La Jolla Pharmaceutical Company
Annual Report 2013

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549 FORM 10-K x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2013ORo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For 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 of incorporation or organization) (I.R.S. Employer Identification Number)4660 La Jolla Village Drive, Suite 1070, San Diego, California, 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:Common Stock, Par Value $0.0001 per shareSecurities registered pursuant to Section 12(g) of the Act: Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No 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 of 1934 during thepreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90days. Yes x No oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submittedand posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. oIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or 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 filero Accelerated fileroNon-accelerated filero(Do not check if a smaller reporting company)Smaller reporting companyxIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct). Yes o No xThe aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant as of June 28, 2013 totaled approximately $2,286,465. As ofMarch 21, 2014, there were 7,257,033 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. Business1Item 1A. Risk Factors7Item 1B. Unresolved Staff Comments16Item 2. Properties17Item 3. Legal Proceedings17Item 4. Mine Safety Disclosures17PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities18Item 6. Selected Financial Data18Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations18Item 7A. Quantitative and Qualitative Disclosures About Market Risk22Item 8. Financial Statements and Supplementary Data22Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure22Item 9A. Controls and Procedures23Item 9B. Other Information23PART III Item 10. Directors, Executive Officers and Corporate Governance24Item 11. Executive Compensation28Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters31Item 13. Certain Relationships and Related Transactions, and Director Independence32Item 14. Principal Accountant Fees and Services33PART IV Item 15. Exhibits, Financial Statement Schedules34Signatures35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-401, LJPC-501 and our other product candidates; the future success of our clinical trials with GCS-100, LJPC-401 and LJPC-501; the timing for thecommencement and completion of clinical trials; and our ability to implement cost-saving measures. Forward-looking statements are neither historical factsnor assurances of future performance. These statements are based only on our current beliefs, expectations and assumptions regarding the future of ourbusiness, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-lookingstatements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which areoutside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, youshould not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materiallyfrom those indicated in the forward-looking statements include, among others: the risk that our clinical trials with GCS-100, LJPC-401 and LJPC-501 maynot be successful in evaluating the safety and tolerability of GCS-100, LJPC-401 and LJPC-501 or providing preliminary evidence of efficacy; the successfuland timely completion of clinical trials; uncertainties regarding the regulatory process; the availability of funds and resources to pursue our research anddevelopment projects, including our clinical trials with GCS-100, LJPC-401 and LJPC-501; general economic conditions; and those identified in this AnnualReport 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 Annual Report on Form 10-K speak as of the date hereof and the Company does not undertake to update any ofthese forward-looking statements to reflect a change in 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, our wholly-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 intended to significantly improve outcomes in patients with life-threatening diseases. Our drug development efforts are focused on three productcandidates: GCS-100, LJPC-501 and LJPC-401. GCS-100 targets the protein galectin-3, which, when overproduced by the human body, has been associatedwith chronic organ failure and cancer. In 2013, we conducted a Phase 1 trial and a randomized, placebo-controlled phase 2 clinical trial with GCS-100 for thetreatment of chronic kidney disease, or CKD. In March 2014, we announced positive top-line results from the Phase 2 trial of GCS-100 in CKD. LJPC-501 is apeptide agonist of the renin-angiotensin system, which is designed to help restore kidney function in patients with hepatorenal syndrome, or HRS. The Foodand Drug Administration, or FDA, accepted our Investigational New Drug Application, or IND, for LJPC-501 for the treatment of HRS and we plan to initiatea Phase 1 clinical trial in 2014. In February 2014, we announced the licensing of technology related to hepcidin (LJPC-401), which will be evaluated for thetreatment of iron disorders. We also plan to continue to evaluate other opportunities for potential product candidates for the treatment of unmet medicalneeds.Product PortfolioWe have a broad product portfolio consisting of both development-stage and discovery-stage products candidates. We strive to maintain a robustpipeline of product candidates to bring through development and to the market. Some of our product candidates may prove to be beneficial in diseaseindications beyond those we are now pursuing. We may out-license our product candidates to third parties or in-license other product candidates that aresynergistic with our current programs.GCS-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 makes modulationof the activity of galectin-3 an attractive target for therapy in these diseases.Chronic Kidney Disease (CKD)The 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.Several recent studies have shown that increased circulating levels of galectin-3 are associated with poorer outcomes in patients with chronic organfailure, 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.1Table of ContentsPhase 1 Study of GCS-100 in Severe CKDIn May 2013, we announced the completion of a Phase 1 clinical trial in patients with severe CKD. This trial was designed to determine the maximumtolerated dose and safety of a single dose of GCS-100 in this patient population. A total of 29 patients were enrolled and treated in 6 dose cohorts. Themaximum tolerated dose was determined by the study’s independent data safety monitor to be 30 mg/m2 based on one of the six patients treated at that doseexperiencing a Grade 3 adverse event. This event was defined as muscle cramps, which resolved without intervention and without any harm to the patient.As a secondary endpoint, serum galectin-3 levels were evaluated prior to and for 14 days after the single dose. Baseline galectin-3 levels wereinversely correlated with kidney function (defined as estimated glomerular filtration rate, or eGFR). This correlation was statistically significant with a pvalue of 0.003 and provides additional evidence that elevated levels of galectin-3 are involved in reduced kidney function. Data from this Phase 1 trial werepresented at the American Society of Nephrology in November 2013.Phase 2 Study of GCS-100 in Severe CKDIn March 2014, we announced positive top-line results from our randomized, placebo-controlled Phase 2 trial of GCS-100 in CKD. The trial met itsprimary efficacy endpoint of a statistically significant improvement in kidney function. Specifically, a dose of 1.5 mg/m2 led to a statistically significant(p=0.045) increase in eGFR compared to placebo between baseline and end of treatment. At the 30 mg/m2 dose, there was no statistically significantdifference.Key secondary endpoints were also met, and the effect on circulating galectin-3 levels was consistent with the effect on eGFR. For the 1.5 mg/m2 dose,there was a statistically significant (p=0.067) reduction in circulating levels of galectin-3, while there was no significant difference at the 30 mg/m2 doselevel. Potassium, uric acid and blood urea nitrogen, or BUN, all improved at the 1.5 mg/m2 dose level.GCS-100 was well-tolerated. Out of 121 patients enrolled, 117 completed treatment, including all 41 patients treated at the 1.5 mg/m2 dose. There wereno serious adverse events, or SAEs, in the 1.5 mg/m2 dose group compared to two in the placebo group and two in the 30 mg/m2 group. All SAEs weredeemed by the investigators as not drug-related.Non-alcoholic steatohepatitis (NASH) and 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 Institute ofDiabetes and Digestive and Kidney Diseases (“NIDDK”) estimated that NASH affects between two and five percent of Americans. In 2004, NIDDK estimatedthat 5.5 million Americans had chronic liver disease or cirrhosis, and that $1.6 billion was spent annually on the treatment for chronic liver disease andcirrhosis. Chronic liver disease and cirrhosis were estimated to be the 12th leading cause of death in the United States, accounting for approximately 27,000deaths annually.We have conducted two preclinical studies examining the effect of GCS-100 on liver fibrosis in mice. The study, which was performed in collaborationwith the Stelic Institute, was conducted in an established, benchmark preclinical model for non-alcoholic steatohepatitis-hepatocellular carcinoma, or NASH-HCC. When compared to placebo-treated control animals, GCS-100-treated animals showed a statistically significant reduction in liver fibrosis and astatistically significant improvement in the score of non-alcoholic fatty liver disease, or NAFLD. A statistically significant improvement in liver function wasalso observed, as measured by the liver enzyme alanine transaminase, or ALT, which in some cases returned to near normal levels.Other Galectin-3 InhibitorsTargeting galectin-3 with pectin-based therapeutics such as GCS-100 may be insufficiently specific for the treatment of certain disorders involvingover-expression of galectin-3 such as cancer. Therefore, we are exploring alternatives to pectin-based inhibition of galectin-3 for diseases such as cancer. Bymodulating galectin-3’s effects on cell survival, blood vessel growth and the immune response, specific inhibitors of galectin-3 have the potential to treatvarious forms of cancer. The American Cancer Society estimated that, in 2013, approximately 1.7 million new cases of cancer are expected to be diagnosed inthe United States, and cancer will be the cause of death of approximately 600,000 Americans.2Table of ContentsLJPC-501LJPC-501 is a peptide agonist of the renin-angiotensin system that acts to help the kidneys balance body fluids and electrolytes. Studies have shownthat LJPC-501 may improve renal function in patients with HRS. HRS is a life-threatening form of progressive renal failure in patients with liver cirrhosis orfulminant liver failure. In these patients, the diseased liver secretes vasodilator substances (e.g., nitric oxide and prostaglandins) into the bloodstream thatcause under-filling of blood vessels. This low-blood-pressure state causes a reduction in blood flow to the kidneys. As a means to restore systemic bloodpressure, 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 a 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 from HRS.Based on this meeting we filed and received an IND for LJPC-501 for the treatment of HRS. We plan to initiate a Phase 1 clinical trial in HRS in 2014.LJPC-401 (Hepcidin)LJPC-401 is also known as hepcidin and we licensed intellectual property covering the composition of hepcidin from INSERM in February 2014. Theuse of hepcidin will be evaluated as a treatment for disorders of iron overload including hemolytic anemia. The active form of hepcidin is a 25 amino acidprotein that serves as a master regulator of iron metabolism. Hepcidin synthesis in the liver is regulated by multiple signals including iron stores,erythropoietic activity (the production of red blood cells) and inflammatory cytokines. Iron levels control hepcidin synthesis via the coordinated activity ofcell surface receptors.Hepcidin synthesis in hepatocytes is suppressed by erythropoietic activity by signaling to hepatocytes to decrease hepcidin production. Thissuppressive effect is particularly strong in diseases of ineffective erythropoiesis such as thalassemia and sickle cell disease. Circulating hepcidin levels arebelow normal in thalassemia patients despite significant iron overload. In addition, Hereditary Hemochromatosis and the more severe form, juvenilehemochromatosis, are both inherited disorders of reduced hepcidin production and consequently iron overload. Patients with iron accumulate iron in criticalorgans such as the heart, and pancreas leading to heart failure and diabetes. Patients with iron overlaod are often treated with iron chelators such asdeferasirox. Iron chelators are often ineffective or poorly tolerated leading to the need for other technologies, such as hepcidin, for the treatment of ironoverload.Financial ConditionAt December 31, 2013, we had $8.6 million in cash and equivalents and positive working capital of $7.7 million. We believe that our current cashresources are sufficient to fund operations through December 31, 2014. We have spent $4.2 million over the past three years on research and developmentfocused primarily on the development of GCS-100 and other pipeline product candidates.Patents and Proprietary TechnologiesAs of March 21, 2014, the Company had: (i) three issued patents, one allowed patent and three pending patent applications in the United States; (ii)one 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. The issued and allowed patents expire between 2025 and 2028,not taking into account any potential patent-term extensions that may be available in the future. In addition, we have a patent application covering methodsof use for LJPC-501 and we have in-licensed a patent from Inserm in France covering compositions of matter including LJPC-401. The in-licensed patentwill expire in 2025.In addition to the above, we plan to file additional patent applications that, if issued, would provide further protection for GCS-100 and LJPC-501.3Table of ContentsCompetitionThe biotechnology and pharmaceutical industries are subject to rapid technological change. Competition from domestic and foreign biotechnologycompanies, large pharmaceutical companies and other institutions is intense and expected to increase. A number of companies are pursuing the developmentof pharmaceuticals in our targeted areas. These include companies that are conducting preclinical studies and clinical trials in the field of galectin 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 relating to theresearch and development of potential treatments for chronic organ failure and cancer, as well as galectin regulation as a potential target for therapy. Most ofthese companies and institutions have substantially greater facilities, resources, research and development capabilities, regulatory compliance expertise, andmanufacturing and marketing capabilities than we do. In addition, other technologies in the future may be the basis of competitive products. There can be noassurance that our competitors will not develop or obtain regulatory approval for products more rapidly than we can, or develop and market technologies andproducts that are more effective than those we are developing or that would render our technology and proposed products obsolete or noncompetitive.ManufacturingWe currently have no manufacturing or production facilities and, accordingly, rely on third parties for clinical production of our product candidates.We currently obtain the active pharmaceutical ingredient for GCS-100 from Johnson Matthey Pharma Services in Devens, Massachusetts and for LJPC-501and LJPC-401 from Polypeptide Laboratories in San Diego, California. All drug product is prepared by Irvine Pharmaceutical Services in Irvine, California.Government RegulationUnited StatesOur research and development activities and the future manufacturing and marketing of any products we develop are subject to significant regulationby numerous government authorities in the United States and other countries. In the United States, the Federal Food, Drug and Cosmetic Act and the PublicHealth Service Act govern the testing, manufacture, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion, and distributionof our drug candidates and any products we may develop. In addition, this regulatory framework is subject to changes that may adversely affect approval,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.Preclinical 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 being testedunder the supervision of qualified clinical investigators. Clinical trials are conducted in accordance with protocols that detail the objectives of the study, theparameters 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. Each clinical trialis conducted under the auspices of an independent Institutional Review Board (“IRB”) in the United States, or Ethics Committee (“EC”) outside the UnitedStates, for each trial site. The IRB or EC considers, among other matters, ethical factors and the safety of human subjects.4Table of ContentsClinical 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. The submission ofan NDA or BLA also requires the payment of user fees, but a waiver of the fees may be obtained under specified circumstances. The testing and approvalprocess 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, if at all, orthat conditions of any approval, such as warnings, contraindications, or scope of indications will not materially impact the potential market acceptance andprofitability of the drug product. Data obtained from clinical trials are not always conclusive, and the FDA may interpret data differently than we interpret thesame data. The FDA may refer the application to an advisory committee for review, evaluation and recommendation as to whether the application should beapproved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it generally follows suchrecommendations. The approval process is affected by a number of factors, including the severity of the disease, the availability of alternative treatments, andthe 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. After FDAapproval for the initial indications, further clinical trials may be necessary to gain approval for the use of the product for additional indications. In addition,after approval, some types of changes to the approved product, such as manufacturing changes, are subject to further FDA review and approval. The FDAmandates that adverse effects be reported to the FDA and may also require post-marketing testing to monitor for adverse effects, which can involve significantexpense. Adverse effects observed during the commercial use of a drug product or which arise in the course of post-marketing studies can result in the needfor labeling revisions, including additional warnings and contraindications, and, if the findings significantly alter the risk/benefit assessment, the potentialwithdrawal of the drug from the market.Among the conditions for FDA approval is the requirement that the prospective manufacturer’s quality control and manufacturing procedures conformto the FDA’s cGMP requirements. Domestic manufacturing facilities are subject to biannual FDA inspections and foreign manufacturing facilities are subjectto 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.ForeignWe 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.5Table of ContentsUpon receiving the MAA, the Committee for Human Medicinal Products (the “CHMP”), a division of the EMA, will review the MAA and may respondwith 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 21, 2014, we employed seven regular full-time employees, five of whom are engaged in research and clinical development activities, oneof whom has an M.D. and a Ph.D., and two 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 and testing ofRiquent, a drug candidate being studied for the treatment of lupus nephritis, an antibody-mediated disease. From August 2004 to February 2009, Riquent wasbeing studied in a double-blinded multicenter Phase 3 clinical trial, which was determined to be futile in February 2009. Accordingly, the development ofRiquent was discontinued in 2009. In May 2010, we entered into a Securities Purchase Agreement with certain institutional and accredited investors,pursuant to which we issued various series of preferred stock, which have been subsequently exchanged for preferred stock designated in a different series. Asummary of the preferred stock issuances and subsequent exchanges is set forth in Note 3 of the notes to the consolidated financial statements includedelsewhere in this annual report. In March 2011, we acquired rights to certain compounds known as Regenerative Immunophilin Ligands. Following theacquisition of these compounds, we initiated a confirmatory preclinical animal study, which was completed in May 2011 and showed that the predeterminedstudy endpoints were not met. Accordingly, we halted the further development of those compounds at that time and sold them back to the party from whomwe 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 is whollyowned by our largest holder of Series C-12 Convertible Preferred Stock, and we paid only nominal consideration for the assets. As a result of our acquisitionof these assets, we are now focused on the development of therapeutic agents that inhibit the activity of galectins as a means of treating human diseases suchas chronic organ failure and cancer.During 2013 we expanded our pipeline to include LJPC-501 for the treatment of hepatorenal syndrome. We plan to initate a Phase 1 clinical trialduring the first half of 2014. In February 2014 we also licensed the worldwide exclusive right to LJPC-401 (or "hepcidin") for the treatment of iron overloadand are currently preparing to file an IND with FDA.Available InformationYou are advised to read this Annual Report on Form 10-K in conjunction with other reports and documents that we file from time to time with theSecurities and Exchange Commission, or SEC. In particular, please read our definitive proxy statements, our Quarterly Reports on Form 10-Q and any CurrentReports on Form 8-K that we may file from time to time. You may obtain copies of these reports after the date of this annual report directly from us or from theSEC at the SEC’s Public Reference Room at 100 F Street, N.E. Washington, D.C. 20549. In addition, the SEC maintains information for electronic filers(including us) at its website at www.sec.gov. The public may obtain information regarding the operation of the Public Reference Room by calling the SEC at1-800-SEC-0330. We make our periodic and current reports available on our internet website, www.ljpc.com, free of charge, as soon as reasonably practicableafter such material is electronically filed with, or furnished to, the SEC.6Table of ContentsItem 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 other informationbefore deciding to invest in our common stock. The risks described below are not the only ones facing our company. Additional risks not presently known tous or that we currently consider immaterial may also adversely affect our business. We have attempted to identify below the major factors that could causedifferences 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. In thiscase, the trading price of our common stock could decline, and you could lose all or part of your investment.We have only limited assets and will need to raise additional capital before we can expect to become profitable.As of December 31, 2013, we had no revenue sources, an accumulated deficit of $465.3 million and available cash and cash equivalents of $8.6million. Although we acquired the GCS-100 patent estate in January 2012 for nominal consideration, licensed rights to LJPC-401 and internally developedLJPC-501, the values of these assets are highly uncertain. As a result, we have only limited assets available to operate and develop our business. We areutilizing our existing cash balances to conduct clinical studies of GCS-100 and LJPC-501 and to evaluate whether or not GCS-100, LJPC-501 and LJPC-401should be developed further. We believe that our current cash resources are sufficient to fund operations through December 31, 2014 however; we expect thatwe will require additional capital to obtain regulatory approval for, and to commercialize, our product candidates. In addition, our operating plans maychange as a result of many factors that may currently be unknown to us, and we may need to seek additional funds sooner than planned. Our future fundingrequirements will depend on many factors, including but not limited to:•the scope, rate of progress, results and cost of our clinical studies, nonclinical testing, and other related activities;•the cost of manufacturing clinical supplies, and establishing commercial supplies, of our product candidates and any products that we may develop;•the number and characteristics of product candidates that we pursue;•the cost, timing, and outcomes of regulatory approvals;•the cost and timing of establishing sales, marketing, and distribution capabilities; and•the terms and timing of any collaborative, licensing, and other arrangements that we may establish, including any required milestone and royaltypayments thereunder.Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop andcommercialize our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptableto us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additionalsecurities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. The sale of additional equityor convertible securities would dilute all of our stockholders. The incurrence of indebtedness could result in increased fixed payment obligations and we maybe required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell, orlicense intellectual property rights, and other operating restrictions that could adversely impact our ability to conduct our business. We could also berequired to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable and we may berequired to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us, any of which may have amaterial adverse effect on our business, operating results, and prospects. Even if we believe we have sufficient funds for our current or future operating plans,we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay, or discontinue one or more of our research ordevelopment programs or the commercialization of any product candidates or be unable to expand our operations or otherwise capitalize on our businessopportunities, as desired, which could materially affect our business, financial condition, and results of operations.7Table of ContentsWe have never generated any revenue from product sales and may never be profitable.We have no products approved for commercialization and have never generated any revenue from product sales. Our ability to generate revenue andachieve profitability depends on our ability, alone or with strategic collaboration partners, to successfully complete the development of, and obtain theregulatory and marketing approvals necessary to commercialize one or more of our product candidates. We do not anticipate generating revenue fromproduct sales for the foreseeable future. Our ability to generate future revenue from product sales depends heavily on our success in many areas, including butnot limited to:•completing research and nonclinical and clinical development of our product candidates;•obtaining regulatory and marketing approvals for product candidates for which we complete clinical studies;•launching and commercializing product candidates for which we obtain regulatory and marketing approval, either directly or with a collaborator ordistributor;•obtaining market acceptance of our product candidates as viable treatment options;•addressing any competing technological and market developments;•identifying, assessing, acquiring and/or developing new product candidates;•negotiating favorable terms in any collaboration, licensing, or other arrangements into which we may enter;•maintaining, protecting, and expanding our portfolio of intellectual property rights, including patents, trade secrets, and know-how; and•attracting, hiring, and retaining qualified personnel.Even if one or more of the product candidates that we develop is approved for commercial sale, we anticipate incurring significant costs associated withcommercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the FDA, the EMA or otherregulatory agencies, domestic or foreign, to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies inaddition to those that we currently anticipate. In cases where we are successful in obtaining regulatory approvals to market one or more of our productcandidates, our revenue will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval, the accepted price forthe product, the ability to get reimbursement at any price, and whether we own the commercial rights for that territory. If the number of our addressablepatients is not as significant as we estimate, the indication approved by regulatory authorities is narrower than we expect, or the reasonably acceptedpopulation for treatment is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of suchproducts, even if approved. Additionally, if we are not able to generate revenue from the sale of any approved products, we may never become profitable.The technology underlying our compounds is uncertain and unproven.The development efforts for GCS-100, LJPC-401 and LJPC-501 are based on unproven technologies and therapeutic approaches that have not beenwidely tested or used. To date, no products that use the GCS-100, LJPC-401 or LJPC-501 technology have been approved or commercialized. Application ofour technology to treat chronic organ failure and cancer is in early stages. Preclinical studies and future clinical trials of GCS-100, LJPC-401 and LJPC-501may be viewed as a test of our entire approach to developing chronic organ failure and cancer therapeutics. If GCS-100, LJPC-401 or LJPC-501 do not workas intended, or if the data from our future clinical trials indicate that GCS-100, LJPC-401 or LJPC-501 are not safe and effective, the applicability of ourtechnology for successfully treating chronic organ failure or cancer will be highly uncertain. As a result, there is a significant risk that our therapeuticapproaches will not prove to be successful, and there can be no guarantee that our drug technologies will result in any commercially successful products.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. Inorder to sell any product that is under development, we must first receive regulatory approval. To obtain regulatory approval, we must conduct clinical trialsand toxicology studies that demonstrate that our drug candidates are safe and effective. The process of obtaining FDA and foreign regulatory approvals iscostly, time consuming, uncertain and subject to unanticipated delays.8Table of ContentsThe FDA and foreign regulatory authorities have substantial discretion in the approval process and may not agree that we have demonstrated that ourdrug candidates are safe and effective. If our drug candidates are ultimately not found to be safe and effective, we would be unable to obtain regulatoryapproval to manufacture, market and sell them. We can provide no assurances that the FDA or foreign regulatory authorities will approve GCS-100, LJPC-401or LJPC-501, or, if approved, what the approved indication for GCS-100, LJPC-401 or LJPC-501 might be.Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies may not be predictive offuture study results.Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during theclinical study process. The results of nonclinical studies and early clinical studies of our product candidates may not be predictive of the results of later-stageclinical studies. Product candidates that have shown promising results in early-stage clinical studies may still suffer significant setbacks in subsequentclinical studies. For example, the safety or efficacy results generated to date in clinical studies for GCS-100 do not ensure that later clinical studies willdemonstrate similar results. There is a high failure rate for drugs proceeding through clinical studies, and product candidates in later stages of clinical studiesmay fail to show the desired safety and efficacy despite having progressed through nonclinical studies and initial clinical studies. A number of companies inthe biopharmaceutical industry have suffered significant setbacks in advanced clinical studies due to lack of efficacy or adverse safety profiles,notwithstanding promising results in earlier studies. Moreover, nonclinical and clinical data are often susceptible to varying interpretations and analyses. Wedo not know whether any clinical studies we may conduct will demonstrate consistent or adequate efficacy and safety sufficient to obtain regulatory approvalto market our drug candidates.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 product candidates 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.If 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 contract with third-party manufacturers tomanufacture GCS-100, LJPC-401 and LJPC-501. The manufacture of pharmaceutical products requires significant expertise and capital investment,including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounterdifficulties in production, which include difficulties with production costs and yields, quality control and assurance and shortages of qualified personnel, aswell as compliance with strictly enforced federal, state and foreign regulations. The third-party manufacturers we contract with may not perform as agreed ormay terminate their agreements with us.In addition to product approval, any facility in which GCS-100, LJPC-401 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, LJPC-401 and LJPC-501.Any of these factors could cause us to delay or suspend any future clinical trials, regulatory submissions, required approvals or commercialization ofGCS-100, LJPC-401 and LJPC-501, entail higher costs and result in our being unable to effectively commercialize products.9Table of ContentsOur 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 technologies that wemay have developed or acquired. Our patents and patent applications cover various technologies and drug candidates, including GCS-100, LJPC-401 andLJPC-501. There can be no assurance, however, that any additional patents will be issued, that the scope of any patent protection will be sufficient to protectus or our technology, or that any current or future issued patent will be held valid if subsequently challenged. There is a substantial backlog ofbiotechnology patent applications at the United States Patent and Trademark Office that may delay the review and issuance of any patents. The patentposition of biotechnology firms like ours is highly uncertain and involves complex legal and factual questions, and no consistent policy has emergedregarding the breadth of claims covered in biotechnology patents or the protection afforded by these patents. Additionally, a recent U.S. Supreme Courtopinion further limits the scope of patentable inventions in the life sciences space and has added increased uncertainty around the validity of certain patentsthat have been issued or may be the subject of pending patent applications. We intend to continue to file patent applications as we believe is appropriate toobtain patents covering both our products and processes. However, there can be no assurance that patents will be issued from any of these applications, orthat the scope of any issued patents will protect our technology.We do not necessarily know if others, including competitors, have patents or patent applications pending that relate to compounds or processes thatoverlap 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, LJPC-401and LJPC-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. Whilewe seek to protect these rights, it is possible that:•others, including competitors, will develop inventions relevant to our business;•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 infringement ofintellectual property rights or in prosecuting suits that we might bring against others to protect our intellectual property rights.10Table of ContentsPatent policy and rule changes could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement ordefense of our issued patents.Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents ornarrow the scope of our patent protection. The laws of foreign countries may not protect our rights to the same extent as the laws of the United States.Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and otherjurisdictions are typically not published until 18 months after filing, or in some cases not at all. We therefore cannot be certain that we or our licensors werethe first to make the invention claimed in our owned and licensed patents or pending applications, or that we or our licensor were the first to file for patentprotection of such inventions. Assuming the other requirements for patentability are met, in the United States prior to March 15, 2013, the first to make theclaimed invention is entitled to the patent, while outside the United States, the first to file a patent application is entitled to the patent. After March 15, 2013,under the Leahy-Smith America Invents Act, or the Leahy-Smith Act, enacted on September 16, 2011, the United States has moved to a first to file system.The Leahy-Smith Act also includes a number of significant changes that affect the way patent applications will be prosecuted and may also affect patentlitigation. The effects of these changes are currently unclear as the USPTO must still implement various regulations, the courts have yet to address any ofthese provisions and the applicability of the act and new regulations on specific patents discussed herein have not been determined and would need to bereviewed. In general, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patentapplications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.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 is expected toincrease. A number of companies and institutions are pursuing the development of pharmaceuticals in our targeted areas. Many of these companies are verylarge, and have financial, technical, sales and distribution and other resources substantially greater than ours. The greater resources of these competitors couldenable them to develop competing products more quickly than we are able to, and to market any competing product more quickly or effectively so as tomake it extremely difficult for us to develop a share of the market for our products. These competitors also include companies that are conducting clinicaltrials and preclinical studies in the field of cancer therapeutics. Our competitors may develop or obtain regulatory approval for products more rapidly than wedo. Also, the biotechnology and pharmaceutical industries are subject to rapid changes in technology. Our competitors may develop and market technologiesand products that are more effective or less costly than those we are developing or that would render our technology and proposed products obsolete ornoncompetitive.Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit thecommercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay, or halt clinical studies and couldresult in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. Results of our studies couldreveal a high and unacceptable severity and prevalence of undesirable side effects. In such an event, our studies could be suspended or terminated, and theFDA or comparable foreign regulatory authorities could order us to cease further development of or deny or withdraw approval of our product candidates forany or all targeted indications.The drug-related side effects could affect patient recruitment, the ability of enrolled patients to complete the study, or result in potential productliability claims. We currently carry product liability insurance in the amount of $3.0 million in the aggregate. We believe our product liability insurancecoverage is sufficient in light of our current clinical programs; however, we may not be able to maintain insurance coverage at a reasonable cost or insufficient amounts to protect us against losses due to liability. A successful product liability claim or series of claims brought against us could cause ourstock price to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business. In addition, regardlessof merit or eventual outcome, product liability claims may result in impairment of our business reputation, withdrawal of clinical study participants, costs dueto related litigation, distraction of management’s attention from our primary business, initiation of investigations by regulators, substantial monetary awardsto patients or other claimants, the inability to commercialize our product candidates, and decreased demand for our product candidates, if approved forcommercial sale.11Table of ContentsAdditionally, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused bysuch products, a number of potentially significant negative consequences could result, including but not limited to:•regulatory authorities may withdraw approvals of such product;•regulatory authorities may require additional warnings on the label;•we may be required to create a Risk Evaluation and Mitigation Strategy, or REMS, plan, which could include a medication guide outlining the risksof such side effects for distribution to patients, a communication plan for healthcare providers, and/or other elements to assure safe use;•we could be sued and held liable for harm caused to patients; and•our reputation may suffer.Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and couldsignificantly harm our business, results of operations, and prospects.Even if we obtain regulatory approval for a product candidate, our products will remain subject to regulatory scrutiny.If our product candidates are approved, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage,advertising, promotion, sampling, record-keeping, conduct of post-marketing studies, and submission of safety, efficacy, and other post-market information,including both federal and state requirements in the United States and requirements of comparable foreign regulatory authorities.Manufacturers and manufacturers’ facilities are required to comply with extensive FDA, and comparable foreign regulatory authority, requirements,including ensuring that quality control and manufacturing procedures conform to current Good Manufacturing Practices, or cGMP, regulations. As such, weand our contract manufacturers will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made inany NDA, BLA or marketing authorization application, or MAA. Accordingly, we and others with whom we work must continue to expend time, money, andeffort in all areas of regulatory compliance, including manufacturing, production, and quality control.Any regulatory approvals that we receive for our product candidates may be subject to limitations on the approved indicated uses for which the productmay be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase IV clinical trials,and surveillance to monitor the safety and efficacy of the product candidate. We will be required to report certain adverse reactions and production problems,if any, to the FDA and comparable foreign regulatory authorities. Any new legislation addressing drug safety issues could result in delays in productdevelopment or commercialization, or increased costs to assure compliance. We will have to comply with requirements concerning advertising andpromotion for our products. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions andmust be consistent with the information in the product’s approved label. As such, we may not promote our products for indications or uses for which they donot have approval. The holder of an approved NDA, BLA, or MAA must submit new or supplemental applications and obtain approval for certain changes tothe approved product, product labeling, or manufacturing process. We could also be asked to conduct post-marketing clinical studies to verify the safety andefficacy of our products in general or in specific patient subsets. If original marketing approval were obtained via the accelerated approval pathway, we couldbe required to conduct a successful post-marketing clinical study to confirm clinical benefit for our products. An unsuccessful post-marketing study or failureto complete such a study could result in the withdrawal of marketing approval.If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, orproblems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, such regulatory agencymay impose restrictions on that product or us, including requiring withdrawal of the product from the market. If we fail to comply with applicable regulatoryrequirements, a regulatory agency or enforcement authority may, among other things:•issue warning letters;•impose civil or criminal penalties;•suspend or withdraw regulatory approval;•suspend any of our ongoing clinical studies;•refuse to approve pending applications or supplements to approved applications submitted by us;•impose restrictions on our operations, including closing our contract manufacturers’ facilities; or•seize or detain products, or require a product recall.12Table of ContentsAny government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generatenegative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize andgenerate revenue from our products. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operatingresults will be adversely affected.We may not be successful in our efforts to identify, license, discover, develop, or commercialize additional product candidates.Although a substantial amount of our effort will focus on the continued clinical testing, potential approval, and commercialization of our existingproduct candidates, the success of our business also depends upon our ability to identify, license, discover, develop, or commercialize additional productcandidates. Research programs to identify new product candidates require substantial technical, financial, and human resources. We may focus our efforts andresources on potential programs or product candidates that ultimately prove to be unsuccessful. Our research programs or licensing efforts may fail to yieldadditional product candidates for clinical development and commercialization for a number of reasons, including but not limited to the following:•our research or business development methodology or search criteria and process may be unsuccessful in identifying potential product candidates;•we may not be able or willing to assemble sufficient resources to acquire or discover additional product candidates;•our product candidates may not succeed in preclinical or clinical testing;•our potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the productsunmarketable or unlikely to receive marketing approval;•competitors may develop alternatives that render our product candidates obsolete or less attractive;•product candidates we develop may be covered by third parties’ patents or other exclusive rights;•the market for a product candidate may change during our program so that such a product may become unreasonable to continue to develop;•a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and•a product candidate may not be accepted as safe and effective by patients, the medical community, or third-party payors.If any of these events occur, we may be forced to abandon our development efforts for a program or programs, or we may not be able to identify, license,discover, develop, or commercialize additional product candidates, which would have a material adverse effect on our business and could potentially causeus to cease operations.If the market opportunities for our product candidates are smaller than we believe they are, our revenue may be adversely affected, and our business maysuffer.Our estimates of the potential market opportunity for each of our product candidates include several key assumptions based on our industryknowledge, industry publications, third-party research reports and other surveys. While we believe that our internal assumptions are reasonable, noindependent source has verified such assumptions. If any of these assumptions proves to be inaccurate, then the actual market for our product candidatescould be smaller than our estimates of our potential market opportunity. If the actual market for our product candidates is smaller than we expect, our productrevenue may be limited and it may be more difficult for us to achieve or maintain profitability.13Table of ContentsThe commercial success of any current or future product candidate will depend upon the degree of market acceptance by physicians, patients, third-partypayors, and others in the medical community.Even with the requisite approvals from the FDA and comparable foreign regulatory authorities, the commercial success of our product candidates willdepend in part on the medical community, patients, and third-party payors accepting our product candidates as medically useful, cost-effective, and safe. Anyproduct that we bring to the market may not gain market acceptance by physicians, patients, third-party payors, and others in the medical community. Thedegree of market acceptance of any of our product candidates, if approved for commercial sale, will depend on a number of factors, including:•the efficacy of the product as demonstrated in clinical studies and potential advantages over competing treatments;•the prevalence and severity of any side effects, including any limitations or warnings contained in a product’s approved labeling;•the clinical indications for which approval is granted;•relative convenience and ease of administration;•the cost of treatment, particularly in relation to competing treatments;•the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;•the strength of marketing and distribution support and timing of market introduction of competitive products;•publicity concerning our products or competing products and treatments; and•sufficient third-party insurance coverage and reimbursement.Even if a potential product displays a favorable efficacy and safety profile in nonclinical and clinical studies, market acceptance of the product willnot be fully known until after it is launched. Our efforts to educate the medical community and third-party payors on the benefits of the product candidatesmay require significant resources and may never be successful. If our product candidates are approved but fail to achieve an adequate level of acceptance byphysicians, patients, third-party payors, and others in the medical community, we will not be able to generate sufficient revenue to become or remainprofitable.14Table of ContentsWe may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, and health information privacy andsecurity laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.If we obtain FDA approval for any of our product candidates and begin commercializing those products in the United States, our operations may bedirectly, or indirectly through our customers, subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute, the federal False Claims Act, and physician sunshine laws and regulations. These laws may impact, among other things, our proposed sales,marketing, and education programs. In addition, we may be subject to patient privacy regulation by both the federal government and the states in which weconduct our business. The laws that may affect our ability to operate include:•the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering orpaying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under afederal healthcare program, such as the Medicare and Medicaid programs;•federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities fromknowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false orfraudulent;•the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibitexecuting a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;•HIPAA, as amended by the Health Information Technology and Clinical Health Act, or HITECH, and its implementing regulations, which imposescertain requirements relating to the privacy, security, and transmission of individually identifiable health information;•the federal physician sunshine requirements under the Health Care Reform Laws requires manufacturers of drugs, devices, biologics, and medicalsupplies to report annually to the U.S. Department of Health and Human Services information related to payments and other transfers of value tophysicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcareproviders and their immediate family members and applicable group purchasing organizations; and•state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed byany third-party payor, including commercial insurers, state laws that require pharmaceutical companies to comply with the pharmaceuticalindustry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrictpayments that may be made to healthcare providers and other potential referral sources; state laws that require drug manufacturers to reportinformation related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures, and state lawsgoverning the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and maynot have the same effect, thus complicating compliance efforts.Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our businessactivities could be subject to challenge under one or more of such laws. In addition, recent health care reform legislation has strengthened these laws. Forexample, the Health Care Reform Law, among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes.A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. Moreover, the Health Care Reform Law providesthat the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false orfraudulent claim for purposes of the False Claims Act.If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may besubject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in government health care programs, such asMedicare and Medicaid, imprisonment, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate ourbusiness and our results of operations.15Table of ContentsII. RISK FACTORS RELATED SPECIFICALLY TO OUR STOCK.We currently have approximately 7.3 million shares of common stock outstanding and currently may be required to issue up to a total of approximately17.5 million shares of common stock upon conversion of existing preferred stock. Such an issuance would be significantly dilutive to our existing commonstockholders.As of December 31, 2013, there were 7,016 shares of Series C-12 Preferred Stock and 3,250 shares of Series F Preferred Stock issued and outstanding. Inlight of the conversion rate of our preferred stock (1,724 shares of common stock are issuable upon the conversion of one share of Series C-12 Preferred Stockand 285 shares of common stock are issuable upon the conversion of one share Series F Preferred Stock), the presence of such a large number of preferredshares may dilute the ownership of our existing stockholders and provide the preferred investors with a sizeable interest in the Company.Assuming the conversion of all preferred stock into common stock at the current conversion rates, we would have approximately 17.5 million shares ofcommon stock issued and outstanding, although the issuance of the common stock upon the conversion of our preferred stock is limited by a 9.999%beneficial ownership cap for each preferred stockholder. With approximately 7.3 million shares of common stock issued and outstanding as of the date of thisreport, the issuance of this number of shares of common stock underlying the preferred stock would represent approximately 59% dilution to our existingstockholders.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. In addition,class action litigation is sometimes instituted against companies whose securities have experienced periods of volatility in market price. Any such litigationbrought against us could result in substantial costs and a diversion of management’s attention and resources, which could hurt our business, operating resultsand financial condition.We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock.We have never declared or paid any cash dividends on our common stock. We currently intend to retain all available funds and any future earnings, ifany, for the development, operation, and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future.Any return to stockholders will therefore be limited to the appreciation of their stock.Item 1B. Unresolved Staff Comments.None.16Table of ContentsItem 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. This leasecommences on April 12, 2013 and will continue until March 31, 2018. Annual rent expense for the facilities is approximately $84,182. Until March 31,2013, we maintained our operations in a temporary space under a short-term arrangement.On March 21, 2014, we entered into a lease amendment to add an additional 1,759 square feet at 4660 La Jolla Village Dr., Suite 1070, San Diego, CA92122. All other terms of the lease remain the same. Annual rent expense for the additional space is approximately $64,211 and our total average annualremaining rent expense for the facilities is approximately $134,963.Item 3. Legal Proceedings.We are not currently a party to any legal proceedings.Item 4. Mine Safety Disclosures.Not applicable.17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 began trading on The NASDAQ Capital Market, under the symbol “LJPC” in January 2014. Prior to January, 2014 our commonstock traded on the OTC Markets Group, Inc.’s OTCQB tier, under the symbol “LJPC.” Set forth below are the high and low sales prices for our common stockfor each full quarterly period within the two most recent fiscal years, adjusted to reflect the 1-for-100 reverse split of our common stock that was implementedon February 17, 2012 and the 1-for-50 reverse split of our common stock that was implemented on January 14, 2014. Prices High LowYear Ended December 31, 2013 First Quarter$6.75 $2.87Second Quarter5.75 2.75Third Quarter6.25 2.78Fourth Quarter12.00 5.50Year Ended December 31, 2012 First Quarter$34.50 $1.50Second Quarter4.50 1.90Third Quarter7.00 2.50Fourth Quarter3.50 2.00We have never paid dividends on our common stock and we do not anticipate paying dividends in the foreseeable future. The number of shares ofcommon stock outstanding as of March 21, 2014 was 7,257,033. As of March 21, 2014, there were approximately 6 holders of record of our common stock.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 required under thisitem.Item 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 accompanying consolidatedfinancial statements and footnotes to help provide an understanding of our financial condition, the changes in our financial condition and our results ofoperations. 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. Inaddition, 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 ofoperations and comprehensive loss by comparing the results for the year ended December 31, 2013 to the results for the year ended December 31,2012.•Liquidity and capital resources. This section provides an analysis of our historical cash flows as well as our future capital requirements.Overview and Recent Developments18Table of ContentsLa Jolla Pharmaceutical Company is a biopharmaceutical company focused on the discovery, development and commercialization of innovativetherapeutics intended to significantly improve outcomes in patients with life-threatening diseases. Our drug development efforts are focused on three productcandidates: GCS-100, LJPC-501 and LJPC-401. GCS-100 targets the protein galectin-3, which, when overproduced by the human body, has been associatedwith chronic organ failure and cancer. In May 2013, we completed a Phase 1 clinical trial with GCS-100 for the treatment of CKD. After analyzing the resultsfrom the Phase 1 trial, we initiated a randomized, placebo-controlled Phase 2 clinical trial in severe CKD. This trial completed dosing in February 2014 andin March 2014 we announced positive data on the primary efficacy endpoint. LJPC-501 is a peptide agonist of the renin-angiotensin system, which isdesigned to help restore kidney function in patients with HRS. We filed an IND with the FDA for LJPC-501 in June 2013 and plan to initiate a Phase 1clinical trial in HRS by the end of the first quarter 2014. In February 2014 we licensed rights to LJPC-401 (hepcidin) from INSERM for the treatment of ironoverload. We are currently in preclinical development and plan to file an IND and initiate a Phase 1 clinical trial during 2014. We also plan to evaluate otheropportunities for potential product candidates for the treatment of unmet medical needs.On September 24, 2013, the Company entered into a Securities Purchase Agreement with the purchasers thereto (the “Securities Purchase Agreement”),pursuant to which the Company agreed to sell, for an aggregate price of $10 million, approximately 1,928,620 shares of the Company’s Common Stock, parvalue $0.0001 per share (the “Common Stock”), at a price of $3.50 per share and approximately 3,250 shares of Series F Convertible Preferred Stock at a priceof $1,000 per share (the “Private Placement”). The Private Placement closed on September 27, 2013, subject to customary closing conditions (the “Closing”).The net proceeds, less approximately $300,000 in offering costs, to the Company were approximately $9.7 million.Pursuant to the Securities Purchase Agreement, the Company designated a new series of preferred stock prior to the Closing: its Series F ConvertiblePreferred Stock (the “Series F Preferred”). The Series F Preferred is convertible into Common Stock at a conversion price equal to $1,000 divided by 285, withthe conversion right for each holder subject to a “blocker” with respect to such holder’s beneficial ownership, with each such “blocker” initially set at9.999% . This blocker may be increased or decreased by a holder of Series F Preferred upon providing 61 days’ prior written notice to the Company. TheSeries F Preferred does not have preferential dividend rights and is generally non-voting. The Series F Preferred has a liquidation preference that is senior tothe Common Stock, but is pari passu with the Company’s Series C-12 Preferred (defined below). This liquidation preference entitles the holder of Series FPreferred stock to receive, in a merger, liquidation or certain other extraordinary transactions, cash or property in an amount up to the face value of the shares($1,000 per share), as set forth in the Certificate of Determination for the Series F Preferred (the “Certificate of Determination”). A copy of the Certificate ofDetermination was filed as Exhibit 4.1, to the Company's 8-K filed with the SEC on September 25, 2013, the terms of which are incorporated herein byreference.As a condition to Closing, the holders of a majority of the issued and outstanding Common Stock and the holders of the Series C-12 ConvertiblePreferred Stock have approved the amendment and restatement of the Company’s Articles of Incorporation (the “Amended and Restated Articles”). Upon thefiling of the Amended and Restated Articles with the California Secretary of State, the following series of preferred stock were eliminated: Series C-22Convertible Preferred Stock; Series D-12 Convertible Preferred Stock and Series D-22 Convertible Preferred Stock. As a result of the elimination of these seriesof preferred stock, only the Series C-12 Preferred and Series F Preferred remain designated as preferred stock of the Company.On September 24, 2013, the Company entered into a Consent and Waiver Agreement (the “Consent Agreement”) with the holders of the Series C-12Preferred, Series C-22 Preferred and Series D-12 Preferred. Pursuant to the Consent Agreement, the Holders agreed to tender to the Company for nominalconsideration shares of Series D-12 Preferred, as well as all warrants to purchase shares of Existing Preferred. As a result of this repurchase, and after givingeffect to the transactions contemplated in the Exchange Agreement (described below), the Series C-12 Preferred is the only series of preferred stock thatremained outstanding prior to the Closing and, as of the Closing, no purchase rights existed for the Existing Preferred.Additionally, the Holders agreed in the Consent Agreement to increase the conversion price for the Series C-12 Preferred, notwithstanding theconversion price set forth in the Company’s Articles of Incorporation, such that the Conversion Price shall now equal $1,000 divided by 1,724 instead of$1,000 divided by 4,261. This increase of the conversion price will remain in effect until the Amended and Restated Articles are filed with the CaliforniaSecretary of State, at which time the conversion price set forth in the Company’s charter documents will again control the conversion of the Series C-12Preferred.19Table of ContentsOn September 24, 2013, the Company also entered into an Exchange Agreement (the “Exchange Agreement”) with the Holders. Pursuant to theExchange Agreement, the Holders exchanged a total of approximately 557 shares of Series C-22 Preferred for approximately 557 shares of Series C-12Preferred Stock (the “Exchange Shares”). The terms of the Series C-12 Preferred are substantially similar in all respects to the Series C-22 Preferred and theexchange of the Series C-22 Preferred eliminated all outstanding shares and allowed for the removal of this series of preferred 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 have beenprepared 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, 2013 and 2012 was approximately $12.4 million and $8.6 million, respectively.As of December 31, 2013, there was approximately $15.9 million of total unrecognized compensation cost related to non-vested share-based payment awardsgranted outside and under our equity compensation plans. Share-based compensation expense recognized for fiscal years 2013 and 2012 is based on awardsultimately expected to vest, net of estimated forfeitures, if any. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods ifactual forfeitures differ from those estimates. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. We expect torecognize that cost over a weighted-average period of 2.85 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.New Accounting PronouncementsIn July 2013, the FASB issued Accounting Standards Update (“ASU”) No. 2013-11, Income Taxes (Topic 740). This update improves the reporting forunrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The update is expected to reducediversity in practice by providing guidance on the presentation of unrecognized tax benefits and will better reflect the manner in which an entity would settleat the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar taxlosses, or tax credit carryforwards exist. The update is effective prospectively for fiscal years, and interim periods within those years, beginning afterDecember 15, 2013, which for us is January 1, 2014. We do not anticipate that adopting this update will have a material impact on our consolidated financialstatements.20Table of ContentsResults of OperationsYears Ended December 31, 2013 and 2012Research and Development Expense. During the year ended December 31, 2013, we incurred $4.4 million in research and development expense,compared to $1.4 million in research and development expense during the year ended December 31, 2012. The increase in research and development expensewas primarily related to $1.0 million in stock compensation expense and $3.4 million in costs associated with the Phase 1 and Phase 2 clinical study of GCS-100. We expect research and development expenditures to continue to increase going forward as we continue to develop GCS-100 and commence clinicalstudies of LJPC-401 and LJPC-501.General and Administrative Expense. During the year ended December 31, 2013, general and administrative expense increased to $13.6 million,compared with $9.4 million for the year ended December 31, 2012. The increase in general and administrative expense is primarily due to $11.4 million instock compensation expense.Adjustments to fair value of derivative liabilities. During the year ended December 31, 2013, there was no income or expense as a result of adjustmentsof fair value of derivative liabilities, compared to income as a result of adjustments to the fair value of derivative liabilities of $3.0 million during the yearended December 31, 2012. The decrease was a result of the removal of all derivative liabilities effective December 31, 2012. The removal of the derivativeliabilities was due to the removal of the redemption features, removal of the full-ratchet anti-dilution features of the Series C-12 Stock, Series C-22 Stock andthe Series D-12 Stock and the relinquishment of the Series D-22 Warrants.The income and expense recorded as a result of adjustments to the estimated fair value of derivative liabilities is non-cash income and expense.Accounting rules require that our derivative instruments be adjusted to their fair values at each reporting date. Prior results may not be indicative of futureresults. As a result of the Second Waiver Agreement, we do not expect to generate non-operating income or expense relating to these derivative liabilities inthe foreseeable future.Other Income/Expense. Other income and other expense, net, was $4,000 for the year ended December 31, 2013, and $4,000 of income for the sameperiod in 2012. This other income is due to interest income on the cash we hold in the bank.Preferred Stock Dividend. We paid dividends in-kind of $0.3 million on September 24, 2013 and $0.5 million in May 2013, for a total of $0.8 millionduring 2013, on the outstanding Series C-12 Stock and Series C-22 Stock issued in the May 2010 Financing. We paid dividends in-kind of $0.4 million inNovember 2012 and May 2012, for a total of $0.8 million during 2012, on the outstanding Series C-12 Stock. As of September 24, 2013 the Series C-12 nolonger has a dividend feature and there were no shares Series C-22 Stock issued or outstanding.Net Operating Loss and Research Tax Credit Carryforwards. At December 31, 2013, we had federal and California income tax net operating losscarryforwards of approximately $350.2 million and $279.5 million, respectively. In addition, we had federal and California research and development taxcredit carryforwards of $16.0 million and $10.0 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, 2013 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, 2013, we have incurred a cumulative net loss of approximately $465.3 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, 2013, we have raised approximately $428.0 million in net proceeds from sales of equity securities.At December 31, 2013, we had $8.6 million in cash, as compared to $3.4 million of cash at December 31, 2012. At December 31, 2013 we had positiveworking capital of $7.7 million, compared to positive working capital of $3.2 million at December 31, 2012.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 office space.No notes payable, purchase commitments, capital leases or other material operating leases existed as of December 31, 2013.21Table of ContentsOn September 27, 2013, we closed a financing that raised approximately $10 million in gross proceeds to continue our operations.We believe that our current cash resources, including the proceeds from our 2013 financing, are sufficient to fund operations through December 31,2014.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 financial condition,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 required under thisitem.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 by reference.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 the ExchangeAct.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.None.22Table of ContentsItem 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 our disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of December 31,2013. Based on this evaluation, our principal executive and principal financial officer concluded that our disclosure controls and procedures were effectiveas of December 31, 2013.(b) Management Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financialreporting 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 supervision of, ourprincipal executive and principal financial officer and effected by our board of directors, management and other personnel, to provide reasonable assuranceregarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles and includes those policies and procedures that:•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 with generallyaccepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management anddirectors; and•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have amaterial effect on our financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. In making this assessment, ourmanagement 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, 2013, our internal control over financial reporting was effective based onthose criteria.There was no change in our internal control over financial reporting during the quarter ended December 31, 2013 that has materially affected, or isreasonably likely to materially affect, our internal control over financial reporting.Item 9B. Other Information.Not applicable.23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 21, 2014 are set forth below.Name Age PositionGeorge Tidmarsh, M.D., Ph.D. 54 President, Chief Executive Officer, Secretary and DirectorLaura L. Douglass 49 DirectorCraig A. Johnson 52 DirectorSaiid Zarrabian 61 Director, Chairman of the BoardJames Rolke 45 Senior Director of Research and DevelopmentChester Zygmont, III 34 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 joining theCompany, 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.Laura L. Douglass has been a Director of La Jolla since October of 2013 and serves as the President and Chief Executive Officer of Next GenerationClinical Research, a contract research organization that Ms. Douglass founded in 1999. Ms. Douglass is also a founder and member of the board of directorsof SB Bancorp, Inc., a financial holding company, and Settlers Bank, Inc., a Wisconsin chartered business bank. In addition, Ms. Douglass is a member of theboard of directors of Agrace HospiceCare. Ms. Douglass holds a nursing degree from The University of the State of New York-Albany. The Board hasconcluded that Ms. Douglass should serve on our Board based on her substantial experience in clinical operations and due to the fact that she is currentlyPresident and Chief Executive Officer of Next Generation Clinical Research.Craig A. Johnson has been a Director of La Jolla since October of 2013 and serves on the board of directors of three biopharmaceutical companies,Mirati Therapeutics, Inc., Heron Therapeutics, Inc. and Adamis Pharmaceuticals Corporation. From 2011 to 2012, Mr. Johnson served as Chief FinancialOfficer of PURE Bioscience, Inc., a biotechnology company. From 2010 to 2011, Mr. Johnson served as Senior Vice President and Chief Financial Officer ofNovaDel Pharma Inc., a pharmaceutical company. Mr. Johnson served as Vice President and Chief Financial Officer of TorreyPines Therapeutics, Inc., abiopharmaceutical company, from 2004 until its sale to Raptor Pharmaceuticals Corp. in 2009, and then as vice president for a wholly-owned subsidiary ofRaptor Pharmaceutical Corp. from 2009 to 2010. Earlier in Mr. Johnson’s career he practiced as a CPA with Price Waterhouse. Mr. Johnson received hisB.B.A. in accounting from the University of Michigan - Dearborn. The Board has concluded that Mr. Johnson should serve on our Board based on hissubstantial experience in financial management roles in pharmaceutical companies.24Table of ContentsSaiid Zarrabian has over 36 years of operational experience in the biotechnology, pharmaceutical, informatics, software & instrumentation/hardwareindustries. Mr. Zarrabian has served on our Board of La Jolla Pharmaceuticals since January 2012, and became Chairman in November 2013. He hadpreviously served as President of the Protein Production Division of Intrexon, Inc., a synthetic biology company that went public in August 2013. Previous tothat, he served as President and CEO of Cyntellect, a San Diego based stem cell processing and visualization instrumentation Company. He previously servedas President and COO of Senomyx, a biotechnology company focused on the discovery and commercialization of new flavors ingredients, as COO ofPharmacopeia, a leading provider of combinatorial chemistry discovery services and compounds, and as President and COO of Molecular Simulations, acompany providing software, databases and custom services for pharmaceutical and chemical industries (subsequently known as Accelrys). He has alsoperformed executive consulting services for a variety of small to mid-sized companies including BioBlocks, eMolecules, Invitrogen, and SciTegic, where heserved as executive consultant and acting COO until the company was acquired by Accelrys. Mr. Zarrabian has previously served on the Boards of PenwestPharmaceuticals, a publicly held drug discovery and delivery Company, privately held chemistry eCommerce portal, eMolecues, Inc., ExemplarPharmaceuticals prior to their acquisition by Allergan, and Ambit Biosciences which became a publicly traded company in early 2013.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.Chester S. Zygmont, III has been our Director of Finance since January 2013. Prior to becoming Director of Finance, Mr. Zygmont was a consultantfor the Company in the same role since June 2012. Mr. Zygmont brings 11 years of experience in finance with a wide range of industry applications to theCompany. Previously, Mr. Zygmont served as Managing Director at Z3 Capital, LLC. Z3 Capital, LLC is a privately held investment firm focused oninvestment acquisition and venture funding of startup real estate, medical device and biotechnology companies. Mr. Zygmont also served as vice president atSymmetry Advisors, a private equity leveraged buyout firm. While at Symmetry, he managed finance for its public sector fund, was a key team member 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 Financefrom Baruch College Zicklin School of Business and his B.A. from Eastern University.Director IndependenceOur Board has previously determined that Mr. Zarrabian, Ms. Douglass and Mr. Johnson are “independent” within the meaning of Nasdaq MarketplaceRules 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 andChief Executive Officer.Committees of the Board of DirectorsOur Board has three standing committees: an audit committee; a compensation committee; and a corporate governance and nominating committee. Allcommittee members have been previously determined by our Board to be “independent.” The committees operate under written charters that are available forviewing on our website at www.ljpc.com, then “Investor Relations.”Audit Committee. It is the responsibility of the audit committee to oversee our accounting and financial reporting processes and the audits of ourfinancial statements. In addition, the audit committee assists the Board in its oversight of our compliance with legal and regulatory requirements. The specificduties of the audit committee include: monitoring the integrity of our financial process and systems of internal controls regarding finance, accounting andlegal compliance; selecting our independent auditor; monitoring the independence and performance of our independent auditor; and providing an avenue ofcommunication among the independent auditor, our management and our Board. The audit committee has the authority to conduct any investigationappropriate to fulfill its responsibilities, and it has direct access to all of our employees and to the independent auditor. The audit committee also has theability to retain, at our expense and without further approval of the Board, special legal, accounting or other consultants or experts that it deems necessary inthe performance of its duties.Craig A. Johnson is the chair of the audit committee and is deemed to be an “audit committee financial expert.” Laura L. Douglass and Saiid Zarrabianalso sit on the audit committee.Compensation Committee. It is the responsibility of the compensation committee to assist the Board in discharging the Board's responsibilitiesregarding the compensation of our employees and directors. The specific duties of the compensation25Table of Contentscommittee include: making recommendations to the Board regarding the corporate goals and objectives relevant to executive compensation; evaluating ourexecutive officers’ performance in light of such goals and objectives; recommending compensation levels to the Board based upon such evaluations;administering our incentive compensation plans, including our equity-based incentive plans; making recommendations to the Board regarding our overallcompensation structure, policies and programs; and reviewing the Company’s compensation disclosures. Additional information regarding the processes andprocedures of the compensation committee is provided in Item 11 “Executive Compensation.”Saiid Zarrabian is the chair of the compensation committee and Laura L. Douglass and Craig Johnson sit on the compensation committee as well.Corporate Governance and Nominating Committee. It is the responsibility of the corporate governance and nominating committee to assist the Board:to identify qualified individuals to become Board members; to determine the composition of the Board and its committees; and to monitor and assess theeffectiveness of the Board and its committees. The specific duties of the corporate governance and nominating committee include: identifying, screening andrecommending to the Board candidates for election to the Board; reviewing director candidates recommended by our stockholders; assisting in attractingqualified director candidates to serve on the Board; monitoring the independence of current directors and nominees; and monitoring and assessing therelationship between the Board and our management with respect to the Board’s ability to function independently of management.Laura L. Douglass is the chair of the corporate governance and nominating committee and Craig Johnson and Saiid Zarrabian sit on the corporategovernance and nominating committee as well.Corporate Governance GuidelinesWe have adopted a set of Corporate Governance Guidelines that describe a number of our corporate governance practices. The Corporate GovernanceGuidelines 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, membersof 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 chief executivesand senior financial and accounting officers. Our Board has reviewed and approved this code. Our employees agree in writing to comply with the code atcommencement of employment and periodically thereafter. Our employees are encouraged to report suspected violations of the code. Our code of conduct isavailable for viewing on our website at www.ljpc.com, then “Investor Relations.” If we make substantive amendments to the code or grant any waiver,including any implicit waiver, to our principal executive, financial or accounting officer, or persons performing similar functions, we will disclose the natureof 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.26Table of ContentsDirector NominationsOur corporate governance and nominating committee regularly assesses the appropriate size of the Board and whether any vacancies on the Board areexpected due to retirement or otherwise. In the event that vacancies are anticipated or otherwise arise, the corporate governance and nominating committeeutilizes a variety of methods for identifying and evaluating director candidates. Candidates may come to the attention of the corporate governance andnominating committee through current directors, professional search firms, stockholders or other persons. Once the corporate governance and nominatingcommittee has identified a prospective nominee, the corporate governance and nominating committee will evaluate the prospective nominee in the contextof the then current constitution of the Board and will consider a variety of other factors, including the prospective nominee’s business, technology, financeand financial reporting experience, and attributes that would be expected to contribute to an effective Board. The corporate governance and nominatingcommittee seeks to identify nominees who possess a wide range of experience, skills, and areas of expertise, knowledge and business judgment. Our corporategovernance and nominating committee thus considers a broad range of factors relating to the qualifications and background of nominees, which may includediversity, which is not only limited to race, gender or national origin, but also includes diversity of experience and skills. We have no formal policyregarding board diversity. Our corporate governance and nominating committee's priority in selecting board members is identification of persons who willfurther the interests of our stockholders through his or her established record of professional accomplishment, the ability to contribute positively to thecollaborative culture among board members, and professional and personal experiences and expertise relevant to our growth strategy. Successful nomineesmust have a history of superior performance or accomplishments in their professional undertakings and should have the highest personal and professionalethics and values. The corporate governance and nominating committee does not evaluate stockholder nominees differently than any other nominee.Pursuant to procedures set forth in our Bylaws, our corporate governance and nominating committee will consider stockholder nominations fordirectors 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 bereceived within the time frame discussed in our Bylaws. To be in proper form, the notice must, among other matters, include each nominee’s written consentto serve as a director if elected, a description of all arrangements or understandings between the nominating stockholder and each nominee and informationabout the nominating stockholder and each nominee. 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 meeting forthe calendar year ended December 31, 2013 on June 6, 2013 and both Saiid Zarrabian and George Tidmarsh, M.D., Ph.D. were present.Report of the Audit CommitteeThe audit committee oversees our financial reporting process. Management has the primary responsibility for the financial statements and thereporting process, including our system of internal control over financial reporting. In fulfilling its oversight responsibilities, the audit committee reviewedand discussed the audited financial statements in our Annual Report on Form 10-K for the year ended December 31, 2013 with management, including adiscussion of the quality, not merely the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosuresin the financial statements.The audit committee reviewed with the independent auditor, which is responsible for expressing an opinion on the conformity of those auditedfinancial statements with accounting principles generally accepted in the United States, its judgments as to the quality, not merely the acceptability, of ouraccounting principles and such other matters as are required to be discussed under auditing standards generally accepted in the United States. In addition, theaudit committee has discussed with the independent auditor the auditor’s independence, including Statement on Auditing Standards No. 61, as amended(Communication with Audit Committees), from us and our management, including the matters in the written disclosures received by us required by theIndependence Standards Board Standard No. 1 (Independence Discussions with Audit Committees). The audit committee has also considered thecompatibility of the independent auditor’s provision of non-audit services to us with the auditor’s independence.The audit committee discussed with our independent auditor the overall scope and plan for its audit. The audit committee met with the independentauditor, with and without management present, to discuss the results of its examinations, its evaluations of our internal controls and the overall quality of ourfinancial reporting.27Table of ContentsBased upon the reviews and discussions referred to above, the audit committee recommended that our audited financial statements be included in ourAnnual Report on Form 10-K for the year ended December 31, 2013 for filing with the SEC. This report is provided by the following directors, who compriseof our directors who perform the functions of the audit committee:Craig Johnson, Chair of Audit CommitteeLaura DouglassSaiid 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 required toreport their initial ownership of our equity securities and any subsequent changes in that ownership to the Securities and Exchange Commission. Specific duedates for these reports have been established, and we are required to disclose any late filings during the fiscal year ended December 31, 2013. 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, 2013, all ofthese reports were timely filed except for a Form 4 filed by Dr. Tidmarsh on October 11, 2013, a Form 4 filed by Mr. Zarrabian on each of October 11, 2013and November 26, 2013, a Form 4 filed by Laura Douglass on November 26, 2013 and a Form 4 filed by Craig Johnson on November 26, 2013.Item 11. Executive Compensation.Equity Compensation.Under the 2013 Equity Incentive Plan (the “2013 Plan”), the Board may grant stock options, restricted stock, stock appreciation rights andperformance awards. In granting these awards, the Board may establish any conditions or restrictions it deems appropriate. The grant of options is unrelated toany anticipated major announcements made by the Company and is thus not influenced by any material, non-public information that may exist at the time ofgrant. Additionally, the Board may periodically authorize the issuance of equity awards outside of existing stockholder-approved equity plans, as describedbelow under the caption “Employment Agreements.”In April of 2013, Dr. Tidmarsh was granted 16,000 shares of restricted stock that vested immediately. The shares of restricted stock were grantedoutside of the 2013 Plan but governed in all aspects by the 2013 Plan.On September 24, 2013, Dr. Tidmarsh was granted 1,327,048 shares of restricted stock that vest as follows: (i) 1/14 vesting January 20, 2015; (ii) 1/14vesting January 20, 2016; (iii) 2/7 vesting on the earlier of first drug approval or stock trading for 20 consecutive days at $10.50/share; (iv) 1/7 vesting onstock trading for 20 consecutive days at $7.00/share; (v) 1/7 vesting on stock trading for 20 consecutive days at $12.50/share; (vi) 1/7 vesting on stocktrading for 20 consecutive days at $15.00/share; and (vii) 1/7 vesting on stock trading for 20 consecutive days at $17.50/share. Any unvested shares will beforfeited if vesting conditions are not satisfied within 7 years from the date of grant. The shares of restricted stock were granted as a replacement of the optionthat was granted in April 2012 equal to 7.5% of our fully diluted shares of Common Stock.Benefits.We have not historically provided special benefits or perquisites to our executives and did not do so in 2013.Employment Agreements.The Company entered into an employment agreement with Dr. Tidmarsh on January 19, 2012. The annual base salary was $240,000 for the first year ofemployment with the Company and was increased to $420,000 on the one-year anniversary of the employment start date. In addition, an option to purchasethe number of shares of Common Stock equal to 7.5% of the Company’s fully diluted, as-converted shares was awarded (the “First Option”), subject to theterms and conditions of any applicable award agreements and other restrictions and limitations generally applicable to Common Stock or equity awards heldby Company executives or otherwise imposed by law. Subject to applicable terms and conditions, the First Option was to vest with respect to 25% of theunderlying shares on the one-year anniversary of the employment start date, with the remainder vesting monthly, in equal monthly installments, over thethree years thereafter. The First Option was exercisable at a price equal to $0.06 per share of Common Stock. The First option was canceled on September 24,2013 as part of the 2013 Financing. As a replacement for the First Option, Dr. Tidmarsh received shares of restricted stock for a number of shares of CommonStock equal to 7.5% of the Company's fully diluted shares of common stock after the effect of the capital restructuring and 2013 financing. The shares ofrestricted stock vest as follows: 1/14 vest on January 20, 2015, 1/14 vest on January 20, 2016, 2/7 vest on the earlier of first drug approval or stock trading for20 consecutive days at $10.50/share, 1/7 vest on stock trading for 20 consecutive days at $7/share, 1/7 vest on stock trading for 20 consecutive days at$12.50/share, 1/7 vest on stock trading for 20 consecutive days at $15/share and 1/7 vest on stock trading for 20 consecutive days at $17.50/share. Anyunvested shares will be forfeited if not satisfied within 7 years from date of grant.28Table of ContentsSummary Compensation TableName and Principal PositionYear Salary OptionAwards(1) All OtherCompensation TotalGeorge F. Tidmarsh, M.D., Ph.D.2013 $420,000 $— $70,827 $490,827President, Chief Executive Officer and Secretary2012 $226,462 $30,347,572 — $30,574,034(1)This column reflects the aggregate grant date fair value of equity awards granted in 2013 or 2012 and calculated in accordance with FASB ASC 718,excluding the effect of estimated forfeitures. Assumptions used in the calculations for these amounts are set forth in the notes to our financialstatements included in this report and our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.Outstanding Equity Awards at 2013 Fiscal Year EndWe effected a 1-for-100 reverse stock split on February 17, 2012 and a 1-for-50 reverse stock split on January 14, 2014. The information set forth in thetable below is listed on a post-split basis.Name Number ofSecuritiesUnderlyingUnexercisedOptions(#)Exercisable Number ofSecuritiesUnderlyingUnexercisedOptions(#)Unexercisable OptionExercisePrice($) OptionExpirationDate (1) Number ofUnearnedShares,Units or OtherRights that havenot Vested(#) Market orPayout Value ofUnearnedShares, Unitsor Other Rightsthat have notVested($)George F. Tidmarsh, M.D., Ph.D.2013 — — — — — — — — — — 2012 — 10,126,001(2) 3.00 4/10/2022 — — — — — — 1,180,442 70,827(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.Director Compensation Table — 2013Name Fees Earned orPaid in Cash StockAwards OptionsAwarded(1) TotalSaiid Zarrabian $52,500 $— $107,929 $160,429Criag A. Johnson $12,500 $— $107,929 $120,429Laura L. Douglass $12,500 $— $107,929 $120,429 (1)This column reflects the aggregate grant date fair value of equity awards granted in 2012 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.Director CompensationRetainers and Fees. Directors who are also our employees receive no extra compensation for their service on the Board. In 2013, our non-employeedirectors received an annual fee of $50,000, which is paid quarterly. In addition during the fourth quarter of 2013 the Board determined it would pay thechairman an additional $10,000 per year for services as chairman of the board. In 2013, our chairman received $2,500 for his services.29Table of ContentsOption Grants under the 2013 Plan. Each of our non-employee directors is eligible to automatically receive, upon becoming a non-employee director,a one-time grant of a non-qualified stock option under the 2013 Plan in an amount to be determined by the Board at an exercise price equal to the fair marketvalue 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 to 25% of theunderlying shares on the grant date and with respect to an additional 25% of the underlying shares on the date of each of the first three anniversaries of suchgrant, but only if the director remains a non-employee director for the entire period from the date of grant to such date. There were two such awards were madein fiscal 2013. Upon re-election to our Board or upon continuing as a director after an annual meeting without being re-elected due to the classification of theBoard, each non-employee director automatically receives a grant of an additional non-qualified stock option in an amount to be determined by the Board.These additional non-employee director options have a term of 10 years and vest and become exercisable upon the earlier to occur of the first anniversary ofthe grant date or immediately prior to the annual meeting of stockholders next following the grant date; provided that the director remains a director for theentire period from the grant date to such earlier date. The exercise price for these additional non-employee director options is the fair market value of ourcommon stock on the date of their grant. All outstanding non-employee director options vest in full immediately prior to any change in control. One annualgrant was made in 2013. Each non-employee director is also eligible to receive additional options under the 2013 Plan in the discretion of the Board. Theseoptions vest and become exercisable pursuant to the 2013 Plan and the terms of the option grant.In connection with his appointment to the Board in January 2012, the Company issued Mr. Zarrabian: (i) a non-qualified option to purchase up to378,149 shares of common stock, which option is exercisable at an exercise price of $3.00 per share and vested with respect to one-quarter of the underlyingshares on each of April 20, 2012, July 20, 2012, October 20, 2012 and January 20, 2013; and (ii) full-value stock awards, comprised of 23,608 shares ofrestricted stock and 207,217 restricted stock units, representing the right to receive a total of up to 608,974 shares of common stock. The restricted stock unitsvested 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. On September24, 2013 the Company canceled Mr. Zarrabians Option and RSUs and issued him 79,622 shares of restricted stock that vest on March 1, 2014.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 2013 fiscal year, or any reportablebusiness relationship with us during such time.30Table of ContentsItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.Equity Compensation Plan InformationThe following table provides information as of December 31, 2013 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 February 17, 2012 and a 1-for-50 reverse stock split on January 14, 2014. The informationset forth in the table below is listed on a post-split basis. Plan CategoryNumber 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 security holders54,000(1) $6.00 386,441 Equity compensation plans not approved by security holders— $— — Total54,000 — 386,441 (1)Outstanding options to purchase shares of our common stock under the La Jolla Pharmaceutical Company 2013 Equity Incentive Plan.Security Ownership of Certain Beneficial Owners and ManagementThe following table sets forth information regarding beneficial ownership of our common stock as of March 21, 2014, based on information availableto 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 power withrespect to shares of stock. This information does not necessarily indicate beneficial ownership for any other purpose. Under these rules, shares of commonstock issuable under stock options that are exercisable within 60 days of March 21, 2014 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 following tablepossesses sole voting and investment power over his, her or its shares of common stock, except for those jointly owned with that person’s spouse. Percentageof beneficial ownership of common stock is based on 7,257,033 shares of common stock outstanding as of March 21, 2014. Unless otherwise noted 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 February 17, 2012 and a 1-for-50 reverse stock split on January 14, 2014. The information set forth inthe table below is listed on a post-split basis.31Table of ContentsName and AddressShares ofCommonStockOwned Shares withRight toAcquire within60 days TotalBeneficialOwnership Percentageof CommonStockBaker Brothers Advisors, LLC (1)343,361 424,728 768,089 9.999%RTW Investments, LLC (2)— 806,236 806,236 9.999%Tang Capital Partners, LP (3)181,236 604,865 786,101 9.999%Boxer Capital, LLC (4)154,467 634,608 789,075 9.999%George F. Tidmarsh, M.D., Ph.D.1,391,086 — 1,391,086 19.169%Saiid Zarrabian109,231 — 109,231 1.505%Laura Douglass— — — —Craig Johnson— — — —All current executive officers and directors as a group(4 people) (5)1,500,317 — 1,500,317 20.674%*Less than one percent.(1)Based upon a Schedule 13G filed with the SEC on February 14, 2014, with an update for the reverse stock split we implemented in January 2014.(2)Based upon a Schedule 13G/A filed with the SEC on February 14, 2014, with an update for the reverse stock split we implemented in January 2014,.The Schedule 13G/A was jointly filed by RTW Investments, LLC, RTW Master Fund, Ltd. and Roderick Wong. The address of RTW Investments,LLC is 1350 Avenue of the Americas, 28th Floor, New York, New York 10019. Roderick Wong is the Managing Member of RTW Investments, LLC.(3)Based upon a Schedule 13G/A filed with the SEC on January 16, 2014. The Schedule 13G/A was jointly filed by Tang Capital Partners, LP, TangCapital Management, LLC and Kevin C. Tang. Tang Capital Partners, LP shares voting and dispositive power over such shares with Tang CapitalManagement, LLC and Kevin C. Tang. Mr. Tang disclaims beneficial ownership of all shares reported herein except to the extent of his pecuniaryinterest therein. The address of Tang Capital Partners, LP is 4747 Executive Drive, Suite 510, San Diego, California 92121.(4)Based upon a Schedule 13G/A filed with the SEC on February 12, 2014, with an update for the reverse stock split we implemented in January 2014.The Schedule 13G/A was jointly filed by Boxer Capital, LLC (“Boxer Capital”), Boxer Asset Management Inc. (“Boxer Management”), Joseph Lewis,and MVA Investors, LLC (“MVA”) (together with Boxer Capital and Boxer Management, and Joseph Lewis, the “Reporting Persons”). BoxerManagement is the managing member and majority owner of Boxer Capital. Joseph Lewis is the sole indirect owner and controls Boxer Management.MVA is the independent, personal investment vehicle of certain employees of Boxer Capital and Tavistock Life Sciences Company, which is aDelaware corporation and an affiliate of Boxer Capital. As such, MVA is not controlled by Boxer Capital, Boxer Management and Joseph Lewis. Theprincipal business address of both Boxer Capital and MVA is: 440 Stevens Avenue, Suite 100, Solana Beach, CA 92075. The principal businessaddress of both Boxer Management and Joseph Lewis is: c/o Cay House P.O. Box N-7776 E.P. Taylor Drive Lyford Cay, New Providence, Bahamas.(5)The current executive officers and directors are comprised of Dr. Tidmarsh, Ms. Douglass, Mr. Johnson 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, 2013.32Table of ContentsItem 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 ended December 31,2013 and 2012, and all other fees paid by us for services rendered by Squar, Milner, Peterson, Miranda & Williamson, LLP during 2013 and 2012, as well asthe aggregate fees agreed to by the Company for audit related fees and services rendered by BDO USA, LLP during 2013 and 2012: 2013 2012Audit Fees — Squar, Milner, Peterson, Miranda & Williamson, LLP$66,500 $41,000Audit Fees — BDO USA LLP— 36,000Audit Related Fees — Squar, Milner, Peterson, Miranda & Williamson, LLP22,560 —Audit Related Fees — BDO USA LLP20,000 11,000Tax Fees — Squar, Milner, Peterson, Miranda & Williamson, LLP5,800 —Tax Fees — BDO USA LLP— 5,000All Other Fees— —Total$114,860 $93,000BDO 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 Squar, Milner, Peterson, Miranda & Williamson, LLP forthe audit of our annual financial statements. The fees identified under this caption also include fees for professional services rendered by Squar, Milner,Peterson, Miranda & Williamson, LLP for the review of the financial statements included in our quarterly reports on Forms 10-Q. In addition, the amountsinclude fees for services that are normally provided by the auditor in connection with regulatory filings and engagements for the years identified.Audit Related Fees. Audit related fees in 2013 consist of an aggregate of $22,560 in fees paid to Squar, Milner in connection with their consent on theCompany's registration statements on Forms S-1 and S-8 filed during 2013 and $20,000 in fees paid to BDO in connection with their consent on theCompany's registration statements on Forms S-1 and S-8 filed during 2013 and incorporating financial statements from BDO's 2011audit. Audit related feesin 2012 consist of an aggregate of $11,000 in fees paid to BDO in connection with their consent and the transition of the audit engagement to Squar Milner.Tax Fees. Tax fees consist principally of assistance related to tax compliance and reporting.All Other Fees. These fees consist primarily of accounting consultation fees related to potential collaborative agreements. There were no such fees in2013 or 2012.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 2013 and 2012 were pre-approved by the audit committee.33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 LLPF-1 Consolidated Balance Sheets at December 31, 2013 and 2012F-2 Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2013 and 2012F-3 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2013 and 2012F-4 Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012F-5 Notes to Consolidated Financial StatementsF-62.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.34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 signed onits behalf by the undersigned, thereunto duly authorized. LA JOLLA PHARMACEUTICAL COMPANY Date:March 28, 2014By:/s/ George F. Tidmarsh Name:George F. Tidmarsh, M.D., Ph.D. Title:President and Chief Executive OfficerPOWER OF ATTORNEYKNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints George F. Tidmarsh, M.D., Ph.D. as hisor her true and lawful attorney-in-fact and agent, with full power of substitution for him or her, and in his or her name in any and all capacities, to sign anyand all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with theSecurities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thingrequisite and necessary to be done therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all thatsaid attorney-in-fact and agent, his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated.Signature Title Date/s/ George Tidmarsh Director, President, Chief Executive Officer and Secretary (PrincipalExecutive, Financial and Accounting Officer) March 28, 2014George Tidmarsh, M.D., Ph.D. /s/ Saiid Zarrabian Director, Chairman of the Board March 28, 2014Saiid Zarrabian /s/ Laura L. Douglass Director March 28, 2014Laura L. Douglass /s/ Craig A. Johnson Director March 28, 2014Craig A. Johnson 35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 sheets of La Jolla Pharmaceutical Company as of December 31, 2013 and 2012 and the relatedconsolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for the years then ended. These consolidated financialstatements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements basedon our audits.We conducted our audits 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 audits included consideration of internalcontrol over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we do not express an opinion thereon. An audit alsoincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles usedand significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide areasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of La JollaPharmaceutical Company as of December 31, 2013 and 2012 and the consolidated results of its operations and its consolidated cash flows for the years thenended, in conformity with U.S. generally accepted accounting principles.SQUAR, MILNER, PETERSON, MIRANDA & WILLIAMSON, LLP/s/ Squar, Milner, Peterson, Miranda & Williamson, LLPSan Diego, CaliforniaMarch 28, 2014F-1Table of ContentsLa Jolla Pharmaceutical CompanyConsolidated Balance Sheets(In thousands, except share and par value amounts) December 31, 2013 2012Assets Current assets: Cash and cash equivalents$8,629 $3,405Restricted cash37 —Prepaids and other current assets43 25Total current assets8,709 3,430Equipment and furnishings, net38 $— $8,747 $3,430Liabilities and stockholders’ equity Current liabilities: Accounts payable$834 $92Accrued expenses187 107Accrued payroll and related expenses73 17Total current liabilities1,094 216Commitments Stockholders’ equity: Common stock, $0.0001 par value; 12,000,000,000 shares authorized, 4,404,407 and 285,347 shares issuedand outstanding at December 31, 2013 and 2012, respectively4 1Series C-12 convertible preferred stock, $0.0001 par value; 11,000 shares authorized, 7,016 and 5,792 sharesissued and outstanding at December 31, 2013 and 2012, respectively and a liquidation preference of$7,016,0007,016 5,792Series C-22 convertible preferred stock, $0.0001 par value; zero and 22,000 shares authorized, zero and 500shares issued and outstanding at December 31, 2013 and 2012, respectively— 500Series D-12 convertible preferred stock, $0.0001 par value; zero and 5,134 shares authorized, zero and 4,615shares issued and outstanding at December 31, 2013 and 2012, respectively— 4,615Series F Convertible Preferred Stock, $ 0.0001 par value; 10,000 shares authorized, 3,250 and zero sharesissued and outstanding at December 31, 2013 and 2012, respectively and a liquidation preference of$3,250,0003,250 —Additional paid-in capital462,684 439,672Accumulated deficit(465,301) (447,366)Total stockholders’ equity7,653 3,214 $8,747 $3,430See accompanying notes.F-2Table of ContentsLa Jolla Pharmaceutical CompanyConsolidated Statements of Operations and Comprehensive Loss(In thousands, except per share amounts) Years Ended December 31, 2013 2012Expenses: Research and development$4,362 $1,353General and administrative13,577 9,386Total expenses17,939 10,739Loss from operations(17,939) (10,739)Other income: Adjustments to fair value of derivative liabilities— 2,998Other income, net4 4Net loss and comprehensive loss(17,935) (7,737)Preferred stock dividends earned(801) (780)Net loss attributable to common stockholders$(18,736) $(8,517)Net loss per share basic and diluted$(41.24) $(41.77)Shares used in computing basic and diluted net loss per share454,337 203,924See accompanying notes.F-3Table of ContentsLa Jolla Pharmaceutical CompanyConsolidated Statements of Stockholders’ EquityFor the Years Ended December 31, 2013 and 2012(In thousands) Series C-12RedeemableConvertiblePreferred Stock Series C-12ConvertiblePreferred Stock Series C-22ConvertiblePreferred Stock Series D-12ConvertiblePreferred Stock Series F ConvertiblePreferred Stock Common Stock AdditionalPaid-inCapital AccumulatedDeficit TotalStockholders’Equity Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Balance atDecember 31, 20115 $5,133 — $— — $— — $— — $— 17 $— $424,071 $(439,629) $(15,558)Issuance of SeriesC-1² PreferredStock dividends1 780 — — — — — — — — — — (780) — (780)Series C-1²Preferred Stockdividends— (90) — — — — — — — — — — (56) — (56)Conversion ofSeries C-1²Preferred Stockinto commonstock— (31) — — — — — — — — 127 1 30 — 31Exercised SeriesC-2² warrants forSeries C-2²Preferred Stock— — — — 1 500 — — — — — — — — 500Exercised SeriesD-1² warrants forSeries D-1²Preferred Stock— — — — — — 5 4,631 — — — — (4,631) — —Conversion ofSeries D-1²Preferred Stockinto commonstock— — — — — — — (16) — — 67 — 16 — —Share-basedcompensationexpense— — — — — — — — — — — — 8,604 — 8,604Issuance ofrestricted stockawards— — — — — — — — — — 74 — — — —Removal ofredemption andcertain conversionfeatures(6) (5,792) 6 5,792 — — — — — — — — 12,418 — 18,210Net loss— — — — — — — — — — — — — (7,737) (7,737)Balance atDecember 31, 2012— — 6 5,792 1 500 5 4,615 — — 285 1 439,672 (447,366) 3,214Issuance of SeriesC-12 & C-22 Preferred Stockdividends— — 1 744 — 57 — — — — — — (801) — —Conversion ofSeries C-12 & D-12 Preferred Stockinto commonstock— — (1) (77) — — — (47) — — 367 — 124 — —Redemption ofSeries D-12 Preferred Stock— — — — — — (5) (4,568) — — — — 4,568 — —Exchange ofSeries C-22 Preferred Stockfor Series C-12 Preferred Stock— — 1 557 (1) (557) — — — — — — — — —Issuance of SeriesF Preferred Stock— — — — — — — — 3 3,250 — — — — 3,250Issuance ofCommon Stockfor September 24,2013 financing— — — — — — — — — — 1,929 2 6,748 — 6,750Share-basedcompensationexpense— — — — — — — — — — — — 12,373 — 12,373Issuance ofrestricted stockawards— — — — — — — — — — 1,823 1 — — 1Net loss— — — — — — — — — — — — — (17,935) (17,935)Balance atDecember 31, 2013— $— 7 $7,016 — $— — $— 3 $3,250 4,404 $4 $462,684 $(465,301) $7,653See accompanying notes.F-4Table of ContentsLa Jolla Pharmaceutical CompanyConsolidated Statements of Cash Flows(In thousands) Years Ended December 31, 2013 2012Operating activities Net loss$(17,935) $(7,737)Adjustments to reconcile net loss to net cash used for operating activities: Share-based compensation expense12,373 8,604Gain on adjustment to fair value of derivative liabilities— (2,998)Depreciation expense5 —Changes in operating assets and liabilities: Restricted Cash(37) —Prepaids and other current assets(18) 35Accounts payable and accrued expenses822 (49)Accrued payroll and related expenses56 10Net cash used for operating activities(4,734) (2,135)Investing Activities Purchase of equipment and furnishings(43) —Net cash used for investing activities(43) —Financing Activities Net proceeds from the issuance of common stock6,751 —Proceeds from the issuance of series F convertible preferred stock3,250 —Exercise of Series C-22 Warrants for Preferred Shares— 500Net cash provided by financing activities10,001 500Net increase (decrease) in cash and cash equivalents5,224 (1,635)Cash and cash equivalents at beginning of period3,405 5,040Cash and cash equivalents at end of period$8,629 $3,405Supplemental disclosure of cash flow information: Non-cash investing and financing activity Dividends paid in Series C-12 and C-22 preferred stock$801 $780 Exchange of Series C-22 for Series C-12 preferred stock$557 $— Redemption of Series D-12 preferred stock and Series C-22 preferred stock warrants$4,568 $—Conversion of Series C-12 and D-12 Preferred Stock into common stock$124 $47 Issuance of Series D-12 Preferred Stock$— $4,631Reclassification of preferred stock no longer redeemable$— $5,792Reclassification of Derivative Liabilities value due to removal of redemption and certain conversion features$— $12,418See accompanying notesF-5Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements1. Organization and Summary of Significant Accounting PoliciesOrganization and Business ActivityLa Jolla Pharmaceutical Company (the “Company”) is a biopharmaceutical company 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, 2013, the Company had no revenue sources, an accumulated deficit of$465.3 million and available cash and cash equivalents of $8.6 million. Management believes that its current cash resources are sufficient to fund operationsthrough December 31, 2014.Reverse SplitThe Board of Directors approved the reverse stock split (the "2014 Reverse Stock Split") of the Company’s Common Stock, which became effective onJanuary 14, 2014, with an exchange ratio of 1-for-50. As a result of the 2014 Reverse Stock Split, each 50 shares of the Company’s issued and outstandingCommon Stock were automatically reclassified as, and changed into, one share of the Company’s Common Stock. No fractional shares were issued inconnection with the 2014 Reverse Stock Split. Stockholders who were entitled to fractional shares instead became entitled to receive a cash payment in lieuof receiving fractional shares (after taking into account and aggregating all shares of the Company’s Common Stock then held by such stockholder) equal tothe fractional share interest. The 2014 Reverse Stock Split affected all of the holders of the Company’s Common Stock uniformly. Shares of the Company’sCommon Stock underlying outstanding options were proportionately reduced and the exercise prices of outstanding options were proportionately increasedin accordance with the terms of the agreements governing such securities. Shares of the Company’s Common Stock underlying outstanding convertiblepreferred stock were proportionately reduced and the conversion rates were proportionately decreased in accordance with the terms of the agreementsgoverning such securities.Significant 2013 EventsOn September 24, 2013, the Company entered into a Securities Purchase Agreement with the purchasers set forth on thereto (the “Securities PurchaseAgreement”), pursuant to which the Company agreed to sell, for an aggregate price of $10 million, approximately 1,928,620 shares of the Company’sCommon Stock, par value $0.0001 per share (the “Common Stock”), at a price of $3.50 per share (the “Common Shares”) and approximately 3,250 shares ofSeries F Convertible Preferred Stock (the “Series F Preferred”) at a price of $1,000 per share (the “Preferred Shares” and, together with the Common Shares, the“Shares”) (the “Private Placement”). The Private Placement closed on September 27, 2013, subject to customary closing conditions. The estimated proceedsto the Company, net of commissions of approximately $300,000, was approximately $9.7 million.Pursuant to the Securities Purchase Agreement, the Company designated a new series of preferred stock prior to the Closing: its Series F Convertible PreferredStock. The Series F Preferred is convertible into Common Stock at a conversion price equal to $1,000 divided by 285, with the conversion right for eachholder subject to a “blocker” with respect to such holders’ beneficial ownership, with each such “blocker” initially set at 9.99% . This blocker may beincreased or decreased by a holder of Series F Preferred upon providing 61 days’ prior written notice to the Company. The Series F Preferred has nopreferential dividend rights and is generally non-voting. The Series F Preferred has a liquidation preference that is senior to the Common Stock, but is paripassu with the Company’s Series C-12 Preferred (defined below). This liquidation preference entitles the holder of Series F Preferred stock to receive, in amerger, liquidation or certain other extraordinary transactions, cash or property in an amount up to the face value of the shares ($1,000 per share), as set forthin the Certificate of Determination for the Series F Preferred (the “Certificate of Determination”).The Shares were issued in a private placement transaction that was exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended(the “Securities Act”) and pursuant to Rule 506 under the Securities Act. Each of the purchasers represented that it is an accredited investor and that it isacquiring the Shares for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof.F-6Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsAs a condition to Closing, the holders of a majority of the issued and outstanding Common Stock and the holders of the Series C-12 Convertible PreferredStock (the “Series C-12 Preferred”) approved the amendment and restatement of the Company’s Articles of Incorporation (the “Amended and RestatedArticles”). Upon the filing of the Amended and Restated Articles, the following series of preferred stock were eliminated: Series C-22 Convertible PreferredStock (the “Series C-22 Preferred”); Series D-12 Convertible Preferred Stock (the “Series D-12 Preferred”) and Series D-22 Convertible Preferred Stock (the“Series D-22 Preferred” and, together with the Series C-22 Preferred and Series D-12 Preferred, the “Existing Preferred”). As a result of the elimination of theseseries of preferred stock, only the Series C-12 Preferred and Series F Preferred remain designated as preferred stock of the Company.Additionally, the Amended and Restated Articles, filed with the California Secretary of State: (i) increase the “Conversion Price” for the Series C-12 Preferred,resetting it to $1,000 divided by 1,724 from $1,000 divided by 4,261; and (ii) remove certain Series C-12 Preferred rights, preferences, privileges andrestrictions originally contained in the Articles of Incorporation, including: (a) all rights of the Holders to dividends accruing under Article IV(d)(2) of theCompany’s Articles of Incorporation, to the extent such dividends otherwise would have accrued on or after September 24, 2013; (b) certain protectiveprovisions; and (c) limitations on conversion into Common Stock set forth in Article IV(d)(3)(C)(i) of the Articles of Incorporation.The Company obtained approval of the Amended and Restated Articles by the holders of the Existing Preferred pursuant to the Consent Agreement (definedbelow) and obtained approval by the holders of the Common Stock by way of an action by written consent that was executed prior to Closing. After suchapproval, the Company filed the Amended and Restated Articles after an Information Statement on Schedule 14C was prepared and distributed to theCompany’s shareholders, pursuant to the Securities Exchange Act of 1934, as amended, and the California General Corporation Law.On September 24, 2013, the Company entered into a Consent and Waiver Agreement (the “Consent Agreement”) with the holders of the Existing Preferred(the “Holders”). Pursuant to the Consent Agreement, the Holders agreed to tender to the Company for nominal consideration shares of Series D-12 Preferred, aswell as all warrants to purchase shares of Existing Preferred. As a result of this repurchase, and after giving effect to the transactions contemplated in theExchange Agreement (described below), the Series C-12 Preferred will be the only series of preferred stock that remains outstanding prior to the Closing and,as of the Closing, no purchase rights will exist for the Existing Preferred.Also in the Consent Agreement, the Holders consented to the transactions contemplated under the Securities Purchase Agreement and agreed to waive thefollowing rights appurtenant to the Series C-12 Preferred: (i) all rights of the Holders to dividends accruing under Article IV(d)(2) of the Company’s Articlesof Incorporation, to the extent such dividends otherwise would have accrued on or after September 24, 2013; (ii) the limitations on conversion set forth inArticle IV(d)(3)(C)(i) of the Articles of Incorporation; and (iii) the protective provisions set forth in Article IV(d)(11) of the Articles of Incorporation, to theextent applicable .Additionally, the Holders agreed in the Consent Agreement to increase the conversion price for the Series C-12 Preferred, notwithstanding the conversionprice set forth in the Company’s Articles of Incorporation, such that the Conversion Price shall equal $1,000 divided by 1,724. This increase of theconversion price remained in effect until the Amended and Restated Articles were filed with the California Secretary of State, at which time the conversionprice set forth in the Company’s charter documents again control the conversion of the Series C-12 Preferred.On September 24, 2013, the Company also entered into an Exchange Agreement (the “Exchange Agreement”) with the Holders. Pursuant to the ExchangeAgreement, the Holders exchanged a total of approximately 557 shares of Series C-22 Preferred for approximately 557 shares of Series C-12 Preferred Stock(the “Exchange Shares”). The terms of the Series C-12 Preferred are substantially similar in all respects to the Series C-22 Preferred and the exchange of theSeries C-22 Preferred eliminated all outstanding shares and allows for the removal of this series of preferred stock.The Company issued the Exchange Shares in a transaction exempt from the registration requirements of the Securities Act by virtue of the exemptionprovided for in Section 3(a)(9) of the Act for securities exchanged by the issuer with an existing security holder. No commission or other remuneration waspaid or given directly or indirectly for soliciting such exchange.F-7Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsSignificant 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-11Convertible 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-12 Convertible Preferred Stock (the “Series C-12 Stock”), Series C-22 Convertible Preferred Stock (the “Series C-22 Stock”),Series D-12 Convertible Preferred Stock (the “Series D-12 Stock”) and Series D-22 Convertible Preferred Stock (the “Series D-22 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-12 Stock, Series C-22 Stock, Series D-12 Stock, and Series D-22 Stock (collectively, the “2012 New Preferred Stock”). It exchanged on a one-for-one exchange ratio each share ofits existing Series C-11 Convertible Preferred Stock that was outstanding for a new share of Series C-12 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-12 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.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-12 Stock and Series C-22Stock, removed the “full-ratchet” anti-dilution from the Series C-12 Stock, Series C-22 Stock and Series D-12 Stock and relinquished their right to receivewarrants to purchase Series D-22 Stock (the “Series D-22 Warrants”) upon the exercise of the warrants to purchase Series C-22 Stock (the “Series C-22Warrants”). The Company’s preferred stockholders also exercised a portion of their Series C-22 Warrants, which resulted in the Company receiving $500,000in net proceeds and the preferred stockholders receiving 500 shares of Series C-22 Stock.Principles of ConsolidationThe accompanying consolidated financial statements include the accounts of La Jolla Pharmaceutical Company and its wholly-owned subsidiary, SL JPCSub, Inc., which was incorporated in Delaware in December 2011. In September of 2013 SL JPC Sub, Inc. was dissolved because there had been never beenany operations and no need for the entity.F-8Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsUse 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, 2013 and 2012, property and equipment was comprised of $2,233,000 and $2,186,000 which included furniture, computerequipment and software, respectively. There was $5,000 and $0 depreciation expense for the years ended December 31, 2013 and 2012, respectively.PatentsFrom January 2013 through March 2014, the Company has received issuance of 5 patents and allowance of a sixth set covering compositions and methods ofpreparing modified pectin that cover GCS-100. The Company filed a patent for LJPC-501 in May of 2013 and in February 2014 licensed patent rights forLJPC-501 from George Washington University. In February 2014 the Company licensed patents from INSERM for LJPC-401. The Company will file patentapplications in the United States and in foreign countries for the protection of these and other proprietary technologies and drug candidates as deemedappropriate.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, 2013 and 2012, based on the Company’s historical experience and expected future activities. Total share-based compensation expense related to share-based awards for the years ended December 31, 2013 and 2012 was comprised of the following (inthousands): December 31, 2013 2012Research and development$992 $805General and administrative11,381 7,799Share-based compensation expense included in operating expenses$12,373 $8,604Share-based compensation expense from: Stock options$7,762 $7,640Restricted stock awards and restricted stock units4,611 964Share-based compensation expense included in operating expenses$12,373 $8,604Reverse Stock SplitsThe Board of Directors approved the 2014 Reverse Stock Split of the Company’s Common Stock, which became effective on January 14, 2014, with anexchange ratio of 1-for-50. The Board of Directors approved the 2012 Reverse Stock Split of the Company’s Common Stock, which became effective onFebruary 17, 2012, 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 2014 Reverse Stock Split or 2012 Reverse Stock Split.F-9Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsNet 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, 2013 or December 31, 2012, 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, 2013 and 2012, the potentially dilutive securities include approximately 17.5 million and 90.0 million shares, respectively, reserved for theconversion of convertible 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. Adoption of Recent Accounting PronouncementsIn July 2013, the FASB issued Accounting Standards Update (“ASU”) No. 2013-11, Income Taxes (Topic 740). This update improves the reporting forunrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The update is expected to reducediversity in practice by providing guidance on the presentation of unrecognized tax benefits and will better reflect the manner in which an entity would settleat the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar taxlosses, or tax credit carryforwards exist. The update is effective prospectively for fiscal years, and interim periods within those years, beginning afterDecember 15, 2013, which for us is January 1, 2014. We do not anticipate that adopting this update will have a material impact on our consolidated financialstatements.F-10Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements2. 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:•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 the fullterm 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 or liabilities.As of December 31, 2013 and 2012, cash and cash equivalents were comprised of cash in checking and money market accounts.3. Securities Purchase AgreementOn September 24, 2013, the Company entered into a Securities Purchase Agreement with the purchasers thereto, pursuant to which the Company agreed tosell, for an aggregate price of $10 million, approximately 1,928,620 shares of the Company’s Common Stock, par value $0.0001 per share, at a price of $3.50per share and approximately 3,250 shares of Series F Preferred at a price of $1,000 per share. The Private Placement closed on September 27, 2013, subject tocustomary closing conditions. The estimated proceeds to the Company, net of $300,000 in commissions, was approximately $9.7 million.Pursuant to the Securities Purchase Agreement, the Company designated a new series of preferred stock prior to the Closing: its Series F Convertible PreferredStock. The Series F Preferred is convertible into Common Stock at a conversion price equal to $1,000 divided by 285, with the conversion right for eachholder subject to a “blocker” with respect to such holders’ beneficial ownership, with each such “blocker” initially set at 9.99% . This blocker may beincreased or decreased by a holder of Series F Preferred upon providing 61 days’ prior written notice to the Company. The Series F Preferred will have nopreferential dividend rights and is generally non-voting. The Series F Preferred has a liquidation preference that is senior to the Common Stock, but is paripassu with the Company’s Series C-12 Preferred. This liquidation preference entitles the holder of Series F Preferred stock to receive, in a merger, liquidationor certain other extraordinary transactions, cash or property in an amount up to the face value of the shares ($1,000 per share), as set forth in the Certificate ofDetermination for the Series F Preferred. A copy of the Certificate of Determination was filed as Exhibit 4.1, to the Company's 8-K filed with the SEC onSeptember 25, 2013, the terms of which are incorporated herein by reference.The Shares were issued in a private placement transaction that is exempt from registration under Section 4(a)(2) of the Securities Act, as amended andpursuant to Rule 506 under the Securities Act. Each of the purchasers has represented that it is an accredited investor and that it is acquiring the Shares forinvestment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof.Use of ProceedsThe Company plans to use the proceeds from the Private Placement to advance the programs currently under development in its pipeline, including the Phase2 clinical study of GCS-100 in chronic kidney disease and the Phase 1 clinical study of LJPC-501 in hepatorenal syndrome.F-11Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsAmendment and Restatement of Articles of IncorporationAs a condition to Closing, the holders of a majority of the issued and outstanding Common Stock and the holders of the Series C-12 Preferred have approvedthe amendment and restatement of the Company’s Amended and Restated Articles. Upon the filing of the Amended and Restated Articles with the CaliforniaSecretary of State, the following series of preferred stock will be eliminated: Series C-22 Preferred, Series D-12 Preferred and Series D-22 Preferred. As a resultof the elimination of these series of preferred stock, only the Series C-12 Preferred and Series F Preferred will remain designated as preferred stock of theCompany.Additionally, the Amended and Restated Articles: (i) increase the “Conversion Price” for the Series C-12 Preferred, resetting it to $1,000 divided by 1,724from $1,000 dividend by 4,261; and (ii) remove certain Series C-12 Preferred rights, preferences, privileges and restrictions originally contained in theArticles of Incorporation, including: (a) all rights of the Holders to dividends accruing under Article IV(d)(2) of the Company’s Articles of Incorporation, tothe extent such dividends otherwise would have accrued on or after September 24, 2013; (b) certain protective provisions; and (c) limitations on conversioninto Common Stock set forth in Article IV(d)(3)(C)(i) of the Articles of Incorporation.The Company obtained approval of the Amended and Restated Articles by the holders of the Existing Preferred pursuant to the Consent Agreement andobtained approval by the holders of the Common Stock by way of an action by written consent that was executed prior to Closing. Subject to such approval,the Company expects to file the Amended and Restated Articles after an Information Statement on Schedule 14C has been prepared and distributed to theCompany’s shareholders, pursuant to the Securities Exchange Act of 1934, as amended, and the California General Corporation Law.Consent and Waiver AgreementOn September 24, 2013, the Company entered into a Consent Agreement with the holders of the Holders. Pursuant to the Consent Agreement, the Holdersagreed to tender to the Company for nominal consideration shares of Series D-12 Preferred, as well as all warrants to purchase shares of Existing Preferred. As aresult of this repurchase, and after giving effect to the transactions contemplated in the Exchange Agreement, the Series C-12 Preferred is the only series ofpreferred stock that remained outstanding prior to the Closing and, as of the Closing, no purchase rights existed for the Existing Preferred.Also in the Consent Agreement, the Holders consented to the transactions contemplated under the Securities Purchase Agreement and agreed to waive thefollowing rights appurtenant to the Series C-12 Preferred: (i) all rights of the Holders to dividends accruing under Article IV(d)(2) of the Company’s Articlesof Incorporation, to the extent such dividends otherwise would have accrued on or after September 24, 2013; (ii) the limitations on conversion set forth inArticle IV(d)(3)(C)(i) of the Articles of Incorporation; and (iii) the protective provisions set forth in Article IV(d)(11) of the Articles of Incorporation, to theextent applicable .Additionally, the Holders agreed in the Consent Agreement to increase the conversion price for the Series C-12 Preferred, notwithstanding the conversionprice set forth in the Company’s Articles of Incorporation, such that the Conversion Price shall equal $1,000 divided by 1,724. This increase of theconversion price will remain in effect until the Amended and Restated Articles are filed with the California Secretary of State, at which time the conversionprice set forth in the Company’s charter documents will again control the conversion of the Series C-12 Preferred.Exchange AgreementOn September 24, 2013, the Company also entered into an Exchange Agreement with the Holders. Pursuant to the Exchange Agreement, the Holdersexchanged a total of approximately 557 shares of Series C-22 Preferred for approximately 557 shares of Series C-12 Preferred Stock. The terms of the Series C-12 Preferred are substantially similar in all respects to the Series C-22 Preferred and the exchange of the Series C-22 Preferred eliminated all outstanding sharesand allowed for the removal of this series of preferred stock.The Company issued the Exchange Shares in a transaction exempt from the registration requirements of the Securities Act by virtue of the exemptionprovided for in Section 3(a)(9) of the Act for securities exchanged by the issuer with an existing security holder. No commission or other remuneration waspaid or given directly or indirectly for soliciting such exchange.F-12Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements2010 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 5,794 shares of the Company’s Common Stock, par value $0.0001 per share, at a contractually stated price of $150.00 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-11 Convertible Preferred Stock, Series C-21 Convertible Preferred Stock, Series D-11 Convertible Preferred Stock and Series D-21 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-11 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-11 Convertible Preferred Stock (the “Series C-11 Preferred”), Series C-21 ConvertiblePreferred Stock (the “Series C-21 Preferred”), Series D-11 Convertible Preferred Stock (the “Series D-11 Preferred”) and Series D-21 Convertible Preferred Stock(the “Series D-21 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-11 Preferred and Series C-21 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-11 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 3 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-12 Stock, Series C-22 Stock, Series D-12 Stock and Series D-22 Stock. Inconnection with the adoption of the new Certificate of Designations: (i) the Company filed a Certificate of Elimination for its Series C-11 Preferred, Series C-21 Preferred, Series D-11 Preferred and Series D-21 Preferred; (ii) the holders of shares of the Company’s Series C-11 Preferred exchanged each share (includingfractional shares) of Series C-11 Preferred for an equal number of shares of Series C-12 Stock; and (iii) all references in the Securities Purchase Agreement andthe Warrants (as defined in the Certificate of Designations) to the Series C-11 Preferred, Series C-21 Preferred, Series D-11 Preferred and Series D-21 Preferredwere changed to refer to Series C-12 Stock, Series C-22 Stock, Series D-12 Stock and Series D-22 Stock, respectively.F-13Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsOn 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-12 Stock and Series C-22Stock, removed the “full-ratchet” anti-dilution from the Series C-12 Stock Series C-22 Stock and Series D-12 Stock and relinquished their right to receivewarrants to purchase Series D-22 Stock (the “Series D-22 Warrants”) upon the exercise of the warrants to purchase Series C-22 Stock (the “Series C-22Warrants”). The Company’s preferred stockholders also exercised a portion of their Series C-22 Warrants, which resulted in the Company receiving $500,000in net proceeds and the preferred stockholders receiving 500 shares of Series C-22 Stock.Preferred StockAs of December 31, 2013, 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-12 Stock and 10,000 are designated Series F Stock. As of December 31, 2013, 7,016 sharesof of Series C-12 Stock and 3,250 shares of Series F Stock were issued and outstanding. As of December 31, 2012, 5,792 shares of Series C-12 Stock, 500shares of Series C-22 Stock and 4,615 shares of Series D-12 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 were payable on the Series C-12 Stock and the Series C-22 Stock (collectively, the “Series C2 Stock”) at an annual rate of 15% from thedate of issuance through the date of conversion, payable semi-annually on November 25th and May 25th, in shares of Series C2 Stock. On September 24, 2013dividends were removed from the Series C-12 Stock and the Series F Stock does not have a dividend.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. As ofDecember 31, 2013 the liquidation preference was $7,016,000 and $3,250,000 on the Series C-12 Stock and Series F Stock, respectively.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-12 preferred stock has been reclassified to permanent equity.F-14Table of Contents4. CommitmentsAs of December 31, 2013, there were no 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.On March 21, 2014 the Company entered into a lease amendment (the "Amended Office Lease"), with La Jolla Centre I LLC, to lease additional office spacein the building it currently leases office space covering and additional 1,759 square feet. The additional space will be used by the Company for necessaryoffice space expansion.The Company leases certain properties under an operating lease expiring on March 31, 2018. Future minimum annual lease payments under these existinglease agreements are as follows as of December 31, 2013: Year Ended December 31,OperatingLease2014$106,2262015131,6792016137,6282017143,808Thereafter36,342Total minimum payments$555,6835. 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. The First option was canceled on September 24, 2013 as part of the 2013 Financing. As a replacement for the First OptionDr. Tidmarsh recieved a restricted stock ("RSA") grant for a number of shares of Common Stock equal to 7.5% of the Company's fully diluted share count afterthe effect of the capital restructuring and 2013 financing, which amounted to 1,327,048 shares of Common Stock. The RSA's vest as follows: (i) 1/14 vestingJanuary 20, 2015, (ii) 1/14 vesting January 20, 2016, 2/7 vesting on the earlier of first drug approval or stock trading for 20 consecutive days at $10.50/share,(iii) 1/7 vesting on stock trading for 20 consecutive days at $7.00/share, (iv) 1/7 vesting on stock trading for 20 consecutive days at $12.50/share, (v) 1/7vesting on stock trading for 20 consecutive days at $15.00/share and (vi) 1/7 vesting on stock trading for 20 consecutive days at $17.50/share, an unvestedshares will be forfeited if not satisfied within 7 years from date of grant.6. Stockholders’ EquityCommon StockDuring the twelve months ended December 31, 2013, the Company issued a total of 4,119,058 shares of common stock of which approximately: (i)165,652 shares were issued upon the conversion of Series C-12 Preferred; (ii) 201,914 shares were issued upon the conversion of Series D-12 Preferred;(iii) 16,000 shares of unregistered common stock were issued to our President and Chief Executive Officer; (iv) 6,000 shares of unregistered common stockwere issued to a director; (v) 14,000 shares of unregistered common stock were issued to two employees; (vi) 4,000 shares of restricted stock were issued toone employee; (vii) 40,000 shares were issued upon the vesting of restricted stock units; (viii) 1,742,857 shares of restricted stock were issued to an officer,director and three employees as a result of the Private Placement and (ix) 1,928,635 shares of restricted stock were issued to current and new investors as aresult of the Private Placement.F-15Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsReverse Stock SplitsThe Board of Directors approved the 2014 Reverse Stock Split of the Company’s Common Stock, which became effective on January 14, 2014, with anexchange ratio of 1-for-50. As a result of the 2014 Reverse Stock Split, each 50 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 2014Reverse 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 2014 Reverse Stock Split affected all of the holders of the Company’s Common Stock uniformly. Shares of the Company’s Common Stockunderlying outstanding options were proportionately reduced and the exercise prices of outstanding options were proportionately increased in accordancewith the terms of the agreements governing such securities. Shares of the Company’s Common Stock underlying outstanding convertible preferred stock wereproportionately reduced and the conversion rates were proportionately decreased in accordance with the terms of the agreements governing such securities.The 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.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 2014 Reverse Stock Split or 2012 Reverse Stock Split.Preferred StockAs of December 31, 2013, 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-12 Stock and 10,000 are designated for Series F Stock. As of December 31, 2013, 7,016shares of C-12 Stock and 3,250 shares of Series F Stock were issued and outstanding. As of December 31, 2012, 5,792 shares of Series C-12 Stock, 500 sharesof Series C-22 Stock and 4,615 shares of Series D-12 Stock were issued and outstanding.WarrantsAs of December 31, 2013, there were no warrants outstanding.Stock Option PlansIn May 2004, the Company adopted the La Jolla Pharmaceutical Company 2004 Equity Incentive Plan (the “2004 Plan”), under which, as amended, 12shares 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, 2013, the 2004 Plan had been canceled by the Board of Directors and no shares were outstanding and or issuable under the2004 Plan.F-16Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsIn May 2010, the Company granted options to purchase a total of 11 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.In August 2010, the Company adopted the 2010 Plan under which 19 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 September 2011, theauthorized shares were increased by 320 shares, to a maximum authorized allowed of 340 shares. In May 2012, the stockholders approved an amendment tothe 2010 Plan that increased the amount of shares authorized to 23,768, with automatic quarterly increases on the first day of each quarter based on 10% ofthe outstanding shares of Common Stock as of the last day of the previous quarter end. The authorized shares were increased by 956 and 2,410 at July andOctober 2012, respectively. As of December 31, 2013, the 2010 Plan had been canceled by the Board of Directors and no shares were outstanding and orissuable.A summary of the Company’s stock option award activity as of and for the years ended December 31, 2013 and 2012 is as follows: Outstanding Options SharesUnderlyingStock Options Weighted-AverageExercise Price perShare Weighted-AverageRemainingContractualTerm (yrs) AggregateIntrinsicValueOutstanding at December 31, 201118 $873,100 Granted11,844,609 3 Forfeited/Expired— — Outstanding at December 31, 201211,844,627 4 Granted54,000 6 Canceled(11,844,609) 3 Forfeited/Expired(18) 873,100 Outstanding at December 31, 201354,000 $6 10 $94,500Vested and expected to vest at December 31, 2013— $— 0 $—Exercisable at December 31, 2013— $— 0 $—In April 10, 2012, the Company awarded options to purchase up to 11,844,609 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 $3.00. 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. The options granted in April of 2012 were canceled on September 24, 2013.On September 24, 2013, the Company adopted a Equity Incentive Plan (the "2013 Plan") under which 42,920 shares of Common Stock were authorized forissuance. The 2013 Plan allows for automatic annual increases on the first day of each year based on 10% of the outstanding shares of Common Stock as ofthe last day of the previous year end.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.The weighted-average grant date fair value of options granted during the year ended December 31, 2013 was $6.00 per share. As of December 31, 2013,approximately $314,000 of total unrecognized compensation costs related to non-vested stock option awards is expected to be recognized over a weightedaverage period of approximately 3.8 years. No stock option exercises occurred during the years ended December 31, 2013 and 2012.F-17Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsThe 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 employee options, the Company uses the “simplified” method. The expected life assumptions for non-employees were based upon the contractual termof the option. 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 effect at the time ofthe grant. The dividend yield assumption is based on the expectation of no future dividend payments by the Company.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, 2013 2012Risk-free interest rate2.8% 1.1%Dividend yield0% 0%Volatility213% 236%Expected life (years)10.00 years 6.04 yearsShare-based compensation expense recognized in the Consolidated Statements of Operations for fiscal years 2013 and 2012 is based on awards ultimatelyexpected to vest. There were no forfeitures during 2013 and 2012 were.At December 31, 2013, the Company has reserved 440,441 shares of Common Stock for future issuance upon exercise of all options granted or to be grantedunder the 2013 Plan.Restricted StockOn September 24, 2013, the Company issued restricted stock awards ("RSAs") of approximately 1,327,048 to an officer, 79,622 to a director and336,185 to three employees. The grant to the officer, director and one of the employees are for the replacement of canceled stock options and RSUs grantedon April 10, 2012, which is a result of the capital restructuring that took place on September 24, 2013. The RSAs were granted outside of the 2013 EquityPlan but are governed in all respects by the 2013 Equity Plan.The RSAs for an officer vest as follows: (i) 1/14 vesting January 20, 2015; (ii) 1/14 vesting January 20, 2016, 2/7 vesting on the earlier of first drugapproval or stock trading for 20 consecutive days at $10.50/share; (iii) 1/7 vesting on stock trading for 20 consecutive days at $7/share; (iv) 1/7 vesting onstock trading for 20 consecutive days at $12.50/share; (v) 1/7 vesting on stock trading for 20 consecutive days at $15/share; and (vi) 1/7 vesting on stocktrading for 20 consecutive days at $17.50/share, any unvested shares will be forfeited if not satisfied within 7 years from date of grant. The RSAs for a directorvest on March 1, 2013. The RSAs for the first employee vest as follows: (i) 1/4 vesting on NASDAQ listing or January 20, 2016; (ii) 1/4 vesting on January20, 2015; and (iii) 1/2 monthly starting January 20, 2014 for 24 months. The RSAs for the second employee vest as follows: (i) 1/2 vesting monthly over 24months from January 14, 2015; (ii) 1/4 vesting on the earlier of Nasdaq listing, but in no event earlier than January 14, 2014 or later than January 14, 2015;(iii) 1/4 vesting on January 14, 2015. The RSAs for the third employee vest as follows: (i) 1/4 vesting on January 1, 2014 and (ii) 3/4 vesting monthly startingJanuary 1, 2014.In April 2013, the Company issued an aggregate of 4,000 shares of restricted stock to an employee. The shares were issued under the 2010 Plan andvest quarterly beginning on January 14, 2013. These shares were subject to a reacquisition right if the services of the holder are terminated during the vestingperiod. No consideration is paid for the redemption of the shares under the reacquisition right, but the holder is required to return to the Company any cashdividends paid or payable with respect to the shares.The grant date fair value is the market value on the grant date multiplied by the number of shares granted and share-based compensation expense isrecognized on a straight-line basis over the vesting period. The share-based compensation expense for restricted stock during the twelve months endedDecember 31, 2013 is $95,000 for research and development expenses. The remaining unamortized share-based compensation expense for research anddevelopment to be recognized over the next 24 months is $1,900,000. The share-based compensation expense during the twelve months ended December 31,2013 is $4,464,000 for general and administrative expenses. The remaining unamortized share-based compensation expense for general and administrative tobe recognized over the next 35 months is $13,700,000.F-18Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsRestricted Stock UnitsThe share-based compensation expense during the tweleve months ended December 31, 2013 by expense category was $52,000 for general andadministrative expenses. The share-based compensation expense during the twelve months ended December 31, 2013 was $157 for research and developmentexpenses. On September 24, 2013 the Company canceled 207,502 RSUs that were granted on April 10, 2012 to a director and an employee. As a result of themodification the remaining unamortized share-based compensation expense to be recognized over the remaining service period for the restricted stock unitswas transferred to the new RSAs and as of December 31, 2013 there is no unamortized share-based compensation expense relating to restricted stock units tobe recognized.7. 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 $6,300 and $2,000 for the years ended December 31, 2013 and 2012,respectively.8. 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, 2013 and 2012, 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, 2013 or December 31, 2012, and has not recognized interest and/orpenalties in the consolidated statements of operations for the years ended December 31, 2013 and 2012.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 composition and limitation of net operating loss and research anddevelopment credit carryforwards. The Company does not presently plan to complete a formal Section 382/383 analysis, and until this analysis has beencompleted, the Company has removed the deferred tax assets for net operating losses and research and development credits generated through 2013 from itsdeferred tax asset schedule and has recorded a corresponding increase to its valuation allowance.At December 31, 2013, the Company has estimated federal and California income tax net operating loss carryforwards of approximately $350,206,000 and$279,510,000, 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 estimated federal and California research and development taxcredit carryforwards of approximately $16,000,000 and $10,000,000, respectively. The federal net operating loss, research tax credit carryforwards andCalifornia net operating loss carryforwards which began to expire in 2013. 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, 2013 will likely be subject to annual limitations under IRCSection 382/383 and, more likely than not, will expire unused.F-19Table of ContentsLa Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsSignificant components of the Company’s deferred tax assets as of December 31, 2013 and 2012 are listed below (in thousands): December 31, 2013 2012Deferred tax assets: Capitalized research and development and other$28,283 $21,193Valuation allowance for deferred tax assets(28,283) (21,193)Net deferred taxes$— $—Income taxes computed by applying the U.S. Federal Statutory rates to income from continuing operations before income taxes are reconciled to theprovision for income taxes set forth in the statement of operations as follows (in thousands): December 31, 2013 2012Income tax benefit at statutory federal rate$(6,098) $(2,708)State tax expense (benefit), net of federal— (445)Research and development credits126 —Fair Value of Derivative— (1,221)Expired tax attributes— 3,008Removal of net operating losses and research and development credits— (2,522)Change in valuation allowance5,972 10,037Other— (6,149)Provision for income taxes$— $—9. Subsequent EventsThe Company has completed an evaluation of all subsequent events through the issuance date of these consolidated financial statements and the followingrepresent subsequent events for disclosure.Issuance of Common StockAfter the 2014 Reverse Stock Split, holders of the Series C-12 Preferred and Series F Preferred have converted 1,622.343 shares of Series C-12 Preferred and184.190 shares of Series F Preferred into 2,852,626 shares of common stock.F-20Table of ContentsEXHIBIT INDEXExhibit Number Description2.2 Asset Purchase Agreement by and among La Jolla Pharmaceutical Company and Solana Therapeutics, Inc., dated as of January 19,2012 (1) 2.3 Agreement and Plan of Merger of La Jolla Pharmaceutical Company, a Delaware corporation and LJPC Merger Sub, Inc., aCalifornia corporation (2) 3.1 Amended and Restated Articles of Incorporation (3) 3.2 Certificate of Amendment of Articles of Incorporation (4) 3.3 Bylaws (2) 4.1 Certificate of Determination of Series F Convertible Preferred Stock (16) 10.1 Form of Indemnification Agreement (5)* 10.2 La Jolla Pharmaceutical Company 1994 Stock Incentive Plan (Amended and Restated as of May 16, 2003) (6)* 10.3 La Jolla Pharmaceutical Company 1995 Employee Stock Purchase Plan (Amended and Restated as of June 20, 2008) (7)* 10.4 La Jolla Pharmaceutical Company 2004 Equity Incentive Plan (Amended and Restated as of June 20, 2008) (7)* 10.5 Form of Option Grant under the La Jolla Pharmaceutical Company 2004 Equity Incentive Plan (7)* 10.6 La Jolla Pharmaceutical Company 2010 Equity Incentive Plan, as amended* (8) 10.7 Securities Purchase Agreement, dated as of May 24, 2010 by and among the Company and the Purchasers named therein (9) 10.8 Form of Series C-2 Preferred Stock Purchase Warrant (9) 10.9 Form of Series D-1 Preferred Stock Purchase Warrant (9) 10.10 La Jolla Pharmaceutical Company Retirement Savings Plan (10)* 10.11 Consent and Amendment Agreement by and among La Jolla Pharmaceutical Company and the undersigned parties thereto, dated asof March 29, 2011 (11) 10.12 Consent and Amendment Agreement by and among La Jolla Pharmaceutical Company and the undersigned parties thereto, dated asof June 30, 2011 (12) 10.13 Second Amendment Agreement by and among La Jolla Pharmaceutical Company and the undersigned parties thereto, dated as ofAugust 24, 2011 (13) 10.14 Consent and Amendment Agreement by and among La Jolla Pharmaceutical Company and the undersigned parties thereto, dated asof January 19, 2012 (1) 10.15 Employment Offer Letter by and between La Jolla Pharmaceutical Company and George Francis Tidmarsh, M.D., Ph.D., dated as ofJanuary 19, 2012 (1)* 10.16 Consent and Waiver Agreement, dated December 7, 2012 (14) 10.17 Consent, Waiver and Amendment Agreement, dated March 28, 2013 (17) 10.18 Securities Purchase Agreement, dated as of September 24, 2013, by and among La Jolla Pharmaceutical Company and thePurchasers named therein (16) 10.19 Consent and Waiver Agreement, dated as of September 24, 2013, by and among La Jolla Pharmaceutical Company and theundersigned parties thereto (16) 10.20 Exchange Agreement, dated as of September 25, 2013, by and among La Jolla Pharmaceutical Company and the undersignedparties thereto (16) 10.21 Form of La Jolla Pharmaceutical Company Restricted Stock Agreement* (17) 10.22 La Jolla Pharmaceutical Company 2013 Equity Incentive Plan* (16)Table of Contents 16.1 Letter from BDO to the SEC, dated January 9, 2013 (15) 21.1 Subsidiaries of La Jolla Pharmaceutical Company (17) 23.1 Consent of Independent Registered Public Accounting Firm Squar, Milner, Peterson, Miranda & Williamson LLP ** 24.1 Power of Attorney (included on the signature page of this Form 10-K) 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 January 20, 2012 and incorporated by reference herein.(2)Previously filed with the Company’s Current Report on Form 8-K, filed June 20, 2012 and incorporated herein by reference.(3)Previously filed with the Company’s Registration Statement on Form S-8, filed December 20, 2013 and incorporated herein by reference.(4)Previously filed with the Company’s Current Report on Form 8-K, filed January 15, 2014 and incorporated herein by reference.(5)Previously filed with the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 and incorporated by reference herein.(6)Previously filed with the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 and incorporated by reference herein.(7)Previously filed with the Company’s Registration Statement on Form S-8 (Registration No. 333-151825) filed June 20, 2008 and incorporated byreference herein.(8)Previously filed as Appendix A to the Company’s Definitive Revised Proxy Statement filed April 23, 2012, and incorporated by reference herein.(9)Previously filed with the Company’s Current Report on Form 8-K filed May 28, 2010 and incorporated by reference herein.(10)Previously filed with the Company’s Current Report on Form 10-Q for the quarter ended September 30, 2010 and incorporated by reference herein.(11)Previously filed with the Company’s Current Report on Form 8-K filed April 5, 2011 and incorporated by reference herein.(12)Previously filed with the Company’s Current Report on Form 8-K, filed July 5, 2011 and incorporated by reference herein.(13)Previously filed with the Company’s Current Report on Form 8-K, filed August 25, 2011 and incorporated by reference herein.(14)Previously filed with the Company’s Current Report on Form 8-K, filed December 10, 2012 and incorporated by reference herein.(15)Previously filed with the Company’s Current Report on Form 8-K, filed January 14, 2013 and incorporated by reference herein.(16)Previously filed with the Company’s Current Report on Form 8-K, filed September 25, 2013 and incorporated by reference herein.(17)Previously filed with the Company’s Annual Report on Form 10-K, filed April 1, 2013 and incorporated by reference herein.EXHIBIT 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the previously filed Registration Statement (No. 333-193016) on Form S-8 of La JollaPharmaceutical Company of our report dated March 28, 2014, relating to our audits of the consolidated financial statements of La Jolla PharmaceuticalCompany as of and for the years ended December 31, 2013 and 2012 which appears in this Annual Report on Form 10-K of La Jolla PharmaceuticalCompany for the years ended December 31, 2013 and 2012./s/ Squar, Milner, Peterson, Miranda & Williamson, LLPSan Diego, CaliforniaMarch 28, 2014EXHIBIT 31.1 SECTION 302 CERTIFICATION I, 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 our supervision,to ensure that material information relating to the registrant, including its subsidiaries, is made known to us by others 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 statements forexternal 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; andd)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 reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’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; andb)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: March 28, 2014 /s/ George F. Tidmarsh George F. Tidmarsh, M.D., Ph.D. President, Chief Executive Officer and Secretary (Principal Executive, Financial and Accounting Officer)EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 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, 2013 (the “Report), which accompanies this certification, fullycomplies 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 quarterand the results of operations of the Registrant for such quarter. Date: March 28, 2013 /s/ George F. Tidmarsh George F. Tidmarsh, M.D., Ph.D. President, Chief Executive Officer and Secretary (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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