Amendment of Series C-2 Warrants. The Company and the Holders each acknowledge and agree that the Series C-2 Warrants have previouslybeen amended such that, although the warrant refers to Series C-2 Preferred Stock, the term Series C-2 Preferred Stock has been replaced with Series C-2Preferred, and nothing in this amendment, including referencing Series C-2 Preferred Stock shall change the fact that Series C-2 Preferred Stock actuallymeans Series C-2 Preferred. The Company and each Holder hereby agree to amend each of the Series C-2 Warrants held by such Holders, with suchamendment being effective as of December 31, 2012, as follows:(a) The first paragraph of the Series C-2 Warrant (appearing immediately prior to Section 1 of the Series C-2 Warrants) held by each Holder shallbe amended and restated as follows:“THIS SERIES C-2 PREFERRED STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, [the Holder] (the “Holder”)is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the Issue Dateset forth above and on or prior to the close of business on January 19, 2015 (the “Termination Date”) but not thereafter, to subscribe for andpurchase from La Jolla Pharmaceutical Company, a California corporation (the “Company”), up to [ ] shares (the “Warrant Shares”) of theCompany’s Series C-2 Preferred Stock (the “Series C-2 Preferred Stock”). The purchase price of one share of the Series C-2 Preferred Stock shallbe equal to the Exercise Price, as defined in Section 1(b). This Warrant is one of a series of warrants of like tenor issuable by the Company underthat certain Securities Purchase Agreement by and among the Company and the Purchasers named therein, dated as of May 24, 2010 (the“Purchase Agreement”) and referred to therein as the Cash Warrants. As used herein, “Warrants” means all such Cash Warrants.”(b) Section 1(a) shall be amended and restated as follows:“(a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or timeson or after the Issue Date and on or before the Termination Date by delivery to the Company (the date of such delivery, the “Exercise Date”) ofboth: (i) a duly executed electronic mail copy of the Notice of Exercise annexed hereto (or such other office or agency of the Company as it maydesignate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company); and (ii) sufficientfunds representing the Exercise Price, delivered by wire transfer. Notwithstanding anything herein to the contrary, the Holder shall not berequired to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder andthe Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three(3) Trading Days (as defined in the Certificate of Designations, Preferences and Rights of Series C-1 Convertible Preferred Stock, Series C-2Convertible Preferred Stock, Series D-1 Convertible Preferred Stock and Series D-2 Convertible Preferred Stock of the Company (the “Certificateof Designations”)) of the date the final Notice of Exercise is delivered to the Company. -3-2222222Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effectof lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Sharespurchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases.The Company shall deliver any objection to any Notice of Exercise within two (2) Trading Days of receipt of such notice. In the event of anydispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder may providethis Warrant, or an affidavit of lost security, to the Company within a reasonable period after the delivery of any Notice of Exercise related to anypartial exercise of this Warrant, and the Company, at its expense, will promptly thereafter issue and deliver to the Holder a new Warrant of liketenor, registered in the name of the Holder and exercisable, in the aggregate, for the remaining Warrant Shares available for purchase under thisWarrant. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph,following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any giventime may be less than the amount stated on the face hereof.”(c) Section 1(b) shall be amended and restated as follows:“(b) Exercise Price. The exercise price of the Warrant Shares under this Warrant shall be $1,000.00 per share, subject to adjustment hereunder (the“Exercise Price”).”(d) Section 1(c) shall be deleted in its entirety and replaced with the following: “Reserved.”(e) Section 1(e)(ii) shall be deleted in its entirety and replaced with the following: “Reserved.”(f) Section 1(e)(iv) shall be amended and restated as follows:“(iv) Rescission Rights. If the Company fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing theWarrant Shares pursuant to this Section 1(e) by the third (3) Trading Day immediately following the Warrant Share Delivery Date and thepayment of the Exercise Price, then the Holder will have the right to rescind such exercise at any time until delivery of such securities.”(g) Section 1(e)(vi) shall be amended and restated as follows:“(vi) Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue ortransfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by theCompany, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided,however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant whensurrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder; and the Company mayrequire, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.” -4-rd(h) Section 3(a) shall be amended and restated as follows:“(a) Transferability. Subject to compliance with any applicable securities laws, the conditions set forth in Section 3(d) hereof and theconditions set forth in the Purchase Agreement, this Warrant and all rights hereunder are transferable, in whole (not in part), upon surrender ofthis Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in theform attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the makingof such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in thename of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment and this Warrant shallpromptly be cancelled. A Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant Shares without having anew Warrant issued.”(i) Section 3(b) shall be amended and restated as follows:“(b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of theCompany, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holderor its agent or attorney. Subject to compliance with Section 3(a), as to any transfer which may be involved in such division or combination, theCompany shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordancewith such notice. All Warrants issued on transfers or exchanges shall be dated the original Issue Date and shall be identical with this Warrantexcept as to the number of Warrant Shares issuable pursuant thereto.”(j) Section 5(a) shall be amended and restated as follows:“(a) No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights or other rights as a stockholderof the Company prior to the exercise hereof. Upon the surrender of this Warrant and the payment of the aggregate Exercise Price, the WarrantShares so purchased shall be and be deemed to be issued to such Holder as the record owner of such shares as of the close of business on the laterof the date of such surrender and payment.” -5-(k) The first paragraph of Section 5(d) shall be amended and restated as follows:“The Company covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty ofexecuting stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights underthis Warrant. The Company will take all such reasonable action as may be necessary to assure that all Warrant Shares shall be issued as providedherein without violation of any applicable law or regulation, or of any requirements of the Trading Market (as defined in the Certificate ofDesignations). The Company covenants that all Warrant Shares that are required to be issued upon the exercise of the purchase rights representedby this Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued, fully paid andnonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of anytransfer occurring contemporaneously with such issue).”(l) Section 5(l) shall be amended and restated as follows:“(l) Amendment; Waiver. No provision of this Warrant may be waived or amended on behalf of all holders of Warrants other than by awritten instrument signed by the Company and the holders of Warrants entitling such holders to acquire at least 80% of the shares of Series C-2Preferred Stock of the Company that may be acquired upon exercise in full of all then outstanding Warrants. In addition to the foregoing, noprovision of this Warrant may be amended to increase the financial obligations of Holder under this Warrant other than by a written instrumentsigned by Holder. Nothing provided in this Section 5(l) shall limit an individual holder’s right to waive or amend any provision of any Warranton its own behalf. The Holder acknowledges that any amendment or waiver effected in accordance with this Section 5(l) shall be binding uponthe Holder (and its permitted assigns) and the Company, including, without limitation, an amendment or waiver that is not agreed to by theHolder or that has an adverse effect on any or all holders of Warrants.”5. Exercise of Series C-2 Warrants. Each Holder hereby agrees to exercise, effective December 31, 2012, a portion of the Series C-2 Warrant held bysuch Holder as set forth on Schedule A hereto. The signing of this Agreement shall constitute the exercise of such Series C-2 Warrants and no exercise noticeshall need to be sent to the Company to exercise such Series C-2 Warrants, as this Agreement shall constitute such notice. The Holders further agree totransfer to the Company the Exercise Price for each such Holder’s partial exercise of the Series C-2 Warrants, which such amounts of the aggregate ExercisePrice for each Holder is set forth on Schedule A hereto, no later March 27, 2013.6. Entire Agreement; Amendment. This Agreement contains the entire understanding and agreement of the parties with respect to the matters coveredhereby and, except as specifically set forth herein, neither the Company nor any Holder make any representation, warranty, covenant or undertaking withrespect to such matters, and they supersede all prior understandings and agreements with respect to said subject matter, all of which are merged herein. Noprovision of this Agreement may be waived or amended on behalf of all Holders other than by a written instrument signed by the Company and the RequisiteHolders. In addition to the foregoing, no provision of this Agreement may be amended to increase the financial obligations of any Holder under thisAgreement other than by a written instrument signed by such Holder. Nothing provided in this Section 6 shall limit an individual Holder’s right to waive oramend any provision of this Agreement on its own behalf. The Holders acknowledge that any waiver effected in accordance with this Section 6 shall bebinding upon each Holder (and their permitted assigns) and the Company, including, without limitation, a waiver that has an adverse effect on any or allHolders. -6-222227. Notices. Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be in writing and shall bedelivered in the manner and to the attention of the parties as set forth in the Fourth Amendment Agreement.8. Waivers. No waiver by any party of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be acontinuing waiver in the future or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exerciseany right hereunder in any manner impair the exercise of any such right accruing to it thereafter.9. Headings. The article, section and subsection headings in this Agreement are for convenience only and shall not constitute a part of this Agreementfor any other purpose and shall not be deemed to limit or affect any of the provisions hereof.10. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns.11. Governing Law. To the fullest extent permitted by law, this Agreement shall be governed by and construed in accordance with the internal laws ofthe State of California, without giving effect to any of the conflicts of law principles which would result in the application of the substantive law of anotherjurisdiction. This Agreement shall not be interpreted or construed with any presumption against the party causing this Agreement to be drafted.12. Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the sameinstrument and shall become effective when counterparts have been signed by each party and delivered to the other parties hereto, it being understood thatall parties need not sign the same counterpart.13. Disclosure of Transaction. The Company shall, in its Annual Report on Form 10-K, describe the material terms of the transactions contemplatedhereby and thereby, with the filing of the Form 10-K and a press release to be made no later than April 1, 2013. The Company will provide representativesfrom Tang Capital Partners, LP and Boxer Capital, LLC with the opportunity to review and approve the language describing the transactions to be used in the10-K and press release prior to issuance and filing, respectively, which approval will not be unreasonably withheld.14. Severability. The provisions of this Agreement are severable and, in the event that any court of competent jurisdiction shall determine that any oneor more of the provisions or part of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in anyrespect, such invalidity, illegality or unenforceability shall not affect any other provision or part of a provision of this Agreement and this Agreement shall bereformed and construed as if such invalid or illegal or unenforceable provision, or part of such provision, had never been contained herein, so that suchprovisions would be valid, legal and enforceable to the maximum extent possible. -7-15. Further Assurances. From and after the date of this Agreement, upon the request of the Holders or the Company, the Company and each Holdershall execute and deliver such instruments, documents and other writings as may be reasonably necessary or desirable to confirm and carry out and toeffectuate fully the intent and purposes of this Agreement.[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -8-IN WITNESS WHEREOF, the parties hereto have caused this Consent, Waiver and Amendment Agreement to be duly executed by their respectiveauthorized officers as of the date first above written. LA JOLLA PHARMACEUTICAL COMPANYBy: /s/ George Tidmarsh Name: George Tidmarsh, M.D. Ph.D. Title: President and Chief Executive Officer[SIGNATURE PAGES CONTINUE]IN WITNESS WHEREOF, the undersigned have caused this Consent, Waiver and Amendment Agreement to be duly executed by their respectiveauthorized signatories as of the date first indicated above. Name of Holder: Tang Capital Partners, LP Signature of Authorized Signatory of Holder: /s/ Kevin Tang Name of Authorized Signatory: Kevin Tang Title of Authorized Signatory: Managing Director Email Address of Holder: kevin@tangcapital.com Fax Number of Holder: 858 200 3837 Address for Notice of Holder: 4747 Executive Drive, Suite 510 San Diego, CA 92121 IN WITNESS WHEREOF, the undersigned have caused this Consent, Waiver and Amendment Agreement to be duly executed by their respectiveauthorized signatories as of the date first indicated above. Name of Holder: The Haeyoung and Kevin Tang Foundation, Inc. Signature of Authorized Signatory of Holder: /s/ Kevin Tang Name of Authorized Signatory: Kevin Tang Title of Authorized Signatory: President Email Address of Holder: kevin@tangcapital.com Fax Number of Holder: 858 200 3837 Address for Notice of Holder: 4747 Executive Drive, Suite 510 San Diego, CA 92121 IN WITNESS WHEREOF, the undersigned have caused this Consent, Waiver and Amendment Agreement to be duly executed by their respectiveauthorized signatories as of the date first indicated above. Name of Holder: Boxer Capital, LLC Signature of Authorized Signatory of Holder: /s/ Chris Fuglesang Name of Authorized Signatory: Chris Fuglesang Title of Authorized Signatory: Member Email Address of Holder: cfuglesang@tavistock.com Fax Number of Holder: 858 400 3101 Address for Notice of Holder: 440 Stevens Ave., Suite 100 Solana Beach, CA 92075 IN WITNESS WHEREOF, the undersigned have caused this Consent, Waiver and Amendment Agreement to be duly executed by their respectiveauthorized signatories as of the date first indicated above. Name of Holder: MVA Investors, LLC Signature of Authorized Signatory of Holder: /s/ Chris Fuglesang Name of Authorized Signatory: Chris Fuglesang Title of Authorized Signatory: President Email Address of Holder: cfuglesang@tavistock.com Fax Number of Holder: 858 400 3101 Address for Notice of Holder: 440 Stevens Ave, Suite 100 Solana Beach, CA 92075 IN WITNESS WHEREOF, the undersigned have caused this Consent, Waiver and Amendment Agreement to be duly executed by their respectiveauthorized signatories as of the date first indicated above. Name of Holder: RTW Investments, LLC Signature of Authorized Signatory of Holder: /s/ Roderick Wong Name of Authorized Signatory: Roderick Wong Title of Authorized Signatory: Managing Member Email Address of Holder: rwong@rtwfunds.com Fax Number of Holder: 646 597 6998 Address for Notice of Holder: 1350 Avenue of the Americas, 28th Floor New York, NY 10019 Schedule A Holder Number of Series C-2Warrants to Be Exercised Aggregate Exercise Priceof Partial Series C-2Warrant Exercise Tang Capital Partners, LP 324 $324,000.00 The Haeyoung and Kevin Tang Foundation, Inc. 15 $15,000.00 Boxer Capital, LLC 98 $98,000.00 MVA Investors, LLC 14 $14,000.00 RTW Investments, LLC 49 $49,000.00 22Exhibit 21.1Subsidiaries of La Jolla Pharmaceutical Company Name of Subsidiary State of IncorporationSL JPC Sub, Inc. DelawareEXHIBIT 23.1Consent of Independent Registered Public Accounting FirmLa Jolla Pharmaceutical CompanySan Diego, CaliforniaWe hereby consent to the incorporation by reference in the previously filed Registration Statement (Nos. 333-184909) on Form S-8 of La JollaPharmaceutical Company of our report dated March 30, 2012, relating to the consolidated financial statements of La Jolla Pharmaceutical Company, whichappear in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. Our report contains an explanatory paragraph regarding theCompany’s ability to continue as a going concern./s/ BDO USA, LLPSan Diego, CaliforniaApril 1, 2013EXHIBIT 23.2CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the previously filed Registration Statements (Nos. 333-184909) on Form S-8 of La JollaPharmaceutical Company of our report dated April 1, 2013, relating to our audit of the consolidated financial statement of La Jolla Pharmaceutical Companyas of and for the year ended December 31, 2012 which appears in this Annual Report on Form 10-K of La Jolla Pharmaceutical Company for the year endedDecember 31, 2012.SQUAR, MILNER, PETERSON, MIRANDA & WILLIAMSON, LLP/s/ Squar, Milner, Peterson, Miranda & Williamson, LLPSan Diego, CaliforniaApril 1, 2013EXHIBIT 31.1SECTION 302 CERTIFICATIONI, George Tidmarsh, 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 fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined 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 be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: April 1, 2013/s/ George TidmarshGeorge TidmarshPresident, Chief Executive Officer andSecretary(Principal Executive, Financial and Accounting Officer)EXHIBIT 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002The undersigned, in his capacity as an officer of La Jolla Pharmaceutical Company (the “Registrant”), hereby certifies, 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, 2012 (the “Report”), which accompanies this certification,fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and • the information contained in the Report fairly presents, in all material respects, the financial condition of the Registrant at the end of such yearand the results of operations of the Registrant of such year.Dated: April 1, 2013 /s/ George TidmarshGeorge TidmarshPresident, Chief Executive Officer andSecretary(Principal Executive, Financial and Accounting Officer)Note: A signed original of this written statement required by Section 906 has been provided to La Jolla Pharmaceutical Company and will be retained by LaJolla Pharmaceutical Company and furnished to the Securities and Exchange Commission or its staff upon request.

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