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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, 2013
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 x No o
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 $676.8 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, 2013. 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 February 14, 2014, the Registrant had 20,614,524 shares of Common Stock outstanding.
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Portions of the Proxy Statement for the Registrant’s 2014 Annual Meeting of Stockholders to be filed with the Commission on or before April 30,
2014 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
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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 the 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 such documents electronically with the SEC. The address of that site is
http://www.sec.gov.
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 http://www.ligand.com,
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.
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PART I
Cautionary Note Regarding Forward-Looking Statements :
You should read the following together with the more detailed information regarding our company, our common stock and our
financial statements and notes to those statements appearing elsewhere in this document or incorporated by reference. The SEC allows us
to “incorporate by reference” information that we file with the SEC, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is considered to be part of this report.
This report and the information incorporated herein by reference contain forward-looking statements that involve a number of risks
and uncertainties. Although our forward-looking statements reflect the good faith judgment of our management, these statements can only
be based on facts and factors currently known by us. Consequently, these forward-looking statements are inherently subject to risks and
uncertainties, and actual results and outcomes may differ materially from results and outcomes discussed in the forward-looking
statements.
Forward-looking statements can be identified by the use of forward-looking words such as “believes,” “expects,” “hopes,” “may,”
“will,” “plan,” “intends,” “estimates,” “could,” “should,” “would,” “continue,” “seeks,” “pro forma,” or “anticipates,” or other
similar words (including their use in the negative), or by discussions of future matters such as those related to our royalty revenues,
collaborative revenues and milestones, and product development, as well as other statements that are not historical. These statements
include but are not limited to statements under the captions “Business,” “Risk Factors” and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” as well as other sections in this report. You should be aware that the occurrence of any of
the events discussed under the caption “Risk Factors” and elsewhere in this report could substantially harm our business, results of
operations and financial condition and that if any of these events occurs, the trading price of our stock could decline and you could lose all
or a part of the value of your investment in our stock.
The cautionary statements made in this report are intended to be applicable to all related forward-looking statements wherever they
may appear in this report. We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of
this report. Except as required by law, we assume no obligation to update our forward-looking statements, even if new information
becomes available in the future. 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,” “our” and “us” include our wholly owned
subsidiaries-Ligand JVR, Allergan Ligand Retinoid Therapeutics, Seragen, Inc., Pharmacopeia, LLC, or Pharmacopeia, Neurogen
Corporation, or Neurogen, CyDex Pharmaceuticals, Inc., or CyDex, Metabasis Therapeutics, or Metabasis, and Nexus Equity VI LLC.
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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 with 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 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, immune (idiopathic) thrombocytopenic purpura, or ITP, muscle wasting,
multiple myeloma, Alzheimer’s disease, dyslipidemia, diabetes, anemia, epilepsy, Focal Segmental Glomerulosclerosis, or FSGS, and
osteoporosis. We have established multiple alliances with the world’s leading pharmaceutical companies including GlaxoSmithKline, Onyx
Pharmaceuticals (a subsidiary of Amgen, Inc.), Merck, Pfizer, Baxter International, Lundbeck Inc., Eli Lilly and Co., and Spectrum
Pharmaceuticals, Inc.
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.
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 company. 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.
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 90 fully funded partner programs that are in all stages of development, from preclinical research to
awaiting commercialization. Fully funded programs are those for which our partners pay all of the development and commercialization
costs. 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 pharmacokinetics of
many drugs. We generate revenue by selling 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
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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 large portfolio of current and future potential revenue-generating programs, over 90 of which are fully-funded by our
partners. Over 70% of our 2013 revenue is derived from our Promacta®, Kyprolis, and Captisol programs (including Captisol material
sales).
Material 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 for ITP in the United States 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 Mitigation Strategies (REMS) program that
Promacta had been operating under in the United States 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 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.
In September 2013, GSK received Marketing Authorization from the European Commission for an additional Revolade
(eltrombopag/Promacta) indication as the first approved treatment for chronic Hepatitis C-associated thrombocytopenia.
GSK is conducting clinical studies of Promacta for various indications, including oncology-related indications. Promacta is
authorized for use in 95 countries.
We entered into a Research, Development and License Agreement with SmithKline Beecham Corporation (now GSK) on December
29, 1994. The purpose of the agreement was to engage in a joint research and development effort to discover and/or design small molecule
compounds which act as modulators of certain signal transducers and activators of transcription, or STATS, to develop pharmaceutical
products from such compounds and to commercialize products resulting from the joint research and development. We granted an exclusive
license under our patent rights to any product developed from the joint research. GSK has listed a patent in the FDA’s Orange Book for
Promacta with an expiration date in 2027, and we are entitled to receive royalties related to Promacta under this license as set forth below.
The obligation to pay royalties lasts during the life or the relevant patents or at a reduced rate for ten years from the first commercial sale,
whichever is longer, on a country-by-country basis. Absent early termination for bankruptcy or material breach, the term of the agreement
expires upon expiration of the obligation to pay royalties. Either party may terminate the agreement in the event of bankruptcy or material
breach. There are no remaining milestones to be paid under the agreement. We are entitled to receive royalties on annual net sales of
Promacta as set forth in the following table:
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AGGREGATE NET SALES IN EACH CALENDAR YEAR
On portion of sales less than $100 million
On portion of sales in range of $100 million to $200 million
On portion of sales in range of $200 million to $400 million
On portion of sales in range of $400 million to $1.5 billion
On portion of sales greater than $1.5 billion
*Net royalties due Ligand after payment to Rockefeller University.
ROYALTY RATE*
4.7 %
6.6 %
7.5 %
9.4 %
9.3 %
Any such royalties may be subject to reduction (e.g., in the event of no patent coverage for the product) and/or may be subject to
other terms and conditions set forth in our license agreement with GSK.
Kyprolis (Onyx Pharmaceuticals, a subsidiary of Amgen)
Ligand and Onyx Pharmaceuticals (formerly Proteolix, and now a subsidiary of Amgen, Inc.), entered into a collaboration in 2005 to
develop the Captisol-enabled IV formulation of the active ingredient carfilzomib for refractory multiple myeloma. Under this agreement
we agreed to sell Captisol to Onyx for use with carfilzomib, and granted an exclusive product-specific license under our patent rights with
respect to Captisol. In July 2012, Onyx received accelerated approval from the FDA for Kyprolis (carfilzomib) for injection. Kyprolis is
formulated with Ligand’s Captisol technology 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.
Onyx’s obligation to pay royalties does not expire until four years after the expiration of the last-to-expire patent covering Captisol.
Our patents and applications relating to the Captisol component of Kyprolis are not expected to expire until 2033. Our agreement with
Onyx may be terminated by either party in the event of material breach or bankruptcy, or unilaterally by Onyx with prior written notice,
subject to certain surviving obligations such as placing orders under any binding forecasts. Absent early termination, the agreement will
terminate upon expiration of the obligation to pay royalties. Under this agreement, we are entitled to receive remaining milestones of up to
$2.5 million, revenue from clinical and commercial Captisol material sales and royalties on annual net sales of Kyprolis as set forth in the
following table:
AGGREGATE NET SALES IN EACH CALENDAR YEAR
Up to, and including $250 million
Above $250 million to $500 million
Above $500 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, together with all patent rights and licenses related to Avinza, to King Pharmaceuticals,
which was acquired by Pfizer in February 2011. As a result of the sale, we are entitled to receive royalties from Prizer on net sales of
Avinza through the term of the relevant patent, which we currently expect to expire on November 25, 2017. Royalties on annual net sales
are paid at a rate of 5% on sales up to $200 million, 10% on sales above $200 million and 15% on sales above $250 million. Neither party
to the agreement has any ongoing termination rights.
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:
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., or
Spectrum. 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
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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 granted an exclusive license to Spectrum under our patent rights to Captisol relating to
the melphalan product. We are eligible to receive over $50 million in potential milestone payments under this agreement, and we are also
eligible to receive royalties on future net sales of the Captisol-enabled melphalan product at a royalty rate in the range of 15% to 25%.
Spectrum’s obligation to pay royalties will expire at the end of the life of the relevant patents or when a competing product is launched,
whichever is earlier, but in no event within ten years of the commercial launch. Our patents and applications relating to the Captisol
component of melphalan are not expected to expire until 2033. Absent early termination, the agreement will terminate upon expiration of
the obligation to pay royalties. The agreement may be terminated by either party for an uncured material breach or unilaterally by Spectrum
by prior written notice. This program has completed enrollment in a pivotal clinical trial.
Biologic Therapeutics Platform (Various Stages of Development)
In April 2013, we acquired a portfolio of possible future royalty and milestone payment rights from Selexis SA, based on over 15
Selexis commercial license agreement programs with various pharmaceutical companies. Under the terms of our Royalty Stream and
Milestone Payments Purchase Agreement with Selexis, we are eligible to receive approximately $17 million in milestones and potentially
over $40 million in estimated annual royalties from these assets. The payment obligations for the particular programs are set forth in the
various underlying commercial license agreements between Selexis and various third parties, which have remaining terms tied to the life of
the underlying patents, which we currently expect to be maintained until at least 2026. In return for the rights to these payment streams, we
paid Selexis $3.5 million in an upfront cash payment, and expect to make a $1 million cash payment in April 2014 on the first anniversary
of the acquisition. Neither we nor Selexis has any ongoing termination rights with respect to our acquisition agreement.
The programs that we acquired in this transaction are based on Selexis’ technology platform for cell line development and scale-up to
manufacturing of therapeutic proteins, and relate to pre-commercialized drugs that are currently being developed; the programs should thus
require no funding or technological support from Ligand. Selexis retained ownership of the underlying intellectual property for each of
these programs. The programs covered by the Selexis transaction include novel biologics programs with Merrimack (MM-121, MM-111,
MM-302 and MM-151), Baxter (BAX69), Aveo, CSL and Glenmark and biosimilar programs with Coherus and Biocad.
Select Other Late-Stage Development or Commercial Programs
Duavee (bazedoxifene/conjugated estrogens) and 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, or 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.
Pfizer has combined bazedoxifene (discussed above) with the active ingredient in Premarin ® to create Duavee®, a combination
therapy for the treatment of post-menopausal symptoms in women. Pfizer obtained FDA approval for Duavee in the United States in
October 2013 and filed an approval submission with the EMA in 2012. Pfizer launched Duavee in the United States in the first quarter of
2014.
Net royalties on annual net sales of Viviant and Duavee are each payable to us at a rate shown in the table below and are payable
through the life of the relevant patents.
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AGGREGATE NET SALES IN EACH CALENDAR YEAR
On portion of sales less than $400 million
On portion of sales in range of $400 million to $1 billion
On portion of sales greater than $1 billion
* Net royalties due Ligand after payment to Royalty Pharma.
ROYALTY RATE *
0.5 %
1.5 %
2.5 %
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 license agreement with Pfizer.
Nexterone (Baxter International)
In 2006, we outlicensed Nexterone, an injectable formulation combining amiodarone and Captisol, to Baxter International, Inc. or
Baxter (which acquired Prism Pharmaceuticals, Inc., the original licensee, in 2011). 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 2033.
Captisol-enabled Noxafil-IV (Merck, NDA)
We and Merck entered into a Captisol supply agreement in June 2011 for Captisol-enabled Noxafil-IV. Merck has completed a Phase
3 study for this program and it filed a 505(b)(2) in 2013 for approval in the United States and European Union to market the drug. In the
United States, the New Drug Application, or NDA, for Noxafil-IV was filed and received FDA Priority Review in November 2013. In the
European Union, the Marketing Authorization Application, or MAA, is filed with the European Medicines Agency. Action is expected for
both the NDA and MAA in 2014, which may lead to commercial sale of Captisol for the program in multiple markets. We will receive our
commercial compensation for this program through the sale of Captisol, and we will not receive a royalty on this program.
MK-8931 Beta-Secretase Inhibitor (Merck, Phase 3, Alzheimer’s Disease)
We have a development agreement with Merck (formerly Schering-Plough) for a beta-secretase, or BACE, inhibitor program for the
treatment of Alzheimer’s disease. This disease is characterized by plaques of the toxic amyloid-beta protein within the brain. BACE 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, BACE and gamma-secretase, which releases the amyloid-beta fragment. A BACE inhibitor is expected
to reduce amyloid-beta generation in Alzheimer’s disease patients.
In December 2012, Merck initiated a Phase 2/3 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. In December 2013, Merck announced progression of the
program to Phase 3 by advancing the Phase 2/3 trial to Phase 3 and by initiating a second Phase 3 trial. We are entitled to a royalty on
potential future sales by Merck.
Sparsentan (formerly RE-021) (Retrophin, Phase 2, FSGS)
In early 2012, we licensed the world-wide rights to Sparsentan (formerly known as RE-021 and DARA-a Dual Acting Receptor
Antagonist of Angiotension and Endothelin receptors) to Retrophin, Inc., or Retrophin. Retrophin is developing Sparsentan for orphan
indications of severe kidney diseases including 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. Sparsentan, 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. Retrophin announced initiation
of a potentially pivotal Phase 2 clinical trial for Sparsentan on January 2, 2014.
In late 2012, we received a milestone payment of 620,000 shares of common stock in Retrophin. Former license holders are entitled
to receive 15% of the proceeds received upon sale of this stock, and all proceeds related to this
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program. Under our license agreement with Retrophin we are entitled to receive over $75 million in milestones, as well as 9% in royalties
on future worldwide sales by Retrophin through the life of the relevant patents, which we currently expect to be through at least 2019 and
may be extended until 2024. In 2013 we received a net $1.2 million milestone payment from Retrophin.
Lasofoxifene (Azure Biotech and Ethicor, Estrogen receptor modulator)
On July 17, 2013, we entered into a license agreement with Azure Biotech, Inc., or Azure. Under the agreement, we granted to Azure
an exclusive worldwide license to develop and market a novel formulation of lasofoxifene. We are entitled to receive up to $2.6 million in
potential development and regulatory milestones as well as a 5% royalty on future net sales through the later of the life of the relevant
patents (currently expected to be at least until 2027) or 10 years after regulatory approval. Azure may terminate the license agreement at
any time upon six months’ prior notice.
Lasofoxifene is an estrogen partial agonist for osteoporosis treatment and other diseases, discovered through the research
collaboration between us and Pfizer. Under the terms of the license agreement with Azure, we retain the rights to the oral formulation of
lasofoxifene originally developed by Pfizer.
In July 2013, we also entered into a license agreement with Ethicor for the manufacture and distribution of the oral formulation of
lasofoxifene in the European Economic Area, Switzerland and the Indian Subcontinent. Under the terms of the agreement, we are entitled
to receive potential sales milestones of up to $16 million and a 25% royalty on future net sales. Ethicor plans to supply oral lasofoxifene as
an unlicensed medicinal product, which may be requested by healthcare professionals to meet the clinical needs of patients when authorized
medicines are unsuitable or contraindicated. In the European Union, there are approximately 37 million women with osteoporosis.
Captisol-enabled Carbamazepine-IV (Lundbeck, Phase 3, Epilepsy)
We have a development and commercialization agreement for Captisol-enabled carbamazepine-IV with Lundbeck (formerly Ovation
Pharmaceuticals) 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 and announced plans to submit an NDA prior to the end of 2013.
Captisol-enabled Delafloxacin-IV (Melinta, Phase 3, Infection)
We entered into a development and commercialization agreement for Captisol-enabled delafloxacin-IV in 2008 with Melinta
Therapeutics, Inc. (formerly Rib-X Pharmaceuticals), or Melinta, for the use of Captisol in the intravenous formulation 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 aureu, or MRSA. In 2013 Melinta
initiated the first of two planned Phase 3 clinical trials of delafoxacin for the treatment of acute bacterial skin and skin structure infections
(ABSSSI), including infections caused by MRSA. Melinta has made certain milestone payments to us already and may be required to pay
us an aggregate of an additional $3.6 million upon the achievement of specified development and regulatory approval milestones. We are
entitled to a royalty on potential future sales by Melinta.
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Captisol-enabled Topiramate IV (CurX, Phase 1, Epilepsy)
In July 2013, the FDA granted orphan-drug designation for our proprietary Captisol-enabled Topiramate Injection for the treatment
of partial onset or primary generalized tonic-clonic seizures in hospitalized epilepsy patients who are unable to take oral topiramate. In
August 2013, we entered a global license agreement with CURx Pharmaceuticals, Inc. for the development and commercialization of
Topiramate. CurX has made certain milestone payments to us already and may be required to pay us an aggregate of an additional $19.6
million, net of amounts owed to third parties upon the achievement of specified milestones. Additionally, we are owed net tiered royalties
on future sales of 6.0% to 7.5%.
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
HepDirect
Oral Human Granulocyte Colony Stimulating Factor
IRAK-4
Glucagon Receptor Antagonist
Selective Androgen Receptor Modulator
Captisol-Enabled Clopidogrel
HepDirect HCV Inhibitor Program
Disease/Indication
Liver Diseases
Neutropenia
Inflammation
Diabetes
Various
Anti-coagulant
Development
Phase
Preclinical
Preclinical
Preclinical
Phase 1
Phase 2-ready
Phase 3
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, or
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. It also significantly increases peripheral blood neutrophils and demonstrated
the first reported proof-of-concept for a small molecule GCSF receptor antagonist in a primate model. 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.
IRAK4 Inhibitor Program
We are developing small molecule Interleukin-1 Receptor Associated Kinase-4, or IRAK4, inhibitors for the treatment of
inflammatory and immune disorders. IRAK4 plays an important role in the innate immune system and may also be important for cross-talk
between the innate and adaptive immune systems. IRAK4 is a key signaling component downstream of both toll-like receptors and
interleukin-1 receptors suggesting that it may have therapeutic value for a range of autoimmune and inflammatory conditions. Inhibition of
IRAK4 activity has been implicated in multiple diseases including rheumatoid arthritis, systemic lupus erythematosus, gout, inflammatory
bowel disease, asthma, and allergic rhinitis. Inhibitors of IRAK4 may also be useful for the treatment of certain leukemias and lymphomas.
We have identified orally available small molecule inhibitors of IRAK4 which are under investigation for use in cancer and autoimmune
diseases.
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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.
In October 2013, the FDA accepted our Investigational New Drug, or IND, application for our proprietary Glucagon receptor
antagonist product (LGD-6972) candidate for the treatment of diabetes. LGD-6972 was acquired in connection with our acquisition of
Metabasis and we may be required to remit payment to the contingent value right, or CVR, holders upon the sale or partnering of the asset.
We initiated a Phase 1 clinical trial in the fourth quarter of 2013.
Selective Androgen Receptor Modulator (SARM)
Our LGD-4033 is a non-steroidal selective androgen receptor modulator, or 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 1 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 1 multiple ending
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 2 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.
Captisol-Enabled Clopidogrel (Unpartnered, Phase 3, Anti-coagulant)
Clopidogrel is the active ingredient in PLAVIX®, a 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 licensed the full worldwide rights to The Medicines Company, or
MedCo, in June 2011. In July 2013, we and MedCo mutually terminated the License Agreement dated June 1, 2011 and the related Supply
Agreement dated June 1, 2011. Upon termination, the licensed rights relating to the compound were returned to us. MedCo recently
conducted a pharmacokinetic and pharmacodynamic study of oral Clopidogrel and Captisol-enabled intravenous Clopidogrel in healthy
volunteers. The study indicated a potential difference in metabolism between the oral and intravenous routes of administration for
Clopidogrel, and MedCo elected not to proceed with further development.
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Other Internal Programs Eligible for Further Development Funding, Either Through Ligand or a Partner
•
•
•
•
•
•
•
•
•
•
•
•
Aplindore (Phase 2, Restless
Leg/Parkinson’s)
Captisol-enabled Nasal Budesonide (Phase 1, Allergic
Rhinitis)
Thyroid Receptor-beta Agonist (Phase 1,
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)
Oral Erythropoietin (Preclinical,
Anemia)
Meloxicam (Preclinical,
Pain)
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 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 active
pharmaceutical ingredients, or 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 additional sites 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
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to pay Hovione an aggregate minimum amount during the agreement term. 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.
We pay Hovione unit prices, in U.S. dollars, for all Captisol supplied, 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. 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.
The initial term of the agreement expires in December 2019. The agreement will automatically renew 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.”
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.
Patents are issued or pending for the following key products or product families. The scope and type of patent protection provided
by each patent family is defined by the claims in the various patents. The nominal patent expiration dates have been provided. The actual
patent term may vary by jurisdiction and depend on a number of factors including potential patent term adjustments, patent term extensions,
and terminal disclaimers. For each product or product family, the patents and/or applications referred to are in force in at least the United
States, and for most products and product families, the patents and/or applications are also in force in European jurisdictions, Japan and
other jurisdictions.
Promacta
Patents covering Promacta are owned by GSK. The United States patent listed in the FDA’s listing of Approved Drug Products with
Therapeutic Equivalence Evaluations (the “Orange Book”) relating to Promacta with the latest expiration date is not expected to expire
until 2027. The type of patent protection (e.g., composition of matter or use) for each patent listed in the Orange Book and the expiration
date for each patent listed in the Orange Book are provided in the following table. In addition, certain related patents in the commercially
important jurisdictions of Europe and Japan are identified in the following table.
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U.S. Patent No.
U.S. 6,280,959
U.S. Expiration Date
Oct. 30, 2018
Type of Protection
composition of matter and use
Jurisdiction (Expiration Date‡)
U.S. 7,160,870
Nov. 20, 2022
composition of matter and use
U.S. 7,332,481
May 24, 2021
use
U.S. 7,452,874
May 24, 2021
composition of matter and use
U.S. 7,473,686
May 24, 2021
composition of matter and use
U.S. 7,547,719
Jul. 13, 2025
composition of matter and use
EP 1864981 (05/24/21)
EP 1294378 (05/24/21)
JP 3813875 (05/24/21)
EP 1889838 (05/24/21)
JP 4546919 (05/24/21)
EP 1889838 (05/24/21)
JP 4546919 (05/24/21)
EP 1864981 (05/24/21)
EP 1294378 (05/24/21)
JP 3813875 (05/24/21)
EP 1534390 (05/21/23)
JP 4612414 (05/21/23)
U.S. 7,790,704
U.S. 7,795,293
U.S. 8,052,993
U.S. 8,052,994
U.S. 8,052,995
U.S. 8,062,665
U.S. 8,071,129
use
use
composition of matter and use
composition of matter and use
composition of matter and use
composition of matter and use
composition of matter and use
‡Expiration dates of European and Japanese patents are calculated as 20 years from the earliest nonprovisional filing date to which priority
is claimed, and do not take into account extensions that are or may be available in these jurisdictions.
May 24, 2021
May 21, 2023
Aug. 1, 2027
Aug. 1, 2027
Aug. 1, 2027
Aug. 1, 2027
Aug. 1, 2027
Kyprolis
Patents protecting Kyprolis include those owned by Onyx Pharmaceuticals and those owned by Ligand. The United States patent
listed in the Orange Book relating to Kyprolis with the latest expiration date is not expected to expire until 2027. Patents and applications
owned by Ligand relating to the Captisol component of Kyprolis are not expected to expire until 2033. The type of patent protection (e.g.,
composition of matter or use) for each patent listed in the Orange Book and the expiration dates for each patent listed in the Orange Book
are provided in the following table. In addition, certain related patents in the commercially important jurisdictions of Europe and Japan are
identified in the following table.
U.S. Patent No.
U.S. 7,232,818
U.S. Expiration Date
Apr. 14, 2025
Type of Protection
composition of matter
U.S. 7,417,042
Jun. 7, 2026
composition of matter
U.S. 7,491,704
Apr. 14, 2025
use
U.S. 7,737,112
Dec. 7, 2027
composition of matter
U.S. 8,129,346
Dec. 25, 2026
use
U.S. 8,207,125
Apr. 14, 2025
composition of matter
Jurisdiction (Expiration Date‡)
EP 1745064 (04/14/25)
EP 1781688 (08/08/25)
JP 4743720 (08/08/25)
EP 1745064 (04/14/25)
EP 1819353 (12/07/25)
EP 2260835 (12/07/25)
JP 4990155 (12/07/25)
JP 5108509 (05/09/25)
EP 1745064 (04/14/25)
EP 1781688 (08/08/25)
JP 4743720 (08/08/25)
U.S. 8,207,126
U.S. 8,207,127
U.S. 8,207,297
composition of matter and use
use
composition of matter and use
‡Expiration dates of European and Japanese patents are calculated as 20 years from the earliest nonprovisional filing date to which priority
is claimed, and do not take into account extensions that are or may be available in these jurisdictions.
Apr. 14, 2025
Apr. 14, 2025
Apr. 14, 2025
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Avinza
The United States patent listed in the Orange Book relating to the Avinza formulation with the latest expiration date is not expected
to expire until 2017; however, applications for generic forms of Avinza have been submitted to the FDA. The type of patent protection
(e.g., composition of matter or use) for the patent listed in the Orange Book and the expiration date for the patent is provided in the
following table. Certain related patents in other jurisdictions are not identified in the following table, as our royalties are based on sales in
the United States.
U.S. Patent No.
U.S. 6,066,339
Captisol
U.S. Expiration Date
Nov. 25, 2017
Type of Protection
composition of matter
Patents and pending patent applications covering Captisol are owned by Ligand. Other patents and pending patent applications
covering methods of making Captisol are owned by Ligand or by Pfizer. The patents covering the Captisol product, if issued, with the
latest expiration date would not be set to expire until 2033 (see, e.g., WO 2013/130666 (contains composition of matter and use claims;
filed Feb. 27, 2013)). Ligand also owns several patents and pending patent applications covering drug products containing Captisol as a
component. The type of patent protection (e.g., composition of matter or use) and the expiration dates for several issued patents covering
Captisol are provided in the following table. In addition, certain related patents and applications in the commercially important jurisdictions
of Europe and Japan are listed in the following table.
U.S. Patent No.
U.S. Expiration Date
Type of Protection
U.S. 8,114,438
Mar. 19, 2028
composition of matter
U.S. 7,629,331
Oct. 26, 2025
composition of matter
U.S. 8,049,003
Dec. 19, 2026
use
U.S. 7,635,773
Mar. 13, 2029
composition of matter and use
U.S. 8,410,077
Sep. 6, 2030*
composition of matter
Jurisdiction (Expiration Date‡)
EP 1755551 (pending)
JP 2013028645 (pending)
EP 1945228 (10/26/25)
EP 2581078 (pending)
EP 2583668 (pending)
EP 2335707 (pending)
EP 2268269 (pending)
JP 4923144 (04/28/29)
JP 2012072160 (pending)
EP 2268269 (pending)
JP 4923144 (04/28/29)
JP 2012072160 (pending)
‡ Expiration date of European and Japanese patents are calculated as 20 years from the earliest nonprovisional filing date to which priority
is claimed, and do not take into account extensions that are or may be available in these jurisdictions.
*Expiration date is subject to a terminal disclaimer.
Subject to compliance with the terms of the respective agreements, our rights to receive royalty payments under our licenses with our
exclusive licensors typically 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, 2014, we had 20 full-time employees, of whom 6 are involved directly in scientific research and development
activities. Of these employees, 6 hold Ph.D. or M.D. degrees.
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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 Promacta and Kyprolis 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 and we receive revenue from Onyx based on both sales of Kyprolis and
purchases of Captisol material for clinical and commercial uses. 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 or Kyprolis could significantly impair our
operating results and/or reduce the market price of our stock. Setbacks for Promacta and Kyprolis could include problems with shipping,
distribution, manufacturing, product safety, marketing, government regulation or reimbursement, licenses and approvals, intellectual
property rights, competition with existing or new products and physician or patient acceptance of the product, 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. All of CyDex's products and product candidates, as well as the technology
that it outlicenses, are based on Captisol. As a result, any setback that may occur with respect to Captisol could significantly impair our
operating results and/or reduce the market price of our stock. Setbacks for Captisol could include problems with shipping, distribution,
manufacturing, product safety, marketing, government regulation or reimbursement, licenses and approvals, intellectual property rights,
competition with existing or new products and physician or patient acceptance of the products using Captisol, as well as higher than
expected total rebates, returns or discounts for such products.
If products or product candidates incorporating Captisol technology were to cause any unexpected adverse events, 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.
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. Our supplier of Captisol is Hovione, through its agent Hovione, LLC. If
a major disaster were to happen at Hovione's facilities 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. A series of unusually large orders could
rapidly deplete our inventory and cause significant problems with our licensees and disrupt our business. In addition, if we fail to meet
certain of our obligations under our supply agreements, our customers could obtain the right to have Captisol manufactured by other
suppliers, which would significantly harm our business.
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 products using our Captisol technology, fail to satisfy their obligations under their
agreements with us, or 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. We maintain inventory of Captisol,
which has a five year shelf life, at three geographically spread storage locations in the US and Europe. If disasters were to strike one or all
three of these locations, it could lead to supply interruptions. Further, under most of our Captisol outlicenses, the amount of royalties we
receive will be reduced or will cease when the relevant patent expires. Our high purity patents, U.S. Patent Nos. 7,635,773 and 8,410,077
and foreign equivalents, are not expected to expire until 2029 and our morphology patents, U.S. Patent Nos. 7,629,331 and 8,049,003 and
foreign equivalents, are not expected to expire until 2025, but the initially filed patents relating to Captisol expired starting in 2010 in the
United States and will expire by 2016 in most countries outside the United States. If our other intellectual property rights
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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, our Captisol revenue may decrease significantly
The product candidates of our partners and us face significant development and regulatory hurdles prior to partnering and/or
marketing which could delay or prevent licensing, sales and/or milestone revenue.
Before we or our partners obtain the approvals necessary to sell any of our unpartnered assets or partnered programs, we must show
through preclinical studies and human testing that each potential product is safe and effective. We and/or our partners have a number of
partnered programs and unpartnered assets 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 drug development and
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 scientific studies and 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 our
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.
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 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 collaboration agreements with corporate partners and others. These agreements 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 unpartnered assets.
In addition, our collaborators may develop drugs, either alone or with others that compete with the types of drugs they are
developing with us (or that we are developing on our own). This would result in increased competition for our or our partners' 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 at will or 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 (with us and/or with one or more third parties), 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.
Expirations of, challenges to or failure to secure patents and other proprietary rights may significantly hurt our business.
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
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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.
Generally, our success will depend on our ability and the ability of us and 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 was limited during an opposition proceeding and could be
challenged further on appeal, and the rejection of our European patent application related to High Purity Captisol is currently being
appealed
We have obtained patent protection in the United States through 2025 on one or more Agglomerated forms of Captisol and through
2029 on one or more High Purity forms of Captisol. We also have filed patent applications covering the Captisol product that if issued,
would not be set to expire until 2033 (for example, our patent WO 2013/130666, filed Feb. 27, 2013, contains composition of matter and
use claims). There is no guarantee that our patents will be sufficient to prevent competitors from creating a generic form of Captisol 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.
Our collaborative partners may change their strategy or the focus of their development and commercialization efforts with respect to
our partnered programs, and the success of our partnered programs 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 partnered programs, we could be required to devote additional resources to our partnered
programs, seek new collaborative partners or abandon such partnered programs, all of which could have an adverse effect on our business.
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, Duavee, Viviant and Conbriza, Nexterone, 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,
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U.S. 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.
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.
Although we have recently remediated a material weakness in our internal control over financial reporting, if we are unable to maintain
the effectiveness of our internal controls, our financial results may not be accurately reported.
Management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2012 reported a
material weakness in our internal control as a result of improper accounting for non-routine transactions and the controls over the
determination of fair value of contingent liabilities, as described in our Annual Report on Form 10-K for the year ended December 31,
2012. We added a corporate controller to the finance and accounting staff to enhance our processes with the addition of a resource with the
ability to research and understand the nuances of complex accounting standards. Additionally, we enhanced 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. Although further and ongoing efforts will continue in 2014 and beyond to enhance our internal control over financial reporting,
we believe that our remediation efforts now provide the foundation for compliance with the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) framework. As a result, our assessment of the effectiveness of our internal control over financial reporting
as of December 31, 2013 no longer reports this material weakness or any other material weakness over financial reporting, and the audit
report of our independent registered public accounting firm no longer expresses an adverse opinion on the effectiveness of our internal
control over financial reporting as of December 31, 2013.
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 or have
consummated in the past, whether as a result of unidentified risks, integration difficulties, regulatory setbacks, litigation with current or
former employees 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
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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.
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 In-Process
Research and Development, or IPR&D, charges. In either case, the incurrence of these charges could adversely affect our results of
operations for particular quarterly or annual periods.
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, it could
materially and adversely affect our business, financial condition, results of operations or the market price of our stock.
Aggregate revenues based on sales of our other products may not meet expectations.
Revenues based on sales of Avinza, Duavee, Conbriza and Nexterone may not meet expectations. Any setback that may occur with
respect to these products could impair our operating results and/or reduce the market price of our stock. Setbacks for these products could
include problems with shipping, distribution, manufacturing, product safety, marketing, government regulation or reimbursement, licenses
and approvals, intellectual property rights, competition with existing or new products and physician or patient acceptance of the product, as
well as higher than expected total rebates, returns or discounts. These products also are or may become subject to generic competition).
Any such setback could reduce our revenue.
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. 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 Pharmaceuticals (now a subsidiary of Pfizer), under certain circumstances
pursuant to the asset purchase agreements we entered into 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 Pfizer or
Eisai could materially and adversely affect our financial condition. In addition, Pfizer assumed our obligation to make payments to Organon
based on net sales of Avinza (the fair value of which was $11.7 million as of December 31, 2013). We remain liable to Organon in the
event Pfizer 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
against and could result in payment of significant amounts of money and divert management's attention from our business.
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If our partners do not reach the market with our partnered programs before our competitors offer products for the same or similar uses,
or if our partners are not effective in marketing our partnered programs, 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 partnered programs. 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.
If our business does not perform according to our expectations, we may not be able to pay off our existing debt or have sufficient
resources to operate our business as currently contemplated.
Our operations have consumed substantial amounts of cash since inception. As of December 31, 2013, we had negative working
capital of $4.1 million. In connection with our 2011 acquisition of CyDex, we entered into a $20.0 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 $20.0 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 made interest only payments through February 2013. Subsequent to the interest-only
payments, the note amortizes 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. In March 2013, we prepaid $7.0 million of the secured term loan credit facility.
Additionally, we paid a prepayment fee of 1% of the prepayment amount, or $0.1 million, and a prorated final-payment fee of 6% of the
final payment or $0.4 million. As of December 31, 2013, the remaining principal balance of the note was $9.1 million.
In October 2013, we filed a universal shelf registration statement with the SEC that was automatically declared effective due to our
status as a well-known seasoned issuer. This registration statement provides additional financial flexibility for us to sell shares of common
stock or other equity or debt securities as needed at any time, including through our at-the-market equity issuance program. During the year
ended December 31, 2013, we did not issue any common shares through this at-the market equity issuance program.
Our cash and cash equivalents as of December 31, 2013 was $11.6 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, including the repayment of our term loan which matures on August 1, 2014, 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 ability to use our net operating losses, or NOLs, to offset taxes that would otherwise be due could be limited or lost entirely.
Our ability to use our NOLs to offset taxes that would otherwise be due is dependent upon our generation of future taxable income
before the expiration dates of the NOLs, and we cannot predict with certainty whether we will be able to generate future taxable income. In
addition, even if we generate taxable income, realization of our NOLs to offset taxes that would otherwise be due could be restricted by
annual limitations on use of NOLs triggered by a past or future “ownership change” under Section 382 of the Internal Revenue Code and
similar state provisions. An “ownership change” may occur when there is a 50% or greater change in total ownership of our company by
one or more 5% shareholders within a three-year period. The loss of some or all of our NOLs could materially and adversely affect our
business, financial condition and results of operations. In addition, California and certain states have suspended use of NOLs for certain
taxable years, and other states may consider similar measures. As a result, we may incur higher state income tax expense in the future.
Depending on our future tax position, continued suspension of our ability to use NOLs in states in which we are subject to income tax
could have an adverse impact on our operating results and financial condition. The calculation of the amount of our net operating loss
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carryforwards may be changed as a result of a challenge by the IRS or other governmental authority or our learning of new information
about the ownership of, and transactions in, our securities.
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, concentration of ownership 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 common or preferred
stock without any further action by the stockholders. Our directors and Biotechnology Value Fund, or BVF, own over 25% of our
outstanding common stock as of December 31, 2013. BVF can increase its ownership level up to 24.99% under the terms of an agreement
we have with BVF and BVF has agreed to vote 15% ownership in accordance with the Board's recommendations in the event that BVF
exceeds a 19.99% ownership level. Such restrictions, circumstances 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.
Funding of our drug development programs may not result in future revenues.
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 United States 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. 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.
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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 in recent years 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, as well as from accidental loss or destruction. 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, leased
through June 2019 which serves 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 19,473 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 us and our Chief Executive Officer John Higgins as additional defendants
for allegedly aiding and abetting the Genaera Defendants' various breaches of fiduciary duties based on our 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.
Following an amendment to the complaint and a round of motions to dismiss, the Court dismissed the amended complaint with
prejudice on August 12, 2013. On September 10, 2013, the plaintiffs filed a notice of appeal. According to the Third Circuit's briefing
schedule, the plaintiffs opening brief is currently due on or before February 18, 2014, our answering brief is due thirty days later, and the
plaintiff's reply brief, if any, is due fourteen days after that. We intend to continue to vigorously defend against the claims against us 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 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, 2013:
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Year Ended December 31, 2012:
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
$
$
Price Range
High
Low
26.93 $
38.06
50.85
58.48
18.74 $
17.27
19.85
21.75
19.03
23.50
36.82
43.20
11.44
11.21
15.80
14.75
As of February 14, 2014, the closing price of our common stock on the NASDAQ Global Market was $76.92.
Holders
As of February 14, 2014, there were approximately 705 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 122 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
12/31/2008
12/31/2009
12/31/2010
12/31/2011
12/31/2012
100%
79%
54%
72%
126%
12/31/2013
320%
100%
100%
145%
116%
172%
134%
170%
150%
201%
198%
281%
329%
24
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, 2013, 2012, 2011, 2010, and 2009, and the balance sheet data as of December 31, 2013, 2012, 2011,
2010, and 2009, are derived from our consolidated financial statements.
Year Ended December 31,
(in thousands, except share data)
2013
2012
2011
2010
2009
Consolidated Statements 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
Income (loss) from continuing operations
Discontinued operations (1)
Net income (loss)
Basic per share amounts:
Income (loss) from continuing operations
Discontinued operations (1)
Net income (loss)
Weighted average number of common shares-
basic
Diluted per share amounts:
Income (loss) from continuing operations
Discontinued operations (1)
Net income (loss)
Weighted average number of common shares-
diluted
$
$
$
$
$
23,584 $
19,072
14,073 $
9,432
9,213 $
12,123
7,279 $
—
6,317
48,973
5,732
9,274
17,984
560
480
34,030
—
14,943
8,832
2,588
11,420
7,883
31,388
3,601
10,790
15,782
1,022
—
31,195
—
193
(2,674)
2,147
(527)
8,701
30,037
4,909
10,291
14,583
552
2,282
32,617
1,702
(878)
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)
0.43 $
0.13
0.56 $
(0.14) $
0.11
(0.03) $
0.49 $
—
0.49 $
(0.65) $
0.12
(0.53) $
8,334
—
30,606
38,940
—
39,870
15,211
15,235
442
70,758
21,851
(9,967)
(8,337)
6,389
(1,948)
(0.44)
0.34
(0.10)
20,312,395
19,853,095
19,655,632
19,613,201
18,862,751
0.43 $
0.12
0.55 $
(0.14) $
0.11
(0.03) $
0.49 $
—
0.49 $
(0.65) $
0.12
(0.53) $
(0.44)
0.34
(0.10)
20,745,454
19,853,095
19,713,320
19,613,201
18,862,751
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Table of Contents
December 31,
2013
2012
2011
2010
2009
(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)
$
17,320 $
(4,058)
104,713
116
—
15,148 $
(11,616)
104,260
486
—
18,382 $
(11,413)
120,583
1,240
—
24,038 $
3,531
75,559
—
1,702
24,076
2,085
—
—
(671,339)
49,613
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)
54,694
15,994
141,807
4,989
1,702
72,350
3,495
1,702
8,344
(681,574)
3,744
(1)
We sold our Oncology product line (“Oncology”) on October 25, 2006 and we sold our Avinza product line (“Avinza”) on February 26, 2007. The
operating results for the Oncology and Avinza product lines 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 Promacta, Kyprolis, 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 trends, 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 Promacta, Kyprolis, 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 make 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., Pharmacopeia, LLC, or Pharmacopeia, Neurogen
Corporation, or Neurogen, CyDex Pharmaceuticals, Inc., or CyDex, Metabasis Therapeutics, or Metabasis, and Nexus Equity VI LLC.
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We are a biotechnology company that operates with a business model focused on developing or acquiring revenue generating assets
and coupling them with 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 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 (a subsidiary of Amgen, Inc.), Merck, Pfizer, Baxter International,
Lundbeck Inc., Eli Lilly and Co., and Spectrum Pharmaceuticals, Inc.
In December 2012, we received a milestone payment of 620,000 shares of common stock in partner Retrophin, Inc. or Retrophin.
The milestone arose under the previously executed license agreement for the development and commercialization of Retrophin’s lead
clinical candidate, Sparsentan, 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 of $1.2 million, net of amounts owed to a third party. The fair value of the shares
received was determined by an independent valuation firm. The shares issued to us represent approximately 3.4% and 6.9% of Retrophin’s
outstanding capital stock as of December 31, 2013 and 2012, respectively, and were subject to a one-year trading restriction which lifted in
December 2013. Additionally, in early 2013 we received a $1.4 million time based milestone payment from Retrophin and remitted $0.2
million to former license holders under the terms of a previous license agreement for Sparsentan.
In March 2013, we entered into a License Agreement with Spectrum Pharmaceuticals, Inc. or 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. In connection with this license we received 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.
In April 2013, we entered into a Royalty Stream and Milestone Payments Purchase Agreement with Selexis SA or Selexis, to acquire
a portfolio of possible future royalty and milestone payment rights based on over 15 Selexis commercial license agreement programs with
various pharmaceutical-company counterparties. In return, we paid Selexis an upfront payment of $3.5 million, and expect to make an
additional $1 million cash payment on the first anniversary of the closing.
In May 2013, by virtue of ARES Trading SA (a unit of Merck KGaA) not having exercised its option to obtain a further related
license from us, the Research License and Option Agreement we and ARES Trading SA had entered into in April 2012 terminated in
accordance with its terms, and the rights to an anti-inflammatory discovery research program that we had licensed to ARES Trading SA
under this agreement reverted to us.
In May 2013, our partner Melinta Therapeutics, Inc. (formerly Rib-X) announced the initiation of a Phase 3 clinical trial of Captisol-
enabled intravenous formulation of delafloxacin for the first-line treatment of acute bacterial skin and skin structure infections (ABSSSI),
including infections caused by MRSA. Under the terms of a license and supply agreement, we earned a $0.5 million milestone payment.
In July 2013, we entered into a global license agreement with Azure Biotech for the development of a novel formulation of
lasofoxifene. Under the terms of the agreement, we are entitled to receive $2.6 million in potential development and regulatory milestones
and a 5% royalty on future net sales. Under this agreement, we retain the rights to the oral formulation originally developed by Pfizer.
Additionally, in July 2013, we entered into a license agreement with Ethicor Pharma Ltd. for the manufacture and distribution of the oral
formulation of lasofoxifene in the European Economic Area, Switzerland and the Indian Subcontinent. Under the terms of the agreement,
we are entitled to receive potential sales milestones of up to $16 million and a royalty of 25% on future net sales.
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In July 2013, the FDA granted orphan-drug designation for our proprietary Captisol-enabled Topiramate Injection for the treatment
of partial onset or primary generalized tonic-clonic seizures in hospitalized epilepsy patients who are unable to take oral topiramate. In
August 2013, we entered a global license agreement with CURx Pharmaceuticals, Inc. for the development and commercialization of
Topiramate and earned a milestone payment of $0.2 million for the orphan-drug designation.
In July 2013, we and The Medicines Company, or MedCo, mutually terminated the License Agreement dated June 1, 2011 and the
related Supply Agreement dated June 1, 2011. These agreements were with our subsidiary CyDex and related to the development of
Captisol-enabled intravenous Clopidogrel. Upon termination, the licensed rights relating to the compound were returned to us. MedCo
recently conducted a pharmacokinetic and pharmacodynamic study of oral Clopidogrel and Captisol-enabled intravenous Clopidogrel in
healthy volunteers. The study indicated a potential difference in metabolism between the oral and intravenous routes of administration for
Clopidogrel, and MedCo elected not to proceed with further development.
In July 2013, Merck notified us that it has discontinued clinical development of dinaciclib for chronic lymphocytic leukemia.
In August 2013, we entered a Commercial License Agreement with Sage Therapeutics Inc. This agreement replaces a prior
agreement between Sage Therapeutics and our subsidiary CyDex. In October 2011, Sage originally obtained an exclusive right to use
Captisol® in SAGE’s development and commercialization of therapeutic drugs formulating certain allosteric receptor modulators with
Captisol against identified central nervous system disorders. Sage exercised certain product commercialization options in December 2012
and then replaced that agreement with the Commercial License Agreement in August 2013. Upon commercialization, we could potentially
receive milestone payments of $4.5 million for Captisol-enabled programs, plus royalties of 3% on net sales for products that use the
Captisol technology. Additionally, we could receive commercial revenue from the shipment of Captisol to Sage for clinical and
commercial activities.
In October 2013, our partner, Pfizer received approval from the FDA for Duavee, for the treatment of moderate-to-severe vasomotor
symptoms (VMS) associated with menopause and the prevention of postmenopausal osteoporosis. We earned a $0.4 million milestone
payment for the approval.
In October 2013, the FDA accepted our Investigational New Drug, or IND, application for our proprietary Glucagon receptor
antagonist product (LGD-6972) candidate for the treatment of diabetes. LGD-6972 was acquired in connection with our acquisition of
Metabasis and we may be required to remit payment to the contingent value right. or CVR, holders upon the sale or partnering of the asset.
We initiated a Phase 1 clinical trial in the fourth quarter of 2013.
In November 2013, our partner, Merck submitted an NDA for Captisol-enabled Noxafil-IV. Merck is currently conducting a pivotal
study for this program and it filed a 505(b)(2) application in 2013 for approval in the United States and European Union to market its
Captisol program. In the United States, the New Drug Application, or NDA, for Noxafil-IV was filed and received FDA Priority Review
in November 2013. We earned a $0.2 million milestone for submission of the NDA.
Results of Operations
Total revenues for 2013 were $49.0 million compared to $31.4 million in 2012 and $30.0 million in 2011. Our income from
continuing operations for 2013 was $8.8 million or $0.43 per diluted share, compared to a loss from continuing operations of $2.7 million in
2012, or $0.14 per diluted share, and income from continuing operations of $9.7 million, or $0.49 per diluted share, in 2011.
Royalty Revenue
Royalty revenues were $23.6 million in 2013, compared to $14.1 million in 2012 and $9.2 million in 2011. The increase in royalty
revenue of $9.5 million and $4.9 million for the year ended December 31, 2013 and 2012, respectively is primarily due to an increase in
Promacta and Kyprolis royalties.
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Material Sales
We recorded material sales of Captisol of $19.1 million in 2013 compared to $9.4 million in 2012 and $12.1 million in 2011. The
increase in material sales of $9.7 million for the year ended December 31, 2013 compared to 2012 is due to timing of customer purchases of
Captisol as well as an increase in customer purchases for use in clinical trials which has a higher gross margin. The decrease in material
sales of $2.7 million 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 $6.3 million in 2013 compared to $7.9 million in 2012
and $8.7 million in 2011. The decrease of $1.6 million for the year ended December 31, 2013, compared to the same period in 2012 is due
to timing of achievement of certain regulatory milestones and licensing payments for the year ended December 31, 2013 compared with the
same period in 2012. The decrease in collaborative research and development and other revenue of $0.8 million for the year ended
December 31, 2012, compared to 2011 is primarily 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.
Cost of material sales
Cost of sales were $5.7 million in 2013 compared to $3.6 million in 2012 and $4.9 million in 2011. The increase of $2.1 million for
the year ended December 31, 2013, compared to the same period in 2012 is due to timing of customer purchases of Captisol as well as an
increase in purchases for use in clinical trials. The decrease of $1.3 million, for the year ended December 31, 2012, compared to 2011 is due
to the decrease in material sales of Captisol.
Research and Development Expenses
Research and development expenses for 2013 were $9.3 million compared to $10.8 million in 2012 and $10.3 million in 2011. The
decrease of $1.5 million is primarily due to the timing of costs associated with internal programs. The increase in research and development
expenses of $0.5 million for the year ended December 31, 2012 compared to 2011 is primarily due to timing of costs associated with
internal 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
HepDirect
Oral Human Granulocyte Colony Stimulating Factor
IRAK-4
Glucagon Receptor Antagonist
Selective Androgen Receptor Modulator
Captisol-Enabled Clopidogrel
Disease/Indication
Liver Diseases
Neutropenia
Inflammation
Diabetes
Various
Anti-coagulant
Development
Phase
Preclinical
Preclinical
Preclinical
Phase 1
Phase 2-ready
Phase 3
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 $18.0 million for the year ended December 31, 2013 compared to $15.8 million for 2012
and $14.6 million for 2011. The increase in general and administrative expenses for the year ended December 31, 2013 compared with
2012 of $2.2 million is primarily due to an increase in non-cash stock-based compensation and patent and other legal expenses in 2013. The
increase in expenses for the year ended December 31, 2012 compared with 2011 is primarily due to an increase in tax consulting project-
related expenses and legal expenses compared to the prior year.
Lease Exit and Termination Costs
For the years ended December 31, 2013 and 2012, we had lease exit obligations of $5.9 million and $9.0 million, respectively. The
lease exit obligations are related to facilities in San Diego, California and Cranbury, New Jersey. The San Diego facility is under an
operating lease through July 2015. We fully vacated this facility in February 2008 and sublet it through the term of our lease. Additionally,
we ceased use of our facility located in Cranbury, New Jersey in September 2010. The remaining lease obligations run through August
2016, a portion of which is subleased with subleases expiring between August 2014 and 2016. We recorded lease exit and termination costs
of $0.6 million for the year ended December 31, 2013, compared to $1.0 million for 2012, and $0.6 million in 2011. Lease exit and
termination costs for the years ended December 31, 2013, 2012, and 2011 consisted of accretion costs and adjustments to the liability for
lease exit costs due to changes in leasing assumptions.
Write-off of in-process research and development
For the year ended December 31, 2013, we recorded a non-cash impairment charge of $0.5 million for the write-off of in-process
research and development for Captisol-enabled intravenous Clopidogrel. Captisol-enabled intravenous Clopidogrel is an intravenous
formulation of the anti-platelet medication designed for situations where the administration of oral platelet inhibitors is not feasible or
desirable. For the year ended December 31, 2012, there was no write-off of in-process research and development recorded. 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.
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 year ended December 31, 2011 was $1.7 million. The deferred gain
was fully amortized as of December 31, 2011.
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Interest expense, net
Interest expense was $2.1 million for the year ended December 31, 2013 compared to $2.9 million in 2012 and $2.3 million in 2011.
The decrease in interest expense of $0.8 million for the year ended December 31, 2013 compared with 2012 is due to a lower principal
balance related to our $7.0 million prepayment of principal in March 2013 as well as scheduled principal amortization from March 2013
through December 2013. The increase in interest expense for the year ended December 31, 2012 compared to 2011 was due to the increase
in the outstanding balance of notes payable at December 31, 2012 compared to 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.
Change in Contingent Liabilities
We recorded an increase in contingent liabilities of $3.6 million for the year ended December 31, 2013 compared to $1.7 million in
2012 and $1.0 million in 2011. The increase in contingent liabilities for the year ended December 31, 2013 is due primarily to the increase
in the Metabasis CVR liability of $4.2 million. The Metabasis CVR liability is marked-to-market at each reporting period based upon the
quoted market prices of the underlying CVR. This was partially offset by a decrease of $0.6 million in CyDex contingent liabilities,
primarily due to a decrease in amounts potentially due to CyDex CVR holders and former license holders related to Captisol-enabled
Clopidogrel, partially offset by an increase in the revenue-sharing CVR liability to former CyDex shareholders. The increase in contingent
liabilities for the year ended December 31, 2012 is due to increases in amounts owed to CyDex CVR holders and former license holders of
$3.4 million, partially offset by decreases in amounts owed to Metabasis and Neurogen shareholders of $1.1 million and $0.7 million,
respectively. The increase in contingent liabilities for the year ended December 31, 2011 is due to an increase in amounts potentially due to
Metabasis shareholders of $1.1 million, partially offset by a decrease is amounts owed to CyDex CVR holders and former license holders
of $0.1 million.
Other, net
We recorded other expense of $0.1 million for the year ended December 31, 2013 compared to other income of $0.5 million in 2012
and $0.6 million in 2011. Other expense for 2013 is primarily due to an increase in amounts owed to sublicensees, partially offset by
changes in certain liabilities. Other income for 2012 is primarily due to changes in certain liabilities. Other income for 2011 primarily
relates to income related to the gain on the sale of property and equipment and decreases in certain liabilities.
Income Taxes
We recorded income tax expense from continuing operations of $0.4 million for the year ended December 31, 2013 compared to an
income tax benefit from continuing operations of $1.2 million for the year ended December 31, 2012 and an income tax benefit of $13.3
million for the year ended December 31, 2011. The income tax expense recognized in 2013 is primarily attributable to deferred taxes
associated with the amortization of acquired IPR&D assets for tax purposes. The income tax benefit in 2012 is principally due to a
requirement under Accounting Standards Codification ("ASC"), 740, Accounting for Income Taxes, 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 ASC
740-20-45-7, 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, we 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. 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.
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Discontinued Operations, net
Avinza Product Line
On September 6, 2006, we and King Pharmaceuticals, now a subsidiary of Pfizer, entered into a purchase agreement, or the Avinza
Purchase Agreement, pursuant to which Pfizer acquired all of our 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 to assume certain liabilities as set forth in
the Avinza Purchase Agreement.
Pursuant to the terms of the Avinza Purchase Agreement, we retained the liability for returns of product from wholesalers that had
been sold by us prior to the close of this transaction. Accordingly, as part of the accounting for the gain on the sale of Avinza, we recorded
a reserve for Avinza product returns. For the years ended December 31, 2013, 2012, and 2011, we recognized pre-tax gains of $2.6 million,
$3.7 million and $0, 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 (please see the discussion on income taxes
above). There was no income tax expense on discontinued operations for the years ended December 31, 2013 and 2011.
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, 2013, our accumulated deficit was $671.3 million and we had
negative working capital of $4.1 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 and Kyprolis 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, 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.
In January 2011, we entered into a $20 million secured term loan credit facility with Oxford Financial Group. 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
made interest-only payments through February 2013. Subsequent to the interest-only payments, the note amortizes 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.
In March 2013, we prepaid $7.0 million of the secured term loan credit facility. Additionally, we paid a prepayment fee of 1% of the
prepayment amount, or $0.1 million and a prorated final-payment fee of 6% of the final payment, or $0.4 million. As of December 31,
2013, the remaining principal balance of the note was $9.1 million.
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In October 2013, we filed a universal shelf registration statement with the SEC that was automatically declared effective due to our
status as a well-known seasoned issuer. This registration statement provides additional financial flexibility for us to sell shares of common
stock or other equity or debt securities as needed at any time, including through our at-the-market equity issuance program. During the year
ended December 31, 2013, we did not issue any common shares through this at-the market equity issuance program.
In connection with the acquisition of CyDex on January 24, 2011, we issued a series of CVR agreements and assumed certain
contractual obligations. We paid the CVR holders $4.3 million in January 2012 and may be required to pay additional amounts 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 MedCo 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 agreed to pay CyDex shareholders, for each respective year from 2011
through 2016, (i) 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 (ii) 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. The revenue sharing payment for the year ended December 31, 2013 was $2.5 million,
$0.9 million of which was paid during 2013.
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. We have exceeded our commitment for the year ending December 31, 2013.
Operating Activities
Operating activities provided cash of $20.7 million and $0.2 million in 2013 and 2012, respectively and used cash of $1.2 million in
2011.
The cash provided in 2013 reflects net income of $11.4 million, adjusted by $2.6 million of gain from discontinued operations and
$13.2 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 $3.6 million, depreciation and amortization of $2.7 million, stock-based
compensation of $5.7 million, write-off of in-process research and development $0.5 million, accretion of notes payable of $0.4 million,
and net deferred tax assets and liabilities of $0.4 million. The cash provided by operations in 2013 is further impacted by changes in
operating assets and liabilities due primarily to a decrease in accounts receivable of $2.4 million, a decrease in inventory of $0.6 million,
and a decrease in other assets of $0.1 million. Partially offsetting this, accounts payable and accrued liabilities decreased $2.8 million, other
liabilities decreased $0.4 million and deferred revenue decreased $0.7 million. Net cash used in operating activities of discontinued
operations was $0.6 million in 2013.
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, a decrease in inventory of $1.0 million, a decrease in other
current assets of $0.5 million, a decrease in other long term assets of $0.3 million, and an increase in other liabilities of $0.5 million.
Partially offsetting this, 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 a 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, a 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
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$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.
Investing Activities
Investing activities used cash of $5.0 million in 2013, provided by cash of $1.3 million in 2012, and used cash of $25.2 million in
2011.
Cash used by investing activities in 2013 primarily reflects the purchase of commercial license rights of $3.6 million, payments to
CyDex CVR holders of $1.0 million, and purchases of property, building and equipment of $0.4 million. None of the cash provided by
investing activities for 2013 related to discontinued operations.
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.
Financing Activities
Financing activities used cash of $16.5 million in 2013 and provided cash of $3.9 million in 2012 and $30.0 million in 2011.
Cash used in financing activities in 2013 primarily reflects the repayment of debt of $19.6 million, partially offset by proceeds of
$3.1 million received from stock option exercises and purchases under the employee stock purchase plan.
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.
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.
Contingent liabilities
Pharmacopeia
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.
Neurogen
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 CVRs at December 31, 2011 was $0.7 million and related to
programs for H3 and VR1. In 2012, we received a notice from a collaborative partner that it was terminating its agreement related to VR1
for convenience and we 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 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 CVR of $0.5 million as of that date. There are no remaining CVR obligations under the agreement with the
former Neurogen shareholders.
Metabasis
In January 2010, we completed our acquisition of Metabasis. In addition to cash consideration, we issued four tradable 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. Additionally, there were spending requirement obligations related
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to development funding on the Metabasis programs which have been fulfilled. The fair value of the liability at December 31, 2013, 2012
and 2011 was $4.2 million, $0, and $1.1 million, respectively.
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.
CyDex
In connection with the acquisition of CyDex on January 24, 2011, we issued a series of CVRs and also assumed certain contingent
liabilities. In 2011, $0.9 million was paid to the CyDex shareholders upon completion of a licensing agreement with MedCo for the
Captisol enabled intravenous formulation of Clopidogrel. An additional $2.0 million was paid to the CyDex shareholders upon acceptance
by the FDA of Onyx’s NDA, $4.3 million was paid in January 2012 under the terms of the agreement, 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. We
recorded a cash payment of $0.1 million for the Topiramate orphan drug designation milestone to former license holders. We may be
required to make additional payments upon achievement of certain clinical and regulatory milestones to the CyDex shareholders and former
license holders. In addition, we will pay CyDex shareholders, for each respective year from 2014 through 2016, (i) 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, (ii) 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 $0.2 million to the CyDex shareholders in March 2012 related to
2011 CyDex-related revenue. There was no revenue sharing payment for 2012. The revenue sharing payment for 2013 was $2.5 million,
$0.9 million of which was paid during the year ended December 31, 2013. The estimated fair value of the contingent liabilities recorded as
part of the CyDex acquisiton at December 31, 2013, 2012, and 2011 was $9.3 million, $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%. We also sublease a portion of our facilities through leases which expire between 2014 and 2016. The sublease agreements
provide for a 3% increase in annual rents. We had no off-balance sheet arrangements at December 31, 2013 and 2012.
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Contractual Obligations
As of December 31, 2013, future minimum payments due under our contractual obligations are as follows (in thousands):
Total
Less than 1 year
2-3 years
4-5 years
More than 5
years
Payments Due by Period
Obligations for uncertain tax positions (1) $
$
Co-promote termination obligations (2)
$
Purchase obligations (3)
$
Contingent liabilities (4)
$
Note and interest payment obligations
$
Operating lease obligations (5)
— $
11,746 $
7,215 $
1,618 $
9,364 $
14,398 $
— $
4,329 $
7,215 $
1,618 $
9,364 $
5,524 $
— $
6,399 $
— $
— $
— $
7,045 $
— $
1,018 $
— $
— $
— $
1,455 $
—
—
—
—
—
374
(1)
(2)
(3)
(4)
(5)
Expected payments related to obligations for uncertain tax positions cannot be reasonably
estimated
Co-promote termination obligations represent our legal obligation as primary obligor to Organon due to the fact that Organon did not consent to the legal
assignment of the co-promote termination obligation to Pfizer. The liability is offset by an asset which represents a non-interest bearing receivable for
future payments to be made by Pfizer.
Purchase obligations represent our commitments under our supply agreement with Hovione for Captisol purchases.
Contingent liabilities to former shareholders and licenseholders are subjective and affected by changes in inputs to the valuation model including
management’s assumptions regarding revenue volatility, probability of commercialization of products, estimates of timing and probability of achievement
of certain revenue thresholds and developmental and regulatory milestones and affect amounts owed to former license holders and CVR holders. As of
December 31, 2013, only those liabilities for revenue sharing payments achieved as a result of 2013 income are included in the table above.
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, 2013, we expect to receive aggregate future minimum lease payments
totaling $2.4 million (nondiscounted) over the duration of the sublease agreement as follows and not included in the table above: less than one year, $1.3
million; two to three years, $1.1 million; and more than four years, $0.
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
Royalties on sales of products commercialized by our partners are recognized in the quarter reported by the respective partner.
Generally, we receive royalty reports from our licensees approximately one quarter in arrears due to the fact that our agreements require
partners to report product sales between 30-60 days after the end of the quarter. We recognize royalty revenues when we can reliably
estimate such amounts and collectability is reasonably assured. Under this accounting policy, the royalty revenues reported are not based
upon estimates and such royalty revenues are typically reported in the same period in which payment is received.
Revenue from material sales of Captisol is recognized upon transfer of title, which normally passes upon shipment to the customer.
Our 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 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
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services or performance. We occasionally have sub-license obligations related to arrangements for which we receive license fees,
milestones and royalties. We evaluate the determination of gross versus net reporting based on each individual agreement.
Sales-based milestone revenue is accounted for similarly to royalties, with revenue recognized upon achievement of the milestone
assuming all other revenue recognition criteria for milestones are met. Revenue from development and regulatory 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.
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. Management first considers 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 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.
Inventory
Inventory is stated at the lower of cost or market value. We determine cost using the first-in, first-out method. We analyze our
inventory levels periodically and write 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 beginning in 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 Pharmaceuticals, now a subsidiary of Pfizer, assumed our obligation to make
payments to Organon based on net sales of Avinza (the fair value of which approximated $11.7 million as of December 31, 2013). As
Organon has not consented to the legal assignment of the co-promote termination obligation from us to Pfizer, we remain liable to Organon
in the event of Pfizer’s default of this obligation. Therefore, we recorded an asset on February 26, 2007 to recognize Pfizer’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 Pfizer
and is recorded at its fair value. As of December 31, 2013 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 Pfizer 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,
2013 and 2012, the fair value of the co-promote termination liability (and the corresponding receivable) was determined using a discount
rate of 15%.
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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, 2013, 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 asset and 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, 2013, 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 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 $5.7 million, $4.1 million and $3.4 million for 2013, 2012 and 2011,
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
Forfeiture rate
Year Ended December 31,
2013
2012
2011
1.13%-1.82%
0.83%-1.14% 1.09%-2.61%
—
70%
6 years
—
69%
6 years
8.4%-9.8%
8.0%-11.2%
—
69%
6 years
8.9%-14.1%
The risk-free interest rate is based on the U.S. Treasury yield curve at the time of the grant. 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 making this assumption, we used the historical volatility of our stock price over a period equal to the expected term.
The forfeiture rate is based on historical data at the time of the grant.
New Accounting Pronouncements
In July 2012, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or 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
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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, or 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. Implementing ASU 2013-02 did 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, 2014.
In July, 2013, the FASB issued Accounting Standards Update No. 2013-11, Presentation of an Unrecognized Tax Benefit When a
Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 requires the netting of
unrecognized tax benefits, or UTBs, against a deferred tax asset for a loss or other carryforward that would apply in settlement of the
uncertain tax positions. UTBs are required to be netted against all available same-jurisdiction loss or other tax carryforwards that would be
utilized, rather than only against carryforwards that are created by the UTBs. ASU 2013-11 is effective for us for interim and annual
periods beginning after December 15, 2013. We are currently evaluating the effect, if any, the adoption of this standard will have on our
financial statements.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
At December 31, 2013, our investment portfolio included investments in available for sale equity securities of $4.3 million. These
securities are subject to market risk and may decline in value based on market conditions.
We do not hold or issue derivatives, derivative commodity instruments or other financial instruments for speculative trading
purposes. Further, we do not believe our cash and cash equivalents and restricted cash and investments have significant risk of default or
illiquidity. We made this determination based on discussions with our investment advisors and a review of our holdings. While we believe
our cash and cash equivalents and restricted cash and investments do not contain excessive risk, we cannot provide absolute assurance that
in the future our investments will not be subject to adverse changes in market value. All of our cash and cash equivalents and restricted cash
and investments are held at fair value.
We purchase Captisol from Hovione, located in Lisbon, Portugal. Payments to Hovione are denominated and paid in U.S. 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.
Item 8.
Consolidated Financial Statements and Supplementary Data
39
Table of Contents
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
40
Page
41
42
43
44
45
46
48
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, 2013 and 2012, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity (deficit), and
cash flows for each of the three years in the period ended December 31, 2013. 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, 2013 and 2012, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2013 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, 2013, based on criteria established in the 1992 Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated
February 24, 2014 expressed an unqualified opinion.
/s/ GRANT THORNTON LLP
Los Angeles, California
February 24, 2014
41
Table of Contents
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventory
Other current assets
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
December 31,
2013
2012
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
Commercial license rights
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
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
Stockholders’ equity:
Common stock, $0.001 par value; 33,333,333 shares authorized; 20,468,521 and 21,278,606 shares issued and
outstanding at December 31, 2013 and 2012, respectively
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Treasury stock, at cost; 0 and 1,118,222 shares at December 31, 2013 and 2012, respectively
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to these consolidated financial statements.
42
$
$
$
$
11,639 $
4,340
2,222
1,392
959
4,329
24,881
1,341
867
—
53,099
12,238
4,571
7,417
299
104,713 $
3,951 $
5,337
1,712
1,574
9,109
4,329
2,811
116
28,939
—
7,417
2,085
3,071
1,098
11,795
695
55,100
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
21
718,017
2,914
(671,339 )
—
49,613
104,713 $
21
751,503
—
(682,759 )
(42,280 )
26,485
104,260
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
Income (loss) from operations
Other (expense) income:
Interest expense, net
Increase in contingent liabilities
Other, net
Total other expense, net
Income (loss) from continuing operations before income tax benefit
Income tax (expense) benefit from continuing operations
Income (loss) 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 income (loss)
Basic per share amounts:
Income (loss) from continuing operations
Income from discontinued operations
Net income (loss)
Weighted average number of common shares-basic
Diluted per share amounts:
Income (loss) from continuing operations
Income from discontinued operations
Net income (loss)
Weighted average number of common shares-diluted
Year Ended December 31,
2013
2012
2011
23,584 $
19,072
6,317
48,973
14,073 $
9,432
7,883
31,388
5,732
9,274
17,984
560
480
34,030
—
14,943
(2,077 )
(3,597 )
(63)
(5,737 )
9,206
(374)
8,832
2,588
—
—
2,588
11,420 $
0.43 $
0.13
0.56 $
3,601
10,790
15,782
1,022
—
31,195
—
193
(2,924 )
(1,650 )
516
(4,058 )
(3,865 )
1,191
(2,674 )
3,656
—
(1,509 )
2,147
(527) $
(0.14 ) $
0.11
(0.03 ) $
9,213
12,123
8,701
30,037
4,909
10,291
14,583
552
2,282
32,617
1,702
(878)
(2,297 )
(1,013 )
630
(2,680 )
(3,558 )
13,270
9,712
—
3
—
3
9,715
0.49
—
0.49
20,312,395
19,853,095
19,655,632
0.43 $
0.12
0.55 $
(0.14 ) $
0.11
(0.03 ) $
20,745,454
19,853,095
0.49
—
0.49
19,713,320
$
$
$
$
$
$
See accompanying notes to these consolidated financial statements.
43
Table of Contents
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Net income (loss)
Unrealized net gain (loss) on available-for-sale securities, net of tax of $0
Comprehensive income (loss)
$
$
11,420 $
2,914
14,334 $
(527) $
—
(527) $
9,715
(31)
9,684
Year Ended December 31,
2013
2012
2011
See accompanying notes to these consolidated financial statements.
44
Table of Contents
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share data)
Balance at December 31, 2010
20,620,917 $
21 $ 729,271 $
Common Stock
Shares
Amount
Additional
paid-in
capital
Accumulated
other
comprehensive
income (loss)
Treasury stock
Accumulated
deficit
Shares
31 $ (691,947 ) (1,111,999) $ (42,225 ) $
Amount
Total
stockholders’
equity (deficit)
61,589
—
54
—
—
—
—
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
—
—
—
—
20,682,506 $
180,979
302,750
—
112,371
—
Balance at December 31, 2012
21,278,606 $
Issuance of common stock under employee
stock compensation plans, net
Stock-based compensation
Retirement of treasury shares
Unrealized net gain on available-for-sale
securities
Net income
308,137
—
(1,118,222)
—
—
Balance at December 31, 2013
20,468,521 $
—
—
3,351
—
—
—
—
—
21 $ 732,676 $
1,103
5,313
4,067
8,344
—
—
—
—
—
—
21 $ 751,503 $
1
—
(1)
3,127
5,666
(42,279 )
—
—
—
9,715
(31)
—
—
—
— $ (682,232 ) (1,118,222) $ (42,280 ) $
—
(6,223 )
—
—
—
(55)
—
—
—
—
—
—
(527)
—
—
—
—
—
— $ (682,759 ) (1,118,222) $ (42,280 ) $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 1,118,222
—
—
42,280
—
—
21 $ 718,017 $
—
—
2,914
—
—
11,420
2,914 $ (671,339 )
—
—
— $
—
—
— $
(4,849 )
54
(31)
(55)
3,351
9,715
8,185
1,103
5,313
4,067
8,344
(527)
26,485
3,128
5,666
—
2,914
11,420
49,613
See accompanying notes to these consolidated financial statements.
45
Table of Contents
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
2013
2012
2011
Operating activities
Net income (loss)
Less: gain from discontinued operations
Income (loss) 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 disposal
Stock-based compensation
Deferred income taxes
Accretion of note payable
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 operating activities of discontinued operations
Net cash provided by (used in) operating activities
Investing activities
Purchase of commercial license rights
Acquisition of CyDex, net of cash acquired
Payments to CVR holders
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 (used in) provided by investing activities
Financing activities
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 (used in) provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
46
$
11,420 $
2,588
8,832
(527) $
2,147
(2,674 )
480
3,597
—
2,663
—
—
5
5,666
374
417
—
2,367
646
(130)
218
(2,758 )
(391)
(654)
21,332
(642)
20,690
(3,571 )
—
(989)
(377)
3
—
—
(40)
(4,974 )
—
(19,586 )
—
2,974
154
—
(16,458 )
(742)
12,381
—
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
5,340
7,041
9,715
3
9,712
2,282
1,888
(1,702 )
2,790
(51)
—
(456)
3,351
(13,402 )
286
5
(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
3,695
3,346
Table of Contents
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information
Cash paid during the year:
Interest paid
Taxes paid
Supplemental schedule of non-cash investing and financing activities
$
$
$
Liability for commercial license rights
Accrued inventory purchases
Unrealized gain on AFS investments
Common stock released from restriction
1,000 $
341 $
2,914 $
— $
See accompanying notes to these consolidated financial statements.
$
$
$
$
47
11,639 $
12,381 $
7,041
1,816 $
26 $
2,452 $
— $
— $
1,426 $
— $
8,344 $
2,463
39
—
—
—
—
Table of Contents
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 with 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. 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, Focal Segmental Glomerulosclerosis, or FSGS, and osteoporosis. Ligand has
established multiple alliances with the world’s leading pharmaceutical companies including GlaxoSmithKline, Onyx Pharmaceuticals (a
subsidiary of Amgen, Inc.), Merck, Pfizer, Baxter International, Lundbeck Inc. and Spectrum Pharmaceuticals, Inc. 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. As of December 31, 2013, the Company’s accumulated deficit was
$671.3 million and the Company had negative working capital of $4.1 million. Management believes that cash flows from operations will
improve due to Captisol® sales, an increase in revenues driven primarily from continued increases in Promacta® and Kyprolis® sales, and
also from 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; costs associated with
future acquisitions and the capital requirements of any companies the Company may acquire in the future. 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, Inc., Pharmacopeia, Inc. ("Pharmacopeia"), Neurogen Corporation ("Neurogen"), CyDex Pharmaceuticals,
Inc. ("CyDex"), Metabasis Therapeutics ("Metabasis"), and Nexus VI, Inc. 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, lease exit liability and income tax net operating loss carryforwards during the reporting period. The Company’s
critical accounting policies are those that are both most important to the Company’s 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.
Reclassifications
Certain reclassifications have been made to the previously issued statement of operations for the twelve months ended December 31,
2012 and 2011 for comparability purposes. These reclassifications had no effect on the reported net income, stockholders' equity and
operating cash flows as previously reported.
48
Table of Contents
Income (Loss) Per Share
Basic income (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 income (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 0.8 million, 1.1 million and 1.0 million for the years ended December 31, 2013, 2012, and 2011 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 income (loss) from continuing operations
Discontinued operations
Net income (loss)
Shares used to compute basic income (loss) per share
Dilutive potential common shares:
Restricted stock
Stock options
Shares used to compute diluted income (loss) per share
Basic per share amounts:
Income (loss) from continuing operations
Discontinued operations
Net income (loss)
Diluted per share amounts:
Income (loss) from continuing operations
Discontinued operations
Net income (loss)
Cash, Cash Equivalents and Short-term Investments
Year Ended December 31,
2013
2012
8,832 $
2,588
11,420 $
(2,674) $
2,147
(527) $
20,312,395
19,853,095
352,959
80,100
20,745,454
—
—
19,853,095
2011
9,712
3
9,715
19,655,632
—
57,688
19,713,320
0.43 $
0.13
0.56 $
0.43 $
0.12
0.55 $
(0.14) $
0.11
(0.03) $
(0.14) $
0.11
(0.03) $
0.49
—
0.49
0.49
—
0.49
$
$
$
$
$
$
Cash and cash equivalents consist of cash and highly liquid securities with original maturities of three months or less. Non-restricted
equity and debt securities 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 in the statement of
comprehensive income (loss). The Company determines the cost of investments based on the specific identification method.
49
Table of Contents
The following table summarizes the various investment categories at December 31, 2013 and December 31, 2012 (in thousands):
December 31, 2013
Short-term investments
Certificates of deposit - restricted
December 31, 2012
Available-for-sale securities-restricted
Certificates of deposit-restricted
Restricted Cash and Investments
Cost
Gross unrealized
gains
Gross unrealized
losses
Estimated
fair value
$
$
$
$
1,426 $
1,341
2,767 $
1,426 $
1,341
2,767 $
2,914 $
—
2,914 $
— $
—
— $
— $
—
— $
— $
—
— $
4,340
1,341
5,681
1,426
1,341
2,767
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. The trading restrictions were removed during the period ending December
31, 2013 and the investments were reclassified to short-term investments.
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 2013,
the Company did not experience any significant losses on its cash equivalents, short-term investments or restricted investments. As of
December 31, 2013, cash deposits held at financial institutions in excess of FDIC insured amounts of $250,000 were approximately $11.1
million.
Accounts receivable from two customers were 75% of total accounts receivable at December 31, 2013. Accounts receivable from two
customers were 87% of total accounts receivable at December 31, 2012.
The Company obtains Captisol from a single 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 could take
a considerable length of time.
Inventory
Inventory is stated at the lower of cost or market value. 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 were no write downs related to
obsolete inventory recorded for the years ended December 31, 2013 and 2012.
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, 2013 and 2012.
50
Table of Contents
Property and Equipment, net
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,
2013
2012
3,737 $
387
616
4,740
(3,873)
867 $
4,374
145
1,150
5,669
(4,881)
788
$
$
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, $0.3 million and $0.5 million was recognized in 2013, 2012, and
2011, respectively, and is included in operating expenses.
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
Less: Accumulated amortization
Trade name
Less: Accumulated amortization
Customer relationships
Less: Accumulated amortization
Total goodwill and other identifiable intangible assets, net
December 31,
2013
2012
12,556 $
12,238
15,267
(2,235)
2,642
(387)
29,600
(4,344)
65,337 $
13,036
12,238
15,227
(1,473)
2,642
(256)
29,600
(2,864)
68,150
$
$
The Company accounts for goodwill in accordance with Accounting Standards Codification ("ASC"), 350, Goodwill and Other
Intangibles, 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 uses the income approach and the market approach, each weighted at 50%, when performing its goodwill analysis.
For the income approach, the Company considers the present value of future cash flows and the carrying value of its assets and liabilities,
including goodwill. The market approach is based on an analysis of revenue multiples of guideline public companies. 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 the Company's 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, 2013, 2012,
and 2011 there has been no impairment of goodwill for continuing operations.
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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, $2.4 million and $2.3 million was recognized in 2013, 2012, and 2011, respectively.
Estimated amortization expense for the years ending December 31, 2014 through 2018 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.
Acquired in-process research and development
Intangible assets related to acquired 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 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. For the year ended December 31, 2013, the Company recorded a non-cash impairment charge of $0.5 million for the write-off of
IPR&D for Captisol-enabled intravenous Clopidogrel. The impairment analysis was performed based on the income method using a Monte
Carlo analysis. The asset was impaired upon notification from MedCo that they intended to terminate the license agreement and return the
rights of the compound to the Company. Captisol-enabled intravenous Clopidogrel is an intravenous formulation of the anti-platelet
medication designed for situations where the administration of oral platelet inhibitors is not feasible or desirable. For the year ended
December 31, 2012, there was no impairment of IPR&D.
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 2011 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 received 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.
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.
As of December 31, 2013, management does not believe there have been any events or circumstances indicating that the carrying
amount of its remaining long-lived assets may not be recoverable.
Commercial license rights
Commercial license rights represent a portfolio of future milestone and royalty payment rights acquired in accordance with the
Royalty Stream and Milestone Payments Purchase Agreement entered into with Selexis SA ("Selexis") in April 2013. The portfolio consists
of over 15 Selexis commercial license agreement programs with various pharmaceutical-company counterparties. The purchase price was
$4.6 million, inclusive of acquisition costs. The Company paid $3.6 million upon closing and expects to pay $1.0 million in April 2014.
Individual commercial license rights acquired under the agreement are carried at allocated cost and approximate fair value. The carrying
value of the license rights will be reduced on a pro-rata basis
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as revenue is realized over the term of the agreement. Declines in the fair value of individual license rights below their carrying value that
are deemed to be other than temporary are reflected in earnings in the period such determination is made.
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, 2013 and 2012 was $9.3 million and $10.9 million, respectively. The Company
recorded a fair value adjustment to decrease the liability for CyDex related contingent liabilities of $0.6 million for the year ended
December 31, 2013, to increase the liability by $3.4 million during the year ended December 31, 2012, and to decrease the liability by $0.1
million during the year ended December 31, 2011. Contingent liabilities decreased for cash payments to CVR holders by $1.0 million
during the year ended December 31, 2013, $8.0 million during the year ended December 31, 2012 and $2.9 million during 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 CVRs 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 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 $4.2 million and $0 as of
December 31, 2013 and 2012, respectively. The Company recorded an increase in the liability for CVRs of $4.2 million during the year
ended December 31, 2013, a decrease of $1.1 million during the year ended December 31, 2012 and an increase of $1.1 million during the
year ended December 31, 2011.
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 collaborative 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 as of that date. 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 the Company to develop its own assumptions
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The Company’s long-term investments include investments in equity securities which were subject to trading restrictions.
Additionally, there is a liability related to the investment in equity securities for amounts owed to former license holders. The fair value of
the investments was previously determined using quoted market prices in active markets and discounted for the restrictive effect. For the
year ended December 31, 2013, the trading restrictions were removed and the investments were reclassified to short-term investments. 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. The co-
promote termination payments receivable represents a non-interest bearing receivable for future payments to be made by Pfizer 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.
The Company evaluates its financial instruments at each reporting period to determine if any transfers between the various three-level
hierarchy have occurred and appropriately reclassifies its financial instruments to the appropriate level within the hierarchy.
Treasury Stock
The Company may on occasion repurchase its common stock on the open market or in private transactions. When such stock is
repurchased it is not constructively or formally retired and may be reissued if certain regulatory requirements are met; however, the
Company may from time to time choose to retire the shares of common stock held in its treasury. The purchase price of the common stock
repurchased is charged to treasury stock. During the year ended December 31, 2013, the Company retired 1,118,222 shares of its common
stock held in treasury.
Revenue Recognition
Royalties on sales of products commercialized by the Company’s partners are recognized in the quarter reported by the respective
partner. Generally, the Company receives royalty reports from its licensees approximately one quarter in arrears due to the fact that its
agreements require partners to report product sales between 30-60 days after the end of the quarter. The Company recognizes royalty
revenues when it can reliably estimate such amounts and collectability is reasonably assured. Under this accounting policy, the royalty
revenues reported are not based upon estimates and such royalty revenues are typically reported in the same period in which payment is
received.
Revenue from material sales of Captisol 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. The Company records revenue net of
sales tax collected and remitted to government authorities.
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 the Company under its 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 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.
Sales-based milestone revenue is accounted for similarly to royalties, with revenue recognized upon achievement of the milestone
assuming all other revenue recognition criteria for milestones are met. Revenue from development and regulatory 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.
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
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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.
Cost of Goods Sold
The Company determines cost using the first-in, first-out method. Cost of goods sold include all costs of purchase and other costs
incurred in bringing the inventories to their present location and condition, costs to store, and distribute.
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 ("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, 2013 and 2012, the Company had
deferred $0.1 million and $0.8 million of revenue, respectively.
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.
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.
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Income Taxes
Income taxes are accounted for under the asset and 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 the Company is able to realize their benefit or if future deductibility is uncertain. As of December 31, 2013 and
2012, the Company had provided a full valuation allowance against its 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 valuation allowances that may be required for
deferred tax assets. Management's judgments and tax strategies are subject to audit by various taxing authorities. While the Company
believes it has provided adequately for its income tax liabilities in its consolidated financial statements, adverse determinations by these
taxing authorities could have a material adverse effect on the Company's consolidated financial condition and results of operations.
The Company's ending deferred tax liability represents a future tax obligation for current tax amortization claimed on acquired
IPR&D. As the Company cannot estimate when the IPR&D assets will be amortizable for financial reporting purposes, the deferred tax
liability associated with the IPR&D assets cannot be used to support the realization of the Company's deferred tax assets. As a result, the
Company is required to increase its valuation allowance and record a charge to deferred taxes.
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
Forfeiture rate
Year Ended December 31,
2013
2012
2011
1.13%-1.82%
0.83%-1.14% 1.09%-2.61%
—
70%
6 years
—
69%
6 years
8.4%-9.8%
8.0%-11.2%
—
69%
6 years
8.9%-14.1%
The risk-free interest rate is based on the U.S. Treasury yield curve at the time of the grant. 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 making this assumption, the Company used the historical volatility of the Company’s stock price over a period equal
to the expected term. The forfeiture rate is based on historical data at the time of the grant.
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):
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Share-based compensation expense as a component of:
Research and development expenses
General and administrative expenses
December 31,
2013
2012
2011
$
$
1,705 $
3,961
5,666 $
1,448 $
2,619
4,067 $
1,072
2,279
3,351
Segment reporting
Under Accounting Standards Codification No. 280, “Segment Reporting” (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 ASC 280 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 with a lean corporate cost structure of Ligand Pharmaceuticals Incorporated.
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 (Loss).
New Accounting Pronouncements
In July 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update ("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. The Company 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. Implementing ASU 2013-02 did 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 the Company for fiscal years, and interim periods within
those years, beginning after January 1, 2014.
In July, 2013, the FASB issued Accounting Standards Update No. 2013-11, Presentation of an Unrecognized Tax Benefit When a
Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 requires the netting of
unrecognized tax benefits (UTBs) against a deferred tax asset for a loss or other carryforward that would apply in settlement of the
uncertain tax positions. UTBs are required to be netted against all available same-jurisdiction loss or other tax carryforwards that would be
utilized, rather than only against carryforwards that are created by the UTBs. ASU 2013-11 is effective for the Company for interim and
annual periods beginning after December 15, 2013. The Company is currently evaluating the effect, if any, the adoption of this standard
will have on its financial statements.
2. Business Combinations
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In January 2011, the Company acquired CyDex, a specialty pharmaceutical company developing products and licensing its Captisol
technology. Captisol is currently incorporated in six FDA-approved medications and marketed by four of CyDex’s licensees: Onyx (a
subsidiary of Amgen, Inc.), Pfizer, Bristol-Myers Squibb and Baxter (formerly Prism Pharmaceuticals).
Under the terms of the agreement, the Company paid $31.6 million to the CyDex shareholders and issued a series of CVRs.
Additionally, the Company assumed certain contractual obligations for potential milestone payments to license holders. In addition, the
Company agreed to pay CyDex shareholders, for each respective year from 2011 through 2016, (i) 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 (ii) 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, 2013, 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):
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
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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%. For the year ended December 31, 2013, the Company recorded a non-cash impairment
charge of $0.5 million for the write-off of IPR&D for Captisol-enabled intravenous Clopidogrel. The asset was impaired upon notification
from MedCo that they intended to terminate the license agreement and return the rights of the compound to the Company.
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%.
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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, 2013 (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
Short-term 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 - Metabasis
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
$
$
$
$
4,329 $
4,340
7,417
16,086 $
1,712 $
4,329
4,196
7,599
651
7,417
25,904 $
— $
4,340
—
4,340 $
— $
—
4,196
—
651
—
4,847 $
— $
—
—
— $
— $
—
—
—
—
—
— $
4,329
—
7,417
11,746
1,712
4,329
—
7,599
—
7,417
21,057
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
Available-for-sale securities
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 $
$
$
$
$
60
— $
—
—
— $
— $
—
—
—
—
— $
— $
—
—
— $
— $
—
—
—
—
— $
4,327
1,426
8,207
13,960
356
4,327
10,543
214
8,207
23,647
Table of Contents
The fair value of the Company’s investments which were classifed as short-term investments for the year ended December 31, 2013 is
determined using quoted market prices in active markets. These investments were classified as level 3 for the year ended December 31,
2012 due to a discount based on trading restrictions. These restrictions were removed during the year ended December 31, 2013 and the
Company transferred the available-for-sale investments and corresponding liability for amounts owed to former licensees from level 3 to
level 1. The liability for CVRs for Metabasis are determined using quoted market prices in active markets. The fair value of the liabilities
for CyDex contingent liabilities were determined based on the income approach using a Monte Carlo analysis. The fair value is subjective
and is affected by changes in inputs to the valuation model including management’s assumptions regarding revenue volatility, probability
of commercialization of products, estimates of timing and probability of achievement of certain revenue thresholds and developmental and
regulatory milestones which may be achieved and affect amounts owed to former license holders and CVR holders. Changes in these
assumptions can materially affect the fair value estimate.
The following table represents significant unobservable inputs used in determining the fair value of contingent liabilities assumed in
the acquisition of CyDex:
Range of annual revenue subject to revenue sharing (1)
Revenue volatility
Average of probability of commercialization
Sales beta
Credit rating
Equity risk premium
December 31,
2013
$4.2 million-$19.8 million
25%
67.6%
0.60
BBB
6%
2012
$3.6 million-$28.3 million
25%
68.4%
0.60
BBB
6%
(1) Revenue subject to revenue sharing represent management’s estimate of the range of total annual revenue subject to revenue
sharing (i.e. annual revenues in excess of $15 million) through December 31, 2016, which is the term of the CVR agreement.
There are no remaining CVR 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 Pfizer and is recorded at its fair value.
The fair value is subjective and is affected by changes in inputs to the valuation model including management’s assumptions regarding
future Avinza product sales. 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.
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A reconciliation of the level 3 financial instruments as of December 31, 2013 is as follows (in thousands):
Assets:
Fair value of level 3 financial instruments as of December 31, 2012
Assumed payments made by Pfizer or assignee
Fair value adjustments recorded as unrealized gain on available-for-sale securities
Fair value adjustments to co-promote termination liability
Transfer of available-for-sale investments from level 3 to level 1
Fair value of level 3 financial instrument assets as of December 31, 2013
Liabilities
Fair value of level 3 financial instruments as of December 31, 2012
Assumed payments made by Pfizer or assignee
Fair value adjustments for amounts owed related to restricted investments and recorded as other expense
Payments to CVR and other former license holders
Fair value adjustments to contingent liabilities
Fair value adjustments to co-promote termination liability
Transfer of liability for restricted investments owed to former licensees from level 3 to level 1
Fair value of level 3 financial instruments as of December 31, 2013
$
$
$
$
13,960
(3,310 )
2,914
2,522
(4,340 )
11,746
23,647
(3,310 )
437
(989 )
(599 )
2,522
(651 )
21,057
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 February 2007, Ligand and King Pharmaceuticals, Inc ("King"), now a subsidiary of Pfizer, executed an agreement pursuant to
which Pfizer acquired all of the Company’s rights in and to Avinza. Pfizer also assumed the Company’s co-promote termination obligation
to make royalty payments to Organon based on net sales of Avinza. In connection with Pfizer's assumption of this obligation, Organon did
not consent to the legal assignment of the co-promote termination obligation to Pfizer. Accordingly, Ligand remains liable to Organon in
the event of Pfizer's default of the obligation. Therefore, Ligand recorded an asset as of February 26, 2007 to recognize Pfizer's assumption
of the obligation, while continuing to carry the co promote termination liability in the Company's consolidated financial statements to
recognize Ligand’s legal obligation as primary obligor to Organon. This asset represents a non-interest bearing receivable for future
payments to be made by Pfizer 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 for 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 Pfizer defaults on the assumed obligation to pay Organon).
On a quarterly basis, 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.
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A summary of the co-promote termination liability as of December 31, 2013 and 2012 is as follows (in thousands):
Net present value of payments based on estimated future net Avinza product sales as of December 31, 2011
Assumed payments made by Pfizer or assignee
Fair value adjustments due to passage of time
Net present value of payments based on estimated future net Avinza product sales as of December 31, 2012
Assumed payments made by Pfizer or assignee
Fair value adjustments due to passage of time
Total co-promote termination liability as of December 31, 2013
Less: current portion of co-promote termination liability as of December 31, 2013
Long-term portion of co-promote termination liability as of December 31, 2013
$
$
21,452
(3,479)
(5,439)
12,534
(3,310)
2,522
11,746
4,329
7,417
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, 2013 (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 $
664 $
1,381 $
1,455 $
374 $ 3,874
December 2014
57
—
July 2015
2,240
1,332
—
—
—
57
—
3,572
August 2016
$
2,563
5,524 $
4,332
7,045 $
—
1,455 $
—
6,895
374 $ 14,398
Sublease payments expected to be received:
Office and research facility-San Diego, CA
Less than 1
year
2-3 years
4-5 years
July 2015 $
906 $
545 $
— $
More than
5 years
Total
— $ 1,451
Office and research facility-Cranbury, NJ
Net operating lease obligations
2016
$
368
4,250 $
575
5,925 $
—
1,455 $
—
943
374 $ 12,004
August 2014 and
For the years ended December 31, 2013 and 2012, the Company had lease exit obligations of $5.9 million and $9.0 million,
respectively. For the years ended December 31, 2013 and 2012, the Company made cash payments, net of sublease payments received of
$3.7 million and $3.6 million, respectively. The Company recognized adjustments for accretion and changes in leasing assumptions of $0.6
million and $1.0 million for the years ended December 31, 2013 and 2012, respectively.
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 2013, 2012 and 2011 was $0.7 million, $1.1 million, and $1.2 million, respectively. The
Company recognizes rent expense on a straight-line basis. Deferred rent at December 31, 2013 and 2012 was $0.4 million and $0.3 million,
respectively, and is included in other long-term liabilities.
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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
$
$
Net revenues from external customers
Operating income
Depreciation and amortization expense
Write-off of in-process research and
development
Income tax (expense) benefit from continuing
operations
Interest expense, net
Gain on sale of Avinza Product Line before
income taxes
Net revenues from external customers
Operating (loss) income
Depreciation and amortization expense
Interest expense, net
Income tax benefit from continuing operations
Gain on sale of Avinza
Income tax expense from discontinuing
operations
As of December 31, 2013
CyDex
Ligand
Total
38,408 $
66,305 $
104,713
As of December 31, 2012
CyDex
Ligand
Total
28,731 $
75,529 $
104,260
$
$
For the year ended December 31, 2013
Ligand
CyDex
Total
21,436
253
233
—
(419 )
2,077
2,588
$
$
27,537
14,690
2,430
480
45
—
—
For the year ended December 31, 2012
Ligand
CyDex
Total
$
11,806
1,112
2,505
—
95
—
—
$
19,582
(919 )
222
2,924
1,096
3,656
(1,509 )
64
48,973
14,943
2,663
480
(374 )
2,077
2,588
31,388
193
2,727
2,924
1,191
3,656
(1,509 )
Table of Contents
7. Financing Arrangements
The Company has a secured term loan credit facility (“secured debt”). Under the terms of the secured debt, the Company made
interest-only payments through February 2013. Subsequent to the interest-only payments, the note amortizes 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 carrying values and the fixed contractual coupon rates of the Company's financing arrangements are as follows (dollars in
millions):
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
$
$
$
$
6,642
2,467
9,109
—
—
—
December 31, 2013
December 31, 2012
10,792
4,043
14,835
9,837
3,606
13,443
$
$
$
$
Principal payments on long-term debt obligations subsequent to December 31, 2013 are as follows:
Year ending December 31,
2014
Amount
$
9,365
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
Avinza Product Line
On September 6, 2006, the Company and King, now a subsidiary of Pfizer, entered into a purchase agreement, or the Avinza
Purchase Agreement, pursuant to which Pfizer acquired 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. 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 this 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, 2013, 2012 and 2011, the Company recognized pre-tax gains of $2.6 million, $3.7 million and $0, respectively, due to
subsequent changes in certain estimates of assets and liabilities recorded as of the sale date. Cash used in operating activities of
discontinued operations related to a settlement agreement with a wholesaler for the years ended December 31, 2013, 2012 and 2011 was
$0.6 million, $0.9 million, and $0, respectively.
9. Other Balance Sheet Details
Other current assets consist of the following (in thousands):
Prepaid expenses
Other receivables
December 31,
2013
2012
$
$
786 $
173
959 $
801
28
829
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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,
2013
2012
1,929 $
697
2,711
5,337 $
1,807
199
2,955
4,961
December 31,
2013
2012
350
345
—
695 $
334
538
214
1,086
$
$
$
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, 2013, there were 1.5 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, 2010
Granted
Exercised
Forfeited
Cancelled
Balance at December 31, 2011
Granted
Exercised
Forfeited
Cancelled
Balance at December 31, 2012
Granted
Exercised
Forfeited
Cancelled
Balance at December 31, 2013
Exercisable at December 31, 2013
Options vested and expected to vest as of December 31, 2013
Weighted
Average
Exercise
Price
21.36
9.98
9.51
11.95
34.55
14.61
14.72
11.31
11.39
24.16
14.90
23.61
14.60
16.72
29.87
16.79
15.69
16.79
Shares
641,261 $
636,580
(6,072)
(50,782)
(74,941)
1,146,046
714,345
(86,588)
(118,026)
(29,171)
1,626,606
439,929
(217,069)
(73,978)
(28,779)
1,746,709
977,351
1,746,709 $
Weighted
Average
Remaining
Contractual
Term in
Years
7.00 $
Aggregate
Intrinsic
Value
(In thousands)
9
7.96
1,489
7.83
11,358
7.57
6.87
7.57 $
62,705
36,232
62,705
The weighted-average grant-date fair value of all stock options granted during 2013, 2012 and 2011 was $14.28, $9.13 and $6.32 per
share, respectively. The total intrinsic value of all options exercised during 2013, 2012 and 2011 was approximately $5.9 million, $0.5
million and $10,000, respectively. As of December 31, 2013, there was $7.1 million of total unrecognized compensation cost related to
nonvested stock options. That cost is expected to be recognized over a weighted average period of 2.3 years.
Cash received from options exercised, net of fees paid in 2013, 2012 and 2011 was $3.0 million, $1.0 million and $58,000,
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, 2013:
Range of exercise prices
$6.82 – $ 10.05
10.12 – 13.53
14.47 – 14.47
16.14 – 21.00
21.92 – 87.96
6.82 – 87.96
Options
outstanding
459,732
113,684
489,633
199,248
484,412
1,746,709
Weighted
average
remaining life
in years
6.97 $
7.90
8.11
5.21
8.50
7.57 $
67
Weighted average
exercise price
Options
exercisable
Weighted average
exercise price
9.94
11.39
14.47
18.14
26.35
16.79
350,804 $
106,070
204,019
184,301
132,157
977,351 $
9.92
11.34
14.47
18.11
33.00
15.69
Table of Contents
Restricted Stock Activity
The following is a summary of the Company’s restricted stock activity and related information:
Nonvested at December 31, 2010
Granted
Vested
Forfeited
Nonvested at December 31, 2011
Granted
Vested
Forfeited
Nonvested at December 31, 2012
Granted
Vested
Forfeited
Nonvested at December 31, 2013
Weighted-Average
Grant Date Fair
Value
Shares
62,146 $
119,826
(59,936)
(6,530)
115,506
109,261
(72,194)
(11,012)
141,561
84,547
(85,681)
(25,041)
115,386 $
13.60
10.07
12.47
11.71
10.63
13.76
11.47
11.84
12.52
27.71
14.59
13.38
21.93
Restricted stock awards generally vest over three years. As of December 31, 2013, unrecognized compensation cost related to non-
vested stock awards amounted to $1.3 million. That cost is expected to be recognized over a weighted average period of 1.1 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 5,016, 10,763, and 7,611
shares of common stock issued under the Amended ESPP in 2013, 2012 and 2011, respectively, resulting in an expense of $44,517,
$38,000, and $13,000, respectively. For shares purchased under the Company’s Amended ESPP, a weighted-average expected volatility of
36%, 34%, and 18% was used for 2013, 2012 and 2011, respectively. The expected term for shares issued under the ESPP is 6 months. As
of December 31, 2013, 208,673 shares of common stock had been issued under the Amended ESPP to employees and 79,515 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, 2013 and 2012, 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
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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 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.
Public Offering
During the year ended December 31, 2013, the Company did not issue any common shares pursuant to its at-the-market equity issuance
plan. During the year ended December 31, 2012, the Company issued 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.
Corporate Share Repurchase
On May 8, 2013, the Company's Board of Directors authorized the Company to repurchase up to $5.0 million of its own stock in
privately negotiated and open market transactions for a period of up to one year, subject to the Company's evaluation of market conditions,
applicable legal requirements and other factors. The Company is not obligated to acquire common stock under this program and the
program may be suspended at any time. Through December 31, 2013, the Company did not repurchase any common shares pursuant to the
repurchase plan.
11. Litigation
The Company records an 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, The Company records the
minimum estimated liability related to the claim in accordance with FASB ASC Topic 450 Contingencies. As additional information
becomes available, the Company assesses the potential liability related to its pending litigation and revises its estimates. Revisions in the
Company's estimates of potential liability could materially impact its results of operations.
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 Chief Executive Officer John Higgins as additional
defendants for allegedly aiding and abetting the Genaera Defendants' various breaches of fiduciary duties based on its 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.
Following an amendment to the complaint and a round of motions to dismiss, the Court dismissed the amended complaint with
prejudice on August 12, 2013. On September 10, 2013, the plaintiffs filed a notice of appeal. According to the Third Circuit's briefing
schedule, the plaintiffs opening brief is currently due on or before February 18, 2014, the Company’s answering brief is due thirty days
later, and the plaintiff's reply brief, if any, is due fourteen days after that. The Company intends to continue 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.
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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, 2013, the Company had federal net operating loss carryforwards set to expire through 2032 of $555.5 million and
$173.3 million of state net operating loss carryforwards. The Company also has $18.6 million of federal research and development credit
carryforwards, which expire through 2033. The Company has $13.9 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 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,
2013. The components of the income tax benefit for continuing operations are as follows (in thousands):
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Current expense (benefit):
Federal
State
Deferred expense (benefit):
Federal
State
Year Ended December 31,
2013
2012
2011
$
$
— $
33
33
404
(63)
374 $
3 $
16
19
520
139
659
(913)
(297)
(1,191) $
(10,803)
(3,126)
(13,270)
Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2013 and 2012 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, 2013, 2012 and 2011. The change in valuation allowance decreased $5.4 million in 2013, increased $41.8 million in
2012 and decreased $15.4 million in 2011.
Deferred assets:
Net operating loss carryforwards
Research and AMT credit carryforwards
Fixed assets and intangibles
Accrued expenses
Contingent liabilities
Deferred revenue
Present value of royalties
Organon termination asset
Organon termination liability
Royalty obligation
Deferred rent
Lease termination costs
Capital loss carryforwards
Other
Valuation allowance for deferred tax assets
Net deferred tax assets
Deferred tax liabilities:
Retrophin fair value adjustment
Identified intangibles
Identified indefinite lived intangibles
Total
December 31,
2013
2012
(in thousands)
196,421 $
30,092
17,293
1,474
582
760
12,175
(4,073)
4,073
—
1,634
—
148
3,701
264,280
(249,470)
14,810 $
(859) $
(13,984)
(2,639)
(2,672) $
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)
$
$
$
$
As of December 31, 2013 and 2012, the Company had not recognized as a deferred tax asset $2.4 million and $0.9 million,
respectively of unrealized excess tax benefits from share based compensation. When realized and the valuation allowance is reversed, such
benefits will be credited directly to additional paid in capital. Changes to the valuation allowance allocated directly to other comprehensive
income were $1.0 million, $0 and $0.1 million for 2013, 2012 and 2011, respectively.
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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
Imputed interest
CVRs
Stock-based compensation
Expired NOLs
Expired research and development credits
R&D credit study
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,
2013
2012
2011
(3,131) $
(293)
(10)
—
(285)
(2,027)
556
—
641
3,940
(364)
(901)
(786)
3,509
(1,223)
(374) $
1,317 $
196
(8)
—
(259)
695
581
(6,847)
(1,984)
—
830
(3,388)
53,257
(41,768)
(1,431)
1,191 $
1,204
(2)
(9)
(37)
(255)
(601)
(597)
(678)
(1,200)
—
—
—
—
15,486
(41)
13,270
$
$
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, 2013 and 2012 is as follows (in thousands):
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
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Balance at December 31, 2013
$
$
8,906
38
(877)
8,067
417
20
8,504
Included in the balance of unrecognized tax benefits at December 31, 2013 is $8.5 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, 2013,
there was no accrual 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 2010 tax year to present. The state
income tax returns generally remain open for the 2009 tax years through present.
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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, 2013 and 2012 (in
thousands).
2013
Total revenues
Total operating costs and expenses
Income tax expense
Income from continuing operations
Discontinued operations
Net income
Basic per share amounts:
Income from continuing operations
Discontinued operations
Net income
Diluted per share amounts:
Income from continuing operations
Income from discontinued operations
Net income
Weighted average shares—basic
Weighted average shares—diluted
2012
Total revenues
Total operating costs and expenses
Income tax benefit (expense)
Income (loss) from continuing operations
Income (loss) from discontinued operations
Net income (loss)
Basic and diluted per share amounts:
(Loss) income from continuing operations
Discontinued operations
Net income (loss)
Weighted average shares—basic
Weighted average shares—diluted
15. Subsequent Event
March 31
June 30
September 30
December 31
Quarter ended
$
$
$
$
$
$
$
11,651 $
7,719
(66)
1,304
191
1,495 $
0.06
0.01
0.07 $
0.06
0.01
0.07
$
9,580 $
8,066
(110)
3,694
2,397
6,091 $
0.18
0.12
0.30 $
0.18
0.12
0.30
$
13,005 $
9,935
(60)
1,965
—
1,965 $
0.10
—
0.10 $
0.09
—
0.09
$
20,189,378
20,280,030
20,258,618
20,427,360
20,357,558
20,843,742
5,636 $
6,475
35
(738)
1,871
1,133 $
(0.04)
0.10
0.06 $
5,742 $
7,557
(338)
(4,328)
1,799
(2,529) $
(0.22)
0.09
(0.13) $
6,375 $
7,800
(142)
(194)
—
(194) $
(0.01)
—
(0.01) $
19,709,078
19,738,801
19,749,266
19,749,266
19,917,676
19,917,676
14,737
8,310
(138)
1,869
—
1,869
0.09
—
0.09
0.09
—
0.09
20,442,603
21,056,156
13,635
9,363
1,636
2,586
(1,523)
1,063
0.13
(0.08)
0.05
20,034,558
20,124,331
The Company earned and recognized a $1 million commercial milestone payment from Onyx Pharmaceuticals (a subsidiary of
Amgen, Inc.) in the first quarter of 2014. The milestone payment was triggered by the achievement of over $250 million of annual product
sales of Kyprolis in 2013.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
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Item 9A.
Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed
in reports we file under the Exchange Act is recorded, processed, summarized and reported within the specified time periods and
accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure. The design of any system of controls is based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential
future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies
or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud
may occur and not be detected. As of the end of the period covered by this Annual Report on Form 10-K, we carried out an evaluation,
under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of
the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on
this evaluation, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, concluded that, as of
December 31, 2013, our disclosure controls and procedures were effective.
Previously Reported Material Weakness
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 enhanced 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 has remediated the material weaknesses and will continue to review and make necessary changes to the overall design of its
internal control environment in 2014 and beyond, as well as to policies and procedures to improve the overall effectiveness of internal
control over financial reporting.
Changes in Internal Controls
With the exception of the remediation efforts described above, there has been no change in our internal control over financial
reporting that occurred in the annual period covered by this report that materially affected, or is 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 effective as of December 31, 2013.
Previously identified material weaknesses 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
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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 were remediated during the year ended December 31, 2013. We enhanced our processes with the addition of a corporate
controller with the ability to research and properly apply complex accounting standards. Additionally, we also enhanced 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. Management has remediated the material weaknesses and will continue to review and make necessary changes to the
overall design of its internal control environment in 2014 and beyond, as well as to policies and procedures to improve the overall
effectiveness of internal control over financial reporting.
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, 2013, based on the COSO criteria; their report is included in Item 9A.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Ligand Pharmaceuticals Incorporated
We have audited the internal control over financial reporting of Ligand Pharmaceuticals Incorporated (the “Company”) as of December 31,
2013, based on criteria established in the 1992 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.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2013, based on criteria established in the 1992 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, 2013, and our report dated February 24, 2014
expressed an unqualified opinion on those financial statements.
/s/ GRANT THORNTON LLP
Los Angeles, California
February 24, 2014
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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 to Ligand’s Definitive Proxy Statement to be filed with the
SEC on or prior to April 30, 2014.
Item 11.
Executive Compensation
Item 11 is hereby incorporated by reference to Ligand’s Definitive Proxy Statement to be filed with the SEC on or prior to April 30,
2014.
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, 2014.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 13 is hereby incorporated by reference to Ligand’s Definitive Proxy Statement to be filed with the SEC on or prior to April 30,
2014.
Item 14.
Principal Accountant Fees and Services
Item 14 is hereby incorporated by reference to Ligand’s Definitive Proxy Statement to be filed with the SEC on or prior to April 30,
2014.
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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 Comprehensive Income (Loss)
Consolidated Statements of Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
40
41
42
43
44
45
46
48
(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
Description
2.1
3.1
3.2
3.3
3.4
3.5
3.6
4.1
4.2
4.3
Agreement and Plan of Merger, dated January 14, 2011 by and among the Company, CyDex Pharmaceuticals,
Inc., and Caymus Acquisition, Inc., (incorporated by reference to the Company's Current Report on Form 8-K
filed on January 26, 2011).
Amended and Restated Certificate of Incorporation of the Company. (incorporated by reference to the Company's
Registration Statement on Form S-4 (No. 333-58823) filed on July 9, 1998).
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, dated June
14, 2000 (incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2000).
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, dated June
30, 2004 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the period ended
June 30, 2004).
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, dated
November 17, 2010 (incorporated by reference to the Company’s Current Report on Form 8-K filed on
November 19, 2010).
Amended Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred
Stock of the Company (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the
period ended March 31, 1999).
Second Amended and Restated Bylaws of the Company (incorporated by reference to the Company’s Current
Report on Form 8-K filed on April 12, 2013).
Specimen stock certificate for shares of the common stock of the Company (incorporated by reference to the
Company’s Registration Statement on Form S-1 (No. 33-47257) filed on April 16, 1992 as amended).
2006 Preferred Shares Rights Agreement, by and between the Company and Mellon Investor Services LLC, dated
October 13, 2006 (incorporated by reference to the Company’s Current Report Form 8-K filed on October 17,
2006).
First Amendment to 2006 Preferred Shares Rights Agreement, by and between the Company and Computershare
Shareowner Services LLC (f/k/a Mellon Investor Services LLC), dated June 19, 2013 (incorporated by reference
to the Company’s Current Report on Form 8-K filed on June 20, 2013).
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Exhibit
Number
Description
10.1#
10.2#
10.3#
10.4#
10.5#
10.6#
10.7#
10.8#
10.9#
10.10#
10.11#
10.12#
10.13#
10.14
10.15†
10.16†
10.17†
10.18†
10.19†
Form of Indemnification Agreement between the Company and each of its directors (incorporated by reference to
the Company’s Registration Statement on Form S-1 (No. 33-47257) filed on April 16, 1992 as amended).
Form of Indemnification Agreement between the Company and each of its officers (incorporated by reference to
the Company’s Registration Statement on Form S-1 (No. 33-47257) filed on April 16, 1992 as amended).
2002 Stock Incentive Plan (as amended and restated through May 31, 2012) (incorporated by reference to the
Company’s Registration Statement on Form S-8 filed on July 5, 2012 as amended).
2002 Employee Stock Purchase Plan (as amended effective July 1, 2009) (incorporated by reference to the
Company’s Registration Statement on Form S-8 filed on June 22, 2009).
Form of Stock Option Grant Notice and Stock Option Agreement under the Company’s 2002 Stock Incentive Plan
Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement under the Company’s 2002
Stock Incentive Plan (incorporated by reference to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2003).
Form of Stock Issuance Agreement for non-employee directors under the Company’s 2002 Stock Incentive Plan
(incorporated by reference to the Company’s Registration Statement on Form S-1 (no. 333-131029) filed on
January 13, 2006 as amended).
Form of Letter Agreement regarding Change of Control Severance Benefits between the Company and its officers
(incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31,
2006).
Form of Executive Officer Change in Control Severance Agreement (incorporated by reference to the Company’s
Current Report on Form 8-K filed on August 22, 2007).
Amended and Restated Severance Plan, dated December 20, 2008 (incorporated by reference to the Company’s
Current Report on Form 8-K filed on December 24, 2012).
Amended and Restated Director Compensation and Stock Ownership Policy, effective as of June 1, 2011
(incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the period ended June 30,
2011).
Letter Agreement by and between the Company and John L. Higgins, dated January 10, 2007 (incorporated by
reference to the Company’s Current Report on Form 8-K filed on January 16, 2007).
Letter Agreement by and between the Company and John P. Sharp, dated March 30, 2007 (incorporated by
reference to the Company’s Current Report on Form 8-K filed on May 4, 2007).
Stock Purchase Agreement, dated September 9, 1992, between the Company and Glaxo, Inc. (incorporated by
reference to the Company’s Registration Statement on Form S-1 (No. 33-47257) filed on April 16, 1992 as
amended).
Research and Development Agreement, dated September 9, 1992, between the Company and Glaxo, Inc.
(incorporated by reference to the Company’s Registration Statement on Form S-1 (No. 33-47257) filed on
April 16, 1992 as amended).
Option Agreement, dated September 2, 1994, between the Company and American Home Products Corporation,
as represented by its Wyeth-Ayerst Research Division (incorporated by reference to the Company’s Quarterly
Report on Form 10-Q for the period ended September 30, 1994).
Research, Development and License Agreement, dated December 29, 1994, between SmithKline Beecham
Corporation and the Company (incorporated by reference to the Registration Statement on Form S-1/S-3 (No. 33-
87598 and 33-87600) filed on December 20, 1994, as amended).
Letter of Agreement, dated September 28, 1998, among the Company, Elan Corporation, plc and Elan
International Services, Ltd. (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the
period ended September 30, 1998).
Amended and Restated License and Supply Agreement, dated December 6, 2002, between the Company, Elan
Corporation, plc and Elan Management Limited (incorporated by reference to the Company’s Annual Report on
Form 10-K for the year ended December 31, 2002).
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Exhibit
Number
10.20†
10.21†
10.22
10.23
10.24
10.25†
10.26†
10.27†
10.28†
10.29†
10.30
10.31
10.32†
10.33
10.34
10.35
Description
Stock Purchase Agreement by and between the Company and Warner-Lambert Company dated September 1,
1999 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the period ended
September 30, 1999).
License Agreement, effective June 30, 1999, by and between the Company and X-Ceptor Therapeutics, Inc.
(incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the period ended September 30,
1999).
Purchase Agreement, dated March 6, 2002, between the Company and Pharmaceutical Royalties International
(Cayman) Ltd. (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the period ended
March 31, 2002).
Amendment Number 1 to Purchase Agreement, dated July 29, 2002, between the Company and Pharmaceutical
Royalties International (Cayman) Ltd. (incorporated by reference to the Company’s Quarterly Report on Form 10-
Q for the period ended September 30, 2002).
Amendment Number 2 to Purchase Agreement, dated December 19, 2002, between the Company and
Pharmaceuticals Royalties International (Cayman) Ltd. (incorporated by reference to the Company’s Annual
Report on Form 10-K for the year ended December 31, 2002).
Amendment Number 3 to Purchase Agreement, dated December 30, 2002, between the Company and
Pharmaceuticals Royalties International (Cayman) Ltd. (incorporated by reference to the Company’s Annual
Report on Form 10-K for the year ended December 31, 2002).
Purchase Agreement, dated December 30, 2002, between the Company and Pharmaceuticals Royalties
International (Cayman) Ltd. (incorporated by reference to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2002).
Co-Promotion Agreement, dated January 1, 2003, by and between the Company and Organon Pharmaceuticals
USA Inc. (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the period ended
March 31, 2003).
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 (incorporated by reference to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2003).
Amendment to Purchase Agreement Between Royalty Pharma Finance Trust and the Company, dated October 1,
2003 (incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31,
2003).
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 the Company, dated
November 5, 2004 (incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2004).
Amendment to Purchase Agreement between Royalty Pharma Finance Trust, the Company and Investors Trust
and Custodial Services (Ireland) Ltd., solely in its capacity as Trustee of Royalty Pharma, dated November 5,
2004 (incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31,
2004).
Amended and Restated Research, Development and License Agreement, dated December 1, 2005, between the
Company and Wyeth (formerly American Home Products Corporation) (incorporated by reference to the
Company’s Registration Statement on Form S-1 (no. 333-131029) filed on January 13, 2006 as amended).
Termination and Return of Rights Agreement between the Company and Organon USA Inc., dated January 1,
2006 (incorporated by reference to the Amendment to the Company’s Registration Statement on Form S-1 (No.
333-1031029) filed on February 10, 2006).
Purchase Agreement, by and between the Company, King Pharmaceuticals, Inc. and King Pharmaceuticals
Research and Development, Inc., dated September 6, 2006 (incorporated by reference to the Company’s Current
Report Form 8-K filed on September 11, 2006).
Loan Agreement by and between the Company and King Pharmaceuticals, 303 Inc., dated October 12, 2006
(incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31,
2006).
80
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Exhibit
Number
Description
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50†
10.51†
10.52
10.53
Letter Agreement by and between the Company and King Pharmaceuticals, Inc. effective as of December 29,
2006 (incorporated by reference to the Company’s Current Report on Form 8-K filed on January 5, 2007).
Amendment Number 2 to Purchase Agreement, by and between the Company and King Pharmaceuticals, Inc.,
effective February 26, 2007 (incorporated by reference to the Company’s Current Report on Form 8-K filed on
February 28, 2007).
Purchase Agreement, by and among the Company, Seragen, Inc., Eisai Inc. and Eisai Co., Ltd., dated September
7, 2006 (incorporated by reference to the Company’s Current Report Form 8-K filed on September 11, 2006).
Purchase Agreement and Escrow Instructions by and between Nexus Equity VI, LLC, the Company and Slough
Estates USA Inc., dated October 25, 2006 (incorporated by reference to the Company’s Current Report on Form
8-K filed on October 31, 2006).
Lease, dated July 6, 1994, between the Company and Chevron/Nexus partnership, First Amendment to Lease
dated July 6, 1994 (incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended
December 31, 1995).
Sublease Agreement between the Company and eBIOSCIENCE, INC., dated as of December 16, 2007
(incorporated by reference to the Company’s Current Report on Form 8-K filed on December 19, 2007).
Lease, dated August 20, 2003, between Pharmacopeia, Inc. and Eastpark at 8A (Building 1000) (incorporated by
reference to the Company’s Annual Report on Form 10-K for the period ended December 31, 2008).
Amendment to Lease, dated September 10, 2007, between Pharmacopeia, Inc. and Eastpark at 8A (Building 1000)
(incorporated by reference to Pharmacopeia, Inc.’s Quarterly Report on Form 10-Q for the period ended
September 30, 2007, File No. 000-50523).
Lease, dated August 20, 2003, between Pharmacopeia, Inc. and Eastpark at 8A (Building 3000) (incorporated by
reference to the Company’s Annual Report on Form 10-K for the period ended December 31, 2008).
Amendment to Lease, dated April 18, 2007, between Pharmacopeia, Inc. and Eastpark at 8A (Building 3000)
(incorporated by reference to Pharmacopeia, Inc.’s Quarterly Report on Form 10-Q for the period ended
September 30, 2007, File No. 000-50523).
Lease, between the Company and HCP TPSP, LLC, dated August 7, 2009 (incorporated by reference to the
Company’s Current Report on Form 8-K filed on August 11, 2009).
Lease Termination Agreement, between the Company and TPSC IX, LLC, dated August 7, 2009 (incorporated by
reference to the Company’s Current Report on Form 8-K filed on August 11, 2009).
Lease Agreement, dated September 5, 2011, between the Company and ARE-SD Region No. 24, LLC
(incorporated by reference to the Company’s Current Report on Form 8-K filed on September 9, 2011).
Amendment to Lease Agreement, dated November 1, 2011, between the Company and HCP TPSP, LLC
(incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the period ended September 30,
2011).
Collaboration and License Agreement, dated July 9, 2003 and effective August 8, 2003, between Pharmacopeia,
Inc. and Schering-Plough Ltd. (incorporated by reference to the Company’s Annual Report on Form 10-K for the
period ended December 31, 2008).
Collaboration and License Agreement, dated July 9, 2003 and effective August 8, 2003, between Pharmacopeia,
Inc. and Schering Corporation (incorporated by reference to the Company’s Annual Report on Form 10-K for the
period ended December 31, 2008).
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. (incorporated by reference to Pharmacopeia, Inc.’s Current Report on Form 8-K filed on August 2, 2006,
File No. 000-50523).
License Agreement, dated March 27, 2006, between Pharmacopeia, Inc. and Bristol-Myers Squibb Company
(incorporated by reference to Pharmacopeia, Inc.’s Quarterly Report on Form 10-Q for the period ended
March 31, 2006, File No. 000-50523).
81
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Exhibit
Number
10.54
10.55
10.56†
10.57
10.58
10.59
10.60
10.61
10.62
10.63
10.64
10.65
10.66
10.67
10.68
10.69
10.70
Description
License Agreement, dated October 11, 2007, between Bristol-Myers Squibb Company and Pharmacopeia, Inc.
(Filed as Exhibit 10.45) (File No. 000-50523) (incorporated by reference to Pharmacopeia, Inc.’s Annual Report
on Form 10-K for the year ended December 31, 2007, File No. 000-50523).
Contingent Value Rights Agreement, dated December 23, 2008, among the Company, Pharmacopeia, Inc. and
Mellon Investor Services LLC (incorporated by reference to Pharmacopeia, Inc.’s Current Report on Form 8-K
filed on December 23, 2008, File No. 000-50523).
License Agreement, dated December 17, 2008, between the Company and SmithKline Beecham Corporation,
doing business as GlaxoSmithKline (incorporated by reference to the Company’s Annual Report on Form 10-K
for the period ended December 31, 2008).
Settlement Agreement and Mutual Release, by and between the Company and The Rockefeller University, dated
February 11, 2009 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the period
ended March 31, 2009).
Research Collaboration Termination Agreement, between the Company and N.V. Organon, dated July 29, 2009
(incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the period ended September 30,
2009).
Contingent Value Rights Agreement, dated December 23, 2009, among the Company, Neurogen Corporation,
Registrar and Transfer Company, and Merck CVR Registrar (incorporated by reference to the Company’s Current
Report on Form 8-K filed on December 24, 2009).
TR Beta Contingent Value Rights Agreement, dated January 27, 2010, among the Company, Metabasis
Therapeutics, Inc., David F. Hale and Mellon Investor Services LLC (incorporated by reference to the Company’s
Current Report on Form 8-K filed on January 28, 2010).
Glucagon Contingent Value Rights Agreement, dated January 27, 2010, among the Company, Metabasis
Therapeutics, Inc., David F. Hale and Mellon Investor Services LLC (incorporated by reference to the Company’s
Current Report on Form 8-K filed on January 28, 2010).
General Contingent Value Rights Agreement, dated January 27, 2010, among the Company, Metabasis
Therapeutics, Inc., David F. Hale and Mellon Investor Services LLC (incorporated by reference to the Company’s
Current Report on Form 8-K filed on January 28, 2010).
Amendment of General Contingent Value Rights Agreement, dated January 26, 2011, among the Company,
Metabasis Therapeutics, Inc., David F. Hale and Mellon Investor Services LLC (incorporated by reference to the
Company’s Current Report on Form 8-K filed on January 31, 2011.
Purchase and Sale Agreement, dated May 18, 2010, between the Company and The Genaera Liquidating Trust
(incorporated by reference to the Company’s Current Report on Form 8-K filed on May 24, 2010).
Purchase Agreement, dated May 20, 2010, between the Company and Biotechnology Value Fund, L.P., on its
own behalf and on behalf of Biotechnology Value Fund II, L.P. and Investment 10, L.L.C. (incorporated by
reference to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2010).
Asset Purchase Agreement, dated July 30, 2010, between Wyeth LLC, Pharmacopeia, Inc. and the Company
(incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the period ended September 30,
2010).
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 (incorporated
by reference to the Company’s Current Report on Form 8-K filed on January 26, 2011).
Loan and Security Agreement, dated January 24, 2011, between the Company and Oxford Finance Corporation
(incorporated by reference to the Company’s Current Report on Form 8-K filed on January 26, 2011).
First Amendment to Loan and Security Agreement, dated April 29, 2011, between the Company and Oxford
Finance LLC (incorporated by reference to the Company’s Current Report on Form 8-K filed on April 29, 2011).
Joinder and Second Amendment, dated October 28, 2011, between the Company and Oxford Finance LLC
(incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31,
2011).
82
Table of Contents
Exhibit
Number
Description
10.71
10.72
10.73
10.74
10.75†
10.76†
10.77
10.78†
10.79†
10.80†
10.81†
10.82†
10.83†
10.84†
10.85†
10.86†
Fourth Amendment to Loan and Security Agreement, dated January 23, 2012, between the Company and Oxford
Finance LLC (incorporated by reference to the Company’s Current Report on Form 8-K filed on January 26,
2012).
Sixth Amendment to Loan and Security Agreement, dated March 22, 2013, by and between the Company and
Oxford Finance LLC (incorporated by reference to the Company’s Current Report on Form 8-K filed on March
25, 2013).
Loan and Security Agreement, by and between the Company and Square 1 Bank, dated March 31, 2011
(incorporated by reference to the Company’s Current Report on Form 8-K filed on April 4, 2011).
First Amendment to Loan and Security Agreement, by and between the Company and Square 1 Bank, dated April
29, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed on April 29, 2011).
Supply Agreement, dated December 20, 2002, among CyDex Pharmaceuticals, Inc., Hovione LLC, Hovione
FarmaCiencia S.A., Hovione Pharmascience Limited, and Hovione International Limited (incorporated by
reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010).
First Amendment to Supply Agreement, dated July 29, 2005, among CyDex Pharmaceuticals, Inc., Hovione LLC,
Hovione FarmaCiencia S.A., Hovione Pharmascience Limited, and Hovione International Limited (incorporated
by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010).
2nd Amendment to Supply Agreement, dated March 1, 2007, among CyDex Pharmaceuticals, Inc., Hovione LLC,
Hovione FarmaCiencia S.A., Hovione Pharmascience Limited, and Hovione International Limited (incorporated
by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010).
3rd Amendment to Supply Agreement, dated January 25, 2008, among CyDex Pharmaceuticals, Inc.,
Hovione LLC, Hovione FarmaCiencia S.A., Hovione Pharmascience Limited, and Hovione International Limited
(incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31,
2010).
4th Amendment to Supply Agreement, dated September 28, 2009, among CyDex Pharmaceuticals, Inc.,
Hovione LLC, Hovione FarmaCiencia S.A., Hovione Pharmascience Limited, and Hovione International Limited
(incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31,
2010).
License Agreement, dated September 3, 1993, between CyDex Pharmaceuticals, Inc. and The University of
Kansas (incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December
31, 2010).
Second Amendment to the License Agreement, dated August 4, 2004, between CyDex Pharmaceuticals, Inc. and
The University of Kansas (incorporated by reference to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2010).
Acknowledgement Agreement, dated March 3, 2008, between CyDex Pharmaceuticals, Inc. and The University of
Kansas (incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December
31, 2010).
Exclusive License Agreement, dated June 4, 1996, between Pfizer, Inc. and CyDex Pharmaceuticals, Inc.
(incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31,
2010).
Nonexclusive License Agreement, dated June 4, 1996, between Pfizer, Inc. and CyDex Pharmaceuticals, Inc.
(incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31,
2010).
Addendum to Nonexclusive License Agreement, dated December 11, 2001, between CyDex Pharmaceuticals, Inc.
and Pfizer, Inc. (incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2010).
License Agreement, dated January 4, 2006, between CyDex Pharmaceuticals, Inc. and Prism Pharmaceuticals
(incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31,
2010).
83
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Exhibit
Number
10.87†
10.88†
10.89†
10.90†
10.91†
10.92†
10.93
10.94
10.95
10.96†
10.97†
10.98†
10.99†
10.100†
10.101†
10.102†
14.1
21.1
23.1
Description
Amendment to License Agreement, dated May 12, 2006, between CyDex Pharmaceuticals, Inc. and Prism
Pharmaceuticals (incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2010).
Supply Agreement, dated March 5, 2007, between CyDex Pharmaceuticals, Inc. and Prism Pharmaceuticals
(incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31,
2010).
License and Supply Agreement, dated October 12, 2005, between CyDex Pharmaceuticals, Inc. and Proteolix, Inc.
(Filed as Exhibit 10.22)(File No. 000-28298) (incorporated by reference to Onyx Pharmaceuticals, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 2009, File No. 000-28298).
Amended and Restated License Agreement, dated October 31, 2012, between the Company and Chiva
Pharmaceuticals, Inc. (incorporated by reference to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2012).
Settlement Agreement and Mutual Release, dated October 31, 2012, between the Company and Chiva
Pharmaceuticals, Inc. (incorporated by reference to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2012).
Supply Agreement, dated June 13, 2011 by and between CyDex Pharmaceuticals, Inc. and Merck (incorporated by
reference to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2011).
License Agreement, dated September 5, 2011, between the Company and ARE-3535/3565 General Atomics
Court, LLC (incorporated by reference to the Company’s Current Report on Form 8-K filed on September 9,
2011).
Letter Agreement, dated September 29, 2011, between the Company and Biotechnology Value Fund, L.P.
(incorporated by reference to the Company’s Current Report on Form 8-K filed on September 30, 2011).
Amended Letter Agreement, dated June 19, 2013, between the Company and Biotechnology Value Fund, L.P.
(incorporated by reference to the Company’s Current Report on Form 8-K filed on June 20, 2013).
License Agreement, by and between CyDex and Spectrum Pharmaceuticals, Inc., dated as of March 8, 2013
(incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the Period ended March 31,
2013).
Supply Agreement, by and between CyDex and Spectrum Pharmaceuticals, Inc., dated as of March 8, 2013
(incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the Period ended March 31,
2013).
Royalty Stream and Milestone Payments Purchase Agreement, dated April 29, 2013, between the Company and
Selexis S.A. (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the Period ended
June 30, 2013).
License Agreement dated July 17, 2013 between the Company and Azure Biotech, Inc. (incorporated by reference
to the Company’s Quarterly Report on Form 10-Q for the Period ended September 30, 2013).
Exclusive License and Distribution Agreement dated July 23, 2013 between the Company and Ethicor
Pharmaceuticals, Ltd. (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the Period
ended September 30, 2013).
License Agreement dated August 12, 2013 between CyDex Pharmaceuticals, Inc. and CURx Pharmaceuticals,
Inc. (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the Period ended September
30, 2013).
Supply Agreement dated August 12, 2013 between CyDex Pharmaceuticals, Inc. and CURx Pharmaceuticals, Inc.
(incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the Period ended September 30,
2013).
Code of Business Conduct and Ethics (incorporated by reference to the Company’s Annual Report on Form 10-K
for the year ended December 31, 2003).
Subsidiaries of the Company (incorporated by reference to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2011).
Consent of independent registered public accounting firm-Grant Thornton LLP
84
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Exhibit
Number
24.1
31.1
31.2
32.1
32.2
Description
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.
101.INS
XBRL Instance Document.
101.SCH
XBRL Taxonomy Extension Schema Document.
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
101.PRE
†
#
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document.
Confidential treatment has been requested for portions of this exhibit. These portions have been omitted and submitted
separately to the Securities and Exchange Commission.
Indicates management contract or compensatory
plan.
85
Table of Contents
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: February 24, 2014
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, 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
February 24, 2014
(Principal Executive Officer)
Vice President, Finance and Chief Financial Officer
February 24, 2014
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
86
February 24, 2014
February 24, 2014
February 24, 2014
February 24, 2014
February 24, 2014
February 24, 2014
February 24, 2014
LIGAND PHARMACEUTICALS INCORPORATED
NOTICE OF GRANT OF STOCK OPTION
Exhibit 10.5
Notice is hereby given of the following option grant (the “Option”) to purchase shares of the Common Stock of Ligand
Pharmaceuticals Incorporated (the “Corporation”):
Optionee: %%FIRST_NAME%-% %%MIDDLE_NAME%-% %%LAST_NAME%-%
Grant Number: %%OPTION_NUMBER%-%
Grant Date: %%OPTION_DATE,’MM/DD/YYYY’%-%
Vesting Commencement
Date: [Insert appropriate code]
Exercise Price: %%OPTION_PRICE,’$999,999,999.9999’%-%
Number of Option Shares: %%TOTAL_SHARES_GRANTED,’999,999,999’%-%
Expiration Date: %%EXPIRE_DATE_PERIOD1,’MM/DD/YYYY’%-%
Type of Option: [Insert appropriate code]
Exercise
Schedule:
The Option will vest as follows subject to Optionee’s continued Service through each such vesting
date:
Shares Vest Date Vest Type
[Insert appropriate codes]
Optionee understands and agrees that the Option is granted subject to and in accordance with the terms of the Ligand
Pharmaceuticals Incorporated 2002 Stock Incentive Plan (the “Plan”). By electronically accepting this Option, Optionee further
agrees to be bound by the terms of the Plan and the terms of the Option as set forth in the Stock Option Agreement attached
hereto as Exhibit A. Optionee hereby acknowledges that he or she has been provided with a copy or electronic access to the
Plan and the prospectus for the Plan. A printed copy of the Plan and/or prospectus is available upon request made to the
Secretary of the Corporation at the Corporation’s principal offices.
Employment at Will. Nothing in this Notice or in the attached Stock Option Agreement or in the Plan shall confer upon
Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the
rights of the Corporation (or any Parent or Subsidiary employing or retaining Optionee) or of Optionee, which rights are hereby
expressly reserved by each, to terminate Optionee’s Service at any time for any reason, with or without cause.
Definitions. All capitalized terms in this Notice shall have the meaning assigned to them in this Notice or in the attached
Stock Option Agreement.
LIGAND PHARMACEUTICALS INCORPORATED
STOCK OPTION AGREEMENT
RECITALS
A. The Board has adopted the Plan for the purpose of retaining the services of selected Employees, non-employee members of
the Board (or the board of directors of any Parent or Subsidiary) and consultants and other independent advisors who provide services to
the Corporation (or any Parent or Subsidiary).
B. Optionee is to render valuable services to the Corporation (or a Parent or Subsidiary), and this Agreement is executed
pursuant to, and is intended to carry out the purposes of, the Plan in connection with the Corporation’s grant of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1.
GRANT OF OPTION. The Corporation hereby grants to Optionee, as of the Grant Date, an option to purchase up to the
number of Option Shares specified in the Grant Notice. The Option Shares shall be purchasable from time to time during the option term
specified in Paragraph 2 at the Exercise Price.
2. OPTION TERM. This option shall have a maximum term of ten (10) years measured from the Grant Date and shall
accordingly expire at the close of business on the Expiration Date, unless sooner terminated in accordance with Paragraph 5 or 6.
3. LIMITED TRANSFERABILITY.
(a) This option shall be neither transferable nor assignable by Optionee other than by will or the laws of inheritance following
Optionee’s death and may be exercised, during Optionee’s lifetime, only by Optionee. However, Optionee may designate one or more
persons as the beneficiary or beneficiaries of this option, and this option shall, in accordance with such designation, automatically be
transferred to such beneficiary or beneficiaries upon the Optionee’s death while holding this option. Such beneficiary or beneficiaries shall
take the transferred option subject to all the terms and conditions of this Agreement, including (without limitation) the limited time period
during which this option may, pursuant to Paragraph 5, be exercised following Optionee’s death.
(b) If this option is designated a Non-Statutory Option in the Grant Notice, then this option may be assigned in whole or in part
during Optionee’s lifetime to one or more members of Optionee’s family or to a trust established for the exclusive benefit of one or more
such family members or to Optionee’s former spouse, to the extent such assignment is in connection with the Optionee’s estate plan or
pursuant to a domestic relations order. The assigned portion shall be exercisable only by the person or persons who acquire a proprietary
interest in the option pursuant to such assignment. The terms applicable to the assigned portion shall be the same as those in effect for this
option immediately prior to such assignment.
4. DATES OF EXERCISE. This option shall become exercisable for the Option Shares in one or more installments as specified
in the Grant Notice. As the option becomes exercisable for such installments, those installments shall accumulate, and the option shall
remain exercisable for the accumulated installments until the Expiration Date or sooner termination of the option term under Paragraph 5
or 6.
5. CESSATION OF SERVICE. The option term specified in Paragraph 2 shall terminate (and this option shall cease to be
outstanding) prior to the Expiration Date should any of the following provisions become applicable:
(a) Should Optionee cease to remain in Service for any reason (other than death or Permanent Disability) while this option is
outstanding, then Optionee (or any person or persons to whom this option is transferred pursuant to a permitted transfer under Paragraph 3)
shall have a period of three (3) months (commencing with the date of such cessation of Service) during which to exercise this option, but in
no event shall this option be exercisable at any time after the Expiration Date.
(b) Should Optionee die while this option is outstanding, then the personal representative of Optionee’s estate or the person or
persons to whom the option is transferred pursuant to Optionee’s will or the laws of inheritance following Optionee’s death or to whom the
option is transferred during Optionee’s lifetime pursuant to a permitted transfer under Paragraph 3 shall have the right to exercise this
option. However, if Optionee dies while holding this option and has an effective beneficiary designation in effect for this option at the time
of his or her death, then the designated beneficiary or beneficiaries shall have the exclusive right to exercise this option following
Optionee’s death. Any such right to exercise this option shall lapse, and this option shall cease to be outstanding, upon the earlier of (i) the
expiration of the twelve (12)-month period measured from the date of Optionee’s death or (ii) the Expiration Date.
(c) Should Optionee cease Service by reason of Permanent Disability while this option is outstanding, then Optionee (or any
person or persons to whom this option is transferred pursuant to a permitted transfer under Paragraph 3) shall have a period of twelve (12)
months (commencing with the date of such cessation of Service) during which to exercise this option. In no event shall this option be
exercisable at any time after the Expiration Date.
(d) During the limited period of post-Service exercisability, this option may not be exercised in the aggregate for more than the
number of Option Shares for which the option is exercisable at the time of Optionee’s cessation of Service. Upon the expiration of such
limited exercise period or (if earlier) upon the Expiration Date, this option shall terminate and cease to be outstanding for any exercisable
Option Shares for which the option has not been exercised. However, this option shall, immediately upon Optionee’s cessation of Service
for any reason, terminate and cease to be outstanding with respect to any Option Shares for which this option is not otherwise at that time
exercisable.
6. SPECIAL ACCELERATION OF OPTION.
(a) This option, to the extent outstanding at the time of a Change in Control but not otherwise fully exercisable, shall
automatically accelerate so that this option shall, immediately prior to the effective date of such Change in Control, become exercisable for
all of the Option Shares at the time subject to this option and may be exercised for any or all of those Option Shares as fully vested shares
of Common Stock. However, this option shall not become exercisable on such an accelerated basis, if and to the extent: (i) this option is to
be assumed by the successor corporation (or parent thereof) or is otherwise to be continued in full force and effect pursuant to the terms of
the Change in Control transaction or (ii) this option is to be replaced with a cash incentive program of the successor corporation which
preserves the spread existing at the time of the Change in Control on any Option Shares for which this option is not otherwise at that time
exercisable (the excess of the Fair Market Value of those Option Shares over the aggregate Exercise Price payable for such shares) and
provides for subsequent payout of that spread in accordance with the same option exercise/vesting schedule for those Option Shares set
forth in the Grant Notice.
(b) Immediately following the Change in Control, this option shall terminate and cease to be outstanding, except to the extent
assumed by the successor corporation (or parent thereof) or otherwise continued in effect pursuant to the terms of the Change in Control
transaction.
(c) If this option is assumed in connection with a Change in Control or otherwise continued in effect, then this option shall be
appropriately adjusted, immediately after such Change in Control, to apply to the number and class of securities which would have been
issuable to Optionee in consummation of such Change in Control had the option been exercised immediately prior to such Change in
Control, and appropriate adjustments shall also be made to the Exercise Price, provided the aggregate Exercise Price shall remain the same.
To the extent the actual holders of the Corporation’s outstanding Common Stock receive cash consideration for their Common Stock in
consummation of the Change in Control, the successor corporation may, in connection with the assumption of this option, substitute one or
more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Common Stock in such
Change in Control.
(d) This Agreement shall not in any way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
7. ADJUSTMENT IN OPTION SHARES. The option shall be subject to adjustment as provided in Article One, Section III.V.D
of the Plan.
8. STOCKHOLDER RIGHTS. The holder of this option shall not have any stockholder rights with respect to the Option Shares
until such person shall have exercised the option, paid the Exercise Price and become a holder of record of the purchased shares.
9. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or any part of the Option Shares for which this option is at the time
exercisable, Optionee (or any other person or persons exercising the option) must take the following actions:
(i) Execute and deliver to the Corporation a Notice of Exercise for the Option Shares for which the option is exercised.
(ii) Pay the aggregate Exercise Price for the purchased shares in one or more of the following forms:
(A) cash or check made payable to the Corporation (includes cash paid from Optionee’s brokerage pursuant to a
presale of shares in a so-called “cashless” exercise);
(B) subject to the consent of the Plan Administrator, shares of Common Stock held by Optionee (or any other
person or persons exercising the option) for the requisite period necessary to avoid a charge to the Corporation’s earnings
for financial reporting purposes and valued at Fair Market Value on the Exercise Date;
(C) shares of Common Stock issuable upon the exercise of the option having a Fair Market Value on the
Exercise Date equal to the aggregate exercise price of the Option Shares with respect to which the option or portion thereof
is being exercised (provided that, to the extent the option is an Incentive Option, Optionee's election to pay the aggregate
Exercise Price or applicable tax withholding pursuant to this clause (C) shall be subject to the consent of the Plan
Administrator); or
(D) through a special sale and remittance procedure pursuant to which Optionee (or any other person or persons
exercising the option) shall concurrently provide irrevocable instructions (i) to a brokerage firm to effect the immediate
sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate Exercise Price payable for the purchased shares plus all applicable income and
employment taxes required to be withheld by the Corporation by reason of such exercise and (ii) to the Corporation to
deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale.
Except to the extent the sale and remittance procedure is utilized in connection with the option exercise, payment of the Exercise
Price must accompany the Notice of Exercise delivered to the Corporation in connection with the option exercise.
(iii) Furnish to the Corporation appropriate documentation that the person or persons exercising the option (if other than
Optionee) have the right to exercise this option.
(iv) Make appropriate arrangements with the Corporation (or Parent or Subsidiary employing or retaining Optionee) for
the satisfaction of all applicable income and employment tax withholding requirements applicable to the option exercise, which
amounts may be paid in on or more of the forms of consideration permitted under clause (ii) above, subject to Article Six, Section I
of the Plan and any required
consent of the Plan Administrator under clause (ii) above. To the extent any employment tax withholding will be satisfied by
Optionee pursuant to clause (B) or (C) under clause (ii) above, the shares to be surrendered to the Corporation or withheld from the
shares of Common Stock otherwise issuable upon the exercise shall be limited to those shares with a Fair Market Value not
exceeding the amount necessary to satisfy the tax withholding obligation of the Company with respect to the exercise of the
optionbased on the minimum applicable statutory withholding rates.
(b) As soon as practical after the Exercise Date, the Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate for the purchased Option Shares, with the appropriate legends affixed thereto.
(c) In no event may this option be exercised for any fractional shares.
10. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of the Option Shares upon such exercise shall be subject to compliance by the
Corporation and Optionee with all applicable requirements of law relating thereto and with all applicable regulations of any stock exchange
(including The Nasdaq Stock Market, if applicable) on which the Common Stock may be listed for trading at the time of such exercise and
issuance.
(b) The inability of the Corporation to obtain approval from any regulatory body having authority deemed by the Corporation to
be necessary to the lawful issuance and sale of any Common Stock pursuant to this option shall relieve the Corporation of any liability with
respect to the non-issuance or sale of the Common Stock as to which such approval shall not have been obtained. The Corporation,
however, shall use its best efforts to obtain all such approvals.
11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in Paragraphs 3 and 6, the provisions of this
Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and Optionee, Optionee’s
assigns, the legal representatives, heirs and legatees of Optionee’s estate and any beneficiaries of this option designated by Optionee.
12. NOTICES. Any notice required to be given or delivered to the Corporation under the terms of this Agreement shall be in
writing and addressed to the Corporation at its principal corporate offices. Any notice required to be given or delivered to Optionee shall be
in writing and addressed to Optionee at the most recent address for Optionee on the Corporation’s payroll records. All notices shall be
deemed effective upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be
notified.
13. CONSTRUCTION. This Agreement and the option evidenced hereby are made and granted pursuant to the Plan and are in
all respects limited by and subject to the terms of the Plan. All decisions of the Plan Administrator with respect to any question or issue
arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in this option.
14. GOVERNING LAW. The interpretation, performance and enforcement of this Agreement shall be governed by the laws of
the State of California without resort to that State’s conflict-of-laws rules.
15. EXCESS SHARES. If the Option Shares covered by this Agreement exceed, as of the Grant Date, the number of shares of
Common Stock which may without stockholder approval be issued under the Plan, then this option shall be void with respect to those
excess shares, unless stockholder approval of an amendment sufficiently increasing the number of shares of Common Stock issuable under
the Plan is obtained in accordance with the provisions of the Plan.
16. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE OPTION. In the event this option is designated an Incentive
Option in the Grant Notice, the following terms and conditions shall also apply to the grant:
(a) This option shall cease to qualify for favorable tax treatment as an Incentive Option if (and to the extent) this option is
exercised for one or more Option Shares: (i) more than three (3) months after the date Optionee
ceases to be an Employee for any reason other than death or Permanent Disability or (ii) more than twelve (12) months after the date
Optionee ceases to be an Employee by reason of death or Permanent Disability.
(b) No installment under this option shall qualify for favorable tax treatment as an Incentive Option if (and to the extent) the
aggregate Fair Market Value (determined at the Grant Date) of the Common Stock for which such installment first becomes exercisable
hereunder would, when added to the aggregate value (determined as of the respective date or dates of grant) of the Common Stock or other
securities for which this option or any other Incentive Options granted to Optionee prior to the Grant Date (whether under the Plan or any
other option plan of the Corporation or any Parent or Subsidiary) first become exercisable during the same calendar year, exceed One
Hundred Thousand Dollars ($100,000) in the aggregate. Should such One Hundred Thousand Dollar ($100,000) limitation be exceeded in
any calendar year, this option shall nevertheless become exercisable for the excess shares in such calendar year as a Non-Statutory Option.
(c) Should the exercisability of this option be accelerated upon a Change in Control, then this option shall qualify for favorable
tax treatment as an Incentive Option only to the extent the aggregate Fair Market Value (determined at the Grant Date) of the Common
Stock for which this option first becomes exercisable in the calendar year in which the Change in Control transaction occurs does not, when
added to the aggregate value (determined as of the respective date or dates of grant) of the Common Stock or other securities for which this
option or one or more other Incentive Options granted to Optionee prior to the Grant Date (whether under the Plan or any other option plan
of the Corporation or any Parent or Subsidiary) first become exercisable during the same calendar year, exceed One Hundred Thousand
Dollars ($100,000) in the aggregate. Should the applicable One Hundred Thousand Dollar ($100,000) limitation be exceeded in the
calendar year of such Change in Control, the option may nevertheless be exercised for the excess shares in such calendar year as a Non-
Statutory Option.
(d) Should Optionee hold, in addition to this option, one or more other options to purchase Common Stock which become
exercisable for the first time in the same calendar year as this option, then the foregoing limitations on the exercisability of such options as
Incentive Options shall be applied on the basis of the order in which such options are granted.
(e) If this option is designated as an Incentive Option, Optionee shall give prompt notice to the Corporation of any disposition or
other transfer of any shares of Common Stock acquired under this Agreement if such disposition or transfer is made (i) within two years
from the Grant Date with respect to such shares of Common Stock or (ii) within one year after the transfer of such shares of Common
Stock to Optionee. Such notice shall specify the date of such disposition or other transfer and the amount realized, in cash, other property,
assumption of indebtedness or other consideration, by Optionee in such disposition or other transfer.
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
B. BOARD shall mean the Corporation’s Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control of the Corporation effected through any of the
following transactions:
(i) a merger, consolidation or other reorganization approved by the Corporation’s stockholders, unless securities representing
more than fifty percent (50%) of the total combined voting power of the voting securities of the successor corporation are immediately
thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the
Corporation’s outstanding voting securities immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially all of the Corporation’s assets in complete liquidation or
dissolution of the Corporation, or
(iii) the acquisition, directly or indirectly by any person or related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common control with, the Corporation), of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the
Corporation’s outstanding securities pursuant to a tender or exchange offer made directly to the Corporation’s stockholders.
D. COMMON STOCK shall mean shares of the Corporation’s common stock.
E. CODE shall mean the Internal Revenue Code of 1986, as amended.
F. CORPORATION shall mean Ligand Pharmaceuticals Incorporated, a Delaware corporation, and any successor corporation to
all or substantially all of the assets or voting stock of Ligand Pharmaceuticals Incorporated which shall by appropriate action adopt the
Plan.
G. EMPLOYEE shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the
control and direction of the employer entity as to both the work to be performed and the manner and method of performance.
H. EXERCISE DATE shall mean the date on which the option shall have been exercised in accordance with Paragraph 9 of the
Agreement.
I. EXERCISE PRICE shall mean the exercise price per Option Share as specified in the Grant Notice.
J. EXPIRATION DATE shall mean the date on which the option expires as specified in the Grant Notice.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date shall be determined in accordance with the
following provisions:
(i) If the Common Stock is at the time traded on The Nasdaq Stock Market, then the Fair Market Value shall be deemed equal to
the closing selling price per share of Common Stock on the date in question, as the price is reported by the National Association of
Securities Dealers on The Nasdaq Stock Market and published in The Wall Street Journal. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which
such quotation exists, or
(ii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be deemed equal to the
closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be
the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange and
published in The Wall Street Journal. If there is no closing selling price for the Common Stock on the date in question, then the Fair
Market Value shall be the closing selling price on the last preceding date for which such quotation exists.
L. GRANT DATE shall mean the date of grant of the option as specified in the Grant Notice.
M. GRANT NOTICE shall mean the Notice of Grant of Stock Option accompanying the Agreement, pursuant to which Optionee
has been informed of the basic terms of the option evidenced hereby.
N. INCENTIVE OPTION shall mean an option which satisfies the requirements of Code Section 422.
O. NON-STATUTORY OPTION shall mean an option not intended to satisfy the requirements of Code Section 422.
P. NOTICE OF EXERCISE shall mean the notice of exercise in the form approved by the Plan Administrator from time to time.
Q. OPTION SHARES shall mean the number of shares of Common Stock subject to the option as specified in the Grant Notice.
R. OPTIONEE shall mean the person to whom the option is granted as specified in the Grant Notice.
S. PARENT shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the
Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock
possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such
chain.
T. PERMANENT DISABILITY shall mean the inability of Optionee to engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment which is expected to result in death or has lasted or can be expected to last for a
continuous period of twelve (12) months or more.
U. PLAN shall mean the Corporation’s 2002 Stock Incentive Plan.
V. PLAN ADMINISTRATOR shall mean either the Board or a committee of the Board acting in its capacity as administrator of
the Plan.
W. SERVICE shall mean the Optionee’s performance of services for the Corporation (or any Parent or Subsidiary) in the
capacity of an Employee, a non-employee member of the board of directors or a consultant or independent advisor; provided, however,
that, with respect to Incentive Options, unless the Plan Administrator otherwise provides, a leave of absence, change in status from an
Employee to a consultant or independent advisor or other change in the employee-employer relationship shall constitute a termination of
Service (and result in such Incentive Option ceasing to be treated as such for tax purposes and to instead be treated as a Non-Statutory
Option) only if, and to the extent that, such leave of absence, change in status or other change interrupts employment for the purposes of
Section 422(a)(2) of the Code and the then-applicable regulations and revenue rulings under said Section. Except to the extent otherwise
required by law, no Service credit shall be given for vesting purposes hereunder for any period the Optionee is on a leave of absence.
X. STOCK EXCHANGE shall mean the American Stock Exchange or the New York Stock Exchange.
Y. SUBSIDIARY shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with
the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in
such chain.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our reports dated February 24, 2014 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, 2013.
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
February 24, 2014
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 Quarterly Report on Form 10-Q 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: February 24, 2014
/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 Quarterly Report on Form 10-Q 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: February 24, 2014
/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 Quarterly Report on Form 10-Q of Ligand Pharmaceuticals Incorporated (the “Company”)
for the quarter ended December 31, 2013, 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 Quarterly Report on Form 10-Q for the quarter ended December 31, 2013, 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 Quarterly Report on Form 10-Q for the quarter ended December 31, 2013, 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 Quarterly Report on Form 10-Q for the quarter ended
December 31, 2013, 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: February 24, 2014
/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 Quarterly Report on Form 10-Q of Ligand Pharmaceuticals Incorporated (the “Company”)
for the quarter ended December 31, 2013, 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 Quarterly Report on Form 10-Q for the quarter ended December 31, 2013, 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 Quarterly Report on Form 10-Q for the quarter ended December 31, 2013, 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 Quarterly Report on Form 10-Q for the quarter ended
December 31, 2013, 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: February 24, 2014
/s/ John P. Sharp
John P. Sharp
Vice President, Finance and Chief Financial Officer
(Principal Financial Officer)