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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, 2014
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File No. 001-33093
LIGAND PHARMACEUTICALS INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
11119 North Torrey Pines Rd., Suite 200
La Jolla, CA
(Address of Principal Executive Offices)
77-0160744
(IRS Employer
Identification No.)
92037
(Zip Code)
Registrant’s telephone number, including area code: (858) 550-7500
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $.001 per share
Preferred Share Purchase Rights
Name of Each Exchange on Which Registered
The NASDAQ Global Market of The NASDAQ Stock Market LLC
The NASDAQ Global Market of The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934. Yes o No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting
company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large Accelerated Filer x Accelerated Filer o
Non-accelerated Filer o
Smaller reporting company o
(Do not check if a smaller reporting company)
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 $1.0 billion 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, 2014. 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 17, 2015, the Registrant had 19,577,556 shares of Common Stock outstanding.
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Portions of the Proxy Statement for the Registrant’s 2015 Annual Meeting of Stockholders to be filed with the Commission on or before April 30,
2015 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 Ligand
Pharmaceuticals Incorporated and our wholly owned subsidiaries.
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Item 1.
Overview
Business
We are a biotechnology company that develops and acquires revenue generating assets and couples them with a lean corporate
cost structure. Our goal is to generate substantial cash flow and profits. 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 seven FDA approved products, including Amgen, Inc.'s Kyprolis® and Merck's Noxafil-IV® 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, multiple
myeloma, muscle wasting, 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
(GSK), Amgen, Inc., Merck, Pfizer, Baxter International, and Eli Lilly and Co.
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. Our website is www.ligand.com. Our email address is
investors@ligand.com.
Business Strategy
Our business model creates 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 offer investors an opportunity to
participate in the promise of the biotech industry in a profitable, diversified and 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. We partner 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 and 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 100 fully-funded partner programs that are in all stages of development, from preclinical research to
commercialization. Fully-funded programs are those for which our partners pay all of the development and commercialization costs. We
assemble this portfolio either by licensing out our own proprietary drug development programs, licensing our Captisol technology to
partners for use with their proprietary 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 provide our proprietary formulation technology known as Captisol to
our customers. 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.
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We discover and develop compounds that are promising drug candidates. We discover, synthesize and test numerous compounds to
identify and focus upon 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 seek to
eliminate unpromising candidates from consideration sooner without incurring substantial clinical costs. Our goal and strategy 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 100 of which are fully-funded by our
partners. Approximately 43% of our 2014 revenue was derived from our Promacta® and Kyprolis royalties. In addition, approximately
44% of our revenue was derived from selling Captisol material to over 100 companies.
Commercial Programs
We have multiple partnered programs in our portfolio that have products that are already being commercialized. These programs
represent key components of our current portfolio of revenue-generating assets and potential for near-term growth in royalty and other
revenue.
Promacta (GSK)
GSK’s Promacta (eltrombopag) is an oral medicine that increases the number of platelets in the blood. Platelets are one of the three
components of blood and facilitate clotting in the blood. Individuals with low platelets can be at significant risk of bleeding or death.
Because of the importance of having a sufficient number of platelets, Promacta has broad potential applicability to a number of medical
situations where low platelets exist.
Promacta was first approved by the U.S. Food and Drug Administration, or FDA, in 2008 under an accelerated approval for the
treatment of thrombocytopenia in patients with chronic immune (idiopathic) thrombocytopenic purpura, or ITP, who have had an
insufficient response to corticosteroids, immunoglobulins or splenectomy. Following the initial approval in 2008, and given Promacta’s
broad medical applicability, GSK has developed and currently received approvals for the drug in three different indications. The currently
approved indications for Promacta are ITP, Hepatitis-C associated thrombocytopenia and severe aplastic anemia.
The timing of the approvals for Promacta in the US and Europe is summarized in the table below. Promacta is known as Revolade in
the EU.
INDICATION (TERRITORY)
Adult ITP (US)
Adult ITP (EU)
Hepatitis C-associated Thrombocytopenia (US)
Hepatitis C-associated Thrombocytopenia (EU)
Severe Aplastic Anemia (US)
Severe Aplastic Anemia (EU)*
Pediatric ITP (US)
Pediatric ITP (EU)
*In November of 2014, GSK announced the EU submission for severe aplastic anemia
INITIAL APPROVAL
2008
2010
2012
2013
2014
Under Review
Under Review
Under Review
GSK has been and continues to pursue globalization of the brand and currently markets Promacta in multiple countries for the three
approved indications. Specifically, ITP is currently approved in 95 countries, the Hepatitic C-related indication is currently approved in 53
countries, and the severe aplastic anemia indication is approved in 3 counties.
Beyond the currently approved indications, GSK is also performing development activities to expand the brand into new indications,
including pediatric ITP and a number of oncology-related indications.
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As of February 2015, there are 43 open clinical trials related to Promacta (listed as recruiting or open, and not yet recruiting) on the
clinicaltrials.gov website.
In June of 2014, GSK announced positive Phase 3 data for Promacta in pediatric ITP. In December 2014, GSK reported the
submission of a sNDA to the FDA for Promacta, seeking an additional indication in pediatric patients six years old and older with chronic
ITP who have had an insufficient response to corticosteroids, immunoglobulins or splenectomy. In February of 2015, GSK announced
submission to the European Medicines Agency, or EMA, of a variation to the Marketing Authorization for Revolade®, seeking an
additional indication for the treatment of pediatric patients (age 1 year and above) with chronic ITP who have had an insufficient response
to corticosteroids or immunoglobulins.
Promacta is currently in clinical development for a number of additional indications in oncology including myelodysplastiuc
syndromes (MDS), acute myeloid leukemia (AML) and chemotherapy-induced thrombocytopenia (CIT).
In April of 2014, GSK and Novartis announced that Novartis was acquiring the Promacta franchise from GSK in a $14.5 billion
transaction for GSK’s oncology business. Subject to regulatory reviews, it is expected that the transaction will complete in the first half of
2015 and Promacta will transition to Novartis.
We entered into a Research, Development and License Agreement with SmithKline Beecham Corporation (now GSK) in 1994 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.
We are entitled to receive royalties related to Promacta during the life of 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. GSK has listed a patent in the FDA’s Orange Book for
Promacta with an expiration date in 2027, and 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:
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 (Amgen)
Ligand supplies Captisol to Amgen, Inc. under a 2005 agreement pursuant to an agreement whereby we sell Captisol for use with
carfilzomib, and granted an exclusive product-specific license under our patent rights with respect to Captisol. In July 2012, Kyprolis was
approved by the FDA under accelerated review. 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. This indication for Kyprolis is based on
response rate.
In 2014, Amgen announced positive results from the Phase 3 ASPIRE trial. ASPIRE enrolled 792 relapsed or refractory multiple
myeloma patients from 20 countries. Patients had received one to three prior regimens (on average, two). The addition of carfilzomib to
lenalidomide and dexamethasone led to significantly improved outcomes in
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patients with relapsed multiple myeloma, with a clinically relevant 31% decrease in the risk of disease progression or death and an increase
of 8.7 months in the median progression free survival (26.3 months in the carfilzomib group vs. 17.6 months in the control group).
In 2015, based on the results from the ASPIRE trial, Amgen announced submissions in the United States and EU for Kyprolis® for
relapsed multiple myeloma. The U.S. submission is designed to support conversion from accelerated approval to full FDA approval and
also expand the current approved indication for the drug. Amgen also announced that Kyprolis® received Orphan Designation and
Accelerated Assessment by the EMA.
Amgen’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
Amgen may be terminated by either party in the event of material breach or bankruptcy, or unilaterally by Amgen 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
ROYALTY RATE
1.5 %
2.0 %
2.5 %
3.0 %
Duavee or Duavive (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. The drug has also been launched in Germany, Italy, Greece,
Switzerland, Netherlands, and South Korea. 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. Pfizer received EMA approval for Duavive in December 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 or ten years from the first commercial sale, whichever is longer, on a country by country basis.
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.
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Captisol-enabled Noxafil-IV (Merck)
We and Merck entered into a Captisol supply agreement in June 2011 for Captisol-enabled Noxafil-IV. Merck’s NOXAFIL®-IV,
which is a new Captisol-enabled formulation of posaconazole for intravenous (IV) use, was approved by the FDA, EMA and Health
Canada in 2014. We will receive our commercial compensation for this program through the sale of Captisol, and we will not receive a
royalty on this program.
Nexterone (Baxter International)
In 2006, we out-licensed 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.
Avinza (Pfizer)
We have received royalties of 5% from Pfizer on sales of the pain therapeutic Avinza®. In February 2014, Actavis launched a
generic form of Avinza which resulted in a significant decrease in product sales. Pfizer has informed us that they have stopped selling
Avinza to wholesalers. We expect future royalties from Avinza to stop in the second quarter of 2015 and that any remaining royalty
payments for Avinza will be minimal.
Late-Stage Development 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:
Captisol-enabled Melphalan IV (Spectrum Pharmaceuticals, FDA Review, 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 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 of 20%. 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. Spectrum
Pharmaceuticals submitted a New Drug Application, or NDA, under a 505 (b)-(2) application for the program in December 2014. Spectrum
anticipates the review will be completed in approximately 10 months.
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.
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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 also initiated a second Phase 3 trial in earlier-stage or prodromal
patients. We are entitled to a royalty on potential future sales by Merck.
Captisol-enabled SAGE-547 (SAGE Therapeutics, Phase 1/2, Various CNS Disorders)
In 2011, we entered into a Captisol license agreement with SAGE Therapeutics, Inc. (SAGE) for the development and
commercialization of Captisol-enabled(R) therapeutics for a broad range of debilitating central nervous system (CNS) conditions. Under
the agreement, Ligand has received upfront and research support payments and has the potential to receive milestone payments and
royalties for Captisol-enabled programs. SAGE’s lead clinical program, Captisol-enabled SAGE-547 is an allosteric modulator of both
synaptic and extra-synaptic GABAA receptors that is in clinical development as an adjunctive therapy, a therapy combined with current
therapeutic approaches, for the treatment of super-refractory status epilepticus, or SRSE. SAGE-547 was granted Fast Track designation by
the FDA in July 2014 for SRSE. Fast track designation is granted by the FDA to facilitate the development and expedite the review of drug
candidates that are intended to treat serious or life-threatening conditions and demonstrate the potential to address unmet medical needs.
SAGE-547 also received orphan drug designation, which is intended to facilitate drug development for rare diseases, from the FDA in April
2014. In January of 2015, SAGE reported updated data from an ongoing Phase 1/2 clinical trial and its emergency use program of SAGE-
547 in patients with SRSE. The data showed a greater than 70% response rate, observed in two patient groups. Also in January of 2015,
SAGE announced the initiation of an exploratory Phase 2a trial of SAGE-547 in severe postpartum depression, in addition to its ongoing
exploratory trial of SAGE-547 for the treatment of essential tremor.
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 is currently
conducting a potentially pivotal Phase 2 clinical trial for Sparsentan and has received orphan drug designation.
In late 2012, we received a milestone payment of 620,000 shares of common stock in Retrophin. Bristol Myers Squibb is entitled to
receive 15% of the proceeds received upon sale of this stock. Under our license agreement with Retrophin we are entitled to receive over
$75 million in net milestones, as well as 9% in net 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.
Captisol-enabled Delafloxacin-IV (Melinta, Phase 3, Infection)
We supply Captisol to Melinta Therapeutics, Inc. (formerly Rib-X Pharmaceuticals), or Melinta, under a 2008 development and
commercialization agreement for Captisol-enabled delafloxacin-IV. The agreement permits 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 2015, Melinta reported positive top-line results on 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.
Captisol-enabled Carbamazepine-IV (Lundbeck, NDA, 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
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the FDA accepted the NDA submission in 2014. Lundbeck is in the process of responding to a request of Chemistry, Manufacturing and
Controls, or CMC, data from the FDA’s Complete Response Letter received in late 2014.
IRAK4 Inhibitor Program (TG Therapeutics, Preclinical)
We entered into an exclusive global license agreement with TG Therapeutics, Inc. for the development and commercialization of our
Interleukin-1 Receptor Associated Kinase-4 or IRAK-4 inhibitors. The IRAK-4 program is in preclinical development for potential use in
certain cancers and autoimmune diseases. Under the terms of the agreement, we received 125,000 shares of TG Therapeutics common
stock, valued at approximately $1.2 million at date of signing, and we are eligible to receive $207.0 million in potential milestone
payments. We are also eligible to receive tiered royalties of 6% to 9.5% on future net sales of licensed products containing patented IRAK-
4 inhibitors.
LTP Technology with Omega-3 Fatty Acids (Omthera, a Division of AstraZeneca, Preclinical)
In 2014, we entered into a partnership with Omthera, a division of AstraZeneca focused on LTP therapies for dyslipidemia. The
partnership is centered on improving targeted lipid-lowering activity of Omega-3 fatty acids. Lipid-lowering is a major therapeutic area
with growing, global unmet needs. The agreement includes over $44.5 million in potential milestones to us and tiered mid- to high- single
digit royalties on potential future sales.
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 $4.5 million. Neither we nor Selexis have 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 us. 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.
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., or CURx, 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%.
Lasofoxifene (Azure Biotech, Ethicor, and Sermonix, Estrogen Receptor Modulator)
In July 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 retained the rights to the oral formulation of
lasofoxifene originally developed by Pfizer.
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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.
In February 2015, we entered into a license agreement with Sermonix for oral lasofoxifene for the United States and additional
territories. Under the terms of the agreement, we are entitled to receive up to $45 million in potential regulatory and commercial milestone
payments and tiered royalties of 6% to 10% on future net sales.
Captisol-enabled Lamotrigine IV (CURx, Phase 1, Hospital-Based Seizures)
In September 2014, we expanded our global license agreement with CURx to also include the development and commercialization of
our Captisol-enabled Lamotrigine program. Under the terms of the expanded license, we are eligible to receive up to $22 million in
potential milestone payments, revenue from the sales of Captisol, and tiered royalties on future net sales in the range of 4% to 7% for
Captisol-enabled™ Lamotrigine. CURx will be responsible for all development costs related to the program.
Viking Therapeutics
In May 2014, we entered into an exclusive global license agreement with Viking Therapeutics Inc. or Viking for the rights to five
programs. The therapeutic programs covered in the license agreement include our Selective Androgen Receptor Modulator or SARM
program for acute rehabilitation post-hip fracture, a Thyroid Hormone Receptor-ß (TRß) Agonist program for metabolic and lipid disorders
such as X-linked adrenoleukodystrophy and hypercholesterolemia, an FBPase inhibitor program for type 2 diabetes, an Erythropoietin
Receptor or EPOR Agonist program for anemia, and an Enterocyte-Directed Diacylglycerol Acyltransferase-1 or DGAT-1 inhibitor
program for metabolic disorders. The FBPase Inhibitor program was the subject of an option originally granted to Viking in 2012. Viking
is a clinical-stage biopharmaceutical company focused on the development of novel, first-in-class or best-in-class therapies for metabolic
and endocrine disorders. Each licensed program includes a fee to be paid to us in Viking equity at the time of a private or public financing,
milestone payments and royalties on future net sales. Viking is responsible for all development activities under the license. We have the
right to terminate the license agreement on or after April 30, 2015 if Viking has neither completed an IPO nor received aggregate net
proceeds of at least $20.0 million in one or more private financings. We also have the right to terminate the license agreement in the event
of insolvency or bankruptcy of Viking.
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
Glucagon Receptor Antagonist
Oral Human Granulocyte Colony Stimulating Factor
LTP Platform
Kinase Inhibitors
HepDirect
Disease/Indication
Diabetes
Neutropenia
Metabolic and Cardiovascular
Multiple
Liver Diseases
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Development
Phase
Phase 1b
Preclinical
Preclinical
Preclinical
Preclinical
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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 and announced positive results from that trial in June of 2014. In the fourth
quarter of 2014, we initiated a Phase 1b trial, and expect results in the second quarter of 2015.
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.
LTP Platform (Unpartnered, Preclinical, Metabolic and Cardiovascular)
Ligand scientists developed a novel pro-drug technology designed to selectively deliver a broad range of pharmaceutical agents to
the liver. The LTP technology is designed to improve the activity and/or safety of existing drugs, develop new agents to treat certain liver
disease, and treat diseases caused by homeostasis imbalance of circulating molecules controlled by the liver and is especially applicable to
metabolic and cardiovascular indications, among others.
Kinase Inhibitors (Unpartnered, Preclinical, Multiple)
Ligand is pursuing a series of Kinase Inhibitors preclinically that may have the potential for broad therapeutic applications in areas
such as oncology or inflammatory conditions potentially including diseases like arthritis, gout, inflammatory bowel disease, and asthma.
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HepDirect HCV Inhibitor Program
We are developing novel small molecule inhibitors of the Hepatitis C virus using our HepDirect technology platform. Data from
current lead molecules suggest that directing these molecules to the liver using the HepDirect technology could produce fewer side effects
and has the potential for an overall superior risk-benefit ratio compared to non-HepDirect therapies.
Other Internal Programs Eligible for Further Development Funding, Either Through Ligand or a Partner
•
•
•
•
•
•
•
•
•
•
•
•
Captisol-enabled Ready-to-Use Fosphenytoin formulation (Phase 3,
Seizures)
Captisol-enabled Clopidogrel (Phase 3, Anti-
coagulant)
Aplindore (Phase 2, Restless
Leg/Parkinson’s)
Captisol-enabled Nasal Budesonide (Phase 1, Allergic
Rhinitis)
Histamine H3 Receptor Antagonist (Preclinical, Cognitive
Disorders)
Glucokinase Activator (Preclinical,
Diabetes)
CCR1 Inhibitor (Preclinical,
Oncology)
CRTH2 Inhibitor (Preclinical,
Inflammation)
Topical JAK3 (Preclinical,
Inflammation)
Captisol-enabled Meloxicam (Preclinical,
Pain)
Captisol-enabled Busulfan (Preclinical,
Oncology)
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.
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We currently outsource the production of Captisol to Hovione FarmaCiencia SA, or Hovione, a major global supplier with over 50
years of experience in the development and compliant manufacture of Active Pharmaceutical Ingredients and Drug Product Intermediates.
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. Hovione operates FDA-inspected sites in the US,
Ireland and Portugal. Manufacturing operations for Captisol are currently performed in both of Hovione's Portugal and Ireland sites.
Distribution operations for Captisol are currently performed from Hovione's US, Portugal and Ireland sites.
We have ongoing minimum purchase commitments under the agreement and are required to pay Hovione an aggregate minimum
amount during the agreement term.
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.
Once manufactured, Captisol has a shelf life of 60 months (5 years).
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 an additional third party.
In 2011, the contract was amended to allow storage of bulk Captisol and to allow Captisol to be distributed from Hovione's US,
Portugal and Ireland sites directly to our customers, under our instruction. In addition, we also distribute and store bulk quantities of
Captisol ourselves, utilizing subterranean warehouse space located in Lenexa, Kansas.
The initial term of the agreement with Hovione 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
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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.
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 Amgen 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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Captisol
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
Mar. 13, 2029*
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.
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, 2015, we had 19 full-time employees, of whom six are involved directly in scientific research and development
activities.
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 Amgen 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 or unfavorable exchange rate changes.
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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, for any reason, to supply Captisol to us
in the amounts we require, or decline to supply Captisol to us, we would be required to seek an alternative source, which could potentially
take a considerable length of time and impact our revenue and customer relationships.
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 United States and Europe. If we were to encounter
problems maintaining our inventory, such as natural disasters, at 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 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.
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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. 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.
For instance, our collaboration with Viking includes a $2.5 million loan that we made to Viking to be repaid upon Viking’s
completion of an initial public offering or additional private financings of at least $20.0 million. Our ability to collect on our loan to Viking
is uncertain. Viking has not yet completed an initial public offering or otherwise obtained additional private funding. Under our master
license agreement with Viking, we have the right to terminate upon giving notice after April 30, 2015 if Viking has not been able to raise
such additional funding by that time. On or after April 30, 2015, we may decide to extend the term of our loan to Viking, invest additional
capital, or terminate our agreements with Viking. We cannot make any assurances on the collectability of our loan to Viking.
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 those 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.
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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 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 this 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 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 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 February 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.
For example, because Pfizer recently informed us that they have stopped selling Avinza to wholesalers, we expect future revenues for
Avinza to be minimal.
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, Conbriza, Nexterone, and other products or potential
products.
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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, 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.
Disputes 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 disputes 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 occurrence or
outcome of these matters or reasonably estimate the amount or range of amounts of any fines or penalties that might result from a
settlement or an adverse outcome. However, a settlement or an adverse outcome could have a material adverse effect on our financial
position, liquidity and results of operations.
If we are unable to maintain the effectiveness of our internal controls, our financial results may not be accurately reported.
The Sarbanes-Oxley Act of 2002 requires, among other things, that we maintain effective internal controls for financial reporting
and disclosure controls and procedures. While we anticipate maintaining the integrity of our internal controls over financial reporting and
all other aspects of Sarbanes-Oxley Act of 2002, we cannot be certain that a material weakness will not be identified when we test the
effectiveness of our control systems in the future. The existence of one or more material weaknesses or significant deficiencies in our
internal control over financial reporting could result in errors in our consolidated financial statements. Substantial costs and resources may
be required to rectify any internal control deficiencies. If we fail to maintain the adequacy of our internal controls in accordance with
applicable standards, we may be unable to conclude on an ongoing basis that we have effective internal controls over financial reporting. If
we cannot produce reliable financial reports, our business and financial condition could be harmed, investors could lose confidence in our
reported financial information, or the market price of our stock could decline significantly. In addition, our ability to obtain additional
financing to operate and expand our business, or obtain additional financing on favorable terms, could be materially and adversely affected,
which, in turn, could materially and adversely affect our business, our financial condition and the market value of our securities. Moreover,
our reputation with customers, lenders, investors, securities analysts and others may be adversely affected.
We may undertake strategic acquisitions in the future and any difficulties from integrating such acquisitions could adversely affect our
stock price, operating results and results of operations.
We may acquire companies, businesses and products that complement or augment our existing business. We may not be able to
integrate any acquired business successfully or operate any acquired business profitably. Integrating any newly acquired business could be
expensive and time-consuming. Integration efforts often take a significant amount of time, place a significant strain on managerial,
operational and financial resources and could prove to be more difficult or expensive than we predict. The diversion of our management's
attention and any delay or difficulties encountered in connection with any future acquisitions we may consummate could result in the
disruption of our on-going business or inconsistencies in standards and controls that could negatively affect our ability to maintain third-
party relationships. Moreover, we may need to raise additional funds through public or private debt or equity financing, or issue additional
shares, to acquire any businesses or products, which may result in dilution for stockholders or the incurrence of indebtedness.
As part of our efforts to acquire companies, business or product candidates or to enter into other significant transactions, we conduct
business, legal and financial due diligence with the goal of identifying and evaluating material risks involved in the
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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 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 Avinza, Duavee, Conbriza, Noxafil IV 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.
As is common in our industry, our partners and we 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 $10.0 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 have 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 $0.3 million as of December 31, 2014). 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 have sufficient resources to operate our business as
currently contemplated.
We believe that our capital resources, including our currently available cash, cash equivalents, and short-term investments as well as
our current and future royalty revenues, will be adequate to fund our operations at their current levels at least for the next 12 months.
However, changes may occur that would cause us to consume available capital resources before that time and we may need to complete
additional equity or debt financings to fund our operations. Our inability to obtain additional financing could adversely affect our business.
Financings may not be available at all or on terms favorable to us. In addition, these financings, if completed, may not meet our capital
needs and could result in substantial dilution to our stockholders. If adequate funds are not available, we may be required to delay, reduce
the scope of or eliminate one or more of our research or drug development programs. We may also be required to liquidate our business or
file for bankruptcy protection. Alternatively, we may be forced to attempt to continue development by entering into arrangements with
collaborative partners or others that require us to relinquish some or all of our rights to technologies or drug candidates that we would not
otherwise relinquish.
We recently sold $245.0 million aggregate principal amount of 0.75% Convertible Senior Notes, which may impact our financial
results, result in the dilution of existing stockholders, and restrict our ability to take advantage of future opportunities.
In August of 2014, we sold $245.0 million aggregate principal amount of 0.75% Convertible Senior Notes due 2019, or the 2019
Convertible Senior Notes. We will be required to pay interest on the 2019 Convertible Senior Notes until they come due or are converted,
and the payment of that interest will reduce our net income. The sale of the 2019 Convertible Senior Notes may also affect our earnings per
share figures, as accounting procedures require that we include in our calculation of earnings per share the number of shares of our
common stock into which the 2019 Convertible Senior Notes are convertible. The 2019 Convertible Senior Notes may be converted, under
the conditions and at the premium specified in the 2019 Convertible Senior Notes, into cash and shares of our common stock, if any
(subject to our right to pay cash in lieu of all or a portion of such shares). If shares of our common stock are issued to the holders of the
2019 Convertible Senior Notes upon conversion, there will be dilution to our shareholders equity. Upon certain circumstances, holders of
the 2019 Convertible Senior Notes may require us to purchase all or a portion of their notes for cash, which may require the use of a
substantial amount of cash. If such cash is not available, we may be required to sell other assets or enter into alternate financing
arrangements at terms that may or may not be desirable. The existence of the 2019 Convertible Senior Notes and the obligations that we
incurred by issuing them may restrict our ability to take advantage of certain future opportunities, such as engaging in future debt or equity
financing activities. As of December 31, 2014, no events have occurred which would trigger settlement of the notes in cash.
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 certain of our institutional investors, collectively beneficially own a
significant portion of our outstanding common stock. We have in the past granted waivers to investors allowing them to increase their
ownership level above the limit set forth in our shareholder rights agreement. 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, 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.
Domestic and international equity markets periodically experience heightened volatility and turmoil. These events may have an adverse
effect on us. In the event of a 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.
Our stock price has been volatile and could experience a sudden decline in value.
The market prices for securities of biotechnology and pharmaceutical companies have historically been highly volatile, and the
market has recently experienced significant price and volume fluctuations that are unrelated to the operating performance of particular
companies. Continued volatility in the overall capital markets could reduce the market price of our common stock in spite of our operating
performance. Further, high stock price volatility could result in higher stock-based compensation expense.
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Our common stock has experienced significant price and volume fluctuations and may continue to experience volatility in the future.
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 price and volume fluctuations in the overall
stock market.
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.
We rely on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cyber
security incidents, could harm our ability to operate our business effectively.
Our business is increasingly dependent on critical, complex and interdependent information technology systems, including internet-
based systems, to support business processes as well as internal and external communications. Despite the implementation of security
measures, our internal computer systems and those of our collaborative partners are vulnerable to damage from cyber-attacks, computer
viruses, security breaches, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. System
failures, accidents or security breaches could cause interruptions in our operations, could lead to the loss of trade secrets or other
intellectual property, could lead to the public exposure of personal information of our employees and others, and could result in a material
disruption of our clinical and commercialization activities and business operations, in addition to possibly requiring substantial expenditures
to remedy. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or
inappropriate disclosure of confidential or proprietary information, we could incur liability and our business and financial condition could
be harmed.
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 2017.
23
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We lease approximately 99,000 square feet in three facilities in Cranbury, New Jersey under leases that expire in 2016. We also
sublease approximately 11,666 square feet of these facilities with subleases expiring in 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.
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, or the Genaera Defendants for allegedly breaching
their fiduciary duties to Genaera shareholders. The lawsuit also names us and our CEO 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 our subsequent sale of half of our 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. The plaintiff appealed that dismissal on September 10, 2013, and the
Third Circuit reversed on October 17, 2014. The plaintiff has indicated that he intends to move to file a second amended complaint, which
we plan to oppose later this month. We intend to continue to vigorously defend against the claim against us and our CEO. Due to the
complex nature of the legal and factual issues involved, however, the outcome of this matter is not presently determinable.
Other Litigation
On June 19, 2014, a complaint was filed in California Superior Court seeking attorneys’ fees in connection with certain claims
related to executive compensation matters that were described in our June 6, 2013 supplemental proxy materials. On August 1, 2014 we
filed an answer denying all of the allegations in the complaint and asserting several affirmative defenses. The parties have executed a
settlement agreement to resolve the matter, pursuant to which we are currently awaiting the dismissal of the lawsuit. Because the parties
have reached agreement, we believe the litigation presents a remote likelihood of material loss.
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.”
24
Table of Contents
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, 2014:
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Year Ended December 31, 2013:
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
$
$
Price Range
High
Low
80.42 $
71.44
65.66
58.48
26.93 $
38.06
50.85
58.48
50.73
55.90
46.32
41.99
19.03
23.50
36.82
43.20
As of February 17, 2015, the closing price of our common stock on the NASDAQ Global Market was $57.18
Holders
As of February 17, 2015, there were approximately 687 holders of record of the common stock.
Purchases of Equity Securities By the Issuer and Affiliated Purchasers
The following table presents information regarding repurchases by us of our common stock during the quarter ended December 31,
2014 under the stock repurchase program approved by our board of directors on August 11, 2014, under which we may acquire up to
$200.0 million of our common stock in open market and negotiated purchases for a period of one year.
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number of
Shares Purchased
Average Price Paid
Per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Maximum Dollar Value of
Shares that May Yet Be
Purchased Under the
Program (in thousands)
October 1 -October 31, 2014
November 1 -November 30, 2014
December 1 - December 31, 2014
Total
45.45
54.65
53.98
802,800 $
942,800
1,253,425
156,478
148,827
132,060
110,000 $
140,000
310,625
560,625
25
Table of Contents
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 151 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
12/31/2009
12/31/2010
12/31/2011
12/31/2012
12/31/2013
100%
(31)%
33 %
75%
154%
12/31/2014
1%
100%
100%
18 %
16 %
(1)%
12 %
17%
33%
40%
66%
15%
34%
26
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, 2014, 2013, 2012, 2011 and 2010 and the balance sheet data as of December 31, 2014, 2013, 2012,
2011 and 2010 are derived from our consolidated financial statements.
2014
2013
2012
2011
2010
Year Ended December 31,
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
including noncontrolling interests
Loss attributable to noncontrolling interests
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
$
$
$
$
$
29,994
28,488
6,056
64,538
9,136
12,122
22,570
1,084
—
44,912
—
19,626
10,892
(1,132)
12,024
—
12,024
0.59
— 0.13
0.59
20,418,569
0.56
—
0.56
$
$
$
$
(in thousands, excluding per-share data)
$
23,584 $
19,072
14,073 $
9,432
9,213 $
12,123
6,317
48,973
5,732
9,274
17,984
560
480
34,030
—
14,943
8,832
—
8,832
2,588
11,420
7,883
31,388
3,601
10,790
15,782
1,022
—
31,195
—
193
(2,674)
—
(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
—
9,712
3
9,715
0.43 $
0.13
0.56 $
(0.14) $
0.11
(0.03) $
0.49 $
—
0.49 $
7,279
—
16,259
23,538
—
22,067
12,829
16,894
2,754
54,544
1,702
(29,304)
(12,786)
—
(12,786)
2,413
(10,373)
(0.65)
0.12
(0.53)
20,312,395
19,853,095
19,655,632
19,613,201
0.43 $
0.12
0.55 $
(0.14) $
0.11
(0.03) $
0.49 $
—
0.49 $
(0.65)
0.12
(0.53)
21,433,177
20,745,454
19,853,095
19,713,320
19,613,201
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Table of Contents
2014
2013
2012
2011
2010
(in thousands)
December 31,
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
Common stock subject to conditional redemption
Accumulated deficit
Total stockholders’ equity (deficit)
$
168,597 $
162,379
258,029
150
—
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
208,757
2,085
—
(659,315)
26,318
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)
(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 Ligand Pharmaceuticals
Incorporated and our wholly owned subsidiaries.
We are a biotechnology company that develops and acquires revenue generating assets and couples them with a lean corporate cost
structure. Our goal is to generate substantial cash flow and profits. 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 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
seven FDA approved products, including Amgen's Kyprolis® and Merck’s Noxafil-IV® 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, multiple myeloma, muscle wasting, Alzheimer’s
disease, dyslipidemia, diabetes, anemia, epilepsy, FSGS and osteoporosis. We have established multiple alliances with the
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Table of Contents
world’s leading pharmaceutical companies including GlaxoSmithKline, Amgen Inc., Merck, Pfizer, Baxter International and Eli Lilly and
Co.
Highlights from 2014 and early 2015 include:
• We received a $1.0 million commercial sales-based contingent payment from Amgen. The payment was triggered by the
achievement of over $250.0 million of annual product sales of Kyprolis in 2013.
• We received a $1.0 million milestone payment as a result of the recent FDA approval of Merck’s NOXAFIL® which is a new
Captisol-enabled formulation of NOXAFIL for intravenous (IV) use. Additionally, we earned a $0.6 million milestone payment
upon approval for Captisol-enabled NOXAFIL® (posaconazole) from the EMA. We also generate revenue from Captisol material
sales to Merck for this product under a commercial supply agreement.
•
Our partner Lundbeck LLC announced that the FDA accepted for review a New Drug Application or NDA for its investigational
therapy intravenous carbamazepine, an intravenous formulation of the anti-epileptic drug carbamazepine. With acceptance of the
NDA filing, we earned a $0.2 million milestone payment.
• We completed the dosing of the last patient in its Glucagon Receptor Agonist Phase 1 Single Ascending Dose or SAD clinical trial
and also presented positive data from that trial at the American Diabetes Association Scientific Sessions meeting.
• We received a license fee of $0.2 million in connection with an amendment to our license agreement with Sage Therapeutics, Inc.
for the addition of a new subfield.
• We received a $0.1 million project development fee as a result of entering into a licensing agreement and research collaboration
with Omthera Pharmaceuticals. The research collaboration will target the development of novel products that utilize the
proprietary Ligand-developed LTP TECHNOLOGY™ to improve lipid-lowering activity of certain omega-3 fatty acids. Under
the terms of the agreement, we are eligible to receive payments of up to $44.5 million upon the achievement of specific events, as
well as tiered royalties ranging from mid-to-high single digit percentages of net sales.
• We entered into a master license agreement with Viking covering the following five programs: FBPase inhibitor program for type
2 diabetes, a SARM program for muscle wasting, a TRß Agonist program for dyslipidemia, an EPOR Agonist program for
anemia, and a DGAT-1 Inhibitor program for dyslipidemia. The FBPase Inhibitor program was the subject of an option originally
granted to Viking in 2012. As part of the transaction, we agreed to extend a $2.5 million convertible loan facility to Viking that
will be used to pay Viking's operating and financing-related expenses.
• We received 125,000 upfront shares of common stock of our partner TG Therapeutics, Inc., as a result of entering into a license
agreement for the IRAK-4 Inhibitor Program. The shares were initially valued at $1.2 million. Additionally, we entered into a
research agreement with TG Therapeutics and we are currently receiving R&D service payments associated with that agreement.
• We licensed our Captisol-enabled Lamotrigine program to CURx Pharmaceuticals. Under the terms of the agreement, we are
eligible to receive up to $22 million in potential milestone payments, revenue from sales of Captisol and tiered royalties on future
net sales in the range of 4% to 7%.
•
In the third quarter we entered into new Captisol clinical-stage agreements with Avion Pharmaceuticals, Inc., Marinus
Pharmaceuticals Inc., Boston Strategics Group and Amgen Inc., for Captisol-enabled programs.
• We completed an offering of $245.0 million aggregate principal amount of 0.75% convertible senior notes due 2019 in a private
offering to qualified institutional buyers. The conversion rate for the notes is initially equivalent to a conversion price of
approximately $75 per share of common stock, and is subject to adjustment under the terms of the notes. Additionally, we entered
into a convertible bond hedge and warrant transaction which increases the effective conversion price of the notes to approximately
$125.08 per share. Concurrent with the close of the transaction, we repurchased approximately $37.8 million of our common
stock, or approximately 680,800 shares.
•
•
•
Subsequent to the close of the convertible debt transaction, we repurchased $30.1 million of our common stock, or 572,625 shares.
In total, we repurchased $68 million of our common stock, or 1.3 million shares.
In the fourth quarter, Ligand entered into a new clinical-stage agreement for a Captisol-enabled program with Novogen
Ltd.
In February 2015, Ligand announced a license agreement with Sermonix for oral lasofoxifene for the United States and additional
territories. Under the terms of the agreement, Ligand is entitled to receive up to $45 million in potential regulatory and
commercial milestone payments and tiered royalties of 6% to 10% on future net sales.
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Table of Contents
Results of Operations
Total revenues for 2014 were $64.5 million compared to $49.0 million in 2013 and $31.4 million in 2012. Our income from
continuing operations for 2014 was $12.0 million, or $0.56 per diluted share, compared to income from continuing operations of $8.8
million in 2013, or $0.43 per diluted share, and a net loss from continuing operations of $2.7 million, or a loss of $0.14 per diluted share, in
2012.
Royalty Revenue
Royalty revenues were $30.0 million in 2014, compared to $23.6 million in 2013 and $14.1 million in 2012. The increases in royalty
revenue of $6.4 million and $9.5 million for the years ended December 31, 2014 and 2013, respectively are primarily due to increases in
Promacta and Kyprolis royalties.
Material Sales
We recorded material sales of Captisol of $28.5 million in 2014 compared to $19.1 million in 2013 and $9.4 million in 2012. The
increase in material sales of $9.4 million for the year ended December 31, 2014 compared to 2013 is due to increased demand from
customers for Captisol for both clinical and commercial uses. 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
clinical use.
Collaborative Research and Development and Other Revenues
We recorded collaborative research and development and other revenues of $6.1 million in 2014 compared to $6.3 million in 2013
and $7.9 million in 2012. The decrease of $0.2 million for the year ended December 31, 2014, compared to the same period in 2013 is due
to the achievement and timing of certain milestones and licensing payments. The decrease in collaborative research and development and
other revenues of $1.6 million for the year ended December 31, 2013, compared to 2012 is primarily due to achievement and timing of
milestones as well as licensing payments.
Cost of Material Sales
Cost of material sales were $9.1 million in 2014 compared to $5.7 million in 2013 and $3.6 million in 2012. The increase of $3.4
million for the year ended December 31, 2014, compared to the same period in 2013 is due to the increase in material sales of Captisol. The
increase of $2.1 million for the year ended December 31, 2013, compared to 2012 is also primarily due to an increase in material sales of
Captisol.
Research and Development Expenses
Research and development expenses for 2014 were $12.1 million compared to $9.3 million in 2013 and $10.8 million in 2012. The
increase of $2.8 million is primarily due to the timing of costs associated with internal programs and an increase in non-cash stock based
compensation expense. The decrease in research and development expenses of $1.5 million for the year ended December 31, 2013
compared to 2012 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
Disease/Indication
Glucagon Receptor Antagonist
Oral Human Granulocyte Colony Stimulating Factor
LTP Platform
Kinase Inhibitors
HepDirect
Diabetes
Neutropenia
Metabolic and Cardiovascular
Multiple
Liver Diseases
30
Development
Phase
Phase 1b
Preclinical
Preclinical
Preclinical
Preclinical
Table of Contents
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.
General and Administrative Expenses
General and administrative expenses were $22.6 million for the year ended December 31, 2014 compared to $18.0 million for 2013
and $15.8 million for 2012. The increase of $4.6 million in general and administrative expenses for the year ended December 31, 2014
compared with 2013 is primarily due to an increase in non-cash stock-based compensation and costs incurred for business development
activities in 2014. The increase in 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 expense and patent and other legal expenses.
Lease Exit and Termination Costs
For the years ended December 31, 2014 and 2013, we had lease exit obligations of $3.3 million and $5.9 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 remainder of the lease term.
Additionally, we ceased use of our facility located in Cranbury, New Jersey in September 2010. The remaining lease obligations run
through August 2016. Portions of the facility are subleased with such subleases expiring August 2016. We recorded lease exit and
termination costs of $1.1 million for the year ended December 31, 2014, compared to $0.6 million for 2013, and $1.0 million in 2012.
Lease exit and termination costs for the years ended December 31, 2014, 2013, and 2012 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 years ended December 31, 2014 and December 31, 2012, there was no write-off of in-process research and development
recorded. 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.
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Interest Expense, Net
Interest expense was $4.9 million for the year ended December 31, 2014 compared to $2.1 million in 2013 and $2.9 million in 2012.
The increase in interest expense of $2.8 million for the year ended December 31, 2014 compared with 2013 is due to interest expense and
non-cash debt related costs related to the 2019 Convertible Senior Notes, partially offset by a decrease in interest expense related to the
term loan facility that we paid off in July 2014. The decrease in interest expense of $0.8 million for the year ended December 31, 2013
compared to 2012 was primarily 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.
Change in Contingent Liabilities
We recorded an increase in contingent liabilities of $5.1 million for the year ended December 31, 2014 compared to $3.6 million in
2013 and $1.7 million in 2012. The increase in contingent liabilities for the year ended December 31, 2014 is due primarily to the increase
in CyDex related contingent liabilities of $5.7 million, partially offset by a decrease in the fair value of the Metabasis CVR liability of $0.5
million. The Metabasis CVR liability is marked-to-market at each reporting period based upon the quoted market prices of the underlying
CVR. 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. 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.
Other, Net
We recorded other income of $1.7 million for the year ended December 31, 2014 compared to other expense of $0.1 million in 2013
and other income of $0.5 million in 2012. Other income for the year ended December 31, 2014 is primarily due to the gain on the sale of
short-term investments, partially offset by a decrease in amounts owed to sublicensees. 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.
Income Taxes
We recorded income tax expense from continuing operations of $0.4 million for the year ended December 31, 2014 compared to an
income tax expense from continuing operations of $0.4 million for the year ended December 31, 2013 and an income tax benefit of $1.2
million for the year ended December 31, 2012. The income tax expense recognized in 2014 and 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, or 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.
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Table of Contents
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, 2014, 2013 and 2012, we recognized pre-tax gains of $0, $2.6
million and $3.7 million, respectively, due to subsequent changes in certain estimates of assets and liabilities recorded as of the sale date.
Income Tax Expense on Discontinued Operations
In 2012, we recorded income tax expense on discontinued operations of $1.5 million (please see the discussion on income taxes
above). There was no income tax expense on discontinued operations for the years ended December 31, 2014 and 2013.
Net Loss Attributable to Noncontrolling Interests
We recorded $1.1 million as net loss attributable to noncontrolling interests due to our determination that we hold a variable interest
in Viking as a result of a transaction that we entered into with Viking in May 2014. We recorded 100% of the losses incurred since May 21,
2014, the effective date of the transaction, as net loss attributable to noncontrolling interest due to the fact that we are considered a primary
beneficiary with no equity interest in the variable interest entity.
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, 2014, our accumulated deficit was $659.3 million and we had
working capital of $162.4 million. We believe that our currently available cash, cash equivalents and short term investments, as well as our
current and future royalty, license and milestone revenues and Captisol material sales will be sufficient to fund our anticipated operating
and capital requirements, at a minimum, for the next twelve months. However, our projected revenue may decrease or our expenses may
increase, which could lead to our resources being consumed earlier than expected. Although we do not believe that we will need to raise
additional funds to finance our current operations through the next twelve months, if we are required to seek additional financing, there can
be no assurance that such financing will be available on terms acceptable to management, or at all. We believe that cash flows from
operations will increase due to 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 revenues from anticipated new licenses and milestones.
We expect to build cash in future months as we continue to generate significant cash flows from operations. 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. 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.
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Investments
We invest our excess cash principally in U.S. government debt securities, investment-grade corporate debt securities and
certificates of deposit. We have established guidelines relative to diversification and maturities of our investments in order to provide both
safety and liquidity. These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates.
Additionally, we own certain securities which are classified as short-term investments that we received in December 2012 and June 2014 as
a result of an event-based payment and an upfront license payment, respectively, under licenses.
Borrowings and Other Liabilities
Term Loan Facility
In January 2011, we entered into a $20.0 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 $20.0 million borrowed under the facility bore
interest at a fixed rate of 8.6%. The additional $7.5 million bore 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 amortized with principal and
interest payments through the remaining term of the loan. We were required to make an additional final payment equal to 6% of the total
amount borrowed at maturity, which was accreted over the life of the loan. The maturity date of the term loan was August 1, 2014, and we
fully repaid the loan on July 31, 2014.
0.75% Convertible Senior Notes Due 2019
We have convertible debt outstanding as of December 31, 2014 related to our 0.75% Convertible Senior Notes due 2019. In
August 2014, we issued $245.0 million aggregate principal amount of convertible senior unsecured notes. The Notes are convertible into
common stock upon satisfaction of certain conditions. Interest of 0.75% per year is payable semi-annually on August 15th and February
15th through the maturity of the notes in August 2019.
Repurchases of Common Stock
In August 2014, our Board of Directors authorized the repurchase of up to $200.0 million of our common stock in privately
negotiated and open market transactions, from time to time over a period of up to one year, subject to an evaluation of market conditions,
applicable legal requirements and other factors. We are not obligated to acquire common stock under this program and the program may be
suspended at any time. Through December 31, 2014, we repurchased 1,253,425 common shares at a weighted average price of $54.20 per
share pursuant to the repurchase plan, or approximately $68.0 million of common shares.
Public Offerings
In October 2013, we filed a universal shelf registration statement with the SEC. In 2014, this registration statement provided
additional financial flexibility for us to sell shares of common stock or other equity or debt securities as needed, including through our at-
the-market equity issuance program. During the year ended December 31, 2014, we did not issue any common shares through this at-the-
market equity issuance program.
Contingent liabilities
CyDex
In connection with the acquisition of CyDex in January 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 the Medicines
Company 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 Amgen's (formerly Onyx) 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, 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
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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 have paid $4.3 million to the CyDex shareholders for revenue
sharing payments under the terms of the CVRs. The estimated fair value of the contingent liabilities recorded as part of the CyDex
acquisition at December 31, 2014, 2013 and 2012 was $11.5 million, $9.3 million and $10.9 million, respectively.
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 to development funding on the Metabasis
programs which have been fulfilled. The fair value of the liability at December 31, 2014, 2013 and 2012 was $3.7 million, $4.2 million and
$0, 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 2015 and 2016. The sublease agreements
provide for a 3% increase in annual rents. We had no off-balance sheet arrangements at December 31, 2014, 2013 and 2012.
Contractual Obligations
As of December 31, 2014, 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
Co-promote termination obligations (1)
Purchase obligations (2)
Contingent liabilities (3)
Note and interest payment obligations
Operating lease obligations (4)
$
$
$
$
$
322 $
15,400 $
3,183 $
254,188 $
8,145 $
322 $
15,400 $
3,183 $
1,838 $
3,907 $
— $
— $
— $
3,675 $
3,127 $
— $
— $
— $
248,675 $
1,111 $
—
—
—
—
—
(1)
(2)
(3)
(4)
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, 2014, only those liabilities for revenue sharing payments achieved as a result of 2014 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, 2014, we expect to receive aggregate future minimum lease payments
totaling $0.9 million (nondiscounted) over the duration of the sublease agreement as follows and not included in the table above: less than one year $0.8
million and two to three years $0.1 million.
We are also required under our CyDex CVR Agreement to invest at least $1.5 million per year, inclusive of employee expenses, in
the acquired business through 2015. As of December 31, 2014, we had exceeded that amount.
Operating Activities
Operating activities provided cash of $20.6 million, $20.7 million and $0.2 million in 2014, 2013 and 2012, respectively.
The cash provided in 2014 reflects net income of $10.9 million and $20.6 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
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contingent liabilities of $5.1 million, depreciation and amortization of $2.7 million, stock-based compensation of $11.3 million,
amortization of debt discount and issuance fees of $3.7 million, accretion of notes payable of $0.2 million, a non-cash milestone payment
received of $1.2 million, realized gain on investments of $1.5 million and net deferred tax assets and liabilities of $0.4 million. The cash
provided by operations in 2014 is further impacted by changes in operating assets and liabilities due primarily to an increase in accounts
receivable of $10.4 million, an increase in other assets of $1.9 million and a decrease in accounts payable and accrued liabilities of $3.2
million. Partially offsetting this, inventory decreased $4.4 million and restricted cash decreased $0.1 million.
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.
Investing Activities
Investing activities used cash of $2.0 million in 2014, used cash of $5.0 million in 2013, and provided cash of $1.3 million in 2012.
Cash used by investing activities in 2014 primarily reflects the purchase of commercial license rights of $1.0 million and payments
to CyDex CVR holders and other contingency payments of $3.5 million, partially offset by proceeds from the sale of short-term
investments of $2.3 million and proceeds from sale of property, building and equipment of $0.1 million.
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.
Cash provided by investing activities in 2012 primarily reflects the sale of short-term investments of $10.0 million, partially offset
by payments to CyDex CVR holders of $8.0 million and purchases of property, building and equipment of $0.6 million.
Financing Activities
Financing activities provided cash of $130.0 million in 2014, used cash of $16.5 million in 2013 and provided cash of $3.9 million in
2012.
Cash provided by financing activities in 2014 primarily reflects the gross proceeds received from the issuance of an aggregate
$245.0 million of the 2019 Convertible Senior Notes, proceeds from issuance of warrants of $11.6 million, and $4.6 million of proceeds
received from stock option exercises and our employee stock purchase plan, partially offset by repayment of debt of $9.4 million, purchase
of convertible bond hedge of $48.1 million, payment for share repurchases of $68.0 million and payment of debt issuance costs of $5.7
million.
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 our employee stock purchase plan.
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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.
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, provided all other revenue recognition criteria have been met; however, we do not recognize revenue until all substantive
customer acceptance requirements have been met, when applicable. 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. All product returns are subject to approval and a 20% restocking fee. To date, product returns by customers
have not been material to net material sales in any related period. We record revenue net of product returns, if any, and sales tax collected
and remitted to government authorities during the period.
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, or VSOE, then third-party evidence, or TPE, and if neither VSOE
nor TPE exist, we use our best estimate of selling price.
Many of our Captisol license arrangements involve the bundling of a license with the option to purchase Captisol material. 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.
Other 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. In contrast, such fees and payments are deferred if we have continuing performance obligations. Amounts received
under multiple-element arrangements requiring ongoing services or performance by us are recognized over the period of such services or
performance. 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.
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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.
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.
Goodwill and Other Identifiable Intangible Assets
Amortization of intangible assets with finite lives is computed using the straight-line method over the estimated useful life of the asset
of 20 years.
In accordance with Accounting Standards Codification, or ASC 350, Goodwill and Other Intangibles, we perform an impairment
analysis for goodwill and certain non-amortizing intangibles on at least an annual basis. We use the income approach and the market
approach, each weighted at 50%, for goodwill impairment analysis. For the income approach, we consider 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 our
estimation of the fair value, we 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. We perform 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, 2014, 2013, and 2012 there has been no impairment of goodwill for continuing operations.
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 we become 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.
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 $0.3 million as of December 31, 2014). 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, 2014 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
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termination payments receivable. As of December 31, 2014 and 2013, the fair value of the co-promote termination liability (and the
corresponding receivable) was determined using a discount rate of 15%.
Contingent Liabilities
In connection with our acquisition of CyDex in January 2011, we recorded contingent liabilities for amounts potentially due to
holders of the CyDex CVR's and certain other contingency payments. 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 is periodically assessed based on events and circumstances related
to the underlying milestones, and the change in fair value will be recorded in our 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.
In connection with our acquisition of Metabasis in January 2010, we issued Metabasis stockholders four tradable CVRs, one CVR
from each of four respective series of CVR, for each Metabasis share. The CVRs entitle Metabasis stockholders to cash payments as
frequently as every six months as cash is received by us 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 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.
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, 2014, 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.
Stock-Based Compensation
Stock-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 $11.3 million, $5.7 million and $4.1 million for 2014, 2013 and 2012,
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,
2014
1.9%
—
62%-69%
6 years
8.6%-9.7%
2013
2012
1.13%-1.82%
0.83%-1.14%
—
69%
6 years
8.4%-9.8%
—
69%
6 years
8.0%-11.2%
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
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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.
Consolidation of Variable Interest Entities
We identify an entity as a variable interest entity, or VIE, if either: (1) the entity does not have sufficient equity investment at risk
to permit the entity to finance its activities without additional subordinated financial support, or (2) the entity's equity investors lack the
essential characteristics of a controlling financial interest. We perform ongoing qualitative assessments of its VIEs to determine whether we
have a controlling financial interest in any VIE and therefore is the primary beneficiary. If we are the primary beneficiary of a VIE, it is
consolidated under applicable accounting guidance. We determined that we hold a variable interest in Viking based on management's
assessment that it does not have sufficient resources to carry out its principal activities without our support. Our variable interests in Viking
are a loan provided to Viking and a license agreement executed concurrently. As of December 31, 2014, our total assets include $3.0
million related to Viking and our total liabilities include $5.0 million related to Viking. Viking's consolidated assets are owned by Viking,
and Viking's consolidated liabilities are without recourse against Ligand.
New Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU 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. Our adoption of this standard did not materially affect the
consolidated financial statements.
In July 2013, FASB issued ASU 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. Our adoption of this standard did not materially affect the consolidated financial statements.
In April 2014, FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an
Entity. ASU 2014-08 raises the threshold for a disposal to qualify as a discontinued operation and modifies the related disclosure
requirements. Under the new guidance, only disposals resulting in a strategic shift that will have a major effect on an entity's operations and
financial results will be reported as discontinued operations. ASU 2014-08 also removes the requirement that an entity not have any
significant continuing involvement in the operations of the component after disposal to qualify for reporting of the disposal as a
discontinued operation. The guidance is effective for annual and interim periods beginning after December 15, 2014, with early adoption
permitted for any disposal transaction not previously reported. Management does not believe the adoption of this guidance will have a
material impact on our consolidated financial statements.
In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is effective for annual periods
beginning after December 15, 2016 and interim periods within those annual periods. The revenue standard’s core principle is built on the
contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and
obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To
accomplish this objective, the standard requires five basic steps: (1) identify the contract with the customer, (2) identify the performance
obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the
contract, (5) recognize revenue when (or as) the entity satisfies a performance obligation. Management is currently evaluating the effect the
adoption of this standard will have on our financial statements.
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Table of Contents
In June 2014, FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a
Performance Target Could Be Achieved after the Requisite Service Period. The amendments in this update require that a performance
target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting
entity should apply existing guidance in ASC 718, Compensation - Stock Compensation, as it relates to awards with performance conditions
that affect vesting to account for such awards. The amendments in this update will be effective for the Company as of January 1, 2016.
Earlier adoption is permitted. Entities may apply the amendments in this update either: (1) prospectively to all awards granted or modified
after the effective date; or (2) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest
annual period presented in the financial statements and to all new or modified awards thereafter. If a retrospective transition is adopted, the
cumulative effect of applying this update as of the beginning of the earliest annual period presented in the financial statements should be
recognized as an adjustment to the opening retained earnings balance at that date. In addition, if a retrospective transition is adopted, an
entity may use hindsight in measuring and recognizing the compensation cost. Management is currently assessing the impact of this update,
and believes that its adoption on January 1, 2016 will not have a material impact on our consolidated financial statements.
In August 2014, FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern. The amendments in this update
require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that
are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an
evaluation every reporting period, including interim periods, (3) provide principles for considering the mitigating effect of management’s
plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an
express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after
the date that the financial statements are issued (or available to be issued). The amendments in this update are effective for us as of January
1, 2017. Early application is permitted. Management is currently assessing the impact of this update on our future discussions of our
liquidity position in the Management’s Discussion and Analysis.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from interest rates and equity prices which could affect our results of operations, financial condition
and cash flows. We manage our exposure to these market risks through our regular operating and financing activities.
Investment Portfolio Risk
At December 31, 2014, our investment portfolio included investments in available-for-sale equity securities of $7.1 million. These
securities are subject to market risk and may decline in value based on market conditions.
Equity Price Risk
Our 2019 Convertible Senior Notes include conversion and settlement provisions that are based on the price of our common stock at
conversion or maturity of the notes, as applicable. The minimum amount of cash we may be required to pay is $245.0 million, but will
ultimately be determined by the price of our common stock. The fair values of our 2019 Convertible Senior Notes are dependent on the
price and volatility of our common stock and will generally increase or decrease as the market price of our common stock changes. In order
to minimize the impact of potential dilution to our common stock upon the conversion of the 2019 Convertible Senior Notes, we entered
into convertible bond hedges covering 3,264,643 shares of our common stock. Concurrently with entering into the convertible bond hedge
transactions, we entered into warrant transactions whereby we sold warrants with an exercise price of approximately $125.08 per share,
subject to adjustment. Throughout the term of the 2019 Convertible Senior Notes, the notes may have a dilutive effect on our earnings per
share to the extent the stock price exceeds the conversion price of the notes. Additionally, the warrants may have a dilutive effect on our
earnings per share to the extent the stock price exceeds the strike price of the warrants.
Foreign Currency Risk
Through our licensing and business operations, we are exposed to foreign currency risk. Foreign currency exposures arise from
transactions denominated in a currency other than the functional currency and from foreign denominated revenues and profit translated into
U.S. dollars. Our collaborative partners sell our products worldwide in currencies other than the U.S. dollar. Because of this, our revenues
from royalty payments are subject to risk from changes in exchange rates.
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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 not have a material impact on our financial condition,
results of operations or cash flows. We do not currently hedge our exposures to foreign currency fluctuations.
Interest Rate Risk
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 not have a material impact on our financial condition, results of operations or cash flows.
Item 8.
Consolidated Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
42
Page
43
44
45
46
47
48
50
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, 2014 and 2013, 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, 2014. 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, 2014 and 2013, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2014 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, 2014, based on criteria established in the 2013 Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated
February 23, 2015 expressed an unqualified opinion.
/s/ GRANT THORNTON LLP
Los Angeles, California
February 23, 2015
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Table of Contents
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
$
$
$
Current assets:
Cash and cash equivalents (including $756 and $0 related to a VIE, respectively)
ASSETS
Short-term investments
Accounts receivable, net
Inventory
Capitalized IPO expenses, VIE
Current debt issuance costs
Other current assets
Current portion of co-promote termination payments receivable
Total current assets
Restricted cash
Property and equipment, net
Intangible assets, net
Goodwill
Commercial license rights
Long-term portion of co-promote termination payments receivable
Long-term debt issuance costs
Other assets
Total assets
Current liabilities:
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable (including $2,211 and $0 related to a VIE, respectively)
Accrued liabilities
Current portion of contingent liabilities
Current portion of deferred income taxes
Current portion of notes payable ($334 and $0 related to a VIE, respectively
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 notes 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
Stockholders’ equity:
Common stock, $0.001 par value; 33,333,333 shares authorized; 19,575,150 and 20,468,521 shares issued and
outstanding at December 31, 2014 and 2013, respectively
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders’ equity attributable to parent
Noncontrolling interests
Total stockholder's equity
Total liabilities and stockholders’ equity
$
See accompanying notes to these consolidated financial statements.
44
December 31,
2014
2013
160,203 $
7,133
12,634
269
2,268
809
1,520
322
185,158
1,261
486
50,723
12,238
4,568
—
3,388
207
258,029 $
7,698 $
4,866
6,796
257
334
322
2,356
150
22,779
195,908
—
2,085
934
2,792
8,353
770
233,621
20
680,660
4,953
(659,315 )
26,318
(1,910 )
24,408
258,029 $
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
21
718,017
2,914
(671,339 )
49,613
—
49,613
104,713
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
Income 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 including noncontrolling interests
Less: Net loss attributable to noncontrolling interests
Net income (loss) from continuing operations
Discontinued operations:
Gain on sale of Avinza Product Line, net
Income tax expense on discontinued operations
Income from discontinued operations
Net income
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,
2014
2013
2012
29,994 $
28,488
6,056
64,538
23,584 $
19,072
6,317
48,973
9,136
12,122
22,570
1,084
—
44,912
19,626
(4,860 )
(5,135 )
1,671
(8,324 )
11,302
(410)
10,892
(1,132 )
12,024
5,732
9,274
17,984
560
480
34,030
14,943
(2,077 )
(3,597 )
(63)
(5,737 )
9,206
(374)
8,832
—
8,832
—
—
—
12,024 $
2,588
—
2,588
11,420 $
0.59 $
—
0.59 $
0.43 $
0.13
0.56 $
14,073
9,432
7,883
31,388
3,601
10,790
15,782
1,022
—
31,195
193
(2,924 )
(1,650 )
516
(4,058 )
(3,865 )
1,191
(2,674 )
—
(2,674 )
3,656
(1,509 )
2,147
(527)
(0.14 )
0.11
(0.03 )
20,418,569
20,312,395
19,853,095
0.56 $
—
0.56 $
0.43 $
0.12
0.55 $
(0.14 )
0.11
(0.03 )
21,433,177
20,745,454
19,853,095
$
$
$
$
$
$
See accompanying notes to these consolidated financial statements.
45
Table of Contents
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Net income (loss)
Unrealized net gain on available-for-sale securities, net of tax of $0
Less:Reclassification of net realized gains included in net income, net of tax of $0
Comprehensive income (loss)
Year Ended December 31,
2014
2013
2012
12,024 $
3,872
(1,833) $
14,063 $
11,420 $
2,914
— $
14,334 $
(527)
—
—
(527)
$
$
$
See accompanying notes to these consolidated financial statements.
46
Table of Contents
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
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share data)
Common Stock
Shares
20,682,506
Amount
$
21
Additional
paid-in
capital
732,676 $
$
Accumulated
other
comprehensive
income (loss)
Accumulated
deficit
— $ (682,232) $
Treasury stock
Noncontrolling
interest
Shares
—
(1,118,222 ) $
Amount
(42,280 ) $
Total
stockholders’
equity (deficit)
180,979
302,750
—
112,371
—
—
—
—
—
—
1,103
5,313
4,067
8,344
—
—
—
—
—
—
— $ (682,759) $
—
—
—
—
(527)
—
—
—
—
—
—
Balance at December 31, 2012
21,278,606
$
21
$
751,503 $
Issuance of common stock
under employee stock
compensation plans, net
Issuance of common stock, net
Stock-based compensation
Retirement of treasury shares
Unrealized net gain on
available-for-sale securities
Net income
308,137
—
—
(1,118,222 )
—
—
1
—
—
(1)
—
—
3,127
—
5,666
(42,279 )
—
—
2,914
—
—
11,420
Balance at December 31, 2013
20,468,521
$
21
$
718,017 $
2,914
$ (671,339) $
Consolidation of variable
interest entity
Issuance of common stock
under employee stock
compensation plans, net
Stock-based compensation
Repurchase of common stock
Sale of warrants
Purchase of convertible bond
hedge
Equity component of
convertible debt issuance, net of
issuance costs
Unrealized net gain on
available-for-sale securities
Realized gain on sale of
investments
Net income
Net loss in noncontrolling
interests
—
—
—
360,054
—
(1,253,425 )
—
—
—
(1)
—
4,561
11,270
(67,954 )
11,638
—
—
(48,143 )
—
—
—
—
—
—
—
—
—
—
51,271
—
—
—
—
—
—
—
—
—
—
—
3,872
(1,833)
—
—
—
—
—
—
—
—
—
—
—
12,024
—
Balance at December 31, 2014
19,575,150
$
20
$
680,660
$
4,953
$ (659,315) $
—
—
—
—
—
(1,118,222 ) $
—
—
—
—
—
(42,280 ) $
—
—
—
1,118,222
—
42,280
—
—
— $
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(778)
—
—
—
—
—
—
—
—
—
(1,132)
(1,910)
8,185
1,103
5,313
4,067
8,344
(527)
26,485
3,128
5,666
—
2,914
11,420
49,613
(778)
4,561
11,270
(67,955 )
11,638
(48,143 )
51,271
3,872
(1,833)
12,024
(1,132)
— $
— $
24,408
See accompanying notes to these consolidated financial statements.
47
Table of Contents
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
2014
2013
2012
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
Change in estimated fair value of contingent liabilities
Realized gain on sale of short-term investment
Depreciation and amortization
Amortization of debt discount and issuance fees
Non-cash milestone revenue
(Gain) loss on asset disposal
Stock-based compensation
Deferred income taxes
Accretion of note payable
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 operating activities of continuing operations
Net cash used in operating activities of discontinued operations
Net cash provided by operating activities
Investing activities
Purchase of commercial license rights
Payments to CVR holders and other contingency payments
Purchases of property and equipment
Proceeds from sale of property and equipment
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
Gross proceeds from issuance of 2019 Convertible Senior Notes
Payment of debt issuance costs
Proceeds from issuance of warrants
Purchase of convertible bond hedge
Proceeds from issuance of common stock, net
Net proceeds from stock option exercises
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
48
$
10,892 $
—
10,892
11,420 $
2,588
8,832
—
5,135
(1,538 )
2,657
3,694
(1,211 )
(16)
11,270
410
222
(10,412 )
4,369
(426)
(1,439 )
(3,155 )
34
80
20,566
—
20,566
(1,000 )
(3,493 )
(6)
125
2,342
5
(2,027 )
—
(9,366 )
245,000
(5,711 )
11,638
(48,143 )
—
4,561
(67,954 )
130,025
148,564
11,639
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 )
—
—
—
—
—
3,128
—
(16,458 )
(742)
12,381
(527)
2,147
(2,674 )
—
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
1,103
—
3,916
5,340
7,041
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
$
$
$
Accrued inventory purchases
Unrealized gain on AFS investments
Common stock released from restriction
3,246 $
3,872 $
— $
See accompanying notes to these consolidated financial statements.
$
$
$
49
160,203 $
11,639 $
12,381
494 $
18 $
1,816 $
26 $
341 $
2,914 $
— $
2,452
—
1,426
—
8,344
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, Amgen, Inc., Merck, Pfizer
and Baxter International. 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 had net income of $12.0 million for the year ended December 31, 2014. As of December 31, 2014, the Company’s
accumulated deficit was $659.3 million and the Company had working capital of $162.4 million. The Company believes that its currently
available cash, cash equivalents and short-term investments, as well as its current and future royalty, license and milestone revenues and
Captisol material sales will be sufficient to fund operating and capital requirements, at a minimum, through December 31, 2015. The
Company expects to build cash in future months as it continues to generate significant cash flows from operations. 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. 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, inventory, 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 comparability purposes. These
reclassifications had no effect on the reported net income, stockholders' equity and operating cash flows as previously reported.
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, non-vested restricted stock units, convertible notes and warrants. 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 because their effect is anti-dilutive, were 5.1 million, 0.8 million and 1.1 million for the
years ended December 31, 2014, 2013 and 2012 respectively.
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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):
EPS Attributable to Common Shareholders
Net income (loss) from continuing operations
Discontinued operations
Net income (loss)
Shares used to compute basic income (loss) per share
Dilutive potential common shares:
Stock options
Restricted stock
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 and Cash Equivalents
Year Ended December 31,
2014
2013
12,024 $
—
12,024 $
8,832 $
2,588
11,420 $
20,418,569
20,312,395
978,162
36,446
21,433,177
352,959
80,100
20,745,454
2012
(2,674)
2,147
(527)
19,853,095
—
—
19,853,095
0.59 $
—
0.59 $
0.56 $
—
0.56 $
0.43 $
0.13
0.56 $
0.43 $
0.12
0.55 $
(0.14)
0.11
(0.03)
(0.14)
0.11
(0.03)
$
$
$
$
$
Cash and cash equivalents consist of cash, money market accounts, and certificates of deposit with original maturities of three months
or less from the date of purchase.
Short-term Investments
Securities received by the Company as a result of a milestone payment from licensees 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.
Restricted Cash
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.
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The following table summarizes the various investment categories at December 31, 2014 and 2013 (in thousands):
December 31, 2014
Short-term investments
Certificates of deposit - restricted
December 31, 2013
Short-term investments
Certificates of deposit-restricted
Concentrations of Business Risk
Cost
Gross unrealized
gains
Gross unrealized
losses
Estimated
fair value
$
$
$
2,179 $
1,261
3,440 $
1,426
1,341
2,767 $
4,954 $
—
4,954 $
2,914 $
—
2,914 $
— $
—
— $
— $
—
— $
7,133
1,261
8,394
4,340
1,341
5,681
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 2014,
the Company did not experience any significant losses on its cash equivalents, short-term investments or restricted investments. As of
December 31, 2014, cash deposits held at financial institutions in excess of FDIC insured amounts of $250,000 were approximately $91.7
million.
A relatively small number of partners accounts for a significant percentage of our revenue. Revenue from significant partners, which
is defined as 10% or more of our total revenue, was as follows:
Partner A
Partner B
Partner C
December 31,
2014
2013
2012
37%
31%
10%
33%
28%
14%
32%
15%
19%
Accounts receivable from two customers were 64% of total accounts receivable at December 31, 2014. Accounts receivable from two
customers were 75% of total accounts receivable at December 31, 2013.
The Company obtains Captisol from a single supplier, Hovione. 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, which consists of finished goods, 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, 2014 and 2013. As of December 31, 2014, the
commitment under our supply agreement with Hovione for Captisol purchases was $15.4 million.
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
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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, 2014 and 2013.
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,
2014
2013
2,232 $
273
624
3,129
(2,643)
486 $
3,737
387
616
4,740
(3,873)
867
$
$
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 was recognized in each of the three years ending December 31,
2014, 2013, and 2012, 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,
2014
2013
12,556 $
12,238
15,267
(2,999)
2,642
(519)
29,600
(5,824)
62,961 $
12,556
12,238
15,267
(2,235)
2,642
(387)
29,600
(4,344)
65,337
$
$
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.
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 was recognized in each of the three years ending December 31, 2014, 2013, and 2012,
respectively. Estimated amortization expense for the years ending December 31, 2015 through 2019 is $2.4 million per year.
The Company accounts for goodwill in accordance with Accounting Standards Codification ("ASC"), 350, Goodwill and Other
Intangibles. The Company performs its impairment analysis for goodwill and certain non-amortizing intangibles on at least an annual basis.
The Company uses the income approach and the market approach, each weighted at 50%, for goodwill
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impairment 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, 2014, 2013 and 2012 there has been no impairment of goodwill for continuing operations.
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 years ended
December 31, 2014 and December 31, 2012, there was no impairment of IPR&D.
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. 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 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 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 is 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, 2014 and 2013 was $11.5 million and $9.3 million, respectively. The Company recorded a fair value adjustment
to increase the liability for CyDex related contingent liabilities of $5.7 million for the year ended December 31, 2014, $0.6 million
decrease in the liability for the year ended December 31, 2013 and an increase in the liability of $3.4 million for the year ended
December 31, 2012. Contingent liabilities decreased for cash payments to CVR holders and other contingency payments by $3.5 million
during the year ended December 31, 2014, $1.0 million during the year ended December 31, 2013 and $8.0 million during the year ended
December 31, 2012.
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
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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 $3.7
million and $4.2 million as of December 31, 2014 and 2013, respectively. The Company recorded a decrease in the liability for CVRs of
$0.5 million during the year ended December 31, 2014, an increase of $4.2 million during the year ended December 31, 2013 and a
decrease of $1.1 million during the year ended December 31, 2012.
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
The carrying amount of the Company’s cash and cash equivalents, accounts receivable, accounts payable and accrued expenses
approximate the fair value because of their short maturities. Other assets and liabilities that are carried at fair value include short-term
investments, certain license liabilities in equity securities, certain co-promote termination asset and liability, and contingent consideration
liabilities. For additional information, see Note 3 Fair Value Measurement
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 and 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 to the Company by its partners in the same
period in which payment is received.
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Revenue from material sales of Captisol is recognized upon transfer of title, which normally passes upon shipment to the customer,
provided all other revenue recognition criteria have been met; however, we do not recognize revenue until all substantive customer
acceptance requirements have been met, when applicable. 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. All product returns are subject to approval by the Company and a 20% restocking fee. To date, product
returns by customers have not been material to net material sales in any related period. The Company records revenue net of product
returns, if any, and sales tax collected and remitted to government authorities during the period.
The Company analyzes its revenue arrangements and other agreements to determine whether there are multiple elements that should
be separated and accounted for individually or as a single unit of accounting. For multiple element contracts, arrangement consideration is
allocated at the inception of the arrangement to all deliverables on the basis of relative selling price, using a hierarchy to determine selling
price. Management first considers vendor-specific objective evidence ("VSOE"), then third-party evidence ("TPE") and if neither VSOE
nor TPE exist, the Company uses its best estimate of selling price.
Many of the Company's Captisol license arrangements involve the bundling of a license with the option to purchase Captisol
material. 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. Management believes that the Company's 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.
Other nonrefundable, up-front license fees are recognized as revenue upon delivery of the license, if the license is determined to have
standalone value that is not dependent on any future performance by the Company under the applicable collaboration agreement.
Nonrefundable contingent event-based payments are recognized as revenue when the contingent event is met, which is usually the earlier
of when payments are received or collections are assured, provided that it does not require future performance by the Company. 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 contingent payments from partners are accounted for similarly to royalties, with revenue recognized upon achievement
of the sales targets 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 (1) 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 (2) 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.
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.
In May 2014, the Company entered into a licensing agreement and research collaboration with Omthera Pharmaceuticals. The
research collaboration will target the development of novel products that utilize the proprietary Ligand developed LTP TECHNOLOGY™
to improve lipid-lowering activity of certain omega-3 fatty acids. The Company is eligible to receive compensation and reimbursement
from Omthera for internal research effort and external costs incurred, as well as development and regulatory event-based payments. The
completion of a proof of concept under the development program would trigger a $1.0 million payment which is determined to be a
milestone under the milestone method of accounting as (1) it is an event that can only be achieved in part on the Company's past
performance, (2) there was substantive uncertainty at the date the arrangement was entered into that the event would be achieved and (3) it
results in additional payment being due to the Company. None of the other event-based payments represents a milestone under the
milestone method of accounting. No event based payment or milestone was achieved during the periods presented. The Company received
$0.5 million from Omthera in 2014 under the agreement and recognized $0.4 million as collaborative revenue based on the percentage of
completion of the research program at December 31, 2014. No milestone payment or contingent payment was received in 2014.
Cost of Material Sales
The Company determines cost using the first-in, first-out method. Cost of material sales include all costs of purchase and other costs
incurred in bringing the Captisol inventories to their present location and condition, costs to store, and distribute.
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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"). The Company accounts for a significant portion of its clinical
study costs according to the terms of its contracts with CROs. The terms of its CRO contracts may result in payment flows that do not
match the periods over which services are provided to us under such contracts. The Company's objective is to reflect the appropriate
preclinical and clinical trial expenses in its financial statements in the same period as the services occur. As part of the process of preparing
its financial statements, the Company relies on cost information provided by its CROs. The Company is also required to estimate certain of
its expenses resulting from its obligations under its CRO contracts. Accordingly, the Company's preclinical study and clinical trial accrual is
dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors. The Company
periodically evaluates its estimates to determine if adjustments are necessary or appropriate as more information becomes available
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, 2014 and 2013, the Company had
deferred $0 million and $0.1 million of revenue, respectively.
Product Returns (Avinza and Oncology product lines)
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.
Research and Development Expenses
Research and development expense consists of labor, material, equipment, and allocated facilities costs of the Company’s scientific
staff who are working pursuant to the Company’s collaborative agreements and other research and development projects. Also included in
research and development expenses are third-party costs incurred for the Company’s research programs including in-licensing costs, CRO
costs and costs incurred by other research and development service vendors. We expense these costs as they are incurred. When we make
payments for research and development services prior to the services being rendered, we record those amounts as prepaid assets on our
consolidated balance sheet and we expense them as the services are provided.
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, 2014 and
2013, 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.
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Accounting for Stock-Based Compensation
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.
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 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
2014
1.9%
—
62%-69%
6 years
Year Ended December 31,
2013
2012
1.13%-1.82% 0.83%-1.14%
—
69%
6 years
—
69%
6 years
8.0%-11.2%
8.6%-9.7%
8.4%-9.8%
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 stock-based compensation expense recorded as components of research and development expenses
and general and administrative expenses for the periods indicated (in thousands):
Stock-based compensation expense as a component of:
Research and development expenses
General and administrative expenses
December 31,
2014
2013
2012
$
$
3,595 $
7,675
11,270 $
1,705 $
3,961
5,666 $
1,448
2,619
4,067
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. Intercompany transactions between
operating segments have been eliminated in consolidation.
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).
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Consolidation of Variable Interest Entities
In accordance with ASC 810, Consolidations, the applicable accounting guidance for the consolidation of variable interest entities
(“VIE”), the Company analyzes its interests, including agreements, loans, guarantees, and equity investments, if applicable, on a periodic
basis to determine if such interests are variable interests. If variable interests are identified, then the related entity is assessed to determine
if it is a VIE. The Company’s analysis includes both quantitative and qualitative reviews. The Company bases its quantitative analysis on
the forecasted cash flows of the entity, and its qualitative analysis on the design of the entity, its organizational structure including its
decision-making authority, and relevant agreements. The Company identifies an entity as a VIE if either: (1) the entity does not have
sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or (2) the
entity's equity investors lack the essential characteristics of a controlling financial interest. If the Company determines that the entity is a
VIE, then the Company performs ongoing assessments of its VIEs to determine whether the Company has a controlling financial interest in
any VIE and therefore is the primary beneficiary. The Company’s determination of whether it is the primary beneficiary is based upon
qualitative and quantitative analyses, which assess the purpose and design of the VIE, the nature of the VIE’s risks and the risks that the
Company absorbs, the power to direct activities that most significantly impact the economic performance of the VIE, and the obligation to
absorb losses or the right to receive benefits that could be significant to the VIE. If the Company is the primary beneficiary of a VIE, it
consolidates the VIE under applicable accounting guidance (see Note 2, “Variable Interest Entities”, for more information).
Convertible Debt
In August 2014, the Company completed a $245.0 million offering of convertible senior notes, which mature in 2019 and bear
interest at 0.75%. The Company accounts for notes by separating the liability and equity components of the instrument in a manner that
reflects the Company's nonconvertible debt borrowing rate. As a result, the Company assigned a value to the debt component of the notes
equal to the estimated fair value of similar debt instruments without the conversion feature, which resulted in the Company recording the
debt instrument at a discount. The Company is amortizing the debt discount over the life of the notes as additional non-cash interest
expense utilizing the effective interest method.
New Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 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. The Company's adoption of this standard
did not materially affect the consolidated financial statements.
In July 2013, FASB issued ASU 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's adoption of this standard did not materially affect the consolidated financial statements.
In April 2014, FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an
Entity. ASU 2014-08 raises the threshold for a disposal to qualify as a discontinued operation and modifies the related disclosure
requirements. Under the new guidance, only disposals resulting in a strategic shift that will have a major effect on an entity's operations and
financial results will be reported as discontinued operations. ASU 2014-08 also removes the requirement that an entity not have any
significant continuing involvement in the operations of the component after disposal to qualify for reporting of the disposal as a
discontinued operation. The guidance is effective for annual and interim periods beginning after December 15, 2014, with early adoption
permitted for any disposal transaction not previously reported.
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Management does not believe the adoption of this guidance will have a material impact on the Company's consolidated financial
statements.
In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is effective for annual periods
beginning after December 15, 2016 and interim periods within those annual periods. The revenue standard’s core principle is built on the
contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and
obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To
accomplish this objective, the standard requires five basic steps: (1) identify the contract with the customer, (2) identify the performance
obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the
contract, (5) recognize revenue when (or as) the entity satisfies a performance obligation. Management is currently evaluating the effect the
adoption of this standard will have on the Company's financial statements.
In June 2014, FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a
Performance Target Could Be Achieved after the Requisite Service Period. The amendments in this update require that a performance
target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting
entity should apply existing guidance in ASC 718, Compensation - Stock Compensation, as it relates to awards with performance conditions
that affect vesting to account for such awards. The amendments in this update will be effective for the Company as of January 1, 2016.
Earlier adoption is permitted. Entities may apply the amendments in this update either: (1) prospectively to all awards granted or modified
after the effective date; or (2) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest
annual period presented in the financial statements and to all new or modified awards thereafter. If a retrospective transition is adopted, the
cumulative effect of applying this update as of the beginning of the earliest annual period presented in the financial statements should be
recognized as an adjustment to the opening retained earnings balance at that date. In addition, if a retrospective transition is adopted, an
entity may use hindsight in measuring and recognizing the compensation cost. Management is currently assessing the impact of this update,
and believes that its adoption on January 1, 2016 will not have a material impact on the Company's consolidated financial statements.
In August 2014, FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern. The amendments in this update
require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that
are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an
evaluation every reporting period, including interim periods, (3) provide principles for considering the mitigating effect of management’s
plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an
express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after
the date that the financial statements are issued (or available to be issued). The amendments in this update are effective for the Company as
of January 1, 2017. Early application is permitted. Management is currently assessing the impact of this update on its future discussion of
the Company's liquidity position in the Management’s Discussion and Analysis.
2. Variable Interest Entities
In May 2014, the Company entered into a Master License Agreement to license rights to five programs to Viking, an unrelated
clinical-stage biopharmaceutical company focused on the development of novel therapies for metabolic and endocrine disorders. As part of
this transaction, the Company extended a $2.5 million convertible loan facility to Viking that can be used to pay Viking’s operating and
financing-related expenses. Under the terms of the convertible loan facility, the principal amount outstanding accrues interest at a fixed rate
equal to the lesser of 5% and the maximum interest rate permitted by law. The loan is due and payable in May 2016, unless the loans are
converted into equity prior to such time. Upon the earlier to occur of an Initial Public Offering ("IPO") or a qualified financing event, the
Company may elect to be repaid in cash or equity equal to 200% of the accrued principal and interest.
As partial consideration for the grant of the rights and licenses under the license agreement, in the event Viking consummates an
IPO or other qualified financing event, Viking will issue to the Company a certain amount of equity. At the closing of an IPO a number of
shares of common stock having an aggregate value of $29.0 million will be issued to the Company, subject to adjustment in certain
circumstances. In the event Viking consummates a private financing prior to an IPO, the Company has the option to receive a number of
shares of the same class and type of securities issued in the private financing having an aggregate value of $29.0 million, subject to
adjustment in certain circumstances. The Company has the right to terminate the license agreement on or after April 30, 2015 if Viking has
neither completed an IPO nor received aggregate net proceeds of at least $20.0 million in one or more private financings. The Company
also has the right to terminate the license agreement in the event of insolvency or bankruptcy of Viking. On July 1, 2014, Viking filed an
initial Form S-1
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with the Securities and Exchange Commission for an IPO. As of the date of this report, the filed Form S-1 has not been declared effective.
As of December 31, 2014, no amounts have been recorded for the potential receipt of equity related to a financing transaction in
accordance with authoritative guidance.
The Company determined it holds a variable interest in Viking based on management's assessment that Viking does not have
sufficient resources to carry out its principal activities without the support of the Company. The Company's variable interests in Viking are
a loan provided by the Company to Viking and a license agreement executed concurrently. Additionally, the Company has a shared
services and sublease agreement with Viking. The Company examines specific criteria and uses judgment and determined that the
Company is the primary beneficiary of the VIE and therefore required to consolidate Viking. Factors considered in determining whether the
Company is the primary beneficiary include risk and reward sharing, experience and financial condition of its partner, voting rights,
involvement in day-to-day operating decisions, representation on Viking's executive committee, and level of economics between the
Company and Viking.
The Company has recorded 100% of the losses incurred since May 21, 2014, the effective date of the transaction, as net loss
attributable to noncontrolling interest due to the fact that it is considered a primary beneficiary with no equity interest in the VIE. The
advances under the loan agreement are included as notes payable by Viking and are eliminated in consolidation.
The following table represents the assets and liabilities, which are owned by and are obligations of Viking and are with no
recourse to the Company, as of December 31, 2014 (in thousands):
Cash and cash equivalents
Other current assets
Capitalized IPO expenses
Total current assets
Other assets
Total assets
Accounts payable
Accrued liabilities
Current portion of notes payable
Total current liabilities
Long-term portion of notes payable (eliminates in consolidation)
Total liabilities
61
December 31, 2014
756
18
2,268
3,042
1
3,043
2,211
77
334
2,622
2,331
4,953
$
$
$
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3. Fair Value Measurement
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 tables provide a summary of the assets and liabilities that are measured
at fair value on a recurring basis as of December 31, 2014 and 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 (1)
Short-term investments (2)
Total assets
Liabilities:
Current portion of contingent liabilities - CyDex (3)
Current portion of co-promote termination liability (1)
Long-term portion of contingent liabilities - Metabasis (4)
Long-term portion of contingent liabilities - CyDex (3)
Liability for amounts owed to former licensees (5)
Total liabilities
$
$
$
$
322 $
7,133
7,455 $
6,796 $
322
3,652
4,701
773
16,244 $
— $
7,133
7,133 $
— $
—
3,652
—
773
4,425 $
— $
—
— $
— $
—
—
—
—
— $
322
—
322
6,796
322
—
4,701
—
11,819
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 (1)
Short-term investments (2)
Long-term portion of co-promote termination payments receivable (1)
Total assets
Liabilities:
Current portion of contingent liabilities - CyDex (3)
Current portion of co-promote termination liability (1)
Long-term portion of contingent liabilities - Metabasis (4)
Long-term portion of contingent liabilities - CyDex (3)
Liability for amounts owed to former licensees (5)
Long-term portion of co-promote termination liability (1)
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
(1) The co-promote termination payments receivable represents a non-interest-bearing receivable for future payments to be made by
Pfizer related to product sales and is recorded at its fair value. The receivable and liability will remain equal, and are adjusted
each quarter for changes in the fair value of the obligation including any changes in the
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estimate of future net Avinza product sales. The fair value is determined based on a valuation model using an income approach.
For additional information, see Note 4 Avinza Co-Promotion.
(2) The Company’s short-term investments include investments in equity securities which the Company received as a result of event-
based and upfront payments from licensees. The fair value is determined using quoted market prices in active markets for the
same securities.
(3) 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.
(4) The liability for CVRs for Metabasis are determined using quoted market prices in active markets for the underlying
CVR.
(5) The liability for amounts owed to former licensees are determined using quoted market prices in active markets for the
underlying investment received from a partner, a portion of which is owed to former licensors.
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,
2014
$17.2 million-$17.3 million
25%
81%
0.60
B
6%
2013
$4.2 million-$19.8 million
25%
68%
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.
A reconciliation of the level 3 financial instruments as of December 31, 2014 is as follows (in thousands):
Assets:
Fair value of level 3 financial instruments as of December 31, 2013
Assumed payments made by Pfizer or assignee
Fair value adjustments to co-promote termination liability
Fair value of level 3 financial instrument assets as of December 31, 2014
Liabilities
Fair value of level 3 financial instruments as of December 31, 2013
Assumed payments made by Pfizer or assignee
Payments to CVR holders and other contingency payments
Fair value adjustments to contingent liabilities
Fair value adjustments to co-promote termination liability
Fair value of level 3 financial instruments as of December 31, 2014
Other Fair Value Measurements-2019 Convertible Senior Notes
$
$
$
$
11,746
(1,243 )
(10,181 )
322
21,057
(1,243 )
(3,493 )
5,679
(10,181 )
11,819
In August 2014, the Company issued $245.0 million aggregate principal amount of convertible senior unsecured notes due 2019 (the
"2019 Convertible Senior Notes"). The Company uses a quoted market rate in an inactive market, which is classified as a Level 2 input, to
estimate the current fair value of its 2019 Convertible Senior Notes. The estimated fair value of
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the 2019 Senior Convertible Notes was $239.2 million as of December 31, 2014. The carrying value of the notes does not reflect the
market rate. See Note 7 Financing Arrangements for additional information.
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, 2013 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. In February 2014, Actavis
launched a generic form of Avinza which resulted in a significant decrease in estimates of future net sales used to value the co-promote
termination asset and liability. Due to assumptions and judgments inherent in determining the estimates of future net Avinza sales through
November 2017, the actual amount of net Avinza sales used to determine the current fair value of the Company’s co-promote termination
asset and liability may be materially different from current estimates.
A summary of the co-promote termination liability as of December 31, 2014 and 2013 is as follows (in thousands):
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
Net present value of payments based on estimated future net Avinza product sales as of December 31, 2013
Assumed payments made by Pfizer or assignee
Fair value adjustments due to passage of time
Total co-promote termination liability as of December 31, 2014
$
$
12,534
(3,310)
2,522
11,746
(1,243)
(10,181)
322
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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, 2014 (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
July 2019 $
December
2014
July 2015
August 2016
Less than 1
year
1 year
2 years
3 years
4 years
682 $
700 $
718 $
737 $
Total
373 $ 3,210
54
1,339
2,589
4,664
54
—
1,743
2,497
54
—
—
772
—
—
—
737
—
—
—
373
162
1,339
4,332
9,043
Sublease payments expected to be received:
Office and research facility-San Diego, CA
Office and research facility-Cranbury, NJ
Net operating lease obligations
July 2015 $
August 2016
$
545 $ — $ — $ — $ — $
—
212
772 $
545
353
—
373 $ 8,145
—
737 $
3,907 $ 2,356 $
141
For the years ended December 31, 2014 and 2013, the Company had lease exit obligations of $3.3 million and $5.9 million,
respectively. For the years ended December 31, 2014 and 2013, the Company made cash payments, net of sublease payments received of
$3.5 million and $3.7 million, respectively. The Company recognized adjustments for accretion and changes in leasing assumptions of $1.1
million, $0.6 million and $1.0 million for the years ended December 31, 2014, 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 2014, 2013 and 2012 was $0.7 million, $0.7 million and $1.1 million, respectively. The
Company recognizes rent expense on a straight-line basis. Deferred rent at December 31, 2014 and 2013 was $0.3 million and $0.4 million,
respectively, and is included in other long-term liabilities.
6. Segment Reporting
The Company evaluates performance based on the operating profit (loss) of the respective business segments. The segment results
may not represent actual results that would be expected if they were independent, stand-alone businesses. Segment information is as
follows:
Balance Sheet Data:
Total Assets
Total Assets
As of December 31, 2014
CyDex
Ligand
Total
184,215 $
73,814 $
258,029
As of December 31, 2013
CyDex
Ligand
Total
38,408 $
66,305 $
104,713
$
$
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Net revenues from external customers
Operating income
Depreciation and amortization expense
Income tax (expense) benefit from continuing operations
Interest expense, net
Net revenues from external customers
Operating (loss) income
Depreciation and amortization expense
Write-off of in-process research and development
Income tax benefit from continuing operations
Interest expense
Gain on sale of Avinza
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
7. Financing Arrangements
$
$
$
For the year ended December 31, 2014
CyDex
Ligand
Total
27,174 $
(2,372)
253
5,106
4,860
37,364 $
21,998
2,404
(5,516)
—
64,538
19,626
2,657
(410)
4,860
For the year ended December 31, 2013
CyDex
Ligand
Total
21,436 $
253
233
—
(419)
2,077
2,588
27,537 $
14,690
2,430
480
45
—
—
48,973
14,943
2,663
480
(374)
2,077
2,588
For the year ended December 31, 2012
CyDex
Ligand
Total
19,582 $
(919)
222
2,924
1,096
3,656
(1,509)
11,806 $
1,112 $
2,505 $
— $
95 $
— $
— $
31,388
193
2,727
2,924
1,191
3,656
(1,509)
The Company fully repaid its secured term loan credit facility on July 31, 2014. Under the terms of the secured debt, the
Company made interest-only payments through February 2013. Subsequent to the interest-only payments, the note amortized with principal
and interest payments through the remaining term of the loan. Additionally, the Company made an additional final payment equal to 6% of
the total amount borrowed which was due at maturity and was accreted over the life of the loan.
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0.75% Convertible Senior Notes Due 2019
In August 2014, the Company issued $245.0 million aggregate principal amount of its 2019 Convertible Senior Notes, resulting in
net proceeds of $239.3 million. The 2019 Convertible Senior Notes are convertible into common stock at an initial conversion rate of
13.3251 shares per $1,000 principal amount of convertible notes, subject to adjustment upon certain events, which is equivalent to an initial
conversion price of approximately $75.05 per share of common stock. The initial conversion price of the notes represents a premium of
approximately 35% to the $55.59 per share close price of the Company's common stock on August 12, 2014. The notes bear interest at a
rate of 0.75% per year, payable semi-annually. Holders of the 2019 Convertible Senior Notes may convert the notes at any time prior to the
close of business on the business day immediately preceding May 15, 2019, under any of the following circumstances: (1) during any fiscal
quarter (and only during such fiscal quarter) commencing after December 31, 2014, if, for at least 20 trading days (whether or not
consecutive) during the 30 consecutive trading day period ending on the last trading day of the immediately preceding fiscal quarter, the
last reported sale price of the Company's common stock on such trading day is greater than 130% of the conversion price on such trading
day; (2) during the five business day period immediately following any ten consecutive trading day period, in which the trading price per
$1,000 principal amount of notes was less than 98% of the product of the last reported sale price of the Company's common stock on such
trading day and the conversion rate on each such trading day; or (3) upon the occurrence of certain specified corporate events as specified
in the indenture governing the notes. On or after May 15, 2019 until the close of business on the second scheduled trading day immediately
preceding August 15, 2019, holders of the notes may convert all or a portion of their notes at any time, regardless of the foregoing
circumstances. Upon conversion, Ligand must deliver cash to settle the principal and may deliver cash or shares of common stock, at the
option of the Company, to settle any premium due upon conversion.
In accordance with accounting guidance for debt related to conversion and other options, the Company separately accounted for
the debt and equity components of the 2019 Convertible Senior Notes by allocating the $245.0 million total proceeds between the debt
component and the embedded conversion option, or equity component, due to Ligand's ability to settle the 2019 Convertible Senior Notes
in cash for the principal portion and to settle any premium in cash or common stock, at the Company's election. The debt allocation was
performed in a manner that reflected the Company's non-convertible borrowing rate for similar debt of 5.83% derived from independent
valuation analysis. The initial debt value of $192.5 million accretes at 5.83% to reach $245.0 million at the maturity date. The equity
component of the 2019 Convertible Senior Notes was recognized as a debt discount and represents the difference between the $245.0
million proceeds at issuance of the 2019 Convertible Senior Notes and the fair value of the debt allocation on their respective issuance
dates. The debt discount is amortized to interest expense using the effective interest method over the expected life of a similar liability
without an equity component. The notes will have a dilutive effect to the extent the average market price per share of common stock for a
given reporting period exceeds the conversion price of $75.05. As of December 31, 2014, the “if-converted value” did not exceed the
principal amount of the 2019 Convertible Senior Notes.
In connection with the issuance of the 2019 Convertible Senior Notes, the Company incurred $5.7 million of issuance costs,
which primarily consisted of underwriting, legal and other professional fees. The portions of these costs allocated to the equity components
totaling $1.2 million were recorded as a reduction to additional paid-in capital. The portions of these costs allocated to the liability
components totaling $4.5 million were recorded as assets on the balance sheet. The portions allocated to the liability components are
amortized to interest expense using the effective interest method over the expected life of the 2019 Convertible Senior Notes.
The Company determined the expected life of the debt discount for the 2019 Convertible Senior Notes to be equal to the original
five-year term of the notes. The carrying value of the equity component related to the 2019 Convertible Senior Notes as of December 31,
2014, net of issuance costs, was $51.3 million.
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Convertible Bond Hedge and Warrant Transactions
In August 2014, in connection with the issuance of the 2019 Convertible Senior Notes, to minimize the impact of potential
dilution to the Company's common stock upon conversion of such notes, the Company entered into convertible bond hedges and sold
warrants covering approximately 3,264,643 shares of its common stock. The convertible bond hedges have an exercise price of $75.05 per
share and are exercisable when and if the 2019 Convertible Senior Notes are converted. If upon conversion of the 2019 Convertible Senior
Notes, the price of the Company's common stock is above the exercise price of the convertible bond hedges, the counterparties will deliver
shares of common stock and/or cash with an aggregate value approximately equal to the difference between the price of common stock at
the conversion date and the exercise price, multiplied by the number of shares of common stock related to the convertible bond hedge
transaction being exercised. The convertible bond hedges and warrants described below are separate transactions entered into by the
Company and are not part of the terms of the 2019 Convertible Senior Notes. Holders of the 2019 Convertible Senior Notes and warrants
will not have any rights with respect to the convertible bond hedges. The Company paid $48.1 million for these convertible bond hedges
and recorded the amount as a reduction to additional paid-in capital.
Concurrently with the convertible bond hedge transactions, the Company entered into warrant transactions whereby it sold
warrants to acquire approximately 3,264,643 shares of common stock with an exercise price of approximately $125.08 per share, subject to
certain adjustments. The warrants have various expiration dates ranging from November 13, 2019 to April 22, 2020. The warrants will
have a dilutive effect to the extent the market price per share of common stock exceeds the applicable exercise price of the warrants, as
measured under the terms of the warrant transactions. The Company received $11.6 million for these warrants and recorded this amount to
additional paid-in capital. The common stock issuable upon exercise of the warrants will be in unregistered shares, and the Company does
not have the obligation and does not intend to file any registration statement with the Securities and Exchange Commission registering the
issuance of the shares under the warrants.
The Company determined it holds a variable interest in Viking based on management's assessment that Viking does not have
sufficient resources to carry out its principal activities without the support of the Company. Viking has convertible notes payable of $0.3
million as of December 31, 2014 which bear interest at a rate equal to the lesser of the short-term applicable federal rate as published by the
Internal Revenue Service or the maximum rate permissible by law. Interest under the convertible notes is due and payable at maturity.
Unless repaid in full or converted in full, each convertible note matures two years from its date of purchase. In the event that any principal
amount due is not paid in full by the maturity date, such unpaid principal amount will bear interest at the lesser of 2% or the maximum rate
permissible by law. These convertible notes payable are obligations of Viking and are with no recourse to the Company
The carrying values and the fixed contractual coupon rates of the Company's financing arrangements are as follows (dollars in
thousands):
Convertible notes payable, 2.16% to 3.84%, due 2015, VIE
Current portion notes payable, 8.64%, due August 1, 2014
Current portion notes payable, 8.90%, due August 1, 2014
Total current portion of notes payable
2019 Convertible Senior Notes
Principal amount outstanding
Unamortized discount
Net carrying amount
Total long-term portion of notes payable
December 31, 2014
334
—
—
334
245,000
(49,092 )
195,908
195,908
$
$
$
$
$
$
$
$
December 31, 2013
—
6,642
2,467
9,109
—
—
—
—
The Company is required to make principal payments on long-term debt obligations of $245.0 million in 2019.
The fair value of the Company’s debt instruments approximates their carrying values as the interest is tied to or approximates market
rates. As of December 31, 2014, there were no events of default or violation of any covenants under the Company's financing obligations.
8. Discontinued Operations
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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, 2014, 2013 and 2012, the Company recognized pre-tax gains of $0, $2.6 million and $3.7 million, 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, 2014, 2013 and 2012 was $0,
$0.6 million, and $0.9 million, respectively.
9. Other Balance Sheet Details
Other current assets consist of the following (in thousands):
Prepaid expenses
Other receivables
Accrued liabilities consist of the following (in thousands):
Compensation
Legal
Amounts owed to former licensees
Royalties owed to third parties
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,
2014
2013
835 $
685
1,520 $
786
173
959
December 31,
2014
2013
1,708 $
459
925
705
1,069
4,866 $
1,929
697
651
676
1,384
5,337
December 31,
2014
2013
327
411
32
770 $
350
345
—
695
$
$
$
$
$
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
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(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, 2014, there were 1.1 million shares
available for future option grants or direct issuance under the Amended 2002 Plan.
Following is a summary of the Company’s stock option plan activity and related information:
Balance at December 31, 2013
Granted
Exercised
Forfeited
Cancelled
Balance at December 31, 2014
Exercisable at December 31, 2014
Options vested and expected to vest as of December 31, 2014
Weighted
Average
Exercise
Price
16.79
72.09
15.71
16.69
80.56
28.78
20.86
28.78
Shares
1,746,709 $
389,934
(281,515)
(49,967)
(4,464)
1,800,697
1,127,667
1,800,697 $
Weighted
Average
Remaining
Contractual
Term in
Years
Aggregate
Intrinsic
Value
(In thousands)
7.57 $
62,705
7.25
6.62
7.25 $
51,558
38,395
51,558
The weighted-average grant-date fair value of all stock options granted during 2014, 2013 and 2012 was $46.20, $14.28 and $9.13
per share, respectively. The total intrinsic value of all options exercised during 2014, 2013 and 2012 was approximately $15.3 million, $5.9
million and $0.5 million, respectively. As of December 31, 2014, there was $13.2 million of total unrecognized compensation cost related
to non-vested stock options. That cost is expected to be recognized over a weighted average period of 2.2 years.
Cash received from options exercised, net of fees paid, in 2014, 2013 and 2012 was $4.4 million, $3.0 million and $1.0 million,
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.
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Following is a further breakdown of the options outstanding as of December 31, 2014:
Range of exercise prices
$8.58 – $10.12
$10.72 – $13.53
$14.47 – $14.47
$16.14 – $21.92
$32.00 – $74.42
$8.58 – $74.42
Restricted Stock Activity
Options
outstanding
382,047
52,739
427,504
453,177
485,230
1,800,697
Weighted
average
remaining life
in years
Weighted average
exercise price
Options
exercisable
Weighted average
exercise price
6.06 $
7.30
7.11
6.97
8.58
7.25 $
9.98
12.45
14.47
20.79
65.42
28.78
365,174 $
49,437
273,781
260,375
178,900
1,127,667 $
9.98
12.47
14.47
20.05
56.34
20.86
The following is a summary of the Company’s restricted stock activity and related information:
Non-vested at December 31, 2013
Granted
Vested
Forfeited
Non-vested at December 31, 2014
Weighted-Average
Grant Date Fair
Value
Shares
115,386 $
45,571
(74,312)
(3,972)
82,673 $
21.93
70.20
25.21
18.42
45.76
Restricted stock awards generally vest over three years. As of December 31, 2014, unrecognized compensation cost related to non-
vested stock awards amounted to $1.9 million. That cost is expected to be recognized over a weighted average period of 1.3 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 3,774, 5,016 and 10,763
shares of common stock issued under the Amended ESPP in 2014, 2013 and 2012, respectively, resulting in an expense of $54,000,
$45,000 and $38,000, respectively. For shares purchased under the Company’s Amended ESPP, a weighted-average expected volatility of
40%, 36% and 34% was used for 2014, 2013 and 2012, respectively. The expected term for shares issued under the ESPP is 6 months. As
of December 31, 2014, 212,447 shares of common stock had been issued under the Amended ESPP to employees and 75,741 shares are
available for future issuance.
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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, 2014 and 2013, there are no preferred shares issued or outstanding.
Shareholder Rights Plan
In October 2006, the Company’s Board of Directors renewed the Company’s stockholder rights plan, which was originally adopted
and has been in place since September 2002, and which expired on September 13, 2006, through the adoption of a new 2006 Stockholder
Rights Plan (the “2006 Rights Plan”). The 2006 Rights Plan provides for a dividend distribution of one preferred share purchase right (a
“Right”) on each outstanding share of the Company’s common stock. Each Right entitles stockholders to buy 1/1000th of a share of Ligand
Series A Participating Preferred Stock at an exercise price of $100. The Rights will become exercisable if a person or group announces an
acquisition of 20% or more of the Company’s common stock, or announces commencement of a tender offer for 20% or more of the
common stock. In that event, the Rights permit stockholders, other than the acquiring person, to purchase the Company’s common stock
having a market value of twice 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 years ended December 31, 2014 and 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
In August 2014, the Company's Board of Directors authorized the Company to repurchase up to $200.0 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, 2014, the Company repurchased 1,253,425 common shares at a weighted
average price of $54.20 per share pursuant to the repurchase plan, or $68.0 million of common shares.
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.
Securities Litigation
On June 8, 2012, a federal securities class action and shareholder derivative lawsuit was filed in the Eastern District of Pennsylvania
against Genaera Corporation and its officers, directors, major shareholders and trustee ("Genaera Defendants") for allegedly breaching their
fiduciary duties to Genaera shareholders. The lawsuit also names the Company and its CEO as additional defendants for allegedly aiding
and abetting the Genaera Defendants' various breaches of fiduciary duties based on the Company's purchase of a licensing interest in a
development-stage pharmaceutical drug program from the Genaera Liquidating Trust in May 2010 and the Company's 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
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amended complaint with prejudice on August 12, 2013. The plaintiff appealed that dismissal on September 10, 2013, and the Third Circuit
reversed on October 17, 2014. The plaintiff has indicated that he intends to move to file a second amended complaint, which the Company
plans to oppose within the first quarter of 2015. The Company intends to continue to vigorously defend against the claims against the
Company and its CEO. Due to the complex nature of the legal and factual issues involved, however, the outcome of this matter is not
presently determinable.
Other Litigation
On June 19, 2014, a complaint was filed in California Superior Court seeking attorneys’ fees in connection with claims related to
executive compensation matters described in the Company’s June 6, 2013 supplemental proxy materials. On August 1, 2014 the Company
filed an answer denying all allegations in the complaint and asserting several affirmative defenses. The parties have executed a settlement
agreement to resolve the matter, pursuant to which the Company is currently awaiting the dismissal of the lawsuit. Because the parties have
reached agreement, the Company believes the litigation presents a remote likelihood of material loss.
12. Income Taxes
At December 31, 2014, the Company had federal net operating loss carryforwards set to expire through 2034 of $563.7 million and
$167.3 million of state net operating loss carryforwards. The Company also has $18.7 million of federal research and development credit
carryforwards, which expire through 2034. The Company has $14.0 million of California research and development credit carryforwards
that have no expiration date.
Sections 382 and 383 of the U.S. tax code impose 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 2014, the Company completed
a rollforward analysis through December 31, 2013. As a result of the rollforward analysis, it was determined that no additional ownership
changes occurred since those identified in the original analysis completed through December 31, 2013. 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, 2014. The components of the income tax expense (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,
2014
2013
2012
$
$
15 $
19
34
406
(30)
410 $
— $
33
33
3
16
19
404
(63)
374 $
(913)
(297)
(1,191)
Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2014 and 2013 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, 2014, 2013 and 2012. The change in valuation allowance increased $9.8 million in 2014, decreased $5.4 million in
2013 and increased $41.8 million in 2012.
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
Convertible debt
Identified intangibles
Identified indefinite lived intangibles
Total
December 31,
2014
2013
(in thousands)
193,747 $
28,288
13,237
1,579
579
771
11,686
(111)
111
—
730
—
—
5,780
256,397
(240,420)
15,977 $
(1,396) $
(1,436)
(13,146)
(3,048)
(3,049) $
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)
$
$
$
$
As of December 31, 2014 and 2013, the Company had not recognized as a deferred tax asset $8.1 million and $2.4 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 $0.7 million, $1.0 million and $0 for 2014, 2013 and 2012, 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
Section 162(m) limitation
Contingent liabilities
Stock-based compensation
Expired NOLs
Research and development credits
Change in uncertain tax positions
Rate change for changes in state law
Increase in deferred tax assets from completion of 382 analysis
Change in valuation allowance
Other
Years Ended December 31,
2014
(3,843) $
(697)
(9)
—
(53)
(490)
(1,748)
(89)
(88)
113
(7)
(119)
(43)
7,243
(580)
(410) $
2013
(3,131) $
(293)
(10)
—
(285)
(2,027)
556
—
4,581
(364)
(901)
(786)
3,509
(1,223)
(374) $
2012
1,317
196
(8)
—
(259)
695
581
(6,847)
(1,984)
830
(3,388)
53,257
(41,768)
(1,431)
1,191
$
$
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, 2014 and 2013 is as follows (in thousands):
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
Additions based on tax positions related to the current year
Reductions for tax positions of prior years
Balance at December 31, 2014
$
$
$
8,067
417
20
8,504
40
(20)
8,524
Included in the balance of unrecognized tax benefits at December 31, 2014 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, 2014
and December 31, 2013, there was an accrual related to uncertain tax positions of $ 32,000 and $31,000. 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 2011 tax year to present. The state income tax returns generally remain open for the 2010 tax years through present. Changes
to the valuation allowance allocated directly to equity were $1.1 million, $0, and $0 for the year ended December 31, 2014, 2013, and
2012, respectively.
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13. Summary of Unaudited Quarterly Financial Information
The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 2014 and 2013 (in
thousands).
2014
Total revenues
Total operating costs and expenses
Income tax (expense) benefit
Income from continuing operations
Discontinued operations
Net loss attributable to noncontrolling interests
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
2013
Total revenues
Total operating costs and expenses
Income tax expense
Income from continuing operations
Income (loss) from discontinued operations
Net income
Basic per share amounts:
Income from continuing operations
Discontinued operations
Net income
Diluted per share amounts:
Income from continuing operations
Discontinued operations
Net income
Weighted average shares—basic
Weighted average shares—diluted
March 31
June 30
September 30
December 31
Quarter ended
15,958 $
10,858
(53)
2,097
—
—
2,097
0.10
—
0.10 $
0.10
—
0.10
$
10,608 $
9,250
47
1,288
—
(304)
1,592
0.08
—
0.08 $
0.07
—
0.07
$
14,973 $
11,441
(124)
777
—
(503)
1,280
0.06
—
0.06 $
0.06
—
0.06
$
20,600,683
21,208,023
20,738,299
21,780,034
20,417,187
21,345,311
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
22,999
13,363
(280)
6,730
—
(325)
7,055
0.35
—
0.35
0.34
—
0.34
19,878,088
20,792,363
14,737
8,310
(138)
1,869
—
1,869
0.09
—
0.09
0.09
—
0.09
20,442,603
21,056,156
$
$
$
$
$
$
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, 2014, our disclosure controls and procedures were effective.
Changes in Internal Controls
There have been no changes in our internal control over financial reporting that occurred in our fourth fiscal quarter 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 the 2013 Internal Control-Integrated
Framework. Based on our evaluation under the 2013 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, 2014.
Grant Thornton LLP, an independent registered public accounting firm, has audited the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2014; 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,
2014, based on criteria established in the 2013 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,
2014, based on criteria established in the 2013 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, 2014, and our report dated February 23, 2015
expressed an unqualified opinion on those financial statements.
/s/ GRANT THORNTON LLP
Los Angeles, California
February 23, 2015
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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 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, 2015.
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,
2015.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 12 is hereby incorporated by reference to Ligand’s Definitive Proxy Statement to be filed with the SEC on or prior to April 30,
2015.
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,
2015.
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,
2015.
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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
42
43
44
45
46
47
48
50
(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
4.4
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).
Indenture dated August 18, 2014 between the Company and Wilmington Trust, National Association
(incorporated by reference to the Company's Current Report on Form 8-K filed August 18, 2014).
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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).
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).
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).
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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
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).
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).
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Exhibit
Number
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
Description
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).
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).
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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
Description
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).
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).
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Exhibit
Number
10.70†
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
Description
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).
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).
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Exhibit
Number
Description
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
10.103
10.104
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).
Amendment of “General” Contingent Value Rights Agreement dated May 20, 2014 among the Company,
Metabasis Therapeutics, Inc., David F. Hale and Computershare Inc. (incorporated by reference to the Company’s
Current Report on Form 8-K filed May 22, 2014).
Amendment of “TR Beta” Contingent Value Rights Agreement dated May 20, 2014 among the Company,
Metabasis Therapeutics, Inc., David F. Hale and Computershare, Inc. (incorporated by reference to the
Company’s Current Report on Form 8-K filed May 22, 2014).
Loan and Security Agreement dated May 21, 2014 between the Company and Viking Therapeutics, Inc.
(incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the Period ended June 30,
2014).
Master License Agreement dated May 21, 2014 among the Company, Metabasis Therapeutics, Inc. and Viking
Therapeutics, Inc. (incorporated by reference to the Company’s Quarterly Report on Form 10-Q
Research and License Agreement dated May 9, 2014 between the Company and Omthera Pharmaceuticals, Inc.
(incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the Period ended June 30,
2014).
License Agreement between dated June 23, 2014 between the Company and TG Therapeutics, Inc. (incorporated
by reference to the Company’s Quarterly Report on Form 10-Q for the Period ended June 30, 2014).
Letter Agreement, dated as of August 12, 2014, between Bank of America, N.A. and the Company regarding the
Base Convertible Note Hedge Transactions (incorporated by reference to the Company’s Current Report on Form
8-K filed on August 18, 2014).
Letter Agreement, dated as of August 12, 2014, between Bank of America, N.A. and the Company regarding the
Base Warrant Transactions (incorporated by reference to the Company’s Current Report on Form 8-K filed on
August 18, 2014).
Letter Agreement, dated as of August 12, 2014, between Deutsche Bank AG, London Branch and the Company
regarding the Base Convertible Note Hedge Transactions (incorporated by reference to the Company’s Current
Report on Form 8-K filed on August 18, 2014).
Letter Agreement, dated as of August 12, 2014, between Deutsche Bank AG, London Branch and the Company
regarding the Base Warrant Transactions (incorporated by reference to the Company’s Current Report on Form 8-
K filed on August 18, 2014).
86
Table of Contents
Exhibit
Number
10.105
10.106
10.107
10.108
10.109†
21.1
23.1
31.1
31.2
32.1
Description
Letter Agreement, dated as of August 14, 2014, between Bank of America, N.A. and the Company regarding the
Additional Convertible Note Hedge Transactions (incorporated by reference to the Company’s Current Report on
Form 8-K filed on August 18, 2014).
Letter Agreement, dated as of August 14, 2014, between Bank of America, N.A. and the Company regarding the
Additional Warrant Transactions (incorporated by reference to the Company’s Current Report on Form 8-K filed
on August 18, 2014).
Letter Agreement, dated as of August 14, 2014, between Deutsche Bank AG, London Branch and the Company
regarding the Additional Convertible Note Hedge Transactions (incorporated by reference to the Company’s
Current Report on Form 8-K filed on August 18, 2014).
Letter Agreement, dated as of August 14, 2014, between Deutsche Bank AG, London Branch and the Company
regarding the Additional Warrant Transactions (incorporated by reference to the Company’s Current Report on
Form 8-K filed on August 18, 2014).
First Amendment to Master License Agreement dated September 6, 2014 among the Company, Metabasis
Therapeutics, Inc. and Viking Therapeutics, Inc. (incorporated by reference to the Company’s Quarterly Report on
Form 10-Q for the Period ended September 30, 2014).
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
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.
Certifications by Principal Executive Officer and 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.
87
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,
Chief Executive Officer
Date: February 23, 2015
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/ NISHAN DE SILVA
Nishan de Silva
/s/ MELANIE J. HERMAN
Melanie J. Herman
/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
Chief Executive Officer and Director (Principal
February 23, 2015
Executive Officer)
Vice President, Finance and Strategy and Chief
Financial Officer (Principal Financial Officer)
February 23, 2015
Director of Accounting (Principal Accounting Officer)
February 23, 2015
Director
Director
Director
Director
Director
Director
Director
88
February 23, 2015
February 23, 2015
February 23, 2015
February 23, 2015
February 23, 2015
February 23, 2015
February 23, 2015
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our reports dated February 23, 2015, 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,
2014. 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. 333-191523) and on Forms S-8 (File No. 333-182547, File No. 333-160132 and File No. 333-
131029).
/s/ GRANT THORNTON LLP
Los Angeles, California
February 23, 2015
Exhibit 31.1
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
I, John L. Higgins, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Ligand Pharmaceuticals Incorporated;
2.
3.
4.
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;
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;
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)
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;
c)
d)
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 23, 2015
/s/ John L. Higgins
John L. Higgins
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
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
I, Nishan de Silva, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Ligand Pharmaceuticals Incorporated;
2.
3.
4.
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;
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;
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)
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;
c)
d)
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)
Date: February 23, 2015
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.
/s/ Nishan de Silva
Nishan de Silva
Vice President of Finance and Strategy and Chief Financial Officer
(Principal Financial Officer)
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
In connection with the Annual Report of Ligand Pharmaceuticals Incorporated (the “Company”) on Form 10-k for the year ended
December 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John L. Higgins, Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that to my knowledge:
(1)
The Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities
Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date:
February 23, 2015
/s/ John L. Higgins
John L. Higgins
Chief Executive Officer
(Principal Executive Officer)
The foregoing certification is being furnished solely to accompany the Report 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. A
signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company
and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
In connection with the Annual Report of Ligand Pharmaceuticals Incorporated (the “Company”) on Form 10-k for the year ended
December 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Nishan de Silva, Vice
President of Finance and Strategy and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)
The Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities
Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date:
February 23, 2015
/s/ Nishan de Silva
Nishan de Silva
Vice President of Finance and Strategy and Chief
Financial Officer
(Principal Financial Officer)
The foregoing certification is being furnished solely to accompany the Report 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. A signed original
of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to
the Securities and Exchange Commission or its staff upon request.