Table of Contents
Mark One
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________________________________________
FORM 10-K
_____________________________________________________________________________________________
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2012
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File No. 001-33093
LIGAND PHARMACEUTICALS INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
11119 North Torrey Pines Rd., Suite 200
La Jolla, CA
(Address of Principal Executive Offices)
77-0160744
(IRS Employer
Identification No.)
92037
(Zip Code)
Registrant’s telephone number, including area code: (858) 550-7500
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $.001 per share
Preferred Share Purchase Rights
Name of Each Exchange on Which Registered
The NASDAQ Global Market of The NASDAQ Stock Market LLC
The NASDAQ Global Market of The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
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 x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934. Yes o No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting
company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large Accelerated Filer o
Accelerated Filer x
(Do not check if a smaller reporting company)
Non-accelerated Filer o
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Exchange Act). Yes o No x
The aggregate market value of the Registrant’s voting and non-voting stock held by non-affiliates was approximately $295.9 million based on the
last sales price of the Registrant’s Common Stock on the NASDAQ Global Market of the NASDAQ Stock Market LLC on June 30, 2012. For purposes
of this calculation, shares of Common Stock held by directors, officers and 10% stockholders known to the Registrant have been deemed to be owned
by affiliates which should not be construed to indicate that any such person possesses the power, direct or indirect, to direct or cause the direction of the
management or policies of the Registrant or that such person is controlled by or under common control with the Registrant.
As of March 1, 2013, the Registrant had 20,208,248 shares of Common Stock outstanding.
Portions of the Proxy Statement for the Registrant’s 2013 Annual Meeting of Stockholders to be filed with the Commission on or before April 30,
2013 are incorporated by reference in Part III of this Annual Report on Form 10-K. With the exception of those portions that are specifically
incorporated by reference in this Annual Report on Form 10-K, such Proxy Statement shall not be deemed filed as part of this Report or incorporated
by reference herein.
DOCUMENTS INCORPORATED BY REFERENCE
Table of Contents
Table of Contents
Business
Part I
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
Selected Consolidated Financial Data
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Consolidated Financial Statements and Supplementary Data
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Part IV
Item 15. Exhibits, Financial Statement Schedules
SIGNATURES
AVAILABLE INFORMATION:
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We file electronically with the Securities and Exchange Commission (or SEC) our annual reports on Form 10-K, quarterly reports on
Form 10-Q and current reports on Form 8-K and, as necessary, amendments to these reports, pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended. The public may read or copy any materials we file with the SEC at the SEC’s Public
Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements,
and other information regarding issuers that file electronically with the SEC. The address of that site is .
You may obtain a free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K
and amendments to those reports which are posted as soon as reasonably practicable after filing on our website at
, by contacting the Investor Relations Department at our corporate offices by calling (858) 550-7500 or by
sending an e-mail message to investors@ligand.com. You may also request information via the Investor Relations page of our website.
Table of Contents
PART I
Caution: This discussion and analysis may contain predictions, estimates and other forward-looking statements that involve a
number of risks and uncertainties, including those discussed in Item 1A. “Risk Factors.” This outlook represents our current judgment on
the future direction of our business. These statements include those related to our royalty revenues, collaborative revenues and milestones,
and product development. Actual events or results may differ materially from our expectations. For example, there can be no assurance
that our revenues or expenses will meet any expectations or follow any trend(s), that we will be able to retain our key employees or that we
will be able to enter into any strategic partnerships or other transactions. We cannot assure you that we will receive expected royalties or
other revenues to support our ongoing business or that our internal or partnered pipeline products will progress in their development, gain
marketing approval or achieve success in the market. In addition, future arbitration, litigation or disputes with third parties may have a
material adverse effect on us. Such risks and uncertainties, and others, could cause actual results to differ materially from any future
performance suggested. We undertake no obligation to release publicly the results of any revisions to these forward-looking statements to
reflect events or circumstances arising after the date of this annual report. This caution is made under the safe harbor provisions of
Section 21E of the Securities Exchange Act of 1934, as amended.
References to “Ligand Pharmaceuticals Incorporated”, “Ligand”, the “Company”, “we” or “our” include our wholly owned
subsidiaries - Ligand JVR, Allergan Ligand Retinoid Therapeutics, Seragen, Inc., or Seragen; Pharmacopeia, LLC; Neurogen Corporation,
CyDex Pharmaceuticals, Inc., Metabasis Therapeutics, and Nexus Equity VI LLC, or Nexus.
We were incorporated in Delaware in 1987. Our principal executive offices are located at 11119 North Torrey Pines Road, Suite 200,
La Jolla, California, 92037. Our telephone number is (858) 550-7500.
Item 1.
Business
Overview
We are a biotechnology company that operates with a business model focused on developing or acquiring revenue generating assets
and coupling them to a lean corporate cost structure. Our goal is to create a sustainably profitable business and generate meaningful value
for our stockholders. Since a portion of our business model is based on the goal of partnering with other pharmaceutical companies to
commercialize and market our assets, a significant amount of our revenue is based largely on payments made to us by partners for royalties,
milestones and license fees. We recognized the important role of the drug reformulation segment in the pharmaceutical industry and in
2011 added Captisol® to our technology portfolio. Captisol is a powerful formulation technology that has enabled six FDA approved
products, including Onyx’s Kyprolis® and Baxter International’s Nexterone® and is currently being developed in a number of clinical-stage
partner programs. In comparison to our peers, we believe we have assembled one of the largest and most diversified asset portfolios in the
industry with the potential to generate significant revenue in the future. The therapies in our development portfolio address the unmet
medical needs of patients for a broad spectrum of diseases including hepatitis, muscle wasting, multiple myeloma, Alzheimer’s disease,
dyslipidemia, diabetes, anemia, epilepsy, FSGS and osteoporosis. We have established multiple alliances with the world’s leading
pharmaceutical companies including GlaxoSmithKline, Onyx Pharmaceuticals, Merck, Pfizer, Baxter International, Bristol-Myers Squibb,
Celgene, Lundbeck Inc., Eli Lilly and Co., Spectrum Pharmaceuticals and The Medicines Company.
Business Strategy
Our business model is designed to create value for stockholders by assembling a diversified portfolio of biotech and pharmaceutical
revenue streams and operating that business with an efficient and low corporate cost structure. Our goal is to become a sustainably
profitable company that offers investors an opportunity to participate in the promise of the biotech industry in a diversified, lower-risk
business than a typical biotech. Our business model is based on the concept of doing what we do best; drug discovery, reformulation and
partnering with other pharmaceutical companies to leverage what they do best (late-stage development, regulatory management and
commercialization) to ultimately generate our revenue. Our revenue consists mostly of license fees, milestones, royalties from the partners
that license our drugs and technologies, and Captisol material sales. In addition to discovering our own proprietary drugs, we use an
aggressive acquisition strategy to bring in new assets, pipelines, and technologies to aid in generating additional potential new revenue
streams. The principal elements of our strategy are set forth below.
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We are assembling a large portfolio of fully funded programs through acquisition and licensing to drive future profitability. We
have assembled a portfolio of over 70 fully-funded partner programs that are in all stages of development, from preclinical research to
awaiting commercialization. These assets represent the next wave of potential marketed drugs that could generate revenue for us. We
assemble this portfolio by either licensing out our own proprietary drug development programs or acquiring existing partnered programs
from other companies. For our internal programs, we generally plan to advance drug candidates through early-stage drug development
and/or clinical proof-of-concept. We believe partnerships are not only a source of research funding, license fees, future milestone payments
and royalties, but they also position our assets with companies that have the expertise to obtain regulatory approval and successfully launch
and commercialize these assets. We believe that focusing on discovery and early-stage drug development while benefiting from our
partners’ proven development and commercialization expertise will reduce our internal expenses and allow us to have a larger number of
drug candidates progress to later stages of drug development.
We sell Captisol material to a broad range of customers. We are the sole provider of a proprietary formulation technology known as
Captisol. Captisol is a well validated chemically-modified cyclodextrin that improves the solubility, stability, and pharmicokinetics of
many drugs. We receive revenue from the selling of Captisol material to our partners that have either licensed our proprietary Captisol-
enabled drugs or have taken a license to use Captisol with their own internal programs.
We discover and develop compounds that are promising drug candidates. We discover, synthesize and test numerous compounds to
identify those that are most promising for clinical development. We perform extensive target profiling and base our selection of promising
development candidates on product characteristics such as initial indications of safety and efficacy. We believe that this focused strategy
allows us to eliminate unpromising candidates from consideration sooner without incurring substantial clinical costs. Our goal is to partner
our programs early in the development and regulatory life-cycle.
Our Asset Portfolio
We have a portfolio of over 80 current and future potential revenue generating programs, over 70 of which are fully funded by our
partners. We expect to receive royalties from seven marketed products in 2013 and have multiple partnered programs at Phase IIb through
NDA submission which represent our future upcoming potential revenue generating programs. While many of these programs have been
disclosed publicly, a significant number of our partners and their programs remain undisclosed to protect competitive and proprietary
information about these programs.
Select Late-Stage Development or Commercial Programs
We have multiple partnered programs in our portfolio that are either in or nearing the regulatory approval process. These programs
represent the next series of potential royalty generating assets in our portfolio.
Promacta (GSK)
GSK’s Promacta® (Eltrombopag) is the first oral thrombopoietin (TPO) receptor agonist therapy for the treatment of adult patients
with chronic immune (idiopathic) thrombocytopenic purpura, or ITP. In late 2008, the U.S. Food and Drug Administration, or FDA,
granted accelerated approval of Promacta for the treatment of thrombocytopenia in patients with chronic ITP, who have had an insufficient
response to corticosteroids, immunoglobulins or splenectomy.
In 2010, GSK received approval for Revolade® (eltrombopag/Promacta) from the European Medicines Agency's Committee for
Medicinal Products for Human Use (CHMP) and from the Japanese Ministry of Health, Labour and Welfare for the oral treatment of
thrombocytopenia (reduced platelet count) in adults with the blood disorder chronic ITP.
In February 2011, the FDA granted GSK full approval status for Promacta in the US following the submission of long- term safety
data from post-marketing clinical studies, as well as the completion of other commitments that verify the clinical benefit to patients.
Additionally, it was reported in November 2011 that the Risk Evaluation and Mitgation Strategies (REMS) program that Promacta had
been operating under in the US was being significantly reduced in scope by the FDA due to data that had been submitted by GSK
demonstrating the long term safety of Promacta.
In May 2012, GSK submitted a variation to the existing Marketing Authorization Application to the European Medicines Agency for
Promacta/Revolade as a treatment for thrombocytopenia in adult patients with chronic hepatitis C infection to enable the initiation of
interferon-based therapy and during interferon-based therapy. That application is currently under review by the European Medicines
Agency.
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In November 2012, the FDA approved Promacta for the treatment of thrombocytopenia (low blood platelet counts) in patients with
chronic hepatitis C to allow them to initiate and maintain interferon-based therapy. Promacta is the first supportive care treatment available
to patients who are ineligible or poor candidates for interferon-based therapy due to their low blood platelet counts. Promacta in
combination with interferon-based therapy has been shown to improve a patient's chance of achieving a sustained virologic response (SVR)
or viral cure.
Promacta is authorized for use in 92 countries. We are entitled to receive tiered royalties on annual net sales of Promacta. GSK has
listed a patent in the FDA’s Orange Book for Promacta with an expiration date in 2027.
AGGREGATE NET SALES IN EACH CALENDAR YEAR
Less than $100M annual sales
On portion of sales in range of $100M - $200M
On portion of sales in range of $200M - $400M
On portion of sales greater than $400M
On portion of sales greater than $1.5B
*
Net royalties due Ligand after payment to Rockefeller
Kyprolis (Onyx, Phase III/NDA, Multiple Myeloma)
ROYALTY RATE
4.7 %
6.6 %
7.5 %
9.4 %
9.3 %
Ligand (formerly CyDex) and Onyx Pharmaceuticals (formerly Proteolix) entered into a collaboration in 2005 to develop the
Captisol-enabled IV formulation of Carfilzomib for refractory multiple myeloma. In July 2012, Onyx received accelerated approval from
the FDA for Kyprolis (Carfilzomib) for injection. We earned a milestone payment of $0.6 million upon FDA approval. Kyprolis is
formulated with Ligand’s Captisol and is used for the treatment of patients with multiple myeloma who have received at least two prior
therapies, including bortezomib and an immunomodulatory agent, and have demonstrated disease progression on or within 60 days of
completion of the last therapy. The indication for Kyprolis is based on response rate. Under our agreement with Onyx, we are entitled to
receive milestones, tiered royalties ranging between 1.5% and 3% as shown in the table below, and revenue from clinical and commercial
Captisol material sales.
AGGREGATE NET SALES IN EACH CALENDAR YEAR
Up to, and including, $250 million
$251 million to $500 million
$501 million to $750 million
Above $750 million
Avinza (Pfizer)
ROYALTY RATE
1.5 %
2.0 %
2.5 %
3.0 %
We currently receive royalty revenues from Pfizer, Inc., or Pfizer, for sales of the pain therapeutic Avinza®. In February 2007, we
completed the sale of our Avinza product line to King Pharmaceuticals (or King). As a result of the sale, we receive royalties on the net
sales of Avinza through 2017. Royalties are paid at a rate of 5% on sales up to $200 million and a higher rate above $200 million. In
October 2010, Pfizer announced the acquisition of King.
Viviant/Conbriza (Pfizer)
In 2010, our partner Pfizer launched Viviant® (bazedoxifene) in Japan for the treatment of postmenopausal osteoporosis. The drug is
also marketed in Spain under the brand name Conbriza® through a co-promotion with Almirall, an international pharmaceutical company
based in Spain. Viviant was approved in 2009 by the European Commission (under the trade name Conbriza) for the treatment of
postmenopausal osteoporosis in women at increased risk of fracture. Viviant, a selective estrogen receptor modulator (SERM), is a result of
the successful research collaboration between Wyeth (now a subsidiary of Pfizer) and us that began in 1994. Pfizer is responsible for the
registration and worldwide marketing of bazedoxifene, a synthetic drug specifically designed to reduce the risk of osteoporotic fractures
while also protecting uterine tissue. We are entitled to receive tiered royalties on net sales of bazedoxifene. Any such royalties may be
subject to reduction or offset for past milestone payments and/or may be subject to other terms and conditions set forth in our agreement
with Pfizer.
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Nexterone (Baxter International)
In 2006, Ligand outlicensed Nexterone, an injectable formulation combining amiodarone and Captisol, to Baxter International, or
Baxter (formerly Prism Pharmaceuticals, Inc.). Under the terms of the agreement, Baxter is responsible, under an exclusive worldwide
license, for all development and commercialization of Nexterone at its sole expense. In 2010, Nexterone was approved by the FDA and
launched in the United States in 2011. We are supplying Captisol to Baxter for use in accordance with the terms of the license agreement
under a separate supply agreement. Baxter has paid milestone payments and is obligated to pay royalties to us on sales of Nexterone
through early 2029.
Bazedoxifene/conjugated estrogens (BZA/CE)(Pfizer, Submitted in the US and EU, Post-Menopausal Symptoms)
In 2010, our partner Pfizer launched Viviant (bazedoxifene) in Japan for the treatment of postmenopausal osteoporosis. Pfizer has
combined Viviant with Premarin to create a combination therapy for the treatment of post-menopausal symptoms in women. Pfizer has
completed Phase III studies of bazedoxifene and filed an approval submission with the FDA and EMA in 2012. For the year ended
December 31, 2012, we received $0.3 million for the filing submissions with the FDA and the EMA. We are entitled to receive tiered
royalties on all net sales of bazedoxifene, whether alone or in combination with other products. Any such royalties may be subject to
reduction or offset against past milestone payments and/or may be subject to other terms and conditions set forth in our agreement with
Pfizer.
Promacta (GSK, Oncology)
GSK is conducting Phase II clinical studies of Promacta for oncology-related thrombocytopenia in patients with solid tumors,
Myelodysplastic Syndrome (MDS), or Secondary Acute Myeloid Leukemia (AML) after MDS. Promacta is also in Phase II studies for
patients with Aplastic Anemia.
Captisol-enabled Melphalan IV (Spectrum Pharmaceuticals, Pivotal, Stem Cell Transplant Conditioning)
In March 2013, we licensed the full world-wide rights to Captisol-enabled melphalan IV to Spectrum Pharmaceuticals, Inc. The
Captisol-enabled, PG-free melphalan program uses a new intravenous formulation of melphalan for the multiple myeloma transplant
setting, and has been granted Orphan designation by the FDA. The formulation avoids the use of propylene glycol, which has been reported
to cause renal and cardiac side-effects that limit the ability to deliver higher quantities of therapeutic compounds. The use of the Captisol®
technology to reformulate melphalan is anticipated to allow for longer administration durations and slower infusion rates, potentially
enabling clinicians to safely achieve a higher dose intensity of pre-transplant chemotherapy.
Under the terms of the license agreement, we will receive a $3 million license fee and are eligible to receive more than $50 million in
potential milestone payments. We are also eligible to receive significant double-digit royalties on future net sales of the Captisol-enabled
melphalan product. This program is currently enrolling patients in a pivotal clinical trial.
Merck Captisol Program, Molecule Undisclosed(Merck, Phase III, Undisclosed Indication)
Ligand and Merck entered into a Captisol supply agreement in June 2011 for an undisclosed Merck program. Merck is currently
conducting a pivitol study for this program and we expect Merck to potentially file a 505(b)(2) in 2013 for approval to market this Captisol
program. Financial terms of the relationship remain undisclosed, but we expect to generate revenue through the supply of Captisol for this
program.
Captisol-enabled Clopidogrel (The Medicines Company, Phase III, Anti-coagulant)
In June 2011, we licensed the full world-wide rights to our Captisol-enabled clopidogrel program to The Medicines Company.
Clopidogrel is the active ingredient in Plavix®, the world’s leading anti-platelet medication which is currently only available in an oral
formulation. The Captisol-enabled clopidogrel formulation is designed to provide an intravenous option in situations where the
administration of oral platelet inhibitors is not feasible or desirable. We received an upfront payment of $1.8 million, $0.9 million of which
was remitted to the former CyDex shareholders. We are eligible to receive up to $8 million in milestones, net of amounts owed and
royalties on annual worldwide net sales. In addition, we will also supply both the clinical and commercial requirements of Captisol for this
program, now known as MDCO-157, and if the intravenous formulation is approved for commercialization, we will be the exclusive
supplier of Captisol for the product.
The Medicines Company is planning to initiate a pivotal study for the program in 2013 and is developing the product for global
markets.
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RE-021 program (Retrophin, Phase II, FSGS)
In early 2012, we licensed the world-wide rights to RE-021 (formerly known as DARA-a Dual Acting Receptor Antagonist of
Angiotension and Endothelin receptors) to Retrophin, Inc., or Retrophin. Retrophin intends to develop RE-021 for orphan indications of
severe kidney diseases including Focal Segmental Glomerulosclerosis (FSGS) as well as conduct proof-of-concept studies in resistant
hypertension and diabetic nephropathy. Certain patient groups with severely compromised renal function exhibit extreme proteinuria
resulting in progression to dialysis and a high mortality rate. RE-021, with its unique dual blockade of angiotensin and endothelin receptors,
is expected to provide meaningful clinical benefits in mitigating proteinuria in indications where there are no approved therapies. We
received an upfront payment of $1 million, net of amounts owed to third parties.
In late 2012, we received a milestone payment of 620,000 shares of common stock in partner Retrophin, Inc. Former license holders
are entitled to receive 15% of the proceeds received upon sale of the securities. We may receive over $75 million in milestones as well as
9% in royalties on potential future worldwide sales by Retrophin.
In early 2013 we received a $1.4 million milestone payment from Retrophin, Inc. We will remit $0.2 million to former license holders
under the terms of a previous license agreement for RE-021.
Dinaciclib program (Merck, Phase IIb/III, Refractory CLL)
In October 2012, our licensee, Merck, initiated a Phase IIb/III adaptive clinical trial for Dinaciclib for the treatment of patients with
refractory chronic lymphocytic leukemia (CLL). As a result, we received a $2 million milestone payment upon initiation of the clinical
study. Under our collaboration and license agreement with Merck, we are entitled to receive future milestones and royalties. CLL is a slow-
progressing disease, affecting the blood and bone marrow, as well as the lymph nodes or other organs, and is the most common type of
leukemia affecting adults. Dinaciclib is derived from a collaboration initiated in 1998 by Pharmacopeia (now a wholly owned subsidiary of
Ligand).
Beta-Secretase Inhibitor (Merck, Phase II/III, Alzheimer's Disease)
The development agreement for the beta-secretase inhibitor program (or BACE) was entered into in 2009 between Ligand (formerly
Pharmacopeia) and Merck (formerly Schering-Plough), under a 1998 agreement, for the treatment of Alzheimer's disease. This disease is
characterized by plaques of the toxic amyloid-beta protein within the brain. Beta secretase is believed to be a key enzyme in the production
of amyloid-beta protein. Amyloid-beta is formed when the larger amyloid precursor protein (APP) is cleaved by two enzymes, beta-
secretase and gamma-secretase, which releases the amyloid-beta fragment. A beta-secretase inhibitor is expected to reduce amyloid-beta
generation in Alzheimer's disease patients.
In December 2012, Merck initiated a Phase II/III clinical trial for its lead BACE inhibitor product candidate, MK-8931, evaluating its
safety and efficacy in patients with mild-to-moderate Alzheimer's disease. Ligand is entitled to royalties on potential future sales by Merck.
Captisol-enabled Carbamazepine-IV (Lundbeck, Phase III, Epilepsy)
The development and commercialization agreement for Captisol-enabled carbamazepine-IV began in 2004 between Lundbeck
(formerly Ovation Pharmaceuticals) and us for the use of Captisol in the formulation of CE carbamazepine-IV. Lundbeck is developing CE
carbamazepine-IV for the management of acute seizure disorder for hospital or emergency settings. CE carbamazepine-IV is currently
being evaluated in a Phase III clinical trial.
Captisol-enabled Delafloxacin (Rib-X, Phase III, Infection)
The development and commercialization agreement for Captisol-enabled delafloxacin began in 2008 between Rib-X Pharmaceuticals
and us for the use of Captisol in the formation of delafloxacin. Delafloxacin is a novel hospital-focused fluoroquinolone antibiotic candidate
with potency against a variety of quinolone-resistant Gram-positive and Gram-negative bacteria, including quinolone-resistant, methicillin-
resistant Staphylococcus aureus (MRSA). In the first half of 2013, Rib-X plans to initiate the first of two planned Phase III clinical trials of
delafoxacin for the treatment of acute bacterial skin and skin structure infections (ABSSSI), including infections caused by MRSA.
Fructose-1,6-bisphosphatase Inhibitor (Undisclosed, Phase II)
In September 2012, Ligand entered into an option agreement with an undisclosed partner for the clinical development of an
undisclosed novel inhibitor of the fructose-1,6-bisphosphatase (FBPase) enzyme for the treatment of type 2 diabetes. The undisclosed
partner paid a $50,000 upfront option fee.
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Fablyn (Unpartnered, Estrogen receptor modulator)
In October 2011, we entered into a license agreement with Chiva Pharmaceuticals, Inc., or Chiva. We granted to Chiva an exclusive
worldwide license, with sub-license rights, to our intellectual property rights related to Fablyn, a selective estrogen receptor modulator. In
October 2012, we entered into a settlement agreement and mutual release with Chiva, pursuant to which we resolved all disputes, including
our primary claim in arbitration relating to payments due under the License Agreement. We also agreed to terminate the Fablyn license
agreement and all assets related to Fablyn, including all relevant patents, know-how, properties, rights, interests and other tangible and
intangible assets owned or controlled by Chiva were returned to us. Under the settlement agreement, Chiva agreed to pay $0.1 million and
we agreed to drop our claim for $1.7 million asserted in arbitration.
Under the Fablyn license agreement, we have been paid and will retain $2.5 million in license fees. Having reclaimed the rights to
Fablyn per the settlement agreement, we will seek new potential partners or licensees for Fablyn.
Internal Product Development Programs
As summarized in the table below, we are developing several proprietary products for a variety of indications. These programs
represent our future licensing opportunities to expand our partnered asset portfolio.
Program
Selective Androgen Receptor Modulator
Captisol-enabled Topiramate
Glucagon Receptor Antagonist
HepDirect
Oral Human Granulocyte Colony Stimulating Factor
Oral Erythropoietin
Selective Androgen Receptor Modulator (SARM)
Disease/Indication
Various
Epilepsy
Diabetes
Liver Diseases
Neutropenia
Anemia
Development
Phase
Phase II-ready
Phase I/II
Pre-IND
Preclinical
Preclinical
Preclinical
Our LGD-4033 is a non-steroidal selective androgen receptor modulator (SARM) that is expected to produce the therapeutic benefits
of testosterone with improved safety, tolerability and patient acceptance due to a tissue-selective mechanism of action and an oral route of
administration. We have discovered several novel orally active, non-steroidal SARM compounds, including LGD-4033, based on tissue-
specific gene expression and other functional, cell-based technologies. In animal models, LGD-4033 demonstrated anabolic activity in
muscles, anti-resorptive and anabolic activity in bones and a robust selectivity for muscle and bone versus prostate and sebaceous glands.
Phase I single and multiple dose escalation studies of LGD-4033 were conducted in a total of 116 healthy male subjects. The safety,
tolerability and preliminary efficacy of LGD-4033 was evaluated in the double-blind, placebo-controlled Phase I multiple ascending dose
study. Healthy male subjects were randomized to receive 0.1, 0.3 or 1.0 mg LGD-4033 or placebo once daily over 21 days. Key findings of
this study included: LGD-4033 was safe and well tolerated at all doses following daily oral administration for three weeks in young healthy
males; no clinically significant dose-related adverse events were reported; no clinically significant changes in liver function tests, PSA,
hematocrit or ECG were seen; positive dose-dependent trends in lean muscle mass increase were observed with drug-treated subjects;
positive dose-dependent trends in functional exercise and strength measures were consistent with anabolic activity. LGD-4033 is
positioned to enter into Phase II development, and potential studies include evaluation of LGD-4033 in conditions such as muscle wasting
associated with cancer (cachexia), acute rehabilitation (e.g. hip fracture), and acute illness.
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Captisol-enabled Topiramate IV
We are developing a proprietary Captisol-enabled formulation of topiramate for the treatment of acute epileptic seizures.
Topiramate is sold under the trade name Topamax® and is currently only available in an oral formulation. The Captisol-enabled topiramate
formulation is designed to provide an intravenous or intramuscular option for hospitalized epilepsy patients where oral topiramate is not an
option. In completed Phase I studies, Captisol-enabled topiramate has demonstrated a faster onset of action than the orally administered
drug.
Glucagon Receptor Antagonist Program
We are currently developing small molecule glucagon receptor antagonists for the treatment of Type II diabetes mellitus. Compounds
that block the action of glucagon may reduce the hyperglycemia that is characteristic of this disease. Glucagon stimulates the production of
glucose by the liver and its release into the blood stream. In diabetic patients, glucagon secretion is abnormally elevated and contributes to
hyperglycemia in these patients. Clinical proof of concept studies with glucagon receptor antagonists in Type 2 diabetic patients were
reported at the American Diabetes Association Annual Meeting in 2011 and 2012, supporting the potential benefit of this therapeutic
target. Our advanced glucagon antagonist compound blocks glucagon action in human hepatocytes in vitro, reduces blood glucose in
animal models of Type 1 and Type 2 diabetes, has demonstrated good oral bioavailability in rodents, and has a safety profile in preclinical
studies suitable for further clinical development. We are preparing to file an IND for this program.
HepDirect HCV Inhibitor Program
We are developing novel small molecule inhibitors of the Hepatitis C virus using our HepDirect technology platform. Data from
current lead molecules suggest that directing these molecules to the liver using the HepDirect technology could produce fewer side effects
and has the potential for an overall superior risk-benefit ratio compared to non HepDirect therapies.
Oral Human Granulocyte Colony Stimulating Factor (GCSF) Program
We have discovered a novel series of small molecules that selectively activate human granulocyte colony stimulating factor (GCSF)
receptor function in a manner distinct from GCSF, but similar to the mechanism of small-molecule human thrombopoietin receptor
(hTPOR) agonists, such as eltrombopag (Promacta®). The goal of our GCSFR agonist program is to develop a non-peptide, small
molecule, oral GCSFR agonist that is a convenient, cost-effective alternative as compared to recombinant human GCSF for the treatment of
neutropenia and other related indications. The lead compound, LG7455, activates the GCSF-GCSFR signaling pathway and induces the
differentiation of human bone marrow cells into granulocytes. Further optimization of the LG7455 structure series could lead to a first-in-
class, once-daily, oral medication for the treatment of congenital, chronic or chemotherapy-induced neutropenia.
Oral EPO Program
Erythropoietin (EPO) acts on its receptor to stimulate the differentiation of bone marrow hematopoietic cells to form red blood cells.
Various recombinant human EPO derivatives are marketed as erythropoiesis-stimulating agents (ESAs) for the treatment of anemia due to
renal failure or cancer chemotherapy. We have discovered a series of orally-available, small molecule partial agonists of the EPO receptor
with unique mechanism of action that should provide additional benefit in the treatment of anemia with improved safety, tolerability, and
patient acceptance due to the convenience of oral administration and the lack of excessive erythropoietic stimulation. The lead compound,
LG5640, has demonstrated high potency and oral bioavailability in the mouse, rat and monkey.
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Other Internal Programs Awaiting Further Development Funding, Either Through Ligand or a Partner
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Aplindore (Phase II, Restless
Leg/Parkinson’s)
Captisol-enabled Nasal Budesonide (Phase I, Allergic
Rhinitis)
Thyroid Receptor-beta Agonist (Preclinical,
Dyslipidemia)
Histamine H3 Receptor Antagonist (Preclinical, Cognitive
Disorders)
Glucokinase Activator (Preclinical,
Diabetes)
DGAT Inhibitor (Preclinical,
Diabetes)
CCR1 Inhibitor (Preclinical,
Oncology)
CRTH2 Inhibitor (Preclinical,
Inflammation)
Topical JAK3 (Preclinical,
Inflammation)
Others
Technology
We employ various research laboratory methods to discover and conduct preclinical development of new chemical entities. These
methods are performed either in our own laboratories or in those of contract research organizations under our direction.
Our discovery work is based on certain technologies and acquired special expertise related to intracellular receptors and the receptors
for hematopoietic growth factors. Intracellular receptors are involved in the actions of non-peptide hormones and drugs such as selective
estrogen receptor modulators, or SERMs, and SARMs. Hematopoietic growth factor receptors are involved in the differentiation and
proliferation of blood cell progenitors, the formation of new blood cells, and the action of drugs such as Promacta, Epogen and Neumega.
We use and have developed particular expertise in co-transfection assays, which measure gene transcription in response to the activation of
a target receptor, and gene expression in cells selected for expression of particular receptors or transfected with cDNA for particular
receptors. Some of these methods are covered by patents issued to or licensed by us, some are trade secrets, and some are methods that are
in the public domain, but that we may use in novel ways to improve our efficiency in identifying promising leads and developing new
chemical entities.
In connection with our merger with Metabasis, we acquired certain HepDirect technology. HepDirect technology supplements our
core drug discovery technology platform of ligand-dependent gene expression. HepDirect is a prodrug technology that targets delivery of
certain drugs to the liver by using a proprietary chemical modification that renders a drug biologically inactive until cleaved by a liver-
specific enzyme.
In connection with our acquisition of CyDex, we acquired the Captisol drug formulation platform technology. We use this technology
to improve the solubility, stability, and/or pharmacokinetics of drugs, whether in our own internal development pipeline or those of our
partners.
Manufacturing
We currently have no manufacturing facilities and rely on third parties, including our collaborative partners, for clinical production of
any products or compounds.
We currently outsource the production of Captisol to Hovione FarmaCiencia SA, or Hovione, a major supplier of APIs and API
intermediates located in Portugal. In 2002, CyDex entered into a Captisol supply agreement with Hovione, under which Hovione is our
exclusive supplier of Captisol and is restricted from supplying Captisol to third parties, so long as specified conditions are met. In addition
to its main manufacturing site in Loures, Portugal, Hovione will qualify a second site in Macau if our forecast requirements for Captisol
exceed the capabilities of the Loures site. We have ongoing minimum purchase commitments under the agreement and are required to pay
Hovione an aggregate minimum amount during the agreement term. Hovione must supply amounts exceeding our forecasts by a fixed
percent. In 2008, we entered into an amendment to the supply agreement, under which we and Hovione agreed to reduce our minimum
annual purchase requirement of Captisol and to extend the term of the agreement.
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We pay Hovione unit prices, in U.S. dollars, for all Captisol supplied after the commercial production date, which prices may be
adjusted for fluctuation in currency exchange rates, change in raw material prices and change in the Portuguese consumer price index.
Additionally, prices may be adjusted based on requested changes to the Captisol manufacturing process or specifications.
In the event of a Captisol supply interruption, we are permitted to designate and, with Hovione’s assistance, qualify one or more
alternate suppliers. If the supply interruption continues beyond a designated period, we may terminate the agreement. In addition, if
Hovione cannot supply our requirements of Captisol due to an uncured force majeure event or if the unit price of Captisol exceeds a set
figure, we may obtain Captisol from a third party. To date, we have not qualified any alternate suppliers. In December 2011, the contract
was amended to allow certain bulk quantities of Captisol to be distributed directly from Hovione. Additionally, in 2012, we qualified a
Hovione site in Cork, Ireland to perform certain manufacturing steps to provide back-up and increased capacity to the Loures site.
Unless terminated earlier, the agreement will continue until it expires in December 2019. The term will automatically continue after
the initial term for successive two year renewal terms, unless either party gives written notice of its intention to terminate the agreement no
less than two years prior to the expiration of the initial term or renewal term. In addition, either party may terminate the agreement for the
uncured material breach or bankruptcy of the other party or an extended force majeure event. We may terminate the agreement for
extended supply interruption, regulatory action related to Captisol or other specified events.
For further discussion of these items, see below under “Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations.”
Research and Development Expenses
Research and development expenses from continuing operations were $10.8 million, $10.3 million, and $22.1 million in 2012, 2011
and 2010, respectively, of which 100%, 99%, and 61%, respectively, were sponsored by us.
There were no research and development expenses from discontinued operations in 2012, 2011 and 2010.
Competition
Some of the drugs we and our collaborative partners are developing may compete with existing therapies or other drugs in
development by other companies. A number of pharmaceutical and biotechnology companies are pursuing intracellular receptor-related
approaches to drug discovery and development. Furthermore, academic institutions, government agencies and other public and private
organizations conducting research may seek patent protection with respect to potentially competing products or technologies and may
establish collaborative arrangements with our competitors.
Many of our existing or potential competitors, particularly large pharmaceutical companies, have greater financial, technical and
human resources than we do and may be better equipped to develop, manufacture and market products. Many of these companies also have
extensive experience in preclinical testing and human clinical trials, obtaining FDA and other regulatory approvals and manufacturing and
marketing pharmaceutical products.
Our competitive position also depends upon our ability to attract and retain qualified personnel, obtain patent protection or otherwise
develop proprietary products or processes, and secure sufficient capital resources for the often substantial period between technological
conception and commercial sales. For a discussion of the risks associated with competition, see below under “Item 1A. Risk Factors.”
Government Regulation
The manufacturing and marketing of our products, our ongoing research and development activities and products being developed by
our collaborative partners are subject to regulation for safety and efficacy by numerous governmental authorities in the United States and
other countries. In the United States, pharmaceuticals are subject to rigorous regulation by federal and various state authorities, including
the FDA. The Federal Food, Drug and Cosmetic Act and the Public Health Service Act govern the testing, manufacture, safety, efficacy,
labeling, storage, record keeping, approval, advertising and promotion of our products. There are often comparable regulations that apply at
the state level. Product development and approval within this regulatory framework takes a number of years and involves the expenditure
of substantial resources.
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The steps required before a pharmaceutical agent may be marketed in the United States include (1) preclinical laboratory tests, (2) the
submission to the FDA of an IND, which must become effective before human clinical trials may commence, (3) adequate and well-
controlled human clinical trials to establish the safety and efficacy of the drug, (4) the submission of an NDA to the FDA and (5) the FDA
approval of the NDA prior to any commercial sale or shipment of the drug. In addition to obtaining FDA approval for each product, each
domestic drug-manufacturing establishment must be registered with the FDA and, in California, with the Food and Drug Branch of
California. Domestic manufacturing establishments are subject to pre-approval inspections by the FDA prior to marketing approval, then to
biennial inspections, and must comply with current Good Manufacturing Practices (cGMP). To supply products for use in the United States,
foreign manufacturing establishments must comply with cGMP and are subject to periodic inspection by the FDA or by regulatory
authorities in such countries under reciprocal agreements with the FDA.
For both currently marketed and future products, failure to comply with applicable regulatory requirements after obtaining regulatory
approval can, among other things, result in the suspension of regulatory approval, as well as possible civil and criminal sanctions. In
addition, changes in existing regulations could have a material adverse effect on us.
We are also increasingly subject to regulation by the states. A number of states now regulate, for example, pharmaceutical marketing
practices and the reporting of marketing activities, controlled substances, clinical trials and general commercial practices. We have
developed and are developing a number of policies and procedures to ensure our compliance with these state laws, in addition to the federal
regulations described above. Significant resources are now required on an ongoing basis to ensure such compliance. For a discussion of the
risks associated with government regulations, see below under “Item 1A. Risk Factors.”
Patents and Proprietary Rights
We believe that patents and other proprietary rights are important to our business. Our policy is to file patent applications to protect
technology, inventions and improvements to our inventions that are considered important to the development of our business. We also rely
upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain our competitive
position.
Royalties we currently receive from Pfizer on Avinza represent a portion of our ongoing revenue. The United States patent on Avinza
is not expected to expire until November 2017; however, applications for generic forms of Avinza have been submitted to the FDA. The
last to expire United States patents relating to Promacta is not expected to expire until August 2027. The last to expire United States patents
related to Captisol is not expected to expire until 2029. Subject to compliance with the terms of the respective agreements, our rights to
receive royalty payments under our licenses with our exclusive licensors extend for the life of the patents covering such developments. For
a discussion of the risks associated with patent and proprietary rights, see below under “Item 1A. Risk Factors.”
Human Resources
As of February 1, 2013, we had 21 full-time employees, of whom 6 are involved directly in scientific research and development
activities. Of these employees, 5 hold Ph.D. or M.D. degrees.
ITEM 1A.
RISK FACTORS
The following is a summary description of some of the many risks we face in our business. You should carefully review these risks in
evaluating our business, including the businesses of our subsidiaries. You should also consider the other information described in this
report.
Revenues based on sales of Promacta represent a substantial portion of our overall current and/or expected future revenues.
GSK is obligated to pay us royalties on its sales of Promacta. These payments are expected to be a substantial portion of our
ongoing revenues for some time. As a result, any setback that may occur with respect to Promacta could significantly impair our operating
results and/or reduce the market price of our stock. Setbacks for Promacta could include problems with shipping, distribution,
manufacturing, product safety, marketing, government regulation, safety issues, licenses and approvals, intellectual property rights,
competition with existing or new products and physician or patient acceptance of the products, as well as higher than expected total rebates,
returns or discounts.
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Revenues based on sales of Kyprolis represent a substantial portion of our overall expected future revenues.
Revenue from Onyx based on sales of Kyprolis are expected to be a substantial portion of our revenue in the future and any
setbacks that occur with respect to Kyprolis could significantly impair our future operating results and/or reduce the market price of our
stock. Setbacks for Kyprolis could include problems with shipping, distribution, manufacturing, product safety, marketing, government
regulation, safety issues, licenses and approvals, intellectual property rights, competition with existing or new products and physician or
patient acceptance of the products, as well as higher than expected total rebates, returns or discounts.
Revenue from sales of Captisol material to our collaborative partners represents a significant portion of our current revenue and our
continued development and supply of Captisol is subject to a number of risks.
In January 2011, we completed our merger with CyDex, in which we obtained exclusive rights to the Captisol technology, in
addition to other product candidates. All of CyDex's products and product candidates, as well as the technology that it outlicenses, are
based on Captisol. We must coordinate with our collaborative partners concerning the development, manufacturing, regulatory and
intellectual property protection strategies for Captisol and new development product candidates. In addition, we rely on our collaborative
partners for many aspects of our Captisol developmental and commercialization activities, and we are subject to risks related to their
financial stability and solvency.
In addition, Ligand or its partners are attempting to develop product candidates that may contain significantly higher levels of
Captisol than in any currently-approved product and has directed developers to demonstrate an adequate safety margin and specifically
acceptable renal safety. If products or product candidates incorporating Captisol technology were to cause any unexpected adverse events,
whether in preclinical studies, clinical trials or as commercialized products, whether as a result of Captisol or otherwise, the perception of
Captisol safety could be seriously harmed. If this were to occur, we may not be able to market Captisol products unless and until we are
able to demonstrate that the adverse event was unrelated to Captisol, which we may not be able to do. Further, whether or not the adverse
event was a result of Captisol, we could be required by the FDA to submit to additional regulatory reviews or approvals, including
extensive safety testing or clinical testing of products using Captisol, which would be expensive and, even if we were to demonstrate that
the adverse event was unrelated to Captisol, would delay our marketing of Captisol-enabled products and receipt of revenue related to those
products, which could significantly impair our operating results and/or reduce the market price of our stock.
Our product candidates face significant development and regulatory hurdles prior to marketing which could delay or prevent sales
and/or milestone revenue.
Before we or our partners obtain the approvals necessary to sell any of our potential products, we must show through preclinical
studies and human testing that each product is safe and effective. We and our partners have a number of products moving toward or
currently awaiting regulatory action. Failure to show any product’s safety and effectiveness could delay or prevent regulatory approval of a
product and could adversely affect our business. The clinical trials process is complex and uncertain. For example, the results of preclinical
studies and initial clinical trials may not necessarily predict the results from later large-scale clinical trials. In addition, clinical trials may
not demonstrate a product’s safety and effectiveness to the satisfaction of the regulatory authorities. Recently, a number of companies have
suffered significant setbacks in advanced clinical trials or in seeking regulatory approvals, despite promising results in earlier trials. The
FDA may also require additional clinical trials after regulatory approvals are received. Such additional trials may be expensive and time-
consuming, and failure to successfully conduct those trials could jeopardize continued commercialization of a product.
The rates at which we complete our clinical trials depends on many factors, including, but are not limited to, our ability to obtain
adequate supplies of the products to be tested and patient enrollment. Patient enrollment is a function of many factors, including the size of
the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial and other potential drug candidates being
studied. Delays in patient enrollment for our trials may result in increased costs and longer development times. In addition, our
collaborative partners have rights to control product development and clinical programs for products developed under the collaborations. As
a result, these collaborative partners may conduct these programs more slowly or in a different manner than expected. Moreover, even if
clinical trials are completed, we or our collaborative partners still may not apply for FDA approval in a timely manner or the FDA still may
not grant approval.
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We rely heavily on collaborative relationships, and any disputes or litigation with our collaborative partners or termination or breach of
any of the related agreements could reduce the financial resources available to us, including research and development funding,
milestone payments and future royalty revenues.
Our strategy for developing and commercializing many of our potential products, including products aimed at larger markets,
includes entering into collaborations with corporate partners and others. These collaborations have provided us with funding and research
and development resources for potential products for the treatment of a variety of diseases. However, the funding provided to us by our
existing collaborative partners for ongoing research and development under our existing collaborative agreements has ceased. These
agreements also give our collaborative partners significant discretion when deciding whether or not to pursue any development program.
Our existing collaborations may not continue or be successful, and we may be unable to enter into future collaborative arrangements to
develop and commercialize our product candidates.
In addition, our collaborators may develop drugs, either alone or with others that compete with the types of drugs they are
developing with us. This would result in increased competition for our programs. If products are approved for marketing under our
collaborative programs, revenues we receive will depend on the manufacturing, marketing and sales efforts of our collaborative partners,
who generally retain commercialization rights under the collaborative agreements. Generally, our current collaborative partners also have
the right to terminate their collaborations under specified circumstances. If any of our collaborative partners breach or terminate their
agreements with us or otherwise fail to conduct their collaborative activities successfully (for example, by not making required payments
when due, or at all), our product development under these agreements will be delayed or terminated. Disputes or litigation may also arise
with our collaborators, including disputes or litigation over ownership rights to intellectual property, know-how or technologies developed
with our collaborators. Such disputes or litigation could adversely affect our rights to one or more of our product candidates. Any such
dispute or litigation could delay, interrupt or terminate the collaborative research, development and commercialization of certain potential
products, create uncertainty as to ownership rights of intellectual property, or could result in litigation or arbitration. The occurrence of any
of these problems could be time-consuming and expensive and could adversely affect our business.
We obtain Captisol from a sole source supplier, and if this supplier were to cease to be able to supply Captisol to us, or decline to supply
Captisol to us, we would be unable to continue to derive revenue or continue to develop our product candidates until we obtained an
alternative source, which could take a considerable length of time.
We currently have one supplier of Captisol, Hovione FarmaCiencia SA, or Hovione, through its agent Hovione LLC. Hovione is
a major supplier of APIs and API intermediates located in Portugal. Hovione has other production sites in Cork, Ireland, Macau, China, and
Zhejiang, China, but those sites are not yet fully qualified to make Captisol. If a major disaster were to happen at Hovione or Hovione were
to suffer major production problems or were to fail to deliver Captisol to us for any other reason, there could be a significant interruption of
our Captisol supply. While we carry a significant inventory of Captisol for this type of occurrence, which should permit us to satisfy our
existing supply obligations through 2013 under current and anticipated demand conditions, a series of unusually large orders could rapidly
deplete that inventory and cause significant problems with our licensees and disrupt our business. In addition, if we fail to supply Captisol
under our supply agreements, our customers could obtain the right to have Captisol manufactured by other suppliers, which would
significantly harm our business.
We rely on contract manufacturers for the manufacture of Captisol and product candidates, and if these contract manufacturers fail to
perform as we expect, we will incur delays in our ability to generate revenue and substantial additional expenses in obtaining new
contract manufacturers.
We do not manufacture products or product candidates, but rather contract with contract manufacturers for the manufacture of
products and product candidates. With respect to any specific product or product candidate, we only contract with one contract
manufacturer due to the high cost of compliance with good manufacturing practices prior to the contract manufacturer being permitted to
manufacture the product or product candidate for use in humans. If a contract manufacturer is unable or unwilling to continue to
manufacture for us in the future, we would be required to contract with a new contract manufacturer for the specific product or product
candidate. In the case of products, this would cause us to lose revenue during the qualification process, and in the case of product
candidates, this could cause a delay in the commercialization of the product candidate. In addition, in either case we would incur substantial
additional expenses as a result of the new contract manufacturer becoming qualified. Further, if a contract manufacturer were to experience
a delay in producing products or product candidates due to a failure to meet strict FDA manufacturing requirements or otherwise, we would
also experience a delay in development and commercialization of the product candidate or, in the case of products, sales of the product.
This risk is exacerbated in the case of manufacture of injectables, which require heightened sterility and other conditions as well as
specialized facilities for preparation.
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Expirations of, challenges to or failure to secure patents and other proprietary rights may significantly hurt our business.
The initially filed patents relating to Captisol expired in 2010, 2011 and 2012 in the U.S. and will expire between 2013 and 2016 in
most countries outside the U.S. We have also obtained patent protection in the U.S. through 2025 on one or more Agglomerated forms of
Captisol and through 2029 on one or more High Purity forms of Captisol. We have obtained patent protection on a number of combinations
of APIs and Captisol through three combination patents in the U.S., and we have applied for six additional combination patents in the U.S.
relating to the combination of Captisol with specific APIs. Our U.S. combination patent relating to Fosphenytoin expires June 12, 2018 and
our U.S. combination patent relating to Amiodarone expires May 4, 2022. Our U.S. combination patent relating to one of our early-stage
product candidates expires March 19, 2022. There is no guarantee that these patents will be sufficient to prevent competitors from creating
a generic form of Captisol after 2010 and competing against us, or from developing combination patents for products that will prevent us
from developing products using those APIs. In addition, most of the agreements in our Captisol outlicensing business, provide that once the
relevant patent expires, the amount of royalties we receive will be reduced or eliminated.
Generally, our success will depend on our ability and the ability of our licensors to obtain and maintain patents and proprietary
rights for our potential products both in the United States and in foreign countries. Patents may not be issued from any of these applications
currently on file, or, if issued, may not provide sufficient protection. Our patent position, like that of many biotechnology and
pharmaceutical companies, is uncertain and involves complex legal and technical questions for which important legal principles are
unresolved. We may not develop or obtain rights to products or processes that are patentable. Even if we do obtain patents, such patents
may not adequately protect the technology we own or have licensed. In addition, others may challenge, seek to invalidate, infringe or
circumvent any patents we own or license and rights we receive under those patents may not provide competitive advantages to us. For
example, our European patent related to Agglomerated forms of Captisol is currently being opposed and observations have been filed
against our European patent application related to high purity Captisol.
Any conflicts resulting from the patent rights of others could significantly reduce the coverage of our patents and limit our ability
to obtain meaningful patent protection. We have had and will continue to have discussions with our current and potential collaborative
partners regarding the scope and validity of our patents and other proprietary rights. If a collaborative partner or other party successfully
establishes that our patent rights are invalid, we may not be able to continue our existing collaborations beyond their expiration. Any
determination that our patent rights are invalid also could encourage our collaborative partners to seek early termination of our agreements.
Such invalidation could adversely affect our ability to enter into new collaborations.
We may also need to initiate litigation, which could be time-consuming and expensive, to enforce our proprietary rights or to
determine the scope and validity of others’ rights. If litigation occurs, a court may find our patents or those of our licensors invalid or may
find that we have infringed on a competitor’s rights. In addition, if any of our competitors have filed patent applications in the United States
which claim technology we also have invented, the United States Patent and Trademark Office may require us to participate in expensive
interference proceedings to determine who has the right to a patent for the technology.
We also rely on unpatented trade secrets and know-how to protect and maintain our competitive position. We require our
employees, consultants, collaborative partners and others to sign confidentiality agreements when they begin their relationship with us.
These agreements may be breached, and we may not have adequate remedies for any breach. In addition, our competitors may
independently discover our trade secrets.
Our collaborative partners may change their strategy or the focus of their development and commercialization efforts with respect to
our alliance products; the success of our alliance products could be adversely affected.
If our collaborative partners terminate their collaborations with us or do not commit sufficient resources to the development,
manufacture, marketing or distribution of our alliance products, we could be required to devote additional resources to our alliance
products, seek new collaborative partners or abandon such alliance products, all of which could have an adverse effect on our business.
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We are currently dependent upon out-licensing our technologies and we may not be successful in entering into additional out-license
agreements on favorable terms, which may adversely affect our liquidity or require us to alter development plans on our products.
We have entered into several out-licensing agreements for the development and commercialization of our products. We currently
depend on our arrangements with our outlicensees to sell products using our Captisol technology. These agreements generally provide that
outlicensees may terminate the agreements at will. If our outlicensees discontinue sales of products using our Captisol technology, fail to
obtain regulatory approval for their products using our Captisol technology, fail to satisfy their obligations under their agreements with us,
or otherwise choose to utilize a generic form of Captisol should it become available, or if we are unable to establish new licensing and
marketing relationships, our financial results and growth prospects would be materially affected. Further, under most of our Captisol
outlicenses, the amount of royalties we receive will be reduced or will cease when the relevant patent expires. While we have other more
recent patents relating to Captisol with later expiration dates (for example, our high purity patent, U.S. Patent No. 7,635,773 is not expected
to expire until 2029 and our morphology patent, U.S. Patent No. 7,629,331 is not expected to expire until 2025), the initially filed patents
relating to Captisol expired in 2010 and 2011 in the U.S. and will expire between 2012 and 2016 in most countries outside the U.S. If our
other intellectual property rights are not sufficient to prevent a generic form of Captisol from coming to market and if in such case our
outlicensees choose to terminate their agreements with us, the source of the vast majority of our Captisol revenue may cease to exist.
Although we expend considerable resources on internal research and development for our proprietary programs, we may not be
successful in entering into additional out-licensing agreements under favorable terms due to several factors including:
the difficulty in creating valuable product candidates that target large market
opportunities;
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research and spending priorities of potential licensing
partners;
willingness of and the resources available to pharmaceutical and biotechnology companies to in-license product
candidates for their clinical pipelines; or
differences of opinion with potential partners on the valuation of products we are seeking to out-
license.
The inability to enter into out-licensing agreements under favorable terms and to earn milestone payments, license fees and/or
upfront fees may adversely affect our liquidity and may force us to curtail or delay development of some or all of our proprietary programs,
which in turn may harm our business and the value of our stock.
Third party intellectual property may prevent us or our partners from developing our potential products and we may owe a portion of
any payments we receive from our collaborative partners to one or more third parties.
Our success will depend on our ability and the ability of our collaborative partners to avoid infringing the proprietary rights of
others, both in the United States and in foreign countries. In addition, disputes with licensors under our license agreements may arise which
could result in additional financial liability or loss of important technology and potential products and related revenue, if any. Further, the
manufacture, use or sale of our potential products or our collaborative partners’ products or potential products may infringe the patent
rights of others. This could impact Captisol, Promacta, Kyprolis, Avinza, Viviant and Conbriza (bazedoxifene), Fablyn, and other products
or potential products.
Several drug companies and research and academic institutions have developed technologies, filed patent applications or received
patents for technologies that may be related to our business. Others have filed patent applications and received patents that conflict with
patents or patent applications we have licensed for our use, either by claiming the same methods or compounds or by claiming methods or
compounds that could dominate those licensed to us. In addition, we may not be aware of all patents or patent applications that may impact
our ability to make, use or sell any of our potential products. For example, US patent applications may be kept confidential while pending
in the United States Patent and Trademark Office and patent applications filed in foreign countries are often first published six months or
more after filing.
Disagreements or litigation with our collaborative partners could delay our ability and the ability of our collaborative partners to
achieve milestones or our receipt of other payments. In addition, other possible disagreements or litigation could delay, interrupt or
terminate the research, development and commercialization of certain potential products being developed by either our collaborative
partners or by us. The occurrence of any of the foregoing problems could be time-consuming and expensive and could adversely affect our
business.
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Third parties have not directly threatened an action or claim against us, although we do periodically receive other communications
or have other conversations with the owners of other patents or other intellectual property. If others obtain patents with conflicting claims,
we may be required to obtain licenses to those patents or to develop or obtain alternative technology. We may not be able to obtain any such
licenses on acceptable terms, or at all. Any failure to obtain such licenses could delay or prevent us from pursuing the development or
commercialization of our potential products.
In general, litigation claims can be expensive and time consuming to bring or defend against and could result in settlements or
damages that could significantly impact our results of operations and financial condition. We cannot predict or determine the outcome of
these matters or reasonably estimate the amount or range of amounts of any fines or penalties that might result from a settlement or an
adverse outcome. However, a settlement or an adverse outcome could have a material adverse effect on our financial position, liquidity and
results of operations.
If our business does not perform according to our expectations, we may not be able to pay off our existing debt.
Our operations have consumed substantial amounts of cash since inception. As of December 31, 2012, we had negative working
capital of $11.6 million. Clinical and preclinical development of drug candidates is a long, expensive and uncertain process. Also, we may
acquire companies, businesses or products and the consummation of such acquisitions may consume additional cash. For example, in
connection with our 2011 acquisition of CyDex, we entered into a $20 million Loan and Security Agreement, or the Loan Agreement, with
a lender. The loan was amended in January 2012 to increase the secured credit facility to $27.5 million. The original $20 million borrowed
under the facility bears interest at a fixed rate of 8.6%. The additional $7.5 million bears interest at a fixed rate of 8.9%. Under the terms of
the secured debt, we will make interest only payments through March 2013. Subsequent to the interest only payments, the note will
amortize with principal and interest payments through the remaining term of the loan. Additionally, we must also make an additional final
payment equal to 6% of the total amount borrowed which is due at maturity and is being accreted over the life of the loan. The maturity
date of the term loan is August 1, 2014.
We also have a cash-collateralized revolving credit facility under which we may elect to borrow up to $10 million. Amounts
borrowed under the revolving credit facility bear interest at a floating rate equal to 200 basis points above the prime rate. All outstanding
amounts under the credit facility may become due and payable if we fail to maintain a cash balance equal to the amount outstanding under
the credit facility. The maturity date of the revolving credit facility is March 28, 2013.
In October 2011, we filed a Registration Statement on Form S-3 with the Securities and Exchange Commission (“SEC”) for the
issuance and sale of up to $30 million of equity or other securities, proceeds from which will be used for general corporate purposes. The
Form S-3 provides additional financial flexibility for us to sell shares or other securities as needed at any time. As of December 31, 2012,
302,750 common shares have been issued under this registration statement for total net proceeds of approximately $5.5 million.
We believe that our capital resources, including our currently available cash, cash equivalents, and short-term investments as well
as our current and future royalty revenues, will be adequate to fund our operations at their current levels at least for the next 12 months.
However, changes may occur that would cause us to consume available capital resources before that time and we may need to complete
additional equity or debt financings to fund our operations. Our inability to obtain additional financing could adversely affect our business.
Financings may not be available at all or on terms favorable to us. In addition, these financings, if completed, may not meet our capital
needs and could result in substantial dilution to our stockholders. If adequate funds are not available, we may be required to delay, reduce
the scope of or eliminate one or more of our research or drug development programs. We may also be required to liquidate our business or
file for bankruptcy protection. Alternatively, we may be forced to attempt to continue development by entering into arrangements with
collaborative partners or others that require us to relinquish some or all of our rights to technologies or drug candidates that we would not
otherwise relinquish.
Our product development involves a number of uncertainties, and we may never generate sufficient collaborative payments and
royalties from the development of products to become profitable.
We were founded in 1987. We have incurred significant losses since our inception. As of December 31, 2012, our accumulated
deficit was $682.8 million.
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Most of our products in development will require extensive additional development, including preclinical testing and human
studies, as well as regulatory approvals, before they can be marketed. We cannot predict if or when any of the products we are developing
or those being developed with our partners will be approved for marketing. There are many reasons why we or our collaborative partners
may fail in our efforts to develop our potential products, including the possibility that: preclinical testing or human studies may show that
our potential products are ineffective or cause harmful side effects; the products may fail to receive necessary regulatory approvals from the
FDA or foreign authorities in a timely manner, or at all; the products, if approved, may not be produced in commercial quantities or at
reasonable costs; the products, if approved, may not achieve commercial acceptance; regulatory or governmental authorities may apply
restrictions to our products, which could adversely affect their commercial success; or the proprietary rights of other parties may prevent us
or our partners from marketing the products.
Any product development failures for these or other reasons, whether with our products or our partners’ products, may reduce our
expected revenues, profits, and stock price.
Any future material weaknesses or deficiencies in our internal control over financial reporting could harm stockholder and business
confidence on our financial reporting, our ability to obtain financing and other aspects of our business.
As described in Item 9A, we identified material weaknesses as a result of improper accounting for non-routine transactions and the
controls over the determination of fair value of contingent liabilities. Our audit committee, after consultation with management has
determined that the material weaknesses were a result of inadequate staffing and review processes. As a result of the material weaknesses
associated with non-routine transactions, we have added a corporate controller to our finance and accounting staff. While we had processes
to identify and apply accounting standards to complex transactions, we enhanced these processes with the addition of a resource with the
ability to research and understand the nuances of complex accounting standards. Additionally, we plan to enhance our controls over the
determination of the fair value of contingent liabilities by including a formal review of mathematical calculations and completeness of such
calculations. Given the material weaknesses, our audit committee, after consultation with management determined that we did not maintain
effective internal control over financial reporting. The existence of one or more material weaknesses or significant deficiencies could result
in errors in our consolidated financial statements. Substantial costs and resources may be required to rectify any internal control
deficiencies. If we fail to achieve and maintain the adequacy of our internal controls in accordance with applicable standards, we may be
unable to conclude on an ongoing basis that we have effective internal controls over financial reporting. If we cannot produce reliable
financial reports, our business and financial condition could be harmed, investors could lose confidence in our reported financial
information, or the market price of our stock could decline significantly. In addition, our ability to obtain additional financing to operate
and expand our business, or obtain additional financing on favorable terms, could be materially and adversely affected, which, in turn,
could materially and adversely affect our business, our financial condition and the market value of our securities. Moreover, our reputation
with customers, lenders, investors, securities analysts and others may be adversely affected.
We may undertake strategic acquisitions in the future and any difficulties from integrating such acquisitions could adversely affect our
stock price, operating results and results of operations.
We may acquire companies, businesses and products that complement or augment our existing business. We may not be able to
integrate any acquired business successfully or operate any acquired business profitably. Integrating any newly acquired business could be
expensive and time-consuming. Integration efforts often take a significant amount of time, place a significant strain on managerial,
operational and financial resources and could prove to be more difficult or expensive than we predict. The diversion of our management’s
attention and any delay or difficulties encountered in connection with any future acquisitions we may consummate could result in the
disruption of our on-going business or inconsistencies in standards and controls that could negatively affect our ability to maintain third-
party relationships. Moreover, we may need to raise additional funds through public or private debt or equity financing, or issue additional
shares, to acquire any businesses or products, which may result in dilution for stockholders or the incurrence of indebtedness.
As part of our efforts to acquire companies, business or product candidates or to enter into other significant transactions, we
conduct business, legal and financial due diligence with the goal of identifying and evaluating material risks involved in the transaction.
Despite our efforts, we ultimately may be unsuccessful in ascertaining or evaluating all such risks and, as a result, might not realize the
intended advantages of the transaction. If we fail to realize the expected benefits from acquisitions we may consummate in the future,
whether as a result of unidentified risks, integration difficulties, regulatory setbacks and other events, our business, results of operations
and financial condition could be adversely affected. If we acquire product candidates, we will also need to make certain assumptions about,
among other things, development costs, the likelihood of receiving regulatory approval and the market for such product candidates. Our
assumptions may prove to be incorrect, which could cause us to fail to realize the anticipated benefits of these transactions.
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In addition, we will likely experience significant charges to earnings in connection with our efforts, if any, to consummate
acquisitions. For transactions that are ultimately not consummated, these charges may include fees and expenses for investment bankers,
attorneys, accountants and other advisors in connection with our efforts. Even if our efforts are successful, we may incur, as part of a
transaction, substantial charges for closure costs associated with elimination of duplicate operations and facilities and acquired IPR&D
charges. In either case, the incurrence of these charges could adversely affect our results of operations for particular quarterly or annual
periods.
Revenues based on sales of Avinza could decrease or be eliminated.
Pfizer, as successor to King, is obligated to pay us royalties based on the sales of Avinza. Any setback that may occur with respect
to Avinza could reduce our revenue. Setbacks for Avinza could include problems with shipping, distribution, manufacturing, product
safety, marketing, government regulation, licenses and approvals, intellectual property rights, competition with existing or new products
and physician or patient acceptance of the products, as well as higher than expected total rebates, returns or discounts. Avinza could also
face regulatory action and product safety issues and is also subject to generic competition.
If plaintiffs bring product liability lawsuits against us or our partners, we or our partners may incur substantial liabilities and may be
required to limit commercialization of our approved products and product candidates, and we may be subject to other liabilities related
to the sale of our prior commercial product lines.
We and our partners face an inherent risk of product liability as a result of the clinical testing of our product candidates in clinical
trials and face an even greater risk for commercialized products. Although we are not currently a party to product liability litigation, if we
are sued, we may be held liable if any product or product candidate we develop causes injury or is found otherwise unsuitable during
product testing, manufacturing, marketing or sale. Regardless of merit or eventual outcome, liability claims may result in decreased
demand for any product candidates or products that we may develop, injury to our reputation, discontinuation of clinical trials, costs to
defend litigation, substantial monetary awards to clinical trial participants or patients, loss of revenue and the inability to commercialize any
products that we develop. We have product liability insurance that covers our clinical trials up to a $5.0 million annual limit. We intend to
expand product liability insurance coverage to include the sale of commercial products if we obtain marketing approval for any products
that we may develop. However, this insurance may be prohibitively expensive, or may not fully cover our potential liabilities. Inability to
obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or
delay the commercialization of our product candidates. If we are sued for any injury caused by our product candidates or any future
products, our liability could exceed our total assets.
In addition, we agreed to indemnify Eisai and King under certain circumstances pursuant to the asset purchase agreements we
entered into with Eisai and King in connection with the sale of our prior commercial product lines. Some of our indemnification
obligations still remain and our potential liability in certain circumstances is not limited to specific dollar amounts. We cannot predict the
liabilities that may arise as a result of these matters. Any claims related to our indemnification obligations to King or Eisai could materially
and adversely affect our financial condition.
In addition, King assumed our obligation to make payments to Organon based on net sales of Avinza (the fair value of which was
$12.5 million as of December 31, 2012). We remain liable to Organon in the event King defaults on this obligation. Any requirement to
pay a material amount to Organon, could adversely affect our business and the price of our securities.
The sale of our prior commercial product lines does not relieve us of exposure to product liability risks on products we sold prior
to divesting these product lines. A successful product liability claim or series of claims brought against us may not be insured and could
result in payment of significant amounts of money and divert management’s attention from running our business.
If our partners do not reach the market with our alliance products before our competitors offer products for the same or similar uses, or
if our partners are not effective in marketing our alliance products, our revenues from product sales, if any, will be reduced.
We face intense competition in our development activities. Our competitors might succeed in obtaining regulatory approval for
competitive products more rapidly than our partners can for our products. In addition, competitors might develop technologies and products
that are less expensive and perceived to be safer or more effective than those being developed by us or our partners, which could impair our
product development and render our technology obsolete.
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We may not be able to hire and/or retain key employees.
If we are unable to hire and/or retain key employees, we may not have sufficient resources to successfully manage our assets or
our business, and we may not be able to perform our obligations under various contracts and commitments. Furthermore, there can be no
assurance that we will be able to retain all of our key management and scientific personnel. If we fail to retain such key employees, we may
not realize the anticipated benefits of our mergers. Either of these could have substantial negative impacts on our business and our stock
price.
We use hazardous materials, which may expose us to significant liability.
In connection with our research and development activities, we handle hazardous materials, chemicals and various radioactive
compounds. To properly dispose of these hazardous materials in compliance with environmental regulations, we are required to contract
with third parties. We believe that we carry reasonably adequate insurance for toxic tort claims. However, we cannot eliminate the risk or
predict the exposure of accidental contamination or injury from the handling and disposing of hazardous materials, whether by us or our
third-party contractors. Any accident in the handling and disposing of hazardous materials may expose us to significant liability.
Our shareholder rights plan and charter documents may hinder or prevent change of control transactions.
Our shareholder rights plan and provisions contained in our certificate of incorporation and bylaws may discourage transactions
involving an actual or potential change in our ownership. In addition, our Board of Directors may issue shares of preferred stock without
any further action by the stockholders. Such restrictions and issuances may have the effect of delaying or preventing a change in our
ownership. If changes in our ownership are discouraged, delayed or prevented, it would be more difficult for our current Board of Directors
to be removed and replaced, even if you or our other stockholders believe that such actions are in the best interests of us and our
stockholders.
We may lose some or all of the value of some of our short-term investments.
The investments are intended to maintain safety of principal while providing liquidity adequate to meet projected cash
requirements. Risks of principal loss are to be minimized through diversified short and medium term investments of high quality, but the
investments are not in every case guaranteed or fully insured. From time to time we may suffer other losses on our short-term investment
portfolio.
Funding of our drug development programs will make those funds unavailable for other uses.
Our drug development programs may require substantial additional capital to successfully complete them, arising from costs to:
conduct research, preclinical testing and human studies; establish pilot scale and commercial scale manufacturing processes and facilities;
and establish and develop quality control, regulatory, marketing, sales and administrative capabilities to support these programs. While we
expect to fund our research and development activities from cash generated from royalties and milestones from our partners in various past
and future collaborations to the extent possible, if we are unable to do so, we may need to complete additional equity or debt financings or
seek other external means of financing. These financings could depress our stock price. If additional funds are required to support our
operations and we are unable to obtain them on terms favorable to us, we may be required to cease or reduce further development or
commercialization of our products, to sell some or all of our technology or assets or to merge with another entity.
Our results of operations and liquidity needs could be materially negatively affected by market fluctuations and economic downturn.
Our results of operations could be materially negatively affected by economic conditions generally, both in the U.S. and elsewhere
around the world. Continuing concerns over inflation, energy costs, geopolitical issues, the availability and cost of credit, and the U.S.
financial markets have contributed to increased volatility and diminished expectations for the economy and the markets going forward.
These factors, combined with volatile oil prices, declining business and consumer confidence and increased unemployment, have
precipitated an economic recession and fears of a possible depression. Domestic and international equity markets continue to experience
heightened volatility and turmoil. These events and the continuing market upheavals may have an adverse effect on us. In the event of a
continuing market downturn, our results of operations could be adversely affected by those factors in many ways, including making it more
difficult for us to raise funds if necessary, and our stock price may further decline.
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Our investment securities consist primarily of money market funds, corporate debt obligations and U.S. government agency
securities. We do not have any auction rate securities. Recently, there has been concern in the credit markets regarding the value of a
variety of mortgage-backed securities and the resultant effects on various securities markets. We cannot provide assurance that our
investments are not subject to adverse changes in market value. If our investments experience adverse changes in market value, we may
have less capital to fund our operations.
Our stock price has been volatile and could experience a sudden decline in value.
Our common stock has experienced significant price and volume fluctuations and may continue to experience volatility in the
future. As a result, you may not be able to sell your shares quickly or at the latest market price if trading in our stock is not active or the
volume is low. Many factors may have a significant impact on the market price of our common stock, including, but not limited to, the
following factors: results of or delays in our preclinical studies and clinical trials; the success of our collaboration agreements; publicity
regarding actual or potential medical results relating to products under development by us or others; announcements of technological
innovations or new commercial products by us or others; developments in patent or other proprietary rights by us or others; comments or
opinions by securities analysts or major stockholders; future sales of our common stock by existing stockholders; regulatory developments
or changes in regulatory guidance; litigation or threats of litigation; economic and other external factors or other disaster or crises; the
departure of any of our officers, directors or key employees; period-to-period fluctuations in financial results; and limited daily trading
volume.
Impairment charges pertaining to goodwill, identifiable intangible assets or other long-lived assets from our mergers and acquisitions
could have an adverse impact on our results of operations and the market value of our common stock.
The total purchase price pertaining to our acquisitions of Pharmacopeia, Neurogen, Metabasis and CyDex have been allocated to
net tangible assets, identifiable intangible assets, in process research and development and goodwill. To the extent the value of goodwill or
identifiable intangible assets or other long-lived assets become impaired, we will be required to incur material charges relating to the
impairment. Any impairment charges could have a material adverse impact on our results of operations and the market value of our
common stock.
The occurrence of a catastrophic disaster could damage our facilities beyond insurance limits or we could lose key data which could
cause us to curtail or cease operations.
We are vulnerable to damage and/or loss of vital data from natural disasters, such as earthquakes, tornadoes, power loss, fire,
floods and similar events. If any disaster were to occur, our ability to operate our business could be seriously impaired. We have property,
liability, and business interruption insurance which may not be adequate to cover our losses resulting from disasters or other similar
significant business interruptions, and we do not plan to purchase additional insurance to cover such losses due to the cost of obtaining such
coverage. Any significant losses that are not recoverable under our insurance policies could seriously impair our business, financial
condition and prospects.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
We currently occupy premises consisting of approximately 16,500 square feet of office and laboratory space in San Diego through
June 2019 to serve as our corporate headquarters. We believe this facility is adequate to meet our space requirements for the foreseeable
future.
We lease approximately 1,500 square feet of laboratory space located at the Bioscience and Technology Business Center in
Lawrence, Kansas leased through December 2014.
We lease approximately 99,000 square feet in three facilities in Cranbury, New Jersey under leases that expire in 2016. We also
sublease approximately 16,700 square feet of these facilities with subleases expiring in 2014 through 2016. We fully vacated these facilities
in September 2010.
We also lease a 52,800 square foot facility in San Diego that is leased through July 2015. In January 2008, we began subleasing the
52,800 square foot facility under a sublease agreement through July 2015. We fully vacated this facility in February 2008.
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Item 3.
Legal Proceedings
From time to time we are subject to various lawsuits and claims with respect to matters arising out of the normal course of our
business. Due to the uncertainty of the ultimate outcome of these matters, the impact on future financial results is not subject to reasonable
estimates.
Securities Litigation
On June 8, 2012, a federal securities class action and shareholder derivative lawsuit was filed in the Eastern District of Pennsylvania
against Genaera Corporation and its officers, directors, major shareholders and trustee (“Genaera Defendants”) for allegedly breaching their
fiduciary duties to Genaera shareholders. The lawsuit also names the Company and its CEO John Higgins as additional defendants for
allegedly aiding and abetting the Genaera Defendants' various breaches of fiduciary duties based on the Company's purchase of a licensing
interest in a development-stage pharmaceutical drug program from the Genaera Liquidating Trust in May 2010 and its subsequent sale of
half of its interest in the transaction to Biotechnology Value Fund, Inc. On December 19, 2012, plaintiff filed an amended complaint
asserting substantially similar claims against the Company and Mr. Higgins. The amended complaint seeks unspecified damages,
disgorgement, punitive damages, attorneys' fees and costs. The Company intends to vigorously defend against the claims against it and Mr.
Higgins in the lawsuit. Due to the complex nature of the legal and factual issues involved, however, the outcome of this matter is not
presently determinable.
Item 4.
Mine Safety Disclosures
Not applicable.
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Market Information
Our common stock is traded on the NASDAQ Global Market (formerly NASDAQ National Market) under the symbol “LGND”.
The following table sets forth the high and low intraday sales prices for our common stock on the NASDAQ Global Market for the
periods indicated:
Year Ended December 31, 2012:
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Year Ended December 31, 2011:
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
$
$
Price Range
High
Low
18.74 $
17.27
19.85
21.75
11.10 $
12.06
16.24
15.91
11.44
11.21
15.80
14.75
8.64
9.39
10.16
10.50
As of February 14, 2013, the closing price of our common stock on the NASDAQ Global Market was $22.07.
Holders
As of February 14, 2013, there were approximately 709 holders of record of the common stock.
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Performance Graph
The graph below shows the five-year cumulative total stockholder return assuming the investment of $100 and is based on the returns
of the component companies weighted monthly according to their market capitalizations. The graph compares total stockholder returns of
our common stock, of all companies traded on the NASDAQ Stock market, as represented by the NASDAQ Composite® Index, and of the
NASDAQ Biotechnology Stock Index, as prepared by The NASDAQ Stock Market Inc. The NASDAQ Biotechnology Stock Index tracks
approximately 168 domestic biotechnology stocks.
The stockholder return shown on the graph below is not necessarily indicative of future performance and we will not make or endorse
any predictions as to future stockholder returns.
Ligand
NASDAQ Market (U.S. Companies)
Index
NASDAQ Biotechnology Stocks
12/31/2007
12/31/2008
12/31/2009
12/31/2010
12/31/2011
12/31/2012
100%
57%
45%
31%
41%
72%
100%
100%
60%
88%
21
87%
102%
103%
117%
102%
131%
120%
174%
Table of Contents
Item 6.
Selected Consolidated Financial Data
The following selected historical consolidated financial and other data are qualified by reference to, and should be read in
conjunction with, our consolidated financial statements and the related notes thereto appearing elsewhere herein and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.” Our selected statement of operations data set forth below for
each of the years ended December 31, 2012, 2011, 2010, 2009 and 2008, and the balance sheet data as of December 31, 2012, 2011, 2010,
2009 and 2008, are derived from our consolidated financial statements.
Year Ended December 31,
(in thousands, except share data)
2012
2011
2010
2009
2008
Consolidated Statement of Operations Data:
Royalties
Material sales
Collaborative research and development and other
revenues
Total revenues
Cost of material sales
Research and development expenses
General and administrative expenses
Lease exit and termination costs
Write-off of acquired in-process research and
development
Total operating costs and expenses
Accretion of deferred gain on sale leaseback
Income (loss) from operations
(Loss) income from continuing operations
Discontinued operations (1)
Net (loss) income
Basic per share amounts:
(Loss) income from continuing operations
Discontinued operations (1)
Net (loss) income
Weighted average number of common shares
Diluted per share amounts:
(Loss) income from continuing operations
Discontinued operations (1)
Net (loss) income
Weighted average number of common shares
$
$
$
$
$
14,073 $
9,432
9,213 $
12,123
7,279 $
—
8,334 $
—
7,883
31,388
3,601
10,790
16,108
315
—
30,814
—
574
(2,674)
2,147
(527)
8,701
30,037
4,909
10,291
14,977
(22)
2,282
32,437
1,702
(698)
9,712
3
9,715
16,259
23,538
—
22,067
12,829
16,894
2,754
54,544
1,702
(29,304)
(12,786)
2,413
(10,373)
30,606
38,940
—
39,870
15,211
15,235
442
70,758
21,851
(9,967)
(8,337)
6,389
(1,948)
(0.13) $
0.11
(0.03) $
0.49 $
—
0.49 $
(0.65) $
0.12
(0.53) $
(0.44) $
0.34
(0.10) $
20,305
—
7,000
27,305
—
30,770
23,785
—
72,000
126,555
1,964
(97,286)
(97,460)
(654)
(98,114)
(6.12)
(0.04)
(6.16)
19,853,095
19,655,632
19,613,201
18,862,751
15,917,570
(0.13) $
0.11
(0.03) $
0.49 $
—
0.49 $
(0.65) $
0.12
(0.53) $
(0.44) $
0.34
(0.10) $
19,853,095
19,713,320
19,613,201
18,862,751
(6.12)
(0.04)
(6.16)
15,917,570
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Table of Contents
December 31,
2012
2011
2010
2009
2008
(in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents, short-term investments and
restricted cash and investments
Working capital
Total assets
Current portion of deferred revenue, net
Current portion of deferred gain
Long-term obligations (excludes long-term portions of
deferred revenue, net and deferred gain)
Long-term portion of deferred revenue, net
Long-term portion of deferred gain
Common stock subject to conditional redemption
Accumulated deficit
Total stockholders’ equity (deficit)
$
15,148 $
(11,616)
104,260
486
—
18,382 $
(11,413)
120,583
1,240
—
24,038 $
3,531
75,559
—
1,702
54,694 $
15,994
141,807
4,989
1,702
82,012
23,315
171,448
10,301
1,964
39,967
2,369
—
—
(682,759)
26,485
56,945
3,466
—
8,344
(682,232)
8,185
36,030
2,546
—
8,344
(691,947)
(4,849)
72,350
3,495
1,702
8,344
(681,574)
3,744
58,743
16,819
23,292
12,345
(679,626)
(10,365)
(1)
We sold our Oncology Product Line (“Oncology”) on October 25, 2006 and our Avinza Product Line (“Avinza”) on February 26, 2007. The operating
results for Oncology and Avinza have been presented in our consolidated statements of operations as “Discontinued Operations.”
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Caution: This discussion and analysis may contain predictions, estimates and other forward-looking statements that involve a
number of risks and uncertainties, including those discussed in Item 1A. “Risk Factors.” This outlook represents our current judgment on
the future direction of our business. These statements include those related to our Captisol related revenue, our Avinza, Promacta and
other product royalty revenues, product returns, and product development. Actual events or results may differ materially from our
expectations. For example, there can be no assurance that our revenues or expenses will meet any expectations or follow any trend(s), that
we will be able to retain our key employees or that we will be able to enter into any strategic partnerships or other transactions. We cannot
assure you that we will receive expected Avinza, Promacta, Captisol and other product revenues to support our ongoing business or that
our internal or partnered pipeline products will progress in their development, gain marketing approval or achieve success in the
market.In addition, ongoing or future arbitration, or litigation or disputes with third parties may have a material adverse effect on us. Such
risks and uncertainties, and others, could cause actual results to differ materially from any future performance suggested. We undertake no
obligation to release publicly the results of any revisions to these forward-looking statements to reflect events or circumstances arising
after the date of this annual report. This caution is made under the safe harbor provisions of Section 21E of the Securities Exchange Act of
1934, as amended.
Our trademarks, trade names and service marks referenced herein include Ligand. Each other trademark, trade name or service
mark appearing in this annual report belongs to its owner.
References to “Ligand Pharmaceuticals Incorporated”, “Ligand”, the “Company”, “we” or “our” include our wholly owned
subsidiaries—Ligand JVR, Allergan Ligand Retinoid Therapeutics, Seragen, Inc., or Seragen; Pharmacopeia, LLC; Neurogen Corporation,
CyDex Pharmaceuticals, Inc., Metabasis Therapeutics, and Nexus Equity VI LLC, or Nexus.
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Table of Contents
We are a biotechnology company that operates with a business model focused on developing or acquiring revenue generating
assets and coupling them to a lean corporate cost structure. Our goal is to create a sustainably profitable business and generate meaningful
value for our stockholders. Since a portion of our business model is based on the goal of partnering with other pharmaceutical companies to
commercialize and market our assets, a significant amount of our revenue is based largely on payments made to us by partners for royalties,
milestones and license fees. We recognized the important role of the drug reformulation segment in the pharmaceutical industry and in
2011 added Captisol® to our technology portfolio. Captisol is a powerful formulation technology that has enabled six FDA approved
products, including Onyx’s Kyprolis® and Baxter International’s Nexterone® and is currently being developed in a number of clinical-stage
partner programs. In comparison to our peers, we believe we have assembled one of the largest and most diversified asset portfolios in the
industry with the potential to generate significant revenue in the future. The therapies in our development portfolio address the unmet
medical needs of patients for a broad spectrum of diseases including hepatitis, muscle wasting, multiple myeloma, Alzheimer’s disease,
dyslipidemia, diabetes, anemia, epilepsy, FSGS and osteoporosis. We have established multiple alliances with the world’s leading
pharmaceutical companies including GlaxoSmithKline, Onyx Pharmaceuticals, Merck, Pfizer, Baxter International, Bristol-Myers Squibb,
Celgene, Lundbeck Inc., Eli Lilly and Co., Spectrum Pharmaceuticals and The Medicines Company.
In early 2012, we licensed the world-wide rights to RE-021 (formerly known as DARA-a Dual Acting Receptor Antagonist of
Angiotension and Endothelin receptors) to Retrophin, Inc., or Retrophin. Retrophin intends to develop RE-021 for orphan indications of
severe kidney diseases including Focal Segmental Glomerulosclerosis (FSGS) as well as conduct proof-of-concept studies in resistant
hypertension and diabetic nephropathy. Certain patient groups with severely compromised renal function exhibit extreme proteinuria
resulting in progression to dialysis and a high mortality rate. RE-021, with its unique dual blockade of angiotensin and endothelin receptors,
is expected to provide meaningful clinical benefits in mitigating proteinuria in indications where there are no approved therapies. We
received an upfront payment of $1 million, net of amounts owed to third parties.
In December 2012, we received a milestone payment of 620,000 shares of common stock in partner Retrophin, Inc. The milestone
arose under the previously executed license agreement for the development and commercialization of Retrophin's lead clinical candidate
RE-021 and was triggered by the completion of Retrophin's merger with Desert Gateway, Inc. and its transition to a publicly traded
company. We recorded milestone revenue equal to the estimated fair value of the shares received, net of amounts owed to a third party,
which was determined by an independent valuation firm. The shares issued to us represent approximately 7% of Retrophin's outstanding
capital stock and are subject to a one year trading restriction.
In early 2013 we received a $1.4 million milestone payment from Retrophin, Inc.. Ligand will remit $0.2 million to former license
holders under the terms of a previous license agreement for RE-021.
In July 2012, our licensee, Onyx Pharmaceuticals, Inc. (“Onyx”), received accelerated approval from the U.S. Food and Drug
Administration, or FDA, for Kyprolis (Carfilzomib) for injection. We received a milestone of $0.6 million upon approval by the FDA.
Kyprolis is formulated with Ligand’s Captisol and is used for the treatment of patients with multiple myeloma who have received at least
two prior therapies, including bortezomib and an immunomodulatory agent, and have demonstrated disease progression on or within 60
days of completion of the last therapy. Under our agreement with Onyx, we are entitled to receive milestones, tiered royalties ranging
between 1.5% and 3%.
In September 2012, the Company filed a demand for arbitration against Chiva Pharmaceuticals, Inc. (“Chiva”) with the American
Arbitration Association. The demand asserted claims for damages resulting from Chiva's breach of the October 7, 2011 Fablyn License
Agreement (“Fablyn License Agreement”) for failure to tender a milestone payment and failure to pay certain patent prosecution expenses.
In October 2012, the Company reached a settlement with Chiva, whereby the parties resolved all disputes that had arisen between them,
including Ligand's primary claim in arbitration relating to payments due under the Fablyn License Agreement. As part of the settlement,
the parties executed mutual releases and Ligand agreed to seek dismissal of all claims asserted in the arbitration. In return, Chiva agreed to
pay Ligand $0.1 million, which has been received by the Company.
In October 2012, our licensee, Merck, initiated a Phase IIb/III adaptive clinical trial for Dinaciclib for the treatment of patients
with refractory chronic lymphocytic leukemia (CLL). As a result, during the fourth quarter of 2012, we recognized a $2 million milestone
payment upon initiation of the clinical study. Under our collaboration and license agreement with Merck, we are entitled to receive future
milestones and royalties.
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In November 2012, the FDA approved Promacta® for the treatment of thrombocytopenia (low blood platelet counts) in patients
with chronic hepatitis C to allow them to initiate and maintain interferon-based therapy. Promacta is the first supportive care treatment
available to patients who are ineligible or poor candidates for interferon-based therapy due to their low blood platelet counts. Promacta in
combination with interferon-based therapy has been shown to improve a patient's chance of achieving a sustained virologic response (SVR)
or viral cure.
As a result of the regulatory approvals of Promacta, pursuant to the terms of a license agreement with GSK, we are entitled to
receive tiered royalties on annual net sales of Promacta. GSK has listed a patent in the FDA’s Orange Book for Promacta with an expiration
date in 2024.
In March 2013, we entered into a License Agreement with Spectrum Pharmaceuticals, Inc. (“Spectrum”). Under the License
Agreement, we granted to Spectrum an exclusive, nontransferable, worldwide license to such intellectual property rights that will enable
Spectrum to develop and potentially commercialize Captisol-enabled® propylene glycol-free melphalan. Contemporaneously with the
entry into the license agreement, we entered into a supply agreement to provide Captisol to Spectrum. Under the Supply Agreement,
Spectrum agreed to purchase its Captisol requirements for the development of the compound contemplated by the license agreement, as
well as any Captisol required for any product that is successfully commercialized. We are entitled to receive a non-refundable license
issuance fee of $3 million. Additionally, we are entitled to milestone payments and royalties on future net sales of the Captisol-enabled
melphalan product. This program is currently enrolling patients in a pivotal clinical trial.
Metabasis Contingent Value Rights
In January 2010, we completed our acquisition of Metabasis. In addition to cash consideration, we issued four tradable
Contingent Value Rights (“CVRs”), one CVR from each of four respective series of CVRs, for each Metabasis share. The CVRs will entitle
the holder to cash payments as frequently as every six months as cash is received by us from the sale or partnering of any of the Metabasis
drug development programs, among other triggering events. We have also committed to spend at least $7 million within 30 months and $8
million within 42 months, in new research and development funding on the Metabasis programs. Through December 31, 2012, we estimate
that we have spent approximately $7.7 million of the committed amount.
In January 2011, we granted licenses to Chiva to begin immediate development in China of two clinical-stage HepDirect
programs, Pradefovir for hepatitis B and MB01733 for hepatocellular carcinoma. Additionally, we granted Chiva a non-exclusive
HepDirect technology license for the discovery, development and worldwide commercialization of new compounds in hepatitis B (HepB),
hepatitis C (HepC) and hepatocellular carcinoma (HCC). Under the terms of the agreement, we are entitled to milestones and royalties on
potential sales. In addition, we are entitled to receive a portion of any sublicensing revenue generated from sublicensing of collaboration
compounds to third parties in a major world market. We received a $0.5 million license payment in March 2011, of which $0.1 million was
remitted to CVR holders.
In August 2011, we entered into an amendment to the license agreement which required that a second $0.5 million licensing fee
be paid in September 2011. In addition, the amendment increased royalty rates which we may receive under the license agreement to 6% of
net sales of products (other than Pradefovir) and 9% of net sales for Pradefovir. In addition, the amendment removed from the license
agreement a provision that afforded us the potential to earn a 10% equity position in Chiva as a milestone payment. In September 2011,
Chiva paid us the $0.5 million licensing fee called for by the amendment, of which $0.1 million was remitted to CVR holders.
In September 2012, we entered into an option agreement with an undisclosed partner, which required our partner to pay a
$50,000 upfront option opening fee, 50% of which is required to be remitted to the Metabasis CVR holders pursuant to the CVR
agreement. In October 2012, we remitted $6,000 to the Metabasis CVR holders, equivalent to the option fee less costs and expenses
incurred in connection with the option agreement.
Results of Operations
Total revenues for 2012 were $31.4 million compared to $30.0 million in 2011 and $23.5 million in 2010. Our loss from
continuing operations for 2012 was $2.7 million or $0.13 per share, compared to income from continuing operations of $9.7 million in
2011, or $0.49 per share, and loss from continuing operations of $12.8 million, or $0.65 per share in 2010.
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Royalty Revenue
Royalty revenues were $14.1 million in 2012, compared to $9.2 million in 2011 and $7.3 million in 2010. The increase in royalty
revenue of $4.9 million and $1.9 million for the year ended December 31, 2012 and 2011, respectively is primarily due to an increase in
Promacta sales.
Material Sales
We recorded material sales of $9.4 million in 2012 compared to $12.1 million in 2011. No material sales were recorded in 2010.
The decrease in material sales for the year ended December 31, 2012 compared to 2011 is due to timing of customer purchases of Captisol.
Collaborative Research and Development and Other Revenue
We recorded collaborative research and development and other revenues of $7.9 million in 2012 compared to $8.7 million in
2011 and $16.3 million in 2010. The decrease of $0.8 million for the year ended December 31, 2012, compared to the same period in 2011
is due to the recognition of $1.3 million of deferred revenue related to the previous sale of royalty rights for the year ended December 31,
2011, partially offset by an increase in license fees and milestones of $0.5 million for the year ended December 31, 2012. The decrease in
collaborative research and development and other revenue of $7.6 million for the year ended December 31, 2011, compared to 2010 is
primarily due to the termination of the research funded stage of a majority of the Company's then-existing collaboration agreements.
Research and Development Expenses
Research and development expenses for 2012 were $10.8 million compared to $10.3 million in 2011 and $22.1 million in 2010.
The increase in research and development expenses of $0.5 million for the year ended December 31, 2012 is primarily due to an
increase in costs associated with internal programs. The decrease of $11.8 million for the year ended December 31, 2011, compared with
2010 was primarily due to $8.7 million of costs associated with collaboration agreements that were terminated as well as $3.1 million of
other costs associated with internal research programs.
As summarized in the table below, we are developing several proprietary products for a variety of indications. Our programs are
not limited to the following, but are representative of a range of future licensing opportunities to expand our partnered asset portfolio.
Program
Disease/Indication
Selective Androgen Receptor Modulator
Captisol-enabled Topiramate
Glucagon Receptor Antagonist
HepDirect
Oral Human Granulocyte Colony Stimulating Factor
Oral Erythropoietin
Various
Epilepsy
Diabetes
Liver Diseases
Neutropenia
Anemia
Development
Phase
Phase II-ready
PhaseI/II
Pre-IND
Preclinical
Preclinical
Preclinical
We do not provide forward-looking estimates of costs and time to complete our ongoing research and development projects as
such estimates would involve a high degree of uncertainty. Uncertainties include our inability to predict the outcome of complex research,
our inability to predict the results of clinical studies, regulatory requirements placed upon us by regulatory authorities such as the FDA and
EMA, our inability to predict the decisions of our collaborative partners, our ability to fund research and development programs,
competition from other entities of which we may become aware in future periods, predictions of market potential from products that may be
derived from our research and development efforts, and our ability to recruit and retain personnel or third-party research organizations with
the necessary knowledge and skills to perform certain research. Refer to “Item 1A. Risk Factors” for additional discussion of the
uncertainties surrounding our research and development initiatives.
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General and Administrative Expenses
General and administrative expenses were $16.1 million for the year ended December 31, 2012 compared to $15.0 million for
2011 and $12.8 million for 2010. The increase in general and administrative expenses of $1.1 million is primarily due to an increase in tax
consulting projects and legal expenses in 2012. The increase in expenses for the year ended December 31, 2011 compared with 2010 is
primarily due to costs to operate the CyDex business and an increase in non-cash stock based compensation expenses.
Lease Exit and Termination Costs
In September 2010, we ceased use of our facility located in Cranbury, New Jersey. As a result, during the quarter ended September
30, 2010, we recorded lease exit costs of $9.7 million for costs related to the difference between the remaining lease obligations of the
abandoned operating leases, which run through August 2016, and management’s estimate of potential future sublease income, discounted to
present value. Actual future sublease income may differ materially from our estimate, which would result in us recording additional
expense or reductions in expense. In addition, we wrote-off approximately $5.4 million of property and equipment related to the facility
closure and recorded approximately $1.8 million of severance related costs. We recorded an increase of $0.3 million in lease exit and
termination costs for the year ended December 31, 2012 due to changes in leasing assumptions. We recorded $22,000 as a decrease in lease
exit and termination costs for the year ended December 31, 2011.
Write-off of in-process research and development
In 2011, we recorded a non-cash impairment charge of $1.1 million for the write-off of intellectual property and interests in future
milestones and royalties for MEDI-528, an IL-9 antibody program by AstraZeneca’s subsidiary, MedImmune. The asset was impaired upon
receipt of notice from MedImmune that it was exercising its right to terminate the collaboration and license agreement. Additionally, in
2011, we recorded a non-cash impairment charge of $1.2 million for the write-off of interests in future milestones for TRPV1, a
collaborative research and licensing program between us and Merck, related to the physiology, pharmacology, chemistry and potential
therapeutic applications and potential clinical utilities related to Vanilloid Receptors, subtype 1. The asset was impaired upon receipt of
notice from Merck in October 2011 that it was exercising its right to terminate the collaboration and license agreement. In 2010, Roche
notified us that they were exercising their right to terminate the collaboration and license agreement with our subsidiary, Metabasis. As a
result, we reviewed the carrying amount of the intangible asset related to this agreement. Based on our analysis of available information,
we determined that the asset would not generate any future cash flow. Therefore, we wrote-off the $2.8 million of acquired in-process
research and development associated with the agreement during the year ended December 31, 2010.
Accretion of Deferred Gain on Sale Leaseback
In 2006, we entered into an agreement for the sale of our real property located in San Diego, California for a purchase price of
$47.6 million. This property, with a net book value of $14.5 million, included one building totaling approximately 82,500 square feet, the
land on which the building is situated, and two adjacent vacant lots. As part of the sale transaction, we agreed to lease back the building for
a period of 15 years. We recognized an immediate pre-tax gain on the sale transaction of $3.1 million in 2006 and deferred a gain of $29.5
million on the sale of the building. The deferred gain was being recognized as an offset to operating expense on a straight-line basis over
the 15 year term of the lease at a rate of approximately $2.0 million per year. In 2009, we entered into a lease termination agreement for
this building. As a result, we recognized an additional $20.4 million of accretion of deferred gain during the quarter ended September 30,
2009, and recognized the remaining balance of the deferred gain of $3.1 million through the term of our new building lease, which expired
in December 2011. The amount of the deferred gain recognized for the years ended December 31, 2011 and 2010 was $1.7 million,
respectively. The deferred gain was fully amortized as of December 31, 2011, thus no gain was recognized for the year ended December
31, 2012.
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Interest income (expense), net
Interest expense was $3.3 million for the year ended December 31, 2012 compared to $2.5 million in 2011 and interest income of
$0.4 million in 2010. The increase in interest expense of $0.8 million for the year ended December 31, 2012 compared with 2011 was due
to the increase in the outstanding balance of notes payable at December 31, 2012 compared to December 31, 2011. Additionally, the $20
million loan obtained to acquire CyDex in January 2011 was outstanding for a partial period for the year ended December 31, 2011. The
interest income in 2010 of $0.4 million is the result of interest earned on investments which were liquidated in January 2011 and used to
acquire CyDex.
Change in Contingent Liabilities
We recorded an increase in contingent liabilities of $1.7 million for the year ended December 31, 2012 compared to $1.0 million
for 2011, and a decrease of $9.1 million for 2010. The change relates to our liability for amounts potentially due to holders of CVRs and
other former license holders associated with our CyDex, Metabasis, and Neurogen acquisitions. The Metabasis CVR liability is marked-to-
market at each reporting period based upon the quoted market prices of the underlying CVR. The fair value of the CyDex and Neurogen
contingent liabilities were determined based upon the income approach for the years ended December 31, 2012 and 2011. The carrying
amount of the liability may fluctuate significantly based upon quoted market prices and actual amounts paid under the agreements may be
materially different than the carrying amount of the liability.
Other, net
We recorded other income of $0.5 million for the year ended December 31, 2012, compared to $0.6 million for 2011 and $4.4
million for 2010. Other income for 2012 is primarily due to decreases in liabilities assumed in acquisitions. Other income for 2011
primarily relates to income related to the gain on the sale of property and equipment and decreases in liabilities assumed in acquisitions.
Other income for 2010 primarily relates to grants totaling $2.0 million in response to applications submitted for qualified investments in a
qualifying therapeutic discovery project under section 48D of the Internal Revenue Code, $1.5 million in realized gains on investments,
$0.5 million reduction in warrant liability and $0.4 million of gain on the sale of property and equipment.
Income Taxes
We recorded an income tax benefit from continuing operations of $1.2 million for the year ended December 31, 2012 compared to
a income tax benefit of $13.3 million in 2011. The income tax benefit in 2011 was principally the result of net deferred tax liabilities
recorded in connection with our acquisition of Cydex. The net deferred tax liabilities assumed in the Cydex acquisition became a future
source of income to support the realization of deferred tax assets and resulted in the release of a portion of our valuation allowance against
deferred tax assets. The income tax benefit in 2012 is principally due to a requirement under ASC740-20-45-7 that a Company to consider
all sources of income in order to determine the tax benefit resulting from a loss from continuing operations. As a result of the requirement
under ASC740-20-45-7, the pretax income which we generated from discontinued operations was a source of income which resulted in the
partial realization of the current year loss from continuing operations. Thus, we recorded an approximate $1.5 million tax benefit to
continuing operations and an offsetting $1.5 million charge to discontinued operations. In addition, the Company realized a tax benefit as a
result of California voters approving legislation in November 2012 which required a single sales factor income apportionment methodology
beginning in 2013 and resulted in a decrease in our future California deferred income tax obligations.
During 2010, we recorded an income tax benefit of $2.6 million related to the reversal of estimated interest for a proposed
substantial underpayment of tax in fiscal 2007. During 2009, the IRS issued to us a Notice of Proposed Adjustment, or NOPA, seeking an
increase to our taxable income for the 2007 fiscal year of $71.5 million and a $4.1 million penalty for substantial underpayment of tax in
fiscal 2007. We recorded a liability for uncertain tax positions of $25.1 million related to the income tax effect of the NOPA and $3.0
million related to estimated interest due on the proposed underpayment of tax. We also recorded deferred income tax assets of $25.1
million associated with the ability to carry back losses from 2008 and 2009 to offset the NOPA. In addition, we recorded an income tax
receivable of $4.5 million associated with changes in income tax law in relation to prior AMT taxes paid on carry back periods. In
November 2010, the IRS granted us an extension of time to make a closing-of-the-books election with respect to an ownership change,
within the meaning of section 382 of the Internal Revenue Code, for the 2007 tax year. We filed an amended 2007 federal tax return in the
fourth quarter of 2010. In addition, in January 2011, we were notified by the IRS that they had completed their examination resulting in no
changes to the taxes for our 2007 tax year.
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Discontinued Operations, net
Oncology Product Line
In 2006, we sold our Oncology product line to Eisai, including, among other things, all related inventory, equipment, records and
intellectual property, and assumed certain liabilities. For the year ended December 31, 2010, we recognized a pretax gain of $0.2 million,
due to subsequent changes in certain estimates of assets and liabilities recorded as of the sale date.
Avinza Product Line
In 2007, we sold our Avinza product line to King, including, among other things, all Avinza inventory, records and related
intellectual property, and the transfer of certain liabilities. For the years ended December 31, 2012, 2011, and 2010, we recognized pre-tax
gains of $3.7 million, $0, and $2.2 million, respectively, due to subsequent changes in certain estimates of assets and liabilities recorded as
of the sale date.
Income tax expense on discontinued operations
In 2012, we recorded income tax expense on discontinued operations of $1.5 million. See discussion on income taxes above.
There was no income tax expense on discontinued operations for the years ended December 31, 2011 and 2010.
Liquidity and Capital Resources
We have financed our operations through offerings of our equity securities, borrowings from long-term debt, issuance of
convertible notes, product sales and the subsequent sales of our commercial assets, royalties, collaborative research and development and
other revenues, capital and operating lease transactions.
We have incurred significant losses since inception. At December 31, 2012, our accumulated deficit was $682.8 million and we
had negative working capital of $11.6 million. We believe that cash flows from operations will improve due to consistent Captisol sales, an
increase in royalty revenues driven primarily from continued increases in Promacta sales, recent product approvals and regulatory
developments, as well as anticipated new license and milestone revenues. In the event revenues and operating cash flows do not meet
expectations, management plans to reduce discretionary expenses. However, it is possible that we may be required to seek additional
financing. There can be no assurance that additional financing will be available on terms acceptable to management, or at all. We believe
our available cash, cash equivalents, and short-term investments as well as our current and future royalty, license and milestone revenues
will be sufficient to satisfy our anticipated operating and capital requirements, through at least the next twelve months. Our future operating
and capital requirements will depend on many factors, including, but not limited to: the pace of scientific progress in our research and
development programs; the potential success of these programs; the scope and results of preclinical testing and clinical trials; the time and
costs involved in obtaining regulatory approvals; the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent
claims; competing technological and market developments; the amount of royalties on sales of the commercial products of our partners; the
efforts of our collaborative partners; obligations under our operating lease agreements; and the capital requirements of any companies we
acquire, including Pharmacopeia, Inc. (“Pharmacopeia”), Neurogen Corporation (“Neurogen”), Metabasis Therapeutics, Inc. (“Metabasis”)
and CyDex Pharmaceuticals, Inc. (“CyDex”). Our ability to achieve our operational targets is dependent upon our ability to further
implement our business plan and generate sufficient operating cash flow.
In January 2010, we completed our acquisition of Metabasis. In addition to cash consideration, we issued four tradable
Contingent Value Rights (“CVRs”), one CVR from each of four respective series of CVRs, for each Metabasis share. The CVRs will entitle
the holder to cash payments as frequently as every six months as cash is received by us from the sale or partnering of any of the Metabasis
drug development programs, among other triggering events. We have also committed to spend at least $7 million within 30 months and $8
million within 42 months, in new research and development funding on the Metabasis programs. Through December 31, 2012, we estimate
that we have spent approximately $7.7 million of the committed amount.
In January 2011, we entered into a $20 million secured term loan credit facility (“secured debt”) with Oxford Financial Group
(“Oxford”). The loan was amended in January 2012 to increase the secured credit facility to $27.5 million. The original $20 million
borrowed under the facility bears interest at a fixed rate of 8.6%. The additional $7.5 million bears interest at a fixed rate of 8.9%. Under
the terms of the secured debt, we will make interest only payments through February 2013. Subsequent to the interest only payments, the
note will amortize with principal and interest payments through the
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remaining term of the loan. Additionally, we must also make an additional final payment equal to 6% of the total amount borrowed which
is due at maturity and is being accreted over the life of the loan. The maturity date of the term loan is August 1, 2014.
We also have a cash-collateralized revolving credit facility under which we may elect to borrow up to $10 million. Amounts
borrowed under the revolving credit facility bear interest at a floating rate equal to 200 basis points above the prime rate. All outstanding
amounts under the credit facility may become due and payable if we fail to maintain a cash balance equal to the amount outstanding under
the credit facility. The maturity date of the revolving credit facility is March 28, 2013.
In October 2011, we filed a Registration Statement on Form S-3 with the Securities and Exchange Commission (“SEC”) for the
issuance and sale of up to $30 million of equity or other securities, proceeds from which will be used for general corporate purposes. The
Form S-3 provides additional financial flexibility for us to sell shares or other securities as needed at any time. As of December 31, 2012,
302,750 common shares have been issued under this registration statement for total net proceeds of approximately $5.5 million.
In connection with the acquisition of CyDex Pharmaceuticals, Inc. on January 24, 2011, we issued a series of Contingent Value
Rights (“CVR”) and assumed certain contractual obligations. We paid the CVR holders $4.3 million in January 2012 and may be required
to pay up to an additional $8.0 million upon achievement of certain clinical and regulatory milestones to the CyDex CVR holders and
former license holders. In 2011, $0.9 million was paid to the CyDex Shareholders upon completion of a licensing agreement with The
Medicines Company for the Captisol enabled Intravenous formulation of Clopidogrel. An additional $2 million was paid to the CyDex
Shareholders upon acceptance by the FDA of the New Drug Application submitted by Onyx and an additional $3.5 million was paid upon
approval by the FDA of Kyprolis for the potential treatment of patients with relapsed and refractory multiple myeloma. In addition, we will
pay CyDex shareholders, for each respective year from 2011 through 2016, 20% of all CyDex-related revenue, but only to the extent that
and beginning only when CyDex-related revenue for such year exceeds $15.0 million; plus an additional 10% of all CyDex-related revenue
recognized during such year, but only to the extent that and beginning only when aggregate CyDex-related revenue for such year exceeds
$35.0 million. We paid $0.3 million to the CyDex shareholders in March 2012 for 20% of all 2011 CyDex-related revenue in excess of $15
million. For the year ended December 31, 2012, CyDex related revenue did not exceed $15 million. Pursuant to the CVR Agreement, the
shareholders' representative on behalf of the former CyDex shareholders filed a notice of objection with us regarding the calculation of
payments due to the CyDex former shareholders for the first and second quarters of 2011. In addition, the shareholders' representative
claimed that we exceeded the $35 million financial indebtedness limitation contained in the CVR Agreement. In August 2012, we executed
a settlement agreement with the shareholders' representative releasing us from all claims.
We are also required by the CyDex CVR Agreement to dedicate at least five experienced full-time employee equivalents per
year to the acquired business and to invest at least $1.5 million per year, inclusive of such employee expenses, in the acquired business,
through 2015. As of December 31, 2012, we have exceeded our commitment for the year ending December 31, 2012.
Based on management’s plans, including projected increases in Captisol sales and royalty revenues, as well as anticipated new
license revenue and expense reductions, if necessary, we believe our currently available cash, cash equivalents, and short-term investments
as well as our current and future royalty, license and milestone revenues will be sufficient to satisfy our anticipated operating and capital
requirements, through at least the next twelve months. Our future operating and capital requirements will depend on many factors,
including, but not limited to: the pace of scientific progress in our research and development programs; the magnitude of these programs;
the scope and results of preclinical testing and clinical trials; the time and costs involved in obtaining regulatory approvals; the costs
involved in preparing, filing, prosecuting, maintaining and enforcing patent claims; competing technological and market developments; the
amount of royalties on sales of our partners’ commercial products; the efforts of our collaborative partners; obligations under our operating
lease agreements; and the capital requirements of any companies we may acquire, including Neurogen, Metabasis and CyDex. We believe
that the actions presently being taken to generate sufficient operating cash flow provide the opportunity for us to continue as a going
concern. While we believe in the viability of our strategy to generate sufficient operating cash flow and in our ability to raise additional
funds, there can be no assurances to that effect. Our ability to achieve our operational targets is dependent upon our ability to further
implement our business plan and generate sufficient operating cash flow.
Operating Activities
Operating activities provided cash of $1.1 million in 2012 and used cash of $1.2 million in 2011 and $27.1 million in 2010.
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The cash provided in 2012 reflects a net loss of $0.5 million, adjusted by $2.1 million of gain from discontinued operations and $6.5
million of non-cash items to reconcile the net income to net cash used in operations. These reconciling items primarily reflect a non-cash
change in estimated value of contingent liabilities of $1.7 million, depreciation and amortization of $2.7 million, stock-based compensation
of $4.1 million and other changes of $0.5 million, partially offset by an increase in net deferred tax assets and liabilities of $1.2 million, and
receipt of a non-cash milestone of $1.2 million. The cash provided by operations in 2012 is further impacted by changes in operating assets
and liabilities due primarily to a decrease in accounts receivable of $1.5 million, decrease in inventory of $1.0 million, decrease in other
current assets of $0.5 million, decrease in other long term assets of $0.3 million, and increase in other liabilities of $0.5 million. Partially
offsetting, accounts payable and accrued liabilities decreased $4.8 million and deferred revenue decreased $1.9 million. Net cash used in
operating activities of discontinued operations was $0.9 million in 2012.
The use of cash in 2011 reflects net income of $9.7 million, adjusted by $5.0 million of non-cash items to reconcile the net income to
net cash used in operations. These reconciling items primarily reflect deferred income taxes of $13.4 million, accretion of deferred gain on
sale leaseback transaction of $1.7 million and gain on asset write-offs of $0.5 million, partially offset by a non-cash change in estimated
value of contingent liabilities of $1.9 million, write off of acquired in-process research and development of $2.3 million, depreciation and
amortization of $2.8 million, and stock-based compensation of $3.4 million. The use of cash in 2011 is further impacted by changes in
operating assets and liabilities due primarily to an increase in accounts receivable of $3.9 million and a decrease in accounts payable and
accrued liabilities of $11.6 million, partially offset by an increase in other current assets of $5.5 million, an increase in inventory of $1.1
million, a decrease in deferred revenue of $2.2 million, and a decrease in other liabilities of $0.9 million. None of the cash used in operating
activities for 2011 related to discontinued operations.
The use of cash in 2010 reflects a net loss of $10.4 million, adjusted by $2.4 million of gain from discontinued operations and $10.2
million of non-cash items to reconcile the net loss to net cash used in operations. These reconciling items primarily reflect noncash lease
costs of $9.0 million, a write-off of acquired in-process research and development of $2.8 million, the recognition of $2.3 million of stock-
based compensation expense, depreciation of assets of $2.2 million and the write-off of assets of $5.3 million, partially offset by the change
in estimated fair value of contingent value rights of $9.1 million, accretion of deferred gain on the sale leaseback of the building of $1.7
million and gain on investments of $0.6 million. The use of cash in 2010 is further impacted by changes in operating assets and liabilities
due primarily to decreases in accounts payable and accrued liabilities of $13.4 million, a decrease in deferred revenue of $5.9 million, an
increase in other current assets of $3.9 million, a decrease in other liabilities of $0.7 million and an increase in accounts receivable, net of
$0.4 million. Net cash provided by operating activities of discontinued operations was $0.2 million in 2010.
Investing Activities
Investing activities used cash of $1.3 million in 2012, $25.2 million in 2011, and $14.5 million in 2010.
Cash used by investing activities in 2012 primarily reflects payments to CyDex CVR holders of $8.0 million and purchases of
property, building and equipment of $0.6 million, partially offset by proceeds from the sale of short-term investments of $10.0 million.
None of the cash provided by investing activities for 2012 related to discontinued operations.
Cash used by investing activities in 2011 primarily reflects cash used for the acquisition of CyDex of $32.0 million, payments made
to CyDex CVR holders of $2.9 million, and purchases of short term investments of $10.0 million, partially offset by proceeds from the sale
of short-term investments of $19.3 million and proceeds from the sale of property and equipment of $0.5 million. None of the cash
provided by investing activities for 2011 related to discontinued operations.
Cash provided by investing activities in 2010 primarily reflects the net sales of short-term investments of $18.5 million and $0.6
million of proceeds from sale of property and equipment, partially offset by $4.1 million of cash paid for acquisitions. None of the cash
provided by investing activities for 2010 related to discontinued operations.
Financing Activities
Financing activities provided cash of $3.9 million in 2012 and $30.1 million in 2011, and used cash of $0.2 million in 2010. None of
the cash used in financing activities for 2010 related to discontinued operations.
Cash provided by financing activities in 2012 primarily reflects proceeds from issuance of debt of $7.5 million and proceeds from
issuance of shares of $6.4 million, partially offset by repayment of debt of $10 million. None of the cash used in financing activities for
2012 related to discontinued operations.
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Cash provided by financing activities in 2011 primarily reflects $30.0 million of proceeds from the issuance of debt, partially offset
by share repurchases of $0.1 million. None of the cash used in financing activities for 2011 related to discontinued operations.
Cash used in financing activities in 2010 primarily reflects payments under equipment financing obligations of $0.1 million and
repurchases of common stock of $0.1 million. None of the cash used in financing activities for 2010 related to discontinued operations.
Other
In July 2007, we purchased $5.0 million of commercial paper issued by Golden Key Ltd. The investment was highly-rated and
within our investment policy at the time of purchase, but during the third quarter of 2007, large credit rating agencies downgraded the
quality of this security. In addition, as a result of not meeting certain liquidity covenants, the assets of Golden Key Ltd. were assigned to a
trustee who established a committee of the largest senior credit holders to determine the next steps, at which point the investment was
written down. Subsequently, Golden Key Ltd. defaulted on its obligation to settle the security on the stated maturity date of October 10,
2007. During 2010, the assets of Golden Key Ltd. were sold through an auction process and, as a result, the Company received a final cash
distribution of approximately $2.9 million, of which $1.4 million was recognized as a gain.
In connection with the acquisition of Pharmacopeia in December 2008, Pharmacopeia security holders received a CVR that entitled
them to an aggregate cash payment of $15.0 million under certain circumstances. The CVR expired on December 31, 2011.
In connection with the acquisition of Neurogen in December 2009, Neurogen security holders received CVRs under four CVR
agreements. The CVRs entitle Neurogen shareholders to cash payments upon the sale or licensing of certain assets and upon the
achievement of a specified clinical milestone. The fair value of the Neurogen CVR's at December 31, 2011 was $0.7 million and related to
programs for H3 and VR1. In 2012, we received a notice from a collaboration partner that it was terminating its agreement related to VR1
for convenience and the Company recorded a decrease in the fair value of the liability for the related contingent value right of $0.2 million.
Additionally, per the CVR agreement, no payment event date related to the H3 asset can occur after December 23, 2012 and we recorded a
decrease in the fair value of the liability for the related contingent value right of $0.5 million. There are no remaining CVR obligations
under the agreement with the former Neurogen shareholders.
In connection with the acquisition of Metabasis in January 2010, Metabasis security holders received CVRs under four CVR
agreements. The CVRs entitle the holders to cash payments upon the sale or licensing of certain assets and upon the achievement of
specified milestones. The fair value of the liability at December 31, 2012 and 2011 was $0 and $1.1 million, respectively.
In connection with the acquisition of CyDex in January 2011, we issued a series of CVR's and assumed certain contingent liabilities
for payments due to former license holders. We paid the CVR holders $4.3 million in January 2012 and may be required to pay up to an
additional $8.0 million upon achievement of certain regulatory milestones to the CVR holders and former license holders. In 2011, $0.9
million was paid to the CyDex shareholders upon completion of a licensing agreement with The Medicines Company for the Captisol
enabled Intravenous formulation of Clopidogrel. In 2012, an additional $2 million was paid to the CyDex Shareholders upon acceptance by
the FDA of Onyx’s NDA and $3.5 million was paid upon approval by the FDA. In addition, we will pay CyDex shareholders, for each
respective year from 2011 through 2016, 20% of all CyDex-related revenue, but only to the extent that and beginning only when CyDex-
related revenue for such year exceed $15.0 million; plus an additional 10% of all CyDex-related revenue recognized during such year, but
only to the extent that and beginning only when aggregate CyDex-related revenue for such year exceeds $35.0 million, of which $0.3
million was paid for 2011. For the year ended December 31, 2012, revenue did not exceed $15 million. The fair value of the liability at
December 31, 2012 and 2011 was $10.9 million and $15.5 million, respectively.
Leases and Off-Balance Sheet Arrangements
We lease our office and research facilities under operating lease arrangements with varying terms through November 2019. The
agreements provide for increases in annual rents based on changes in the Consumer Price Index or fixed percentage increases ranging from
3.0% to 3.5%. Commencing in January 2008, we also sublease a portion of our facilities through July 2015. The sublease agreement
provides for a 3% increase in annual rents. We had no off-balance sheet arrangements at December 31, 2012 and 2011.
Contractual Obligations
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As of December 31, 2012, future minimum payments due under our contractual obligations are as follows (in thousands):
Operating lease obligations (1)
$
20,089 $
5,372 $
10,304 $
3,273 $
1,140
Total
Less than 1 year
2-3 years
4-5 years
More than 5
years
Payments Due by Period
(1)
We lease office and research facilities that we have fully vacated under operating lease arrangements expiring in July 2015 and August 2016. We sublet
portions of these facilities through the end of our lease. As of December 31, 2012, we expect to receive aggregate future minimum lease payments
totaling $3.2 million (nondiscounted) over the duration of the sublease agreement as follows and not included in the table above: less than one year, $1
million; two to three years, $2.0 million; four to five years, $0.2 million; and more than five years, $0.
We outsource the production of Captisol to Hovione, LLC. Under the terms of the supply agreement with Hovione, we have ongoing
minimum annual purchase commitments and are required to purchase a total of $15 million of Captisol over the term of the supply
agreement which expires in December 2019. Through December 31, 2012, we have exceeded that commitment. Either party may terminate
the Agreement for the uncured material breach or bankruptcy of the other party or an extended force majeure event. We may also terminate
the supply agreement for extended supply interruption, regulatory action related to Captisol or other specified events.
Under the terms of our merger with Metabasis, we are committed to spend at least $7 million within 30 months following the close of
the transaction and $8.0 million within 42 months in new research and development funding on the Metabasis programs. Through
December 31, 2012, we estimate that we have spent approximately $7.7 million of the committed amount. We are also required under our
CyDex CVR Agreement to invest at least $1.5 million per year, inclusive of employee expenses, in the acquired business, through 2015.
Through December 31, 2012, we have exceeded our committed amount.
Critical Accounting Policies
Certain of our policies require the application of management judgment in making estimates and assumptions that affect the amounts
reported in the consolidated financial statements and disclosures made in the accompanying notes. Those estimates and assumptions are
based on historical experience and various other factors deemed to be applicable and reasonable under the circumstances. The use of
judgment in determining such estimates and assumptions is by nature, subject to a degree of uncertainty. Accordingly, actual results could
differ materially from the estimates made. Our critical accounting policies are as follows:
Revenue Recognition
Material sales revenue is recognized upon transfer of title, which normally passes upon shipment to the customer.
Royalties on sales of products commercialized by our partners are recognized in the quarter reported by the respective partner.
Revenue from research funding under our collaboration agreements is earned and recognized on a percentage of completion basis as
research hours are incurred in accordance with the provisions of each agreement.
Nonrefundable, up-front license fees and milestone payments with standalone value that are not dependent on any future performance
by us under our collaboration agreements are recognized as revenue upon the earlier of when payments are received or collection is
assured, but are deferred if we have continuing performance obligations. Amounts received under multiple-element arrangements requiring
ongoing services or performance by us are recognized over the period of such services or performance. The Company occasionally has
sub-license obligations related to arrangements for which it receives license fees, milestones and royalties. We evaluate the determination
of gross versus net reporting based on each individual agreement.
We analyze our revenue arrangements and other agreements to determine whether there are multiple elements that should be
separated and accounted for individually or as a single unit of accounting. For multiple element contracts, arrangement consideration is
allocated at the inception of the arrangement to all deliverables on the basis of relative selling price, using a hierarchy to determine selling
price. We first consider vendor-specific objective evidence (VSOE), then third-party evidence (TPE) and if neither VSOE nor TPE exist,
we use our best estimate of selling price.
Many of our revenue arrangements involve the bundling of a license with the option to purchase manufactured product. Licenses are
granted to pharmaceutical companies for the use of Captisol in the development of pharmaceutical compounds. The licenses may be
granted for the use of the Captisol product for all phases of clinical trials and through commercial
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availability of the host drug or may be limited to certain phases of the clinical trial process. We believe that our licenses have stand-alone
value at the outset of an arrangement because the customer obtains the right to use Captisol in its formulations without any additional input
by us, and in a hypothetical stand-alone transaction, the customer would be able to procure inventory from another manufacturer in the
absence of contractual provisions for exclusive supply by us.
Revenue from milestones is recognized when earned, as evidenced by written acknowledgement from the collaborator, provided that
(i) the milestone event is substantive, its achievability was not reasonably assured at the inception of the agreement, and we have no further
performance obligations relating to that event, and (ii) collectability is reasonably assured. If these criteria are not met, the milestone
payment is recognized over the remaining period of our performance obligations under the arrangement or when received.
Inventory
Inventory is stated at the lower of cost or market. We determine cost using the first-in, first-out method. We analyze our inventory
levels periodically and writes down inventory to its net realizable value if it has become obsolete, has a cost basis in excess of its expected
net realizable value or is in excess of expected requirements.
Co-Promote Termination Accounting
As part of the termination and return of co-promotion rights agreement that we entered into with Organon in January 2006, we agreed
to make quarterly payments to Organon, effective for the fourth quarter of 2006, equal to 6.5% of Avinza net sales through December 31,
2012 and thereafter 6% through patent expiration, currently anticipated to be November 2017. The estimated fair value of the amounts to be
paid to Organon after the termination, based on the future estimated net sales of the product, was recognized as a liability and expensed as a
cost of the termination as of the effective date of the agreement.
In connection with the Avinza® sale transaction, King assumed our obligation to make payments to Organon based on net sales of
Avinza (the fair value of which approximated $12.5 million as of December 31, 2012). As Organon has not consented to the legal
assignment of the co-promote termination obligation from us to King, we remain liable to Organon in the event of King’s default of this
obligation. Therefore, we recorded an asset on February 26, 2007 to recognize King’s assumption of the obligation, while continuing to
carry the co-promote termination liability in our consolidated financial statements to recognize our legal obligation as primary obligor to
Organon. This asset represents a non-interest bearing receivable for future payments to be made by King and is recorded at its fair value. As
of December 31, 2012 and thereafter, the receivable and liability will remain equal and adjusted each quarter for changes in the fair value of
the obligation. On a quarterly basis, management reviews the carrying value and assesses the co-promote termination receivable for
impairment (e.g. in the event King defaults on the assumed obligation to pay Organon). Annually management also reviews the carrying
value of the co-promote termination liability. Due to assumptions and judgments inherent in determining the estimates of future net Avinza
sales through November 2017, the actual amount of net Avinza sales used to determine the amount of the asset and liability for a particular
period may be materially different from current estimates. Any resulting changes to the co-promote termination liability will have a
corresponding impact on the co-promote termination payments receivable. As of December 31, 2012 and 2011, the fair value of the co-
promote termination liability (and the corresponding receivable) was determined using a discount rate of 15%.
Impairment of Long-Lived Assets
We review long-lived assets for impairment annually or whenever events or circumstances indicate that the carrying amount of the
assets may not be recoverable. We measure the recoverability of assets to be held and used by comparing the carrying amount of an asset to
future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Fair value of our
long-lived assets is determined using the expected cash flows discounted at a rate commensurate with the risk involved. As of
December 31, 2012, we believe that the future discounted cash flows to be received from our long-lived assets will exceed the assets’
carrying value.
Income Taxes
Income taxes are accounted for under the liability method. This approach requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of differences between the tax basis of assets or liabilities and their carrying amounts in the
consolidated financial statements. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will
either expire before we are able to realize their benefit or if future deductibility is uncertain. As of December 31, 2012, we have provided a
full valuation allowance against our deferred tax assets as recoverability was uncertain. Developing the provision for income taxes requires
significant judgment and expertise in federal and state income tax laws, regulations and strategies, including the determination of deferred
tax assets and liabilities and, if necessary, any
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valuation allowances that may be required for deferred tax assets. Our judgments and tax strategies are subject to audit by various taxing
authorities. While we believe we have provided adequately for our income tax liabilities in our consolidated financial statements, adverse
determinations by these taxing authorities could have a material adverse effect on our consolidated financial condition and results of
operations. Our ending deferred tax liability represents liabilities for which we cannot estimate the reversal period and therefore cannot be
used as support for our deferred tax assets.
Share-Based Compensation
Share-based compensation cost for awards to employees and non-employee directors is recognized on a straight-line basis over the
vesting period until the last tranche vests. Compensation cost for consultant awards is recognized over each separate tranche’s vesting
period. We recognized compensation expense of $4.1 million, $3.4 million, and $2.3 million for 2012, 2011, and 2010,
respectively, associated with option awards, restricted stock and our employee stock purchase plan.
The fair-value for options that were awarded to employees and directors was estimated at the date of grant using the Black-Scholes
option valuation model with the following weighted average assumptions:
Risk-free interest rate
Dividend yield
Expected volatility
Expected term
Year Ended December 31,
2012
2011
2010
1.1%
—
69%
2.5%
—
69%
2.7%
—
72%
6 years
6 years
6 years
The expected term of the employee and non-employee director options is the estimated weighted-average period until exercise or
cancellation of vested options (forfeited unvested options are not considered) based on historical experience. The expected term for
consultant awards is the remaining period to contractual expiration.
Volatility is a measure of the expected amount of variability in the stock price over the expected life of an option expressed as a
standard deviation. In selecting this assumption, we used the historical volatility of our stock price over a period equal to the expected term.
Changes in the assumptions used to estimate the fair value of stock-based compensation would impact the amount of compensation
expenses recognized during the period.
New Accounting Pronouncements
In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair
Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This ASU represents the converged guidance of the FASB
and the IASB (the Boards) on fair value measurement. The collective efforts of the Boards and their staffs, reflected in ASU No. 2011-04,
have resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a
consistent meaning of the term “fair value.” ASU No. 2011-04 amends ASC 820, Fair Value Measurements and Disclosures to provide
guidance on how fair value measurement should be applied where existing U.S. GAAP already requires or permits fair value
measurements. This ASU does not extend the use of fair value, but rather provides guidance on application. In addition, ASU No. 2011-04
requires expanded disclosures regarding fair value measurements. Our adoption of this standard had no impact on our consolidated
financial position, results of operations or cash flows.
In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220) – Presentation of Comprehensive Income.
This ASU amends Topic 220, Comprehensive Income, to allow an entity the option to present the total of comprehensive income, the
components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive
income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along
with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total
amount for comprehensive income. ASU No. 2011-05 eliminates the option to present the components of other comprehensive income as
part of the statement of changes in shareholders’ investment. The amendments to the Codification in the ASU do not change the items that
must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. Our
adoption of this standard had no impact on our consolidated financial position, results of operations or cash flows.
In September 2011, the FASB issued ASU 2011-08, Intangibles – Goodwill and other: testing for goodwill impairment, which,
among other things, amends Accounting Standards Topic 350 Intangibles – Goodwill and Other, to allow entities to use a qualitative
approach to test goodwill for impairment. ASU 2011-08 permits an entity to first perform a qualitative assessment
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to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this
is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill
impairment test is not required. Our adoption of this standard had no impact on our consolidated financial position, results of operations or
cash flows.
In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of
Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-12. The amendments in ASU 2011-12 defer the
changes in ASU 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income.
The amendments in this ASU are effective for us for fiscal years, and interim periods within those years, beginning after December 15,
2011. We adopted this standard for the year ended December 31, 2012. The adoption of ASU 2011-12 did not have a material impact on
our financial position or results of operations.
In July 2012, the FASB issued ASU 2012-02, Intangibles – Goodwill and Other: Testing Indefinite-Lived Intangible Assets for
Impairment in ASU 2012-02. ASU 2012-02 allows a company the option to first assess qualitative factors to determine whether it is
necessary to perform a quantitative impairment test. Under that option, a company would no longer be required to calculate the fair value
of an indefinite-lived intangible asset unless the company determines, based on that qualitative assessment, that it is more likely than not
that the fair value of the indefinite-lived intangible asset is less than its carrying amount. The amendments in this ASU are effective for
annual and interim indefinite-lived intangible asset impairment tests performed for periods beginning after September 15, 2012. We
adopted this standard for the year ended December 31, 2012. The adoption of ASU 2012-02 did not have a material impact on our financial
position or results of operations.
In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other
Comprehensive Income. Under ASU 2013-02, an entity is required to provide information about the amounts reclassified out of
Accumulated Other Comprehensive Income ("AOCI") by component. In addition, an entity is required to present, either on the face of the
financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the
amount reclassified is required to be reclassified in its entirety in the same reporting period. For
amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures
that provide additional details about those amounts. ASU 2013-02 does not change the current requirements for reporting net income or
other comprehensive income in the financial statements. The amendments in this ASU are effective for us for fiscal years, and interim
periods within those years, beginning after January 1, 2013.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
At December 31, 2012, our investment portfolio included investments in available for sale equity securities of $1.4 million. These
securities are subject to market risk and may decline in value based on market conditions. Additionally, we are subject to a one year trading
restriction on these investments.
We purchase Captisol from Hovione, located in Lisbon, Portugal. Payments to Hovione are denominated and paid in US dollars,
however the unit price of CAPTISOL contains an adjustment factor which is based on the sharing of foreign currency risk between the two
parties. The effect of an immediate 10% change in foreign exchange rates would have an immaterial impact on our financial condition,
results of operations or cash flows.
We are exposed to market risk involving rising interest rates. To the extent interest rates rise, our interest costs could increase. An
increase in interest costs of 10% would have no material impact on our financial condition, results of operations or cash flows.
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Item 8.
Consolidated Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Equity (Deficit) and Comprehensive Income (Loss)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
37
Page
38
39
40
41
42
45
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Ligand Pharmaceuticals Incorporated
We have audited the accompanying consolidated balance sheets of Ligand Pharmaceuticals Incorporated (the “Company”) as of December
31, 2012 and 2011, and the related consolidated statements of operations, changes in shareholders' equity, comprehensive income (loss),
and cash flows for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
Ligand Pharmaceuticals Incorporated as of December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of
America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Company's internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 14,
2013 expressed an adverse opinion.
/s/ GRANT THORNTON LLP
San Diego, California
March 14, 2013
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Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventory
Deferred income taxes
Other current assets
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
December 31,
2012
2011
Current portion of co-promote termination payments receivable
Total current assets
Restricted cash and investments
Property and equipment, net
Deferred income taxes
Intangible assets, net
Goodwill
Long-term portion of co-promote termination payments receivable
Other assets
Total assets
Current liabilities:
Accounts payable
Accrued liabilities
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current portion of contingent liabilities
Current portion of deferred income taxes
Bank line of credit
Current portion of note payable
Current portion of co-promote termination liability
Current portion of lease exit obligations
Current portion of deferred revenue
Total current liabilities
Long-term portion of note payable
Long-term portion of co-promote termination liability
Long-term portion of deferred revenue, net
Long-term portion of lease exit obligations
Long-term portion of deferred income taxes
Long-term portion of contingent liabilities
Other long-term liabilities
Total liabilities
Commitments and contingencies-see note
Common stock subject to conditional redemption; 0 and 112,371 shares issued and outstanding at December 31, 2012
and 2011, respectively
Stockholders’ equity:
Common stock, $0.001 par value; 33,333,333 shares authorized; 21,278,606 and 20,682,506 shares issued and
outstanding at December 31, 2012 and 2011, respectively
Additional paid-in capital
Accumulated deficit
Treasury stock, at cost; 1,118,222 shares at December 31, 2012 and 2011
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to these consolidated financial statements.
39
$
$
$
$
12,381 $
—
4,589
1,697
—
829
4,327
23,823
2,767
788
8
55,912
12,238
8,207
517
104,260 $
5,854 $
4,961
356
1,581
—
14,835
4,327
3,039
486
35,439
13,443
8,207
2,369
5,963
725
10,543
1,086
77,775
7,041
10,000
6,110
1,301
237
1,344
6,197
32,230
1,341
455
—
58,326
12,238
15,255
738
120,583
11,065
5,054
6,879
—
10,000
—
6,197
3,208
1,240
43,643
20,286
15,255
3,466
8,367
2,230
10,419
388
104,054
—
8,344
21
751,503
(682,759 )
(42,280 )
26,485
104,260 $
21
732,676
(682,232 )
(42,280 )
8,185
120,583
Table of Contents
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
Revenues:
Royalties
Material Sales
Collaborative research and development and other revenues
Total revenues
Operating costs and expenses:
Cost of material sales
Research and development
General and administrative
Lease exit and termination costs
Write-off of acquired in-process research and development
Total operating costs and expenses
Accretion of deferred gain on sale leaseback
Gain (loss) from operations
Other income (expense):
Interest (expense) income, net
(Increase) decrease in contingent liabilities
Other, net
Total other (expense) income, net
Loss from continuing operations before income tax benefit
Income tax benefit from continuing operations
(Loss) income from continuing operations
Discontinued operations:
Gain on sale of Avinza Product Line, net
Gain on sale of Oncology Product Line, net
Income tax expense on discontinued operations
Income from discontinued operations
Net (loss) income
Basic and diluted per share amounts:
(Loss) income from continuing operations
Income from discontinued operations
Net (loss) income
Year Ended December 31,
2012
2011
2010
14,073 $
9,432
7,883
31,388
9,213 $
12,123
8,701
30,037
3,601
10,790
16,108
315
—
30,814
—
574
(3,305)
(1,650)
516
(4,439)
(3,865)
1,191
(2,674)
3,656
—
(1,509)
2,147
(527) $
(0.13) $
0.11
(0.03) $
4,909
10,291
14,977
(22)
2,282
32,437
1,702
(698)
(2,477)
(1,013)
630
(2,860)
(3,558)
13,270
9,712
—
3
—
3
9,715 $
0.49 $
—
0.49 $
7,279
—
16,259
23,538
—
22,067
12,829
16,894
2,754
54,544
1,702
(29,304)
382
9,142
4,377
13,901
(15,403)
2,617
(12,786)
2,212
201
—
2,413
(10,373)
(0.65)
0.12
(0.53)
$
$
$
$
Weighted average number of common shares-basic
Weighted average number of common shares-diluted
19,853,095
19,853,095
19,655,632
19,713,320
19,613,201
19,613,201
See accompanying notes to these consolidated financial statements.
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Table of Contents
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share data)
Common Stock
Balance at December 31, 2009
Issuance of common stock under employee
stock compensation plans
Unrealized net loss on available-for-sale
securities
Repurchase of common stock
Stock-based compensation
Net loss
Balance at December 31, 2010
Issuance of common stock under employee
stock compensation plans, net
Unrealized net loss on available-for-sale
securities
Repurchase of common stock
Stock-based compensation
Net income
Balance at December 31, 2011
Issuance of common stock under employee
stock compensation plans, net
Issuance of common stock, net
Stock-based compensation
Shares released from restriction
Net loss
Balance at December 31, 2012
Shares
20,544,833
76,084
—
—
—
—
20,620,917
61,589
—
—
—
—
20,682,506
180,979
302,750
—
112,371
—
21,278,606
Amount
$21
—
—
—
—
—
21
—
—
—
—
—
21
—
—
—
—
—
$21
Accumulated
other
comprehensive
income (loss)
Additional
paid-in
capital
$726,919
Treasury stock
Accumulated
deficit
Shares
$513 $(681,574) (1,101,317)
Amount
$(42,134)
27
—
—
—
—
—
—
2,325
—
729,271
54
—
—
3,351
—
732,676
1,103
5,313
4,067
8,344
—
$751,503
(482)
—
—
—
31
—
(31)
—
—
—
—
—
—
(10,682 )
—
—
—
(10,373 )
—
(691,947 ) (1,111,999)
—
(91)
—
—
(42,225 )
—
—
—
—
—
—
9,715
—
(6,223 )
—
—
(682,232 ) (1,118,222)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(527)
— $(682,759) (1,118,222)
—
(55)
—
—
(42,280 )
—
—
—
—
—
$(42,280)
Total
stockholders’
equity (deficit)
$3,745
27
(482)
(91)
2,325
(10,373 )
(4,849 )
54
(31)
(55)
3,351
9,715
8,185
1,103
5,313
4,067
8,344
(527)
$26,485
See accompanying notes to these consolidated financial statements.
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Table of Contents
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Net (loss) income
Unrealized net loss on available-for-sale securities, net of tax of $0
Comprehensive (loss) income
$
$
(527) $
—
(527) $
9,715 $
(31)
9,684 $
(10,373)
(482)
(10,855)
See accompanying notes to these consolidated financial statements.
Year Ended December 31,
2012
2011
2010
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Table of Contents
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
2012
2011
2010
Operating activities
Net (loss) income
Less: gain from discontinued operations
(Loss) income from continuing operations
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Write-off of acquired in-process research and development
Non-cash change in estimated fair value of contingent liabilities
Accretion of deferred gain on sale leaseback
Depreciation and amortization
Non-cash lease costs
Non-cash milestone revenue
Gain (loss) on asset write-offs
Realized loss (gain) on investment
Stock-based compensation
Deferred income taxes
Other
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable, net
Inventory
Other current assets
Other long term assets
Accounts payable and accrued liabilities
Other liabilities
Deferred revenue
Net cash provided by (used in) operating activities of continuing operations
Net cash (used in) provided by operating activities of discontinued operations
Net cash provided by (used in) operating activities
Investing activities
Acquisition of Metabasis, net of cash acquired
Acquisition of CyDex, net of cash acquired
Payments to CVR holders
Acquisition of intellectual property
Purchases of property, equipment and building
Proceeds from sale of property, and equipment and building
Purchases of short-term investments
Proceeds from sale of short-term investments
Other, net
Net cash provided by (used in) investing activities
Financing activities
Principal payments on equipment financing obligations
Proceeds from issuance of debt
Repayment of debt
Proceeds from issuance of common stock, net
Net proceeds from stock option exercises
Net proceeds from employee stock purchase program
Share repurchases
Net cash provided by (used in) financing activities
43
$
(527) $
2,147
(2,674 )
9,715 $
3
9,712
—
1,650
—
2,727
—
(1,212 )
(17)
—
4,067
(1,204 )
492
1,521
1,030
515
334
(4,801 )
484
(1,851 )
1,061
(900)
161
—
—
(8,049 )
—
(595)
20
—
10,000
(113)
1,263
—
7,500
(10,000 )
5,313
979
124
—
3,916
2,282
1,888
(1,702 )
2,790
(51)
—
(456)
6
3,351
(13,402 )
285
(3,915 )
1,114
4,864
605
(11,568 )
865
2,160
(1,172 )
—
(1,172 )
—
(32,024 )
(2,875 )
—
(78)
530
(10,000 )
19,346
(31)
(25,132 )
—
30,000
—
54
—
—
(55)
29,999
(10,373 )
2,413
(12,786 )
2,754
(9,142 )
(1,702 )
2,212
9,042
—
5,303
(607)
2,325
—
32
(375)
—
(3,931 )
(332)
(13,447 )
(715)
(5,938 )
(27,307 )
240
(27,067 )
(2,834 )
—
—
(1,247 )
(70)
589
(35,584 )
54,040
(354)
14,540
(91)
—
—
23
—
—
(91)
(159)
Table of Contents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information
Cash paid during the year:
Interest paid
Taxes paid
Proceeds received from sale of building and disbursed to Neurogen shareholders
Supplemental schedule of non-cash investing and financing activities
Common stock released from restriction
$
$
5,340
7,041
12,381 $
2,452 $
—
—
3,695
3,346
7,041 $
2,463 $
39
—
8,344
—
(12,686 )
16,032
3,346
58
28
3,170
—
See accompanying notes to these consolidated financial statements.
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1. Basis of Presentation
LIGAND PHARMACEUTICALS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Ligand Pharmaceuticals Incorporated, a Delaware corporation (the “Company” or “Ligand”) is a biopharmaceutical company with a
business model that is based upon the concept of developing or acquiring royalty revenue generating assets and coupling them to a lean
corporate cost structure. By diversifying the portfolio of assets across numerous technology types, therapeutic areas, drug targets, and
industry partners, the Company offers investors an opportunity to invest in the increasingly complicated and unpredictable pharmaceutical
industry. In comparison to its peers, the Company believes it has assembled one of the largest and most diversified asset portfolios in the
industry with the potential to generate revenue in the future. These therapies address the unmet medical needs of patients for a broad
spectrum of diseases including hepatitis, muscle wasting, Alzheimer’s disease, dyslipidemia, diabetes, anemia, asthma, FSGS and
osteoporosis. Ligand has established multiple alliances with the world’s leading pharmaceutical companies including GlaxoSmithKline,
Onyx Pharmaceuticals, Merck, Pfizer, Baxter International, Bristol-Myers Squibb, Celgene, Lundbeck Inc. and The Medicines Company.
The Company’s principle market is the United States. The Company sold its Oncology Product Line (“Oncology”) and Avinza® Product
Line (“Avinza”) on October 25, 2006 and February 26, 2007, respectively. The operating results for Oncology and Avinza have been
presented in the accompanying consolidated financial statements as “Discontinued Operations”.
The Company has incurred significant losses since its inception. At December 31, 2012, the Company’s accumulated deficit was
$682.8 million and the Company had negative working capital of $11.6 million. Management believes that cash flows from operations will
improve due to consistent Captisol® sales, an increase in royalty revenues driven primarily from continued increases in Promacta® and
Kyprolis® sales, as well as anticipated new license and milestone revenues. In the event revenues and operating cash flows are not meeting
expectations, management plans to reduce discretionary expenses. However, it is possible that the Company may be required to seek
additional financing. There can be no assurance that additional financing will be available on terms acceptable to management, or at all.
Management believes its currently available cash, cash equivalents, and short-term investments as well as its current and future royalty,
license and milestone revenues will be sufficient to satisfy its anticipated operating and capital requirements, through at least the next
twelve months. The Company’s future operating and capital requirements will depend on many factors, including, but not limited to: the
pace of scientific progress in its research and development programs; the potential success of these programs; the scope and results of
preclinical testing and clinical trials; the time and costs involved in obtaining regulatory approvals; the costs involved in preparing, filing,
prosecuting, maintaining and enforcing patent claims; competing technological and market developments; the amount of royalties on sales
of the commercial products of its partners; the efforts of its collaborative partners; obligations under its operating lease agreements; and the
capital requirements of any companies the Company acquires, including Pharmacopeia, Inc. (“Pharmacopeia”), Neurogen Corporation
(“Neurogen”), Metabasis Therapeutics, Inc. (“Metabasis”) and CyDex Pharmaceuticals, Inc. (“CyDex”). The ability of the Company to
achieve its operational targets is dependent upon the Company’s ability to further implement its business plan and generate sufficient
operating cash flow.
Principles of Consolidation
The accompanying consolidated financial statements include Ligand and its wholly owned subsidiaries, Ligand JVR, Allergan Ligand
Retinoid Therapeutics, Seragen, Pharmacopeia, LLC, Neurogen Corporation, CyDex Pharmaceuticals, Inc., Metabasis Therapeutics, and
Nexus. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires the use of
estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosure of contingent assets and contingent
liabilities, at the date of the consolidated financial statements and the reported amounts of revenues and expenses, definite and indefinite
lived intangible assets, goodwill, co-promote termination payments receivable and co-promote termination liabilities, uncertain tax
positions, deferred revenue and income tax net operating losses during the reporting period. The Company’s critical accounting policies are
those that are both most important to the Company’s consolidated financial condition and results of operations and require the most
difficult, subjective or complex judgments on the part of management in their application, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain. Because of the uncertainty of factors surrounding the estimates or judgments used
in the preparation of the consolidated financial statements, actual results may materially vary from these estimates.
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Income (Loss) Per Share
Basic earnings (loss) per share is calculated by dividing net income or loss by the weighted average number of common shares and
vested restricted stock units outstanding. Diluted earnings (loss) per share is computed by dividing net income or loss by the weighted
average number of common shares and vested restricted stock units outstanding and the weighted average number of dilutive common
stock equivalents, including stock options and non-vested restricted stock units. Common stock equivalents are only included in the diluted
earnings per share calculation when their effect is dilutive. Potential common shares, the shares that would be issued upon the exercise of
outstanding stock options and warrants and the vesting of restricted shares that are excluded from the computation of diluted net income
(loss) per share, were 1.9 million, 1.6 million and 1.0 million for the years ended December 31, 2012, 2011, and 2010 respectively.
The following table sets forth the computation of basic and diluted net income (loss) per share for the periods indicated (in thousands,
except per share amounts):
Net (loss) income from continuing operations
Discontinued operations
Net (loss) income
Shares used to compute basic (loss) income per share
Dilutive potential common shares:
Restricted stock
Shares used to compute diluted (loss) income per share
Basic and diluted per share amounts:
(Loss) income from continuing operations
Discontinued operations
Net (loss) income
Cash, Cash Equivalents and Short-term Investments
Year Ended December 31,
2012
2011
(2,674) $
2,147
(527) $
9,712 $
3
9,715 $
19,853,095
19,655,632
2010
(12,786)
2,413
(10,373)
19,613,201
—
19,853,095
57,688
19,713,320
—
19,613,201
(0.13) $
0.11
(0.03) $
0.49 $
—
0.49 $
(0.65)
0.12
(0.53)
$
$
$
$
Cash and cash equivalents consist of cash and highly liquid securities with original maturities of three months or less. Non-restricted
equity and debt security investments with a maturity of more than three months are considered short-term investments and have been
classified by management as available-for-sale. Such investments are carried at fair value, with unrealized gains and losses included as a
separate component of stockholders’ equity. The Company determines the cost of investments based on the specific identification method.
Restricted Cash and Investments
Restricted cash and investments consist of certificates of deposit held with a financial institution as collateral under a facility lease
and third-party service provider arrangements and available-for-sale equity investments received by the Company as a result of milestone
payments from a licensee. The fair value of the Company’s long-term equity investments are determined using quoted market prices in
active markets and are discounted based on trading restrictions.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash
equivalents and investments.
The Company invests its excess cash principally in United States government debt securities, investment grade corporate debt
securities and certificates of deposit. The Company has established guidelines relative to diversification and maturities that maintain safety
and liquidity. These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates. During 2012
the Company did not experience any significant losses on its cash equivalents, short-term investments or restricted investments. As of
December 31, 2012, cash deposits held at financial institutions in excess of FDIC insured amounts of $250,000 were approximately $11.9
million.
Accounts receivable from two customers were 87% of total accounts receivable at December 31, 2012. Accounts receivable from one
customer was 67% of total accounts receivable at December 31, 2011.
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The Company obtains Captisol ® from a sole-source supplier. If this supplier were not able to supply the requested amounts of
Captisol, the Company would be unable to continue to derive revenues from the sale of Captisol until it obtained an alternative source,
which might take a considerable length of time.
Inventory
Inventory is stated at the lower of cost or market. The Company determines cost using the first-in, first-out method. The Company
analyzes its inventory levels periodically and writes down inventory to its net realizable value if it has become obsolete, has a cost basis in
excess of its expected net realizable value or is in excess of expected requirements. There was no reserve for obsolete inventory recorded as
of December 31, 2012 and 2011.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts based on the best estimate of the amount of probable losses in the
Company’s existing accounts receivable. Accounts receivable that are outstanding longer than their contractual payment terms, ranging
from 30 to 90 days, are considered past due. When determining the allowance for doubtful accounts, several factors are taken into
consideration, including historical write-off experience and review of specific customer accounts for collectability. Account balances are
charged off against the allowance after collection efforts have been exhausted and the potential for recovery is considered remote. There
was no allowance for doubtful accounts recorded as of December 31, 2012 and 2011.
Property and Equipment
Property and equipment is stated at cost and consists of the following (in thousands):
Lab and office equipment
Leasehold improvements
Computer equipment and software
Less accumulated depreciation and amortization
December 31,
2012
2011
4,374 $
145
1,150
5,669
(4,881)
788 $
4,110
62
1,054
5,226
(4,771)
455
$
$
Depreciation of equipment is computed using the straight-line method over the estimated useful lives of the assets which range from
three to ten years. Leasehold improvements are amortized using the straight-line method over their estimated useful lives or their related
lease term, whichever is shorter. Depreciation expense of $0.3 million, $0.5 million and $2.1 million was recognized in 2012, 2011, and
2010, respectively,
In September 2010, the Company ceased use of its facility located in New Jersey. As a result, during the quarter ended September 30,
2010, the Company recorded lease exit costs of $9.7 million for costs related to the difference between the remaining lease obligations of
the abandoned operating leases, which run through August 2016, and management’s estimate of potential future sublease income,
discounted to present value. Actual future sublease income may differ materially from the Company's estimate, which would result in us
recording additional expense or reductions in expense. In addition, the Company wrote-off approximately $5.4 million of property and
equipment related to the facility closure and recorded approximately $1.8 million of severance related costs.
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Goodwill and Other Identifiable Intangible Assets
Goodwill and other identifiable intangible assets consist of the following (in thousands):
Indefinite lived intangible assets
Acquired in-process research and development
Goodwill
Definite lived intangible assets
Complete technology
Trade name
Customer relationships
Accumulated amortization
Total goodwill and other identifiable intangible assets, net
December 31, 2012 December 31, 2011
$
$
13,036 $
12,238
15,227
2,642
29,600
47,469
(4,593)
68,150 $
13,036
12,238
15,227
2,642
29,600
47,469
(2,179)
70,564
The Company accounts for goodwill in accordance with Accounting Standards Codification ("ASC 350") which, among other things,
establishes standards for goodwill acquired in a business combination, eliminates the amortization of goodwill and requires the carrying
value of goodwill and certain non-amortizing intangibles to be evaluated for impairment on an annual basis. The Company considers its
market capitalization and the carrying value of its assets and liabilities, including goodwill, when performing its goodwill impairment test.
If the carrying value of the assets and liabilities, including goodwill, were to exceed the Company’s estimation of the fair value, the
Company would record an impairment charge in an amount equal to the excess of the carrying value of goodwill over the implied fair value
of the goodwill. The Company performs an evaluation of goodwill as of December 31 of each year, absent any indicators of earlier
impairment, to ensure that impairment charges, if applicable, are reflected in our financial results before December 31 of each year. When it
is determined that impairment has occurred, a charge to operations is recorded. Goodwill and other intangible asset balances are included in
the identifiable assets of the business segment to which they have been assigned. Any goodwill impairment, as well as the amortization of
other purchased intangible assets, is charged against the respective business segments’ operating income. As of December 31 2012 and
2011, there have been no impairment of goodwill for continuing operations.
Amortization of definite lived intangible assets is computed using the straight-line method over the estimated useful life of the asset
of 20 years. Amortization expense of $2.4 million, $2.3 million and $0.1 million was recognized in 2012, 2011, and 2010, respectively.
Estimated amortization expense for the years ending December 31, 2013 through 2017 is $2.4 million per year.
In January 2011, the Company completed its acquisition of CyDex. As a result of the transaction, the Company recorded $47.5
million of intangible assets with definite lives. The weighted-average amortization period for the identified intangible assets with definite
lives is 20 years. In addition, the Company recorded $3.2 million of acquired In-Process Research and Development (IPR&D) and $11.5
million of goodwill.
In May 2010, the Company purchased from the Genaera Liquidating Trust, certain intellectual property and interests in future
milestones and royalties for MEDI-528, an IL-9 antibody program under development by AstraZeneca’s subsidiary, MedImmune. MEDI-
528 is currently in a 320-patient Phase II study for moderate-to-severe asthma. The Company paid $2.8 million to the Genaera Liquidating
Trust in connection with the purchase. As part of the transaction, the Company also entered into a separate agreement with a shareholder of
Ligand, whereby the shareholder and Ligand agreed to share the purchase price and any proceeds from the deal equally. Accordingly, the
Company was reimbursed for $1.4 million of the purchase price. The Company recorded the net purchase price of $1.4 million as IPR&D.
As discussed below, the asset was subsequently impaired upon receipt of notice from MedImmune that it was exercising its right to
terminate the collaboration and license agreement.
In January 2010, the Company completed its acquisition of Metabasis. As a result, the Company recorded $12.0 million of the
purchase price of Metabasis as IPR&D.
Acquired in-process research and development
Intangible assets related to IPR&D are considered to be indefinite-lived until the completion or abandonment of the associated
research and development efforts. During the period the assets are considered to be indefinite-lived, they will not be amortized but will be
tested for impairment on an annual basis and between annual tests if the Company becomes aware of any
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events occurring or changes in circumstances that would indicate a reduction in the fair value of the IPR&D projects below their respective
carrying amounts. If and when development is complete, which generally occurs if and when regulatory approval to market a product is
obtained, the associated assets would be deemed finite-lived and would then be amortized based on their respective estimated useful lives at
that point in time.
Impairment of Long-Lived Assets
Management reviews long-lived assets for impairment annually or whenever events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying
amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Fair value for the Company’s long-lived assets is determined using the expected cash flows discounted at a rate commensurate with the risk
involved.
During 2011, the impairment analysis performed by management resulted in the write-off of certain acquired in process research and
development assets. The Company recorded a non-cash impairment charge of $1.1 million for the write-off of the net book value of the
IPR&D and interests in future milestones and royalties for MEDI-528, an IL-9 antibody program by AstraZeneca’s subsidiary,
MedImmune. The asset was impaired upon receipt of notice from MedImmune in September that it was exercising its right to terminate the
collaboration and license agreement.
Additionally, in 2011, the Company recorded a non-cash impairment charge of $1.2 million for the write-off of IPR&D and interests
in future milestones for TRPV1, a collaborative research and licensing program between the Company and Merck, related to the
physiology, pharmacology, chemistry and potential therapeutic applications and potential clinical utilities related to Vanilloid Receptors,
subtype 1. The asset was impaired upon receipt of notice from Merck that it was exercising its right to terminate the collaboration and
license agreement. Subsequent to the termination of the agreement, the Company will receive an exclusive, perpetual, irrevocable, royalty-
free (but subject to any third party royalty obligations), fully-paid world-wide license, with the right to sub-license, under specified patents
and technology for the research, development, or commercialization of specified compounds and products in a limited field of use.
In November 2010, Roche notified the Company that it was exercising its right to terminate the collaboration and license agreement
with the Company’s subsidiary, Metabasis Therapeutics, Inc. As a result, the Company’s management reviewed the carrying amount of the
intangible asset related to this agreement. Based on an analysis of available information, management determined that the asset would not
generate future cash flows. Therefore, the Company wrote-off the $2.8 million of acquired in-process research and development associated
with the agreement during the year ended December 31, 2010.
As of December 31, 2012, management does not believe there have been any other events or circumstances indicating that the
carrying amount of its remaining long-lived assets may not be recoverable.
Contingent Liabilities
In connection with the Company’s acquisition of CyDex in January 2011, the Company recorded a $17.6 million contingent liability,
inclusive of the $4.3 million payment made in January 2012, for amounts potentially due to holders of the CyDex contingent value rights
("CVR's) and former license holders. The initial fair value of the liability was determined using the income approach incorporating the
estimated future cash flows from potential milestones and revenue sharing. These cash flows were then discounted to present value using a
discount rate of 21.6%. The liability will be periodically assessed based on events and circumstances related to the underlying milestones,
and the change in fair value will be recorded in the Company’s consolidated statements of operations. The carrying amount of the liability
may fluctuate significantly and actual amounts paid under the CVR agreements may be materially different than the carrying amount of the
liability. The fair value of the liability at December 31, 2012 and 2011 was $10.9 million and $15.5 million, respectively. The Company
recorded a fair value adjustment to increase the liability for CyDex related contingent liabilities of $3.4 million for the year ended
December 31, 2012. Additionally, contingent liabilities decreased $8.0 million for cash payments to CVR holders for the year ended
December 31, 2012. The Company recorded fair value adjustments to decrease the liability for contingent liabilities of $2.1 million for the
year ended December 31, 2011.
In connection with the Company’s acquisition of Metabasis in January 2010, the Company issued Metabasis stockholders four
tradable CVRs, one CVR from each of four respective series of CVR, for each Metabasis share. The CVR will entitle Metabasis
stockholders to cash payments as frequently as every six months as cash is received by the Company from proceeds from Metabasis’
partnership with Roche (which has been terminated) or the sale or partnering of any of the Metabasis drug development programs, among
other triggering events. The acquisition-date fair value of the CVRs of $9.1 million was determined using quoted market prices of
Metabasis common stock in active markets. The fair values of the CVRs are
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remeasured at each reporting date through the term of the related agreement. Changes in the fair values are reported in the statement of
operations as income (decreases) or expense (increases). The carrying amount of the liability may fluctuate significantly based upon quoted
market prices and actual amounts paid under the agreements may be materially different than the carrying amount of the liability. The fair
value of the liability was $0 million and $1.1 million as of December 31, 2012 and 2011, respectively. The Company recorded a decrease in
the liability for CVRs of $1.1 million during the year ended December 31, 2012, an increase of $1.1 million during the year ended
December 31, 2011, and a decrease of $9.1 million during the year ended December 31, 2010.
In connection with the Company’s acquisition of Neurogen in December 2009, the Company issued to Neurogen stockholders four
CVRs; real estate, Aplindore, VR1 and H3, that entitle them to cash and/or shares of third-party stock under certain circumstances. The
Company recorded the acquisition-date fair value of the CVRs as part of the purchase price. The acquisition-date fair value of the real
estate CVR of $3.2 million was estimated using the net proceeds from a pending sale transaction and recorded as a payable to stockholders
at December 31, 2009. In February 2010, the Company completed the sale of the real estate and subsequently distributed the proceeds to
the holders of the real estate CVR. As a result and after final settlement of all related expenses, the real estate CVR was terminated in
August 2010. In 2012, the Company received a notice from a collaboration partner that it was terminating its agreement related to VR1 for
convenience and subsequently the Company recorded a decrease in the fair value of the liability for the related CVR of $0.2 million.
Additionally, per the CVR agreement, no payment event date for the H3 program can occur after December 23, 2012 and the Company
recorded a decrease in the fair value of the liability for the related CVR of $0.5 million. There are no remaining CVR obligations under the
agreement with the former Neurogen shareholders.
Fair Value of Financial Instruments
Fair value is defined as the exit price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based
measurement that should be determined using assumptions that market participants would use in pricing an asset or liability. The Company
establishes a three-level hierarchy to prioritize the inputs used in measuring fair value. The levels are described in the below with Level 1
having the highest priority and Level 3 having the lowest:
Level 1 - Observable inputs such as quoted prices in active markets
Level 2 - Inputs other than the quoted prices in active markets that are observable either directly or indirectly
Level 3 - Unobservable inputs in which there is little or no market data, which require us to develop our own assumptions
The Company’s long-term investments include investments in equity securities which are subject to trading restrictions. The fair value
of the investments is determined using quoted market prices in active markets and discounted for the restrictive effect. The Metabasis CVR
liability is marked-to-market at each reporting period based upon the quoted market prices of the underlying CVR. The fair value of the
CyDex contingent liabilities are determined at each reporting period based upon an income valuation model.
Treasury Stock
The Company may on occasion repurchase our common stock on the open market or in a private transaction. When such stock is
repurchased it is not constructively or formally retired and may be reissued if certain regulatory requirements are met. The purchase price
of the common stock repurchased is charged to treasury stock.
Revenue Recognition
Royalties on sales of products commercialized by the Company’s partners are recognized in the quarter reported by the respective
partner.
Revenue from material sales is recognized upon transfer of title, which normally passes upon shipment to the customer. The
Company’s credit and exchange policy includes provisions for the return of product between 30 to 90 days, depending on the specific terms
of the individual agreement, when that product (1) does not meet specifications, (2) is damaged in shipment (in limited circumstances
where title does not transfer until delivery), or (3) is exchanged for an alternative grade of Captisol.
Revenue from research funding under the Company’s collaboration agreements is earned and recognized on a percentage-of-
completion basis as research hours are incurred in accordance with the provisions of each agreement.
Nonrefundable, up-front license fees and milestone payments with standalone value that are not dependent on any future performance
by us under our collaboration agreements are recognized as revenue upon the earlier of when payments are received or collection is
assured, but are deferred if the Company has continuing performance obligations. Amounts received
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under multiple-element arrangements requiring ongoing services or performance by the Company are recognized over the period of such
services or performance. The Company occasionally has sub-license obligations related to arrangements for which it receives license fees,
milestones and royalties. The Company evaluates the determination of gross versus net reporting based on each individual agreement.
The Company analyzes its revenue arrangements and other agreements to determine whether there are multiple elements that should
be separated and accounted for individually or as a single unit of accounting. For multiple element contracts, arrangement consideration is
allocated at the inception of the arrangement to all deliverables on the basis of relative selling price, using a hierarchy to determine selling
price. Management first considers vendor-specific objective evidence (VSOE), then third-party evidence (TPE) and if neither VSOE nor
TPE exist, the Company uses its best estimate of selling price.
Many of the Company's revenue arrangements involve the bundling of a license with the option to purchase manufactured product.
Licenses are granted to pharmaceutical companies for the use of Captisol in the development of pharmaceutical compounds. The licenses
may be granted for the use of the Captisol product for all phases of clinical trials and through commercial availability of the host drug or
may be limited to certain phases of the clinical trial process. The Company believes that its licenses have stand-alone value at the outset of
an arrangement because the customer obtains the right to use Captisol in its formulations without any additional input by the Company, and
in a hypothetical stand-alone transaction, the customer would be able to procure inventory from another manufacturer in the absence of
contractual provisions for exclusive supply by the Company.
Revenue from milestones is recognized when earned, as evidenced by written acknowledgement from the collaborator, provided that
(i) the milestone event is substantive, its achievability was not reasonably assured at the inception of the agreement, and the Company has
no further performance obligations relating to that event, and (ii) collectability is reasonably assured. If these criteria are not met, the
milestone payment is recognized over the remaining period of the Company’s performance obligations under the arrangement.
Preclinical Study and Clinical Trial Accruals
Substantial portions of the Company’s preclinical studies and all of the Company’s clinical trials have been performed by third-party
laboratories, contract research organizations, or other vendors (collectively CROs). Some CROs bill monthly for services performed, while
others bill based upon milestone achievement. The Company accrues for each of the significant agreements it has with CROs on a monthly
basis. For preclinical studies, accruals are estimated based upon the percentage of work completed and the contract milestones
achieved. For clinical studies, accruals are estimated based upon a percentage of work completed, the number of patients enrolled and the
duration of the study. The Company monitors patient enrollment, the progress of clinical studies and related activities to the extent possible
through internal reviews of data reported to it by the CROs, correspondence with the CROs and clinical site visits. The Company’s
estimates are dependent upon the timelines and accuracy of the data provided by its CROs regarding the status of each program and total
program spending. The Company periodically evaluates its estimates to determine if adjustments are necessary or appropriate based on
information it receives concerning changing circumstances, and conditions or events that may affect such estimates. No material
adjustments to preclinical study and clinical trial accrued expenses have been recognized to date.
Sale of Royalty Rights
The Company previously sold to third parties the rights to future royalties of certain of its products. As part of the underlying royalty
agreements, the partners have the right to offset a portion of any future royalty payments owed to the Company to the extent of previous
milestone payments. Accordingly, the Company deferred a portion of the revenue associated with each tranche of royalty right sold, equal
to the pro-rata share of the potential royalty offset. Such amounts associated with the offset rights against future royalty payments will
reduce this balance upon receipt of future royalties from the respective partners. As of December 31, 2012 and 2011, the Company had
deferred $0.8 million and $1.3 million of revenue, respectively, which is included in long-term portion of deferred revenue.
Product Returns
In connection with the sale of the Avinza and Oncology product lines, the Company retained the obligation for returns of product
that were shipped to wholesalers prior to the close of the transactions. The accruals for product returns, which were recorded as part of the
accounting for the sales transactions, are based on historical experience. Any subsequent changes to the Company’s estimate of product
returns are accounted for as a component of discontinued operations.
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Costs and Expenses
Collaborative research and development expense consists of labor, material, equipment and allocated facilities cost of the Company’s
scientific staff who are working pursuant to the Company’s collaborative agreements. From time to time, collaborative research and
development expense includes costs related to research efforts in excess of those required under certain collaborative agreements.
Management has the discretion to set the scope of such excess efforts and may increase or decrease the level of such efforts depending on
the Company’s strategic priorities.
Proprietary research and development expense consists of intellectual property in-licensing costs, labor, materials, contracted
services, and allocated facility costs that are incurred in connection with internally funded drug discovery and development programs.
Research and development costs are expensed as incurred. Research and development expenses from continuing operations were
$10.8 million, $10.3 million and $22.1 million in 2012, 2011, and 2010, respectively, of which 100%, 99% and 61%, respectively, were
sponsored by Ligand, and the remainder of which was funded pursuant to collaborative research and development arrangements.
Income Taxes
The Company recognizes liabilities or assets for the deferred tax consequences of temporary differences between the tax basis of
assets or liabilities and their reported amounts in the financial statements. These temporary differences will result in taxable or deductible
amounts in future years when the reported amounts of the assets or liabilities are recovered or settled. A valuation allowance is established
when management determines that it is more likely than not that all or a portion of a deferred tax asset will not be realized. Management
evaluates the realizability of its net deferred tax assets on a quarterly basis and valuation allowances are provided, as necessary. During this
evaluation, management reviews its forecasts of income in conjunction with other positive and negative evidence surrounding the
realizability of its deferred tax assets to determine if a valuation allowance is required. Adjustments to the valuation allowance will increase
or decrease the Company’s income tax provision or benefit. Management also applies the relevant guidance to determine the amount of
income tax expense or benefit to be allocated among continuing operations, discontinued operations, and items charged or credited directly
to stockholders’ equity (deficit).
A tax position must meet a minimum probability threshold before a financial statement benefit is recognized. The minimum
threshold is a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including
resolution of any related appeals or litigation processes, based on the technical merits of the position. The Company recognizes interest and
penalties related to uncertain tax positions in income tax expense.
Accounting for Stock-Based Compensation
Stock-based compensation expense for awards to employees and non-employee directors is recognized on a straight-line basis over the
vesting period until the last tranche vests. The Company grants options and awards to employees, non-employee consultants, and non-
employee directors. Only new shares of common stock are issued upon the exercise of stock options. Non-employee directors are
accounted for as employees. Options and restricted stock granted to certain directors vest in equal monthly installments over one year from
the date of grant. Options granted to employees vest 1/8 on the six month anniversary of the date of grant, and 1/48 each month thereafter
for forty-two months. All option awards generally expire ten years from the date of grant.
The fair-value for options that were awarded to employees and directors was estimated at the date of grant using the Black-Scholes
option valuation model with the following weighted average assumptions:
Risk-free interest rate
Dividend yield
Expected volatility
Expected term
Year Ended December 31,
2012
2011
2010
1.1%
—
69%
2.5%
—
69%
2.7%
—
72%
6 years
6 years
6 years
The expected term of the employee and non-employee director options is the estimated weighted-average period until exercise or
cancellation of vested options (forfeited unvested options are not considered) based on historical experience. The expected term for
consultant awards is the remaining period to contractual expiration.
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Volatility is a measure of the expected amount of variability in the stock price over the expected life of an option expressed as a
standard deviation. In selecting this assumption, the Company used the historical volatility of the Company’s stock price over a period
equal to the expected term.
The following table summarizes share-based compensation expense recorded as components of research and development expenses
and general and administrative expenses for the periods indicated (in thousands):
Share-based compensation expense as a component of:
Research and development expenses
General and administrative expenses
Segment reporting
2012
2011
2010
$
$
1,448 $
2,619
4,067 $
1,072 $
2,279
3,351 $
1,253
1,072
2,325
Under Accounting Standards Codification No. 280, “Segment Reporting”, or ASC 280, operating segments are defined as
components of an enterprise about which separate financial information is available that is regularly evaluated by the entity’s chief
operating decision maker, in deciding how to allocate resources and in assessing performance. The Company has evaluated this
Codification and has identified two reportable segments: the development and commercialization of drugs using Captisol technology by
CyDex Pharmaceuticals, Inc. and the biopharmaceutical company with a business model that is based upon the concept of developing or
acquiring royalty revenue generating assets and coupling them to a lean corporate cost structure of Ligand Pharmaceuticals, Inc.
Comprehensive Income (Loss)
Comprehensive income (loss) represents net income (loss) adjusted for the change during the periods presented in unrealized gains
and losses on available-for-sale securities less reclassification adjustments for realized gains or losses included in net income (loss). The
unrealized gains or losses are reported on the Consolidated Statements of Comprehensive Income.
New Accounting Pronouncements
In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common
Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This ASU represents the converged guidance of the
FASB and the IASB (the Boards) on fair value measurement. The collective efforts of the Boards and their staffs, reflected in ASU No.
2011-04, have resulted in common requirements for measuring fair value and for disclosing information about fair value measurements,
including a consistent meaning of the term “fair value.” ASU No. 2011-04 amends ASC 820, Fair Value Measurements and Disclosures to
provide guidance on how fair value measurement should be applied where existing U.S. GAAP already requires or permits fair value
measurements. This ASU does not extend the use of fair value, but rather provides guidance on application. In addition, ASU No. 2011-04
requires expanded disclosures regarding fair value measurements. The adoption of this standard had no impact on the Company's
consolidated financial position, results of operations or cash flows.
In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220) – Presentation of Comprehensive Income.
This ASU amends Topic 220, Comprehensive Income, to allow an entity the option to present the total of comprehensive income, the
components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive
income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along
with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total
amount for comprehensive income. ASU No. 2011-05 eliminates the option to present the components of other comprehensive income as
part of the statement of changes in shareholders’ investment. The amendments to the Codification in the ASU do not change the items that
must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The
provisions of ASU No. 2011-05 should be applied retrospectively and are effective for fiscal years, and interim periods within those years,
beginning after December 15, 2011. The adoption of this standard had no impact on the Company's consolidated financial position, results
of operations or cash flows.
In September 2011, the FASB issued ASU 2011-08, Intangibles – Goodwill and other: testing for goodwill impairment, which,
among other things, amends Accounting Standards Topic 350 Intangibles – Goodwill and Other, to allow entities to use a qualitative
approach to test goodwill for impairment. ASU 2011-08 permits an entity to first perform a qualitative assessment
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to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this
is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill
impairment test is not required. The adoption of this standard had no impact on the Company's consolidated financial position, results of
operations or cash flows.
In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of
Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-12. The amendments in ASU 2011-12 defer the
changes in ASU 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income.
The amendments in this ASU are effective for us for fiscal years, and interim periods within those years, beginning after December 15,
2011. We adopted this standard for the year ended December 31, 2012. The adoption of ASU 2011-12 did not have a material impact on
the Company's financial position or results of operations.
In July 2012, the FASB issued ASU 2012-02, Intangibles – Goodwill and Other: Testing Indefinite-Lived Intangible Assets for
Impairment in ASU 2012-02. ASU 2012-02 allows a company the option to first assess qualitative factors to determine whether it is
necessary to perform a quantitative impairment test. Under that option, a company would no longer be required to calculate the fair value
of an indefinite-lived intangible asset unless the company determines, based on that qualitative assessment, that it is more likely than not
that the fair value of the indefinite-lived intangible asset is less than its carrying amount. The amendments in this ASU are effective for
annual and interim indefinite-lived intangible asset impairment tests performed for periods beginning after September 15, 2012. We
adopted this standard for the year ended December 31, 2012. The adoption of ASU 2012-02 did not have a material impact on the
Company's financial position or results of operations.
In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other
Comprehensive Income. Under ASU 2013-02, an entity is required to provide information about the amounts reclassified out of
Accumulated Other Comprehensive Income ("AOCI") by component. In addition, an entity is required to present, either on the face of the
financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the
amount reclassified is required to be reclassified in its entirety in the same reporting period. For
amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures
that provide additional details about those amounts. ASU 2013-02 does not change the current requirements for reporting net income or
other comprehensive income in the financial statements. The amendments in this ASU are effective for us for fiscal years, and interim
periods within those years, beginning after January 1, 2013.
2. Business Combinations
In January 2011, the Company acquired CyDex Pharmaceuticals, Inc. (“CyDex”), a specialty pharmaceutical company developing
products and licensing its Captisol technology. Captisol is currently incorporated in five FDA-approved medications and marketed by three
of CyDex’s licensees: Pfizer, Bristol-Myers Squibb and Baxter (formerly Prism Pharmaceuticals). In addition, CyDex is supporting drug
development efforts with more than 40 companies worldwide.
Under the terms of the agreement, the Company paid $31.6 million to the CyDex shareholders and issued a series of Contingent
Value Rights (CVR's). Additionally, the Company assumed certain contractual obligations for potential milestone payments to license
holders. In addition, the Company will pay CyDex shareholders, for each respective year from 2011 through 2016, 20% of all CyDex-
related revenue, but only to the extent that and beginning only when CyDex-related revenue for such year exceeds $15 million; plus an
additional 10% of all CyDex-related revenue recognized during such year, but only to the extent that and beginning only when aggregate
CyDex-related revenue for such year exceeds $35 million. The initial fair value of the liability was determined using an income approach,
incorporating the estimated future cash flows from potential milestones and revenue sharing. These cash flows were then discounted to
present value using a discount rate of 21.5%. For the year ended December 31, 2012, the fair value of the acquisition related contingent
liabilities was determined using the income approach. The liability is evaluated each reporting period based on events and circumstances
related to the underlying milestones, and the change in fair value is recorded in the Company's consolidated statements of operations. The
carrying amount of the liability may fluctuate significantly and actual amounts paid may be materially different than the carrying amount
of the liability.
The Company is required by the CyDex CVR Agreement to dedicate at least five experienced full-time employee equivalents per
year to the acquired business and to invest at least $1.5 million per year, inclusive of such employee expenses, in the acquired business,
through 2015.
The components of the purchase price allocation for CyDex are as follows (in thousands):
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Purchase Consideration (in thousands):
Cash paid to CyDex shareholders
Estimated fair value of contingent consideration
Total purchase consideration
Allocation of Purchase Price (in thousands):
Cash
Accounts receivable
Inventory
In-process research and development
Intangible assets with definite lives
Goodwill
Other assets
Liabilities assumed
The acquired identified intangible assets with definite lives from the acquisition with CyDex are as follows:
Acquired Intangible Assets (in thousands)
Complete technology
Trademark and trade name
Customer relationships
$
$
$
$
$
$
31,572
17,585
49,157
85
1,202
2,414
3,200
47,469
11,538
1,311
(18,062)
49,157
15,227
2,642
29,600
47,469
The weighted-average amortization period for the identified intangible assets with definite lives is 20 years.
The Company has allocated $3.2 million of the purchase price of CyDex to IPR&D. This amount represents the estimated fair value
of CyDex’s two main proprietary products that have not yet reached technological feasibility and do not have future alternative use as of
the date of the merger. The valuation was based on a probability-weighted present value of the expected upfront and milestone payments.
The probability of success takes into account the stages of completion and the risks surrounding successful development and
commercialization of the underlying product candidates. These cash flows were then discounted to present value using a discount rate of
21.5%. Management does not believe that any events have occurred that would impair the IPR&D at December 31, 2012.
The valuation of the Captisol technology was based on a derivative of the discounted cash flow method that estimated the present
value of a hypothetical royalty stream derived via the licensing of similar technology. These projected cash flows were then discounted to
present value using a discount rate of 20.5%. The valuation of the trademark and trade name was based on the Relief from Royalty method
using royalty rates paid in third-party licensing agreements involving similar trade names. These projected cash flows were then discounted
to present value using a discount rate of 20.5%. The valuation of the customer relationships was based on a discounted cash flow analysis
incorporating the estimated future cash flows from these relationships during their assumed life of 20 years. These cash flows were then
discounted to present value using a discount rate of 21.5%.
Had the merger with CyDex been completed as of the beginning of 2010, the Company’s pro forma results for the years ended
December 31, 2011 and 2010 would have been as follows (unaudited):
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(in thousands, except per share data)
Revenue
Operating loss
Net income (loss)
Basic and diluted earnings per share:
Income (loss) from continuing operations
Discontinued operations
Net income (loss)
Basic and diluted weighted average shares
$
$
$
$
2011
2010
30,226 $
(1,591)
8,687
0.44 $
— $
0.44 $
19,656
23,727
(32,403)
(15,480)
(0.91)
0.12
(0.79)
19,613
The primary adjustments relate to interest expense on long-term debt, the loss of interest income due to the timing of transaction
related payments and amortization of intangible assets. The above pro forma information was determined based on historical results
adjusted for the purchase price allocation and estimated related changes in income associated with the acquisition of CyDex.
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3. Financial Instruments
The Company measures certain financial assets and liabilities at fair value on a recurring basis, including available-for-sale
fixed income, equity securities, and contingent liabilities. The following table provides a summary of the assets and liabilities that are
measured at fair value on a recurring basis as of December 31, 2012 (in thousands):
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets
for Identical
Assets
Total
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets:
Current portion of co-promote termination payments receivable
Equity investments
Long-term portion of co-promote termination payments receivable
Total Assets
Liabilities:
Current portion of contingent liabilities - CyDex
Current portion of co-promote termination liability
Long-term portion of contingent liabilities - CyDex
Liability for restricted investments owed to former licensees
Long-term portion of co-promote termination liability
Total liabilities
$
$
$
$
4,327 $
1,426
8,207
13,960 $
356 $
4,327
10,543
214
8,207
23,647 $
— $
—
—
— $
— $
—
—
—
—
— $
— $
1,426
—
1,426 $
— $
—
—
214
—
214 $
4,327
—
8,207
12,534
356
4,327
10,543
—
8,207
23,433
The following table provides a summary of the assets and liabilities that are measured at fair value on a recurring basis as of
December 31, 2011 (in thousands):
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets
for Identical
Assets
Total
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets:
Certificates of deposit
Current portion of co-promote termination payments receivable
Long-term portion of co-promote termination payments
receivable
Total assets
Liabilities:
Current portion of contingent liabilities - CyDex
Current portion of co-promote termination liability
Liability for contingent value rights - Metabasis
Liability for contingent value rights – Neurogen
Long-term portion of contingent liabilities - CyDex
Long-term portion of co-promote termination liability
Total liabilities
10,000 $
—
—
10,000 $
— $
—
1,068
—
—
—
1,068
$
10,000 $
6,197
15,255
31,452 $
6,879 $
6,197
1,068
700
8,651
15,255
38,750 $
$
$
$
$
57
— $
—
—
— $
— $
—
—
—
—
—
— $
—
6,197
15,255
21,452
6,879
6,197
—
700
8,651
15,255
37,682
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The Company’s short-term investments are fixed income available-for-sale securities and are made up of certificates of deposit.
The fair value of the Company’s long-term investments are determined using quoted market prices in active markets and are discounted
based on trading restrictions. The liability for contingent value rights for Metabasis are determined using quoted market prices in active
markets. The fair value of the liabilities for the Neurogen and CyDex contingent liabilities were determined based on the income approach
for the year ended December 31, 2012. There are no remaining contingent value right obligations under the agreement with the former
Neurogen shareholders. The co-promote termination payments receivable represents a non-interest bearing receivable for future payments
to be made by King and is recorded at its fair value. The receivable and liability will remain equal and adjusted each quarter for changes in
the fair value of the obligation including any changes in the estimate of future net Avinza product sales.
A reconciliation of the level 3 financial instruments as of December 31, 2012 and 2011 is as follows (in thousands):
Assets:
Fair value of level 3 financial instruments as of December 31, 2010
Assumed payments made by King or assignee
Fair value adjustments
Fair value of level 3 financial instrument assets as of December 31, 2011
Assumed payments made by King or assignee
Fair value adjustments
Fair value of level 3 financial instruments as of December 31, 2012
Liabilities
Fair value of level 3 financial instruments as of December 31, 2010
Initial fair value of level 3 financial instruments related to the CyDex acquisition
Kyprolis NDA acceptance milestone payment to CyDex shareholders
Assumed payments made by King or assignee
Fair value adjustments
Fair value of level 3 financial instruments as of December 31, 2011
2011 revenue sharing payment to CyDex shareholders
Guaranteed payment to CyDex shareholders
Kyprolis FDA approval milestone payment to CyDex shareholders
Assumed payments made by King or assignee
Fair value adjustments
Fair value of level 3 financial instruments as of December 31, 2012
$
$
$
$
30,885
(4,155 )
(5,278 )
21,452
(3,479 )
(5,439 )
12,534
31,585
17,585
(2,000 )
(4,155 )
(5,333 )
37,682
(249 )
(4,300 )
(3,500 )
(3,479 )
(2,721 )
23,433
4. Avinza Co-Promotion
In 2003, the Company and Organon Pharmaceuticals USA Inc. (Organon) entered into an agreement for the co-promotion of Avinza.
Subsequently in 2006, the Company signed an agreement with Organon that terminated the Avinza co-promotion agreement between the
two companies and returned Avinza co-promotion rights to the Company. In consideration of the early termination, the Company agreed to
make quarterly royalty payments to Organon equal to 6.5% of Avinza net sales through December 31, 2012 and thereafter 6% through
patent expiration, currently anticipated to be November 2017.
In 2007, the Company and King executed an agreement pursuant to which King acquired all of the Company’s rights in and to
Avinza. King also assumed the Company’s co-promote termination obligation to make royalty payments to Organon.
In connection with King’s assumption of this obligation, Organon did not consent to the legal assignment of the co-promote
termination obligation to King. Accordingly, the Company remains liable to Organon in the event of King’s default of the obligation.
Therefore, the Company recorded an asset as of 2007 to recognize King’s assumption of the obligation, while continuing to carry the co-
promote termination liability in the Company’s consolidated financial statements to recognize its legal obligation as primary obligor to
Organon. This asset represents a non-interest bearing receivable for future payments to be
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made by King and is recorded at its fair value. The receivable and liability will remain equal and adjusted each quarter for changes in the
fair value of the obligation including any changes in the estimate of future net Avinza product sales. This receivable will be assessed on a
quarterly basis for impairment (e.g. in the event King defaults on the assumed obligation to pay Organon).
At each reporting period, management reviews the carrying value of the co-promote termination liability. Due to assumptions and
judgments inherent in determining the estimates of future net Avinza sales through November 2017, the actual amount of net Avinza sales
used to determine the current fair value of the Company’s co-promote termination asset and liability may be materially different from
current estimates.
A summary of the co-promote termination liability as of December 31, 2012 and 2011 is as follows (in thousands):
Net present value of payments based on estimated future net Avinza product sales as of December 31, 2010
Assumed payments made by King or assignee
Fair value adjustments due to passage of time
Total co-promote termination liability as of December 31, 2011
Assumed payments made by King or assignee
Fair value adjustments due to passage of time
Total co-promote termination liability as of December 31, 2012
Less: current portion of co-promote termination liability as of December 31, 2012
Long-term portion of co-promote termination liability as of December 31, 2012
$
$
30,885
(4,155)
(5,278)
21,452
(3,479)
(5,439)
12,534
4,327
8,207
5. Lease Obligations
The Company leases office and laboratory facilities in California, Kansas and New Jersey. These leases expire between 2014 and
2019 and are subject to annual increases which range from 3.0% to 3.5%. The Company currently subleases office and laboratory space in
California and New Jersey. The following table provides a summary of operating lease obligations and payments expected to be received
from sublease agreements as of December 31, 2012 (in thousands):
Operating lease obligations:
Corporate headquarters-San
Diego, CA
Bioscience and Technology
Business Center-Lawrence, KS
Vacated office and research
facility-San Diego, CA
Vacated office and research
facility-Cranbury, NJ
Total operating lease obligations
Lease
Termination
Date
Less than 1
year
2-3 years
4-5 years
More than
5 years
Total
July 2019 $
545 $
1,364 $
1,447 $
1,140 $
4,496
December 2014
57
57
July 2015
2,174
3,572
—
—
—
114
—
5,746
August 2016
$
2,596
5,372 $
5,311
10,304 $
1,826
3,273 $
—
9,733
1,140 $ 20,089
Sublease payments expected to be
received:
Office and research facility-San
Diego, CA
Office and research facility-
Cranbury, NJ
Net operating lease obligations
Less than 1
year
2-3 years
4-5 years
More than
5 years
Total
July 2015 $
881 $
1,451 $
— $
— $
2,332
August 2016
147
519
163
—
829
$
4,344 $
8,334 $
3,110 $
1,140 $ 16,928
In August 2009, the Company entered into a lease termination agreement for its office and laboratory facility in San Diego,
California, which had a lease term through November 2021. Under the terms of the termination agreement, the Company paid a termination
fee of $14.3 million as follows: $4.5 million was paid upon signing, $4.5 million was paid in July 2010 and $5.3 million was paid in April
2011. Additionally, in 2010, the Company ceased use of its facility located in New
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Jersey. As a result, the Company recorded lease exit costs of $9.7 million for costs related to the difference between the remaining lease
obligations of the abandoned operating leases, which run through August 2016, and management’s estimate of potential future sublease
income, discounted to present value. In addition, the Company wrote-off property and equipment with a net book value of approximately
$5.4 million related to the facility closure.
For the years ended December 31, 2012 and 2011, the Company had lease exit obligations of $9.0 million and $11.6 million,
respectively. For the year ended December 31, 2012, the Company made cash payments, net of sublease payments received of $3.6
million. The Company recognized adjustments for accretion and changes in leasing assumptions of $1.0 million for the year ended
December 31, 2012.
As part of the lease for the corporate headquarters, the Company received a tenant improvement allowance of $3.2 million. The
tenant improvements were used to build out the suite for general lab and office purposes. For the year ended December 31, 2012, the
Company recorded a sale leaseback transaction whereby it removed all property from its balance sheet. There was no gain on the sale-
leaseback.
Total rent expense under all office leases for 2012, 2011 and 2010 was $1.1 million, $1.2 million, and $2.8 million, respectively. The
Company recognizes rent expense on a straight-line basis. Deferred rent at December 31, 2012 and 2011 was $0.3 million and $0 million,
respectively, and is included in other long-term liabilities.
6. Segment Reporting
The Company evaluates performance based on the operating profit (loss) of the respective business segments. The segment results
may not represent actual results that would be expected if they were independent, stand-alone businesses. Segment information is as
follows:
Balance Sheet Data:
Total Assets
Total Assets
As of December 31, 2012
CyDex
Ligand
Total
28,731 $
75,529 $
104,260
As of December 31, 2011
CyDex
Ligand
Total
49,462 $
71,121 $
120,583
$
$
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Net revenues from external customers
Operating income (loss)
Depreciation and amortization expense
Income tax benefit from continuing operations
Income tax expense from discontinuing
operations
Interest expense, net
Net revenues from external customers
Operating income (loss)
Depreciation and amortization expense
Income tax benefit from continuing operations
Interest expense, net
Write off of in process R&D
7. Financing Arrangements
$
$
For the year ended December 31, 2012
Ligand
CyDex
Total
$
19,582
(538 )
222
1,096
(1,509 )
3,305
$
11,806
1,112
2,505
95
—
—
For the year ended December 31, 2011
Ligand
CyDex
Total
$
13,790
(5,733 )
486
13,270
2,508
2,282
$
16,247
5,035
2,304
—
—
31,388
574
2,727
1,191
(1,509 )
3,305
30,037
(698 )
2,790
13,270
2,508
2,282
The Company has a secured term loan credit facility (“secured debt”). Under the terms of the secured debt, the Company will
make interest only payments through February 2013. Subsequent to the interest only payments, the note will amortize with principal and
interest payments through the remaining term of the loan. Additionally, the Company must also make an additional final payment equal to
6% of the total amount borrowed which is due at maturity and is being accreted over the life of the loan. To secure the Company's
repayment obligations under the secured debt agreement, the lender obtained a first priority security interest in all of the Company's assets,
excluding intellectual property.
The Company also has a cash-collateralized revolving credit facility under which the Company may elect to borrow up to $10
million. All outstanding amounts under the credit facility may become due and payable if the Company fails to maintain a cash balance
equal to the amount outstanding under the credit facility.
The carrying values and the fixed contractual coupon rates of our financing arrangements are as follows (dollars in millions):
Bank line of credit, Prime + 2.0%, due March 29, 2013
Current portion notes payable, 8.64%, due August 1, 2014
Current portion notes payable, 8.9012%, due August 1, 2014
Total current portion of notes payable
Long-term portion notes payable, 8.64%, due August 1, 2014
Long-term portion notes payable, 8.9012%, due August 1, 2014
Total long-term portion of notes payable
December 31, 2012
—
10,792
4,043
14,835
9,837
3,606
13,443
$
$
$
$
$
December 31, 2011
10,000
—
—
10,000
20,286
—
20,286
$
$
$
$
$
Principal payments on long-term debt obligations subsequent to December 31, 2012 are as follows:
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Year ending December 31,
2013
2014
2015
Amount
14,835
12,665
—
27,500
$
$
The fair value of the Company’s debt instruments approximates their carrying values as the interest is tied to or approximates market
rates.
8. Discontinued Operations
Oncology Product Line
In September 2006, the Company and Eisai Inc., a Delaware corporation, and Eisai Co., Ltd., a Japanese company (which we
collectively refer to as Eisai), entered into a purchase agreement, or the Oncology Purchase Agreement, pursuant to which Eisai agreed to
acquire all of our worldwide rights in and to our oncology products, including, among other things, all related inventory, equipment, records
and intellectual property, and assume certain liabilities as set forth in the Oncology Purchase Agreement. The Oncology product line
included the Company's four marketed oncology drugs: Ontak, Targretin capsules,Targretin gel and Panretin gel. For the years ended
December 31, 2010, the Company recognized a pre-tax gain of $0.2 million, due to subsequent changes in certain estimates of assets and
liabilities recorded as of the sale date.
Avinza Product Line
On September 6, 2006, the Company and King entered into a purchase agreement, or the Avinza Purchase Agreement, pursuant to
which King agreed to acquire all of the Company's rights in and to Avinza in the United States, its territories and Canada, including, among
other things, all Avinza inventory, records and related intellectual property, and assume certain liabilities as set forth in the Avinza
Purchase Agreement, which is collectively referred to as the Transaction. Pursuant to the terms of the Avinza Purchase Agreement, the
Company retained the liability for returns of product from wholesalers that had been sold by the Company prior to the close of the
Transaction. Accordingly, as part of the accounting for the gain on the sale of Avinza, the Company recorded a reserve for Avinza product
returns. For the years ended December 31, 2012, 2011, and 2010, the Company recognized pre-tax gains of $3.7 million, $0, and $2.2
million, respectively, due to subsequent changes in certain estimates of assets and liabilities recorded as of the sale date.
9. Other Balance Sheet Details
Other current assets consist of the following (in thousands):
Prepaid expenses
Advanced manufacturing payments
Other receivables
62
December 31,
2012
2011
801 $
2
26
829 $
905
312
127
1,344
$
$
Table of Contents
Accrued liabilities consist of the following (in thousands):
Compensation
Legal
Other
Other Long-Term Liabilities
Other long-term liabilities consist of the following (in thousands):
Deferred rent
Deposits
Other
10. Stockholders’ Equity
Stock Plans
December 31,
2012
2011
1,807 $
199
2,955
4,961 $
1,806
355
2,893
5,054
December 31,
2012
2011
334 $
538
214
1,086 $
—
388
—
388
$
$
$
$
In May 2009, the Company’s stockholders approved the amendment and restatement of the Company’s 2002 Stock Incentive Plan
(the “Amended 2002 Plan”). The Company’s 2002 Stock Incentive Plan was amended to (i) increase the number of shares available for
issuance under the Amended 2002 Plan by 1.3 million shares, (ii) revise the list of performance criteria that may be used by the
compensation committee for purposes of granting awards under the Amended 2002 Plan that are intended to qualify as performance-based
compensation under Section 162(m) of the Internal Revenue Code, as amended, and (iii) eliminate the automatic option grant program for
non-employee directors, the director fee stock issuance program and the director fee option grant program, which programs have been
superseded by the Company’s amended and restated Director Compensation Policy. Additionally, in May 2012, the Company’s
stockholders approved an amendment and restatement of the Company’s 2002 Stock Incentive Plan to increase the number of shares
available for issuance by 1.8 million shares. As of December 31, 2012, there were 1.9 million shares available for future option grants or
direct issuance under the Amended 2002 Plan.
The Company grants options and awards to employees, non-employee consultants, and non-employee directors. Only new shares of
common stock are issued upon the exercise of stock options. Non-employee directors are accounted for as employees. Options and
restricted stock granted to certain directors vest in equal monthly installments over one year from the date of grant. Options granted to
employees vest 1/8 on the six month anniversary of the date of grant, and 1/48 each month thereafter for forty-two months. All option
awards generally expire ten years from the date of grant.
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Table of Contents
Following is a summary of the Company’s stock option plan activity and related information:
Balance at December 31, 2009
Granted
Forfeited
Cancelled
Balance at December 31, 2010
Granted
Exercised
Forfeited
Cancelled
Balance at December 31, 2011
Granted
Exercised
Forfeited
Cancelled
Balance at December 31, 2012
Exercisable at December 31, 2012
Options vested and expected to vest as of December 31, 2012
Weighted
Average
Exercise
Price
30.10
9.87
14.31
48.26
21.36
9.98
9.51
11.95
34.55
14.61
14.72
11.31
11.39
24.16
14.90
16.41
14.90
Shares
668,447 $
248,202
(130,183)
(145,205)
641,261
636,580
(6,072)
(50,782)
(74,941)
1,146,046
714,345
(86,588)
(118,026)
(29,171)
1,626,606
816,904
1,626,606
Weighted
Average
Remaining
Contractual
Term in
Years
6.88 $
Aggregate
Intrinsic
Value
(In thousands)
31
7.00
9
7.96
1,489
7.83
6.85
7.83
11,358
5,397
11,358
The weighted-average grant-date fair value of all stock options granted during 2012, 2011, and 2010 was $14.72, $6.34, and $6.31
per share, respectively. The total intrinsic value of all options exercised during 2012, 2011 and 2010 was approximately $0.5 million,
$10,000, and $0, respectively. As of December 31, 2012, there was $5.6 million of total unrecognized compensation cost related to
nonvested stock options. That cost is expected to be recognized over a weighted average period of 2.7 years.
Cash received from options exercised in 2012, 2011 and 2010 was $1.0 million, $58,000, and $41,000, respectively. There is no
current tax benefit related to options exercised because of Net Operating Losses (NOLs) for which a full valuation allowance has been
established.
Following is a further breakdown of the options outstanding as of December 31, 2012:
Range of exercise prices
$6.82 – $ 10.05
10.12 – 13.53
14.47 – 14.47
14.86 – 21.00
32.76 – 87.96
6.82 – 87.96
Restricted Stock Activity
Options
outstanding
541,121
135,190
552,125
332,460
65,710
1,626,606
Weighted
average
remaining life
in years
Weighted average
exercise price
Options
exercisable
Weighted average
exercise price
7.87 $
8.81
9.06
6.24
3.27
7.83
9.92
11.27
14.47
18.55
48.51
14.90
305,581 $
71,919
113,888
259,806
65,710
816,904
9.90
10.25
14.47
18.50
48.51
16.41
The following is a summary of the Company’s restricted stock activity and related information:
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Table of Contents
Nonvested at December 31, 2009
Granted
Vested
Forfeited
Nonvested at December 31, 2010
Granted
Vested
Forfeited
Nonvested at December 31, 2011
Granted
Vested
Forfeited
Nonvested at December 31, 2012
Weighted-Average
Grant Date Fair
Value
Shares
95,715 $
60,349
(65,375)
(28,543)
62,146
119,826
(59,936)
(6,530)
115,506
109,261
(72,194)
(11,012)
141,561
17.93
9.60
16.70
12.56
13.60
10.07
12.47
11.71
10.63
13.76
11.47
11.84
12.52
Restricted stock awards generally vest over three years. As of December 31, 2012, unrecognized compensation cost related to non-
vested stock awards amounted to $0.9 million. That cost is expected to be recognized over a weighted average period of 1.5 years.
Employee Stock Purchase Plan
The Company’s Employee Stock Purchase Plan, as amended and restated (the “Amended ESPP”) allows participants to purchase up
to 1,250 shares of Ligand common stock during each offering period, but in no event may a participant purchase more than 1,250 shares of
common stock during any calendar year. The length of each offering period is six months, and employees are eligible to participate in the
first offering period beginning after their hire date.
The Amended ESPP allows employees to purchase a limited amount of common stock at the end of each six month period at a price
equal to 85% of the lesser of fair market value on either the start date of the period or the last trading day of the period (the “Lookback
Provision”). The 15% discount and the Lookback Provision make the Amended ESPP compensatory. There were 10,763, 7,611, and 14,888
shares of common stock issued under the Amended ESPP in 2012, 2011 and 2010, respectively, resulting in an expense of $38,000,
$13,000, and $0.1 million, respectively. For shares purchased under the Company’s Amended ESPP, a weighted-average expected
volatility of 34%, 18%, and 34% was used for 2012, 2011 and 2010, respectively. The expected term for shares issued under the ESPP is 6
months. As of December 31, 2012, 128,457 shares of common stock had been issued under the Amended ESPP to employees and 89,917
shares are available for future issuance.
Preferred Stock
The Company has authorized 5,000,000 shares of preferred stock, of which 1,600,000 are designated Series A Participating Preferred
Stock (the “Preferred Stock”). The Board of Directors of Ligand has the authority to issue the Preferred Stock in one or more series and to
fix the designation, powers, preferences, rights, qualifications, limitations and restrictions of the shares of each such series, including the
dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions),
liquidation preferences and the number of shares constituting any such series, without any further vote or action by the stockholders. The
rights and preferences of Preferred Stock may in all respects be superior and prior to the rights of the common stock. The issuance of the
Preferred Stock could decrease the amount of earnings and assets available for distribution to holders of common stock or adversely affect
the rights and powers, including voting rights, of the holders of the common stock and could have the effect of delaying, deferring or
preventing a change in control of Ligand. As of December 31, 2012 and 2011, there are no preferred shares issued or outstanding.
Shareholder Rights Plan
In October 2006, the Company’s Board of Directors renewed the Company’s stockholder rights plan, which was originally adopted
and has been in place since September 2002, and which expired on September 13, 2006, through the adoption of a new 2006 Stockholder
Rights Plan (the “2006 Rights Plan”). The 2006 Rights Plan provides for a dividend distribution of one preferred share purchase right (a
“Right”) on each outstanding share of the Company’s common stock. Each Right entitles stockholders to buy 1/1000th of a share of Ligand
Series A Participating Preferred Stock at an exercise price of $100. The Rights will become exercisable if a person or group announces an
acquisition of 20% or more of the Company’s common stock, or announces commencement of a tender offer for 20% or more of the
common stock. In that event, the Rights permit stockholders, other than the acquiring person, to purchase the Company’s common stock
having a market value of twice
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Table of Contents
the exercise price of the Rights, in lieu of the Preferred stock. In addition, in the event of certain business combinations, the Rights permit
the purchase of the common stock of an acquiring person at a 50% discount. Rights held by the acquiring person become null and void in
each case. The 2006 Rights Plan expires in 2016.
Warrants
As of December 31, 2012, 163,568 warrants with an exercise price of $179.40 per warrant and an expiration date of April 2013 were
outstanding to purchase an aggregate of 129,360 shares of the Company’s common stock. If exercised, these warrants are also entitled to
receive $0.1 million in cash. The series of warrants was assumed in the acquisition of Neurogen Corporation.
Reverse Stock Split
On November 19, 2010, following approval from the Company’s stockholders at a special meeting of stockholders on September 9,
2010, the Company announced a 1-for-6 reverse stock split of its common stock. Accordingly, all share, warrant, option and per share
information for all periods presented has been restated to account for the effect of the reverse stock split.
Public Offering
During the year ended December 31, 2012, the Company issued, pursuant to an at-the-market registered public offering, 302,750 common
shares at a weighted average price of $18.87 per share. Total net proceeds to the Company after underwriting discounts and expenses were
approximately $5.5 million.
11. Litigation
We record our estimate of a loss when the loss is considered probable and estimable. Where a liability is probable and there is a
range of estimated loss and no amount in the range is more likely than any other number in the range, we record the minimum estimated
liability related to the claim in accordance with FASB ASC Topic 450 Contingencies. As additional information becomes available, we
assess the potential liability related to our pending litigation and revise our estimates. Revisions in our estimates of potential liability could
materially impact our results of operations.
12. Common Stock Subject to Conditional Redemption—Pfizer Settlement Agreement
In 1996, the Company and Pfizer entered into a settlement agreement with respect to a lawsuit filed in 1994 by the Company
against Pfizer. In connection with a collaborative research agreement the Company entered into with Pfizer in 1991, Pfizer purchased
shares of the Company’s common stock. Under the terms of the settlement agreement, at the option of either the Company or Pfizer,
milestone and royalty payments owed to the Company can be satisfied by Pfizer by transferring to the Company shares of the Company’s
common stock at an exchange ratio of $74.25 per share, for revenue related to lasofoxifene and drolofoxifene. The remaining common
stock issued and outstanding to Pfizer following the settlement was reclassified as common stock subject to conditional redemption
(between liabilities and equity) since Pfizer has the option to settle milestone and royalties payments owed to the Company with the
Company’s shares, and such option is not within the Company’s control. The remaining shares of the Company’s common stock that could
be redeemed totaled 112,371 and are reflected at the exchange ratio price of $74.25. Pfizer has notified Ligand that the development of the
two compounds covered under the 1996 settlement agreement have been terminated and thus the Company reclassified the shares and the
current carrying amount of $8.3 million to permanent equity in the first quarter of 2012.
13. Income Taxes
At December 31, 2012, the Company had federal net operating loss carryforwards set to expire through 2031 of $554.9 million and
$185.1 million of state net operating loss carryforwards. The Company also has $17.2 million of federal research and development credit
carryforwards, $0.7 million of which expired at the end of 2012, with the remainder expiring through 2027, leaving $16.5 million
remaining going into 2013. The Company has $12.4 million of California and New Jersey research and development credit carryforwards
that have no expiration date.
Sections 382 and 383 of the U.S. tax code imposes limitations (“382 and 383 limitations”) on the annual utilization of operating loss
and credit carryforwards whenever a greater than fifty percent change in the ownership of a company occurs within a three year period. In
addition to the annual limitations on operating loss and credit carryforwards, Section 382 can also restrict the utilization of certain post
change losses if the tax basis in assets exceeds the fair value of assets (“net unrealized built in loss”) at the date of an ownership change.
Companies with operating loss and credit carryforwards are required to test the cumulative three year change whenever there is an equity
transaction that impacts the ownership of holders of more than
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five percent of the Company’s stock. During 2012, the Company completed an analysis through December 31, 2011 of both its prior
ownership changes as well as the ownerships changes that occurred with respect to the majority of its acquired subsidiaries. As a result of
the analysis, it was determined that the Company had larger available net operating losses and credit carryforwards than previously
estimated and that no net unrealized built in losses existed at any of the ownership change dates. Based upon these findings, the Company
was able to recognize additional operating loss carryforwards and other deferred tax assets that previously were thought to be limited. The
additional deferred tax assets were recognized up to the extent of allowable 382 and 383 limitations prior to being subject to valuation
allowance considerations. Any deferred tax assets which would have expired solely as a result of the 382 and 383 limitations were removed
from the Company’s deferred tax assets. Future changes in the ownership of the Company could place additional restrictions on the
Company’s ability to utilize operating loss and credit carryforwards arising through December 31, 2012.
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The components of the income tax benefit for continuing operations are as follows (in thousands):
Current Benefit:
Federal
State
Deferred Benefit:
Federal
State
Year Ended December 31,
2012
2011
2010
$
3
16
19
(913)
(297)
(1,191)
520 $
139
659
(10,803)
(3,126)
(13,270) $
(27,685)
—
(27,685)
25,068
—
(2,617)
Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2012 and 2011 are shown below. A
valuation allowance has been recognized to offset the net deferred tax assets as management believes realization of such assets is uncertain
as of December 31, 2012, 2011, and 2010. The change in valuation allowance increased $41.8 million in 2012, decreased $15.4 million for
2011 and increased $30.6 million for 2010.
Deferred assets:
Net operating loss carryforwards
Research and AMT credit carryforwards
Fixed assets and intangibles
Accrued expenses
Contingent liabilities
Deferred revenue
Present value of AVINZA royalties
Organon termination asset
Organon termination liability
Organon royalty obligation
Deferred rent
Lease termination costs
Capital loss carryforwards
Other
Valuation allowance for deferred tax assets
Net deferred tax assets
Deferred tax liabilities:
Identified intangibles
Identified indefinite lived intangibles
Total
December 31,
2012
2011
(in thousands)
198,445 $
27,169
23,763
1,366
1,779
1,013
10,836
(4,503)
4,503
861
2,635
—
298
1,844
270,009
(254,870)
15,139 $
(15,139) $
(2,298)
(2,298) $
164,049
22,163
21,674
1,467
529
—
13,259
(11,012)
11,012
582
3,770
369
501
2,620
230,983
(213,102)
17,881
(17,881)
(1,993)
(1,993)
$
$
$
$
For 2012 and 2011, stock option deductions did not impact the valuation allowance through paid-in capital.
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Table of Contents
A reconciliation of income taxes from continuing operations to the amount computed by applying the statutory federal income tax
rate to the net loss from continuing operations is summarized as follows:
Amounts computed at statutory federal rate
State taxes net of federal benefit
Meals & entertainment
Acquisition related transaction costs
In process R&D
Therapeutic grant
Imputed interest
Roche collaboration
Contingent value rights
Stock-based compensation
Expired NOLs
Expired research and development credits
Change in uncertain tax positions
Rate change for changes in state law
Increase in deferred tax assets from completion of 382 analysis
Change in valuation allowance
Other
Years Ended December 31,
2012
2011
2010
$
$
1,317 $
196
(8)
—
—
—
(259)
—
695
(312)
(6,847)
(1,984)
830
(3,388)
53,257
(41,768)
(538)
1,191 $
1,204 $
(2)
(9)
(37)
—
—
(255)
—
(601)
(597)
(678)
(1,200)
—
—
—
15,486
(41)
13,270 $
5,236
(2)
(6)
—
(451)
665
(321)
(1,437)
3,108
(510)
(678)
(543)
28,108
—
—
(30,557)
5
2,617
The Company accounts for income taxes by evaluating a probability threshold that a tax position must meet before a financial
statement benefit is recognized. The minimum threshold is a tax position that is more likely than not to be sustained upon examination by
the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the
position. The Company’s remaining liabilities for uncertain tax positions are presented net of the deferred tax asset balances on the
accompanying consolidated balance sheet.
A reconciliation of the amount of unrecognized tax benefits at December 31, 2012 and 2011 is as follows (in thousands):
Balance at December 31, 2010
Additions based on tax positions related to the current year
Reductions for tax positions of prior years
Balance at December 31, 2011
Additions based on tax positions related to the current year
Reductions for tax positions of prior years
Balance at December 31, 2012
$
$
8,821
296
(211)
8,906
38
(877)
8,067
Included in the balance of unrecognized tax benefits at December 31, 2012 is $8.1 million of tax benefits that, if recognized would
result in adjustments to the related deferred tax assets and valuation allowance and not affect the Company’s effective tax.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2012,
there was no accrued interest related to uncertain tax positions. The Company files income tax returns in the United States and in various
state jurisdictions with varying statutes of limitations. The federal statute of limitation remains open for the 2009 tax year to present. The
state income tax returns generally remain open for the 2008 tax years through present.
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Table of Contents
14. Summary of Unaudited Quarterly Financial Information
The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 2012 and 2011 (in
thousands).
2012
Total revenues
Total operating costs and expenses
Income tax benefit (expense)
Income (loss) from continuing operations
Discontinued operations
Net income (loss)
Basic and diluted per share amounts:
Income (loss) from continuing operations
Discontinued operations
Net income (loss)
Weighted average shares—basic
Weighted average shares—diluted
2011
Total revenues
Total operating costs and expenses
Income tax benefit (expense)
Income (loss) from continuing operations
Discontinued operations
Net income (loss)
Basic and diluted per share amounts:
Income (loss) from continuing operations
Discontinued operations
Net income (loss)
Weighted average shares—basic
Weighted average shares—diluted
15. Subsequent Events
March 31
June 30
September 30
December 31
Quarter ended
$
$
$
$
$
$
5,636 $
6,401
35
(738)
1,871
1,133 $
(0.04)
0.10
0.06 $
19,709
19,739
3,896 $
5,805
13,730
9,621
4
9,625 $
0.49
—
0.49 $
5,742 $
7,472
(338)
(4,328)
1,799
(2,529) $
(0.22)
0.09
(0.13) $
19,749
19,749
7,463 $
8,699
(141)
(422)
—
(422) $
(0.02)
—
(0.02) $
19,623
19,623
19,650
19,650
6,375 $
7,697
(142)
(194)
—
(194) $
(0.01)
—
(0.01) $
19,918
19,918
5,741 $
9,416
(22)
(4,178)
—
(4,178) $
(0.21)
—
(0.21) $
19,673
19,673
13,635
9,244
1,636
2,586
(1,523)
1,063
0.13
(0.08)
0.05
20,035
20,124
12,937
8,517
(297)
4,690
—
4,690
0.24
—
0.24
19,675
19,738
In February 2013, the Company received a $1.4 million milestone payment from Retrophin, Inc. The Company will remit $0.2
million to former license holders under the terms of a previous license agreement for RE-021.
In March 2013, the Company entered into a License Agreement with Spectrum Pharmaceuticals, Inc. (“Spectrum”). Under the
License Agreement, the Company granted to Spectrum an exclusive, nontransferable, worldwide license to such intellectual property rights
that will enable Spectrum to develop and potentially commercialize Captisol-enabled® propylene glycol-free melphalan.
Contemporaneously with the entry into the license agreement, the Company entered into a supply agreement to provide Captisol to
Spectrum. Under the Supply Agreement, Spectrum agreed to purchase its Captisol requirements for the development of the compound
contemplated by the license agreement, as well as any Captisol required for any product that is successfully commercialized. Additionally,
the Company is entitled to receive a non-refundable license issuance fee of $3 million and is eligible to receive over $50 million in
potential milestones. The Company is also eligible to receive significant double-digit royalties on worldwide net sales of any products that
are successfully commercialized. Under the terms of the agreement, Spectrum will immediately assume responsibility for the ongoing
pivotal clinical trial, which is currently enrolling patients.
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Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
(a) Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial
officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of the end of the period
covered by this report, December 31, 2012, which we refer to as the Evaluation Date.
As a result of material weaknesses in our internal control over financial reporting relating to the accounting for non-routine
transactions and the controls over the determination of fair value of contingent liabilities, management has reassessed the effectiveness of
our disclosure controls and procedures and have determined that our disclosure controls and procedures were not effective as of
December 31, 2012. Despite the material weaknesses in our internal control, management believes no material inaccuracies or omissions of
fact exist in this annual report.
Remediation Plan. As a result of the material weaknesses associated with non-routine transactions, we have added a corporate controller to
our finance and accounting staff. While we had processes to identify and intelligently apply accounting standards to complex transactions,
we did not have adequate numbers of highly skilled accountants to provide for a detail analysis, documentation and review of such
transactions. Additionally, we plan to enhance our controls over the determination of the fair value of contingent liabilities by including a
formal review of mathematical calculations and completeness of such calculations. These material weaknesses prevented us from properly
reporting the financial information for previous interim and annual periods, and we have filed restated 10-Q and 10-K reports for the
applicable periods. Management will continue to review and make necessary changes to the overall design of its internal control
environment, as well as to policies and procedures to improve the overall effectiveness of internal control over financial reporting.
The material weaknesses will not be remediated until the applicable remedial procedures are tested and management has concluded
that the procedures and controls are operating effectively.
Changes in Internal Controls. Except as described above, there have been no changes during the last fiscal quarter in our internal control
over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
(b) Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.
Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for
external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over
financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable
assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted
accounting principles; providing reasonable assurance that receipts and expenditures are made in accordance with our management and
directors; and providing reasonable assurance that
unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be
prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to
provide absolute assurance that a misstatement of our financial statements would be prevented or detected.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial
Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework established
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) as set forth in Internal Control-Integrated
Framework. Based on our evaluation under the framework in Internal Control - Integrated Framework, the Audit Committee, after
consultation with our management concluded that our internal controls over financial reporting were ineffective as of December 31, 2012.
Material weaknesses were identified relating to the accounting for non-routine transactions and the controls over the determination of the
fair value of contingent liabilities which led to a
71
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misstatement of acquisition-related costs and contingent liabilities related to the acquisition of CyDex in our interim and annual financial
statements. We enhanced our processes with the addition of a corporate controller during the third quarter of 2011 with the ability to
research and properly apply complex accounting standards. Additionally, we also plan to enhance our controls over the determination of
the fair value of contingent liabilities by including a formal review of mathematical calculations and completeness of such calculations. We
will continue to review the updated control structure to ensure our plan is effective in remediating the material weaknesses identified.
Grant Thornton LLP, the Company’s independent registered public accountants, has audited the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2012, based on the COSO criteria; their report is included in Item 9A.
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Board of Directors and Shareholders
Ligand Pharmaceuticals Incorporated
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the internal control over financial report of Ligand Pharmaceuticals Incorporated (the “Company”) as of December 31,
2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management's Report on Internal Control over Financial Reporting (“Management's Report”). Our responsibility is to express an opinion
on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected
on a timely basis. The following material weakness has been identified and included in management's assessment. The Company identified
material weaknesses in accounting for significant non-routine transactions and the controls over the determination of the fair value of
contingent liabilities.
In our opinion, because of the material weaknesses described above on the achievement of the objectives of the control criteria, Ligand
Pharmaceuticals Incorporated has not maintained effective internal control over financial reporting as of December 31, 2012, based on
criteria established in Internal Control-Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements of the Company as of and for the year ended December 31, 2012. The material weakness identified above
was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2012 consolidated financial
statements, and this report does not affect our report dated March 14, 2013, which expressed an unqualified opinion on those financial
statements.
/s/ GRANT THORNTON LLP
San Diego, California
March 14, 2013
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Table of Contents
Part III
Item 10.
Directors, Executive Officers and Corporate Governance
Code of Conduct
The Board of Directors has adopted a Code of Conduct and Ethics Policy (“Code of Conduct”) that applies to all officers, directors
and employees. The Company will promptly disclose any material amendment or waiver to the Code of Conduct which affects any
corporate officer. The Code of Conduct was filed with the SEC as an exhibit to our report on Form 10-K for the year ended December 31,
2003, and can be accessed via our website (http://www.ligand.com), Corporate Overview page. You may also request a free copy by
writing to: Investor Relations, Ligand Pharmaceuticals Incorporated, 11119 North Torrey Pines Road, Suite 200, La Jolla, CA 92037.
The other information under Item 10 is hereby incorporated by reference from Ligand’s Definitive Proxy Statement to be filed with
the Securities and Exchange Commission on or prior to April 30, 2013.
Item 11.
Executive Compensation
Item 11 is hereby incorporated by reference from Ligand’s Definitive Proxy Statement to be filed with the Securities and Exchange
Commission on or prior to April 30, 2013.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 12 is hereby incorporated by reference from Ligand’s Definitive Proxy Statement to be filed with the Securities and Exchange
Commission on or prior to April 30, 2013.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 13 is hereby incorporated by reference from Ligand’s Definitive Proxy Statement to be filed with the Securities and Exchange
Commission on or prior to April 30, 2013.
Item 14.
Principal Accountant Fees and Services
Item 14 is hereby incorporated by reference from Ligand’s Definitive Proxy Statement to be filed with the Securities and Exchange
Commission on or prior to April 30, 2013.
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PART IV
Item 15.
Exhibits and Financial Statement Schedule
(a) The following documents are included as part of this Annual Report on Form 10-K.
(1) Financial statements
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Equity (Deficit) and Comprehensive Income (Loss)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
37
38
39
40
41
42
45
(2) Schedules not included herein have been omitted because they are not applicable or the required information is in the
consolidated financial statements or notes thereto.
(3) The following exhibits are filed as part of this Form 10-K and this list includes the Exhibit Index.
Exhibit
Number
2.1(36)
2.2(52)
2.3(56)
2.4(56)
2.5(54)
2.6(53)
2.7(57)
2.8(55)
Description
Agreement and Plan of Merger, dated as of September 24, 2008, by and among Ligand Pharmaceuticals Incorporated,
Pharmacopeia, Inc., Margaux Acquisition Corp. and Latour Acquisition, LLC. (Exhibit 2.1).
Agreement and Plan of Merger, by and among the Company, Neurogen Corporation and Neon Signal, LLC, dated as
of August 23, 2009 (Filed as Exhibit 10.1).
Amendment to Agreement and Plan of Merger, by and among the Company, Neurogen Corporation, and Neon Signal,
LLC, dated September 18, 2009 (Filed as Exhibit 10.1).
Amendment No. 2 to Agreement and Plan of Merger, by and among the Company, Neurogen Corporation, and Neon
Signal, LLC, dated November 2, 2009 (Filed as Exhibit 10.2).
Amendment No. 3 to Agreement and Plan of Merger, by and among the Company, Neurogen Corporation, and Neon
Signal, LLC, dated November 2, 2009 (Filed as Exhibit 10.2).
Certificate of Merger for acquisition of Neurogen Corporation (Filed as Exhibit 2.1).
Agreement and Plan of Merger, dated as of October 26, 2009, by and among the Company, Metabasis Therapeutics,
Inc., and Moonstone Acquisition, Inc. (Filed as Exhibit 10.1).
Amendment to Agreement and Plan of Merger, by and among the Company, Metabasis Therapeutics, Inc., Moonstone
Acquisition, Inc., and David F. Hale as Stockholders’ Representative, dated November 25, 2009
2.9(63)
Certificate of Merger for acquisition of Metabasis Therapeutics, Inc. dated January 27, 2010 (Filed as Exhibit 2.1).
2.10(68)
Certificate of Merger, dated and filed January 24, 2011 (Filed as Exhibit 2.1).
2.11(68)
3.1(1)
3.2(1)
3.3(2)
3.4(12)
Agreement and Plan of Merger, by and among the Company, CyDex Pharmaceuticals, Inc., and Caymus Acquisition,
Inc., dated January 14, 2011 (Filed as Exhibit 10.1).
Amended and Restated Certificate of Incorporation of the Company. (Filed as Exhibit 3.2).
Bylaws of the Company, as amended. (Filed as Exhibit 3.3).
Amended Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock of
the Company.
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company dated June 14,
2000.
75
Table of Contents
Exhibit
Number
3.5(3)
3.6(20)
3.7(34)
3.8(67)
4.1(4)
4.2(27)
10.1(4)
10.2(4)
10.3(4)
10.4(4)
10.5(4)
10.6(4)
10.7(8)
10.8(9)
10.9(5)
10.10(10)
10.11(11)
10.12(6)
10.13(7)
10.14(7)
10.15(13)
10.16(14)
10.17(15)
10.18(15)
10.19(15)
Description
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company dated September
30, 2004.
Amendment to the Bylaws of the Company dated November 13, 2005. (Filed as Exhibit 3.1).
Amendment of Bylaws of the Company dated December 4, 2007. (Filed as Exhibit 3.1).
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company dated November
17, 2010 (Filed as Exhibit 3.1).
Specimen stock certificate for shares of Common Stock of the Company.
2006 Preferred Shares Rights Agreement, by and between Ligand Pharmaceuticals Incorporated and Mellon Investor
Services LLC, dated as of October 13, 2006. (Filed as Exhibit 4.1)
Agreement, dated May 1, 1991, between the Company and Pfizer Inc (with certain confidential portions omitted).
License Agreement, dated January 5, 1990, between the Company and the University of North Carolina at Chapel Hill
(with certain confidential portions omitted).
Form of Indemnification Agreement between the Company and each of its directors.
Form of Indemnification Agreement between the Company and each of its officers.
Stock Purchase Agreement, dated September 9, 1992, between the Company and Glaxo, Inc.
Research and Development Agreement, dated September 9, 1992, between the Company and Glaxo, Inc. (with certain
confidential portions omitted).
Supplementary Agreement, dated October 1, 1993, between the Company and Pfizer, Inc. to Agreement, dated May 1,
1991.
Option Agreement, dated September 2, 1994, between the Company and American Home Products Corporation, as
represented by its Wyeth-Ayerst Research Division (with certain confidential portions omitted). (Filed as Exhibit
10.80).
Research, Development and License Agreement, dated December 29, 1994, between SmithKline Beecham
Corporation and the Company (with certain confidential portions omitted).
Lease, dated July 6, 1994, between the Company and Chevron/Nexus partnership, First Amendment to lease dated
July 6, 1994.
Settlement Agreement and Mutual Release of all Claims, signed April 20, 1996, between the Company and Pfizer, Inc.
(with certain confidential portions omitted).
Letter of Agreement dated September 28, 1998 among the Company, Elan Corporation, plc and Elan International
Services, Ltd. (with certain confidential portions omitted), (Filed as Exhibit 10.5).
Stock Purchase Agreement by and between the Company and Warner-Lambert Company dated September 1, 1999
(with certain confidential portions omitted). (Filed as Exhibit 10.2).
License Agreement effective June 30, 1999 by and between the Company and X-Ceptor Therapeutics, Inc. (with
certain confidential portions omitted). (Filed as Exhibit 10.7).
Purchase Agreement, dated March 6, 2002, between the Company and Pharmaceutical Royalties International
(Cayman) Ltd.
Amendment Number 1 to Purchase Agreement, dated July 29, 2002, between the Company and Pharmaceutical
Royalties International (Cayman) Ltd.
Amended and Restated License and Supply Agreement, dated December 6, 2002, between the Company, Elan
Corporation, plc and Elan Management Limited (with certain confidential portions omitted).
Amendment Number 1 to Amended and Restated Registration Rights Agreement, dated November 12, 2002, between
the Company and Elan Corporation plc and Elan International Services, Ltd.
Second Amendment to Purchase Agreement, dated December 19, 2002, between the Company and Pharmaceuticals
Royalties International (Cayman) Ltd.
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Table of Contents
Exhibit
Number
10.20(15)
10.21(15)
10.22(16)
Description
Amendment Number 3 to Purchase Agreement, dated December 30, 2002, between the Company and Pharmaceuticals
Royalties International (Cayman) Ltd. (with certain confidential portions omitted).
Purchase Agreement, dated December 30, 2002, between the Company and Pharmaceuticals Royalties International
(Cayman) Ltd. (with certain confidential portions omitted).
Co-Promotion Agreement, dated January 1, 2003, by and between the Company and Organon Pharmaceuticals USA
Inc. (with certain confidential portions omitted).
10.23(17)
Amendment No. 2 to Amended and Restated Registration Rights Agreement, dated June 25, 2003.
10.24(18)
10.25(18)
Option Agreement Between Investors Trust & Custodial Services (Ireland) Ltd., as Trustee for Royalty Pharma,
Royalty Pharma Finance Trust and the Company, dated October 1, 2003 (with certain confidential portions omitted).
Amendment to Purchase Agreement Between Royalty Pharma Finance Trust and the Company, dated October 1, 2003
(with certain confidential portions omitted).
10.26(22)
2002 Stock Incentive Plan (as amended and restated through March 9, 2006).
10.27(18)
2002 Employee Stock Purchase Plan, dated July 1, 2002 (as amended through June 30, 2003).
10.28(18)
Form of Stock Option Agreement.
10.29(18)
Form of Employee Stock Purchase Plan Stock Purchase Agreement.
10.30(18)
Form of Automatic Stock Option Agreement.
10.31(18)
Form of Director Fee Stock Option Agreement.
10.32(19)
Manufacturing and Packaging Agreement, dated February 13, 2004 between Cardinal Health PTS, LLC and the
Company (with certain confidential portions omitted).
10.33(21)
Form of Distribution, Storage, Data and Inventory Management Services Agreement.
10.34(21)
10.35(21)
Amendment Number 1 to the Option Agreement between Investors Trust & Custodial Services (Ireland) Ltd., solely in
its capacity as Trustee for Royalty Pharma, Royalty Pharma Finance Trust and Ligand Pharmaceuticals Incorporated
dated November 5, 2004.
Amendment to Purchase Agreement between Royalty Pharma Finance Trust, Ligand Pharmaceuticals Incorporated &
Investors Trust and Custodial Services (Ireland) Ltd., solely in its capacity as Trustee of Royalty Pharma dated
November 5, 2004.
10.36(22)
Amended and Restated Research, Development and License Agreement dated as of December 1, 2005 between the
Company and Wyeth (formerly American Home Products Corporation) (with certain confidential portions omitted).
10.37(22)
Form of Stock Issuance Agreement for non-employee directors.
10.38(22)
10.39(23)
10.40(24)
10.41(25)
10.42(26)
10.43(25)
Form of Amended and Restated Director Fee Stock Option Agreement for 2005 award to Henry Blissenbach, John
Groom, Irving Johnson, John Kozarich, Daniel Loeb, Carl Peck, Jeffrey Perry, Brigette Roberts and Michael Rocca.
Termination and Return of Rights Agreement between Ligand Pharmaceuticals Incorporated and Organon USA Inc.
dated as of January 1, 2006
First Amendment to the Manufacturing and Packaging Agreement between Cardinal Health PTS, LLC and Ligand
Pharmaceuticals Incorporated (with certain confidential portions omitted).
Purchase Agreement, by and between Ligand Pharmaceuticals Incorporated, King Pharmaceuticals, Inc. and King
Pharmaceuticals Research and Development, Inc., dated as of September 6, 2006.
Contract Sales Force Agreement, by and between Ligand Pharmaceuticals Incorporated and King Pharmaceuticals,
Inc. dated as of September 6, 2006.
Purchase Agreement, by and among Ligand Pharmaceuticals Incorporated, Seragen, Inc., Eisai Inc. and Eisai Co.,
Ltd., dated as of September 7, 2006.
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Exhibit
Number
10.44(31)
10.45(31)
Description
Stipulation of Settlement by and among Plaintiffs and Ligand Pharmaceuticals, Inc. et al., In re Ligand
Pharmaceuticals Inc. Securities Litigation, United States District Court, District of Southern California, dated as of
June 28, 2006, approved by Order dated October 16, 2006.
Stipulation of Settlement by and among Plaintiffs and Ligand Pharmaceuticals, Inc. et al., In re Ligand
Pharmaceuticals Inc. Derivative Litigation, Superior Court of California, County of San Diego, dated as of September
19, 2006, approved by Order dated October 12, 2006.
10.46(31)
Loan Agreement by and between Ligand Pharmaceuticals Incorporated and King Pharmaceuticals, 303 Inc. dated as
of October 12, 2006.
10.47(29)
Letter Agreement by and between Ligand and King Pharmaceuticals, Inc. effective as of December 29, 2006.
10.48(29)
10.49(28)
Amendment Number 1 to Purchase Agreement, Contract Sales Force Agreement and Confidentiality Agreement by
and between Ligand and King Pharmaceuticals, Inc. effective as of November 30, 2006.
Purchase Agreement and Escrow Instructions by and between Nexus Equity VI, LLC, a California Limited Liability
Company, and Ligand Pharmaceuticals Incorporated, a Delaware Corporation and Slough Estates USA Inc., a
Delaware corporation dated October 25, 2006.
10.50(31)
2006 Employee Severance Plan dated as of October 4, 2006.
10.51(31)
Form of Letter Agreement regarding Change of Control Severance Benefits between the Company and its officers.
10.52(29)
Letter Agreement by and between the Company and John L. Higgins dated as of January 10, 2007.
10.53(30)
10.54(32)
Amendment Number 2 to Purchase Agreement, by and between the Company and King Pharmaceuticals, Inc.
effective as of February 26, 2007.
Letter Agreement by and between the Company and John P. Sharp dated as of March 30, 2007. (Filed as Exhibit
10.1).
10.55(33)
Form of Executive Officer Change in Control Severance Agreement. (Filed as Exhibit 10.1).
10.56(35)
10.57(37)
10.58(37)
Sublease Agreement between the Company and eBIOSCIENCE, INC., effective as of December 13, 2007. (Filed as
Exhibit 10.1).
Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement under the Company’s 2002 Stock
Incentive Plan. (Filed as Exhibit 10.318).
Form of Amendment to Restricted Stock Agreement for executive officers other than Chief Executive Officer. (Filed
as Exhibit 10.319).
10.59(37)
Amendment to Restricted Stock Agreement between the Company and John L. Higgins. (Filed as Exhibit 10.320).
10.60(47)
10.61(47)
10.62(39)
Collaboration and License Agreement, dated as of July 9, 2003 and effective August 8, 2003, between Pharmacopeia,
Inc. and Schering-Plough Ltd. (with certain confidential portions omitted).
Collaboration and License Agreement, dated as of July 9, 2003 and effective August 8, 2003, between Pharmacopeia,
Inc. and Schering Corporation (with certain confidential portions omitted).
Amendment No. 1, dated July 27, 2006, to the Collaboration and License Agreements, effective as of July 9, 2003,
between (i) Pharmacopeia, Inc. and Schering Corporation and (ii) Pharmacopeia, Inc. and Schering-Plough Ltd. (Filed
as Exhibit 10.1).
10.63(47)
Lease, dated August 20, 2003, between Pharmacopeia, Inc. and Eastpark at 8A (Building 1000).
10.64(40)
Amendment to Lease, dated September 10, 2007, between Eastpark at 8A and Pharmacopeia, Inc. (Building 1000).
(Filed as Exhibit 10.1).
10.65(47)
Lease, dated August 20, 2003, between Pharmacopeia, Inc. and Eastpark at 8A (Building 3000).
10.66(40)
10.67(41)
Amendment to Lease, dated April 18, 2007, between Eastpark at 8A and Pharmacopeia, Inc. (Building 3000). (Filed
as Exhibit 10.2).
License Agreement, dated as of March 27, 2006, between Pharmacopeia, Inc. and Bristol-Myers Squibb Company
(Filed as Exhibit 10.2).
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Exhibit
Number
10.68(42)
10.69(43)
10.70(44)
10.71(45)
10.72(38)
Description
Collaboration and License Agreement between Pharmacopeia, Inc. and Cephalon, Inc., dated May 18, 2006. (Filed as
Exhibit 10.1).
License Agreement, amended and restated as of July 1, 2003, among The Trustees of Columbia University in the City
of New York, Cold Spring Harbor Laboratory and Pharmacopeia, Inc. (Filed as Exhibit 10.2).
Collaboration and License Agreement, amended and restated effective as of February 8, 2007, between Pharmacopeia,
Inc. and N.V. Organon. (Filed as Exhibit 10.1).
License Agreement, dated October 11, 2007, between Bristol-Myers Squibb Company and Pharmacopeia, Inc. (Filed
as Exhibit 10.45).
Contingent Value Rights Agreement, dated December 23, 2008, among the Company, Pharmacopeia, Inc. and Mellon
Investor Services LLC. (Filed as Exhibit 10.1).
10.73(37)
Amended and Restated Severance Plan, dated December 20, 2008, of the Company. (Filed as Exhibit 10.2).
10.74(46)
10.75(47)
10.76(48)
10.77(49)
10.78(49)
10.79(50)
Settlement Agreement and Mutual Release of all Claims, by and between the Company and The Salk Institute for
Biological Studies, dated as of September 2, 2008 (Filed as Exhibit 10.316).
License Agreement, dated of December 17, 2008, between the Company and SmithKline Beecham Corporation, doing
business as GlaxoSmithKline (with certain confidential portions omitted) (Filed as Exhibit 10.346).
Settlement Agreement and Mutual Release, by and between the Company and The Rockefeller University, dated as of
February 11, 2009 (Filed as Exhibit 10.318).
Exclusive Patent License Agreement, by and between Glycomed, Inc., a wholly owned subsidiary of the Company and
ParinGenix Inc, dated as of June 18, 2009 (Filed as Exhibit 10.321).
Amended and Restated Director Compensation and Stock Ownership Policy, effective as of April 16, 2009 (Filed as
Exhibit 10.322).
Research Collaboration Termination Agreement, between the Company and N.V. Organon, dated as of July 29, 2009
(Filed as Exhibit 10.323).
10.80(51)
Lease, between the Company and HCP TPSP, LLC, dated August 7, 2009 (Filed as Exhibit 10.321).
10.81(51)
Lease Termination Agreement, between the Company and TPSC IX, LLC, dated August 7, 2009 (Filed as Exhibit
10.322).
10.82(53)
H3 Contingent Value Rights Agreement (Filed as Exhibit 10.3).
10.83(53)
Merck Contingent Value Rights Agreement (Filed as Exhibit 10.4).
10.84(58)
10.85(59)
10.86(60)
10.87(61)
10.88(61)
10.89(62)
10.90(62)
10.91(63)
Collaborative Research Agreement and License and Royalty Agreement between Neurogen Corporation and Pfizer
Inc, dated as of January 1, 1992 (Filed as Exhibit 10.35) (File No. 000-18311).
Collaborative Research Agreement and License and Royalty Agreement between Neurogen Corporation and Pfizer
Inc, dated as of July 1, 1994 (Filed as Exhibit 10.1) (File No. 000-18311).
Collaboration and License Agreement and Screening Agreement between Neurogen Corporation and Schering-Plough
Corporation (Filed as Exhibit 10.1) (File No. 000-18311).
Collaborative Research Agreement between Neurogen Corporation and Pfizer dated as of November 1, 1995 (Filed as
Exhibit 10.1) (File No. 000-18311).
Development and Commercialization Agreement between Neurogen Corporation and Pfizer dated as of November 1,
1995 (Filed as Exhibit 10.2) (File No. 000-18311).
Collaboration and License Agreement dated as of November 24, 2003 between Neurogen Corporation and Merck
Sharp & Dohme Limited (Filed as Exhibit 10.43) (File No. 000-18311).
Stock Purchase Agreement dated as of November 24, 2003 between Neurogen Corporation and Merck Sharp &
Dohme Limited (Filed as Exhibit 10.43) (File No. 000-18311).
TR Beta Contingent Value Rights Agreement, dated January 27, 2010, among the Company, Metabasis Therapeutics,
Inc., David F. Hale and Mellon Investor Services LLC. (Filed as Exhibit 10.2).
79
Table of Contents
Exhibit
Number
10.92(63)
10.93(63)
10.94(69)
10.95(64)
10.96(65)
10.97(66)
10.98(68)
10.99(68)
10.100(71)
10.101(71)
10.102(71)
10.103(71)
10.104(71)
10.105(71)
10.106(71)
10.107(71)
10.108(71)
10.109(71)
10.110(71)
10.111(71)
Description
Glucagon Contingent Value Rights Agreement, dated January 27, 2010, among the Company, Metabasis
Therapeutics, Inc., David F. Hale and Mellon Investor Services LLC. (Filed as Exhibit 10.3).
General Contingent Value Rights Agreement, dated January 27, 2010, among the Company, Metabasis Therapeutics,
Inc., David F. Hale and Mellon Investor Services LLC. (Filed as Exhibit 10.4).
Amendment of “General” Contingent Value Rights Agreement, dated January 26, 2011 [original agreement was dated
January 27, 2010] (filed as Exhibit 10.1).
Purchase and Sale Agreement, dated May 18, 2010, between the Company and The Genaera Liquidating Trust (Filed
as Exhibit 10.1).
Purchase Agreement, dated May 20, 2010, between the Company and Biotechnology Value Fund, L.P., on its own
behalf and on behalf of Biotechnology Valude Fund II, L.P. and Investment 10, L.L.C. (Filed as Exhibit 10.1).
Asset Purchase Agreement, dated as of July 30, 2010, between Wyeth LLC, Pharmacopeia, Inc. and the Company
(Filed as Exhibit 10.1).
Contingent Value Rights Agreement, by and among the Company, CyDex Pharmaceuticals, Inc., and Allen K.
Roberson and David Poltack, acting jointly as Shareholders’ Representative, dated January 14, 2011 (Filed as Exhibit
10.2).
Loan and Security Agreement, by and among the Company, its subsidiaries and Oxford Finance Corporation, dated
January 24, 2011 (Filed as Exhibit 10.3).
Supply Agreement, dated December 20, 2002, between CyDex and Hovione LLC, Hovione FarmaCiencia S.A.,
Hovione Pharmascience Limited, and Hovione International Limited (with certain confidential portions omitted)
First Amendment to the Supply Agreement, dated July 29, 2005, between CyDex and Hovione LLC, Hovione
FarmaCiencia S.A., Hovione Pharmascience Limited, and Hovione International Limited (with certain confidential
portions omitted)
2nd Amendment to the Supply Agreement of December 20, 2002 and amended July 29, 2005, dated March 1, 2007,
between CyDex and Hovione LLC, Hovione FarmaCiencia S.A., Hovione Pharmascience Limited, and Hovione
International Limited
3rd Amendment to the Supply Agreement of December 20, 2002 and amended July 29, 2005 and March 1, 2007, dated
January 25, 2008, between CyDex and Hovione LLC, Hovione FarmaCiencia S.A., Hovione Pharmascience Limited,
and Hovione International Limited (with certain confidential portions omitted)
4th Amendment to the Supply Agreement of December 20, 2002 and amended July 29, 2005, March 1, 2007, and
January 25, 2008, amended September 28, 2009 between CyDex and Hovione LLC, Hovione FarmaCiencia S.A.,
Hovione Pharmascience Limited, and Hovione International Limited (with certain confidential portions omitted)
License Agreement, dated September 3, 1993, between CyDex and The University of Kansas (with certain
confidential portions omitted)
Second Amendment to the License Agreement of September 3, 1993, dated August 4, 2004, between CyDex and The
University of Kansas (with certain confidential portions omitted)
Exclusive License Agreement, dated June 4, 1996, between Pfizer, Inc. and CyDex (with certain confidential portions
omitted)
Nonexclusive License Agreement, dated June 4, 1996, between Pfizer, Inc. and CyDex (with certain confidential
portions omitted)
Addendum to Nonexclusive License Agreement of June 4, 1996, dated December 11, 2001, between CyDex and
Pfizer, Inc. (with certain confidential portions omitted)
Acknowledgement agreement, dated March 3, 2008, between CyDex and The University of Kansas (with certain
confidential portions omitted)
License Agreement, dated January 4, 2006, between CyDex and Prism Pharmaceuticals (with certain confidential
portions omitted)
80
Table of Contents
Exhibit
Number
10.112(71)
10.113(71)
10.114(71)
10.115(72)
10.116(73)
10.117(74)
10.118(75)
10.119(75)
10.120(76)
10.121(76)
10.122(76)
10.123(77)
10.124(78)
10.125(78)
10.126(77)
10.127(79)
10.128(77)
10.129(77)
10.130 (80)
10.131† (80)
10.132† (80)
10.133†(80)
10.134(80)
Description
Amendment to License Agreement, dated May 12, 2006 between CyDex and Prism Pharmaceuticals (with certain
confidential portions omitted)
Supply Agreement, dated March 5, 2007, between CyDex and Prism Pharmaceuticals (with certain confidential
portions omitted)
License and Supply Agreement, dated October 12, 2005 between CyDex and Proteolix, Inc. (with certain confidential
portions omitted)(Filed as Exhibit 10.22)(File No. 000-28298)
Amendment to General Contingent Value Rights Agreement of January 27, 2010, dated January 27, 2011 among the
Company, Metabasis Therapeutics, Inc., David F. Hale and Mellon Investor Services LLC. (Filed as Exhibit 10.1)
License Agreement, dated March 24, 2011 by and between the Company and Chiva Pharmaceuticals, Inc. (Filed as
Exhibit 10.23)
Loan and Security Agreement, by and between Ligand Pharmaceuticals Incorporated and Square 1 Bank, dated March
31, 2011 (Filed as Exhibit 10.23)
First Amendment to Loan and Security Agreement, by and between Ligand Pharmaceuticals Incorporated and Square
1 Bank, dated April 29, 2011 (Filed as Exhibit 10.1)
First Amendment to Loan and Security Agreement, by and between Ligand Pharmaceuticals Incorporated and Oxford
Finance LLC, dated April 29, 2011 (Filed as Exhibit 10.2)
License Agreement, by and between CyDex and the Medicines Company, dated June 1, 2011 (with certain
confidential portions omitted) (Filed as Exhibit 10.25)
Supply Agreement, by and between CyDex and the Medicines Company, dated June 1, 2011 (with certain confidential
portions omitted) (Filed as Exhibit 10.26)
Supply Agreement dated June 13, 2011 by and between CyDex and Merck (with certain confidential portions omitted)
(Filed as Exhibit 10.27)
First Amendment to License Agreement between the Company and Chiva Pharmaceuticals, Inc. dated as of August
31, 2011 (Filed as Exhibit 10.1)
Lease Agreement, dated September 5, 2011 between the Company and ARE-SD Region No. 24, LLC. (Filed as
Exhibit 10.1)
License Agreement, dated September 5, 2011 between the Company and ARE-3535/3565 General Atomics Court,
LLC (Filed as Exhibit 10.2)
Amendment to Lease Agreement dated November 1, 2011 between the Company and HCP TPSP, LLC (Filed as
Exhibit 10.4)
Letter Agreement, dated September 29, 2011, between the Company and Biotechnology Value Fund, L.P. (Filed as
Exhibit 10.1)
License Agreement, dated October 7, 2011, between the Company and Chiva Pharmaceuticals, Inc. (with certain
confidential portions omitted) (Filed as Exhibit 10.6)
License Agreement, dated October 13, 2011, between CyDex and SAGE Therapeutics, Inc. (with certain confidential
portions omitted) (Filed as Exhibit 10.7)
Joinder and Second Amendment, dated October 28, 2011, by and among the Company, its subsidiaries and Oxford
Finance LLC
License Agreement, dated December 16, 2011, between CyDex and Eli Lilly and Company (with certain confidential
portions omitted)
Supply Agreement, dated December 16, 2011, between CyDex and Eli Lilly and Company (with certain confidential
portions omitted)
License and Supply Agreement, dated December 22, 2011 between CyDex and Hospira, Inc. (with certain confidential
portions omitted)
Fourth Amendment to Loan and Security Agreement, by and among the Company, its subsidiaries and Oxford
Finance LLC
81
Table of Contents
Exhibit
Number
Description
10.135†
10.136†
Amended and Restated License Agreement, dated October 31, 2012, between the Company and Chiva
Pharmaceuticals, Inc. (with certain confidential portions omitted)
Settlement Agreement and Mutual Release, dated October 31, 2012, between the Company and Chiva
Pharmaceuticals, Inc. (with certain confidential portions omitted)
14.1(18)
Code of Business Conduct and Ethics.
21.1 (80)
Subsidiaries of Registrant.
23.1
24.1
31.1
31.2
32.1*
32.2*
101.1**
†
*
**
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Consent of independent registered public accounting firm-Grant Thornton LLP
Power of Attorney (See page 86).
Certification by Principal Executive Officer, Pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by Principal Financial Officer, Pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
Certification by Principal Executive Officer, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
Certification by Principal Financial Officer, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
The following financial information from the Company’s Quarterly Report on Form 10-K for the period ended
December 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance
Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Cash
Flows, and (iv) the Notes to Condensed Consolidated Financial Statements, tagged as detailed footnotes
Confidential treatment has been requested for portions of this exhibit. These portions have been omitted and submitted
separately to the Securities and Exchange Commission.
These certifications are being furnished solely to accompany this annual report pursuant to 18 U.S.C. Section 1350, and
are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be
incorporated by reference into any filing of Ligand Pharmaceuticals, Incorporated, whether made before or after the date
hereof, regardless of any general incorporation language in such filing.
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration
statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed
for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability
under these sections.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Registration Statement on Form S-4 (No. 333-58823) filed on July 9, 1998.
This exhibit was previously filed as part of and is hereby incorporated by reference to same numbered exhibit filed with
the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 1999.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed
with the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2004.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed
with the Company’s Registration Statement on Form S-1 (No. 33-47257) filed on April 16, 1992 as amended.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed
with the Registration Statement on Form S-1/S-3 (No. 33-87598 and 33-87600) filed on December 20, 1994, as amended.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Quarterly Report on Form 10-Q for the period ended September 30, 1998.
This exhibit was previously filed as part of and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Quarterly Report on Form 10-Q for the period ended September 30, 1999.
This exhibit was previously filed as part of, and are hereby incorporated by reference to the same numbered exhibit filed
with the Company’s Annual Report on Form 10-K for the year ended December 31, 1993.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Quarterly Report on Form 10-Q for the period ended September 30, 1994.
82
Table of Contents
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
(28)
(29)
(30)
(31)
(32)
(33)
(34)
(35)
(36)
(37)
This exhibit was previously filed, and is hereby incorporated by reference to the same numbered exhibit filed with the
Company’s Annual Report on Form 10-K for the year ended December 31, 1995.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed
with the Company’s Quarterly report on Form 10-Q for the period ended June 30, 1996.
This exhibit was previously filed as part of, and are hereby incorporated by reference to the same numbered exhibit filed
with the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed
with the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2002.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed
with the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2002.
This exhibit was previously filed as part of, and are hereby incorporated by reference to the same numbered exhibit filed
with the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed
with the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2003.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed
with the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2003.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed
with the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed
with the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2004.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Current Report on Form 8-K filed on November 14, 2005.
This exhibit was previously filed as part of, and are hereby incorporated by reference to the same numbered exhibit filed
with the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed
with the Company’s Registration Statement on Form S-1 (no. 333-131029) filed on January 13, 2006 as amended.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with an
Amendment to the Company’s Registration Statement on Form S-1 (No. 333-1031029) filed on February 10, 2006.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed
with the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2006.
This exhibit was previously filed as part of, and is being incorporated by reference to the numbered exhibit filed with the
Company’s Current Report Form 8-K filed on September 11, 2006.
This exhibit was previously filed as part of, and is being incorporated by reference to the numbered exhibit filed with the
Company’s Current Report Form 8-K filed on September 12, 2006.
This exhibit was previously filed as part of, and is being incorporated by reference to the numbered exhibit filed with the
Company’s Current Report Form 8-K filed on October 17, 2006.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Current Report on Form 8-K filed on October 31, 2006.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Current Report on Form 8-K filed on January 5, 2007.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Current Report on Form 8-K filed on February 28, 2007.
This exhibit was previously filed as part of, and are hereby incorporated by reference to the same numbered exhibit filed
with the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Current Report on Form 8-K filed on May 4, 2007.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Current Report on Form 8-K filed on August 22, 2007.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Current Report on Form 8-K filed on December 6, 2007.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Current Report on Form 8-K filed on December 19, 2007.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Current Report on Form 8-K filed on September 26, 2008.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed
with the Company’s Annual Report on Form 10-K for the period ended December 31, 2007.
83
Table of Contents
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(41)
(42)
(43)
(44)
(45)
(46)
(47)
(48)
(49)
(50)
(51)
(52)
(53)
(54)
(55)
(56)
(57)
(58)
(59)
(60)
(61)
(62)
(63)
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Pharmacopeia, Inc.’s Current Report on Form 8-K filed on May 3, 2004.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Pharmacopeia, Inc.’s Current Report on Form 8-K filed on August 2, 2006.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed
with the Pharmacopeia, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2007.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed
with the Pharmacopeia, Inc.’s Quarterly Report on Form 10-Q for the period ended March 31, 2006.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed
with the Pharmacopeia, Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2006.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed
with the Pharmacopeia, Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2005.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed
with the Pharmacopeia, Inc.’s Quarterly Report on Form 10-Q for the period ended March 31, 2007.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed
with the Pharmacopeia, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2007.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed
with the Pharmacopeia, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2008.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed
with the Company’s Annual Report on Form 10-K for the period ended December 31, 2008.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed
with the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2009.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed
with the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2009.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed
with the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2009.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Current Report on Form 8-K filed on August 11, 2009.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Current Report on Form 8-K filed on August 24, 2009.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Current Report on Form 8-K filed on December 24, 2009.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Current Report on Form 8-K filed on December 17, 2009.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Current Report on Form 8-K filed on December 1, 2009.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Current Report on Form 8-K filed on November 6, 2009.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Current Report on Form 8-K filed on October 28, 2009.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with
Neurogen Corporation’s Annual Report on Form 10-K for the period ended December 31, 1991.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with
Neurogen Corporation’s Quarterly Report on Form 10-Q for the period ended June 30, 1994.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with
Neurogen Corporation’s Current Report on Form 8-K filed on July 28, 1995.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with
Neurogen Corporation’s Current Report on Form 8-K filed on November 1, 1995.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with
Neurogen Corporation’s Annual Report on Form 10-K for the period ended December 31, 2003.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Current Report on Form 8-K filed on January 28, 2010.
84
Table of Contents
(64)
(65)
(66)
(67)
(68)
(69)
(70)
(71)
(72)
(73)
(74)
(75)
(76)
(77)
(78)
(79)
(80)
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Current Report on Form 8-K filed on May 24, 2010.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2010.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2010.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Current Report on Form 8-K filed on November 19, 2010.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Current Report on Form 8-K filed on January 26, 2011.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Current Report on Form 8-K filed on January 31, 2011.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with
Onyx Pharmaceuticals, Inc.’s Annual Report on Form 10-K for the period ended December 31, 2009.
This exhibit was previously filed as part of, and are hereby incorporated by reference to the same numbered exhibit filed
with the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Current Report on Form 8-K filed on January 31, 2011.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Quarterly Report on Form 10-Q for the period ended March 31 30, 2011.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Current Report on Form 8-K filed on April 4, 2011.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Current Report on Form 8-K filed on April 29, 2011.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed
with the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2011.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed
with the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2011.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Current Report on Form 8-K filed on September 9, 2011.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Current Report on Form 8-K filed on September 30, 2011.
This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the
Company’s Current Report on Form 8-K filed on February 23, 2012
85
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
LIGAND PHARMACEUTICALS INCORPORATED
By:
/S/ JOHN L. HIGGINS
John L. Higgins,
President and Chief Executive Officer
Date: March 14, 2013
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears below constitutes and appoints John L. Higgins or John P.
Sharp, his or her attorney-in-fact, with power of substitution in any and all capacities, to sign any amendments to this Annual Report on
Form 10-K, and to file the same with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that the attorney-in-fact or his or her substitute or substitutes may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/s/ JOHN L. HIGGINS
John L. Higgins
/s/ JOHN P. SHARP
John P. Sharp
/s/ JASON M. ARYEH
Jason M. Aryeh
/s/ TODD C. DAVIS
Todd C. Davis
/s/ DAVID M. KNOTT
David M. Knott
/s/ JOHN W. KOZARICH
John W. Kozarich
/s/ JOHN L. LAMATTINA
John L. LaMattina
/s/ SUNIL PATEL
Sunil Patel
/s/ STEPHEN L. SABBA
Stephen L. Sabba
Title
Date
President, Chief Executive Officer and Director
March 14, 2013
(Principal Executive Officer)
Vice President, Finance and Chief Financial Officer
March 14, 2013
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
86
March 14, 2013
March 14, 2013
March 14, 2013
March 14, 2013
March 14, 2013
March 14, 2013
March 14, 2013
CERTAIN MATERIAL (INDICATED BY AN ASTERISK) HAS BEEN OMITTED FROM THIS DOCUMENT PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Exhibit 10.135
AMENDED AND RESTATED
LICENSE AGREEMENT
This AMENDED AND RESTATED LICENSE AGREEMENT (the “Agreement”) is executed as of
October 31, 2012 (the “Amendment Execution Date” ), with an effective date of January 6, 2011 (the “ Effective
Date”) by and between Ligand Pharmaceuticals Incorporated, a corporation organized under the laws of Delaware
and having a place of business at 11119 North Torrey Pines Road, Suite 200, La Jolla, CA 92037 (“ Ligand”) and
Chiva Pharmaceuticals, Inc. (formerly known as Elite Mind Investments Limited), a corporation organized under the
laws of the Cayman Islands whose registered office is situated at Scotia Centre, 4th Floor, P.O. Box 2804, George
Town, Grand Cayman KY1-1112, Cayman Islands (“ Chiva”). Ligand and Chiva are each referred to herein by name
or, individually, as a “Party” or, collectively, as “ Parties.”
BACKGROUND
WHEREAS, Ligand and Chiva previously entered into that certain License Agreement effective as of January
6, 2011, as amended pursuant to that certain First Amendment to License Agreement dated August 31, 2011, as further
amended pursuant to that certain Second Amendment to License Agreement dated December 23, 2011 (collectively,
the “Prior Agreement”);
WHEREAS, Ligand and Chiva desire to further amend certain terms of the Prior Agreement and amend and
restate the Prior Agreement, as set forth herein;
WHEREAS, Ligand owns or has rights under certain patent rights and know-how which relate to Pradefovir,
MB07133 and HepDirect Technology (each as defined below);
WHEREAS, Chiva desires to obtain certain exclusive and non-exclusive licenses under such patent rights and
know-how for the development and commercialization of Pradefovir and MB07133 in the Field in China, and other
novel compounds in the Field in the Territory as set forth herein; and
WHEREAS, Ligand desires to grant such licenses to Chiva, all in accordance with the terms and conditions
herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements provided herein below and
other consideration, the receipt and sufficiency of which is hereby acknowledged, Ligand and Chiva hereby agree as
follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement, capitalized terms shall have the meanings indicated in this Article 1 or as specified
elsewhere in this Agreement:
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treatment has been requested with respect to the omitted portions.
Exhibit 10.135
1.1 “Affiliate” means, with respect to a Person, any Person that is controlled by, controls, or is under common
control with such first Person, as the case may be. For purposes of this Section 1.1 , the term “control” means (a) direct
or indirect ownership of [***] or more of the voting interest in the entity in question, or [***] or more interest in the
income of the entity in question; provided, however, that if local Law requires a minimum percentage of local
ownership of greater than [***], control will be established by direct or indirect beneficial ownership of [***] of the
maximum ownership percentage that may, under such local Law, be owned by foreign interests, or (b) possession,
directly or indirectly, of the power to direct or cause the direction of management or policies of the entity in question
(whether through ownership of securities or other ownership interests, by contract or otherwise).
1.2 “China” means the People’s Republic of China as in existence as of the Effective Date (including Hong
Kong, Taiwan and Macau).
1.3 “China Business Opportunity” has the meaning set forth in Section 2.7(a).
1.4 “China Negotiation Period” has the meaning set forth in Section 2.7(a).
1.5 “Chiva Indemnitees” has the meaning set forth in Section 9.2 .
1.6 “Chiva Territory” means [***].
1.7 “Claim Notice” has the meaning set forth in Section 9.3 .
1.8 “Clinical Trial” means an investigation in human subjects and/or patients intended to discover or verify
the clinical, pharmacological and/or other pharmacodynamic effects of a Licensed Product, and/or to identify any
adverse reactions to a Licensed Product, and/or to study absorption, distribution, metabolism, and/or excretion of a
Licensed Product with the objective of ascertaining its safety, activity and/or efficacy.
1.9 “Confidential Information” means any information of a confidential and proprietary nature, including
know-how, information, invention disclosures, patent applications, proprietary materials and/or technologies, economic
information, business or research strategies, trade secrets, and material embodiments thereof, disclosed by a Party to
the other Party and characterized to the receiving Party as confidential.
1.10 “Control” or “Controlled” means, with respect to any information, material or intellectual property right,
that a Party owns or has a license to such information, material or intellectual property right, as applicable, and has the
ability to grant to the other Party access to, or a license or sublicense under, such information, material or intellectual
property right as provided under the terms of this Agreement.
1.11 “Develop” or “Development” means pre-clinical and clinical research and development activities,
including toxicology and other pre-clinical development efforts, stability testing, process development, formulation
development, delivery system development, quality assurance and quality control development, statistical analysis,
clinical pharmacology, clinical
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treatment has been requested with respect to the omitted portions.
Exhibit 10.135
studies (including Clinical Trials), regulatory affairs, and Regulatory Approval and clinical study regulatory activities.
1.12 “Dispute” has the meaning set forth in Section 12.11 .
1.13 “Europe” means [***].
1.14
“Executive” shall mean for Ligand, the Chief Executive Officer of Ligand (or such individual’s
designee), and, for Chiva, the Chief Executive Officer of Chiva (or such individual’s designee). If either position is
vacant or either position does not exist, then the person having the most nearly equivalent position (or such individual’s
designee) shall be deemed to be the Executive of the relevant Party.
1.15 “FDA” means the U.S. Food and Drug Administration, or any successor agency thereto.
1.16 “FD&C Act” means the U.S. Federal Food, Drug, and Cosmetic Act (21 U.S.C. §301, et seq.), including
any amendments or supplements thereto.
1.17 “Field” means the HCC Field and the HepB Field.
1.18 “First Commercial Sale” means, with respect to each Licensed Product, the first sale of such Licensed
Product by Chiva or its Affiliates or sublicensees to a Third Party for which payment has been received in any country
in the Territory.
1.19 “Governmental Entity” means any regional, central, federal, state, provincial or local court, commission
or governmental, regulatory or administrative body, board, bureau, agency, instrumentality, authority or tribunal or any
subdivision thereof.
1.20
“HCC Compound” means any Licensed Compound other than MB07133 developed using or
incorporating HepDirect Technology, which is selected by Chiva for Development and/or commercialization by Chiva
in the HCC Field pursuant to Section 3.1.
1.21 “HCC Field” means the treatment or prevention of hepatocellular carcinoma in humans.
1.22 “HCC Product” means any product intended for use in the HCC Field that contains a HCC Compound,
whether alone or in combination with another active pharmaceutical ingredient, the manufacture, use, sale, offer for
sale, import or export of which would, but for the rights granted pursuant to Section 2.3, infringe a Valid Claim.
1.23
“HepB Compound” means any Licensed Compound other than Pradefovir developed using or
incorporating HepDirect Technology, which is selected by Chiva for use in the HepB Field pursuant to Section 3.1.
1.24 “HepB Field” means the treatment or prevention of hepatitis B virus infection in humans.
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.135
1.25 “HepB Product” means any product intended for use in the HepB Field that contains a HepB Compound,
whether alone or in combination with another active pharmaceutical ingredient, the manufacture, use, sale, offer for
sale, import, or export of which would, but for the rights granted pursuant to Section 2.3 , infringe a Valid Claim.
1.26 “HepDirect” means the proprietary prodrug technology that targets delivery of drugs to the liver by using
compositions, and methods of making and using the same, of any and all [***].
1.27 “HepDirect Business Opportunity” has the meaning set forth in Section 2.7(a).
1.28 “HepDirect Know-How” means all Know-How Controlled by Ligand or any of its Affiliates as of the
Effective Date that is (a) necessary in connection with the use of HepDirect in the Field, each in the Territory and (b)
not included in the HepDirect Patents.
1.29 “HepDirect Negotiation Period” has the meaning set forth in Section 2.7(a).
1.30 “HepDirect Patents” means those Patents Controlled by Ligand or any of its Affiliates listed in Schedule
1.30 attached hereto. For clarity, the HepDirect Patents do not include any of the Pradefovir Patents or the MB07133
Patents.
1.31 “HepDirect Technology” means the HepDirect Know-How and the HepDirect Patents.
1.32 “Improvement” means any discovery, invention, contribution, method, finding, or improvement, whether
or not patentable, and all intellectual property therein, that is conceived, reduced to practice, or otherwise developed by
or on behalf of a Party, during the Term, that is a modification, improvement or enhancement to the Licensed Patents
and is dominated by the claims of one or more of the patent rights described in Section 1.39 .
1.33 “IND” means an Investigational New Drug application, Clinical Study Application, Clinical Trial
Exemption, or similar application or submission for approval to conduct human clinical investigations filed with or
submitted to a Regulatory Authority in the Territory in conformance with the requirements of such Regulatory
Authority.
1.34 “Intellectual Property Rights ” means Patents, copyrights, trade secrets, database rights, proprietary know-
how and similar rights of any type (excluding trademarks) under the laws of any Governmental Entity, including all
applications, registrations, extensions and renewals relating to any of the foregoing.
1.35 “Know-How” means all technical information and other technical subject matter, proprietary methods,
ideas, concepts, formulations, discoveries, inventions, devices, technology, trade secrets, compositions, designs,
formulae, know-how, show-how, specifications, drawings, techniques, results, data, processes, methods, procedures
and/or designs, whether or not patentable.
1.36
“Law” means, individually and collectively, any and all laws, ordinances, orders, rules, rulings,
directives and regulations of any kind whatsoever of any Governmental Entity or Regulatory Authority within the
applicable jurisdiction.
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treatment has been requested with respect to the omitted portions.
Exhibit 10.135
1.37 “Licensed Compound” means any compound developed by or on behalf of Chiva, its Affiliates or its
sublicensees, including any complexes, chelates, clathrates, acids, bases, esters, salts, isomers, stereoisomers,
enantiomers, pro drug form, metabolite, hydrate, solvate, polymorph, and crystalline forms thereof, the manufacture,
use, sale, offer for sale, import, or export of which would, but for the rights granted pursuant to Section 2.3, infringe a
Valid Claim under the Licensed Patents.
1.38 “Licensed Know-How” means the HepDirect Know-How, the MB07133 Know-How and the Pradefovir
Know-How.
1.39 “Licensed Patents” means the HepDirect Patents, the MB07133 Patents and the Pradefovir Patents;
provided, however, an Abandoned Patent (as defined in Section 6.1(a)) shall not be a Licensed Patent for purposes of
determining the royalty term pursuant to Section 4.4(d) .
1.40 “Licensed Product” means each of Pradefovir, MB07133, a HCC Product and a HepB Product.
1.41 “Licensed Technology” means the HepDirect Technology, the MB07133 Technology and the Pradefovir
Technology.
1.42 “Ligand Indemnitees” has the meaning set forth in Section 9.1 .
1.43 “Major European Market” means the European Union as a whole or any one of the following countries:
the United Kingdom, France, Germany, Italy, Spain (or, for patent purposes, the European Patent Office).
1.44 “Major Market” means each of the United States, Japan and Major European Market.
1.45 “MB07133” means all forms of [***] developed using or incorporating HepDirect Technology and as
identified in Exhibit B, including any complexes, chelates, clathrates, acids, bases, esters, salts, isomers, stereoisomers,
enantiomers, pro-drug form, metabolite, hydrate, solvate, polymorphy, and crystalline forms thereof.
1.46 “MB07133 Know-How” means all Know-How Controlled by Ligand or any of its Affiliates as of the
Effective Date that is (a) necessary in connection with the making, using, selling, offering to sell, exporting and
importing MB07133 in the HCC Field in the Territory and (b) not included in the MB07133 Patents.
1.47 “MB07133 Patents” means those Patents Controlled by Ligand or any of its Affiliates listed in Schedule
1.47 attached hereto. For clarity, the MB01775 Patents do not include any of the Pradefovir Patents or the HepDirect
Patents.
1.48 “MB07133 Technology” means the MB07133 Know-How and the MB07133 Patents.
1.49 “NDA” means a “New Drug Application,” as defined in the FD&C Act and applicable regulations
promulgated thereunder by the FDA and all amendments and supplements thereto filed with the FDA, or the equivalent
application filed with any Regulatory Authority, including all
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treatment has been requested with respect to the omitted portions.
Exhibit 10.135
documents, data, and other information concerning a Licensed Product which are necessary for gaining Regulatory
Approval to market and sell such Licensed Product in the relevant jurisdiction.
1.50 “Net Sales” means gross amounts invoiced by or on behalf of Chiva and any of its Affiliates or
sublicensees for Licensed Product sold to Third Parties who are not Affiliates or sublicensees of Chiva, unless such
Affiliate or sublicensee is the end user of Licensed Product, in which case the amount billed therefore shall be deemed
to be the amount that would be billed to a Third Party end user in bona fide, arms-length transactions, less the following
deductions, as determined in accordance with Chiva’s usual and customary accounting methods, which are in
accordance with United States GAAP (as generally and consistently applied throughout Chiva’s organization) to the
extent included in the gross invoiced sales price of Licensed Product or otherwise directly paid or incurred by Chiva, its
Affiliates or sublicensees with respect to the sale of Licensed Product: [***]; and [***] to the extent such amounts are
[***] listed above and are [***]. Each of the deductions set forth above shall be determined on an accrual basis in
accordance with GAAP.
In the event that a product sold by Chiva or any of its Affiliates or sublicensees is comprised in part of a
Licensed Product and in part of one or more other active components (a "Combination Product"), Net Sales shall be
determined by [***].
1.51
“Patents” means all: (a) United States and foreign patents, re-examinations, reissues, renewals,
extensions and term restorations, inventors’ certificates and counterparts thereof; and (b) pending applications for
United States and foreign patents, including, without limitation, provisional applications, continuations, continued
prosecution, divisional and substitute applications, and counterparts thereof.
1.52
“Person” means any individual, corporation, partnership, association, joint-stock company, trust,
unincorporated organization or government or political subdivision thereof.
1.53 “Phase I Clinical Trial ” means, as to a Licensed Product, a Clinical Trial which meets the definition of a
Phase 1 trial as set forth in 21 C.F.R. 312.21(a), as amended from time to time, or, if conducted for the purpose of
seeking Regulatory Approval in a jurisdiction in the Territory other than the U.S., a Clinical Trial that meets the
definition of a Phase 1 trial in the corresponding regulation in such jurisdiction. “Initiation” of a Phase I Clinical Trial
means the first dosing of a subject in such Phase I Clinical Trial.
1.54 “Phase III Clinical Trial ” means, as to a Licensed Product, a Clinical Trial which meets the definition of
a Phase 3 trial as set forth in 21 C.F.R. 312.21(c), as amended from time to time, or, if conducted for the purpose of
seeking Regulatory Approval in a jurisdiction in the Territory other than the U.S., a Clinical Trial that meets the
definition of a Phase 3 trial in the corresponding regulation in such jurisdiction. “Initiation” of a Phase III Clinical Trial
means the first dosing of a patient in such Phase III Clinical Trial.
1.55 “Pradefovir” means all forms of the [***] developed using or incorporating HepDirect Technology and
as identified in Exhibit A, including any complexes, chelates, clathrates, acids, bases, esters, salts, isomers,
stereoisomers, enantiomers, pro-drug form, metabolite, hydrate, solvate, polymorphy, and crystalline forms thereof.
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treatment has been requested with respect to the omitted portions.
Exhibit 10.135
1.56 “Pradefovir Know-How” means all Know-How Controlled by Ligand or any of its Affiliates as of the
Effective Date that is (a) necessary in connection with the making, using, selling, offering to sell, exporting and
importing of Pradefovir in the HepB Field and in the Territory and (b) not included in the Pradefovir Patents.
1.57 “Pradefovir Patents” means those Patents Controlled by Ligand or any of its Affiliates listed in Schedule
1.57 attached hereto. For clarity, the Pradefovir Patents do not include any of the HepDirect Patents or the MB07133
Patents.
1.58 “Pradefovir Technology” means the Pradefovir Know-How and the Pradefovir Patents.
1.59 “Prosecute” or “Prosecution” means, with respect to Patents, the filing for, prosecuting, responding to
oppositions, nullity actions, re-examinations, revocation actions and similar proceedings (including without limitation
conducting or participating in interference and oppositions) filed by Third Parties against, and maintaining, Patents.
1.60 “Regulatory Authority” means any national (e.g., the FDA), supranational (e.g., the EMEA), regional,
state or local regulatory agency, department bureau, commission, council or other Governmental Entity in any
jurisdiction of the world involved in the granting of Regulatory Approval for pharmaceutical products.
1.61 “Regulatory Approval ” means, with respect to a country or jurisdiction within the Territory, (i) any
approvals, licenses, registrations or authorizations necessary for the manufacture, marketing and sale of a Licensed
Product in such country or jurisdiction, and (ii) where relevant, pricing approvals necessary to obtain reimbursement
from a Governmental Entity with respect to a Licensed Product in such country or jurisdiction.
1.62 “Regulatory Documentation” means all submissions to Regulatory Authorities and other Governmental
Entities, including for Clinical Trials, preclinical trials, tests, and biostudies, relating to the Licensed Products,
including all INDs, NDAs and Regulatory Approvals, as well as all correspondence with Governmental Entities
(registration and licenses, pricing and reimbursement correspondence, regulatory drug lists, advertising and promotion
documents), adverse event files, complaint files, manufacturing records and inspection reports.
1.63 “Research Plan” has the meaning set forth in Section 5.2(a).
1.64 “Sublicense Agreement” has the meaning set forth in Section 2.5 .
1.65 “Term” has the meaning set forth in Section 11.1.
1.66 “Territory” means [***].
1.67 “Third Party” means any Person other than Ligand, Chiva or any Affiliate of either Ligand or Chiva.
1.68 “United States” means the United States and its territories and possessions.
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treatment has been requested with respect to the omitted portions.
Exhibit 10.135
1.69 “Valeant” means Valeant Pharmaceuticals North America, a Delaware corporation and successor in
interest to Valeant Research & Development, or any successor in interest.
1.70
“Valeant Agreement ” means that certain Assignment and Assumption Agreement by and among
Metabasis Therapeutics, Inc., Schering Corporation and Valeant, effective as of January 9, 2007, and that certain
Termination Agreement, by and among Metabasis Therapeutics, Inc., Schering Corporation and Valeant, effective as of
September 19, 2007, each as amended by that certain Amendment Agreement on September 24, 2008.
1.71 “Valid Claim ” means (a) any claim of an issued and unexpired patent within the Licensed Patents that
has not been held unenforceable or invalid by a court or other governmental agency of competent jurisdiction in a
decision that is not appealed or is unappealable, and which patent has not been disclaimed or admitted to be invalid or
unenforceable through reissue or otherwise, or (b) a pending claim in a pending patent application within the Licensed
Patents that has not been abandoned, finally rejected, or expired without the possibility of appeal or refiling; provided,
however, that if a claim of a pending patent application shall not have issued within [***] after the earliest filing date
from which such claim takes priority, such claim shall not constitute a Valid Claim for purposes of this Agreement
unless and until a patent issues with such claim.
1.72 Unless the context of this Agreement otherwise requires: (a) words of any gender include each other
gender; (b) words using the singular or plural number also include the plural or singular number, respectively; (c) the
terms “hereof,” “herein,” “hereby” and derivative or similar words refer to this entire Agreement; (d) the terms
“Article,” “Section” or “Exhibit” refer to the specified Article, Section or Exhibit of this Agreement; (e) the term “or”
has, except where otherwise indicated, the inclusive meaning represented by the phrase, “and/or”; and (f) the term
“including” means “including without limitation.” Whenever this Agreement refers to a number of days, such number
shall refer to calendar days.
ARTICLE 2
LICENSES AND TECHNOLOGY TRANSFER
2.1 Exclusive License for HepB Compounds/Products. During the Term, subject to the terms and
conditions of this Agreement, Ligand hereby grants to Chiva and its Affiliates an exclusive, royalty-bearing right and
license under the Pradefovir Technology to make, have made, use, sell, have sold, import and export Pradefovir in the
HepB Field in China and under the HepDirect Technology to make, have made, use, sell, have sold, import and export
other HepB Compounds and HepB Products in the HepB Field in China.
2.2 Exclusive License for HCC Compounds/Products. During the Term, subject to the terms and
conditions of this Agreement, Ligand hereby grants to Chiva and its Affiliates an exclusive, royalty-bearing right and
license under the MB07133 Technology to make, have made, use, sell, have sold, import and export MB07133 in the
HCC Field in China and under the HepDirect Technology to make, have made, use, sell, have sold, import and export
other HCC Compounds and HCC Products in the HCC Field in China.
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treatment has been requested with respect to the omitted portions.
Exhibit 10.135
2.3 Non-Exclusive HepDirect Technology Licenses. During the Term, subject to the terms and conditions of
this Agreement, including Section 3.1 , Ligand hereby grants to Chiva and its Affiliates a non-exclusive, royalty-
bearing right and license under the HepDirect Technology to Develop, make, have made, use, sell, have sold, import
and export HepB Compounds and HepB Products in the HepB Field and HCC Compounds and HCC Products in the
HCC Field, each in the Territory. For the sake of clarity, this Section 2.3 shall not alter or negate the exclusive nature
of the rights and licenses granted under Sections 2.1 and 2.2 herein.
2.4 Rights to Improvements.
(a) Chiva shall have a right to make Improvements to the Licensed Technology, and to utilize such
Improvements to make, have made, use, sell, have sold and import Licensed Products in the Territory. Chiva hereby
grants to Ligand a non-exclusive, perpetual right and license in the Territory, without the right to grant sublicenses, to
make, have made, use, sell, have sold, import and export Improvements made by or on behalf of Chiva during the
Term.
(b) Subject to the license granted to Ligand pursuant to Section 2.4(a), Improvements made by or on
behalf of Chiva shall be owned and/or controlled exclusively by Chiva. For purposes of this Section 2.4(b) , ownership
of an Improvement shall be based on inventorship as determined in accordance with the patent law of the country in
which the Improvement is reduced to practice.
2.5 Sublicenses. The rights and licenses granted pursuant to Sections 2.1, 2.2, and 2.3 include the right to
grant sublicenses pursuant to a written sublicense agreement (each a “Sublicense Agreement”); provided, however, that
(i) any such Sublicense Agreement shall be consistent with and subject to the terms and conditions of this Agreement;
(ii) Chiva shall remain fully responsible to Ligand for the performance of its sublicensee(s); (iii) Chiva shall reserve the
right under each Sublicense Agreement to conduct an audit of its sublicensee in a comparable manner to Section 4.11
of this Agreement; (v) Chiva shall provide a complete, executed copy of any Sublicense Agreement within [***] of
execution thereof; and (v) each sublicense granted by Chiva shall terminate no later than termination of this Agreement,
unless otherwise agreed by the Parties. Chiva shall remain obligated to make all payments due to Ligand under the
terms of this Agreement with respect to the activities of its sublicensees.
2.6 Right of First Negotiation for Exclusive License.
(a) In the event that Ligand, at any time during the Term, desires to grant exclusive rights to a Third
Party, under the HepDirect Patents, to Develop, make, have made, use, sell, have sold, import and export HepB
Compounds and HepB Products in the HepB Field, or HCC Compounds and HCC Products in the HCC Field, in the
Territory (any such potential grant referred to as a “HepDirect Business Opportunity”), Ligand agrees to notify Chiva of
such HepDirect Business Opportunity, and provide Chiva with information available to Ligand that is reasonably
necessary for Chiva to evaluate the HepDirect Business Opportunity. The Parties shall negotiate in good faith the terms
pursuant to which Chiva may obtain such HepDirect Business Opportunity for a period of [***] days following the date
of such notice (such period referred to as a “HepDirect Negotiation Period” ) . For the sake of clarity, Ligand
acknowledges that pursuant to Sections 2.1
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Exhibit 10.135
and 2.2 above, it may not grant exclusive rights to a Third Party, under the HepDirect Technology, to make, have made,
use, sell, have sold, import and export HepB Compounds and HepB Products in the HepB Field in China, or HCC
Compounds and HCC Products in the HCC Field in China.
(b) Unless otherwise agreed between the Parties, Ligand will not negotiate or discuss the HepDirect
Business Opportunity with any Third Party, or disclose to any Third Party any of the information regarding the
HepDirect Business Opportunity, until the expiry of the HepDirect Negotiation Period. In the event that Ligand and
Chiva have not agreed upon the terms and conditions pursuant to which Ligand would grant such rights to Chiva within
the HepDirect Negotiation Period, Ligand shall be free to discuss the HepDirect Business Opportunity with and
disclose information regarding the same to any Third Party.
2.7 Right of First Negotiation for China.
(a) In the event that Ligand, at any time during the Term, desires to grant exclusive rights to a Third
Party, under any Ligand technology other than the Licensed Technology, to make, have made, use, sell, have sold,
import and export any other Ligand product in China (any such potential grant referred to as an “China Business
Opportunity”), Ligand agrees to notify Chiva of such China Business Opportunity, and provide Chiva with information
available to Ligand that is reasonably necessary for Chiva to evaluate the China Business Opportunity. The Parties shall
negotiate in good faith the terms pursuant to which Chiva may obtain such China Business Opportunity for a period of
[***] following the date of such notice (such period referred to as a “China Negotiation Period”). For the avoidance of
doubt, this right of first negotiation shall not apply to any worldwide or other opportunities that involve any countries or
regions beyond China.
(b) Unless otherwise agreed between the Parties, Ligand will not negotiate or discuss the China
Business Opportunity with any Third Party, or disclose to any Third Party any of the information regarding the China
Business Opportunity, until the expiry of the China Negotiation Period. In the event that Ligand and Chiva have not
agreed upon the terms and conditions pursuant to which Ligand would grant such rights to Chiva within the China
Negotiation Period, Ligand shall be free to discuss the China Business Opportunity with and disclose information
regarding same to any Third Party.
2.8 Technology Transfer. On or before the Amendment Execution Date, Ligand has provided to Chiva the
information set forth on Schedule 5.3, as well as such other information provided to Chiva on or before the Effective
Date and through the Amendment Execution Date, which Chiva acknowledges and agrees satisfies Ligand’s
requirements related to technology transfer related to key Licensed Technology and Regulatory Documentation critical
to Licensed Products in existence as of the Effective Date.
2.9 No Other Rights. Ligand and Chiva each acknowledges and agrees that, except as expressly granted
under this Agreement, no right, title, or interest of any nature whatsoever is granted whether by implication, estoppel,
reliance, or otherwise, by either Party to the other Party. All rights with respect to technology, Patents or other
intellectual property rights that are not specifically granted herein are reserved.
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.135
2.10 Bankruptcy. All rights and licenses granted under or pursuant to this Agreement, including amendments
hereto, are, for all purposes of 11 U.S.C. § 365(n), licenses of rights to intellectual property as defined in the United
States Bankruptcy Code, and any comparable Law of a relevant jurisdiction. Each Party may elect to retain and may
fully exercise all of its rights and elections under 11 U.S.C. § 365(n).
ARTICLE 3
NOTICE REGARDING ADDITIONAL LICENSED COMPOUNDS
3.1 Notice Regarding Additional Licensed Compounds. Chiva shall have the right to Develop multiple
Licensed Compounds concurrently, and shall provide written notice to Ligand of each Licensed Compound (including
the structure) it selects for Development as a Licensed Product within [***] of such selection, but in all events prior
[***]. The Parties acknowledge and agree that once Chiva notifies in writing Ligand of its selection of a Licensed
Compound for Development as a Licensed Product and Ligand does not object to Chiva’s designation of such Licensed
Compound within [***] after the date of such notice, then the license grant pursuant to Section 2.3 with respect to such
Licensed Compound and the corresponding Licensed Product shall be exclusive, regardless of any provisions contained
herein to the contrary or the definitions of the terms “Licensed Compound,” “Licensed Product,” “HepB Compound,”
“HepB Product,” “HCC Compound” and “HCC Product.”
ARTICLE 4
COMPENSATION
4.1 License Issuance Fee. In partial consideration of the rights and licenses granted by Ligand hereunder,
Chiva shall pay a one-time, non-refundable and non-creditable license issuance fee of one hundred fifty thousand US
Dollars (US$150,000) for Pradefovir and three hundred fifty thousand US Dollars (US$350,000) for MB07133 to
Ligand on or before March 31, 2011.
4.2 [Section Intentionally Omitted]
4.3 Milestone Payments.
(a) In partial consideration of the rights and licenses granted by Ligand hereunder, Chiva shall pay a
one-time, non-refundable and non-creditable milestone fee of one hundred fifty thousand US Dollars (US$150,000) for
Pradefovir and three hundred fifty thousand US Dollars (US$350,000) for MB07133 to Ligand by September 1, 2011.
(b) In further consideration of the rights and licenses granted by Ligand hereunder, Chiva shall pay to
Ligand the non-refundable and non-creditable milestone payments within [***] of the achievement by Chiva or its
Affiliates or sublicensees of each of the corresponding events:
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treatment has been requested with respect to the omitted portions.
Exhibit 10.135
(1) for Pradefovir and for each other HepB Product with its composition of matter claimed in a
Licensed Patent as of the Effective Date, as set forth under the column “Pradefovir and Certain Other HepB Products”;
(2) for MB07133 and for each other HCC Product with its composition of matter claimed in a
Licensed Patent as of the Effective Date, as set forth under the column “MB07133 and Certain Other HCC Products”;
and
(3) for each HepB Product other than a HepB Product with its composition of matter claimed in
a Licensed Patent as of the Effective Date (i.e, HepB Products with no claim related to its composition of matter in a
Licensed Patent as of the Effective Date, or with respect to which only a method of treatment is disclosed as of the
Effective Date), for each HCC Product other than a HCC Product with its composition of matter claimed in a Licensed
Patent as of the Effective Date (i.e, HCC Products with no claim related to its composition of matter in a Licensed
Patent as of the Effective Date, or with respect to which only a method of treatment is disclosed as of the Effective
Date), as set forth under the applicable column “All Other HepB Products and HCC Products” below.
Pradefovir and Certain
Other HepB Products
MB07133 and Certain
Other HCC Products
All Other HepB Products
and HCC Products
Initiation of Phase I Clinical
Trial
None
Initiation of Phase III
Clinical Trial
None
NDA filing in China
None
None
None
None
Five Hundred Thousand
U.S. Dollars (US$500,000)
One Million U.S. Dollars
(US$1,000,000)
None
Receipt of Regulatory
Approval in China
Four Million U.S. Dollars
(US$4,000,000)
Four Million U.S. Dollars
(US$4,000,000)
Six Million U.S. Dollars
(US$6,000,000)
NDA filing in First Major
Market
Not Applicable
Receipt of Regulatory
Approval in first Major
Market
Not Applicable
None
None
None
Seventeen Million U.S.
Dollars (US$17,000,000)
Achievement of $500M in
total cumulative Net Sales
Twenty Million U.S. Dollars
(US$20,000,000)
Fifteen Million U.S. Dollars
(US$15,000,000)
Fifteen Million U.S. Dollars
(US$15,000,000)
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.135
For clarity, it is expressly agreed that the milestone payments set forth in each column above will be payable
once only for each Licensed Product to achieve the event. If, however, Chiva is developing two Licensed Products,
even if both are a HepB Product or HCC Product, as applicable, each of the milestone payments under the column “All
Other HepB Products and HCC Products” shall be paid for each such Licensed Product.
4.4 Payment of Royalties
(c) Royalty Rates. In further consideration of the rights and licenses granted by Ligand hereunder,
Chiva shall pay to Ligand six percent (6%) of aggregate Net Sales of Licensed Products, except for Pradefovir which
shall be paid at the percentage of nine percent (9%) of aggregate Net Sales. If a generic version of a Licensed Product
enters the market, then the royalty rate will be reduced by [***] for that Licensed Product from [***].
(d) Sublicensing. In the event Chiva grants a sublicense under Section 2.5 to a sublicensee to make,
use, import, sell, offer to sell, import or export a Licensed Product, such Sublicense Agreement shall require the
sublicensee to account for and report its Net Sales of the Licensed Product on the same basis as if such sales were Net
Sales of the Licensed Product by Chiva, and Chiva shall pay royalties on such sales as if the Net Sales of the
sublicensees were Net Sales of Chiva.
(e) Payment of Royalties . Chiva shall pay on a calendar quarterly basis all royalties due and payable
on Net Sales in each calendar quarter pursuant to this Section 4.4 within [***] after the last day of each calendar
quarter in which the applicable Net Sales underlying such royalties were billed or invoiced by Chiva.
(f) Royalty Term. The obligation of Chiva to pay royalties to Ligand under this Section 4.4 shall
commence on the date of the First Commercial Sale of a Licensed Product and continue, on a country-by-country basis
and on a Licensed Product-by-Licensed Product basis, until the later of (i) expiration or other termination of all
Licensed Patents containing one or more Valid Claims that would be infringed by the manufacture, sale, offer for sale,
use or importation of such Licensed Product in such country, or (ii) ten (10) years from the First Commercial Sale of
such Licensed Product in such country. Thereafter, Chiva shall have a paid up, royalty-free license with respect to such
Licensed Product in the applicable country.
4.5 License Maintenance Fee. Chiva shall pay to Ligand an annual license maintenance fee of Twenty Five
Thousand U.S. Dollars (US$25,000.00), due within thirty (30) days after the start of each calendar year.
4.6 Sublicense Fees. In partial consideration of the rights and licenses granted by Ligand hereunder, if Chiva
sublicenses any of its rights under this Agreement pursuant to Section 2.5 above to a Third Party to make, have made,
use, sell, have sold, import and export a Licensed Product in a Major Market, Chiva shall pay to Ligand an amount (the
“Sublicense Fee”) equal to five percent (5%) of all up-front payments, option fees, license fees, milestone payments or
other non-royalty payments received as the consideration for the sublicense granted by Chiva to such Third Party under
the applicable Sublicense Agreement. If Chiva receives any non-cash consideration as the
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treatment has been requested with respect to the omitted portions.
Exhibit 10.135
consideration for the sublicense granted by Chiva to such Third Party under the applicable Sublicense Agreement
(including, for example, options, stock, property or intellectual property rights), then it shall calculate the fair market
value of such consideration in U.S. Dollars for the purposes of determining the Sublicense Fee and Ligand shall be
entitled to engage an independent accountant to confirm Chiva’s determination of such fair market value within [***]
of receipt of notice of Chiva’s determination; provided that Sublicense Fee [***]. Sublicense Fee payments shall be
due and payable to Ligand within [***] of receipt by Chiva of any payments from its sublicensee(s). For the avoidance
of doubt, the payments due to Ligand under this Section 4.6 are in addition to the payments owed by Chiva to Ligand
under Sections 4.1, 4.2, 4.3, 4.4(a) and 4.4(b) above.
4.7 Payment Method. All payments made by Chiva under this Agreement shall be made in U.S. Dollars, and
such payments shall be made by check or wire transfer to one or more bank accounts to be designated in writing by
Ligand.
4.8 Currency Conversion. In the event that Licensed Products are sold in currencies other than U.S. Dollars,
Net Sales shall be calculated by Chiva in accordance with U.S. generally accepted accounting principles, consistently
applied. Net Sales in currencies other than U.S. Dollars shall be converted into U.S. Dollars using the average official
rate of exchange for such currencies published in The Wall Street Journal , Eastern Edition, [***]. If an exchange rate
for any particular currency is not published in The Wall Street Journal , the rate of exchange to be used for such
currency shall be determined using average conversion rates published by the Bank of China or such conversion rates
that generally are accepted in the industry [***]. Sublicense Fee payments due to Ligand pursuant to Section 4.6 shall
be calculated in U.S. Dollars as set forth above.
4.9 Late Payment Interest. Any payment due and payable to Ligand under the terms and conditions of this
Agreement, including any royalty payment, made by Chiva after the date such payment is due and payable shall bear
interest as of the day after the date such payment was due and payable and shall continue to accrue such interest until
such payment is made at a rate equal to the lesser of either (a) [***], as of the date such payment was due and payable,
or (b) the maximum rate permitted by applicable Law; provided, however, that the total interest accrued shall be no
greater than [***] of the payment due and payable.
4.10 Records and Reports. All payments made to Ligand hereunder shall be accompanied by a written
statement setting forth in reasonable detail the calculation thereof, including, for example, in the case of royalty
payments, the gross amount billed or invoiced by Chiva, Affiliate or sublicensee for sale or other disposition of
Licensed Products on a country-by-country basis in the local currency, itemized deductions against such gross amount
in accordance with Section 1.50 , Net Sales on a country-by-country basis, and, if applicable, the exchange rate utilized
to convert a local currency to U.S. Dollars. Chiva shall maintain complete and accurate records sufficient to enable
accurate calculation of royalties and other payments due Ligand hereunder. Such records and books of account shall be
preserved by Chiva for a period of [***] after the end of the period covered by such records and books of account,
which obligation shall survive expiration or termination of this Agreement. Chiva must ensure that its sublicensees
provide reports and keep records in a manner consistent with this Section 4.10 . Chiva shall provide reports received
from sublicensees to Ligand with the applicable payment.
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treatment has been requested with respect to the omitted portions.
Exhibit 10.135
4.11 Audit Rights. Chiva shall permit an independent public accountant designated by Ligand and reasonably
acceptable to Chiva, to have access, no more than [***] in each [***] during the Term and no more than [***] during
the [***] following the expiration or termination of this Agreement, during regular business hours and upon at least
[***] written notice, to Chiva’s records and books to the extent necessary to determine the accuracy of Net Sales
reported, and payments made, by Chiva to Ligand within the [***] immediately preceding such an audit. The
independent public accountant shall be under a confidentiality obligation to Chiva to disclose to Ligand only (a) the
accuracy of Net Sales reported and the basis for royalty and other payments made to Ligand under this Agreement and
(b) the difference, if any, such reported and paid amounts vary from amounts determined as a result of the audit. If such
examination results in a determination that Net Sales or payments have been misstated, over or under paid amounts due
shall be paid promptly to the appropriate Party. If Net Sales are understated by greater than [***], the fees and
expenses of such accountant shall be paid by Chiva; otherwise the fees and expenses of such accountant shall be paid
by Ligand. All matters reviewed by such independent public accountant shall be deemed Confidential Information of
Chiva and shall subject to ARTICLE 7.
ARTICLE 5
PRODUCT ACTIVITIES
5.1 Diligence. Chiva shall diligently Develop Licensed Compounds and Develop, manufacture and sell
Licensed Products, and shall use commercially reasonable efforts to develop markets for Licensed Products, in both
cases either directly or through a sublicensee. In addition, Chiva, either directly or through a sublicensee, shall achieve
the events described in Schedule 5.1 within the time periods set forth in Schedule 5.1 . Chiva, either directly or through
a sublicensee, shall obtain all necessary Regulatory Approvals in each country where Licensed Products are made, used,
sold, imported, or offered for sale. Ligand may terminate this Agreement in accordance with Section 11.2(b) if Chiva
(i) fails to achieve a milestone by the milestone achievement date as set out in Schedule 5.1 (or such later date as may
be agreed by the Parties in writing) or (ii) has not sold Licensed Product for any [***] period after Chiva’s First
Commercial Sale of a Licensed Product.
5.2 Research Plan; Progress Reports.
(c) Chiva shall develop a research plan detailing the work it will perform and associated timelines to
Develop Licensed Products and to obtain Regulatory Approval and sell Licensed Products (the “Research Plan”). Chiva
will provide a copy of the Research Plan to Ligand within [***] of the Effective Date and any updates as these become
available from time to time.
(d) By [***], and [***] of each year, Chiva shall submit a written report to Ligand covering the preceding
[***] period. Each report will describe: Chiva’s progress in accordance with the Research Plan and towards
commercialization of Licensed Products, including work completed, key scientific discoveries, summary of work-in-
progress, current schedules or anticipated events or milestones, market plans for introduction of Licensed Products, and
significant corporate transaction(s) involving Licensed Products. Chiva shall also provide to Ligand copies
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treatment has been requested with respect to the omitted portions.
Exhibit 10.135
of any reports received from its sublicensees, within [***] of receipt. In addition, upon the reasonable request of
Ligand but no more frequently than [***] in each year, Chiva and Ligand shall meet in-person (or by teleconference if
mutually agreed) at a mutually agreeable location to discuss the topics described in the progress reports, and such other
topics related to Licensed Products as Ligand may reasonably request.
5.3 Regulatory Responsibilities.
(g) The Parties shall meet periodically as needed to discuss the regulatory plans and strategies for
Licensed Compounds/Products in the Territory. Chiva shall, at Chiva’s expense, promptly deliver to Ligand copies of
Regulatory Documentation and significant correspondence to and from all Regulatory Authorities Controlled by Chiva
related to any Licensed Compound/Product in the Territory, and shall keep Ligand informed of material regulatory
developments related to any Licensed Compound/Product in the Territory. Ligand shall keep Chiva informed of
material regulatory developments related to Pradefovir or MB07133 in territories outside of China. Each Party shall
provide the other Party with reasonable cooperation and assistance in connection with regulatory activities for Licensed
Compounds/Products in the Field in the other Party’s territory, including responding to reasonable requests by the other
Party for additional Regulatory Documentation (and information and clinical data contained therein) related to such
Licensed Compounds/Products. In particular, the Parties acknowledge and agree that Ligand has provided to Chiva the
information set forth in Schedule 5.3(a) on or prior to the Amendment Execution Date.
(h) To the extent permitted by the applicable Regulatory Authority, Chiva shall allow representatives
of Ligand to participate in any material scheduled conference calls and meetings between Chiva and the Regulatory
Authority. If Ligand elects not to participate in such calls or meetings, Chiva shall keep Ligand reasonably apprised of
the discussions between Chiva and the Regulatory Authority that take place during such calls or meetings.
(i) Chiva shall permit Ligand to access, and shall provide Ligand with rights to reference and/or use in
association with Licensed Compounds/Products, all of its, its Affiliates’, and its licensees’ or sublicensees’ (to the
extent permitted by its licensee or sublicensee) Regulatory Documentation (and information and clinical data contained
therein) related to any such Licensed Compound/Product. Ligand shall permit Chiva to access, and shall provide Chiva
with rights to reference and/or use in association with Pradefovir or MB07133, all of its, its Affiliates’, and its
licensees’ or sublicensees’ (to which it has access) Regulatory Documentation (and information and clinical data
contained therein) related to Pradefovir or MB07133.
(j)
Chiva shall be responsible for ensuring, at its sole expense, that the Development and
commercialization of all Licensed Products in its applicable territory are in compliance with applicable Laws in all
material respects, including all rules and regulations promulgated by applicable Regulatory Authorities. Specifically
and without limiting the foregoing, Chiva shall file all compliance filings, certificates and safety reporting for the
Licensed Products at its sole expense in its applicable territory.
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.135
ARTICLE 6
INTELLECTUAL PROPERTY
6.1 Patent Maintenance and Prosecution.
(e) Ligand shall, at [***], and [***], Prosecute the Licensed Patents that are Controlled by Ligand;
provided, however, Ligand shall make available to Chiva copies of material correspondence with any patent office
regarding the Licensed Patents to the extent they relate to Licensed Products. [***]. In the event that Ligand decides to
cease activities relating to Prosecuting any Licensed Patent, Ligand shall provide written notice thereof to Chiva at least
[***] prior to the date when government rights would be lost as a consequence of abandonment of such Patent. [***].
(f) Chiva shall, at Chiva’s sole cost and expense, and in its sole discretion, Prosecute any Patents
covering Improvements. In the event that Chiva decides to cease activities relating to Prosecuting any such Patents,
Chiva shall provide written notice thereof to Ligand and, prior to taking action that would result in the abandonment of
any Patent covering such Improvement, Chiva shall engage in good faith discussions with Ligand, such discussions to
occur at least [***] prior to the date when government rights would be lost as a consequence of abandonment of such
Patent.
6.2 Patent Enforcement and Defense.
(k) Notification. Each Party shall notify the other Party of any infringement of any of the Licensed
Patents by a Third Party in the HepB Field and HCC Field, as the case may be, which becomes known to such Party,
and of any claim of infringement by a Third Party that the activities of a Party infringe patent rights of such Third
Party.
(l) Licensed Patents. As between the Parties, Ligand shall have the first right, but not an obligation, to
initiate, maintain and control, at Ligand’s expense, legal action against any infringement of the Licensed Patents by a
Third Party in the HepB Field or HCC Field, as the case may be. In the event that Ligand initiates legal action against
infringement of the Licensed Patents by a Third Party in the HepB Field or HCC Field, as the case may be, Ligand
shall notify Chiva in writing. Thereafter, Chiva shall have a right, in Chiva’s sole discretion and, notwithstanding
Section 6.3 , at Chiva’s expense, to join or otherwise participate or not to join or otherwise participate in such legal
action with legal counsel selected by Chiva. Any recovery received by Ligand from legal action initiated pursuant to
this Section 6.2(b), whether by judgment, award, decree or settlement, shall be used first to reimburse Ligand for
Ligand’s out-of-pocket costs and expenses actually incurred in pursuing such legal action, and second to reimburse
Chiva for Chiva’s costs and expenses actually incurred in connection with such legal action. The remainder of any
recovery or distribution received by Ligand under this Section 6.2(b) , after reimbursement of costs and expenses of
Ligand and Chiva, shall be [***].
6.3 Cooperation. In any suit, proceeding or dispute involving the infringement of any of the Licensed Patents
in the HepB Field or HCC Field, as the case may be, the Parties shall provide each other with reasonable cooperation,
and, upon the request and at the expense of the Party bringing
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
suit, the other Party shall make available to the Party bringing suit, at reasonable times and under appropriate
conditions, all relevant personnel, records, papers, information, samples, specimens, and the like in its possession.
Notwithstanding any other provision of this ARTICLE 6, [***].
Exhibit 10.135
ARTICLE 7
CONFIDENTIALITY
7.1 Confidentiality Obligations. Each Party agrees that, during the Term and for [***] thereafter, all
Confidential Information of the other Party shall be maintained in strict confidence, and shall not be used for any
purpose other than the purposes expressly permitted by this Agreement, and shall not be disclosed to any Third Party.
The foregoing obligations will not apply to any portion of Confidential Information to the extent that it can be
established by competent proof that such portion:
(m) was already known to the recipient as evidenced by its written records, other than under an
obligation of confidentiality, at the time of disclosure;
(n) was generally available to the public or was otherwise part of the public domain at the time of its
disclosure to the recipient;
(o) became generally available to the public or otherwise becomes part of the public domain after its
disclosure and other than through any act or omission of the recipient in breach of this Agreement; or
(p) was subsequently lawfully disclosed to the recipient by a Third Party other than in contravention of
a confidentiality obligation of such Third Party to the disclosing party.
7.2 Permitted Usage. Each Party may use and disclose Confidential Information of the other Party as follows:
(a) under appropriate confidentiality provisions no less restrictive than those in this Agreement, in connection with the
performance of its obligations or exercise of rights granted to or retained by such Party in this Agreement; (b) in
connection with the Prosecution or enforcement of Licensed Patents or Improvements, in accordance with this
Agreement; or (c) in connection with prosecuting or defending litigation, complying with applicable governmental
regulations, filing for, obtaining and maintaining Regulatory Approvals, or as otherwise required by Law, but provided
that if a Party is required by Law to make any disclosure of the other Party’s Confidential Information, it will give
reasonable advance notice to the other Party of such disclosure requirement, it will disclose only for the sole purpose of
and solely to the extent required by such Law, and it will use its reasonable efforts to secure confidential treatment of
such Confidential Information required to be disclosed.
7.3 Terms of Agreement. The terms of this Agreement shall be Confidential Information of both Parties, and
subject to the terms of this ARTICLE 7. Notwithstanding the foregoing, either Party may make a disclosure of terms
of this Agreement (i) to any financial advisors, accountants, potential sublicensees, investors, or potential acquirers, (ii)
if required by applicable Law, or (iii) as otherwise permitted pursuant to Section 7.4 . Except as otherwise permitted for
disclosures
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treatment has been requested with respect to the omitted portions.
Exhibit 10.135
pursuant to Section 7.4 , the disclosing Party shall use all commercially reasonable efforts to preserve the confidentiality
of this Agreement and the terms thereof notwithstanding any required disclosure. A Party will give the other Party
written notice of any required disclosure under (ii) above, which notice shall, to the extent reasonably practicable, be
given a reasonable period of time in advance of such required disclosure. In the event either Party is required to file this
Agreement with the U.S. Securities and Exchange Commission or any comparable Chinese or other non-U.S.
Governmental Entity, such Party shall apply for confidential treatment of this Agreement to the fullest extent permitted
by applicable Law, shall provide the other Party a copy of the confidential treatment request far enough in advance of
its filing to give the other Party a meaningful opportunity to comment thereon, and shall incorporate in such
confidential treatment request any reasonable comments of the other Party.
7.4 Public Announcements. The Parties will mutually agree on a press release to be issued upon execution of
this Agreement or reasonably soon thereafter. Neither Party shall make any subsequent public announcement
concerning this Agreement or the terms hereof not previously made public without the prior written approval of the
other Party with regard to the form, content, and precise timing of such announcement, except as may be required to be
made by either Party in order to comply with applicable Law, regulations, court orders, or tax, securities filings,
financing arrangements, acquisitions, or sublicenses. Such consent shall not be unreasonably withheld or delayed by
such other Party. Prior to any such public announcement, the Party wishing to make the announcement will submit a
draft of the proposed announcement to the other Party in sufficient time to enable such other Party to consider and
comment thereon.
7.5 Cooperation. In any suit, proceeding or dispute involving the infringement of any of the Licensed Patents
in the HepB Field or HCC Field, as the case may be, the Parties shall provide each other with reasonable cooperation,
and, upon the request and at the expense of the Party bringing suit, the other Party shall make available to the Party
bringing suit, at reasonable times and under appropriate conditions, all relevant personnel, records, papers, information,
samples, specimens, and the like in its possession. Notwithstanding any other provision of this ARTICLE 6, [***].
ARTICLE 8
REPRESENTATIONS, WARRANTIES AND COVENANTS
8.1 General. Each Party represents and warrants to the other that:
(c) it is duly organized and validly existing under the Law of the jurisdiction of its incorporation, and
has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof;
(d) it is qualified to do business and is in good standing in each jurisdiction in which it conducts
business;
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treatment has been requested with respect to the omitted portions.
Exhibit 10.135
(e)
it is duly authorized to execute and deliver this Agreement and to perform its obligations
hereunder, and the individual executing this Agreement on its behalf has been duly authorized to do so by all requisite
corporate action;
(f) this Agreement is legally binding upon it and enforceable in accordance with its terms and the
execution, delivery and performance of this Agreement by it does not conflict with any agreement, instrument or
understanding, oral or written, to which it is a party or by which it may be bound, nor violate any material Law; and
(g)
it is not aware of any action, suit or inquiry or investigation instituted by any Person which
questions or threatens the validity of this Agreement.
8.2 Representations of Ligand.
(a) Ligand owns the Licensed Compounds/Products/Technology as of the Effective Date. There are no
adverse actions, suits, or claims pending or to the knowledge of Ligand, threatened against Ligand in any court or by or
before any governmental body or agency with respect to the Licensed Compounds/Products/Technology and, to the
actual knowledge of Ligand, there are no Third Party patents which would reasonably be expected to give rise to such
actions, suits or claims.
(b) Ligand has not initiated or been involved in any proceedings or claims in which it alleges that any
Third Party is or was infringing or misappropriating the Licensed Technology, nor have any proceedings been
threatened by Ligand, nor to the knowledge of Ligand is there any valid basis for any such proceeding.
(c) Ligand has not granted a license for HepB Compounds/Products pursuant to Section 2.1 or HCC
Compounds/Products pursuant to Section 2.2 to any Third Party or Affiliate in China that would prevent Chiva from
exercising its rights under this Agreement.
(d) As of the Effective Date, to Ligand’s best knowledge, none of the Licensed Technology is
developed involving the use of any governmental funding.
(e) Ligand and its Affiliates and, to Ligand’s best knowledge, [***] have complied with all applicable
laws, permits, governmental licenses, registrations, approvals, concessions, franchises, authorizations, orders,
injunctions and decrees [***], and neither Ligand nor any of its Affiliates or, to Ligand’s best knowledge, [***] has
received any written notice from any governmental authority claiming that any such activities as conducted by them are
not in such compliance.
(f) No governmental authority (including the FDA) has commenced or, to Ligand’s knowledge,
threatened to initiate any action to enjoin production of Pradefovir or MB07133 at any facility, nor has Ligand or any of
its Affiliates or, to the best knowledge of Ligand, Metabasis or any of Ligand’s Contractors, received any notice to such
effect.
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treatment has been requested with respect to the omitted portions.
Exhibit 10.135
(g) To Ligand’s best knowledge, all development activities relating to Pradefovir or MB07133 have
been conducted in compliance with all applicable laws, including without limitation all GCPs, GLPs and GMPs.
(h) To Ligand’s best knowledge, no employee or agent of Ligand or any of its Affiliates or Contractors
has made an untrue statement of a material fact to any governmental authority with respect to Pradefovir or MB07133
(whether in any Regulatory Filings or otherwise), or failed to disclose a material fact required to be disclosed with
respect to Pradefovir or MB07133.
(i) Ligand has made available to Chiva true, correct and complete copies of (i) all IND and NDA
submissions associated with Pradefovir and MB07133, (ii) all clinical studies associated with the IND and NDA
submissions, (iii) all correspondence with regulatory authorities regarding the IND or NDA submissions, and (iv) all
minutes of meetings and telephone conferences with regulatory authorities with respect to the IND or NDA, Pradefovir
or MB07133, in each case, to the extent in the possession of Ligand or its Affiliates or to which Ligand or its Affiliates
have access or right to access. To Ligand’s best knowledge, Ligand has disclosed or otherwise provided Chiva with all
information that would have, or would be reasonably likely to have, a material effect on the ability of Chiva to develop
or commercialize Pradefovir or MB07133 under the terms and conditions of this Agreement and that relates to (i) the
Licensed Technology, (ii) any Third Party intellectual property rights or claims that relate to the commercialization or
development of Pradefovir or MB07133, (iii) the safety or efficacy of Pradefovir or MB07133, and (iv) Chiva’ ability
to manufacture Pradefovir or MB07133.
(j) To Ligand’s best knowledge, no person who is debarred has been employed or used to provide
services in connection with the Development, manufacture or commercialization of Licensed Products, Pradefovir or
MB07133 prior to the Effective Date.
8.3 Covenants of Ligand. Ligand covenants that it will not, during the Term, undertake any obligation, or
grant any right, license, interest or lien, that conflicts with its obligations, or the rights and licenses granted to Chiva,
under the terms of this Agreement, or impairs the rights granted by Ligand to Chiva under the terms of this Agreement.
8.4 Disclaimer. EXCEPT AS PROVIDED IN THIS ARTICLE 8, NEITHER PARTY MAKES ANY
REPRESENTATION OR WARRANTY (EXPRESS, IMPLIED, STATUTORY OR OTHERWISE) WITH RESPECT
TO THE SUBJECT MATTER OF THIS AGREEMENT, AND EACH PARTY SPECIFICALLY DISCLAIMS ANY
AND ALL IMPLIED WARRANTIES OR CONDITIONS OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, AND ALL WARRANTIES AND CONDITIONS OF THE VALIDITY OF THE
LICENSED PATENTS OR NONINFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS.
THIS SECTION 8.4 SHALL NOT BE CONSTRUED TO LIMIT EITHER PARTY’S OBLIGATIONS UNDER
ARTICLE 9.
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.135
8.5 Representations and Covenants of Chiva.
(a) Anti-Corruption Provisions. Chiva has not, directly or indirectly, offered, promised, paid,
authorized or given, and will not in the future, offer, promise, pay, authorize or give, money or anything of value,
directly or indirectly, to any Government Official (as defined below) or Other Covered Party (as defined below) for the
purpose, pertaining to this Agreement, of: (i) influencing any act or decision of the Government Official or Other
Covered Party; (ii) inducing the Government Official or Other Covered Party to do or omit to do an act in violation of a
lawful duty; (iii) securing any improper advantage; or (iv) inducing the Government Official or Other Covered Party to
influence the act or decision of a government or government instrumentality, in order to obtain or retain business, or
direct business to, any person or entity, in any way related to this Agreement.
For purposes of this Agreement: (i) " Government Official" means any official, officer, employee or
representative of: (A) any federal, state, provincial, county or municipal government or any department or agency
thereof; (B) any public international organization or any department or agency thereof; or (C) any company or other
entity owned or controlled by any government; and (ii) "Other Covered Party" means any political party or party
official, or any candidate for political office.
(b) Anti-Corruption Compliance.
(i) In performing under this Agreement, Chiva and its Affiliates agree to comply with all
applicable anti-corruption laws, including, without limitation: Foreign Corrupt Practices Act of 1977, as amended
("FCPA"); the anti-corruption laws of China; and all laws enacted to implement the OECD Convention on Combating
Bribery of Foreign Officials in International Business Transactions.
(ii) Chiva is not aware of any Government Official or Other Covered Party having any financial
interest in the subject matter of this Agreement or in any way personally benefiting, directly or indirectly, from this
Agreement.
(iii) No political contributions or charitable donations shall be given, offered, promised or paid
at the request of any Government Official or Other Covered Party that is in any way related to this Agreement or any
related activity, without Ligand's prior written approval.
(iv) In the event that Chiva violates the FCPA, the anti-corruption laws of China or any
applicable anti-corruption law or breaches any provision in this Section, Ligand shall have the right to unilaterally
terminate this Agreement.
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.135
ARTICLE 9
INDEMNIFICATION
9.1 Indemnification by Chiva. Chiva shall indemnify, defend and hold Ligand and its Affiliates, agents,
employees, officers, and directors (the “Ligand Indemnitees”) harmless from and against any and all liability, damage,
loss, cost, or expense (including without limitation reasonable attorneys’ fees) arising out of Third Party claims or suits
related to: (a) breach by Chiva of any of its representations, warranties, or covenants under this Agreement; (b) the
negligence or willful misconduct of Chiva or its Affiliates, and its or their directors, officers, agents, employees, or
consultants; and (c) any exploitation by, or under the authority of, Chiva of the licenses granted under Sections 2.1,
2.2, and 2.3 (including by any Affiliate or sublicensee); provided, however, that Chiva’s obligations pursuant to this
Section 9.1 will not apply to the extent such claims or suits result from the negligence or willful misconduct of any of
the Ligand Indemnitees or breach by Ligand of its representations, warranties, or covenants set forth in this Agreement,
or to the extent that Ligand has indemnification obligations with respect to such claims or suits under Section 9.2 .
9.2
Indemnification by Ligand. Ligand shall indemnify, defend, and hold Chiva and its Affiliates,
sublicensees, agents, employees, officers, and directors (the “Chiva Indemnitees”) harmless from and against any and
all liability, damage, loss, cost, or expense (including without limitation reasonable attorneys’ fees) arising out of Third
Party claims or suits related to (a) breach by Ligand of any of its representations, warranties, or covenants under this
Agreement or (b) activities conducted by or on behalf of Ligand or its Affiliates or sublicensees with respect to the
Licensed Products outside the applicable Field or applicable Territory or prior to the Effective Date; provided,
however, that Ligand’s obligations pursuant to this Section 9.2 will not apply to the extent that Chiva has
indemnification obligations with respect to such claims or suits under Section 9.1 .
9.3 Procedure. As a condition to a Party’s right to receive indemnification under Section 9.1 or Section 9.2 ,
it shall: (a) promptly deliver notice in writing (a “Claim Notice”) to the other Party as soon as it becomes aware of a
claim or suit for which indemnification may be sought pursuant to Section 9.1 or Section 9.2 (provided that the failure
to give a Claim Notice promptly shall not prejudice the rights of an indemnified Party except to the extent that the
failure to give prompt notice materially adversely affects the ability of the indemnifying Party to defend the claim or
suit); (b) cooperate with the indemnifying Party in the defense of such claim or suit, at the expense of the indemnifying
Party; and (c) if the indemnifying Party confirms in writing to the indemnified Party its intention to defend such claim
or suit within [***] after receipt of the Claim Notice, permit the indemnifying Party to control the defense of such
claim or suit, including without limitation the right to select defense counsel; provided that, if the indemnifying Party
fails to (i) provide such confirmation in writing within such [***] period or (ii) after providing such confirmation,
diligently and reasonably defend such suit or claim at any time, the indemnifying Party’s right to defend the claim or
suit shall terminate immediately in the case of (i) and otherwise upon [***] written notice by the indemnified Party to
the indemnifying Party, and the indemnified Party may assume the defense of such claim or suit at the sole expense of
the indemnifying Party but may not settle or compromise such claim or suit without the consent of the indemnifying
Party, not to be unreasonably withheld or delayed. In no event, however, may the indemnifying Party compromise or
settle any claim or suit in a manner which admits fault or negligence on the part of any indemnified Party or
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
that otherwise materially affects such indemnified Party’s rights under this Agreement or requires any payment by an
indemnified Party without the prior written consent of such indemnified Party. Except as expressly provided above, the
indemnifying Party will have no liability under this ARTICLE 9 with respect to claims or suits settled or compromised
without its prior written consent.
Exhibit 10.135
ARTICLE 10
LIMITATION OF LIABILITY
10.1 EXCEPT FOR ANY LIABILITY THAT IS THE CONSEQUENCE OF WILLFUL MISCONDUCT OF
A PARTY, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY SPECIAL,
CONSEQUENTIAL, EXEMPLARY OR INCIDENTAL DAMAGES (INCLUDING LOST OR ANTICIPATED
REVENUES OR PROFITS RELATING TO THE SAME), HOWEVER CAUSED AND ON ANY THEORY OF
LIABILITY ARISING OUT OF THIS AGREEMENT, WHETHER SUCH CLAIM IS BASED ON CONTRACT,
TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, AND WHETHER OR NOT SUCH PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. THESE LIMITATIONS SHALL APPLY
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY PROVIDED
HEREIN. THIS ARTICLE 10 SHALL NOT BE CONSTRUED TO LIMIT EITHER PARTY’S OBLIGATIONS
UNDER ARTICLE 9.
ARTICLE 11
TERM AND TERMINATION
11.1 Term. Unless terminated earlier pursuant to Section 11.2 , the term of this Agreement shall commence
on the Effective Date and continue in full force and effect until, and terminate upon, the expiration, lapse or
invalidation of the last to expire of the Licensed Patents (the “Term”).
11.2 Termination.
(c) For Convenience. Any provision herein notwithstanding, Chiva shall have the right to terminate
this Agreement in its entirety at will upon ninety (90) days prior written notice to Ligand.
(d) For Material Breach. If either Party shall at any time breach any material term, condition or
agreement herein, and shall fail to have initiated and actively pursued remedy of any such default or breach within sixty
(60) days after receipt of written notice thereof by the other Party, that other Party may, at its option, terminate this
Agreement and revoke any rights and licenses herein. Any termination of this Agreement under this Section 11.2(b)
shall not, however, prejudice the right of the Party who terminates this Agreement to recover any payment due at the
time of such cancellation, and it being understood that if within sixty (60) days after receipt of any such notice the
breaching Party shall have initiated and actively pursued remedy of its default, then the rights and licenses herein
granted shall remain in force as if no breach or default had occurred
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treatment has been requested with respect to the omitted portions.
Exhibit 10.135
on the part of the breaching Party, unless such breach or default is not in fact remedied within sixty (60) days of such
notice.
11.3 Effect of Termination/Expiration .
(a) Rights and Obligations Upon Expiration. Upon expiration (but not earlier termination) of this
Agreement, all rights and licenses granted by Ligand to Chiva hereunder that were in effect immediately prior to the
effective date of such expiration shall become irrevocable, perpetual and fully-paid.
(b) Rights and Obligations Upon Termination. As of the effective date of a termination (but not
expiration) of this Agreement for any reason, this Agreement and all rights and licenses granted to Chiva under
Sections 2.1, 2.2 , and 2.3 shall terminate and all rights in the Licensed Technology shall revert to Ligand; (ii) Chiva
shall return to Ligand the Licensed Know-How and shall transfer to Ligand all then-existing Regulatory
Documentation; and (iii) each Party shall return to the other Party and cease using all Confidential Information of the
other; provided that each Party may retain one (1) copy of such Confidential Information for archival purposes.
(c) Accrued Rights. Termination or expiration of this Agreement for any reason will be without
prejudice to any rights that will have accrued to the benefit of a Party prior to such termination or expiration. Such
termination or expiration will not relieve a Party from accrued payment obligations or from obligations which are
expressly indicated to survive termination or expiration of this Agreement.
(d) Survival. Articles 1, 7, 9, 10 and 12 , and Sections 4.11 and 11.3 shall survive the expiration and
any termination of this Agreement. Except as otherwise provided in this Section 11.3 , all other provisions of this
Agreement shall terminate upon the expiration or termination of this Agreement.
ARTICLE 12
GENERAL PROVISIONS
12.1 Entire Agreement. The Parties acknowledge that this Agreement, together with the exhibits attached
hereto, sets forth the entire agreement and understanding of the Parties as to the subject matter hereof, and supersedes
all prior and contemporaneous discussions, agreements and writings in respect hereto. No waiver, modification,
amendment or alteration of any provision of this Agreement will be valid or effective unless made in writing and signed
by each of the Parties.
12.2 Modification; Waiver. This Agreement may not be altered, amended or modified in any way except by
a writing signed by both Parties. The failure of a Party to enforce any rights or provisions of the Agreement shall not be
construed to be a waiver of such rights or provisions, or a waiver by such Party to thereafter enforce such rights or
provision or any other rights or provisions hereunder. No waiver shall be effective unless made in writing and signed
by the waiving Party.
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treatment has been requested with respect to the omitted portions.
Exhibit 10.135
12.3 Further Assurances. Each Party agrees to execute, acknowledge, and deliver such further instruments
and to do all such other acts as may be necessary or appropriate in order to carry out the express provisions of this
Agreement.
12.4 Force Majeure. Neither Party shall be held responsible for any delay or failure in performance
hereunder caused by strikes, embargoes, unexpected government requirements, civil or military authorities, acts of God,
earthquake, or by the public enemy or other causes reasonably beyond such Party’s control and without such Party’s
fault or negligence; provided that the affected Party notifies the unaffected Party as soon as reasonably possible, and
resumes performance hereunder as soon as reasonably possible following cessation of such force majeure event; and
provided further that no such delay or failure in performance shall continue for more than [***]. In the event that a
delay or failure in performance by Chiva under this Section 12.4 continues longer than [***], then Ligand may
terminate this Agreement in accordance with the terms and conditions of Section 11.2(b) .
12.5 Assignments. Neither this Agreement nor any interest hereunder may be assigned, nor any other
obligation delegated, by a Party without the prior written consent of the other Party; provided, however, that a Party
shall have the right to assign this Agreement without consent of the other Party to an Affiliate of the assigning Party or
to any successor in interest to the assigning Party by operation of law, merger, consolidation, or other business
reorganization or the sale of all or substantially all of its assets relating to the subject matter of this Agreement in a
manner such that the assigning Party will remain liable and responsible for the performance and observance of all of its
duties and obligations hereunder. This Agreement shall be binding upon successors and permitted assigns of the
Parties. Any assignment not in accordance with this Section 12.5 will be null and void.
12.6 Performance by Affiliates. The Parties recognize that each may perform some or all of its obligations
under this Agreement through Affiliates or may exercise some or all of its rights under this Agreement through
Affiliates, provided, however, that each Party shall remain responsible and be guarantor of the performance by its
Affiliates and shall cause its Affiliates to comply with the provisions of this Agreement in connection with such
performance. In particular and without limitation, all Affiliates of a Party that receive Confidential Information of the
other Party pursuant to this Agreement shall be governed and bound by all obligations set forth in ARTICLE 7. Each
Party will prohibit all of its Affiliates from taking any action that such Party is prohibited from taking under this
Agreement as if such Affiliates were parties to this Agreement.
12.7 Relationship of the Parties. The Parties shall perform their obligations under this Agreement as
independent contractors and nothing in this Agreement is intended or will be deemed to constitute a partnership, agency
or employer-employee relationship between the Parties. Neither Party will have any right, power or authority to
assume, create, or incur any expense, liability, or obligation, express or implied, on behalf of the other.
12.8 No Use of Names. Except as otherwise required under applicable Law, or as otherwise permitted under
Section 7.4 , neither Party will use the name of the other Party in its advertising, press releases or promotional materials
without the prior written consent of such other Party.
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treatment has been requested with respect to the omitted portions.
Exhibit 10.135
12.9 Notices. Any notice, request, delivery, approval or consent required or permitted to be given under this
Agreement will be in writing and will be deemed to have been sufficiently given if delivered in person, transmitted by
facsimile (receipt verified) or by express courier service (signature required) or five (5) days after it was sent by
registered letter, return receipt requested (or its equivalent); provided that no postal strike or other disruption is then in
effect or comes into effect within two (2) days after such mailing, to the Party to which it is directed at its address or
facsimile number shown below or such other address or facsimile number as such Party will have last given by notice to
the other Party.
If to Ligand: Ligand Pharmaceuticals Incorporated
11119 North Torrey Pines Road, Suite 200
La Jolla, CA 92037
Attention: General Counsel
Fax: (858) 550-7272
With a copy to (which shall not constitute notice hereunder):
: Latham & Watkins LLP
12626 High Bluff Drive, Suite 400
San Diego, CA, 92130
Attention: Faye H. Russell, Esq.
Fax: (858) 523-5450
If to Chiva: Chiva Pharmaceuticals, Inc.
c/o 22nd Floor, Hang Lung Centre,
2-20 Paterson Street, Causeway Bay,
Hong Kong
Attention: Legal Counsel
Fax: (852) 2577 3509
With a copy to (which shall not constitute notice hereunder):
Joseph P. Meara, Esq.
Mark A. Kassel, Esq.
Counsel for Chiva Pharmaceuticals Limited
Foley & Lardner LLP
150 East Gilman St.
Madison, WI 53703
Facsimile: (608) 258-4258
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.135
12.10 Governing Law. The rights and obligations of the Parties under this Agreement shall be governed, and shall be
interpreted, construed, and enforced, in all respects by the Law of the State of California, without giving effect to any
conflict of Law rule that would result in the application of the Law of any jurisdiction other than the internal Law of the
State of California to the rights and duties of the Parties.
12.11 Dispute Resolution. The procedures set forth in this Section 12.11 shall be the exclusive mechanism
for resolving any bona fide disputes, controversies or claims (collectively, “Disputes”) between the Parties that arise
from time to time pursuant to this Agreement relating to any Party’s rights and/or obligations hereunder that cannot be
resolved through good faith negotiation between the Parties.
(a) Executive Mediation. Any Dispute shall first be referred to an Executive from each Party, by
written notice, for attempted resolution by good faith negotiations. Any such Dispute shall be submitted to such
Executives no later than [***] following such request by either Party. Such Executives shall attempt in good faith to
resolve any such Dispute [***] after submission of the Dispute. In the event the Executives are unable to resolve the
Dispute, the Parties shall otherwise negotiate in good faith and use reasonable efforts to settle.
(b) Arbitration. If the Parties are not able to fully settle a Dispute pursuant to Section 12.11(a) above,
and a Party wishes to pursue the matter, each such Dispute that is not an Excluded Claim shall be finally resolved by
binding arbitration in accordance with the Commercial Arbitration Rules and Supplementary Procedures for Large
Complex Disputes of the American Arbitration Association (“ AAA”), and judgment on the arbitration award may be
entered in any court having jurisdiction thereof.
(1) Any arbitration shall be conducted by a panel of three persons experienced in the
pharmaceutical business: within [***] after initiation of arbitration, each Party shall select one person to act as
arbitrator and the two Party-selected arbitrators shall select a third arbitrator within [***] of their appointment. If the
arbitrators selected by the Parties are unable or fail to agree upon the third arbitrator, the third arbitrator shall be
appointed by the AAA. The place of arbitration shall be [***] if the Dispute is submitted by Chiva and [***] if a
Dispute is submitted by Ligand, and all proceedings and communications shall be in English.
(2) Either Party may apply to the arbitrators for interim injunctive relief until the arbitration
award is rendered or the controversy is otherwise resolved. Either Party also may, without waiving any remedy under
this Agreement, seek from any court having jurisdiction any injunctive or provisional relief necessary to protect the
rights or property of that Party pending the arbitration award. The arbitrators shall have no authority to award punitive
or any other type of damages not measured by a Party’s compensatory damages. Each Party shall bear its own costs
and expenses and attorneys’ fees and [***].
(3) Except to the extent necessary to confirm an award or as may be required by law, neither a
Party nor an arbitrator may disclose the existence, content, or results of an arbitration without the prior written consent
of both Parties. In no event shall an arbitration be initiated after
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treatment has been requested with respect to the omitted portions.
Exhibit 10.135
the date when commencement of a legal or equitable proceeding based on the dispute, controversy or claim would be
barred by the applicable California statute of limitations.
(c) As used in this Section, the term “ Excluded Claim” shall mean a Dispute that concerns (a) the
validity or infringement of a patent, trademark or copyright; or (b) any antitrust, anti-monopoly or competition law or
regulation, whether or not statutory. For all Excluded Claims, the Parties hereby submit to the exclusive jurisdiction of
the courts of the State of California, in and for the County of San Diego, or of the United States of America for the
Southern District of California.
12.12 Headings. The article, section and subsection headings contained herein are for the purposes of
convenience only and are not intended to define or limit the contents of the articles, sections or subsections to which
such headings apply.
12.13 Severability. When possible, each provision of this Agreement will be interpreted in such manner as to
be effective and valid under Law, but, if any provision of this Agreement is held to be prohibited by or invalid under
Law, such provision will be ineffective but only to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or of this Agreement. The Parties will make a good faith effort to replace the invalid or
unenforceable provision with a valid one which in its economic effect is most consistent with the invalid or
unenforceable provision.
12.14 Counterparts. This Agreement may be executed in counterparts (including by facsimile or electronic
signature), each of which shall be deemed an original and all of which together shall constitute one instrument.
[Signature Page Follows]
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treatment has been requested with respect to the omitted portions.
IN WITNESS WHEREOF, the Parties have executed this Agreement in duplicate originals by their duly
authorized representatives as of the date set forth above, effective as of the Effective Date.
Exhibit 10.135
LIGAND PHARMACEUTICALS
INCORPORATED
(“Ligand”)
By: /s/ Charles Berkman
Name: Charles Berkman
Title: VP, General Counsel & Secretary
CHIVA PHARMACEUTICALS, INC.
INCORPORATED (formerly known as, Elite Mind Investments, Ltd.)
(“Chiva”)
By: /s/ Carolyn Jin
Name: Carolyn Jin
Title: Acting Chief Executive Officer
[Signature Page of Amended and Restated License Agreement]
Exhibit 10.135
EXHIBIT A
[***]
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treatment has been requested with respect to the omitted portions.
Exhibit 10.135
EXHIBIT B
[***]
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treatment has been requested with respect to the omitted portions.
Exhibit 10.135
Schedule 1.30
HepDirect Patents
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treatment has been requested with respect to the omitted portions.
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Exhibit 10.135
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∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
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Exhibit 10.135
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∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Schedule 1.47
MB07133 Patents
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Exhibit 10.135
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∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Schedule 1.57
Pradefovir Patents
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Exhibit 10.135
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∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.135
Schedule 5.1
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∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.135
Schedule 5.3(a)
[***]
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
CERTAIN MATERIAL (INDICATED BY AN ASTERISK) HAS BEEN OMITTED FROM THIS DOCUMENT PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Exhibit 10.136
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
THIS SETTLEMENT AGREEMENT AND MUTUAL RELEASE (“Agreement”) is entered into and
effective as of this 31st day of October, 2012 (the “ Effective Date”) by and between Ligand Pharmaceuticals
Incorporated, for and on behalf of itself and for and on behalf of its shareholders, officers, employees, agents and
attorneys, and each of them (“Ligand”) and Chiva Pharmaceuticals, Inc. , for and on behalf of itself and for and on
behalf of its shareholders, officers, employees, agents and attorneys, and each of them (“Chiva”) (collectively, the
“Parties” and individually, “Party”).
WHEREAS
RECITALS
A Ligand is a pharmaceutical corporation organized under the laws of Delaware and having a place of
business at 11119 North Torrey Pines Road, Suite 200, La Jolla, CA 92037.
B. Chiva is a pharmaceutical corporation organized under the laws of the Cayman Islands whose registered
office is situated at Scotia Centre, 4th Floor, P.O. Box, 2804, George Town, Grand Cayman KY1-1112, Cayman
Islands.
C . Ligand and Chiva entered into that certain License Agreement dated October 7, 2011, as amended
pursuant to the First Amendment to License Agreement dated December 23, 2011, pursuant to which Ligand licensed
to Chiva certain of Ligand’s patents and know-how (“Fablyn License Agreement”).
D . Ligand and Chiva entered into that certain License Agreement effective as of January 6, 2011, as
amended pursuant to the First Amendment to License Agreement dated August 31, 2011, as further amended pursuant
to the Second Amendment to License Agreement dated December 23, 2011 (the “HepDirect License Agreement”)
E. A dispute arose between the Parties regarding [***] under the terms of the Fablyn License Agreement ,
and [***] under the terms of the HepDirect License Agreement.
F . Ligand initiated an arbitration against Chiva with the American Arbitration Association titled Ligand
Pharmaceuticals Incorporated v. Chiva Pharmaceuticals, Inc., Case No. 50 122 T 00644 12 (the “ Arbitration”).
G. The Parties to this Agreement, without acknowledging the validity of any claims, causes of action or
allegations in the Arbitration, or any fault, liability or wrongdoing of any kind, wish to compromise, settle and
discharge all claims, controversies, demands, actions or causes of action that each Party has or may have against the
other Party in connection with the Fablyn License Agreement and the HepDirect License Agreement , including,
but not limited to, the disputes that are the subject matter of the Arbitration.
NOW, THEREFORE, in consideration of the mutual promises, covenants, and conditions herein contained, and
intending to be legally bound, the Parties hereby agree to the following terms and agree to perform any and all acts
necessary, including signing necessary documents, to implement the following agreement:
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.136
1. Payment to Ligand
AGREEMENT
Upon execution of this Agreement by the Parties, Chiva shall pay to Ligand the amount of ninety-six
thousand, one hundred eleven U.S. dollars and eighty cents ($96,111.80) as a full and final settlement of all monies due
to or claimed by Ligand under the Fablyn License Agreement (the “Settlement Amount”). The Settlement Amount
shall be paid by Chiva to Ligand in the form of a wire transfer to Ligand payable to such bank account as Ligand has
previously communicated to Chiva. The Settlement Amount shall be paid to Ligand within three (3) business days of
the execution of this Agreement by both Parties. If Chiva fails to pay the Settlement Amount within three (3)
business days of the execution of this Agreement, then this Agreement and the Amended and Restated License
Agreement (as defined in Section 3 of this Agreement) shall automatically terminate without ever having taken effect..
2. Termination of the Fablyn License Agreement and Return of Product Assets
(a) As used in this Section 2, “Product” means that pharmaceutical product known as “Fablyn” (lasofoxifene
tartrate as identified in Exhibit A).
(b) Upon Ligand’s receipt from Chiva of: (1) the Settlement Amount ; (2) both this Agreement and the
Amended and Restated License Agreement in both cases validly executed by Chiva; and (3) the Product Assets,
the Fablyn License Agreement (a copy of which is attached hereto as Exhibit B) shall terminate and have no further
force and effect; provided, however, the provisions of Article 6 shall survive for a period of [***]. As of the Effective
Date, Ligand acknowledges receipt of all material Product Assets known to it pursuant to Sections 2(d) and 2(e)
herein.
(c) Chiva hereby assigns and transfers to Ligand all of Chiva’s (and any of its Affiliates’ (as defined in the
Fablyn License Agreement)) right, title and interest in and to all “ Product Assets.” For purposes of this Agreement,
“Product Assets” shall mean those tangible or intangible assets critical or necessary for the making, using, selling,
offering to sell, exporting or importing of Product worldwide, including (i) Patents licensed to Chiva and its Affiliates
under the Fablyn License Agreement (“Fablyn Patents”) (a list of which is attached hereto as Exhibit C); (ii)
Regulatory Documentation (as defined in the Fablyn License Agreement ); (iii) Regulatory Approvals (as defined
in the Fablyn License Agreement) that exist as of the Effective Date (a list of which is attached hereto as Exhibit D);
(iv) Know-How (as defined in the Fablyn License Agreement) licensed to Chiva and its Affiliates as of the Effective
Date that is (A) critical or necessary in connection with the making, using, selling, offering to sell, exporting and
importing of Product worldwide and (B) not included in the Fablyn Patents (“Fablyn Know-How”); (v) commitments,
contracts, purchase orders, leases or other agreements, whether written or oral, related to the Product (collectively,
“Product Agreements”); (vi) inventory owned as of the Effective Date by Chiva of Product or works in progress or
materials used in manufacture of Product, whether held at a location or facility of Chiva (or of any other person on
behalf of Chiva) or in transit to or from Chiva (or any such other person), including active pharmaceutical ingredient
(collectively, “Materials”); (vii) files, documents, instruments, papers, books and records owned by Chiva or any of
its Affiliates relating to the Products or that are critical or necessary for the clinical development, use or manufacture of
the Products, including all such files, documents, instruments, papers, books and records related to the Fablyn Patents
and Fablyn Know-How (“Books and
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.136
Records”); (ix) toxicology, pre-clinical, clinical, regulatory and manufacturing information and data and technology,
and all submissions and correspondence with or to any governmental or regulatory authority worldwide regarding
Product and the manufacturing, packaging or release of Product, including all validation data and documentation
supporting the process of manufacturing Product, in any form whatsoever including notebooks (“Product Data”); and
(x) rights, privileges, claims and causes of action (regardless of whether or not such claims or causes of action have
been asserted by Chiva) arising out of or relating to the ownership, performance or use of the Product Assets. For
clarity, the Product Assets shall include any and all such materials, documents and other information transferred by
Ligand to Chiva in connection with the execution and performance under the Fablyn License Agreement as well as
any and all Product Assets developed or acquired by Chiva since the effective date of the Fablyn License
Agreement.
( d ) Ligand acknowledges that it has copies of all Product Assets it provided to Chiva and that Chiva
previously provided to it in connection with the execution and performance under the Fablyn License Agreement, that
it did not provide any Product, intermediates or other inventory for making Product to Chiva, and that Chiva is not
obligated to provide to Ligand copies of any Product Assets that are already in Ligand’s possession. In particular,
Ligand acknowledges receiving on or before the Effective Date, a copy of [***].
( e ) Chiva represents and warrants to Ligand that, as of the Effective Date, there are [***]. Chiva
acknowledges that [***].
(f) Chiva shall execute and cause to be delivered to Ligand such instruments and other documents, and shall
take such other actions, as Ligand shall reasonably request (prior to, at or within 5 days after the execution of this
Agreement) for the purpose of carrying out or evidencing any of the transactions contemplated by Section 2 of this
Agreement. In furtherance of the foregoing, Chiva agrees that if, after the execution of this Agreement, Chiva holds
assets, properties or rights which by the terms hereof were to be assigned and transferred to Ligand, Chiva shall, at its
reasonable expense, promptly assign and transfer or cause to be assigned and transferred such assets, properties and
rights to Ligand, and Ligand and Chiva agree that Chiva will hold such assets, properties and rights as trustee of
Ligand and all income and risk of loss of the transferred assets, properties and rights shall be for the account of
Ligand.
(g) The Product Assets collectively constitute all of the properties, rights, interests and other tangible and
intangible assets owned or controlled by Chiva that are critical or necessary to reasonably enable Ligand, following
the Effective Date, to continue the clinical development of Products. Chiva has good and marketable title to all of the
Product Assets. To the Parties’ knowledge, Exhibits C and D attached hereto are true, complete and correct as of the
Effective Date.
( h ) Chiva acknowledges and agrees that all amounts paid prior to the Effective Date by Chiva to Ligand
pursuant to the terms of the Fablyn License Agreement were non-refundable and non-creditable and Ligand shall
retain all such amounts.
(i) Ligand acknowledges and agrees that all amounts payable (past, present or future due) on the Effective
Date by Chiva to Ligand pursuant to the terms of the Fablyn License Agreement, and all rights thereto and benefits
thereof, shall be absolutely waived by Ligand and Ligand shall have no further claim or right to claim against Chiva
for such amounts or any part thereof, except as provided in this Agreement with respect to the Settlement Amount.
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.136
3. Execution of the Amended and Restated HepDirect License Agreement
Simultaneous with the execution of this Agreement, the Parties shall execute and deliver the Amended and
Restated License Agreement (“Amended and Restated License Agreement ”), attached hereto as Exhibit E, which
amends and restates the HepDirect License Agreement.
4. Dismissal of the Arbitration
Upon Ligand’s receipt from Chiva of: (1) the Settlement Amount; (2) both this Agreement and the Amended
and Restated License Agreement in both cases validly executed by Chiva; and (3) the Product Assets, Ligand
[***], dismiss the Arbitration now pending before the American Arbitration Association initiated by Ligand. Said
dismissal shall be on terms that require that each Party [***]. Ligand shall promptly provide to Chiva proof of the
dismissal of the Arbitration.
5. Mutual Release of Claims
(a) As used in this Clause, “Related Persons and Entities” in connection with a Party means any and all past,
present, and future parents, subsidiaries, affiliates, partners, owners, joint venturers, stockholders, predecessors,
successors, officers, members, directors, administrators, employees, agents, representatives, consultants, attorneys,
insurers, heirs, executors, assignors or assignees, retirement plans (and/or their trustees) of that Party and any other
person, firm, or corporation with whom that Party is now or may hereinafter be affiliated, and any of them.
(b) Each Party and its Related Persons and Entities hereby fully and forever, knowingly, voluntarily, and
irrevocably releases, acquits, discharges, and promises not to sue the other Party and its Related Persons and Entities,
from, without limitation, any and all claims, demands, damages, obligations, losses, causes of action, costs, expenses,
attorneys’ fees, judgments, liabilities, duties, debts, liens, accounts, obligations, contracts/agreements, promises,
representations, actions, and causes of action, other proceedings and indemnities of any nature whatsoever arising from
or in any way related to the Fablyn License Agreement and the HepDirect License Agreement and any and all
claims made by that Party in the Arbitration (including but not limited to any and all fees and costs related thereto),
whether accrued or contingent, secured or unsecured, negligent or intentional, known or unknown, suspected or
unsuspected, and whether based on law, equity, contract, tort, statute, or other legal or equitable theory of recovery,
whether mature or to mature in the future, which from the beginning of time of the world to the Effective Date of this
Agreement, each Party and its Related Persons and Entities had, now have, or claims to have against the other Party
and its Related Persons and Entities, or any other person or entity described above.
(c) The Parties acknowledge that each of them may later discover material facts in addition to, or different
from, those which they now know or believe to be true. The Parties further acknowledge that there may be future
events, circumstances or occurrences materially different from those each knows or believes likely to occur. It is the
intention of each of the Parties hereto to fully, finally and forever settle and generally release all claims, disputes and
differences occurring prior to the Effective Date of this Agreement. The general releases provided in this Agreement
shall remain in full effect notwithstanding the discovery or existence of any such additional or different facts or
occurrence of any such future events, circumstances or conditions.
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.136
6. No Admission of Liability
This Agreement and its terms, including, but not limited to, the Mutual Release above, and the execution of
this Agreement, shall not be construed as an admission of liability or fault by either of the Parties.
7. Each Party to Bear Its Own Cost
Each of the Parties shall, at its own cost, execute all such documents and take such steps and do all such acts or
things as may be required for the purpose of giving effect to the provisions of this Agreement. Each Party will bear its
own respective legal and other costs, including the costs of Arbitration, negotiations and execution of this
Agreement.
8. General Release: California Civil Code Section 1542 Waiver
Each Party and its Related Persons and Entities hereby expressly waives the benefit of any statute or rule of
law that, if applied to this Agreement would otherwise exclude from its binding effect any claims not known by it to
exist which arose prior to the signing of this Agreement. The Parties acknowledge that they have read and fully
understand the provisions of California Civil Code section 1542, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW
OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH, IF
KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
The Parties, being aware of said Code Section, hereby each expressly waive, on behalf of themselves and their
affiliates, any rights and benefits that they may have under section 1542 of the Civil Code to the full extent that they
may lawfully waive such rights and benefits, and shall waive any rights and benefits they may have under any other
statutes or common law principles of similar effect.
9. Entire Agreement
All prior or contemporaneous understandings or agreements between the Parties as they relate to the
Arbitration are merged into this Agreement, and this Agreement, including the Exhibits attached hereto, expresses
the agreement of the Parties. This Agreement may be modified only in writing, signed by all the Parties hereto, or all
the Parties affected by any such modification, and no term or provision may be waived except by such writing. The
Parties have been represented by counsel in connection with the preparation of this Agreement.
10. Joint Efforts
This Agreement was drafted through the joint efforts of the Parties through counsel, and shall not be read for
or against any Party to this Agreement on that account.
11. Benefit of Agreement
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
This Agreement shall be binding upon and inure to the benefit of the Parties, and each of them, their
predecessors, successors, assigns, personal representatives, agents, directors, members, officers and employees.
Exhibit 10.136
12. Notices
All notices or demands of any kind that any Party is required to or desires to give in connection with this
Agreement shall be in writing and shall be deemed to be delivered by facsimile or PDF and by mailing the notice or
demand via courier, Federal Express or certified mail, postage prepaid, and addressed to the other Parties as follows:
A. If to Ligand:
Ligand Pharmaceuticals Incorporated
11119 North Torrey Pines Road, Suite 200
La Jolla, CA 92037
Attention: Charles Berkman, Esq., General Counsel
Facsimile: (858) 550-7272
With a copy to:
Faye H. Russell, Esq.
Jake Ryan, Esq.
Counsel for Ligand Pharmaceuticals Incorporated
Latham & Watkins LLP
12636 High Bluff Dr., Suite 400
San Diego, CA 92130
Facsimile: (858) 523-5450
B. If to Chiva:
Chiva Pharmaceuticals, Inc.
c/o 22nd Floor, Hang Lung Centre,
2-20 Paterson Street, Causeway Bay,
Hong Kong
Attention: Legal Counsel
Facsimile: (852) 2577 3509
With a copy to:
Joseph P. Meara, Esq.
Mark A. Kassel, Esq.
Counsel for Chiva Pharmaceuticals, Inc.
Foley & Lardner LLP
150 East Gilman St.
Madison, WI 53703
Facsimile: (608) 258-4258
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.136
13. Severability
If any portion, provision, or part of this Agreement is held, determined, or adjudicated to be invalid,
unenforceable, or void for any reason whatsoever, each such portion, provision, or part of this Agreement shall be
severed from the remaining portions, provisions, or parts of this Agreement and shall not affect the validity or
enforceability of such remaining portions, provisions or parts.
14. Arbitration of Disputes
All disputes arising out of or in connection with this Agreement shall be settled by arbitration according to the
Commercial Arbitration Rules and Supplementary Procedures for Large Complex Disputes of the American Arbitration
Association (“Rules”) by one arbitrator in accordance with said Rules. The seat of arbitration shall be San Diego,
California. The procedural law of this place shall apply where the Rules are silent. The arbitration proceedings shall be
conducted in English.
15. Choice of Law
This Agreement shall be construed according to the laws of the State of California, U.S.A., without regard to
its conflict of laws principles.
16. Attorneys’ Fees
If any arbitration, legal action or other proceeding is brought by any of the Parties hereto to enforce this
Agreement or to recover damages or equitable relief for a breach or threatened breach thereof, the prevailing party
shall recover its costs, expert witness fees, consulting fees and reasonable attorneys’ fees incurred in such arbitration,
action or proceeding, which amount shall be determined by the arbitration tribunal or court, as it may be.
17. Place of Contracting
In any arbitration, action or other proceeding relating to this Agreement, the Agreement shall be deemed to
have been entered into in San Diego, California notwithstanding where the Agreement was executed.
18. Headings
The headings of the paragraphs of this Agreement are for convenience only and shall not affect the
construction or interpretation of any of its provisions.
19. Warranties and Representations. Ligand and Chiva each represent and warrant to the other that, as of the
Effective Date:
(a) it is a corporation or entity duly organized and validly existing under the laws of the jurisdiction in
which it is incorporated;
(b) it has full corporate or institutional power and authority, and has obtained all approvals, permits
and consents necessary, to enter into this Agreement and to perform its obligations hereunder;
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.136
(c) this Agreement is legally binding upon it and enforceable in accordance with its terms;
(d) the execution, delivery and performance of this Agreement does not conflict with any agreement,
instrument or understanding, oral or written, to which it is a party or by which it may be bound, nor violate any material
law or regulation of any governmental or regulatory authority having jurisdiction over it;
(e) it has not assigned or transferred to any person not a party hereto any claim or other released
matter, or any part or portion thereof; and
(f) they have not relied upon any representations by any other Party or their respective directors,
members, agents, employees, representatives, or attorneys, concerning the terms or effects of this Agreement other
than those expressly contained in this Agreement.
20. Publicity.
( a ) Characterization of Settlement. Chiva and Ligand each agree that in characterizing or describing the
settlement and resolution of said legal action or the terms and conditions of this Agreement, neither Party will make
any statements that it has been successful, attained a victory, or prevailed in the Arbitration.
(b) Press Release; SEC Filings . Ligand may, within [***], issue a press release in the form to be proposed by
Ligand and subject to Chiva’s prior written approval, not to be unreasonably withheld. In the event Chiva does not
provide its written approval within [***], Ligand may issue a press release in furtherance of its disclosure obligations
as a publicly traded company. The parties acknowledge that Ligand is obligated to file a Current Report on Form 8-K
in connection with the execution of this Agreement and will be obligated to file this Agreement with the Securities and
Exchange Commission.
( c ) Confidentiality. Save for the disclosure obligations under Section 20(b) above, the Parties agree not to
disclose the terms and content of this Agreement to any third party.
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
IN WITNESS WHEREOF, the Parties hereto have duly executed this Settlement Agreement and Mutual
Release in counterparts through their duly authorized representatives.
Exhibit 10.136
LIGAND PHARMACEUTICALS, INC.
(“Ligand”)
By: /s/ Charles Berkman
Name: Charles Berkman
Title: VP, General Counsel & Secretary
CHIVA PHARMACEUTICALS, INC.
(“Chiva”)
By: /s/ Carolyn Jin
Name: Carolyn Jin
Title: Acting Chief Executive Officer
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
CERTAIN MATERIAL (INDICATED BY AN ASTERISK) HAS BEEN OMITTED FROM THIS DOCUMENT PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Exhibit 10.136
Exhibit A
Fablyn
[***]
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit B
Fablyn License Agreement
[See Exhibit 10.6 of Ligand’s Quarterly Report on Form 10-Q
for the period ended September 30, 2011]
Exhibit 10.136
Exhibit C
Fablyn Patents
Exhibit 10.136
Exhibit 10.136
[***]
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∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.136
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∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
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Exhibit 10.136
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∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.136
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∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
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Exhibit 10.136
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.136
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∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
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∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.136
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∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
[***]
[***]
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[***]
Exhibit 10.136
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.136
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Exhibit 10.136
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.136
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∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.136
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∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.136
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∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
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Exhibit 10.136
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.136
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∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
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Exhibit 10.136
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.136
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[***]
[***]
[***]
[***]
[***]
[***]
[***]
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.136
[***]
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[***]
[***]
[***]
[***]
[***]
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.136
[***]
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[***]
[***]
[***]
[***]
[***]
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.136
[***]
[***]
[***]
[***]
[***]
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[***]
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∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
[***]
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[***]
[***]
[***]
[***]
[***]
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.136
[***]
[***]
[***]
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[***]
[***]
[***]
[***]
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
Exhibit 10.136
Exhibit D
Regulatory Approvals
[***]
∗∗∗ Certain information on this page has been omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our reports dated March 14, 2013 with respect to the consolidated financial statements and internal control over financial
reporting included in the Annual Report of Ligand Pharmaceuticals Incorporated on Form 10-K for the year ended December 31, 2012.
We hereby consent to the incorporation by reference of said reports in the Registration Statements of Ligand Pharmaceuticals, Incorporated
on Form S-3 (File No. 333-177338, effective October 26, 2011) and Forms S-8 (File No. 333-160132, effective June 22, 2009 and File No.
333-131029, effective June 18, 2007).
Exhibit 23.1
/s/ GRANT THORNTON LLP
San Diego, California
March 14, 2013
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, John L. Higgins, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Ligand Pharmaceuticals
Incorporated;
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 the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial 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 officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange 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)
b)
c)
d)
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 consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: March 14, 2013
/s/ John L. Higgins
John L. Higgins
President, Chief Executive Officer and Director
(Principal Executive Officer)
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, John P. Sharp, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Ligand Pharmaceuticals
Incorporated;
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 the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial 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 officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange 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)
b)
c)
d)
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 consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: March 14, 2013
/s/ John P. Sharp
John P. Sharp
Vice President, Finance and Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION BY PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the accompanying Annual Report on Form 10-K of Ligand Pharmaceuticals Incorporated (the “Company”) for
the year ended December 31, 2012, I, John L. Higgins, President, Chief Executive Officer and Director of the Company, hereby certify
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge
and belief, that:
(1) such Annual Report on Form 10-K for the year ended December 31, 2012, fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in such Annual Report on Form 10-K for the year ended December 31, 2012, fairly presents, in all
material respects, the financial condition and results of operations of the Company.
The foregoing certification is being furnished solely to accompany such Annual Report on Form 10-K for the year ended
December 31, 2012, pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of
1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof,
regardless of any general incorporation language in such filing.
Date: March 14, 2013
/s/ John L. Higgins
John L. Higgins
President, Chief Executive Officer and Director
(Principal Executive Officer)
CERTIFICATION BY PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the accompanying Annual Report on Form 10-K of Ligand Pharmaceuticals Incorporated (the “Company”) for
the year ended December 31, 2012, I, John P. Sharp, Vice President, Finance and Chief Financial Officer of the Company, hereby certify
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge
and belief, that:
(1) such Annual Report on Form 10-K for the year ended December 31, 2012, fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in such Annual Report on Form 10-K for the year ended December 31, 2012, fairly presents, in all
material respects, the financial condition and results of operations of the Company.
The foregoing certification is being furnished solely to accompany such Annual Report on Form 10-K for the year ended
December 31, 2012, pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of
1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof,
regardless of any general incorporation language in such filing.
Date: March 14, 2013
/s/ John P. Sharp
John P. Sharp
Vice President, Finance and Chief Financial Officer
(Principal Financial Officer)
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