Table of Contents
Mark One
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________________________________________
FORM 10-K
_____________________________________________________________________________________________
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2015
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File No. 001-33093
LIGAND PHARMACEUTICALS INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
11119 North Torrey Pines Rd., Suite 200
La Jolla, CA
(Address of Principal Executive Offices)
77-0160744
(IRS Employer
Identification No.)
92037
(Zip Code)
Registrant’s telephone number, including area code: (858) 550-7500
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $.001 per share
Preferred Share Purchase Rights
Name of Each Exchange on Which Registered
The NASDAQ Global Market of The NASDAQ Stock Market LLC
The NASDAQ Global Market of The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934. Yes o No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting
company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large Accelerated Filer 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 $1.9 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, 2015. 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.
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As of February 17, 2016, the Registrant had 20,773,073 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant’s 2015 Annual Meeting of Stockholders to be filed with the Commission on or before April 29,
2016 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.
Table of Contents
Table of Contents
Business
Part I
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
Selected Consolidated Financial Data
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Consolidated Financial Statements and Supplementary Data
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Part IV
Item 15. Exhibits, Financial Statement Schedules
SIGNATURES
1
19
24
25
25
25
25
28
29
37
38
71
72
75
75
75
75
75
76
84
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Abbreviation
2019 Convertible Senior Notes
ABSSSI
ADHF
Amended ESPP
Amgen
AML
ANDA
AOCI
API
ASU
Azure
BACE
Baxter
BMS
Cardioxyl
CIT
CMC
Coherus Biosciences
CoM
Company
COSO
CRO
CURx
CVR
CyDex
Deciphera
DMF
EC
Eli Lilly
EPOR
Ethicor
EU
FASB
FDA
FSGS
GCSF
Hovione
IND
IPR&D
IRAK-4
ITP
IV
Ligand
LSA
GLOSSARY OF TERMS AND ABBREVIATIONS
Definition
$245.0 million aggregate principal amount of convertible senior unsecured notes due 2019
Acute bacterial skin and skin structure infections
Acute decompensated heart failure
Employee Stock Purchase Plan, as amended and restated
Amgen, Inc.
Acute myeloid leukemia
Abbreviated New Drug Application
Accumulated Other Comprehensive Income
Active pharmaceutical ingredient
Accounting Standards Update
Azure Biotech, Inc.
Beta-secretase
Baxter International, Inc.
Bristol Myers Squibb
Cardioxyl Pharmaceuticals, Inc.
Chemotherapy-induced thrombocytopenia
Chemistry, Manufacturing and Controls
Coherus Biosciences, Inc.
Composition of Matter
Ligand Pharmaceuticals Incorporated, including subsidiaries
Committee of Sponsoring Organizations of the Treadway Commission
Contract Research Organization
CURx Pharmaceuticals, Inc.
Contingent value right
CyDex Pharmaceuticals, Inc.
Deciphera Pharmaceuticals, LLC
Drug Master File
European Commission
Eli Lilly and Company
Erythropoietin receptor
Ethicor Pharmaceuticals, Ltd
European Union
Financial Accounting Standards Board
Food and Drug Administration
Focal segmental glomerulosclerosis
Granulocyte-colony stimulating factor
Hovione FarmCiencia
Investigational New Drug
In-Process Research and Development
Interleukin-1 Receptor Associated Kinase-4
Chronic immune (idiopathic) thrombocytopenic purpura
Intravenous
Ligand Pharmaceuticals Incorporated, including subsidiaries
Loan and Security Agreement
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LTP
Lundbeck
MDS
Melinta
Merck
Merrimack
Millenium
MLA
MRSA
NASH
NDA
NOLs
OMT
Omthera
Orange Book
Par
Pfizer
Retrophin
SAA
SAGE
SARM
Sedor
Selexis
Sermonix
Spectrum
SRSE
Takeda
TG Therapeutics
TPE
TR-β
VentiRx
VIE
Viking
Viking IPO
VSOE
X-ALD
Zydus Cadila
Liver-targeted prodrug
Lundbeck A/S
Myelodysplastic syndromes
Melinta Therapeutics, Inc.
Merck & Co., Inc.
Merrimack Pharmaceuticals, Inc.
Millenium Pharmaceuticals, Inc.
Master License Agreement
Methicillin-resistant Staphylococcus aureu
Non-alcoholic steatohepatitis
New Drug Application
Net Operating Losses
OMT, Inc. or Open Monoclonal Technology, Inc.
Omthera Pharmaceuticals, Inc.
Publication identifying drug products approved by the FDA based on safety and effectiveness
Par Pharmaceutical, Inc.
Pfizer Inc.
Retrophin Inc.
Severe Aplastic Anemia
Sage Therapeutics, Inc.
Selective Androgen Receptor Modulator
Sedor Pharmaceuticals, Inc., or RODES, Inc.
Selexis, SA
Sermonix Pharmaceuticals, LLC
Spectrum Pharmaceuticals, Inc.
Super-refractory status epilepticus
Takeda Pharmaceuticals Company Limited
TG Therapeutics, Inc.
Third-party evidence
Thyroid hormone receptor beta
VentiRx Pharmaceuticals Inc.
Variable interest entity
Viking Therapeutics
Viking's initial public offering
Vendor-specific objective evidence
X-linked adrenoleukodystrophy
Zydus Cadila Healthcare Ltd
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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.
This report contains 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,” “may,” “will,”
“plan,” “intends,” “estimates,” “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 royalties and milestones under license agreements,
Capitsol materials sales, and product development, as well as other statements that are not historical. You should be aware that the
occurrence of any of the events discussed under the caption “Risk Factors” could negatively affect our results of operations and financial
condition and the trading price of 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.
Trademarks
Our trademarks, trade names and service marks referenced herein include Ligand®, Captisol®, Captisol-enabled™, LTP
technology™, OmniAb®, OmniMouse®, OmniRat® and OmniFlic®. All other trademarks, trade names and service marks including
Conbriza®, Duavee®, Kyprolis®, Premarin®, Promacta®, Revolade®, SUREtechnology Platform™, and Viviant® are the property of their
respective owners. Use or display by us of other parties’ trademarks, trade dress or products is not intended to and does not imply a
relationship with, or endorsement or sponsorship of, us by the trademark or trade dress owners.
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Item 1.
Business
Overview
We are a biopharmaceutical company focused on developing and acquiring technologies that help pharmaceutical companies discover
and develop medicines. Over our more than 25 year history, we have employed research technologies such as nuclear receptor assays, high
throughput computer screening, formulation science, liver targeted pro-drug technologies and antibody discovery technologies to assist
companies in their work toward securing prescription drug approvals. We currently have partnerships and license agreements with over 85
pharmaceutical and biotechnology companies, and over 140 different programs under license with us are currently in various stages of
commercialization and development. We have contributed novel research and technologies for approved medicines that treat cancer,
osteoporosis, fungal infections and low blood platelets, among others. Our partners have programs currently in clinical development
targeting seizure, coma, cancer, diabetes, cardiovascular disease, muscle wasting, liver disease, and kidney disease, among others. We have
over 500 issued patents worldwide, and over 300 currently pending patent applications.
We have assembled our large portfolio of fully-funded programs either by licensing our own proprietary drug development programs,
licensing our platform technologies such as Captisol or OmniAb to partners for use with their proprietary programs, or acquiring existing
partnered programs from other companies. Fully-funded programs are those for which our partners pay all of the development and
commercialization costs. For our internal programs, we generally plan to advance drug candidates through early-stage drug development or
clinical proof-of-concept.
Our business model creates value for stockholders by providing a diversified portfolio of biotech and pharmaceutical product revenue
streams that are supported by 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 doing what we do best: drug discovery, early-stage drug development, product 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. We believe that focusing on discovery and early-stage drug development while benefiting from our
partners’ 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.
Our revenue consists of three primary elements: royalties from commercialized products, license and milestone payments and sale of
Captisol material. In addition to discovering and developing our own proprietary drugs, we selectively pursue acquisitions to bring in new
assets, pipelines, and technologies to aid in generating additional potential new revenue streams.
2015 Major Business Highlights for Ligand
Late-Stage Clinical Data
•
On December 5, 2015, Amgen announced The Lancet Oncology published results from the Phase 3 ENDEAVOR clinical trial
evaluating Kyprolis plus dexamethasone versus Velcade (bortezomib) plus dexamethasone showing that patients with relapsed
multiple myeloma treated with Kyprolis lived twice as long without their disease worsening.
• Melinta announced positive results from a Phase 3 study to evaluate delafloxacin against vancomycin + aztreonam for the
•
•
treatment of patients with ABSSSI.
SAGE announced initiation of a Phase 3 study designed to evaluate the safety of SAGE-547 in patients with SRSE. SAGE also
announced SAGE-547 demonstrated a 77% response rate in evaluable patients with SRSE in a Phase 1/2 clinical trial.
Spectrum published results from the pivotal clinical study for EVOMELA in the journal Biology of Blood and Marrow
Transplantation.
NDA Submissions, Approvals or Label Expansion for Products Ligand is Entitled to Royalties
•
FDA approved Promacta for the treatment of children six years and older with chronic immune thrombocytopenia who have had
an insufficient response to corticosteroids, immunoglobulins or splenectomy.
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•
•
•
•
The European Commission approved Revolade (Promacta) for the treatment of adults with acquired SAA who were either
refractory to prior immunosuppressive therapy or heavily pretreated and are unsuitable for hematopoietic stem cell transplantation.
On January 21, 2016, Amgen announced that the FDA approved Kyprolis in combination with dexamethasone for the treatment of
patients with relapsed or refractory multiple myeloma who have received one to three lines of therapy. The FDA also approved
Kyprolis as a single agent for the treatment of patients with relapsed or refractory multiple myeloma who have received one or
more lines of therapy, converting to full approval the initial accelerated approval Kyprolis received in July 2012 as a single agent.
On November 19, 2015, Amgen announced the EC approval of Kyprolis in combination with lenalidomide and dexamethasone for
the treatment of adult patients with multiple myeloma who have received at least one prior therapy.
Zydus Cadila announced the approval and launch of Exemptia, a biosimilar of adalimumab, in India. Ligand gained rights to
royalties on sales of Exemptia in the April 2013 Selexis royalty acquisition.
Licensing Deals Ligand Entered into or Expanded in 2015
• Worldwide agreement with Sanofi for SAR-125844, a Captisol-enabled
•
•
•
•
•
•
•
program.
Clinical-stage agreement with AiCuris GmbH & Co for an undisclosed anti-infective Captisol-enabled
program.
Expanded global license and supply agreements with SAGE to cover the use of Captisol in the development and
commercialization of SAGE-689.
License and supply agreement with Vireo Health for use of Captisol in the development and commercialization of cannabinoid-
based medications.
Global license and supply agreements with RODES, Inc. (now known as Sedor) for intramuscular (IM)/IV meloxicam, IM/IV
fosphenytoin, and intranasal budesonide.
Commercial supply agreement with Gilead Sciences to supply Captisol for use in developing a Captisol-enabled program directed
against Ebola virus disease.
Clinical use agreement with XTL Biopharmaceuticals to supply Captisol for use in in the formulation of its lead drug, hCDR1, for
the treatment of systemic lupus erythematosus.
License agreement with Sermonix Pharmaceuticals for the development and commercialization of oral lasofoxifene in the U.S. and
additional territories.
Acquisitions
•
•
Ligand acquired OMT in January 2016, conferring ownership of a large portfolio of licenses and the OmniAb platform, for $178
million in cash and stock.
Ligand acquired financial rights to more than 15 additional development stage programs from Selexis for $4 million in
cash.
Other Highlights
•
•
Ligand announced results from a Phase 1b trial of LGD-6972 that demonstrated favorable safety, tolerability and
pharmacokinetics in normal healthy volunteers and in subjects with type 2 diabetes mellitus. The trial results also demonstrated a
robust, dose-dependent reduction of fasting plasma glucose.
In connection with the Viking IPO, Ligand received an equity milestone of 3.4 million shares and invested an additional $9.0
million in the offering. Key programs licensed to Viking include VK5211 (SARM), VK2809/VK0214 (TRβ), VK0612 (FBPase),
EPOR and DGAT-1.
Technologies
A variety of technology platforms that enable elements of drug discovery or development form the basis of our portfolio of fully-
funded shots on goal. Platform technologies or individual drugs discovered by Ligand are related to a broad estate of intellectual property
that includes over 500 issued patents and over 300 pending patent applications.
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Captisol Technology
Captisol is Ligand’s patented, uniquely-modified cyclodextrin that is specifically designed to maximize safety, while improving
the solubility, stability and bioavailability of APIs. Captisol can enable faster and more efficient development paths for our partners, given
its known regulatory acceptance. Ligand maintains both Type IV and Type V DMFs with the FDA. These DMFs contain manufacturing
and safety information relating to Captisol that our licensees can reference when developing Captisol-enabled drugs. Ligand also filed a
DMF in Japan in 2015. Captisol-enabled drugs are marketed in more than 60 countries, and over 45 partners have Captisol-enabled drugs in
development.
OmniAb Technologies (OMT)
In January of 2016, Ligand acquired OMT and the OmniAb Technologies. OmniAb includes three complementary and globally-
branded platforms named OmniRat, OmniMouse and OmniFlic. The OmniAb platforms consist of genetically-engineered transgenic
rodents that produce a broadly diversified repertoire of antibodies and enable novel fully-human antibody drug discovery and development
by our OmniAb partners. Fully-human OmniAb antibodies provide advantages to our partners in that fully-human antibodies have reduced
immunogenicity, streamline development timelines and costs, and accelerate novel antibody discovery. Currently, more than 18 partners
are utilizing OmniAb animals in their drug discovery and development efforts.
LTP Technology Platform
The LTP Technology platform is a novel prodrug technology designed to selectively deliver a broad range of pharmaceutical
agents to the liver. A prodrug is a biologically inactive compound that can be metabolized in the body to produce an active drug. The LTP
Technology works by chemically modifying biologically active molecules into an inactive prodrug, which will be administered to a patient
and later activated by specific enzymes in the liver. The technology can be used to improve the safety and/or activity of existing drugs,
develop new agents to treat certain liver-relayed diseases, and treat diseases caused by imbalances of circulating molecules that are
controlled by the liver. The technology is especially applicable to metabolic and cardiovascular indications, among others. Currently 3
partners are utilizing the LTP Technology or related platform(s).
SUREtechnology Platform (owned by Selexis)
Ligand acquired economic rights to over 30 SUREtechnology Platform programs from Selexis in two separate transactions in 2013
and 2015, granting Ligand rights to downstream economics on novel biologics and biosimilars programs. The SUREtechnology Platform,
developed and owned by Selexis, is a novel technology that improves the way that cells are utilized in the development and manufacturing
of recombinant proteins and drugs. The technology is based on novel DNA-based elements that control the dynamic organization of
chromatin within mammalian cells and allow for higher and more stable expression of recombinant proteins. The technology creates
advantages over traditional approaches including accelerated development and manufacturing times, high yields and increased compound
stability.
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Partners and Licensees
The following table lists our disclosed partners and licensees. In addition to these 70 Companies, we have over 15 additional
undisclosed partners and licensees, mostly biotech companies.
Big Pharma
AstraZeneca
Baxter
BMS
Daiichi Sankyo
Eli Lilly
GSK
Janssen
Merck
Merck KGaA
Novartis
Otsuka
Pfizer
Sanofi
Takeda
Specialty Pharmaceutical
Cuda
Ethicor
Lundbeck
Sedor
Sermonix
Spectrum
Vireo Health
Upsher-Smith
Ticker
AZN
BAX
BMY
DSKY
LLY
GSK
JNJ
MRK
MRK
NVS
4768
PFZ
SNY
4502
Ticker
Private
Private
LUN
Private
Private
SPPI
Private
Private
Generics
Alvogen
Avion
BioCad
Coherus
Gedeon Richter
IBC Generium
Oncobiologics
Zydus Cadila
Biotech
AiCuris
Aldeyra
Amgen
ARMO
Azure
bluebird bio
Cantex
Celgene
Chiva
CURx
Deciphera
Emergent Biosolutions
Exelixis
Five Prime
ForSight Vision
F-Star
Ticker
Private
Private
Private
Private
Private
Private
Private
CADILAHC Melinta
Biotech, continued
Genmab
Gilead Sciences
Hanall
Harpoon
Lubris
Marinus
MEI
Ticker
Private
ALDX
AMGN
Private
Private
BLUE
Private
CELG
Private
Private
Private
EBS
EXC
FRPX
Private
Private
Meridian Labs
Millennium
Merrimack
Novogen
Opthea
Precision Biologics
Retrophin
ROAR
SAGE
Seattle Genetics
Stemcentrx
Symphogen
TG Therapeutics
Tizona
VentiRx
Viking
XTL Bio
WuXi
Ticker
Private
GILD
Private
Private
Private
MRNS
MEIP
Private
Private
Private
MACK
NVGN
Private
Private
RTRX
Private
SAGE
SGEN
Private
Private
TGTX
Private
Private
VKTX
XTLB
Private
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Portfolio
We have a large portfolio of current and future potential revenue-generating programs, over 140 of which are fully-funded by our partners.
In addition to the table below, we also have more than 40 undisclosed programs.
Commercialized
Novartis
Amgen
Pfizer
Pfizer
Baxter
Merck
Zydus Cadila
Zydus Cadila
Pfizer
Phase 2
Promacta Retrophin
Kyprolis Eli Lilly
Viviant/Conbriza VentiRx
Duavee CURx
Nexterone Millennium/Takeda
Noxafil-IV Viking
Exemptia Cantex
Vivitra Merrimack
Vfend Merrimack
Lubris
Cardioxyl / BMS
Carbella Exelixis/Daiichi
Voriconazole Precision Biologics
Regulatory Submission Stage
Lundbeck
Alvogen
Spectrum
Sermonix
Ethicor
Sedor
Evomela Viking
Lasofoxifene Viking
Fablyn Aldeyra
CE-Fosphenytoin Novartis
Phase 3
Melinta
Merck
Coherus
Oncobiologics
Oncobiologics
SAGE
Merrimack
Baxter
Biocad
Baxdela Sanofi
Verubecestat
CHS-0214 Phase 1
ONS-3010 Sedor
ONS-1045 MEI
SAGE-547 MEI
MM-302 Merrimack
Color Legend
Blood Disorders
Cardiovascular
Central Nervous System
Infectious Disease
Inflammation/Metabolic
Severe and Rare
Cancer
Other / Undisclosed
Gedeon Richter
Gedeon Richter
Gedeon Richter
Biocad
Biocad
Chiva
Chiva
Deciphera
VentiRx
Takeda
Otsuka
ROAR
Opthea
F-Star
IBC Generium
IBC Generium
Gilead
6
EPOR Agonist
DGAT-1 Inhibitor
CE-Meloxicam
ML-061
CXCR4
Lasofoxifene
SAGE-689
IRAK4
Ganaxalone IV
CE-Propofol
IV Lamotrigine
XL652
LTP-O3FA
Cantrixil
Rituximab
ONS4010
Undisclosed
CE-Cannabinoids
hCDR1
OmniAb
OmniAb
OmniAb
OmniAb
OmniAb
OmniAb
OmniAb
OmniAb
OmniAb
OmniAb
OmniAb
OmniAb
OmniAb
OmniAb
OmniAb
Pre-Clinical
Sparsentan Viking
LY2606368 Viking
VTX-2337 Sedor
IV Topiramate Meridian Labs
MLN-4924 Upsher Smith
VK0612 Azure
ODSH SAGE
MM-121 TG Therapeutics
MM-141 Marinus
Lubricin Cuda
CXL-1427 CURx
CS-3150 Exelixis (BMS)
NPC-1C Omthera/AZ
VK5211 Novogen
TR Beta Oncobiologics
NS-2 Oncobiologics
5921 AiCuris GmBH
BAX-69 Vireo Health
BCD-066 XTL Bio
SAR125844 Amgen
ARMO
Celgene
CE-Budesonide Emergent Bio
ME-344 Five Prime
ME-143 Genmab
MM-151 Hanall
RGB-03
Janssen
Bevacizumab Merck KGaA
Trastuzumab Pfizer
Interferon beta-1a Seattle Genetics
EPOR Agonist Stemcentrx
Pradefovir Symphogen
MB07133 Tizona
Altiratinib WuXi
VTX-1463
TAK-020
OPC-269
UC-961
OPT-302
F-102
GNR-008
Deplera
GS-5734
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Commercial Programs
We have multiple programs under license with other companies that have products that are already being commercialized. The
following programs represent components of our current portfolio of revenue-generating assets and potential for near-term growth in
royalty and other revenue. For information about the royalties owed to Ligand for these programs, see “Royalties” later in this business
section.
Promacta (Novartis)
We are party to a license agreement with Novartis related to Promacta, which 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 is currently approved for three indications: (1) the treatment of thrombocytopenia in patients with ITP who have had an
insufficient response to corticosteroids, immunoglobulins or splenectomy, (2) Hepatitis-C associated thrombocytopenia and (3) SAA.
Promacta was initially approved in 2008, and the product has been generating royalty revenue for Ligand since 2009. Promacta is known as
Revolade in the EU and other non-US markets.
Novartis 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 more than 100 countries, the Hepatitis C-related indication is
currently approved in more than 50 countries, and the SAA indication is approved in more than 30 counties.
Beyond the currently-approved indications, Novartis is also performing development activities to expand the brand into new
indications, including a number of oncology-related indications including MDS, AML and CIT. As of February 2016, there are 42 open
clinical trials related to Promacta (listed as recruiting or open, and not yet recruiting) on the clinicaltrials.gov website.
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. Novartis 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. There are no remaining milestones to be paid under the agreement.
Kyprolis (Amgen)
Ligand supplies Captisol to Amgen for use with carfilzomib, and granted an exclusive product-specific license under our patent rights
with respect to Captisol. Kyprolis is formulated with Ligand’s Captisol technology and is approved in the U.S. for the following:
•
•
In combination with dexamethasone or with lenalidomide plus dexamethasone for the treatment of patients with relapsed or
refractory multiple myeloma who have received one to three lines of therapy.
As a single agent for the treatment of patients with relapsed or refractory multiple myeloma who have received one or more lines
of therapy.
Kyprolis is also approved in Argentina, Israel, Kuwait, Mexico, Thailand, Columbia, Korea, Canada and the European Union.
Kyprolis was initially approved in the U.S. in 2012, and Amgen continues to invest significantly in Kyprolis to further expand its label and
geography.
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. 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 $2.3 million, revenue from clinical and
commercial Captisol material sales and royalties on annual net sales of Kyprolis.
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Duavee or Duavive (bazedoxifene/conjugated estrogens) and Viviant/Conbriza (Pfizer)
Pfizer is marketing bazedoxifene under the brand names Viviant and Conbriza in various territories for the treatment of
postmenopausal osteoporosis. 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 with
the active ingredient in Premarin to create Duavee, a combination therapy for the treatment of post-menopausal symptoms in women.
Duavee is approved in the United States and it is anticipated that it will be marketed under the brand name Duavive in the EU. Net
royalties on annual net sales of Viviant/Conbriza and Duavee/Duavive are each payable to us through the life of the relevant patents or ten
years from the first commercial sale, whichever is longer, on a country by country basis.
Nexterone (Baxter)
We have a license agreement with Baxter, related to Baxter's Nexterone, a Captisol-enabled formulation of amiodarone, which is
marketed in the United States and Canada. We supply Captisol to Baxter for use in accordance with the terms of the license agreement
under a separate supply agreement. Under the terms of the license agreement we will continue to earn milestone payments, royalties, and
revenue from Captisol material sales. We are entitled to earn royalties on sales of Nexterone through early 2033.
Noxafil-IV (Merck)
We have a supply agreement with Merck related to Merck’s NOXAFIL-IV, a Captisol-enabled formulation of posaconazole for IV
use. NOXAFIL-IV is marketed in the United States, EU and Canada. We receive our commercial compensation for this program through
the sale of Captisol, and we do not receive a royalty on this program.
Exemptia (Zydus Cadila)
Our partner, Zydus Cadila’s Exemptia (adalimumab biosimilar) is marketed in India for autoimmune diseases. Zydus Cadila uses
the Selexis technology platform for Exemptia. We are entitled to earn royalties on sales by Zydus Cadila through at least 2026.
Vivitra (Zydus Cadila)
Our partner, Zydus Cadila’s Vivitra (trastuzumab biosimilar) is marketed in India for breast cancer. Zydus Cadila uses the Selexis
technology platform for Vivitra. We are entitled to earn royalties on sales by Zydus Cadila through at least 2026.
Summary of Selected Development-stage Programs
We have multiple fully-funded partnered programs that are either in or nearing the regulatory approval process, or given the area of
research or value of the license terms are considered particularly noteworthy. We are eligible to receive milestone payments and royalties
off of these programs. For information about the royalties owed to Ligand for these programs, see “Royalties” later in this Business
Overview section. In the case of Captisol-related programs, we are also eligible to receive revenue for the sale of Captisol material supply.
Evomela (Spectrum)
We have a license agreement with Spectrum related to Evomela, which is a Captisol-enabled melphalan IV formulation. In
December 2014, Spectrum submitted a NDA to the FDA. In October 2015, Spectrum announced that it had received a complete response
letter from the FDA requiring additional information regarding its contract manufacturers. Spectrum has indicated that next FDA action
date is May 2016. Evomela is intended for use in the multiple myeloma stem cell transplant setting, and has been granted Orphan
Designation by the FDA. The Evomela 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 product. We are eligible to receive over $50 million in potential milestone payments under this
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agreement and royalties on future net sales of the Captisol-enabled melphalan product. 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.
Verubecestat (Merck)
Our partner, Merck is conducting two Phase 3 trials for Verubecestat (MK-8931), a BACE inhibitor for the treatment of Alzheimer’s
disease. Alzheimer’s disease is characterized by plaques of 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 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. Merck expects initial data from Phase 3 trials in mid-2017. We are entitled to a royalty on potential future
sales by Merck. Merck is responsible for all development costs related to the program.
SAGE-547 (SAGE)
Our partner, SAGE, is conducting a Phase 3 clinical trial for the development of Captisol-enabled therapeutics for a broad range of
debilitating central nervous system conditions. 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 SRSE. SAGE-547 was granted Fast Track designation, which is intended 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, and orphan drug designation, which is intended to facilitate drug development for rare diseases,
by the FDA for SRSE. Ligand has the potential to receive milestone payments, royalties and revenue from Captisol material sales for
Captisol-enabled programs. SAGE is responsible for all development costs related to the program.
Sparsentan (Retrophin)
Our partner Retrophin is currently conducting a Phase 2 clinical trial for the development of Sparsentan for orphan indications of
severe kidney diseases including FSGS. 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.
In January 2015, the FDA granted Sparsentan orphan drug designation.
Under our license agreement with Retrophin we are entitled to receive potential net milestones of over $75 million in the future and
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. Retrophin is responsible for all development costs related to the program.
Baxdela (Melinta)
Our partner Melinta is currently completing Phase 3 clinical trials for the development of Baxdela, a Captisol-enabled delafloxacin-
IV. 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 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 ABSSSI, including infections caused by MRSA. Under the
terms of the agreement, we may be entitled to up to $3.6 million of development and regulatory milestones, a royalty on potential future
sales by Melinta, and revenue from Captisol material sales. Melinta is responsible for all development costs related to the program.
Carbamazepine-IV (Lundbeck)
Lundbeck's Carbella is a Captisol-enabled carbamazepine-IV currently under review by the FDA. Carbella is for the management of
acute seizure disorder for hospital or emergency settings. Lundbeck is in the process of responding
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to a request of CMC data from the FDA’s Complete Response Letter received in late 2014. Under the terms of our agreement with
Lundbeck, we may be entitled to development and regulatory milestones, royalties on potential future sales by Lundbeck and revenue from
Captisol material sales. Lundbeck is responsible for all development costs related to the program.
SARM - VK5211 (Viking)
Our partner Viking is developing VK5211, a novel, potentially best-in-class SARM for patients recovering from hip-fracture.
SARMs retain the beneficial properties of androgens without undesired side-effects of steroids or other less selective androgens. Viking
initiated a Phase 2 trial in hip fracture in 2015. Under the terms of the agreement with Viking, we may be entitled to up to $270 million of
development, regulatory and commercial milestones and tiered royalties on potential future sales.
TR-β - VK2809 (Viking)
Viking is developing VK2809, a novel selective TR-β agonist with potential in multiple indications, including
hypercholesterolemia, dyslipidemia, NASH, and X-ALD. Viking intends to initiate a Phase 2 trial for VK2809 in hypercholesterolemia and
fatty liver disease in 2016. Under the terms of the agreement with Viking, we may be entitled to up to $375 million of development,
regulatory and commercial milestones and tiered royalties on potential future sales.
IRAK4 Inhibitor Program (TG Therapeutics)
Our partner, TG Therapeutics is developing our 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 are eligible to receive $207 million in potential
milestone payments. We are also eligible to receive royalties on future net sales of licensed products containing patented IRAK-4
inhibitors. TG Therapeutics will be responsible for all development costs related to the program.
Topiramate IV (CURx)
The FDA granted our partner, CURx, orphan-drug designation for a proprietary Captisol-enabled Topiramate Injection formulation
for the treatment of partial onset or primary generalized tonic-clonic seizures in hospitalized epilepsy patients who are unable to take oral
topiramate. Under the terms of our agreement, CURx may be required to pay us an aggregate of $19.6 million, net of amounts owed to
third parties upon the achievement of specified milestones. Additionally, we are owed net royalties on future sales. CURx will be
responsible for all development costs related to the program.
Lasofoxifene (Azure Biotech, Ethicor, and Sermonix)
Our partner Azure is developing a novel formulation of lasofoxifene. Under the terms of our agreement with Azure, we are entitled
to receive up to $2.6 million in potential development and regulatory milestones as well as royalties 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.
Our partner, Ethicor has an agreement with us 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 royalties 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.
Our partner, Sermonix has a license for the development of 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
royalties on future net sales.
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SAR-125844 (Sanofi)
Our partner, Sanofi licensed Captisol for use in the development of Captisol-enabled SAR-125844, a potent MET kinase inhibitor.
Under the terms of the agreement, we are eligible to receive potential milestone payments, royalties on future net sales and revenue from
Captisol material sales. Sanofi will be responsible for all development costs related to the program. SAR-125844 is a potent, selective and
reversible ATP-competitive MET tyrosine kinase inhibitor for IV administration. SAR-125844 recently completed a first-in-human, open-
label, non-randomized, single agent, Phase 1 study in advanced/refractory solid tumor patients.
CHS-0214 (Coherus Biosciences)
Our partner, Coherus Biosciences is conducting Phase 3 / BLA-enabling clinical trials for CHS-0214 (etanercept biosimilar) for
rheumatoid arthritis. Coherus uses the Selexis’ technology platform for CHS-0214. We are entitled to earn regulatory and sales milestones,
and royalties on potential future sales through at least 2026.
CXL-1427 (Cardioxyl /BMS)
Our partner, Cardioxyl (acquired by BMS in 2015) is conducting Phase 2 clinical trials for Captisol-enabled CXL-1427 (nitroxyl
donor prodrug) for ADHF. Under the terms of the agreement, we may be entitled to development and regulatory milestones, and royalties
on potential future sales by BMS and revenue from Captisol material sales.
LY2606368 (Eli Lilly)
Our partner, Eli Lilly is conducting Phase 2 clinical trials for Captisol-enabled LY2606368 (Chk 1/2 inhibitor) for solid tumors. Under
the terms of the agreement, we may be entitled to regulatory milestones, royalties on potential future sales by Eli Lilly and revenue from
Captisol material sales.
Altiratinib (Deciphera Pharmaceuticals)
Our partner, Deciphera Pharmaceuticals is currently conducting Phase 1 trials for the development of Altiratinib for the treatment of
solid tumors. Altiratinib is a Captisol-enabled MET/TIE2/VEGF2/TRK (A,B,C) kinase inhibitor. Under the terms of the clinical-stage
agreement, we may be entitled to development milestones from Deciphera and revenue from Captisol material sales.
MM-302 (Merrimack Pharmaceuticals)
Our partner, Merrimack Pharmaceuticals is currently conducting a Phase 2/3 trial for the treatment of advanced metastatic HER2-
positive breast cancer. MM-302 is an antibody-drug conjugated liposomal doxorubicin that was developed using the Selexis
SUREtechnology Platform. Under the terms of the agreement, we may be entitled to development and commercial milestones, royalties on
potential future sales.
Motolimod - VTX-2337 (VentiRx Pharmaceuticals/Celgene)
Our partner, VentiRx is currently conducting Phase 2 trials for the development of Motolimod for the treatment of ovarian cancer and
head and neck cancer. Motolimod is a Captisol-enabled Toll-like Receptor 8 agonist. Motolimod was granted Fast Track and Orphan
Designations by the FDA for the treatment of recurrent or persistent ovarian cancer. VentiRx has an exclusive worldwide collaboration with
Celgene to develop VTX-2337. Under the terms of the clinical-stage agreement, we have earned development milestones from VentiRx
and revenue from Captisol material sales.
Pevonedistat - MLN-4924 (Millennium/Takeda)
Our partner, Millennium/Takeda is currently conducting Phase 2 trials for the development of Pevonedistat for the treatment of
hematological malignancies and solid tumors. Pevonedistat is a Captisol-enabled Nedd8-Activating Enzyme Inhibitor. Under the terms of
the clinical-stage agreement, we may be entitled to development milestones from Millennium/Takeda and revenue from Captisol material
sales.
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Royalty Table
Promacta (Novartis)
Kyprolis (Amgen)
Duavee (Pfizer)
Viviant/Conbriza (Pfizer)
Ligand Licenses With Tiered Royalties, Tiers Disclosed*
< $100 million
4.7% < $250 million
1.5% <$400 million
0.5% <$400 million
$100 to $200 million
$200 to $400 million
$400 million to $1.5
billion
>$1.5 billion
6.6% $250 to $500 million
7.5% $500 to $750 million
$400 million to $1.0
billion
2.0%
2.5% >$1.0 billion
$400 million to $1.0
billion
1.5%
2.5% >$1.0 billion
9.4% >$750 million
9.3%
3.0%
CE-Topiramate (CURx)
CE-Budesonide (Sedor)
CE-Meloxicam (Sedor)
<$50 million
$50 to $100 million
>$100 million
6% < $25 million
6.75% >$25 million
7.5%
8% < $25 million
10% >$25 million
Ligand Licenses With Tiered Royalties, Tiers Undisclosed*
0.5%
1.5%
2.5%
8%
10%
Program
IRAK4
CE-Lamotrigine
Lasofoxifene
FBPase Inhibitor
SARM
TR Beta
Oral EPO
DGAT-1
LTP-O3FA
Program
EVOMELA
Baxdela
SAGE-547
Sparsentan (RE-021)
CE-Fosphenytoin
Pradefovir
MB07133
Fablyn
'5921
Topical lasofoxifene
MM-121
MM-302
MM-151
MM-141
ME-143
ME-344
NS-2
Licensee
TG Therapeutics
CURx
Sermonix
Viking
Viking
Viking
Viking
Viking
Omthera/AstraZeneca
Royalty Rate
6.0% - 9.5%
4.0% - 7.0%
6.0% - 10.0%
7.5% - 9.5%
7.25% - 9.25%
3.5% - 7.5%
4.5% - 8.5%
3.0% - 7.0%
Tiered mid-to-high single digit royalties
Ligand Licenses With Fixed Royalties*
Licensee
Spectrum Pharma
Melinta
SAGE
Retrophin
Sedor
Chiva Pharma
Chiva Pharma
Ethicor
Novartis
Azure Biotech
Merrimack Pharma
Merrimack Pharma
Merrimack Pharma
Merrimack Pharma
MEI Pharma
MEI Pharma
Aldeyra Therapeutics
Royalty Rate
20.0%
2.5%
3.0%
9.0%
11.0%
9.0%
6.0%
25.0%
14.5% (6.5% in year one)
5.0%
<1.0%
<1.0%
<1.0%
<1.0%
Low single digit royalty
Low single digit royalty
Low single digit royalty
*Royalty rates are shown net of sublicense payments. Royalty tier references for specific rates notated in the table are for up to and
including the dollar amount referenced. Higher tiers are only applicable for the dollar ranges specified in the table.
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Primary Internal Development Program - Glucagon Receptor Antagonist Program
We are currently developing a small molecule glucagon receptor antagonist for the treatment of Type 2 diabetes mellitus. Compounds
that block the action of glucagon may reduce the hyperglycemia that is characteristic of the 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. We conducted a Phase 1b trial showing robust effects throughout multiple ascending dosing, and plan to
initiate a Phase 2 clinical trial in 2016.
The following table represents other internal programs eligible for further development funding, either through Ligand or a partner:
Program
GCSF Receptor Agonist
Captisol-enabled Clopidogrel
Captisol-enabled Busulfan
Captisol-enabled Acetaminophen Injection
Captisol-enabled Sertraline, Oral Concentrate
Captisol-enabled Cetirizine Injection
Captisol-enabled Silymarin for Topical formulation
Aplindore
Histamine H3 Receptor Antagonist
Liver Specific Glucokinase Activator
CCR1 Antagonist
CRTH2 Antagonist
FLT3 Kinase Inhibitors
Manufacturing
Development Stage
Preclinical
Phase 3
Preclinical
Preclinical
Phase 1
Preclinical
Preclinical
Phase 2
Preclinical
Preclinical
Preclinical
Preclinical
Preclinical
Indication
Blood disorders
Anti-coagulant
Oncology
Pain
Depression
Allergy
Sun damage
Restless Leg/Parkinson's
Cognitive Disorders
Diabetes
Oncology
Inflammation
Oncology
We currently have no manufacturing facilities and rely on a third party, Hovione, for Captisol production. Hovione is a global
supplier with over 50 years of experience in the development and manufacture of APIs and Drug Product Intermediates. Hovione operates
FDA-inspected sites in the United States, Macau, Ireland and Portugal. Manufacturing operations for Captisol are currently performed in
both of Hovione's Portugal and Ireland sites with distribution operations also performed from Hovione's 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.
In the event of a Captisol supply interruption, we are permitted to designate and, with Hovione’s assistance, qualify one or more
alternate suppliers. If the supply interruption continues beyond a designated period, we may terminate the agreement. In addition, if
Hovione cannot supply our requirements of Captisol due to an uncured force majeure event or if the unit price of Captisol exceeds a set
figure, we may obtain Captisol from a third party.
The current term of the agreement with Hovione is through 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.”
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Competition
Some of the drugs we and our licensees are developing may compete with existing therapies or other drugs in development by other
companies. 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.
Existing or potential competitors to our licensee’s products, particularly large pharmaceutical companies, may have greater financial,
technical and human resources than our licensees. Accordingly, these competitors 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 Captisol business may face competition from other suppliers of similar cyclodextrin excipients or other technologies that are
aimed to increase solubility or stability of APIs. Our OmniAb antibody technology faces competition from suppliers of other transgenic
animal systems that are also available for antibody drug discovery.
Our competitive position also depends upon our ability to obtain patent protection or otherwise develop proprietary products or
processes. For a discussion of the risks associated with competition, see below under “Item 1A. Risk Factors.”
Government Regulation
The research and development, manufacturing and marketing of pharmaceutical products are subject to regulation by numerous
governmental authorities in the United States and other countries. We and our partners, depending on specific activities performed, are
subject to these regulations. In the United States, pharmaceuticals are subject to regulation by both federal and various state authorities,
including the FDA. The Federal Food, Drug and Cosmetic Act and the Public Health Service Act govern the testing, manufacture, safety,
efficacy, labeling, storage, record keeping, approval, advertising and promotion of pharmaceutical products and there are often comparable
regulations that apply at the state level. There are similar regulations in other countries as well. For both currently marketed and products
in development, failure to comply with applicable regulatory requirements can, among other things, result in delays, the suspension of
regulatory approvals, as well as possible civil and criminal sanctions. In addition, changes in existing regulations could have a material
adverse effect on us or our partners. 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 Novartis. The United States patent listed in the FDA’s Orange Book relating to Promacta
with the latest expiration date is not expected to expire until 2027. Six months of additional exclusivity has been granted due to pediatric
studies conducted by GSK. 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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Type of Protection
U.S. Patent No.
U.S. Expiration Date
Jurisdiction
Patent Number
Expiration Date‡
United States
Corresponding Foreign
Promacta
CoM / Use
6,280,959
10/30/2018
CoM / Use
7,160,870
11/20/2022
Use
7,332,481
5/24/2021
CoM / Use
7,452,874
5/24/2021
CoM / Use
7,473,686
5/24/2021
CoM / Use
Use
Use
7,547,719
7,790,704
7,795,293
7/13/2025
5/24/2021
5/21/2023
CoM / Use
8,052,993
8/1/2027
CoM / Use
8,052,994
8/1/2027
CoM / Use
8,052,995
8/1/2027
CoM / Use
8,062,665
8/1/2027
CoM / Use
8,071,129
8/1/2027
CoM / Use
8,828,430
8/1/2027
N/A
EU
EU
Japan
EU
Japan
EU
Japan
EU
EU
Japan
EU
Japan
N/A
N/A
EU
Japan
Japan
EU
Japan
Japan
EU
Japan
Japan
EU
Japan
Japan
EU
Japan
Japan
EU
Japan
Japan
1,864,981
1,294,378
3,813,875
1,889,838
4,546,919
1,889,838
4,546,919
1,864,981
1,294,378
3,813,875
1,534,390
4,612,414
2,152,237
5,419,866
5,735,078
2,152,237
5,419,866
5,735,078
2,152,237
5,419,866
5,735,078
2,152,237
5,419,866
5,735,078
2,152,237
5,419,866
5,735,078
2,152,237
5,419,866
5,735,078
5/24/21
5/24/21
5/24/21
5/24/21
5/24/21
5/24/21
5/24/21
5/24/21
5/24/21
5/24/21
5/21/23
5/21/23
8/1/27
8/1/27
8/1/27
8/1/27
8/1/27
8/1/27
8/1/27
8/1/27
8/1/27
8/1/27
8/1/27
8/1/27
8/1/27
8/1/27
8/1/27
8/1/27
8/1/27
8/1/27
‡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.
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
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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.
United States
Corresponding Foreign
Kyprolis
Type of Protection
U.S. Patent No.
U.S. Expiration Date
CoM
CoM
Use
CoM
Use
CoM
CoM / Use
Use
CoM / Use
7,232,818
4/14/2025
7,417,042
6/7/2026
7,491,704
4/14/2025
7,737,112
12/7/2027
8,129,346
12/25/2026
8,207,125
8,207,126
8,207,127
8,207,297
4/14/2025
4/14/2025
4/14/2025
4/14/2025
Jurisdiction
EU
Japan
EU
Japan
EU
Japan
EU
EU
EU
Japan
Japan
EU
Japan
EU
Japan
N/A
N/A
N/A
Patent Number
1,745,064
5,394,423
1,781,688
4,743,720
1,745,064
5,394,423
1,819,353
2,260,835
2,261,236
4,990,155
5,108,509
1,745,064
5,394,423
1,781,688
4,743,720
Expiration Date‡
4/14/25
4/14/25
8/8/25
8/8/25
4/14/25
4/14/25
12/7/25
12/7/25
12/7/25
12/7/25
5/9/25
4/14/25
4/14/25
8/8/25
8/8/25
‡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.
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.
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Type of Protection
U.S. Patent No.
U.S. Expiration Date
United States
CoM
CoM
Use
CoM
CoM
8,114,438
3/19/28
7,629,331
8,049,003
10/26/25
12/19/26
8,846,901
10/26/25
8,829,182
10/26/25
CoM / Use
7,635,773
3/13/29
CoM
CoM
8,410,077
3/13/29
9,200,088
3/13/29
Captisol
Jurisdiction
EU
Japan
EU
EU
EU
EU
EU
EU
EU
EU
EU
EU
EU
Japan
Japan
EU
Japan
Japan
EU
Japan
Japan
Corresponding Foreign
Patent Number
2,708,225
2,015,163,634
1,945,228
2,335,707
2,581,078
2,583,668
1,945,228
2,335,707
2,581,078
1,945,228
2,335,707
2,581,078
2,268,269
4,923,144
2,015,110,671
2,268,269
4,923,144
2,015,110,671
2,268,269
4,923,144
2,015,110,671
Expiration Date‡
pending
pending
10/26/25
10/26/25
10/26/25
10/26/25
10/26/25
10/26/25
10/26/25
10/26/25
10/26/25
10/26/25
pending
4/28/29
pending
pending
4/28/29
pending
pending
4/28/29
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.”
OmniAb
OMT has received patent protection in 27 countries, including the United States, multiple countries throughout Europe, Japan and
China (see selected cases listed in the table below) and has 19 patent applications pending worldwide. The patents and applications owned
by OMT are expected to expire between 2028 and 2033 and partners are able to use the OMT patented technology to generate novel
antibodies, which may be entitled to additional patent protection.
OmniAb
Type of Protection
U.S. Patent No.
U.S. Expiration Date
United States
CoM
Use
8,703,485
8,907,157
10/10/31
5/30/28
Corresponding Foreign
Patent Number
2,152,880
2,336,329
5,823,690
Expiration Date‡
5/30/28
5/30/28
5/30/28
Jurisdiction
EU
EU
Japan
N/A
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‡ 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.
LTP Technology
Patent applications related to our LTP Technology include three families owned by Ligand and one owned by Omthera. Each of
these patent families include claims directed to composition of matter and use. Patents resulting from these applications, if granted, would
have a latest expiration date in 2036.
LGD-6972 (Glucagon Receptor Antagonist)
Patents and pending patent applications covering LGD-6972 are owned by Ligand. Patents covering LGD-6972, if issued, with the
latest expiration date would not be set to expire until 2035 (see, e.g., WO 2015/191900 (contains composition of matter and use claims;
filed June 11, 2015)). The type of patent protection (e.g., composition of matter or use) and the expiration dates for several issued patents
covering LGD-6972 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.
United States
LGD-6972
Type of Protection
U.S. Patent No.
U.S. Expiration Date
CoM
8,710,236
2/11/28
CoM
9,169,201
2/11/28
CoM / Use
8,907,103
1/2/31
Jurisdiction
EU
EU
Japan
Japan
EU
EU
Japan
Japan
EU
EU
Japan
Japan
Corresponding Foreign
Patent Number
2,129,654
2,786,985
5,322,951
2015-196171
2,129,654
2,786,985
5,322,951
2015-196171
2,326,618
2,799,428
5,684,126
2015-129133
Expiration Date‡
2/11/28
pending
2/11/28
pending
2/11/28
pending
2/11/28
pending
8/13/29
pending
8/13/29
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.
Human Resources
As of February 1, 2016, we had 21 full-time employees, of whom seven are involved directly in scientific research and development
activities.
Investor Information
Financial and other information about us is available on our website at www.ligand.com. We make available on our website
copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the U.S. Securities and Exchange Commission (SEC). In addition, we have previously filed
registration statements and other documents with the SEC. Any document we file may be inspected, at the SEC’s public reference room at
100 F Street NE, Washington, DC 20549, or at the SEC’s internet address at www.sec.gov. These website addresses are not intended to
function as hyperlinks, and
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the information contained in our website and in the SEC’s website is not intended to be a part of this filing. Information related to the
operation of the SEC’s public reference room may be obtained by calling the SEC at 800-SEC-0330.
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.
Future revenue based on Promacta and Kyprolis, as well as sales of our other products, may be lower than expected.
Novartis 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. In addition, we receive revenues based on sales of Duavee, Conbriza, Noxafil IV and Nexterone. Any
setback that may occur with respect to any of our products, and in particular Promacta or Kyprolis, could significantly impair our operating
results and/or reduce the market price of our stock. Setbacks for the 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 products, as well as higher than expected total rebates,
returns, discounts, or unfavorable exchange rates. These products also are or may become subject to generic competition. Any such setback
could reduce our revenue.
Future revenue from sales of Captisol material to our collaborative partners may be lower than expected.
Revenues from sales of Captisol material to our collaborative partners represent a significant portion of our current revenues. 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 the 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 maintain inventory of Captisol, which has a five
year shelf life, at three geographically dispersed storage locations in the United States and Europe. If we were to encounter problems
maintaining our inventory, such as natural disasters, at one or more of these locations, it could lead to supply interruptions.
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. Furthermore, we maintain significant
accounts receivable balances with certain customers purchasing Captisol materials, which may result in the concentration of credit risk. We
generally do not require any collateral from our customers to secure payment of these accounts receivable. If any of our major customers
were to default in the payment of their obligations to us, our business, financial condition, operating results and cash flows could be
adversely affected.
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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 and foreign equivalents, are not expected to expire until 2029 and our morphology patents 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.
Third party intellectual property may prevent us or our partners from developing our potential products; our and our partners’
intellectual property may not prevent competition; and any intellectual property issues may be expensive and time consuming to resolve.
The manufacture, use or sale of our potential products or our collaborative partners' products or potential products may infringe the
patent rights of others. 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.
Generally, our success will depend on our ability and the ability of us and our partners to obtain and maintain patents and other
intellectual property rights for our and their potential products both in the United States and in foreign countries. 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. Even if we or our partners do obtain patents, such patents may not adequately protect the
technology we own or have licensed. For example, in January 2016, we received a paragraph IV certification from a subsidiary of Par
advising us that it had filed an ANDA with the FDA seeking approval to market a generic version of Merck’s NOXAFIL-IV product. The
paragraph IV certification alleges that Merck’s U.S. Patent No. 9,023,790 related to NOXAFIL-IV and our U.S. Patent No. 8,410,077
related to Captisol, which we refer to as the ‘077 Patent, are invalid and/or will not be infringed by Par’s manufacture, use or sale of the
product for which the ANDA was submitted. If Par succeeds in receiving the ANDA, we could lose the revenues related to NOXAFIL-IV
or the ability to enter into new licenses using our ‘077 Patent. For additional information, see “Item 3. Legal Proceedings.”
Any conflicts with the patent rights of others could significantly reduce the coverage of our patents or limit our ability to obtain
meaningful patent protection. 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. In
addition, any determination that our patent rights are invalid may result in early termination of our agreements with our collaborative
partners and could adversely affect our ability to enter into new collaborations. 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.
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.
The occurrence of any of the foregoing problems could be time-consuming and expensive and could adversely affect our financial
position, liquidity and results of operations.
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 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. 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
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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 and 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.
Our product candidates, and the product candidates of our partners, face significant development and regulatory hurdles prior to
partnering and/or marketing which could delay or prevent licensing, sales-based royalties 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 speed at which we and our partners complete our scientific studies and clinical trials depends on many factors, including, but 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 or our partners’ 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.
Our drug development programs may require substantial additional capital to complete successfully, 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 OmniAb antibody platform faces specific risks, including the fact that no drug using antibodies from the platform has been tested
in clinical trials.
None of our collaboration partners using our OmniAb antibody platform have tested drugs based on the platform in clinical trials
and, therefore, none of our OmniAb collaboration partners’ drugs have received FDA approval. If one of our OmniAb collaboration
partners’ drug candidates fails during preclinical studies or clinical trials, our other OmniAb collaboration partners may decide to abandon
drugs using antibodies generated from the OmniAb platform, whether or not attributable to the platform. All of our OmniAb collaboration
partners may terminate their programs at any time without penalty. In addition, our OmniRat and OmniFlic platforms, which we consider
the most promising, are covered by two patents within the U.S. and two patents in the European Union and are subject to the same risks as
our patent portfolio discussed above, including the risk that our patents may infringe on third party patent rights or that our patents may be
invalidated. Further, we face significant competition from other companies selling human antibody-generating rodents, especially mice
which compete with our OmniMouse platform, including the VelocImmune mouse, the AlivaMab mouse and the Trianni mouse. Many of
our competitors have greater financial, technical and human resources than we do and may be better equipped to develop, manufacture and
market competing antibody platforms.
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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.
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.
Any difficulties from strategic acquisitions could adversely affect our stock price, operating results and results of operations.
We may acquire companies, businesses and products that complement or augment our existing business. We may not be able to
integrate any acquired business successfully or operate any acquired business profitably. Integrating any newly acquired business could be
expensive and time-consuming. Integration efforts often take a significant amount of time, place a significant strain on managerial,
operational and financial resources and could prove to be more difficult or expensive than we predict. The diversion of our management's
attention and any delay or difficulties encountered in connection with any future acquisitions we may consummate could result in the
disruption of our on-going business or inconsistencies in standards and controls that could negatively affect our ability to maintain third-
party relationships. Moreover, we may need to raise additional funds through public or private debt or equity financing, or issue additional
shares, to acquire any businesses or products, which may result in dilution for stockholders or the incurrence of indebtedness.
As part of our efforts to acquire companies, business or product candidates or to enter into other significant transactions, we conduct
business, legal and financial due diligence with the goal of identifying and evaluating material risks involved in the transaction. Despite our
efforts, we ultimately may be unsuccessful in ascertaining or evaluating all such risks and, as a result, might not realize the intended
advantages of the transaction. If we fail to realize the expected benefits from acquisitions we may consummate in the future or have
consummated in the past, whether as a result of unidentified risks, integration difficulties, regulatory setbacks, litigation with current or
former employees and other events, our business, results of operations and financial condition could be adversely affected. If we acquire
product candidates, we will also need to make certain assumptions about, among other things, development costs, the likelihood of
receiving regulatory approval and the 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 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 be subject to prosecution for violation of federal law due to our agreement with Vireo Health, which is developing drugs using
cannabis.
In November 2015, we entered into a license agreement and supply agreement with Vireo Health granting Vireo Health an exclusive
right in certain states within the United States and certain global territories to use Captisol in Vireo’s development and commercialization
of pharmaceutical-grade cannabinoid-based products. However, state laws legalizing medical cannabis use are in conflict with the Federal
Controlled Substances Act, which classifies cannabis as a schedule-I controlled substance and makes cannabis use and possession illegal on
a national level. The United States Supreme Court has ruled that it is the Federal government that has the right to regulate and criminalize
cannabis, even for medical purposes, and thus Federal law criminalizing the use of cannabis preempts state laws that legalize its use. The
Obama administration has effectively stated that it is not an efficient use of resources to direct Federal law enforcement agencies to
prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical and recreational cannabis. Yet, there
is no guarantee that the current policy and practice will not change regarding the low-priority enforcement of Federal laws in states where
cannabis has been legalized. Any such change in the Federal government’s enforcement of Federal laws could result in Ligand, as the
supplier of Captisol, to be charged with violations of Federal laws which may result in significant legal expenses and substantial penalties
and fines.
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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
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.
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.
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 sold the 2019 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
23
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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 the occurrence of
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.
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 CyDex, Metabasis, Pharmacopeia, and Neurogen 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.
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.
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.
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.
Item 1B.
Unresolved Staff Comments
None.
24
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Item 2.
Properties
We currently lease 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. Approximately 6,500 square feet of laboratory space is currently subleased.
In 2015, we entered into a lease termination agreement to accelerate the expiration date of the lease to April 30, 2016. In February 2016, we
received a notice from our current landlord regarding the termination date of our lease and are currently in discussions to resolve any
disputes. The Company requires smaller facility space and accordingly entered into a new lease agreement consisting of approximately
4,000 square feet of office space in San Diego. The new lease has an initial term of approximately 7 years and is expected to commence in
May 2016.
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.
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.
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
In 2012, a federal securities class action and shareholder derivative lawsuit was filed in Pennsylvania alleging that the Company and
its CEO assisted various breaches of fiduciary duties based on our purchase of a licensing interest in a development-stage pharmaceutical
program from the Genaera Liquidating Trust in 2010 and our subsequent sale of half of our interest in the transaction to Biotechnology
Value Fund, Inc. Plaintiff filed a second amended complaint in February 2015, which we moved to dismiss in March 2015. The district
court granted the motion to dismiss on November 11, 2015. The plaintiff has appealed that ruling to the Third Circuit. The Company
intends to continue to vigorously defend against the claims against the Company and its CEO. The outcome of the matter is not presently
determinable.
Paragraph IV Certification by Par Pharmaceuticals
On January 7, 2016, we received a paragraph IV certification from Par Sterile Products, LLC, a subsidiary of Par Pharmaceuticals,
Inc., or Par, advising us that it had filed an ANDA with the FDA seeking approval to market a generic version of Merck’s NOXAFIL-IV
product. The paragraph IV certification states it is Par’s position that Merck’s U.S. Patent No. 9,023,790 related to NOXAFIL-IV and our
U.S. Patent No. 8,410,077 related to Captisol are invalid and/or will not be infringed by Par’s manufacture, use or sale of the product for
which the ANDA was submitted. On February 19, 2016, Merck filed an action against Par in the United States District Court for the
District of New Jersey, asserting that Par’s manufacture, use or sale of the product for which the ANDA was submitted would infringe
Merck’s U.S. Patent No. 9,023,790. The case against Par is captioned Merck Sharpe & Dohme Corp. v. Par Sterile Products, LLC, Par
Pharmaceuticals, Inc., Par Pharmaceutical Companies, Inc., and Par Pharmaceutical Holdings, Inc., No.16-cv-00948.
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.”
25
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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, 2015:
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Year Ended December 31, 2014:
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
$
$
Price Range
Low
High
51.54 $
75.67
82.10
84.46
50.73 $
55.90
46.32
41.99
77.11
100.90
111.25
111.85
80.42
71.44
65.66
58.48
As of February 17, 2016, the closing price of our common stock on the NASDAQ Global Market was $90.36
Holders
As of February 17, 2016, there were approximately 604 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 year ended December 31,
2015 under the stock repurchase program approved by our board of directors in September 2015, 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)
September 1-September 30, 2015
Total
6,120 $
6,120
79.92
6,120 $
199,511
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Performance Graph
The graph below shows the five-year cumulative total stockholder return assuming the investment of $100 and is based on the returns
of the component companies weighted monthly according to their market capitalizations. The graph compares total stockholder returns of
our common stock, of all companies traded on the NASDAQ Stock market, as represented by the NASDAQ Composite® Index, and of the
NASDAQ Biotechnology Stock Index, as prepared by The NASDAQ Stock Market Inc. The NASDAQ Biotechnology Stock Index tracks
approximately 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
12/31/2010
12/31/2011
12/31/2012
12/31/2013
12/31/2014
100%
33 %
75%
154%
12/31/2015
104%
1%
100%
100%
(1)%
12 %
17%
33%
40%
66%
15%
34%
7%
12%
27
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, 2015, 2014, 2013, 2012, and 2011 and the balance sheet data as of December 31, 2015, 2014, 2013,
2012, and 2011 are derived from our consolidated financial statements.
Consolidated Statements of Operations Data:
Royalties
Material sales
License fees, milestones, 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 IPR&D
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
$
$
$
$
$
2015
2014
2013
2012
2011
Year Ended December 31,
38,194 $
27,662
6,058
71,914
5,807
13,380
24,378
1,020
—
44,585
(in thousands)
29,994 $
28,488
6,056
64,538
9,136
12,122
22,570
1,084
—
44,912
23,584 $
19,072
6,317
48,973
5,732
9,274
17,984
560
480
34,030
14,073 $
9,432
7,883
31,388
3,601
10,790
15,782
1,022
—
31,195
27,329
19,626
14,943
193
254,925
(2,380)
257,305
—
257,305
13.00
$
—
13.00 $
19,790
$
12.12
—
12.12 $
10,892
(1,132)
12,024
—
12,024
8,832
—
8,832
2,588
11,420
(2,674)
—
(2,674)
2,147
(527)
0.59 $
—
0.59 $
0.43 $
0.13
0.56 $
(0.14) $
0.11
(0.03) $
20,419
20,312
19,853
0.56 $
—
0.56 $
0.43 $
0.12
0.55 $
(0.14) $
0.11
(0.03) $
9,213
12,123
8,701
30,037
4,909
10,291
14,583
552
2,282
32,617
1,702
(878)
9,712
—
9,712
3
9,715
0.49
—
0.49
19,656
0.49
—
0.49
21,228
21,433
20,745
19,853
19,713
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2015
2014
2013
2012
2011
(in thousands)
December 31,
$
229,947 $
194,736
533,929
8
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
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
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)
(1)
(402,010)
304,391
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.”
229,538
—
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
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Total revenues for 2015 were $71.9 million compared to $64.5 million in 2014 and $49.0 million in 2013. Our income from
continuing operations for 2015 was $257.3 million, or $12.12 per diluted share, compared to income from continuing operations of $12.0
million in 2014, or $0.56 per diluted share, and net income from continuing operations of $8.8 million, or $0.43 per diluted share, in 2013.
Royalty revenue
Royalty revenues were $38.2 million in 2015, compared to $30.0 million in 2014 and $23.6 million in 2013. The increases in royalty
revenue of $8.2 million and $6.4 million for the years ended December 31, 2015 and 2014, respectively are primarily due to increases in
Promacta and Kyprolis royalties.
The following table represents royalty revenue by program (in thousands):
Partner A
Partner B
Partner C
Other
Total
Material sales
Year ended December 31,
2015
2014
2013
29,295 $
7,317
390
1,192
38,194 $
23,300 $
4,558
1,244
892
29,994 $
16,024
3,495
3,309
756
23,584
$
$
We recorded material sales of Captisol of $27.7 million in 2015 compared to $28.5 million in 2014 and $19.1 million in 2013. The
decrease in material sales of $0.8 million for the year ended December 31, 2015 compared to 2014 is due to timing of customer purchases
for Captisol for both clinical and commercial uses. The increase in material sales of $9.4 million for the year ended December 31, 2014
compared to 2013 is due to timing of customer purchases of Captisol as well as an increase in customer purchases for commercial use.
The following table represents material sales by clinical and commercial use (in thousands):
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Clinical material sales
Commercial material sales
Total
License fees, milestones and other revenues
Year ended December 31,
2015
2014
2013
$
$
10,049 $
17,613
27,662 $
13,798 $
14,690
28,488 $
9,685
9,387
19,072
We recorded license fees, milestones and other revenues of $6.1 million in 2015 compared to $6.1 million in 2014 and $6.3 million
in 2013. The decrease in license fees, milestones and other revenues of $0.2 million for the year ended December 31, 2014, compared to
2013 is primarily due to achievement and timing of milestones as well as licensing payments.
Cost of material sales
Cost of material sales were $5.8 million in 2015 compared to $9.1 million in 2014 and $5.7 million in 2013. The decrease of $3.3
million for the year ended December 31, 2015, compared to the same period in 2014 is due to the mix of Captisol sales and lower cost of
goods sold overall. The increase of $3.4 million for the year ended December 31, 2014, compared to 2013 is primarily due to an increase in
material sales of Captisol.
Research and development expenses
Research and development expenses for 2015 were $13.4 million compared to $12.1 million in 2014 and $9.3 million in 2013. The
increase of $1.3 million is primarily due to the timing of costs associated with internal programs and an increase in non-cash stock based
compensation expense. The increase in research and development expenses of $2.8 million for the year ended December 31, 2014
compared to 2013 is primarily due to timing of costs associated with internal programs and an increase in non-cash stock based
compensation expense.
We are developing several proprietary products. Our programs represent a range of future licensing opportunities to expand our
partnered asset portfolio. Our development focus for the year ended December 31, 2015, 2014, and 2013 has been LGD-6972, our novel
glucagon receptor antagonist program. We completed a Phase 1b trial in 2015 that demonstrated favorable safety, tolerability and
pharmacokinetics and plan to initiate a Phase 2 trial in 2016.
General and administrative expenses
General and administrative expenses were $24.4 million for the year ended December 31, 2015 compared to $22.6 million for 2014
and $18.0 million for 2013. The increase of $1.8 million in general and administrative expenses for the year ended December 31, 2015
compared with 2014 is primarily due to an increase in non-cash stock-based compensation and costs incurred for business development
activities in 2015. The increase in expenses for the year ended December 31, 2014 compared with 2013 of $4.6 million is primarily due to
costs associated with business development activities and an increase in non-cash stock based compensation expense.
Lease exit and termination costs
For the years ended December 31, 2015 and 2014, we had lease exit obligations of $0.9 million and $3.3 million, respectively. The
lease exit obligations are related to a facility in Cranbury, New Jersey. 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 $1.0 million for the
year ended December 31, 2015, compared to $1.1 million for 2014, and $0.6 million in 2013. Lease exit and termination costs for the years
ended December 31, 2015, 2014, and 2013 consisted of accretion costs and adjustments to the liability for lease exit costs due to changes in
leasing assumptions.
Write-off of acquired IPR&D
For the years ended December 31, 2015 and December 31, 2014, there was no write-off of IPR&D recorded. For the year ended
December 31, 2013, we recorded a non-cash impairment charge of $0.5 million for the write-off of IPR&D for Clopidogrel. Clopidogrel is
an IV 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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Table of Contents
Interest expense, net
Interest expense was $11.8 million for the year ended December 31, 2015 compared to $4.9 million in 2014 and $2.1 million in
2013. The increase in interest expense of $6.9 million for the year ended December 31, 2015 compared with 2014 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 increase in interest expense of $2.8 million for the year ended December 31, 2014
compared to 2013 was primarily due due to interest expense and non-cash debt related costs related to the 2019 Convertible Senior Notes.
Change in contingent liabilities
We recorded an expense associated with the increase in contingent liabilities of $5.0 million for the year ended December 31, 2015
compared to $5.1 million in 2014 and $3.6 million in 2013. The increase in contingent liabilities for the year ended December 31, 2015 is
due to an increase in the fair value of CyDex related contingent liabilities of $3.8 million and an increase in the Metabasis CVRs of $1.2
million. The increase in contingent liabilities for the year ended December 31, 2014 is due to an 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 increase in
contingent liabilities for the year ended December 31, 2013 is due primarily to the increase in the fair value of the Metabasis CVR liability
of $4.2 million. This was partially offset by a decrease in the fair value of $0.6 million in CyDex contingent liabilities.
Gain on deconsolidation of Viking
We recorded a $28.2 million gain on deconsolidation of Viking for the year ended December 31, 2015, primarily related to the
equity milestone received from Viking upon the close of the Viking IPO in addition to the value received upon the underwriters’ exercise
of their overallotment option.
Equity in net losses of Viking
We recorded a $5.1 million equity in net loss of Viking for the year ended December 31, 2015, for our proportionate share of
Viking’s losses based on our ownership of Viking common stock.
Other, net
We recorded other income of $1.8 million for the year ended December 31, 2015 compared to other expense of $1.7 million in 2014
and other income of $0.1 million in 2013. Other income for the year ended December 31, 2015 and 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.
Income taxes
We recorded an income tax benefit of $219.6 million for the year ended December 31, 2015 compared to an income tax expense
from continuing operations of $0.4 million for the year ended December 31, 2014 and an income tax expense of $0.4 million for the year
ended December 31, 2013. The income tax benefit for the year ended December 31, 2015 is primarily the result of releasing a valuation
allowance against a significant portion of our deferred tax assets. The tax benefit is primarily comprised of U.S. federal and state net
operating loss carryforwards, tax credits, and other temporary differences.
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.
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Discontinued operations, net
Avinza Product Line
On September 6, 2006, we and King Pharmaceuticals, now a subsidiary of Pfizer, entered into a purchase agreement, or the Avinza
Purchase Agreement, pursuant to which Pfizer acquired all of our rights in and to Avinza in the United States, its territories and Canada, 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, 2015, 2014 and 2013, we recognized pre-tax gains of $0, $0, and
$2.6 million, respectively, due to subsequent changes in certain estimates of assets and liabilities recorded as of the sale date.
Net loss attributable to noncontrolling interests
We recorded $2.4 million as a net loss attributable to noncontrolling interests for the year ended December 31, 2015 compared with
$1.1 million for the year ended December 31, 2014. The net loss attributable to noncontrolling interests was recorded as a result of our
determination that prior to Viking's IPO we held a variable interest in Viking. We recorded 100% of the losses incurred from May 21, 2014
through deconsolidation of Viking, 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. Viking was deconsolidated upon IPO and we no longer hold a variable
interest in Viking.
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, license fees, milestones and other revenues, capital and
operating lease transactions.
We had net income of $257.3 million for the year ended December 31, 2015. At December 31, 2015, our accumulated deficit was
$402.0 million and we had working capital of $194.7 million with long-term convertible debt of $205.4 million. We believe that our
currently available funds, cash generated from operations as well as existing sources of and access to financing will be sufficient to fund our
anticipated operating, capital requirements and debt service requirement. We expect to build cash in the future as we continue to generate
significant cash flow from royalty, license and milestone revenue and Captisol material sales primarily driven by continued increases in
Promacta and Kyprolis sales, recent product approvals and regulatory developments, as well as revenue from anticipated new licenses and
milestones. In addition, we anticipate that our liquidity needs can be met through other sources, including sales of marketable securities,
borrowings through commercial paper and/or syndicated credit facilities and access to other domestic and foreign debt markets and equity
markets.
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
2019 Convertible Senior Notes
We have convertible debt outstanding as of December 31, 2015 related to our 2019 Convertible Senior Notes. 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.
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Repurchases of Common Stock
During the year ended December 31, 2015, we repurchased 6,120 common shares at a weighted average price of $79.92 per share
pursuant to the repurchase plan, or approximately $0.5 million of common shares.
During the year ended 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.
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. 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, through 2016 we will pay CyDex shareholders 20% of all CyDex-related annual
revenue exceeding $15.0 million; plus an additional 10% of all CyDex-related annual revenue exceeding $35.0 million.
Metabasis
In connection with the acquisition of Metabasis in January 2010, we entered into four CVR agreements with Metabasis
shareholders. The CVRs entitle the holders to cash payments upon the sale or licensing of certain assets and upon the achievement of
specified milestones.
Leases and Off-Balance Sheet Arrangements
We lease our office facilities under operating lease arrangements with varying terms through April 2023. 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 in 2016. The sublease agreements provide for a 3% increase in annual rents.
We had no off-balance sheet arrangements at December 31, 2015, 2014 and 2013.
Contractual Obligations
As of December 31, 2015, future minimum payments due under our contractual obligations are as follows (in thousands):
Total
Less than 1 year
1-2 years
3-4 years
Thereafter
Payments Due by Period
Purchase obligations (1)
Contingent liabilities (2)
Note and interest payment obligations
Operating lease obligations (3)
$
$
$
$
12,328 $
5,390 $
252,351 $
2,691 $
10,196 $
5,390 $
1,838 $
1,762 $
2,132 $
— $
3,675 $
313 $
— $
— $
246,838 $
275 $
—
—
—
341
(1)
(2)
(3)
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, 2015, only those liabilities for revenue sharing payments and milestones achieved as a result of 2015 activities are included in the table
above.
Represents minimum future lease payments under our non-cancellable operating leases. These amounts assume that the lease for our current corporate
headquarters terminates on April 30, 2016, pursuant to a termination agreement with our landlord, even though we received a letter from our landlord
disputing the date of such termination. If we are obligated to pay rents under the lease after April 30, 2016, we will be required to make aggregate future
minimum lease payments totalling $2.3 million (nondiscounted) over the duration of the lease as follows which are not included in the table above: $0.5
million within less than one year, $1.5 million within one to two years, and $0.4 million within three years. Additionally, we sublease portions of office
and research facilities located in our current corporate headquarters and would receive additional
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sublease income of $1.4 million through the end of such lease which are not in the table above: $0.3 million within less than one year, $0.9 million within
one to two years, and $0.2 million within three years.
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, 2015, we exceeded that amount.
Operating Activities
Operating activities provided cash of $41.7 million, $20.6 million and $20.7 million in 2015, 2014 and 2013, respectively.
The cash provided in 2015 reflects net income of $254.9 million and $214.0 million of non-cash items to reconcile the net income to
net cash used in operations. These reconciling items primarily reflect a net deferred tax asset of $219.6 million from the release of our
valuation allowance, a $28.2 million gain on deconsolidation of Viking, and a $2.6 million gain on the sale of investments. Partially
offsetting non-cash change in estimated value of contingent liabilities of $5.0 million, $5.1 million loss on equity investment of Viking,
depreciation and amortization of $2.6 million, stock-based compensation of $12.5 million, amortization of debt discount and issuance fees
of $10.3 million, and a decrease in the fair value of the Viking convertible note of $0.8 million. The cash provided by operations in 2015 is
further impacted by changes in operating assets and liabilities due primarily to a decrease in accounts receivable of $6.5 million and a
decrease in restricted cash of $1.3 million. Partially offsetting, other assets increased $0.3 million, accounts payable and accrued liabilities
decreased $4.0 million, deferred revenue decreased $2.2 million and inventory increased $0.4 million.
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 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.
Investing Activities
Investing activities used cash of $112.9 million, $2.0 million, and $5.0 million in 2015, 2014, and 2013, respectively.
Cash used by investing activities in 2015 primarily reflects the purchase of short-term investments of $166.0 million, purchase of
Viking common stock of $9.0 million, purchase of commercial license rights of $4.0 million, payments to CyDex CVR holders and other
contingency payments of $6.7 million, $0.2 million for a reduction in cash due to deconsolidation of Viking and purchases of property and
equipment of $0.1 million. Partially offsetting, investing activities generated proceeds from the maturity of short-term investments of $57.2
million and $16.0 million from the sale of short-term investments.
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 the 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.
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Financing Activities
Financing activities provided cash of $8.4 million and $130.0 million in 2015 and 2014, respectively and used cash of $16.5 million
in 2013.
Cash provided by financing activities in 2015 primarily reflects the $8.8 million of proceeds received from stock option exercises
and our employee stock purchase plan, partially offset by payment for share repurchases of $0.5 million.
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.
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. 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.
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. All product returns are subject to the Company's credit and
exchange policy, 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.
Many of the Company's revenue arrangements for Captisol involve a license agreement with the supply of manufactured Captisol
product. Licenses may be granted to pharmaceutical companies for the use of Captisol product in the development of pharmaceutical
compounds. The supply of the Captisol product may be for all phases of clinical trials and through commercial availability of the host drug
or may be limited to certain phases of the clinical trial process. The Company evaluates the deliverables in these agreements to determine
whether they have stand-alone value to our customers and therefore meet the criteria to be accounted for as separate units of accounting or
they should be combined with other deliverables and accounted for as a single unit of accounting. 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, upfront 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. 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 are met. 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.
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
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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.
Valuation of intangible assets and goodwill
We review the carrying value of our finite-lived intangible assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If such circumstances exist, an estimate of undiscounted future cash
flows to be generated by the long-lived asset is compared to the carrying value to determine whether an impairment exists. If an asset is
determined to be impaired, the loss is measured based on the difference between the asset's fair value and its carrying value. As of
December 31, 2015, 2014, and 2013 there has been no impairment of finite-lived assets.
Indefinite-lived intangible assets, composed of IPR&D assets acquired in a business combination and we have not obtained the
regulatory approval for marketing or abandoned the associated research and development effors, are reviewed annually for impairment and
whenever events or changes in circumstances that would indicate a reduction in the fair value of the IPR&D projects below their respective
carrying amounts. If the asset's carrying value exceeds its fair value, an impairment charge is recorded for the difference and its carrying
value is reduced accordingly. Estimating future net cash flows of an IPR&D assets for purposes of an impairment analysis requires us to
make significant estimates and assumptions regarding the the amount, timing and probability of achieving revenues from various regulatory
milestone events and the completed product for the projects we licensed to partners, as well as amount and timing of costs to complete for
projects we currently develop independently. Consequently, the eventual realized value of an acquired IPR&D asset may vary from its
estimated fair value at the date of acquisition, and IPR&D impairment charges may occur in future periods which could have a material
adverse effect on our results of operations. As of December 31, 2015 and 2014, there has been no impairment of IPR&D assets. We
recorded $0.5 million impairment to one of the IPR&D assets in 2013.
Similar to IPR&D assets, we perform an impairment analysis for goodwill on at least an annual basis, usually as of December 31 of
each year, absent any indicators of earlier impairment. 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. As of
December 31, 2015, 2014, and 2013 there has been no impairment of goodwill.
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 fair value of the liability is assessed at each reporting date using
the income approach incorporating the estimated future cash flows from potential milestones and revenue sharing. The change in fair value
is 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
proceed is received by us from the sale or partnering of any of the Metabasis drug development programs. 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 liability method, which 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. The Company provides a valuation allowance for deferred tax assets if it is more likely than not that these items will
expire before we are able to realize their benefit. The Company calculates the
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valuation allowance in accordance with the authoritative guidance relating to income taxes under ASC 740, Income Taxes, which requires
an assessment of both positive and negative evidence that is available regarding the reliability of these deferred tax assets, when measuring
the need for a valuation allowance. 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. The Company's judgments and tax strategies are subject to audit by
various taxing authorities. While management believes the Company 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.
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.
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:
Year Ended December 31,
Risk-free interest rate
Expected volatility
Expected term
Forfeiture rate
Variable Interest Entities
2015
1.7%-2.0%
50%-58%
6.5 years
8.52%
2014
1.9%
62%-69%
6 years
2013
1.13%-1.82%
69%
6 years
8.6%-9.7%
8.4%-9.8%
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. If the Company is no longer the primary of a VIE or the entity is no longer
considered as a VIE as facts and circumstances changed, it deconsolidates the entity under the applicable accounting guidance. When
perform the analysis for certain transaction such as our investment in Viking (Refer to Note 2 to the consolidated financials for details), the
Company considered certain criteria, including risk and reward sharing, experience and financial condition of its partner, voting rights,
involvement in day-to-day operating decisions, the Company’s representation on the entity's executive committee, and level of economics
between the Company and the entity.
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, 2015, our investment portfolio included investments in available-for-sale equity securities of $102.8 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
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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.
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
38
Page
39
40
41
42
43
44
46
Table of Contents
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders of Ligand Pharmaceuticals Incorporated
We have audited the accompanying consolidated balance sheets of Ligand Pharmaceuticals Incorporated (the “Company”) as of December
31, 2015 and 2014, 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, 2015. 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, 2015 and 2014, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2015 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, 2015, 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 26, 2016 expressed an unqualified opinion.
/s/ GRANT THORNTON LLP
San Diego, California
February 26, 2016
39
Table of Contents
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
Current assets:
ASSETS
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Note receivable from Viking
Inventory
Capitalized IPO expenses, VIE
Current debt issuance costs
Other current assets
Total current assets
Deferred income taxes
Investment in Viking
Intangible assets, net
Goodwill
Commercial license rights
Restricted cash
Property and equipment, net
Long-term debt issuance costs
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued liabilities
Current contingent liabilities
Current lease exit obligations
Other current liabilities
Total current liabilities
Long-term notes payable
Long-term contingent liabilities
Long-term deferred revenue, net
Long-term lease exit obligations
Long-term deferred income taxes
Other long-term liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
$
$
$
Common stock, $0.001 par value; 33,333,333 shares authorized; 19,949,012 and 19,575,150 shares issued and
outstanding at December 31, 2015 and 2014, 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.
40
December 31,
2015
2014
97,428 $
102,791
6,170
4,782
1,633
—
860
1,908
215,572
216,564
29,728
48,347
12,238
8,554
—
372
2,527
27
533,929 $
4,083 $
5,397
10,414
934
8
20,836
205,372
3,033
—
—
—
297
229,538
20
701,478
4,903
(402,010 )
304,391
—
304,391
533,929 $
160,203
7,133
12,634
—
269
2,268
809
1,842
185,158
—
—
50,723
12,238
4,568
1,261
486
3,388
207
258,029
7,698
4,866
6,796
2,356
1,063
22,779
195,908
8,353
2,085
934
2,792
770
233,621
20
680,660
4,953
(659,315 )
26,318
(1,910 )
24,408
258,029
Table of Contents
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Revenues:
Royalties
Material sales
License fees, milestones 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 IPR&D
Total operating costs and expenses
Income from operations
Other (expense) income:
Interest expense, net
Increase in contingent liabilities
Gain on deconsolidation of Viking
Equity in net losses from Viking
Other, net
Total other income (expense), net
Income from continuing operations before income tax benefit
Income tax benefit (expense) from continuing operations
Income from continuing operations including noncontrolling interests
Less: Net loss attributable to noncontrolling interests
Net income from continuing operations
Discontinued operations:
Gain on sale of Avinza Product Line, net
Net income
Basic per share amounts:
Income from continuing operations
Income from discontinued operations
Net income
Weighted average number of common shares-basic
Diluted per share amounts:
Income from continuing operations
Income from discontinued operations
Net income
Weighted average number of common shares-diluted
Year Ended December 31,
2015
2014
2013
38,194 $
27,662
6,058
71,914
29,994 $
28,488
6,056
64,538
5,807
13,380
24,378
1,020
—
44,585
27,329
(11,802 )
(5,013 )
28,190
(5,143 )
1,768
8,000
35,329
219,596
254,925
(2,380 )
257,305
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
23,584
19,072
6,317
48,973
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
—
257,305 $
—
12,024 $
2,588
11,420
13.00 $
—
13.00 $
19,790
12.12 $
—
12.12 $
21,228
0.59 $
—
0.59 $
0.43
0.13
0.56
20,419
20,312
0.56 $
—
0.56 $
21,433
0.43
0.12
0.55
20,745
$
$
$
$
$
$
See accompanying notes to these consolidated financial statements.
41
Table of Contents
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Net income
Unrealized net gain on available-for-sale securities, net of tax
Less:Reclassification of net realized gains included in net income, net of tax
Comprehensive income
Year Ended December 31,
2015
257,305
1,933
(1,965) $
257,273 $
2014
12,024
3,872
(1,833) $
14,063 $
2013
11,420
2,914
—
14,334
$
$
$
See accompanying notes to these consolidated financial statements.
42
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share data)
Common Stock
Shares
21,278,606
Amount
$
21
Additional
paid-in
capital
751,503 $
$
Accumulated
other
comprehensive
income (loss)
Accumulated
deficit
— $ (682,759) $
Treasury stock
Noncontrolling
interest
Shares
—
(1,118,222 ) $
Amount
(42,280 ) $
Total
stockholders’
equity (deficit)
Table of Contents
Balance at December 31, 2012
Issuance of common stock
under employee stock
compensation plans, net
Stock-based compensation
Retirement of treasury shares
Unrealized net gain on
available-for-sale securities
Net income
Consolidation of Viking
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
Other comprehensive income
Net income
Net loss in noncontrolling
interests
Balance at December 31, 2013
20,468,521
$
308,137
—
(1,118,222 )
—
—
—
360,054
—
(1,253,425 )
—
3,127
5,666
(42,279 )
—
—
—
—
—
—
—
—
2,914
—
—
11,420
718,017 $
2,914
$ (671,339) $
1
—
(1)
—
—
$
21
—
—
—
—
(1)
—
4,561
11,270
(67,954 )
11,638
—
—
(48,143 )
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
51,271
—
—
—
—
2,039
—
—
—
—
12,024
—
Balance at December 31, 2014
19,575,150
$
20
$
680,660
$
4,953
$ (659,315) $
Issuance of common stock
under employee stock
compensation plans, net
Stock-based compensation
Repurchase of common stock
Other comprehensive income
Net income
Net loss in noncontrolling
interests
Deconsolidation of Viking
379,982
—
(6,120)
—
—
—
—
—
—
—
—
—
—
—
8,849
12,458
(489)
—
—
—
—
—
—
—
(50 )
—
—
—
—
—
—
—
257,305
—
—
Balance at December 31, 2015
19,949,012
$
20
$
701,478 $
4,903
$ (402,010) $
—
—
—
—
—
1,118,222
—
—
42,280
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
2,039
12,024
(1,132)
—
—
— $
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
— $
24,408
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
— $
8,849
12,458
(489)
(50 )
257,305
(2,380)
4,290
304,391
—
—
—
(778)
—
—
—
—
—
—
—
—
(1,132)
(1,910)
—
—
—
—
—
(2,380)
4,290
—
See accompanying notes to these consolidated financial statements.
43
Table of Contents
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Operating activities
Net income
Less: gain from discontinued operations
Income from continuing operations
Adjustments to reconcile net income 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
Gain on deconsolidation of Viking
Loss on equity investment in Viking
Change in fair value of the convertible debt receivable from Viking
Amortization of debt discount and issuance fees
Non-cash milestone revenue
Stock-based compensation
Deferred income taxes
Other
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable, net
Inventory
Restricted cash
Other current assets
Other long term assets
Accounts payable and accrued 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
Purchase of Viking common stock
Reduction of cash due to deconsolidation of Viking
Payments to CVR holders and other contingency payments
Purchases of property and equipment
Purchases of short-term investments
Proceeds from sale of short-term investments
Proceeds from maturity of short-term investments
Other, net
Net cash used in investing activities
Financing activities
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
Net proceeds from stock option exercises
Share repurchases
44
Year Ended December 31,
2015
2014
2013
$
254,925 $
—
254,925
10,892 $
—
10,892
—
5,013
(2,603 )
2,627
(28,190 )
5,143
765
10,274
—
12,458
(219,613 )
107
6,489
(401)
1,261
51
(325)
(4,027 )
(2,227 )
41,727
—
41,727
(4,030 )
(9,000 )
(247)
(6,740 )
(93)
(166,025 )
16,039
57,234
—
(112,862 )
—
—
—
—
—
8,849
(489)
—
5,135
(1,538 )
2,657
—
—
—
3,694
(1,211 )
11,270
410
206
(10,412 )
4,369
—
(426)
(1,439 )
(3,121 )
80
20,566
—
20,566
(1,000 )
—
—
(3,493 )
(6)
—
2,342
—
130
(2,027 )
(9,366 )
245,000
(5,711 )
11,638
(48,143 )
4,561
(67,954 )
11,420
2,588
8,832
480
3,597
—
2,663
—
—
—
—
—
5,666
374
422
2,367
646
—
(130)
218
(3,149 )
(654)
21,332
(642)
20,690
(3,571 )
—
—
(989)
(377)
—
—
—
(37)
(4,974 )
(19,586 )
—
—
—
—
3,128
—
Table of Contents
Net cash provided by (used in) financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information
Cash paid during the year:
Interest paid
Taxes paid
Supplemental schedule of non-cash investing and financing activities
8,360
(62,775 )
160,203
97,428 $
1,822 $
28 $
$
$
$
Accrued inventory purchases
Unrealized gain on AFS investments
1,333 $
3,005 $
See accompanying notes to these consolidated financial statements.
$
$
45
130,025
148,564
11,639
160,203 $
494 $
18 $
3,246 $
3,872 $
(16,458 )
(742)
12,381
11,639
1,816
26
341
2,914
Table of Contents
LIGAND PHARMACEUTICALS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
Business
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.
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 U.S. GAAP requires the use of estimates and assumptions
that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. Actual results may differ
from those estimates
Correction of Previously Reported Financials
In connection with the preparation of the financial statements for the year ended December 31, 2015, the Company determined that
the deferred tax assets and the tax benefit previously reported in our condensed and consolidated financial statements as of and for the
three- and nine-month periods ended September 30, 2015 reflected an error in the calculation of certain capital loss carry-forwards at
September 30, 2015 related to the sale of the Avinza product line. The error resulted in an understatement of long-term deferred income tax
assets of $2.1 million, which represents approximately 1% of the previously reported deferred tax assets as of September 30, 2015, and an
understatement of tax benefit as well as net income of approximately $2.1 million for the three- and nine-month periods ended September
30, 2015. The impact on basic and diluted EPS for the same periods of $0.11 per share and $0.10 per share, respectively, represents less
than 1% of the previously reported EPS. While concluded the error was not material to any prior periods, individually or in the aggregate,
based on our qualitative and quantitative analysis, management opted to correct the error by restating the respective amounts that were
previously reported as of and for the three- and nine-month periods ended September 30, 2015 in this 10-K filing. Please refer to Note 11.
Summary of Unaudited Quarterly Financial Information for details.
Correction of Immaterial Errors
During the three and nine months ended September 30, 2015, a clerical error was identified in the calculation of the projections used
in the June 30, 2015 and September 30, 2015 valuation of contingent liabilities related to CyDex CVR holders. The error in the June 30,
2015 projection resulted in an understatement of short-term contingent liabilities of $0.6 million as of June 30, 2015, and an overstatement
of net income of $0.6 million, or $0.03 per share for the three and six months ended June 30, 2015, respectively. No other error was
identified in the other interim period(s) in 2015 or 2014 based on the Company's review in those periods. The impact of correcting the error
resulted in an understatement of net income of $0.6 million, or $0.03 per share for the three months ended September 30, 2015. Based on a
qualitative and quantitative analysis of the error, the Company concluded that it is immaterial to the interim condensed consolidated
financial statements for the three and six months ended June 30, 2015 and had no effect on the trend of financial results. As such, the
Company has corrected the error in the condensed consolidated financial statements for the period ended September 30, 2015.
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 Per Share
Basic income per share is calculated by dividing net income by the weighted-average number of common shares outstanding
during the period. Diluted income per share is computed by dividing net income by the weighted-average number
46
Table of Contents
of common shares and common stock equivalents of all dilutive securities calculated using the treasury stock method and the if-converted
method.
The total number of potentially dilutive securities including stock options and warrants excluded from the computation of diluted
income per share because their inclusion would have been anti-dilutive, were 3.3 million, 5.1 million and 0.8 million for the years ended
December 31, 2015, 2014 and 2013 respectively. In addition, the Company issued 793,594 shares of its common stock in January 2016 as
part of the consideration for the acquisition of Open Monoclonal Technology, Inc. (Refer to Note 12 for details), which was not included in
basic and diluted income per share for the year ended December 31, 2015.
The following table presents the computation of basic and diluted net income per share for the periods indicated (in thousands, except
per share amounts):
EPS Attributable to Common Shareholders
Net income from continuing operations
Discontinued operations
Net income
Shares used to compute basic income per share
Dilutive potential common shares:
Restricted stock
Stock options
2019 Convertible Senior Notes
Shares used to compute diluted income per share
Basic per share amounts:
Income from continuing operations
Discontinued operations
Net income
Diluted per share amounts:
Income from continuing operations
Discontinued operations
Net income
Cash Equivalents
Year Ended December 31,
2015
2014
2013
$
$
$
$
$
$
257,305 $
—
257,305 $
19,790
56
882
499
21,228
13.00 $
—
13.00 $
12,024 $
—
12,024 $
20,419
36
978
—
21,433
0.59 $
—
0.59 $
12.12 $
—
12.12 $
0.56 $
—
0.56 $
8,832
2,588
11,420
20,312
80
353
—
20,745
0.43
0.13
0.56
0.43
0.12
0.55
Cash equivalents consist of all investments with maturities of three months or less from the date of acquisition.
Short-term Investments
Short-term investments primarily consist of investments in debt securities that have effective maturities greater than three months
and less than twelve months from the date of acquisition. The Company classifies its short-term investments 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 Investments
Restricted investments consist of certificates of deposit held with a financial institution as collateral under a facility lease and third-
party service provider arrangements.
47
Table of Contents
The following table summarizes the various investment categories at December 31, 2015 and 2014 (in thousands):
December 31, 2015
Short-term investments
Bank deposits
Corporate bonds
Commercial paper
Asset backed securities
Corporate equity securities
December 31, 2014
Short-term investments (Corporate equity securities)
Certificates of deposit-restricted
Concentrations of Business Risk
Cost
Gross unrealized
gains
Gross unrealized
losses
Estimated
fair value
43,043
41,238
1,747
10,020
1,843
97,891 $
2,179
1,261
3,440 $
$
$
—
—
—
—
4,944
4,944 $
4,954 $
—
4,954 $
(4)
(35)
—
(5)
—
(44) $
— $
—
— $
43,039
41,203
1,747
10,015
6,787
102,791
7,133
1,261
8,394
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 2015,
the Company did not experience any significant losses on its cash equivalents, short-term investments or restricted investments.
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,
2015
2014
2013
27%
23%
18%
37%
31%
10%
33%
28%
14%
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, 2015 and 2014. As of December 31, 2015, the
commitment under our supply agreement with Hovione for Captisol purchases was $12.3 million.
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Table of Contents
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts based on the best estimate of the amount of probable losses in the
Company’s existing accounts receivable. Accounts receivable that are outstanding longer than their contractual payment terms, ranging
from 30 to 90 days, are considered past due. When determining the allowance for doubtful accounts, several factors are taken into
consideration, including historical write-off experience and review of specific customer accounts for collectability. Account balances are
charged off against the allowance after collection efforts have been exhausted and the potential for recovery is considered remote. There
was no allowance for doubtful accounts recorded as of December 31, 2015 and 2014.
Goodwill and Other Identifiable Intangible Assets
Goodwill and other identifiable intangible assets consist of the following (in thousands):
Indefinite lived intangible assets
IPR&D
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,
2015
2014
12,556 $
12,238
15,267
(3,762)
2,642
(652)
29,600
(7,304)
60,585 $
12,556
12,238
15,267
(2,999)
2,642
(519)
29,600
(5,824)
62,961
$
$
Amortization of finite 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, 2015, 2014, and 2013.
Estimated amortization expense for the years ending December 31, 2016 through 2021 is $2.4 million per year. For each of the years ended
December 31, 2015, 2014, and 2013, there was no impairment of intangible assets with finite lives.
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 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. As of December 31, 2015, 2014 and 2013 there has been no
impairment of goodwill for continuing operations.
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Table of Contents
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 are not amortized but
are 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 IV 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 IV 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, 2015 and
December 31, 2014, there was no impairment of IPR&D assets.
Commercial license rights
Commercial license rights represent a portfolio of future milestone and royalty payment rights acquired from Selexis in April 2013
and April 2015. 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 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. As of December 31, 2015, management does not believe there have been any events or circumstances
indicating that the carrying amount of its commercial license rights may not be recoverable.
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,
2015
2014
2,248 $
273
632
3,153
(2,781)
372 $
2,232
273
624
3,129
(2,643)
486
$
$
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 $0.2 million, $0.3 million, and $0.3 million was recognized for the years ending
December 31, 2015, 2014, and 2013, respectively and is included in operating expenses.
Contingent Liabilities
CyDex contingent liabilities
In connection with the Company’s acquisition of CyDex in January 2011, the Company recorded a contingent liability for amounts
potentially due to holders of the CyDex CVRs and former license holders. The liability is periodically assessed based on events and
circumstances related to the underlying milestones, royalties and material sales. Any change in fair value is recorded in the Company’s
consolidated statements of operations. The carrying amount of the liability may fluctuate significantly and actual amounts paid under the
CVR agreements may be materially different than the carrying amount of the liability. The fair value of the liability at December 31, 2015
and 2014 was $9.5 million and $11.5 million, respectively. The Company recorded a fair value adjustment to increase the liability for
CyDex related contingent liabilities of $3.8 million for the year ended December 31, 2015, $5.7 million increase in the liability for the year
ended December 31, 2014 and a decrease in the liability of $0.6 million for the year ended December 31, 2013. Contingent liabilities
decreased for cash payments to CVR holders and other contingency payments by $5.8 million during the year ended December 31, 2015,
$3.5 million during the year ended December 31, 2014 and $1.0 million during the year ended December 31, 2013.
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Table of Contents
Metabasis contingent liabilities
In connection with the Company’s acquisition of Metabasis in January 2010, the Company issued Metabasis stockholders four
tradable CVRs, one CVR from each of four respective series of CVR, for each Metabasis share. The CVRs will entitle Metabasis
stockholders to cash payments as frequently as every six months as cash is received by the Company from proceeds from Metabasis’
partnership with Roche (which has been terminated) or the sale or partnering of any of the Metabasis drug development programs, among
other triggering events. The acquisition-date fair value of the CVRs of $9.1 million was determined using quoted market prices of
Metabasis common stock in active markets. The fair values of the CVRs are remeasured at each reporting date through the term of the
related agreement. Changes in the fair values are reported in the statement of operations as income (decreases) or expense (increases). The
carrying amount of the liability may fluctuate significantly based upon quoted market prices and actual amounts paid under the agreements
may be materially different than the carrying amount of the liability. The fair value of the liability was $4.0 million and $3.7 million as of
December 31, 2015 and 2014, respectively. The Company recorded an increase in the liability for CVRs of $1.2 million during the year
ended December 31, 2015, a decrease of $0.5 million during the year ended December 31, 2014 and an increase of $4.2 million during the
year ended December 31, 2013. Contingent liabilities decreased for cash payments to CVR holders by $0.9 million for the year ended
December 31, 2015. No cash payments were made to Metabasis CVR holders for the years ended December 31, 2014 and 2013.
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.
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. All product returns are subject to the Company's credit and exchange policy,
approval by the Company and a 20% restocking fee. To date, product returns 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 VSOE, then TPE and if neither VSOE nor TPE exist, the Company uses its best estimate of selling price.
Many of the Company's revenue arrangements for Captisol involve a license agreement with the supply of manufactured Captisol
product. Licenses may be granted to pharmaceutical companies for the use of Captisol product in the development of pharmaceutical
compounds. The supply of the Captisol product may be 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.
Management 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
51
Table of Contents
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. 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 $0.1 million and $0.4 million, respectively, for the years ended December 31, 2015 and 2014 as
collaborative revenue based on the percentage of completion of the research program. No milestone payment or contingent payment was
received in 2015.
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.
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, 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 CROs 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.
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. The Company provides a valuation allowance for deferred tax assets if it is more likely than not that
these items will expire before we are able to realize their benefit. The Company calculates the valuation allowance in accordance with the
authoritative guidance relating to income taxes under ASC 740, Income Taxes, which requires an assessment of both positive and negative
evidence that is available regarding the reliability of these deferred tax assets, when measuring the need for a valuation allowance.
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. The Company's judgments and tax strategies are subject to audit by various taxing authorities. While management
believes the Company 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.
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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
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
Expected volatility
Expected term
Forfeiture rate
Year Ended December 31,
2015
1.7%-2.0%
50%-58%
6.5 years
8.52%
2014
1.9%
62%-69%
6 years
8.6%-9.7%
2013
1.13%-1.82%
69%
6 years
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. 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,
2015
2014
2013
$
$
4,080 $
8,378
12,458 $
3,595 $
7,675
11,270 $
1,705
3,961
5,666
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 its operating segment in
accordance with ASC 280, and has determined that the previously identified two reportable segments should be consolidated to one
reporting segment at December 31, 2015. In earlier periods, the Company had identified two reporting segments: developing, licensing and
manufacturing materials using Captisol reformulation technology by CyDex and development and licensing biopharmaceutical assets by
Ligand. Due to the full integration of the these two
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segments and the organizational changes during the year ended December 31, 2015, especially in the fourth quarter of 2015 as management
evaluated, planned for, and executed the acquisition of a new business from Open Monoclonal Technology, Inc. (Refer to Note 12 for
details), our chief operating decision maker now evaluates the performance of and manages the Company as one comprehensive business,
which is development and licensing biopharmaceutical assets and coupling them with a lean corporate cost structure. As a result,
management has concluded that the Company operates under one segment and there is one reporting segment at December 31, 2015, and all
the respective disclosure under two reporting segments for 2014 and 2013 have been removed from this 10-K.
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).
Variable Interest Entities ("VIE")
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. The Company performs ongoing qualitative assessments of its VIEs to determine whether
the Company has a controlling financial interest in any VIE and therefore is the primary beneficiary. If the Company is the primary
beneficiary of a VIE, it consolidates the VIE under applicable accounting guidance. If the Company is no longer the primary of a VIE or
the entity is no longer considered as a VIE as facts and circumstances changed, it deconsolidates the entity under the applicable accounting
guidance. Beginning May 2015, the Company deconsolidated Viking, a previously reported VIE, and elected to record its investment in
Viking under the equity method of accounting as Viking is no longer considered a VIE, and the Company does not have voting control or
other elements of control that would require consolidation. The investment is subsequently adjusted for the Company’s share of Viking's
operating results, and if applicable, cash contributions and distributions, which is reported on a separate line in our condensed consolidated
statement of operations called “Equity in net losses of Viking”. On the condensed consolidated balance sheet, the Company reports its
investment in Viking on a separate line in the non-current assets section called “Investment in Viking”. See Note 2, Investment in Viking,
for additional details.
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.
Recent Accounting Pronouncements
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.
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In February 2015, FASB issued ASU 2015-02 Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-02
changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. It is
effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2015. Early adoption is
permitted, including adoption in an interim period. Management is currently evaluating the impact of the adoption of ASU 2015-02 on our
consolidated financial statements.
In April 2015, FASB issued ASU 2015-03, Interest-Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs. This
update was issued to simplify the presentation for debt issuance costs. Upon adoption, such costs shall be presented on our consolidated
balance sheets as a direct deduction from the carrying amount of the related debt liability and not as a deferred charge presented in Other
assets on our consolidated balance sheets. This amendment will be effective for interim and annual periods beginning on January 1, 2016,
and is required to be retrospectively adopted. Management expects to change the presentation on our consolidated balance sheets
accordingly for all periods impacted upon the required adoption date.
In November 2015, the FASB issued ASU 2015-17 Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes that
amends the presentation of deferred income taxes on our Consolidated Balance Sheet such that they are presented entirely as noncurrent
assets and liabilities. As permitted by the standard, we adopted the new presentation prospectively, beginning January 1, 2015. Consistent
with our prospective adoption, presentation of deferred income tax assets and liabilities as of December 31, 2014, was not restated. If they
had been restated, Other current liabilities would have be reduced by $0.3 million and Long-term deferred tax liabilities would have been
would have increased by $0.3 million.
In January 2016, the FASB issued ASU2016-01 Recognition and Measurement of Financial Assets and Financial Liabilities that
amends the accounting and disclosures of financial instruments, including a provision that requires equity investments (except for
investments accounted for under the equity method of accounting) to be measured at fair value with changes in fair value recognized in
current earnings. The new standard is effective for interim and annual periods beginning on January 1, 2018. We are currently evaluating
the impact that this new standard will have on our consolidated financial statements.
2. Investment in Viking
Transaction History
In May 2014, the Company entered into a MLA to license rights to five programs to Viking. Upon the consummation of the
Viking IPO, Viking agreed to issue to the Company shares of Viking common stock having an aggregate value of approximately $29.2
million. In addition, Viking agreed to pay the Company royalties and milestone payments on products developed under the MLA. As part
of this transaction, the Company extended a $2.5 million loan to Viking under a LSA. The loan accrues interest at a fixed rate equal to 5%.
In April 2015, the Company entered into an amendment to the MLA with Viking ("the MLA Amendment") which among other
things, capped the Company’s aggregate ownership of Viking common stock to 49.9% of the Viking capital stock outstanding following
the closing of the Viking IPO. Additionally, the Company and Viking entered into an amendment to the LSA Amendment, pursuant to
which, the loans were no longer due and payable upon completion of the Viking IPO, but were extended to become due upon the earlier of:
(i) a certain private qualified financing transaction or (ii) a public offering subsequent to the Viking IPO or (iii) one year after the closing of
the Viking IPO. The Company may elect to receive equity of Viking common stock or cash equal to 200% of the principal amount plus
accrued and unpaid interest. As of December 31, 2015, the aggregate fair market value of the note receivable was $4.8 million.
In May 2015, Viking completed the Viking IPO selling 3.5 million shares of its common stock at an initial offering price of $8.00
per share for an aggregate offering price of $27.6 million. In connection with the Viking IPO, the Company purchased 1.1 million shares
for $9.0 million. In addition, pursuant to the amended MLA Amendment, the Company received approximately 3.7 million shares of
Viking common stock having a value of $29.2 million based on the initial public offering price of $8.00 per share. As a result, the
Company including its related parties owned an aggregate of 49.4% of the outstanding common stock of Viking, based on the shares of
outstanding Viking common stock at December 31, 2015. As of December 31, 2015, the carrying value of the Company's investment in
Viking was $29.7 million.
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Accounting Consideration
In May 2014, the Company determined it held a variable interest in Viking. The Company's variable interests in Viking included
the convertible note issued pursuant to the LSA and the Company’s potential upfront payment of equity pursuant to the MLA. The
Company considered certain criteria, including risk and reward sharing, experience and financial condition of its partner, voting rights,
involvement in day-to-day operating decisions, the Company’s representation on Viking's executive committee, and level of economics
between the Company and Viking. Based on these criteria, and using its judgment, the Company determined that it was the primary
beneficiary of Viking and, as a result, the Company consolidated Viking on its financial statements. From May 21, 2014 through May 4,
2015, the date of Viking’s IPO, recorded 100% of the losses incurred as net loss attributable to noncontrolling interest because it was a
primary beneficiary with no equity interest in the VIE. The loans issued pursuant to the LSA were included as notes payable by Viking and
were eliminated as long as the Company consolidated Viking on its financial statements.
Upon completion of the Viking IPO in May 2015, the Company determined that Viking was no longer a VIE. The Company also
determined that it does not have voting control or other elements of control that would require consolidation of Viking. As a result of this
assessment, the Company deconsolidated Viking on May 4, 2015 by derecognizing its assets, liabilities, and noncontrolling interest from
the Company's consolidated financial statements. Applying deconsolidation accounting guidance, the Company determined, based on an
independent valuation, the fair value of its equity investment in Viking upon deconsolidation was approximately $34.9 million after
applying a discount on the Viking IPO price due to applicable transfer restrictions applicable to the Company as an affiliate of Viking
pursuant to Rule 144 under the Securities Act of 1933. Based on a separate independent valuation, the Company determined that the fair
value of the convertible notes receivable was approximately $5.5 million upon deconsolidation. The Company recorded a $28.2 million
gain on deconsolidation of Viking in its consolidated statement of operations as of December 31, 2015.
Following the deconsolidation, the Company accounts for its equity investment in Viking under the equity method. For the year
ended December 31, 2015, the Company reported approximately $5.1 million, as equity in net losses from Viking. The Company has opted
to account for the Viking convertible notes receivable at fair value. For the year ended December 31, 2015, the Company recorded a
change in the fair value of the Viking convertible notes of $0.8 million. See Note 3, Fair Value Measurements for additional details.
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
Metabasis CVR Payouts
December 31, 2014
756
18
2,268
3,042
1
3,043
2,211
77
334
2,622
2,331
4,953
$
$
$
In connection with the shares of Viking common stock received pursuant to the MLA, the Company will make a cash payment to
the holders of certain Metabasis CVRs. The Company made a cash payment to certain holders of Metabasis CVRs
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of $0.8 million during the year ended December 31, 2015. The remaining cash payment, made in January 2016, was $2.6 million. See Note
1. Summary of Significant Accounting Policies-Contingent Liabilities for additional information on the Metabasis CVRs.
3. Fair Value Measurement
The Company measures certain financial assets and liabilities at fair value on a recurring basis. 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 following table provide a summary of the assets and liabilities that are measured at fair value on a recurring basis as of
December 31, 2015 and 2014 (in thousands):
Fair Value Measurements at Reporting Date Using
December 31, 2015
Assets:
Cash equivalents (1)
Short-term investments (2)
Note receivable Viking (3)
Total assets
Liabilities:
Current contingent liabilities - CyDex (4)
Current contingent liabilities-Metabasis (5)
Long-term contingent liabilities - Metabasis (5)
Long-term contingent liabilities - CyDex (4)
Liability for amounts owed to former licensees (6)
Total liabilities
Quoted Prices
in
Active Markets
for Identical
Assets
Total
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
3,015 $
92,775
4,782
100,572 $
7,812 $
2,602
1,355
1,678
794
14,241 $
— $
6,786
—
6,786 $
3,015 $
85,989
—
89,004 $
— $
—
—
—
794
794 $
— $
2,602
1,355
—
—
3,957 $
—
—
4,782
4,782
7,812
—
—
1,678
—
9,490
$
$
$
$
$
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December 31, 2014
Fair Value Measurements at Reporting Date Using
Quoted Prices
in
Active Markets
for Identical
Assets
Significant
Other
Observable
Inputs *
Significant
Unobservable
Inputs
Total
(Level 1)
(Level 2)
(Level 3)
$
$
$
—
322 $
7,133
7,455 $
— $
7,133
7,133 $
— $
—
— $
322
—
322
Assets:
Cash equivalents (1)
Current co-promote termination payments receivable (7)
Short-term investments (2)
Total assets
Liabilities:
Current contingent liabilities - CyDex (4)
Current co-promote termination liability (7)
Long-term contingent liabilities - Metabasis (5)
Long-term contingent liabilities - CyDex (4)
Liability for amounts owed to former licensees (6)
Total liabilities
$
6,796
322
—
4,701
—
11,819
*Adjusted to correct an error in disclosure that was deemed immaterial to the financial statements taken as a whole. Contingent
liabilities related to Metabasis were reclassified from Level 1 to Level 2 as market is deemed inactive. Additionally, certain certificates of
deposit with maturities less than 90 days were not previously disclosed in the table above.
6,796 $
322
3,652
4,701
773
16,244 $
— $
—
3,652
—
—
— $
—
—
—
773
773
3,652
$
$
$
(1) Highly liquid investments with maturities less than 90 days from the purchase date are recorded as cash equivalents that are
classified as Level 2 of the fair value hierarchy, as these investment securities are valued based upon quoted prices for identical or
similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are
observable in the market.
(2) Investments in equity securities, are classified as level 1 as the fair value is determined using quoted market prices in active
markets for the same securities. Short-term investments in marketable securities with maturities greater than 90 days are classified
as level 2 of the fair value hierarchy, as these investment securities are valued based upon quoted prices for identical or similar
instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are
observable in the market.
(3) The fair value of the convertible note receivable from Viking was determined using a probability weighted option pricing model
using a lattice methodology. The fair value is subjective and is affected by certain significant input to the valuation model such as
the estimated volatility of the common stock, which was estimated to be 65% at December 31, 2015. Changes in these assumptions
may materially affect the fair value estimate. For the year ended December 31, 2015, the Company reported a decrease in the fair
value of the Viking convertible notes of $0.8 million in "Other, net" of the consolidated statement of operations.
(4) 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.
(5) The liability for CVRs for Metabasis are determined using quoted market prices in an inactive market for the
underlying CVR.
(6) 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 licensees.
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(7) The co-promote termination payments receivable represents a 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. The fair value is determined based on a
valuation model using an income approach.
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,
2015
$22.5 million
25%
73%
0.40
BB
6%
2014
$17.2 million-$17.3 million
25%
81%
0.60
B
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, 2015 is as follows (in thousands):
Assets:
Fair value of level 3 financial instruments as of December 31, 2014
Assumed payments made by Pfizer or assignee
Fair value adjustments to co-promote termination liability
Note receivable Viking
Fair value of level 3 financial instrument assets as of December 31, 2015
Liabilities
Fair value of level 3 financial instruments as of December 31, 2014
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, 2015
Other Fair Value Measurements-2019 Convertible Senior Notes
$
$
$
$
322
(390 )
68
4,782
4,782
11,819
(390 )
(5,848 )
3,841
68
9,490
In August 2014, the Company issued 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 the 2019 Senior Convertible Notes was $377.9 million as of December 31, 2015. The carrying value of the notes does not reflect
the market rate. See Note 7 Financing Arrangements for additional information.
Viking
The Company records its investment in Viking under the equity method of accounting. The investment is subsequently adjusted
for the Company’s share of Viking's operating results, and if applicable, cash contributions and distributions. See Note 2 Investment in
Viking for additional information. The market value of the Company's investment in Viking was $16.3 million as of December 31, 2015.
The carrying value of the investment in Viking does not reflect the market value.
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4. Lease Obligations
The Company leases office and laboratory facilities in California, Kansas and New Jersey. These leases expire between 2016 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, 2015 (in thousands):
Operating lease obligations:
Corporate headquarters-La Jolla, CA
Corporate headquarters-San Diego, CA
Bioscience and Technology Business Center-
Lawrence, KS
Vacated office and research facility-Cranbury,
NJ
Total operating lease obligations
Sublease payments expected to be received:
Office and research facility-La Jolla, CA
Office and research facility-Cranbury, NJ
Net operating lease obligations
Lease termination
Lease
Termination
Date
April 2016
April 2023
Less than 1
year
1-2 years 3-4 years Thereafter
$
230
21
—
259
—
275
— $
341 $
Total
230
896
December 2017
54
54
—
—
108
August 2016
1,743
2,048
—
313
—
275
—
341
1,743
2,977
April 2016
August 2016
145
141
1,762 $
—
—
313 $
—
—
275 $
$
145
—
—
141
341 $ 2,691
In November 2015, the Company entered into a lease termination agreement with its current lessor for the corporate headquarters
facility located in La Jolla, California. The termination agreement accelerated the expiration date of the lease to April 2016, through which
date, the Company is obligated to pay all base rent, operating expenses and other obligations due under the current lease. In addition,
contingent upon the Company's surrender of the leased space in compliance with the termination agreement on or before April 2016, the
Company is entitled to receive from the lessor a one-time lease buy-out payment equal to the base rent and the operating expenses paid for
last six months of the revised lease term. In February 2016, the Company received a notice from its current landlord regarding the
termination date of the lease and are currently in discussions to resolve any disputes.
In conjunction with the execution of the termination agreement, the Company entered into a new lease agreement with a different
lessor for its corporate headquarters located in San Diego, California. The new lease has an initial term of approximately 7 years and is
expected to commence in May 2016. The base rent under the new facility lease agreement is approximately $0.1 million per year for the
first year, escalating 3.0% annually thereafter over the initial term. The Company has an option to extend the term of the lease for an
additional five years. The lease is subject to additional charges for property management, common area maintenance and other costs.
Lease exit obligations
For the years ended December 31, 2015 and 2014, the Company had lease exit obligations of $0.9 million and $3.3 million,
respectively. For the years ended December 31, 2015 and 2014, the Company made cash payments, net of sublease payments received of
$3.3 million and $3.5 million, respectively. The Company recognized adjustments for accretion and changes in leasing assumptions of $0.9
million, $1.1 million and $0.6 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Rent expense and deferred rent
Total rent expense under all office leases for 2015, 2014 and 2013 was $0.4 million, $0.7 million and $0.7 million, respectively. The
Company recognizes rent expense on a straight-line basis. Deferred rent at December 31, 2015 and 2014 was $0.2 million and $0.3 million,
respectively.
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5. Financing Arrangements
2019 Convertible Senior Notes
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 notes bear cash 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 10 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. 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.
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. As of December 31, 2015, the “if-converted value” exceeded the
principal amount of the 2019 Convertible Senior Notes by $101.9 million.
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,
2015, net of issuance costs, was $51.3 million.
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Convertible Bond Hedge and Warrant Transactions
To minimize the impact of potential dilution to the Company's common stock upon conversion of the 2019 Convertible Senior
Notes, the Company entered into convertible bond hedges and sold warrants covering 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 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
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, 2015
—
—
245,000
(39,628 )
205,372
205,372
$
$
$
$
$
$
$
$
December 31, 2014
334
334
245,000
(49,092 )
195,908
195,908
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, 2015, there were no events of default or violation of any covenants under the Company's financing obligations.
6. Discontinued Operations
Avinza Product Line
In 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, 2015,
2014 and 2013, the Company recognized pre-tax gains of $0, $0 and $2.6 million, respectively, due to subsequent changes in certain
estimates of assets and liabilities recorded as of the sale date.
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7. Other Balance Sheet Details
Other current assets consist of the following (in thousands):
Co-promote termination receivable
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
8. Stockholders’ Equity
Stock Plans
December 31,
2015
2014
—
1,177 $
731
1,908 $
322
835
685
1,842
December 31,
2015
2014
1,711 $
726
915
823
1,222
5,397 $
1,708
459
925
705
1,069
4,866
December 31,
2015
2014
—
268
29
297 $
327
411
32
770
$
$
$
$
$
In May 2009, the Company’s stockholders approved the amendment and restatement of the Company’s 2002 Stock Incentive Plan
(the “Amended 2002 Plan”). The Company’s 2002 Stock Incentive Plan was amended to (i) increase the number of shares available for
issuance under the Amended 2002 Plan by 1.3 million shares, (ii) revise the list of performance criteria that may be used by the
compensation committee for purposes of granting awards under the Amended 2002 Plan that are intended to qualify as performance-based
compensation under Section 162(m) of the Internal Revenue Code, as amended, and (iii) eliminate the automatic option grant program for
non-employee directors, the director fee stock issuance program and the director fee option grant program, which programs have been
superseded by the Company’s amended and restated Director Compensation Policy. Additionally, in May 2012, the Company’s
stockholders approved an amendment and restatement of the Company’s 2002 Stock Incentive Plan to increase the number of shares
available for issuance by 1.8 million shares. As of December 31, 2015, there were 0.7 million shares available for future option grants or
direct issuance under the Amended 2002 Plan.
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Following is a summary of the Company’s stock option plan activity and related information:
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term in
Years
Aggregate
Intrinsic
Value
(In thousands)
51,558
7.25 $
Balance at December 31, 2014
Granted
Exercised
Forfeited
Balance at December 31, 2015
Exercisable at December 31, 2015
Options vested and expected to vest as of December 31, 2015
Shares
1,800,697 $
287,747
(326,418)
(78,685)
1,683,341
1,193,288
1,683,341 $
28.78
62.82
26.55
45.75
34.23
25.41
34.23
6.66
5.98
6.66 $
124,880
99,061
124,880
The weighted-average grant-date fair value of all stock options granted during 2015, 2014 and 2013 was $35.39, $46.20 and $14.28
per share, respectively. The total intrinsic value of all options exercised during 2015, 2014 and 2013 was approximately $20.7 million,
$15.3 million and $5.9 million, respectively. As of December 31, 2015, there was $13.1 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 2.4 years.
Cash received from options exercised, net of fees paid, in 2015, 2014 and 2013 was $8.7 million, $4.4 million and $3.0 million,
respectively.
Following is a further breakdown of the options outstanding as of December 31, 2015:
Range of exercise prices
$8.58 – $12.53
$12.81-16.14
$17.10-32.30
$32.76-74.42
$89.75-104.59
$8.58 – $104.59
Restricted Stock Activity
Options
outstanding
353,949
371,551
361,019
552,544
44,278
1,683,341
Weighted
average
remaining life
in years
Weighted average
exercise price
Options
exercisable
Weighted average
exercise price
5.17 $
5.58
6.55
8.18
9.47
6.66 $
10.26
14.75
23.34
64.69
98.13
34.23
353,824 $
342,754
270,634
226,076
—
1,193,288 $
10.26
14.78
23.81
67.13
—
25.41
The following is a summary of the Company’s restricted stock activity and related information:
Outstanding at December 31, 2014
Granted
Vested
Forfeited
Outstanding at December 31, 2015
Weighted-Average
Grant Date Fair
Value
Shares
82,673 $
112,954
(49,366)
(15,512)
130,749 $
45.76
63.50
44.8
54.91
60.36
Restricted stock awards generally vest over three years. As of December 31, 2015, unrecognized compensation cost related to non-
vested stock awards amounted to $4.7 million. That cost is expected to be recognized over a weighted average period of 1.6 years.
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Employee Stock Purchase Plan
The Company’s 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 3,374, 3,774 and 5,016
shares of common stock issued under the Amended ESPP in 2015, 2014 and 2013, respectively, resulting in an expense of $56,000,
$54,000 and $45,000, respectively. For shares purchased under the Company’s Amended ESPP, a weighted-average expected volatility of
49%, 40% and 36% was used for 2015, 2014 and 2013, respectively. The expected term for shares issued under the ESPP is 6 months. As
of December 31, 2015, 215,821 shares of common stock had been issued under the Amended ESPP to employees and 72,367 shares are
available for future issuance.
Preferred Stock
The Company has authorized 5,000,000 shares of preferred stock, of which 1,600,000 are designated Series A Participating Preferred
Stock (the “Preferred Stock”). The Board of Directors of Ligand has the authority to issue the Preferred Stock in one or more series and to
fix the designation, powers, preferences, rights, qualifications, limitations and restrictions of the shares of each such series, including the
dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions),
liquidation preferences and the number of shares constituting any such series, without any further vote or action by the stockholders. The
rights and preferences of Preferred Stock may in all respects be superior and prior to the rights of the common stock. The issuance of the
Preferred Stock could decrease the amount of earnings and assets available for distribution to holders of common stock or adversely affect
the rights and powers, including voting rights, of the holders of the common stock and could have the effect of delaying, deferring or
preventing a change in control of Ligand. As of December 31, 2015 and 2014, 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.
Corporate Share Repurchase
In September 2015, the Company's Board of Directors authorized the Company to repurchase up to $200 million of its own stock
in privately negotiated and open market transactions for a period of up to three years, subject to the Company's evaluation of market
conditions, applicable legal requirements and other factors. During the year ended December 31, 2015, the Company repurchased 6,120
common shares at a weighted average price of $79.92 per share pursuant to the repurchase plan, or $0.5 million of common shares.
In August 2014, the Company's Board of Directors authorized the Company to repurchase up to $200 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 plan expired in August 2015. During the year ended 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.
9. Litigation
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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
In 2012, a federal securities class action and shareholder derivative lawsuit was filed in Pennsylvania alleging that the Company and
its CEO assisted various breaches of fiduciary duties based on the Company’s purchase of a licensing interest in a development-stage
pharmaceutical program from the Genaera Liquidating Trust in 2010 and the Company’s subsequent sale of half of its interest in the
transaction to Biotechnology Value Fund, Inc. Plaintiff filed a second amended complaint in February 2015, which the Company moved to
dismiss in March 2015. The district court granted the motion to dismiss on November 11, 2015. The plaintiff has appealed that ruling to
the Third Circuit. The Company intends to continue to vigorously defend against the claims against the Company and its CEO. The
outcome of the matter is not presently determinable.
Paragraph IV Certification by Par Pharmaceuticals
On January 7, 2016, the Company received a paragraph IV certification from Par Sterile Products, LLC, a subsidiary of Par
Pharmaceuticals, Inc., or Par, advising us that it had filed an ANDA with the FDA seeking approval to market a generic version of Merck’s
NOXAFIL-IV product. The paragraph IV certification states it is Par’s position that Merck’s U.S. Patent No. 9,023,790 related to
NOXAFIL-IV and our U.S. Patent No. 8,410,077 related to Captisol are invalid and/or will not be infringed by Par’s manufacture, use or
sale of the product for which the ANDA was submitted. On February 19, 2016, Merck filed an action against Par in the United States
District Court for the District of New Jersey, asserting that Par’s manufacture, use or sale of the product for which the ANDA was
submitted would infringe Merck’s U.S. Patent No. 9,023,790. The case against Par is captioned Merck Sharpe & Dohme Corp. v. Par
Sterile Products, LLC, Par Pharmaceuticals, Inc., Par Pharmaceutical Companies, Inc., and Par Pharmaceutical Holdings, Inc., No.16-cv-
00948.
10. Income Taxes
At December 31, 2015, the Company had federal net operating loss carryforwards set to expire through 2036 of $537.1 million and
$138.4 million of state net operating loss carryforwards. The Company also has $10.6 million of federal research and development credit
carryforwards, which expire through 2036. The Company has $14.1 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 2015, the Company completed
a rollforward analysis through December 31, 2014. As a result of the rollforward analysis, it was determined that no additional ownership
changes occurred at the Company within the meaning of section 382 since June 20, 2007. 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,
2015. 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,
2015
2014
2013
$
11 $
7
18
(193,398)
(26,216)
$ (219,596) $
15 $
19
34
406
(30)
410 $
—
33
33
404
(63)
374
In periods prior to the year ended December 31, 2015, the Company concluded that a full valuation allowance was necessary to
offset its deferred tax assets, due to a history of operating losses and other key operating factors. As of September 30, 2015, the Company
concluded that it was more likely than not that a substantial portion of its deferred tax assets would be realized through future taxable
income. The Company's income tax provision for the year ended December 31, 2015, included a discrete income tax benefit related to the
release of a majority of the Company’s valuation allowance and various adjustments to its deferred tax assets, including studies validating
the Company’s tax attributes and adjustments resulting from the tax return filings during the quarter.
Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2015 and 2014 are shown below. The
Company assesses the positive and negative evidence to determine if sufficient future taxable income will be generated to use the existing
deferred tax assets. During the third quarter of the year, the Company's evaluation of evidence resulted in management concluding that the
majority of the Company's deferred tax assets will be realized. However, the Company maintains a valuation allowance to offset certain net
deferred tax assets as management believes realization of such assets are uncertain as of December 31, 2015, 2014 and 2013. The valuation
allowance decreased $230.7 million in 2015, decreased $9.8 million in 2014 and decreased $5.4 million in 2013.
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
Deferred rent
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
67
December 31,
2015
2014
(in thousands)
188,076 $
25,613
8,839
1,523
707
3
3,007
—
—
68
17,281
245,117
(9,066)
236,051 $
(1,256) $
(1,844)
(12,770)
(3,617)
216,564 $
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)
$
$
$
$
Table of Contents
As of December 31, 2015 and 2014, the Company had not recognized as a deferred tax asset $11.5 million and $8.1 million,
respectively of unrealized excess tax benefits from stock-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 million, $0.7 million and $1.0 million for 2015, 2014 and 2013, respectively.
A reconciliation of income tax expense (benefit) from continuing operations to the amount computed by applying the statutory federal
income tax rate to the net income (loss) from continuing operations is summarized as follows:
Amounts computed at statutory federal rate
State taxes net of federal benefit
Meals & entertainment
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
Avinza true up
Change in valuation allowance
Other
Year Ended December 31,
2015
(13,198) $
(386)
(16)
161
(197)
(1,684)
(140)
(232)
(304)
293
5,756
(3,329)
2,107
231,370
(605)
219,596 $
$
$
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)
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, 2015 and 2014 is as follows (in thousands):
Balance at December 31, 2013
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Balance at December 31, 2014
Additions based on tax positions related to the current year
Additions based on tax positions related to prior years
Reductions for tax positions of prior years
Balance at December 31, 2015
$
$
$
8,504
40
(20)
8,524
154
219
(450)
8,447
Included in the balance of unrecognized tax benefits at December 31, 2015 is $7.6 million of tax benefits that, if recognized would
impact the effective rate. There are no positions for which it is reasonably possible that the uncertain tax benefit will significantly increase
or decrease within twelve months.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2015
and December 31, 2014, there was an accrual related to uncertain tax positions of $29,000 and $32,000,
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respectively. 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 2012 tax year to present. The state income tax returns generally remain
open for the 2011 tax years through present. Changes to the valuation allowance allocated directly to equity were $0 million, $1.1 million,
and $0 million for the years ended December 31, 2015, 2014, and 2013, respectively.
As of December 31, 2015, approximately $4.2 million of the valuation allowance for deferred tax assets related to benefits of stock
option deductions which, when recognized, will be allocated directly to paid-in-capital.
For the year ended December 31, 2015, the Company has adopted ASU 2015-17, Income Taxes (Topic 740) Balance Sheet
Classification of Deferred Taxes which requires noncurrent classification of all deferred tax liabilities and assets.
Under current GAAP, in a classified statement of financial position, deferred tax assets and liabilities are separated into a current
amount and a non-current amount on the basis of the classification of the related asset or liability for financial reporting. Deferred tax
assets and liabilities that are not related to an asset or liability for financial reporting are classified according to the expected reversal date of
the temporary difference. On November 20, 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740) Balance Sheet Classification
of Deferred Taxes which requires non-current classification of all deferred tax assets and liabilities for all public entities for annual periods
beginning after December 15, 2016. ASU 2015-17 also provides for early adoption for all entities as of the beginning of an annual period.
For the year ended December 31, 2015, the Company has elected to early adopt ASU 2015-17 and will present all its deferred tax assets
and liabilities as non-current for the period ended December 31, 2015. The Company has applied the Standard on a prospective basis.
Therefore, the classification of deferred tax assets and liabilities in periods prior to the period ended December 31, 2015 have not been
changed from the original presentation.
11. Summary of Unaudited Quarterly Financial Information
As discussed in Note 1, management opted to restate certain amounts in the previously reported financial statements as of and for
the three and nine months ended September 30, 2015 to correct an immaterial error in the calculation of certain capital loss carry-forwards
at September 30, 2015 related to the sale of the Avinza product line. The restated amounts are set forth in the following tables (in
thousands, except share data):
Three months ended,
September 30, 2015
Nine months ended,
September 30, 2015
Income tax benefit
Net income
Basic net income per share
Diluted net income per share
Previously Reported
217,255
$
224,539
11.29
10.46
$
$
$
$
$
Restated
219,362
226,646
11.40
10.56
Previously Reported
216,976
$
248,857
12.61
11.78
$
$
$
$
$
Restated
219,083
250,964
12.71
11.88
Long-term deferred tax assets
Accumulated deficit
As of September 30, 2015
Previously Reported
206,423
$
(410,458 )
$
Restated
208,530
(408,351 )
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Table of Contents
The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 2015 and 2014 (in
thousands).
2015
Total revenues
Total operating costs and expenses
Income tax (expense) benefit
Income from continuing operations
Net loss attributable to noncontrolling interests
Net income
Basic per share amounts:
Net income
Diluted per share amounts:
Net income
Weighted average shares—basic
Weighted average shares—diluted
2014
Total revenues
Total operating costs and expenses
Income tax expense
Income from continuing operations
Net loss attributable to noncontrolling interests
Net income
Basic per share amounts:
Net income
Diluted per share amounts:
Net income
March 31
June 30
September 30 (1)
December 31
Quarter ended
$
$
$
$
$
14,602 $
11,253
(15)
(89)
(843)
754
18,418 $
14,053
(265)
22,027
(1,537)
23,564
17,701 $
9,104
219,362
226,646
—
226,646
0.04 $
1.19 $
11.40 $
0.04 $
1.11 $
10.56 $
19,612
20,631
15,958 $
10,858
(53)
2,097
—
2,097
19,725
21,276
10,608 $
9,250
47
1,288
(304)
1,592
19,887
21,460
14,973 $
11,441
(124)
777
(503)
1,280
21,193
10,175
514
6,341
—
6,341
0.32
0.29
19,933
21,542
22,999
13,363
(280)
6,730
(325)
7,055
0.10 $
0.08 $
0.06 $
0.35
0.10
0.07
0.06
0.34
Weighted average shares—basic
Weighted average shares—diluted
(1) Restated to correct an error that was deemed immaterial to the financial statements taken as a whole: Deferred income taxes as of
September 30, 2015 and income tax benefit for the three and nine months ended September 30, 2015 were restated to correct an
immaterial error in the calculation of certain capital loss carry-forwards related to the sale of the Avinza product line.
20,601
21,208
20,417
21,345
20,738
21,780
19,878
20,792
12. Subsequent Event
Acquisition of OMT
In January 2016, the Company acquired OMT, a leader in genetic engineering of animals for the generation of human therapeutic
antibodies through its OmniAb platform. OMT offers three transgenic animal platforms for license, including OmniRat®, OmniMouse®
and OmniFlic®. The transaction added 16 partnered programs to the Company's portfolio. As a result of the acquisition, the Company paid
$96.4 million in cash and issued $85.4 million in shares of Ligand common stock. The aggregate merger consideration is subject to certain
adjustments, including amounts based on changes in OMT's net working capital and cash at closing. The Company issued 793,594 shares
of its common stock based on a 20-day volume-weighted average price of $107.66 of its common stock calculated three days prior to
closing.
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In connection with the closing of the merger, OMT's former chief executive officer, Roland Buelow, joined the Company as an
employee and was granted stock options with an aggregate value of $2.0 million on the date of grant and performance stock units with an
aggregate value of $18.0 million on the date of grant. Dr. Buelow's performance stock units will vest based on achievement of certain
milestones related to the OMT business, including annual revenues, research and development milestones and entering into new business
releationships. Dr. Buelow also entered into a noncompetition agreement with the Company pursuant to which he agreed not to engage in
any competitive activities for a period of two years following the merger.
Due to the close proximity of the acquisition date and the Company’s filing of its annual report on Form 10-K for the year ended
December 31, 2015, the initial accounting for the business combination is incomplete, and therefore the Company is unable to disclose the
information required by ASC 805, Business Combinations. Such information will be included in the Company’s subsequent Form 10-Q.
Viking Note Amendment
In January 2016, the Company entered into a second amendment to the LSA with Viking. The Company provided Viking with
loans in an aggregate amount of $2.5 million, evidenced by a Secured Convertible Promissory Note. The loan amendment extends the
maturity date of the loans under the Viking Note from May 21, 2016 to May 21, 2017, reduces the annual interest rate from 5.0% to 2.5%,
and extends the Company’s lock-up period by one year such that the Company may not, sell or otherwise transfer or dispose of any Viking
securities prior to January 23, 2017. Additionally, upon the consummation of Viking’s first capital financing transaction, Viking will be
required to repay $1.5 million of the Viking Note obligation to the Company, with at least $0.3 million to be paid in cash and the remaining
amount to be paid in the form of shares of Viking’s equity securities.
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, 2015, our disclosure controls and procedures were effective.
Changes in Internal Controls
As disclosed in Form 10-Q for the three- and nine-month periods ended September 30, 2015, we have identified a material weakness
in our internal controls related to management’s review of the manual calculation of certain projections used in the valuation of certain
contingent liabilities, specifically, the review lacks sufficient precision to confirm the related calculation. We undertook the following steps
in the course of our fourth fiscal quarter in order to remediate the identified material weakness:
• We performed a review of all the manual calculation schedules used in our financial accounting and reporting and
identified the key manual schedules based on the complexity of the calculation in the schedule and the associated risk of material
misstatement in the financial statements.
• For all the identified key manual schedules including the one for the projections used in the valuation of certain contingent
liabilities, we enhanced our procedures and controls by implementing additional management review as well as the frequency of the
review of the clerical accuracy of all the formulas and calculation within the schedules.
• Enhanced the precision of management analytical review of the projections and calculation used in certain contingent
liabilities by implementing certain reconciliation with management expectation as well as defining the materiality for acceptable
variance from management expectation.
Except for the changes mentioned above, 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 COSO as set forth in the 2013 Internal Control-Integrated Framework. Based on our evaluation
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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, 2015.
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, 2015; their report is included in Item 9A.
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.
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/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 29, 2016.
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 29,
2016.
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 29,
2016.
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 29,
2016.
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 29,
2016.
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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
38
39
40
41
42
43
44
46
(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
2.2
3.1
3.2
3.3
3.4
3.5
3.6
4.1
4.2
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).
Agreement and Plan of Merger, dated as of December 17, 2015, by and among Ligand Pharmaceuticals
Incorporated, Open Monoclonal Technology, Inc., OMT, LLC, Schrader 1 Acquisition, Inc., Schrader 2
Acquisition, Inc. and Fortis Advisors LLC (incorporated by reference to the Company’s Current Report on Form
8-K filed on December 18, 2015).
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).
Third Amended and Restated Bylaws of the Company (incorporated by reference to the Company’s Current
Report on Form 8-K filed on September 10, 2015).
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).
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Exhibit
Number
Description
4.3
4.4
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†
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).
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).
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Exhibit
Number
10.18†
10.19†
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
Description
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).
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).
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).
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
10.34
10.35
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
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 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 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).
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).
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).
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).
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Exhibit
Number
10.51
10.52
10.53
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†
Description
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).
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).
80
Table of Contents
Exhibit
Number
10.67†
10.68†
10.69†
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†
Description
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).
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).
81
Table of Contents
Exhibit
Number
10.85†
10.86
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†
Description
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).
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).
Second Amendment to Master License Agreement, dated April 8, 2015, among the Company, Metabasis
Therapeutics, Inc. and Viking Therapeutics, Inc. (incorporated by reference the Company’s Quarterly Report on
Form 10-Q for the period ended June 30, 2015).
82
Table of Contents
Exhibit
Number
10.102†
10.103†
10.104†
21.1
23.1
31.1
31.2
32.1
Description
First Amendment to Loan and Security Agreement, dated April 8, 2015, among the Company, Metabasis
Therapeutics, Inc. and Viking Therapeutics, Inc. (incorporated by reference the Company’s Quarterly Report on
Form 10-Q for the period ended June 30, 2015).
Amendment No. 4 to Sublicense Agreement, dated September 17, 2015, among the Company, Pharmacopeia,
LLC and Retrophin, Inc. (incorporated by reference the Company’s amended Quarterly Report on Form 10-Q for
the period ended September 30, 2015, as filed on December 23, 2015).
Lease, dated November 3, 2015, between the Company and 3911/3931 SVB, LLC (incorporated by reference to
the Company’s Current Report on Form 8-K filed on November 10, 2015).
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.
83
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 26, 2016
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/ MATTHEW KORENBERG
Matthew Korenberg
/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 26, 2016
Executive Officer)
Vice President, Finance and Chief Financial Officer
February 26, 2016
(Principal Financial Officer)
Chief Accounting Officer (Principal Accounting
February 26, 2016
Officer)
Director
Director
Director
Director
Director
Director
Director
84
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
LIGAND PHARMACEUTICALS INCORPORATED
LIST OF SUBSIDIARIES
Exhibit 21.1
Name
Glycomed Incorporated
Allergan Ligand Retinoid Therapeutics, Inc.
Ligand Pharmaceuticals International, Inc.
Ligand Biopharmaceuticals, Incorporated
Ligand JVR, Inc.
Seragen Incorporated
Seragen Technology, Inc.
Pharmacopeia, LLC
Metabasis Therapeutics, Inc.
Neurogen Corporation
CyDex Pharmaceuticals, Inc.
Open Monoclonal Technology, Inc.
OMT I, Inc.
OMT I, Inc.
Jurisdiction of Incorporation
California
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our reports dated February 26, 2016, 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,
2015. We hereby consent to the incorporation by reference of said reports in the Registration Statements of Ligand Pharmaceuticals
Incorporated on Forms S-3 (File No. 333-208919 and 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 26, 2016
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, John L. Higgins, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Ligand Pharmaceuticals Incorporated;
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)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a)
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
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
b)
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 26, 2016
/s/ John L. Higgins
John L. Higgins
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Matthew Korenberg, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Ligand Pharmaceuticals Incorporated;
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)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a)
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
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
b)
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 26, 2016
/s/ Matthew Korenberg
Matthew Korenberg
Vice President, Finance 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, 2015, 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)
Date:
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
February 26, 2016
/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, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Matthew Korenberg, Vice
President, Finance 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 26, 2016
/s/ Matthew Korenberg
Matthew Korenberg
Vice President, Finance 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.