UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________________________________________
FORM 10-K
_____________________________________________________________________________________________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2019
OR
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)
3911 Sorrento Valley Boulevard, Suite 110
San Diego
CA
(Address of Principal Executive Offices)
77-0160744
(IRS Employer
Identification No.)
92121
(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
Trading Symbol
LGND
Name of Each Exchange on Which Registered
The Nasdaq Global Market
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 ☒ No ☐
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 ☐ No ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the
definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
☐ Emerging growth company
☐ Non-accelerated Filer
☒ Accelerated Filer
Smaller reporting company
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the Registrant’s voting and non-voting stock held by non-affiliates was approximately $ 1.8 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 28, 2019. For purposes of this calculation, shares of Common Stock held by directors, officers and
10% stockholders known to the Registrant have been deemed to be owned by affiliates which should not be construed to indicate that any such person possesses the power, direct or indirect,
to direct or cause the direction of the management or policies of the Registrant or that such person is controlled by or under common control with the Registrant.
As of February 21, 2020, the Registrant had 16,505,197 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant’s 2020 Annual Meeting of Stockholders to be filed with the Commission within 120 days of December 31, 2019 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
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Selected Consolidated Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Consolidated Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K - Summary
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Item 16.
Signatures
1
25
36
36
37
37
37
39
40
47
48
87
87
87
89
89
89
89
89
90
90
94
Abbreviation
Definition
GLOSSARY OF TERMS AND ABBREVIATIONS
$245.0 million aggregate principal amount of convertible senior unsecured notes due 2019
$750.0 million aggregate principal amount of convertible senior unsecured notes due 2023
Accreditation of Laboratory Animal Care International
Ab Initio Biotherapeutics, Inc.
Abvivo, LLC
ACOVA, Inc.
Acute decompensated heart failure
2019 Notes
2023 Notes
AAALAC
Ab Initio
Abvivo
ACOVA
ADHF
Aldeyra
Amended Interest Purchase Agreement
Aldeyra Therapeutics, Inc.
Amended and Restated Interest Purchase Agreement, dated May 31, 2017, between the Company and CorMatrix Cardiovascular, Inc.
Amgen
ANDA
API
Aptevo
Arcus
ASC
ASCO
ASCT
ASU
Aziyo
Baxter
BeiGene
BendaRx
Bexson Biomedical
BMS
CStone
CASI
Cardioxyl
CI-AKI
Code of Conduct
Coherus
CoM
Company
Convertible Note
COPD
Cormatrix
Cormatrix Asset Sale
Corvus
COSO
CRO
Crystal
Cumulus
CVR
CyDex
Amgen, Inc.
Abbreviated New Drug Application
Active pharmaceutical ingredient
Aptevo Therapeutics
Arcus Biosciences, Inc.
Accounting Standards Codification
American Society of Clinical Oncology
Autologous Stem Cell Transplantation
Accounting Standards Update
Aziyo Med, LLC
Baxter International, Inc.
BeiGene Switzerland GmbH
BendaRx Corp.
Bexson Biomedical, Inc.
Bristol Myers Squibb
CStone Pharmaceuticals (Suzhou) Co., Ltd.
CASI Pharmaceuticals, Inc.
Cardioxyl Pharmaceuticals, Inc.
Contrast-induced acute kidney injury
Code of Conduct and Ethics Policy
Coherus Biosciences, Inc.
Composition of Matter
Ligand Pharmaceuticals Incorporated, including subsidiaries
Senior Convertible Promissory Note
Chronic obstructive pulmonary disease
Cormatrix Cardiovascular, Inc.
Asset sale from CorMatrix to Aziyo
Corvus Pharmaceuticals, Inc.
Committee of Sponsoring Organizations of the Treadway Commission
Contract Research Organization
Crystal Bioscience, Inc.
Cumulus Oncology, Ltd.
Contingent value right
CyDex Pharmaceuticals, Inc.
Daiichi Sankyo
Dianomi
DMF
ESG
Eisai
Eli Lilly
ECM
EPA
ESPP
EU
Exelixis
FASB
FDA
FSGS
GAAP
GBM
Genagon
GCSF
GigaGen
Gilead
GPCR
GRA
HanAll
Harbour
HBV
HCC
Hikma
HNO
Hovione
Icagen
IPR&D
IRAK4
IRS
IV
iMBP
Immunovant
IND
Kira Pharma
KSQ Therapeutics
Ligand
LTP
Lundbeck
Marinus
MCM
Melinta
Merck
Merrimack
Daiichi Sankyo Company, Ltd.
Dianomi Therapeutics, Inc.
Drug Master File
Environmental, Social and Governance
Eisai Inc.
Eli Lilly and Company
Extracellular matrix
Environmental Protection Agency
Employee Stock Purchase Plan, as amended and restated
European Union
Exelixis, Inc.
Financial Accounting Standards Board
Food and Drug Administration
Focal segmental glomerulosclerosis
Generally accepted accounting principles in the United States
Glioblastoma
Genagon Therapeutics AB
Granulocyte-colony stimulating factor
GigaGen, Inc.
Gilead Sciences, Inc.
G-protein coupled receptor
Glucagon receptor antagonist
HanAll Biopharma Co., Ltd.
Harbour BioMed Shanghai Co., Ltd.
Hepatitis B Virus
Hepatocellular Carcinoma
Hikma Pharmaceuticals PLC
Nitroxyl
Hovione FarmCiencia, S.A.
Icagen, Inc.
In-Process Research and Development
Interleukin-1 Receptor Associated Kinase-4
Internal Revenue Service
Intravenous
iMetabolic Biopharma Corporation
Immunovant Sciences GmbH
Investigational New Drug
Kira Pharmaceuticals Ltd.
KSQ Therapeutics, Inc.
Ligand Pharmaceuticals Incorporated, including subsidiaries
Liver targeting prodrug
Lundbeck A/S
Marinus Pharmaceuticals, Inc.
Mineral Coated Microparticle
Melinta Therapeutics, Inc.
Merck & Co., Inc.
Merrimack Pharmaceuticals, Inc.
Metabasis
Metavant
Millennium
MLA
MRSA
NASH
NDA
NOLs
Novan
Novartis
Nucorion
OMT
Ono
Opthea
Metabasis Therapeutics, Inc.
Metavant Sciences Ltd.
Millennium Pharmaceuticals, Inc.
Master License Agreement
Methicillin-resistant Staphylococcus aureu
Non-alcoholic steatohepatitis
New Drug Application
Net Operating Losses
Novan, Inc.
Novartis AG
Nucorion Pharmaceuticals, Inc.
Open Monoclonal Technology, Inc.
Ono Pharmaceutical Co., Ltd.
Opthea Limited
Orange Book
Original Interest Purchase Agreement
Publication identifying drug products approved by the FDA based on safety and effectiveness
Interest Purchase Agreement, dated May 3, 2016, between the Company and CorMatrix Cardiovascular, Inc.
Palvella
Par
Pfizer
PFS
Pharmacopeia
Phoenix Tissue
PhoreMost
PPD
PSU
R&D
Retrophin
Roivant
RSU
SAGE
SARM
SEC
Sedor
Seelos
Selexis
Sermonix
Spectrum
SQ Innovation
Sunshine Lake Pharma
Takeda
Talem
Tax Act
Teva
TG Therapeutics
TR-Beta
Valanbio
Palvella Therapeutics, Inc.
Par Pharmaceutical, Inc.
Pfizer, Inc.
Progression-free Survival
Pharmacopeia, Inc.
Phoenix Tissue Repair
PhoreMost Limited
Post-Partum Depression
Performance stock unit
Research and Development
Retrophin Inc.
Roivant Sciences GMBH
Restricted stock unit
Sage Therapeutics, Inc.
Selective Androgen Receptor Modulator
Securities and Exchange Commission
Sedor Pharmaceuticals, Inc., or RODES, Inc.
Seelos Therapeutics, Inc.
Selexis, SA
Sermonix Pharmaceuticals, LLC
Spectrum Pharmaceuticals, Inc.
SQ Innovation, Inc.
Sunshine Lake Pharma Co., Ltd.
Takeda Pharmaceuticals Company Limited
Talem Therapeutics LLC
The Tax Cuts and Jobs Act
Teva Pharmaceuticals USA, Inc., Teva Pharmaceutical Industries Ltd. and Actavis, LLC
TG Therapeutics, Inc.
Thyroid hormone receptor beta
Valanbio Therapeutics, Inc.
VDP
VentiRx
Vernalis
Verona
Viking
Vireo
WuXi
WuXi Agreement
Xi'an Xintong
X-ALD
xCella Biosciences
Zydus Cadila
Vernalis Design Platform
VentiRx Pharmaceuticals, Inc.
Vernalis plc
Verona Pharma plc
Viking Therapeutics
Vireo Health
WuXi Biologics Ireland Limited
The Platform License Agreement, dated March 23, 2015, by and between Ligand and WuXi, as amended
Xi'an Xintong Medicine Research
X-linked adrenoleukodystrophy
xCella Biosciences, Inc.
Zydus Cadila Healthcare, Ltd
PART I
Cautionary Note Regarding Forward-Looking Statements:
You should read the following report 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.
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 future results of operations and financial position, royalties and milestones under license agreements, Capitsol material sales, product development, and product
regulatory filings and approvals, and the timing thereof, 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.
Partner Information
Information regarding partnered products and programs comes from information publicly released by our partners and licensees.
Trademarks
Our trademarks, trade names and service marks referenced herein include Ligand®, Captisol®, LTP™, LTP technology™, OmniAb®, OmniMouse®, OmniRat®,
OmniFlic®, OmniClic™, OmniChicken® , Vernalis®, VDP™ and HepDirect™ which are protected under applicable intellectual property laws and are our property. All other
trademarks, trade names and service marks including Kyprolis®, Evomela®, ZulressoTM, Minnebro®, Baxdela®, CarnexivTM, ConbrizaTM, Duavee®, Promacta®, SUREtechnology
PlatformTM, Viviant®, VivitraTM, Bryxta®, and Exemptia® are the property of their respective owners. Solely for convenience, trademarks, trade names and service marks
referred to in this report may appear without the ®, TM or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent
under applicable law, our rights or the right of the applicable licensor to such trademarks, trade names and service marks. 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.
1
Item 1.
Business
Overview
We are a biopharmaceutical company focused on developing and acquiring technologies that help pharmaceutical companies discover and develop medicines. We
employ research technologies such as antibody discovery technologies, structure-based drug design, formulation science and liver targeted pro-drug technologies to assist
companies in their work toward securing prescription drug and biologic approvals. We currently have partnerships and license agreements with over 120 pharmaceutical and
biotechnology companies. Over 200 different programs are in various stages of commercialization and development and fully funded by our collaboration partners and
licensees. We have contributed novel research and technologies for approved medicines that treat cancer, osteoporosis, fungal infections and PPD, among others. Our
collaboration partners and licensees have programs currently in clinical development targeting cancer, seizure, diabetes, cardiovascular disease, muscle wasting, liver disease,
and kidney disease, among others. We have over 1,200 issued patents worldwide.
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, which we refer to as "shots on goal," 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 and then seek partners to continue development and potential
commercialization.
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, sale of Captisol material, and revenue from license, milestone and other service
payments. 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.
2019 and Recent Major Business Highlights
Major Transactions and Strategic Investments
Consistent with our business model, we pursued novel investments to augment our technology platforms and assets. We acquired Ab Initio in a $12 million acquisition
that brought Ligand a patented antigen technology that is synergistic with our OmniAb® therapeutic antibody discovery platform. We also invested $3 million in Dianomi in
exchange for equity and a royalty rights on future development programs using Dianomi’s patented Mineral Coated Microparticle (MCM) technology. In 2019, we sold our
assets and royalty rights for Promacta to Royalty Pharma for $827 million.
On February 11, 2020, we announced the signing of an agreement to acquire the core assets, partnered programs and ion channel technology from Icagen for $15 million
in cash. Icagen will also be entitled to receive up to an additional $25 million of cash payments based on certain revenue achievements. The transaction is subject to certain
closing conditions, including a vote of Icagen stockholders, and is expected to close in April 2020.
Corporate and Governance Highlights
2
Ligand’s Board of Directors is highly committed to policies and practices focused on environmental sustainability, positively impacting our social community and
maintaining and cultivating good corporate governance. By focusing on such ESG policies and practices, we believe we can affect a meaningful and positive change in our
community and maintain our open, collaborative corporate culture. We will continue our proactive shareholder and employee engagement in 2020. See www.ligand.com for
information about our ESG policies and practices.
Sarah Boyce joined our Board, increasing the total number of Directors to nine. Also in 2019, two members of our Board, Nancy Gray and Sarah Boyce, were named to
WomenInc’s Most Influential Corporate Directors list.
OmniAb Technology Platform Updates
We continue to invest in and expand the OmniAb Technology platform, and in 2019 we launched OmniClic™, a novel next-generation common light chain
OmniChicken-based discovery technology focused on bispecific antibodies. We entered into nine new OmniAb platform license agreements in 2019 with Sanofi,
Millennium/Takeda, GigaGen, Talem Therapeutics, Kira Pharma, Genagon, Ascella, Unity Biotechnology and Abvivo. Our scientists and our partners presented data
highlighting the utility of the OmniAb platform at multiple conferences throughout the year, and we published multiple papers in peer-reviewed journals.
Development-stage OmniAb partners continue to report progress clinically; notable advancements include:
•
•
•
CStone’s CS1001, an OmniAb-derived anti-PD-L1 antibody, that demonstrated promising antitumor activity with a complete response rate of 33.3% in a Phase 2 trial
in patients with relapsed or refractory extranodal natural killer/T-cell lymphoma. CStone also announced the start of a Phase 3 trial assessing CS1001 in combination
with chemotherapy for treatment of gastric or gastro-esophageal cancers.
Immunovant starting ASCEND-GO 2, a placebo-controlled Phase 2b trial evaluating OmniAb-derived IMVT-1401 in patients with Graves’ ophthalmopathy. IMVT-
1401 is a fully human antibody that selectively binds to and inhibits the neonatal Fc receptor.
Aptevo Therapeutics announcing positive Phase 1 data for APVO436, and GenMab highlighting clinical progress of the OmniAb-derived DuoBody-PD-L1x4-1BB.
Captisol Technology Updates
We reported the highest level of annual Captisol material sales in 2019, and we entered into new Captisol clinical use or license and supply agreements with a number of
new partners, including: Millennium/Takeda; Merck KGaA, reVision Therapeutics; SQ Innovation; BendaRx; Bexson Biomedical, Valanbio; and others.
Kyprolis® is an Amgen product that utilizes Captisol in its formulation. We earn royalties on global sales of Kyprolis and also receive revenue for material sales. In
September 2019, Amgen announced that the Phase 3 CANDOR study met its primary endpoint of progression-free survival. The regimen resulted in a 37% reduction in the risk
of progression or death in patients with relapsed or refractory multiple myeloma. In October 2019, Amgen announced a strategic collaboration with BeiGene, an oncology-
focused biotechnology company with an established infrastructure in China, to expand its oncology presence in the region. Kyprolis is currently under regulatory review in
China for relapsed and refractory multiple myeloma.
New Captisol-enabled products were launched or expanded into new geographies in 2019, with SAGE launching ZULRESSO™ for the treatment of postpartum
depression in the US, and CASI launching Evomela® in China.
Gilead Sciences announced on January 31, 2020 that they are working closely with global health authorities to respond to the novel coronavirus (COVID-19) outbreak
through the appropriate experimental use of remdesivir (GS-5734). Remdesivir is formulated with Captisol. Gilead has initiated clinical trials together with Chinese authorities
in patients who have been infected with COVID-19 to determine the safety and efficacy of remdesivir as a potential treatment for the virus. Remdesivir was also highlighted in
The New England Journal of Medicine for treating the first case of COVID-19 in the United States. We have a non-exclusive supply agreement with Gilead, and our economics
are built into Captisol material sales.
On February 20, 2020, we entered into a Captisol Use/Supply Agreement with China Resources Double-Crane Pharmaceuticals Co., Ltd, (“CR Double Crane”), pursuant
to which we will supply Captisol to CR Double Crane for use in preclinical and clinical studies of remdesivir to treat the 2019 novel coronavirus, 2019-nCoV. We will receive
revenues based on the amount of Captisol ordered by CR Double Crane.
Development-stage Captisol partners reported progress of programs in a variety of therapy areas, notably:
3
• Marinus announced positive results from a Phase 2 trial of ganaxolone in Refractory Status Epilepticus.
• Merck KGaA announced Phase 2 results for M6620, an ATR kinase inhibitor, demonstrating that addition of M6620 to gemcitabine extended PFS without added
toxicity in patients with platinum-resistant cancer.
•
•
Takeda announced results of a Phase 1 proof-of-concept study of Captisol-enabled TAK-925, a selective orexin type-2 receptor (OX2R) agonist, in individuals with
narcolepsy type 1.
SAGE announced plans for SAGE-689, a potential therapy for disorders associated with GABA hypofunction. SAGE expects to commence a Phase 1 trial in 2020.
Vernalis Design Platform (VDP) Updates
We continued to expand our portfolio of VDP-derived partnerships during 2019, following our 2018 acquisition of Vernalis and VDP partners continued to report on
development progress.
•
Verona Pharma announced positive data in a 4-week Phase 2b COPD trial with nebulized ensifentrine on top of tiotropium therapy. The primary endpoint was met at
all doses, and ensifentrine produced clinically and statistically significant improvements in lung function. Verona intends to start Phase 3 in 2020.
• We entered a license agreement with Cumulus for VER250840, a novel, oral, Chk1 kinase inhibitor. We are eligible to receive more than $76 million of milestones and
tiered royalties in the mid-to-high single digits.
• We entered into a VDP collaboration with PhoreMost and will share revenues with PhoreMost on any future licenses.
Additional Pipeline Developments
Our existing pipeline of partnered programs continued to advance, with multiple partners reporting on clinical and regulatory developments. Selected highlights include:
•
•
•
•
•
Viking presented new results from a Phase 2 study of VK2809, its novel liver-selective thyroid hormone receptor beta agonist, in patients with non-alcoholic fatty
liver disease and elevated low-density lipoprotein cholesterol, and also announced the start of a Phase 2b trial in patients with biopsy-confirmed NASH.
Palvella announced that the Phase 3 pivotal portion of the seamless Phase 2/3 VALO study of PTX-022 for the treatment of patients with pachyonychia congenita had
commenced.
Retrophin announced new data from the Phase 2 DUET study, examining the impact of sparsentan on quality of life in patients with FSGS.
Sermonix started a Phase 2 trial of lasofoxifene in breast cancer, and announced grant of Fast Track Designation.
Sanofi presented positive Phase 3 data of sutimlimab in patients with cold agglutinin disease.
• Metavant informed Ligand that they no longer planned to initiate a proof-of-concept trial for RVT-1502 in Type 1 diabetes following requests from FDA for additional
non-clinical studies. Metavant is evaluating its development plans for the program.
•
Daiichi Sankyo announced the launch of MINNEBRO® (esaxerenone) tablets in Japan.
Select Partner Financing Events
Multiple partners completed financing events in 2019 to fund development of Ligand-partnered programs. Notably, CStone listed shares on the HKG and raised $266
million it is using to fund development of CS1001. Seelos completed a reverse merger and listed on Nasdaq. In conjunction with the transaction, Seelos generated gross
proceeds of $18 million to fund its pipeline. And, Nucorion announced the closing of a $5 million Series B financing to support Phase development for its lead program, NCO-
1010 for hepatitis B. NCO-1010 utilizes Ligand’s LTP Platform™ technology. Guangdong Ji-Bao Pharmaceutical Company of Guangzhou, China invested $4 million and
Ligand invested $1 million in the Nucorion Series B round.
Internal Pipeline Highlights
4
We continue to invest in internal R&D with the goal to secure valuable partnerships in the future. In 2019, we announced positive top-line results from a Phase 1 trial of
our internal Captisol-enabled (CE) Iohexol program. The trial achieved the primary endpoint by demonstrating pharmacokinetic bioequivalence of CE-Iohexol injection and a
reference Iohexol injection (OMNIPAQUE™) after IV administration in healthy adults. CE-Iohexol injection was well tolerated, and adverse events were in line with the
known safety profile of OMNIPAQUE. We plan to submit an IND with the FDA and to initiate a Phase 2 study in the U.S. in 2020. We also progressed five internal antibody-
related programs leveraging our OmniChicken technology that we initiated in mid-2018. The programs are focused on targets for which biology is known, centered in the
oncology space.
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 1,200 patents issued worldwide.
OmniAb Technologies
Our OmniAb technology includes our OmniRat, OmniMouse, OmniFlic, OmniChicken and OmniClic technology platforms for use in discovering fully human
antibodies. The OmniRat, OmniMouse, and OmniFlic platforms consist of genetically-engineered transgenic animals 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, streamlined development timelines and costs, and accelerated novel antibody discovery. The OmniChicken and
OmniClic platforms consist of genetically-engineered transgenic chickens which enable the generation of novel antibodies against targets that are not immunogenic in mammals
like mice and rats. We acquired these technologies through the acquisition of OMT in January 2016 and Crystal in October 2017. As of December 31, 2019, we had entered into
OmniAb platform license agreements with more than 40 collaboration partners, including 2 partners who have rights through our partnership with WuXi. Our OmniAb partners
were working on approximately 180 active programs, of which 12 were in various stages of clinical trials as of December 31, 2019.
Captisol Technology
Captisol is our 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. In addition to solid Captisol powder, we offer
our partners access to cGMP manufactured aqueous Captisol concentrate. This product offering was established in 2017 to reduce cycle time and increase Captisol production
capacity for large volume drug products. We maintain 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. We also have active DMFs in Japan, China and Canada. As of December 31, 2019, Captisol-
enabled drugs were being marketed in more than 70 countries, and over 40 partners had Captisol-enabled drugs in development.
Vernalis Design Platform (VDP)
5
The VDP technology leverages our leadership in structure-guided drug discovery in which protein structure, drug fragment screening and modeling are integrated with
medicinal chemistry to enable the rapid discovery of novel drugs. The VDP approach establishes structural information via x-ray crystallography and NMR methods and
develops reliable assay systems to test biophysical, functional and cellular properties. The VDP has proven success with highly-challenging pharmaceutical targets and has
generated a broad portfolio, with over 5,000 novel drug/target complexes determined and over 400 granted and pending patents. We acquired the VDP technology through our
acquisition of Vernalis in October of 2018, and maintain state-of-the-art laboratories in Cambridge, UK. As of December 31, 2019, we have agreements with 10 partners for
active research collaboration using VDP technology on a total of 17 active programs.
HepDirect/LTP Technology Platform
The HepDirect platform is a first generation liver-targeting prodrug technology designed to deliver certain phosphorus-containing drugs to the liver by using a proprietary
chemical modification that renders an API biologically inactive until cleaved by a liver-specific enzyme. The HepDirect™ technology may improve the efficacy and/or safety of
certain drugs and can be applied to marketed or new drug products to treat liver diseases or diseases caused by hemostasis imbalance of circulating molecules controlled by the
liver.
Our LTP platform is a broad second generation liver-targeting prodrug technology that has an activation mechanism similar to HepDirect but with broader applications
and many improved features. The proprietary chemical modifications can be used with many chemical classes of drugs in addition to phosphorus-containing compounds and
have multiple chemistry strategies, designed to improve flexibility and success rates. In addition, the second generation technology eliminates the undesirable by-products
released during activation of the first generation prodrugs. As of December 31, 2019, we had entered into HepDirect/LTP platform agreements with six partners, all of whom
had active programs.
SUREtechnology Platform (owned by Selexis)
We acquired economic rights to various SUREtechnology Platform programs from Selexis. 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. As of December 31, 2019, we are entitled to
certain economic rights to SUREtechnology Platform license agreements with 14 partners developing or having commercialized 23 programs.
Partners and Licensees
We currently have partnerships and license agreements with over 120 pharmaceutical and biotechnology companies. In addition to the table below, we also have more
than 10 undisclosed partners and licensees.
6
Big Pharma
AbbVie
AstraZeneca
Baxter
Boehringer Ingelheim
BMS
Daiichi Sankyo
Eli Lilly
Eisai
GSK
Janssen
Merck
Merck KGaA
Novartis
Ono
Otsuka
Pfizer
Sanofi
Takeda
Specialty Pharma
Acrotech
Aytu Bioscience
Aziyo
Beloteca
CASI
CorMatrix
CTI Biopharma
Cuda
Ferring
Gloria
Lundbeck
Proximagen
Sedor
Sermonix
Shire
SQ Innovation
Teijin
Vireo Health
Generics
Alvogen
BioCad
Coherus
Gedeon Richter
Ticker
ABBV
AZN
BAX
Private
BMY
DSKY
LLY
4523
GSK
JNJ
MRK
MRK.DE
NVS
4528
4768
PFE
SNY
4502
Ticker
Private
AYTU
Private
Private
CASI
Private
CTIC
Private
Private
2437
LUN
Private
Private
Private
SHPG
Private
TINLF
Private
Ticker
Private
Private
CHRS
GEDSF
Generics, continued
Hikma
Par
Zydus Cadila
Biotech
ABBA
ABL Bio
Abvivo
Aldeyra
Amgen
Arcus
Asahi Kasei
Ascella
BendaRx
Bexson Biomedical
bluebird bio
Cantex
Celgene
Corvus
CStone
Cumulus
Curon
CURx
Aptevo
Electra
Exelixis
Five Prime
F-Star
Genmab
Genagon
Genekey Biotech
Glenmark
GigaGen
Gilead Sciences
HanAll
Harbour
IBC Generium
iMetabolic
Immunovant
J-Pharma
Kira
KSQ
Marinus
7
Ticker
HIK
Private
CADILAHC
Ticker
Private
298380
Private
ALDX
AMGN
RCUS
3407
Private
Private
Private
BLUE
Private
CELG
CRVS
Biotech, continued
MEI
Melinta
Menarini
Meridian Labs
Metavant
Merrimack
Novan
Novogen
Nucorion
Opthea
Outlook
Palvella
Phoenix Tissue
Precision Biologics
Retrophin
Revision
SAGE
Seattle Genetics
2616.HK
Seelos
Private
Private
Private
APVO
Private
EXEL
FRPX
Private
GEN
Private
Private
GLENMARK
Private
GILD
9420
Private
Private
Private
IMVT
Private
Private
Private
MRNS
Servier
Sunshine Lake
Surface
Symphogen
Talem
Teneobio
TG Therapeutics
Tizona
Unity
Valanbio
Vaxxas
Vega
VenBio
VentiRx
Verona
Vertex
Viking
Virtuoso
xCella
Xi'an Xintong
XTL Bio
WuXi
Zhilkang Hongyi
Ticker
MEIP
MLNT
Private
Private
Private
MACK
NOVN
NVGN
Private
OPT
OTLK
Private
Private
Private
RTRX
Private
SAGE
SGEN
SEEL
Private
Private
SURF
Private
Private
Private
TGTX
Private
UBX
Private
Private
Private
Private
Private
VRNA
VRTX
VKTX
Private
Private
Private
XTLB
603259
Private
Commercial and Clinical Stage Partnered Portfolio
We have a large portfolio of current and future potential revenue-generating programs, including over 200 fully-funded by our partners. In addition to the table below, we
also have more than 100 undisclosed preclinical programs.
Partner Name
Approved
Program
Therapeutic Area
Acrotech/CASI
Alvogen
Amgen/Ono
Aytu
Aziyo
Baxter
Biocad
Exelixis/Daiichi-Sankyo
Hikma
Lundbeck
Melinta
Menarini
Merck
Par
Pfizer
Pfizer
Pfizer
SAGE
Zydus Cadila
Zydus Cadila
Zydus Cadila
Zydus Cadila
Evomela
Voriconazole
Kyprolis
Tuzistra
ECM portfolio
Nexterone
Teberif
Minnebro
Voriconazole
Carnexiv
Baxdela
Frovatriptan
Noxafil-IV
Posaconazole
Viviant/Conbriza
Duavee
Vfend-IV
Zulresso
Vivitra
Bryxta/ZyBev
Exemptia
Vortuxi
Cancer
Infectious Disease
Cancer
Infectious Disease
Medical device/Cardiology
Cardiovascular
Inflammatory/Metabolic
Cardiovascular
Infectious Disease
Central Nervous System
Infectious Disease
Central Nervous System
Infectious Disease
Infectious Disease
Inflammatory/Metabolic
Inflammatory/Metabolic
Infectious Disease
Central Nervous System
Cancer
Cancer
Inflammatory/Metabolic
Inflammatory/Metabolic
Partner Name
Program
Therapeutic Area
Phase 3/Pivotal or Regulatory Submission Stage
Aldeyra
Biocad
CStone
IBC Generium
Novan
Outlook Therapeutics
Retrophin
Sanofi
Sedor
Sunshine Lake
Takeda
Reproxalap
BCD-066
CS1001
GNR-008
SB206
ONS-5010
Sparsentan
Sutimlimab
CE-Fosphenytoin
Vilazodone
Pevonedistat
8
Other/Undisclosed
Blood Disorders
Cancer
Severe and Rare
Infectious Disease
Other/Undisclosed
Severe and Rare
Blood Disorders
Central Nervous System
Central Nervous System
Cancer
Partner Name
Phase 2
Program
Therapeutic Area
Cantex
Cardioxyl/BMS
CTI Biopharma
Eisai
Gilead
Gloria
Immunovant
J-Pharma
Marinus
Merck
Metavant
Novartis
Novartis
Novartis
Opthea
Palvella
Precision Biologics
Sedor
Seelos
Sermonix
VentiRx
Verona
Viking
Viking
Viking
Viking
Xi'an Xintong
XTL Bio
Amgen
Aptevo
Arcus
Corvus
CSL
Cuda
F-Star
Gedeon Richter
Gedeon Richter
Genekey Biotech
Partner Name
CX-01
BMS986231
Tosedostat
FYCOMPA
GS-5734
GLS010
IMVT-1401
JPH-203
Ganaxalone IV
M6620
RT-1502
KLM465
CE-Trametinib
ECF843
OPT-302
PTX-022
NPC-1C
CE-Budesonide
Aplindore
Lasofoxifene
VTX-2337
Ensifentrine
VK5211
VK2809
VK0214
VK0612
Pradefovir
hCDR1
AMG-330
APVO436
AB122
Cifordenant
CSL-324
Cudafol
FS-102
Bevacizumab
RGB-03
PCSK-9
Cancer
Cardiovascular
Cancer
Central Nervous System
Infectious Disease
Cancer
Inflammatory/Metabolic
Cancer
Central Nervous System
Cancer
Inflammatory/Metabolic
Blood disorders
Cancer
Inflammatory/Metabolic
Other/Undisclosed
Other/Undisclosed
Cancer
Inflammatory/Metabolic
Central Nervous System
Cancer
Cancer
Inflammatory/Metabolic
Inflammatory/Metabolic
Inflammatory/Metabolic
Inflammatory/Metabolic
Inflammatory/Metabolic
Infectious Disease
Severe and Rare
Phase 1
Program
Therapeutic Area
Cancer
Cancer
Cancer
Cancer
Cancer
Central Nervous System
Cancer
Cancer
Inflammatory/Metabolic
Inflammatory/Metabolic
9
Genmab
Gossamer Bio
HanAll/Harbour
Janssen
Janssen
MEI Pharma
Meridian
Novartis
Novartis
Phoenix Tissue
Proximagen
Servier
Symphogen
Takeda
Takeda
Teva
Vaxxas
VentiRx Pharma
Xi'an Xintong
Gen1046
PFK-158
HL161
JNJ64007957
JNJ67371244
ME-344
ML-061
MIK-665
BCL-201
PTR-01
CXCR4
S55746/S64315
SYM022/SYM023
TAK-020
TAK-925
Anti-IL5
Nanopatch
VTX-1463
MB07133
Cancer
Cancer
Inflammatory/Metabolic
Cancer
Cancer
Cancer
Cancer
Cancer
Cancer
Other/Undisclosed
Cancer
Cancer
Cancer
Inflammatory/Metabolic
Severe and Rare
Central Nervous System
Infectious Disease
Cancer
Cancer
Selected 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 us for these
programs, see “Royalties” later in this business section.
Promacta (Novartis)
In the first quarter of 2019, we sold our Promacta related intellectual property rights licensed to Novartis, including the royalty stream on worldwide net sales of
Promacta to Royalty Pharma for $827.0 million in cash. See detail in “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—
Note (2), Sale of Promacta License.”
Prior to the sale, Promacta accounted for nearly 50% of total revenue. We are entitled to no future royalty revenue from Promacta.
10
Kyprolis (Amgen)
We supply Captisol to Amgen for use with Kyprolis (carfilzomib), and granted Amgen 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 United States for the following:
•
•
In combination with dexamethasone or combination 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 multiple countries outside the U.S. 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.
Kyprolis (Amgen)
< $250 million
$250 to $500 million
$500 to $750 million
>$750 million
1.5%
2.0%
2.5%
3.0%
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 revenue from clinical and commercial Captisol material sales and royalties on annual net sales of Kyprolis.
Evomela (Acrotech and CASI)
We supply Captisol to Acrotech Biopharma for sales of Evomela in the U.S. and to CASI Pharmaceuticals for sales of Evomela in China. Evomela received market
approval by the China National Medical Products Administration (NMPA). It is the only approved and commercially available melphalan product in China. Evomela is a
Captisol-enabled melphalan IV formulation which is approved by the FDA for use in two indications:
•
•
A high-dose conditioning treatment prior to ASCT in patients with multiple myeloma.
For the palliative treatment of patients with multiple myeloma for whom oral therapy is not appropriate.
Evomela has been granted Orphan Designation by the FDA for use as a high-dose conditioning regimen for patients with multiple myeloma undergoing ASCT. 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, Acrotech Biopharma has marketing rights worldwide excluding China and CASI Pharmaceuticals has rights to market in
China. We are eligible to receive over $50 million in potential milestone payments under this agreement and royalties on global net sales of the Captisol-enabled melphalan
product. Acrotech and CASI’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.
As described herein, we have entered into a settlement agreement with Teva and Acrotech Biopharma (the holder of the NDA for Evomela) which will allow Teva to market a
generic version of Evomela in the United States on June 1, 2026, or earlier under certain circumstances. 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 Acrotech and CASI by prior written notice.
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.
11
Zulresso (SAGE)
We have a license agreement with SAGE, related to SAGE's Zulresso, a Captisol-enabled formulation of brexanolone for the treatment of PPD. SAGE announced
marketing approval on March 21, 2019 for Zulresso. Under the terms of the agreement, we receive royalties and revenue from Captisol material sales.
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. In January 2020, Merck received approval in Japan for NOXAFIL-IV. We receive our commercial compensation for this program through the
sale of Captisol, and we do not receive a royalty on this program.
Baxdela IV (Melinta)
Melinta’s Baxdela IV is a Captisol-enabled delafloxacin-IV that was approved for the treatment of acute bacterial skin and skin structure infections. Delafloxacin is a
novel hospital-focused fluoroquinolone antibiotic with activity against a variety of disease-causing bacteria-gram-positives, gram-negatives, atypicals and anaerobes, including
quinolone-resistant MRSA. Under the terms of the agreement, we may be entitled to regulatory milestones, as well as a royalty on future sales by Melinta, and revenue from
Captisol material sales.
Duavee or Duavive (bazedoxifene/conjugated estrogens) and Viviant/Conbriza (Pfizer)
Pfizer is marketing bazedoxifene, a selective estrogen receptor modulator, under the brand names Viviant and Conbriza in various territories for the treatment of
postmenopausal osteoporosis. Pfizer is responsible for the 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 a combination therapy for the treatment of post-menopausal
symptoms in women. Pfizer is marketing the combination treatment under the brand names Duavee and Duavive in various territories. 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.
Aziyo Portfolio (Aziyo)
We receive a share of revenue from the currently marketed Aziyo portfolio of commercial pericardial repair and CanGaroo® Envelope ECM products. In addition, we
have the potential to receive a share of revenue and potential milestones from the currently marketed CanGaroo® ECM Envelope for cardiac implantable electronic
devices. Aziyo’s products are medical devices that are designed to permit the development and regrowth of human tissue.
Exemptia, Vivitra, Zybev and Bryxta (Zydus Cadila)
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 for ten years following the first commercial sale.
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 for ten years following the first commercial sale.
Zydus Cadila’s Bryxta and Zybev (bevacizumab biosimilar) is marketed in India for various indications. Zydus Cadila uses the Selexis technology platform for Bryxta
and Zybev. We are entitled to earn royalties on sales by Zydus Cadila for ten years following the first commercial sale.
Minnebro (Exelixis)
Daiichi Sankyo announced on January 8, 2019 the receipt of marketing approval in Japan for MINNEBRO Tablets (esaxerenone) for the treatment of hypertension. Our
partner, Exelixis, entered into a collaboration agreement with Daiichi Sankyo for the development of esaxerenone, a mineralocorticoid receptor antagonist. Under the terms of
the agreement with Exelixis, we are entitled to receive a royalty on future sales.
12
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,
we consider particularly noteworthy. We are eligible to receive milestone payments and royalties on these programs. This list does not include all of our partnered programs.
For information about the royalties owed to Ligand for these programs, see “Royalties” later in this business section. In the case of Captisol-related programs, we are also
eligible to receive revenue for the sale of Captisol material supply.
Sparsentan (Retrophin)
Our partner, Retrophin, is developing sparsentan for orphan indications of severe kidney diseases, and has initiated a global pivotal Phase 3 clinical trial to enable an
NDA filing for sparsentan for the treatment of FSGS. Additionally, Retrophin initiated a global pivotal Phase 3 clinical trial evaluating the long-term nephroprotective potential
of sparsentan for the treatment of IgA nephropathy, a rare, immune complex mediated chronic glomerular disease. Certain patient groups with severely compromised renal
function, including those with FSGS and IgA nephropathy, 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.
Under our license agreement with Retrophin, we may be entitled to receive potential milestones of over $70 million and net royalties on future worldwide sales by
Retrophin. The royalty term is expected to be 10 years following the first commercial sale. Retrophin is responsible for all development costs related to the program.
TR-Beta - VK2809 and VK0214 (Viking)
Our partner, Viking, is developing VK2809, a novel selective TR-Beta agonist with potential in multiple
indications, including hypercholesterolemia, dyslipidemia and NASH. Viking announced positive results from
its Phase 2 trial for VK2809 in hypercholesterolemia and fatty liver disease. Viking has also been granted orphan
drug status by the FDA for the development of VK0214 for treatment of X-ALD. 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. Our TR Beta programs partnered with Viking are subject
to CVR sharing and a portion of the cash received will be paid out to CVR holders.
TR-Beta - VK2809 and VK0214 (Viking)
< $500 million
$500 to $750 million
>$750 million
3.5%
5.5%
7.5%
BMS-986231 (BMS)
Our partner, BMS, is conducting Phase 2 clinical trials for a Captisol-enabled second-generation prodrug that chemically breaks down to produce HNO and an inactive
byproduct. HNO is thought to have a dual mode of action, by improving cardiac function and acting as a vasodilator for treating ADHF. Under the terms of the agreement, we
may be entitled to development and regulatory milestones, revenue from Captisol material sales and royalties on potential future sales by BMS.
IMVT-1401/HL161 (Immunovant, HanAll and Harbour)
Our partner, HanAll has granted Immunovant an exclusive license for the development, manufacture and marketing of IMVT-1401 (HL161, an anti-FcRn antibody) for
the treatment of pathogenic IgG-mediated autoimmune diseases in the U.S., Canada, Mexico, the EU, the United Kingdom, Switzerland, Latin America, the Middle East and
North Africa. Immunovant is currently conducting a Phase 2 clinical trial in myasthenia gravis and other inflammatory diseases. Additionally, HanAll and Harbour BioMed, are
collaborating to develop HL161 for similar treatment in China and Korea. HanAll retains the rights to HL161 in Korea and Harbour will control the marketing in China. As part
of our agreement with HanAll, we are entitled to development and regulatory milestones and royalties on potential future sales from HanAll and sublicense revenues from
Immunovant and Harbour based on amounts received by HanAll.
SARM - VK5211 (Viking)
13
Viking is also 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. In the fourth quarter of 2017, Viking announced positive results from its Phase 2
trial in patients who suffered hip fracture. Under the terms of the agreement with Viking, we may be entitled to up
to $270 million of development, regulatory and commercial milestones as well as tiered royalties on potential
future sales.
< $500 million
$500 to $750 million
>$750 million
SARM - VK5211 (Viking)
PTX - 022 (Palvella)
We acquired the economic rights to PTX-022 from Palvella in December 2018. PTX-022 is a novel, topical
formulation comprising high-strength rapamycin in development to treat pachyonychia congenita (PC). PC is a
serious, chronically debilitating lifelong monogenic rare skin disease with no approved treatment. Palvella is
continuing enrollment for a pivotal Phase 2/3 clinical trial for PC and is expected to have top line data in late 2020.
PTX - 022 (Palvella)
< $50 million
$50 to $100 million
>$100 million
7.25%
8.25%
9.25%
5.00%
7.50%
9.80%
Lasofoxifene (Sermonix)
Lasofoxifene is a selective estrogen receptor modulator for osteoporosis treatment and other diseases, discovered through the research collaboration between us and
Pfizer.
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 over $45 million in potential regulatory and commercial milestone payments as well as royalties on potential future net sales.
Pevonedistat - TAK-924 (Millennium/Takeda)
Our partner, Millennium/Takeda is currently conducting Phase 3 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 over $25 million in
regulatory and development milestones from Millennium/Takeda, revenue from Captisol material sales, and royalties on potential future net sales.
Ensifentrine – RPL554 (Verona)
Our partner, Verona, is currently conducting a comprehensive Phase 2 clinical trial for the development of ensifentrine as a maintenance treatment of COPD with
nebulized and inhaled formulations. Verona has also completed a positive Phase 2a study evaluating ensifentrine as a treatment for cystic fibrosis. Under the terms of our
agreement with Verona, we are entitled to development and regulatory milestones, including a £5.0 million payment upon the first approval of any regulatory authority, and
royalties on potential future sales.
JNJ64007957 (Janssen)
Our partner, Janssen, is developing JNJ64007957, a BCMAxCD3 bispecific antibody discovered in part with the OmniAb platform technology. Janssen is currently
conducting two Phase 1 trials, as a single agent and in combination with daratumumab in multiple myeloma. We are entitled to earn development and regulatory milestones
based on the development of JNJ64007957.
JNJ-67371244 (Janssen)
Janssen is also developing JNJ-67371244, an anti-CD33xCD3 antibody discovered in part with the OmniAb platform technology. Janssen is currently conducting a
Phase I trial for cancer therapy. We are entitled to earn development and regulatory milestones based on the development of JNJ-67371244.
Ganaxalone IV (Marinus)
14
Our partner, Marinus, is conducting Phase 2 clinical trials with Captisol-enabled ganaxolone IV in patients with PPD and refractory status epilepticus. Marinus has
exclusive worldwide rights to Captisol-enabled ganaxolone, a GABAA receptor modulator, for use in humans. We are entitled to development and regulatory milestones,
revenue from Captisol material sales, and royalties on potential future sales.
APVO436 (Aptevo)
Our partner, Aptevo, is currently conducting a Phase 1 trial of APVO436 for the treatment of acute myeloid leukemia. There is a high unmet medical need for targeted
immunotherapies such as APVO436, that can potentially treat patients with relapsed or refractory disease, or patients who cannot tolerate traditional chemotherapy. Under the
terms of the agreement with Aptevo, we are entitled to development and regulatory milestones and royalties on potential future net sales.
Gen1046 (GenMab)
Our partner, GenMab, is currently conducting a Phase 1 trial of Gen1046 for use in patients with malignant solid tumors. Under the terms of the agreement with GenMab,
we are entitled to clinical and regulatory milestones and royalties on potential future sales.
SYM022 and SYM023 (Symphogen)
Our partner, Symphogen, is currently conducting Phase 1 trials of SYM022 and SYM023 to determine if it is safe and tolerable for patients with locally
advanced/unresectable or metastatic solid tumor malignancies or lymphomas that are refractory to available therapy for which no standard therapy is available. Under the terms
of the agreement with Symphogen, we are entitled to sublicense revenues, milestones and royalties on potential future net sales.
WuXi Partnership
Pursuant to the WuXi Agreement, we have granted WuXi a non-exclusive license to use our OmniRat, OmniMouse and OmniFlic platforms solely to research, develop
and make antibodies, and we have agreed to use commercially reasonable efforts to deliver to WuXi animals from such platforms to support WuXi’s licensing rights under the
WuXi Agreement. Further, WuXi has the right to out-license antibodies it discovers (whether for itself or at the direction of out-licensees) under the WuXi Agreement to out-
licensees worldwide. We are entitled to royalties in the low single digits on net sales of products. Unless earlier terminated, the term of the WuXi Agreement shall continue
indefinitely. Either party may terminate the WuXi Agreement upon specified notice of the other party's uncured material breach of the WuXi Agreement. In addition, we have
the right to terminate the WuXi Agreement if WuXi or one of its out-licensees challenges the validity of one of our patents covering the platform and WuXi has the right to
terminate the WuXi Agreement for convenience following a specified period after notice of termination.
In addition to other earlier stage programs, the following programs have been licensed pursuant to the WuXi Agreement:
AB122/GLS010 (Arcus and Gloria)
Our partner, WuXi, has outlicensed the rights to certain programs using the OmniAb technology to Arcus and Gloria. Arcus is conducting multiple Phase 1 trials to
evaluate the safety and tolerability of AB122 in subjects with advanced solid tumors. Additionally, Gloria, is conducting a Phase 2 trial in China to evaluate the efficacy
and safety of GLS-010 injection in the treatment of recurrent or refractory classical Hodgkin’s lymphoma. Under the terms of our agreement with WuXi, we are entitled to
royalties on potential future sales.
CS1001 (CStone)
WuXi has also outlicensed the rights to certain programs using the OmniAb technology to CStone. CStone, is currently conducting a Phase 2 trial to evaluate the
efficacy and safety of CS1001 to treat patients with natural killer cell/T-cell lymphoma and classical Hodgkin’s lymphoma. Under the terms of our agreement with WuXi,
we are entitled to royalties on potential future sales.
SB206 (Novan)
We acquired certain economic rights to SB206 from Novan in May 2019. SB206 is a topical nitric-oxide antiviral gel for the treatment of viral skin infections, including
molluscom contagiosum (MC). MC is an infection which causes skin-lesion that affects approximately 6 million people in the United States annually, with the greatest
incidence in children aged one to 14 years. In Q1 2020, Novan announced that it did not achieve statistically significant results for its primary end point from its
15
Phase 3 pivotal trials of SB206 in MC. Novan continues to explore financial as well as strategic options in order to progress SB206.
Ciforadenant – CPI-444 (Corvus)
Our partner, Corvus, is conducting a Phase 1b/2 clinical trial in patients with renal cell carcinoma and metastatic castration resistant prostate cancer to evaluate
Ciforadenant, an antagonist of adenosine A2A, in combination with the immunotherapy drug atezolizumab. Positive preliminary data was presented in February at ASCO 2020
Genitourinary Cancers Symposium (ASCO-GU) and additional data will be presented at ASCO 2020 in May/June. Ciforadenant is also being evaluated in a Phase 1b/2 trial in
combination with atezolizumab in patients with non-small cell lung cancer who have failed no more than two prior regimens. Under the terms of our agreement with Corvus, we
are entitled to development and regulatory milestones and tiered royalties on potential future sales. The aggregate potential milestone payments from Corvus are approximately
$220 million for all indications.
Perampanel IV (Eisai)
Our partner, Eisai, recently completed an open-label, single group assignment, multicenter, Phase 2 study in Japan to evaluate the safety and tolerability of intravenous
perampanel, formulated with Captisol, as substitute for oral tablets as an adjunctive therapy in patients with partial onset seizures (including secondarily generalized seizures) or
primary generalized tonic-clonic seizures. The primary endpoint was the number of patients with adverse events and serious adverse events. We are entitled to revenue from
Captisol material sales and tiered royalties on potential future sales.
USL-311 (Proximagen)
Our partner Proximagen, a wholly owned subsidiary of ACOVA, is developing USL-311, a CXCR4 antagonist, for the potential treatment of glioblastoma (GBM) and
solid tumors. Proximagen is also investigating USL-311 for the potential treatment of inflammation. USL-311 is currently in a Phase 1/2 trial in patients with advanced solid
tumors and relapsed/recurrent GBM. We are entitled to development and regulatory milestones and royalties on potential future sales.
Pradefovir (Xi'an Xintong)
Our Chinese licensee, Xi'an Xintong Medicine Research (following its acquisition of Chiva Pharmaceuticals), are developing pradefovir, an oral liver-targeting prodrug
of the HBV DNA polymerase/reverse transcriptase inhibitor adefovir, for the potential treatment of hepatitis B virus (HBV) infection. Pradefovir was developed using Ligand’s
HepDirect technology. In September 2019, Xi'an Xintong Medicine Research reported positive results from a Phase 2 trial of pradefovir, showing good efficacy, safety and
tolerability. At the dose of 75 mg, the reduction of DNA viral load, the percentage of no viral load detected, and HBeAg negative conversion rate were better than tenofovir
disoproxil fumarate (TDF) after 24 weeks of treatment. Overall incidence of side effects was less than TDF and there was no renal or skeletal toxicity. Xi'an Xintong Medicine
Research is planning for a Phase 3 trial. We are entitled to an annual licensing maintenance fee and royalties on potential future sales.
MB07133 (Xi'an Xintong)
Chinese licensee Xi'an Xintong Medicine Research are also developing MB07133, a liver specific, HepDirect prodrug of cytarabine monophosphate, for the potential
treatment of hepatocellular carcinoma (HCC) and intrahepatic cholangiocarcinoma. MB07133 is currently in Phase 1 in China. We are entitled to an annual licensing
maintenance fee and royalties on potential future sales.
Royalties
We have multiple programs under license with other companies that have products that are already being commercialized. In addition to the table below, we have
generally described a typical Captisol and OmniAb royalty arrangement as low- to mid-single digit royalties. The following table represents substantially all of the disclosed
information about our royalty arrangements:
16
Program
CE-Budesonide
CE-Meloxicam
Ciforadenant
DGAT-1
Duavee
Ensifentrine (RPL554)
FBPase Inhibitor (VK0612)
IRAK4
Kyprolis
Lasofoxifene
Mineral Coated Microparticle
OmniAb-Genagon
OmniAb-GigaGen
OmniAb-iMetabolic
OmniAb-Kira
OmniAb-Takeda
Oral EPO
PTX-022
RVT-1502
SARM (VK5211)
SB206
TR Beta (VK2809 and VK0214)
Viviant/Conbriza
Various
Various
Royalty Table
Ligand Licenses With Tiered Royalties
Licensee
Sedor
Sedor
Corvus
Viking
Pfizer
Verona
Viking
TG Therapeutics
Amgen
Sermonix
Dianomi
Genagon
GigaGen
iMetabolic
Kira
Takeda
Viking
Palvella
Metavant
Viking
Novan
Viking
Pfizer
Nucorion
Seelos
17
Royalty Rate
8.0% - 10.0%
8.0% - 10.0%
Mid-single digit to low-teen royalty
3.0% - 7.0%
0.5% - 2.5%
Low to mid-single digit royalty
7.5% - 9.5%
6.0% - 9.5%
1.5% - 3.0%
6.0% - 10.0%
2.0% - 3.0%
4.0% - 6.0%
Mid-single digit royalty
<6%
Low to mid-single digit royalty
Low single digit royalty
4.5% - 8.5%
5.0% - 9.8%
Low double digit to mid-teen royalty
7.25% - 9.25%
7.0% - 10.0%
3.5% - 7.5%
0.5% - 2.5%
4.0% - 9.0%
4.0% - 10.0%
Ligand Licenses With Fixed Royalties
Program
4-1BB
AB122
Baxdela
CE-Fosphenytoin
CS1001
Evomela
KLM465
MB07133
ME-143
ME-344
OmniAb-KSQ Therapeutics
PCSK-9
Pradefovir
Reproxalap
Sparsentan
Various
Zulresso
Licensee
Zhilkang Hongyi
Arcus
Melinta
Sedor
CStone
Acrotech/CASI
Novartis
Xi'an Xintong
MEI Pharma
MEI Pharma
KSQ Therapeutics
Genekey
Xi'an Xintong
Aldeyra Therapeutics
Retrophin
Gloria
SAGE
Royalty Rate
Low single digit royalty
Low single digit royalty
2.5%
11%
Low single digit royalty
20%
14.5% (6.5% in year one)
6%
Low single digit royalty
Low single digit royalty
Single digit royalty
Low single digit royalty
9%
Low single digit royalty
9%
Low single digit royalty
3%
18
Contract Payments (Milestones)
Many of our programs under license with our partners will generate contract payments to us if our partners reach certain development, regulatory and commercial milestones.
The following table represents the potential maximum value of our contract payment pipeline on milestones by development stage, technology and partner (in thousands):
Stage*
Technology*
Partner*
OmniAb
Captisol
Vernalis
LTP/Hep Direct
NCE/Other
Total
> $800,000 Preclinical
> $180,000 Clinical
> $350,000 Regulatory
> $275,000 Commercial
> $1,700,000 Other
> $3,300,000 Total
> $20,000 Viking
Janssen
> $450,000
> $1,600,000
Seelos
> $1,200,000 Retrophin
> $50,000 Corvus
> $3,300,000 Xi'an Xintong
Other
Total
$1,500,000
$238,000
$139,000
$100,000
$91,000
$44,000
> $1,188,000
> $3,300,000
*All tables exclude our annual access fees and collaboration revenue for development work.
Internal Development Programs
We have a number of internal development or unpartnered programs focused on a wide-range of potential indications or disease. In July 2019, we announced positive top-
line results from a Phase 1 clinical trial of our internal Captisol-enabled (CE) Iohexol program. The trial achieved the primary endpoint by demonstrating pharmacokinetic
bioequivalence of CE-Iohexol injection and a reference Iohexol injection (OMNIPAQUE™) after IV administration in healthy adults. CE-Iohexol injection was well tolerated,
and adverse events were in line with the known safety profile of OMNIPAQUE. On November 8, 2019, we presented the positive results from the Phase 1 clinical trial at ASN
Kidney week 2019 in Washington D.C. The CE-Iohexol program was established in January 2018 to develop a Captisol-enabled, next-generation contrast agent for diagnostic
imaging with a reduced risk of renal toxicity. CI-AKI is the acute impairment of renal function following intravascular administration of an iodinated contrast agent, and occurs
most frequently following coronary angiography, percutaneous coronary intervention and contrast-enhanced computed tomography, especially among patients at risk of renal
injury such as those with advanced age, diabetes or heart failure. Currently no products are approved to prevent or treat CI-AKI in this setting, and therefore We believe a
significant opportunity exists for a safer formulation of contrast agents. The goal is for CE-Iohexol to improve upon the limitations of existing contrast agents and enable a
future partner to gain meaningful market share. We plan to submit an IND with the FDA and initiate a Phase 2 study in the U.S. in second half of 2020.
Our primary research and development efforts are led by our teams in Emeryville, California and Cambridge, England. The following table represents internal programs
eligible for further development or partnership:
19
Program
Luminespib/Hsp90 Inhibitor
FAAH Inhibitor
CE-Sertraline, Oral Concentrate
CE-Iohexol
CCR1 Antagonist
CE-Busulfan
CE-Cetirizine Injection
CE-Silymarin for Topical formulation
FLT3 Kinase Inhibitors
GCSF Receptor Agonist
Liver Specific Glucokinase Activator
Anti-B7-H3
Anti-TIM3
Anti-TIGIT
Anti-CD38
Chk1 Inhibitor
Manufacturing
Development Stage
Targeted Indication or Disease
Phase 2
Phase 1
Phase 1
Phase 1
Preclinical
Preclinical
Preclinical
Preclinical
Preclinical
Preclinical
Preclinical
Preclinical
Preclinical
Preclinical
Preclinical
Preclinical
Oncology
Pain
Depression
Diagnostics
Oncology
Oncology
Allergy
Sun damage
Oncology
Blood disorders
Diabetes
Oncology
Oncology
Oncology
Oncology
Oncology
We contract with a third party manufacturer, Hovione, for Captisol production. Hovione operates FDA-inspected sites in the United States, Macau, Ireland and Portugal.
Manufacturing and distribution operations for Captisol are performed primarily at Hovione's Portugal and Ireland facilities. We believe we maintain adequate inventory of
Captisol to meet our current and future partner needs.
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, we may also obtain Captisol from a third party and have previously identified such parties.
The current term of the agreement with Hovione is through December 2024. 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. We have ongoing minimum purchase commitments under the agreement.
Competition
Some of the drugs we and our licensees and partners 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.
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.”
20
Environmental, Health and Safety (EHS)
We are committed to providing a safe and healthy workplace, promoting environmental excellence in our communities, and complying with all relevant regulations and
industry standards. We establish and monitor programs to reduce pollution, prevent injuries, and maintain compliance with applicable regulations. By focusing on such
practices, we believe we can affect a meaningful, positive change in our community and maintain a healthy and safe environment. During 2019, our animal health facility in
Emeryville, California, received accreditation from Association for Assessment and Accreditation of Laboratory Animal Care International (AAALAC), a nonprofit
organization that promotes the humane treatment of animals in science through voluntary accreditation and assessment programs. We expect to continue our effort and to refine
our EHS policies and practices in 2020.
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. These activities are subject to additional
regulations that apply at the state level. There are similar regulations in other countries as well. For both currently marketed products 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. 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. During the first quarter of 2019, we sold our Promacta related intellectual property rights to RPI Finance Trust, doing
business as “Royalty Pharma”. We expect no future royalty revenue from Promacta.
Kyprolis
Patents protecting Kyprolis include those owned by Amgen and those owned by us. The United States patent listed in the Orange Book relating to Kyprolis with the
latest expiration date is not expected to expire until 2029. Patents and applications owned by Ligand relating to the Captisol component of Kyprolis are not expected to expire
until 2033. Amgen has filed suit against several generic drug companies over their applications to make generic versions of Kyprolis, with a decision expected by April 2020.
The type of patent protection (e.g., composition of matter or use) for each patent listed in the Orange Book and the expiration dates for each patent listed in the Orange Book are
provided in the following table. In addition, certain related patents in the commercially important jurisdictions of Europe and Japan are identified in the following table.
21
Type of Protection
U.S. Patent No.
U.S. Expiration Date
Jurisdiction
Patent Number
Expiration Date‡
United States
Corresponding Foreign
Kyprolis
CoM
7,232,818
4/14/2025
CoM
7,417,042
7/20/2026
Use
7,491,704
4/14/2025
CoM
7,737,112
12/7/2027
Use
8,129,346
4/14/2025
CoM
8,207,125
4/14/2025
CoM / Use
8,207,126
4/14/2025
Use
8,207,127
4/14/2025
CoM / Use
8,207,297
4/14/2025
CoM
Use
9,493,582
2/27/2033
9,511,109
10/21/2029
EU
EU
EU
EU
EU
Japan
Japan
EU
EU
EU
EU
Japan
Japan
EU
EU
EU
EU
EU
Japan
Japan
EU
EU
EU
Japan
Japan
EU
Japan
Japan
EU
EU
Japan
Japan
Japan
EU
Japan
Japan
EU
Japan
Japan
EU
Japan
Japan
Japan
EU
Japan
Japan
1,745,064
1,781,688
2,266,999
2,270,026
3,101,026
4,743,720
5,394,423
1,781,688
2,266,999
2,270,026
3,101,026
4,743,720
5,394,423
1,745,064
1,781,688
2,266,999
2,270,026
3,101,026
4,743,720
5,394,423
1,819,353
2,260,835
2,261,236
4,990,155
5,108,509
1,745,064
5,394,423
5,616,569
1,781,688
1,745,064
5,394,423
5,616,569
4,743,720
1,745,064
5,394,423
5,616,569
1,745,064
5,394,423
5,616,569
1,745,064
5,394,423
5,616,569
6,517,725
2,796,134
5,675,629
6,081,964
4/14/2025
8/8/2025
8/8/2025
8/8/2025
8/8/2025
8/8/2025
4/14/2025
8/8/2025
8/8/2025
8/8/2025
8/8/2025
8/8/2025
4/14/2025
4/14/2025
8/8/2025
8/8/2025
8/8/2025
8/8/2025
8/8/2025
4/14/2025
12/7/2025
12/7/2025
12/7/2025
12/7/2025
5/9/2025
4/14/2025
4/14/2025
4/14/2025
8/8/2025
4/14/2025
4/14/2025
4/14/2025
8/8/2025
4/14/2025
4/14/2025
4/14/2025
4/14/2025
4/14/2025
4/14/2025
4/14/2025
4/14/2025
4/14/2025
2/27/2033
10/21/2029
10/21/2029
10/21/2029
‡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.
22
Captisol
Patents and pending patent applications covering Captisol and methods of making Captisol are owned by us. The patents covering the Captisol product, if issued, with
the latest expiration date would not be set to expire until 2033 (see, e.g., U.S. Patent No. 9,493,582 (expires Feb. 27, 2033)). Other patent applications covering methods of
making Captisol, if issued, potentially have terms to 2040. We have asserted U.S. Patents 8,410,077, 9,200,088, and 9,493,582 against Teva in connection with their attempt to
obtain FDA approval to manufacture and sell a generic version of EVOMELA®. We also own 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.
Type of Protection
U.S. Patent No.
U.S. Expiration Date
Jurisdiction
Patent Number
Expiration Date‡
United States
Corresponding Foreign
Captisol
CoM
CoM
CoM
Use
CoM
8,114,438
10/26/2025
10,117,940
4/22/2025
7,629,331
10/26/2025
8,049,003
12/19/2026
8,846,901
10/26/2025
CoM
8,829,182
10/26/2025
CoM/Use/MoM
CoM/MoM
9,617,352
10,202,468
6/8/2026
10/26/2025
CoM / Use
7,635,773
3/13/2029
CoM
8,410,077
3/13/2029
EU
Japan
Japan
EU
Japan
Japan
EU
EU
EU
Japan
EU
EU
EU
EU
Japan
EU
EU
EU
EU
Japan
EU
N/A
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
23
2,708,225
6,141,906
6,538,739
2,708,225
6,141,906
6,538,739
1,945,228
2,335,707
2,581,078
5,465,432
2,583,668
1,945,228
2,335,707
2,581,078
5,465,432
1,945,228
2,335,707
2,581,078
2,952,197
5,465,432
2,952,197
4,923,144
6,039,721
6,276,828
6,444,548
4,923,144
6,039,721
6,276,828
6,444,548
4/22/2025
4/22/2025
4/22/2025
4/22/2025
4/22/2025
4/22/2025
10/26/2025
10/26/2025
10/26/2025
10/26/2026
10/26/2025
10/26/2025
10/26/2025
10/26/2025
10/26/2026
10/26/2025
10/26/2025
10/26/2025
10/26/2025
10/26/2026
10/26/2025
4/28/2029
4/28/2029
4/28/2029
4/28/2029
4/28/2029
4/28/2029
4/28/2029
4/28/2029
CoM
9,200,088
3/13/2029
CoM
9,750,822
3/13/2029
CoM
10,117,951
3/13/2029
MoM
CoM
MoM
CoM/MoM
9,751,957
9,493,582
10,323,103
10,040,872
6/28/2033
2/27/2033
2/27/2033
2/27/2033
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
EU
Japan
Japan
Japan
Japan
4,923,144
6,039,721
6,276,828
6,444,548
4,923,144
6,039,721
6,276,828
6,444,548
4,923,144
6,039,721
6,276,828
6,444,548
2,814,849
6,508,944
6,517,725
6,517,725
6,557,144
4/28/2029
4/28/2029
4/28/2029
4/28/2029
4/28/2029
4/28/2029
4/28/2029
4/28/2029
4/28/2029
4/28/2029
4/28/2029
4/28/2029
2/14/2033
2/14/2033
2/27/2033
2/27/2033
10/21/2033
‡ 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
Our OmniAb® therapeutic antibody platforms, including OmniRat®, OmniMouse® and OmniChicken™, produce naturally optimized, fully human antibodies in
animals. We have received patent protection on OmniAb antibodies and methods in 30 countries, including the United States, multiple countries throughout Europe, Japan and
China (see selected cases listed in the table below) and have 56 patent applications pending in 24 countries worldwide. The patents and applications owned by us are expected to
expire between 2028 and 2034 and partners are able to use the OmniAb patented technology to generate novel antibodies, which may be entitled to additional patent protection.
Type of Protection
U.S. Patent No.
U.S. Expiration Date
Jurisdiction
Patent Number
Expiration Date‡
United States
Corresponding Foreign
OmniAb in OmniMouse and OmniRat
CoM
Use
CoM/Use
CoM
8,703,485
10/10/2031
9,388,233
10,072,069
8,907,157
9,475,859
10,285,132
5/30/2028
5/30/2028
5/30/2028
4/15/2034
1/8/2034
EU
EU
EU
Japan
Japan
N/A
N/A
N/A
N/A
N/A
24
2,152,880
2,336,329
2,603,323
5,823,690
6,220,827
5/30/2028
5/30/2028
5/30/2028
5/30/2028
5/30/2028
Type of Protection
U.S. Patent No.
U.S. Expiration Date
Jurisdiction
Patent Number
Expiration Date‡
United States
Corresponding Foreign
OmniAb in OmniChicken
CoM/Use
MoM
CoM
CoM
Use
CoM/Use
CoM/Use
CoM/Use
CoM/MoM/Use
Com/MoM/Use
CoM
CoM
CoM/Use
CoM
8,030,095
8,415,173
8,592,644
9,404,125
9,549,538
10,010,058
10,172,334
10,362,770
8,865,462
9,644,178
9,380,769
9,809,642
9,394,372
9,982,062
12/23/2029
3/2/2029
8/30/2030
12/29/2030
8/11/2030
8/11/2030
8/11/2030
8/11/2030
5/8/2032
1/7/2031
5/23/2032
5/23/2032
10/16/2032
10/16/2032
Europe
Japan
Japan
N/A
N/A
N/A
N/A
N/A
N/A
N/A
EU
N/A
N/A
N/A
2,271,657
5,737,707
5,756,802
3/2/2029
3/2/2029
8/11/2030
2,713,712
5/23/2032
‡ 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.
Vernalis
Our acquisition of Vernalis in October 2018 provided us with a portfolio of fully-funded shots on goal, which now include RPL554, a Phase 2, novel treatment for
COPD, which is partnered with Verona; Ciforadenant, a Phase 1 adenosine A2A receptor antagonist for treatment of solid tumors, partnered with Corvus; Tosedostat, an
aminopeptidase inhibitor for treatment of blood cancers, partnered with Cell Therapeutics, Inc. (CTI), S65487, a Bcl-2 inhibitor, and S64315, an Mcl-1 inhibitor for treatment
of cancers, both of which are partnered with Servier in collaboration with Novartis, and VER250840 (an oral, selective Chk1 inhibitor for treatment of cancer) partnered with
Cumulus. Vernalis has a worldwide patent portfolio of over 240 granted patents and over 20 pending applications, spanning over 60 countries.
Employees
As of February 10, 2020, we have 115 employees, of whom 86 are involved directly in scientific research and development activities. We emphasize competitive
compensation, benefits, equity participation, and a positive and attractive work environment in our efforts to attract and retain qualified personnel.
Investor Information
Financial and other information about us is available on our website at www.ligand.com. We make available on our website, without charge, 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, or SEC. You
may obtain copies of these documents by visiting the SEC’s website at www.sec.gov. These website addresses are not intended to function as hyperlinks, and the information
contained in our website and in the SEC’s website is not intended to be a part of this filing.
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. Additional risks not presently known to us or that we currently deem
immaterial also may impair our business.
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Risks Related to Our Business Operations and Reliance on Third Parties:
Future revenue based on Kyprolis and Evomela, as well as royalties from our other partnered products, may be lower than expected.
Substantially all of our royalty revenue is based on sales of Kyprolis by Amgen and sales of Evomela by Acrotech Biopharma. Royalties, including payments from
Amgen and Acrotech Biopharma, are expected to be a substantial portion of our ongoing revenues for the foreseeable future. Any setback that may occur with respect to any of
our partners' products, and in particular Kyprolis, could significantly impair our operating results and/or reduce our revenue and 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, including Amgen's or Acrotech Biopharma's failure to enforce their respective 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. For example, we entered into a settlement agreement with Teva and Acrotech Biopharma (the holder of the NDA for Evomela)
which will allow Teva to market a generic version of Evomela in the United States on June 1, 2026, or earlier under certain circumstances. The entry of generic competition for
Evomela may materially and adversely affect the revenue we derive from Evomela sales. Also, Amgen has settled patent litigation related to Kyprolis on confidential terms with
several parties, but it has been publicly reported that the U.S. launch date for at least Breckenridge Pharmaceuticals’ applicable generic product will be “on a date that is held as
confidential in 2027 or sooner, depending on certain occurrences” and litigation against one other party is awaiting a post-trial judgement.
Future revenue from sales of Captisol material to our license partners may be lower than expected.
Revenues from sales of Captisol material to our collaborative partners, including Amgen, 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.
If products or product candidates incorporating Captisol material 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 sell Captisol 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, the FDA could require us to submit additional information for regulatory review or approval, including data from extensive safety testing or clinical
testing of products using Captisol. This would be expensive and it may 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. While we believe we
maintain adequate inventory of Captisol to meet our current and expected future partner needs, our estimates and projections for Captisol demand may be wrong and any supply
interruptions could materially adversely impact our operating results.
We currently depend on our arrangements with our partners and licensees to sell products using our Captisol technology. These agreements generally provide that our
partners may terminate the agreements at will. If our partners discontinue sales of products using Captisol, fail to obtain regulatory approval for products using Captisol, fail to
satisfy their obligations under their agreements with us, or choose to utilize a competing product, 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, operating results and cash flows could be adversely affected.
Further, under most of our Captisol outlicenses, the amount of royalties we receive will be reduced or will cease when the relevant patent expires. Our low-chloride
patents and foreign equivalents are not expected to expire until 2033, our high
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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 in 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 partners choose to terminate their agreements with us, our Captisol
revenue may decrease significantly.
We rely heavily on collaboration relationships to generate milestone and royalty payments and our collaboration partners have significant discretion when deciding
whether to pursue any development program, and any failure by our partners to successfully develop a product candidate or a termination or breach of any of the related
agreements could reduce our milestone and license fee revenue, and potential reduce future royalties.
Our strategy for developing and commercializing many of our product candidates includes entering into collaboration agreements, outlicenses, and development funding
and royalty purchase agreements with corporate partners and others. These agreements give our collaboration partners significant discretion when deciding whether or not to
pursue any development program. Our existing collaborations may not continue or be successful, and we may be unable to enter into future collaboration arrangements to
develop and commercialize our unpartnered assets.
In addition, our collaborators may develop products, either alone or with others that compete with the types of products they are developing with us (or that we are
developing on our own). This would result in increased competition for our or our partners' programs. If product candidates are approved for marketing under our collaboration
programs, revenues we receive will depend on the manufacturing, marketing and sales efforts of our collaboration partners, who generally retain commercialization rights under
the collaboration agreements. Generally, our current collaboration partners also have the right to terminate their collaborations at will or under specified circumstances. If any of
our collaboration partners breach (for example, by not making required payments when due, or at all) or terminate their agreements with us or otherwise fail to conduct their
collaboration activities successfully, including due to insolvency events, ongoing product development under these agreements will be delayed or terminated. Disputes or
litigation may also arise with our collaborators (with us and/or with one or more third parties), including those over ownership rights to intellectual property, know-how or
technologies developed with our collaborators. Such disputes or litigation could adversely affect our rights to one or more of our product candidates. Any such dispute or
litigation could delay, interrupt or terminate the collaboration 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 collaboration partners may change their strategy or the focus of their development and commercialization efforts with
respect to our partnered programs, and the success of our partnered programs could be adversely affected.
If our collaboration partners terminate their collaborations with us or do not commit sufficient resources to the development, manufacture, marketing or distribution of
our partnered programs, we could be required to devote additional resources to our partnered programs, seek new collaboration partners or abandon such partnered programs, all
of which could reduce our revenues and otherwise have an adverse effect on our business. For example, several of our collaboration partners using our OmniAb antibody
platform have terminated their contracts or substantially reduced their investment in the antibodies discovered based on the platform. Although we expect growth in the net
number of partners with one more active programs based on antibodies discovered using our OmniAb platform, there can be no assurance that our partners will continue their
programs or that we will be able to find new collaboration partners interested in discovering antibodies based on our OmniAb platform.
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 product 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
27
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, the 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 partners have rights to control product development and clinical programs for products developed under
our collaborations. As a result, these partners may conduct these programs more slowly or in a different manner than expected. Moreover, even if clinical trials are completed,
we or our partners still may not apply for FDA or foreign regulatory approval in a timely manner or the FDA or foreign regulatory authority still may not grant approval.
Our product candidate discovery, early-stage development, and product reformulation programs may require substantial additional capital to complete successfully. Our
partners’ 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 operations 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 product using antibodies from the platform has been approved by the FDA or similar
regulatory agency.
None of our collaboration partners using our OmniAb antibody platform have received approval from the FDA or similar regulatory agency to market a product
discovered based on our platform. In addition, only a few of our collaboration partners’ product candidates based on the platform have been tested in late stage clinical trials. If
one of our OmniAb collaboration partners’ product candidates fails during preclinical studies or clinical trials, our other OmniAb collaboration partners may decide to abandon
product candidates using antibodies generated from the OmniAb platform, whether or not such failure is 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 six patents
within the U.S. and three patents in the European Union and are subject to the same risks as our patent portfolio discussed elsewhere, including the risk that our patents may
infringe on third party patent rights or that our patents may be invalidated. As of a result of these factors, the future revenue generated from this platform may be materially
lower than what we currently anticipate. 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, the Trianni mouse and the Kymouse. 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.
Risks Related to Intellectual Property:
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 licensees' 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 our partners to obtain and maintain patents and other intellectual property rights for our and their
potential products. Our patent position is uncertain and involves complex legal and technical questions for which 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.
28
We permit our partners to list our patents that cover their branded products in the Orange Book. If a third party files an NDA or ANDA for a generic drug product that
relies in whole or in part on studies contained in our partner’s NDA for their branded product, the third party will have the option to certify to the FDA that, in the opinion of that
third party, the patents listed in the Orange Book for our partner’s branded product are invalid, unenforceable, or will not be infringed by the manufacture, use or sale of the third
party’s generic drug product. A third party certification that a new product will not infringe Orange Book-listed patents, or that such patents are invalid, is called a paragraph IV
patent certification. If the third party submits a paragraph IV patent certification to the FDA, a notice of the paragraph IV patent certification must be sent to the NDA owner
and the owner of the patents that are subject to the paragraph IV patent certification notice once the third-party’s NDA or ANDA is accepted for filing by the FDA. A lawsuit
may then be initiated to defend the patents identified in the notice. The filing of a patent infringement lawsuit within 45 days of the receipt of notice of a paragraph IV patent
certification automatically prevents the FDA from approving the generic NDA or ANDA until the earlier of the expiration of a 30-month period, the expiration of the patents,
the entry of a settlement order stating that the patents are invalid or not infringed, a decision in the infringement case that is favorable to the NDA or ANDA applicant, or such
shorter or longer period as the court may order. If a patent infringement lawsuit is not initiated within the required 45-day period, the third-party’s NDA or ANDA will not be
subject to the 30-month stay.
Several third-parties have challenged, and additional third parties may challenge, the patents covering our partner’s branded products, including Kyprolis and Evomela,
which could result in the invalidation or unenforceability of some or all of the relevant patent claims. We may from time to time become party to litigation or other proceedings
as a result of Paragraph IV certifications. For example, as a result of the settlement of one such matter, Teva will be permitted to market a generic version of Evomela® in the
United States on June 1, 2026 or earlier under certain circumstances. The terms of the settlement agreement are otherwise confidential. Also, as noted above, Amgen has settled
patent litigation related to Kyprolis on confidential terms with several parties, but it has been publicly reported that the U.S. launch date for at least Breckenridge
Pharmaceuticals’ applicable generic product will be “on a date that is held as confidential in 2027 or sooner, depending on certain occurrences” and litigation against one other
party is awaiting a post-trial judgement.
In addition, we cannot assure you that all of the potentially relevant prior art information that was or is deemed available to a person of skill in the relevant art prior to the
priority date of the claimed invention-relating to our and our partners’ patents and patent applications has been found. If such prior art exists, it can invalidate a patent or prevent
a patent from issuing from a pending patent application, and we or our partners may be subject to a third party pre-issuance submission of prior art to the United States Patent
and Trademark Office. Even if patents do successfully issue and even if such patents cover our or our partner’s products or potential products, third parties may initiate
litigation or opposition, interference, re-examination, post-grant review, inter partes review, nullification or derivation action in court or before patent offices, or similar
proceedings challenging the validity, enforceability or scope of such patents, which may result in the patent claims being narrowed or invalidated, may allow third parties to
commercialize our or our partners’ products and compete directly with us and our partners, without payment to us or our partners, or limit the duration of the patent protection
of our and our partners’ technology and products.
Litigation or other proceedings to enforce or defend intellectual property rights are often very complex in nature, may be very expensive and time-consuming, may divert
our management’s attention from our core business, and may result in unfavorable results that could adversely impact our ability to prevent third parties from competing with
our partner’s products. Any adverse outcome of such litigation or other proceedings could result in one or more or our patents being held invalid or unenforceable, which could
adversely affect our ability to successfully execute our business strategy and negatively impact our financial condition and results of operations. However, given the
unpredictability inherent in litigation, we cannot predict or guarantee the outcome of these matters or any other litigation. Regardless of how these matters are ultimately
resolved, these matters may be costly, time-consuming and distracting to our management, which could have a material adverse effect on our business.
In addition, periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and or applications will be due to the U.S. and various
foreign patent offices at various points over the lifetime of our and our licensees’ patents and/or applications. We have systems in place to remind us to pay these fees, and we
rely on our outside patent annuity service to pay these fees when due. Additionally, the U.S. and various foreign patent offices require compliance with a number of procedural,
documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in
many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with rules applicable to the particular jurisdiction. However, there are
situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or
complete loss of patent rights in the relevant jurisdiction. If such an event were to occur, it could have a material adverse effect on our business.
29
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 was upheld on appeal. In addition, any determination that our patent rights are invalid may result in early termination of our agreements with our
license partners and could adversely affect our ability to enter into new license agreements. We also rely on unpatented trade secrets and know-how to protect and maintain our
competitive position. We require our employees, consultants, licensees 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.
The validity, scope and enforceability of any patents that cover our partners’ biologic product candidate can be challenged by third parties.
For biologics, the Biologics Price Competition and Innovation Act of 2009, BPCIA, provides a mechanism for one or more third parties to seek FDA approval to
manufacture or sell a biosimilar or interchangeable versions of brand name biological products. Due to the large size and complexity of biological products, as compared to
small molecules, a biosimilar must be “highly similar” to the reference product with “no clinically meaningful differences between the two.” The BPCIA does not require
reference product sponsors to list patents in an Orange Book and does not include an automatic 30-month stay of FDA approval upon the timely filing of a lawsuit. The BPCIA,
however, does require a formal pre-litigation process which includes the exchange of information between a biosimilar applicant and a reference biologic sponsor that includes
the identification of relevant patents and each parties’ basis for infringement and invalidity. After the exchange of this information, sponsors may then initiate a lawsuit within
30 days to defend the patents identified in the exchange. If the biosimilar applicant successfully challenges the asserted patent claims it could result in the invalidation of, or
render unenforceable, some or all of the relevant patent claims or result in a finding of non-infringement. Such litigation or other proceedings to enforce or defend intellectual
property rights are often very complex in nature, may be very expensive and time-consuming, may divert our management’s attention from our core business, and may result in
unfavorable results that could limit our partners’ ability to prevent third parties from competing with their products or product candidates.
Risks Related to Government Regulation and Legal Proceedings:
Market acceptance and sales of any approved product will depend significantly on the availability and adequacy of coverage and reimbursement from third-party payors
and may be affected by existing and future healthcare reform measures.
Sales of the products we license to our collaboration partners and the royalties we receive will depend in large part on the extent to which coverage and reimbursement is
available from government and health administration authorities, private health maintenance organizations and health insurers, and other healthcare payors. Significant
uncertainty exists as to the reimbursement status of healthcare products. Healthcare payors, including Medicare, are challenging the prices charged for medical products and
services. Government and other healthcare payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement for medical
products. Even if a product is approved by the FDA, insurance coverage may not be available, and reimbursement levels may be inadequate, to cover the costs associated with
the research, development, marketing and sale of the product. If government and other healthcare payors do not provide adequate coverage and reimbursement levels for any
product, market acceptance and any sales could be reduced.
From time to time, legislation is implemented to reign in rising healthcare expenditures. By way of example, in March 2010, the Patient Protection and Affordable Care
Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the ACA, was enacted, which included a number of provisions affecting the
pharmaceutical industry, including, among other things, annual, non-deductible fees on any entity that manufactures or imports some types of branded prescription drugs and
increases in Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program. Since its enactment,
30
there have been judicial and Congressional challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the
future.
Other legislative changes have been proposed and adopted since the ACA was enacted, including aggregate reductions of Medicare payments to providers of 2% per
fiscal year and reduced payments to several types of Medicare providers. Moreover, there has recently been heightened governmental scrutiny over the manner in which
manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed bills designed to, among other things, bring more
transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for
drug products. Individual states in the United States have also become increasingly active in implementing regulations designed to control pharmaceutical product pricing,
including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some
cases, designed to encourage importation from other countries and bulk purchasing. We cannot predict whether other legislative changes will be adopted, if any, or how such
changes would affect our operations or financial condition.
We and our collaboration partners may be subject to federal and state healthcare laws, including fraud and abuse, false claims, physician payment transparency and
health information privacy and security laws. Our operations and those of our collaboration partners are subject to various federal and state fraud and abuse laws, including,
without limitation, anti-kickback, false claims and physician payment transparency statutes. These laws may impact, among other things, financial arrangements with
physicians, sales, marketing and education programs and the manner in which any of those activities are implemented. In addition, we may be subject to federal and state patient
privacy regulations. If our operations or those of our collaboration partners are found to be in violation of any of those laws or any other applicable governmental regulations,
we or our collaboration partners may be subject to penalties, including civil and criminal penalties, damages, fines, imprisonment, exclusion from government healthcare
programs or the curtailment or restructuring of operations, any of which could adversely affect our ability to operate our business and our financial condition.
Changes in funding for the FDA and other government agencies could hinder their ability to hire and retain key leadership and other personnel, or otherwise prevent new
products and services from being developed or commercialized in a timely manner, which could negatively impact our business or the business of our partners.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and
retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a
result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid
and unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which
would adversely affect our business or the business of our partners. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S.
government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities. If a
prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a
material adverse effect on our business. If the timing of FDA’s review and approval of new products is delayed, the timing of our or our partners’ development process may be
delayed which would result in delayed milestone revenues and materially harm our operations of business.
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, partnered products 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 product recall or withdrawal
from the market 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. Our insurance coverage may not be sufficient to cover all of our product liability related
31
expenses or losses and may not cover us for any expenses or losses we may suffer. If we are sued for any injury caused by our product candidates, partnered products or any
future products, our liability could exceed our total assets.
We face risks related to handling of hazardous materials and other regulations governing environmental safety.
Our operations are subject to complex and stringent environmental, health, safety and other governmental laws and regulations that both public officials and private
individuals may seek to enforce. Our activities that are subject to these regulations include, among other things, our use of hazardous materials and the generation, transportation
and storage of waste. Although we have secured clearance from the EPA historically, and currently are operating in material compliance with applicable EPA rules and
regulations, our business could be adversely affected if we discover that we or an acquired business is not in material compliance with these rules and regulations. In the future,
we may pursue the use of other surfactant substances that will require clearance from the EPA, and we may fail to obtain such clearance. Existing laws and regulations may also
be revised or reinterpreted, or new laws and regulations may become applicable to us, whether retroactively or prospectively, that may have a negative effect on our business
and results of operations. It is also impossible to eliminate completely the risk of accidental environmental contamination or injury to individuals. In such an event, we could be
liable for any damages that result, which could adversely affect our business.
Risk Related to Our Strategic Transactions:
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 ongoing 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.
Other Risks:
Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below
expectations or any guidance we may provide.
Our quarterly and annual operating results may fluctuate significantly, which makes it difficult for us to predict our future operating results. These fluctuations may occur
due to a variety of factors, many of which are outside of our control, including, but not limited to:
32
•
•
•
•
•
•
the royalties from the sales of Kyprolis, Evomela and other products sold by our partners;
the success of our collaboration partners’ preclinical and clinical programs;
the timing of Captisol purchases for use in clinical trials and commercial products;
the timing and cost of, and level of investment in, research, development, regulatory approval and commercialization activities relating to our internal development
programs, which may change from time to time;
expenditures that we may incur to acquire or develop additional product candidates and platform technologies; and
future accounting pronouncements or changes in our accounting policies.
The cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results and revenues. This variability
and unpredictability could result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our revenue or operating results fall below
the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts
or investors, the price of our common stock could decline substantially. Such a stock price decline could occur even when we have met any previously publicly stated revenue
or earnings guidance we may provide.
Changes or modifications in financial accounting standards, including those related to revenue recognition, may harm our results of operations.
From time to time, the FASB either alone or jointly with other organizations, promulgates new accounting principles that could have an adverse impact on our results of
operations. For example, in May 2014, FASB issued an accounting standard for revenue recognition-Accounting Standards Codification Topic 606, Revenue from Contracts
with Customers, or ASC 606-that supersedes most current revenue recognition guidance. The guidance requires a company to recognize revenue upon transfer of goods or
services to a customer at an amount that reflects the expected consideration to be received in exchange for those goods or services. The guidance became effective in fiscal 2018.
Under ASC 606, Ligand estimates and books royalties in the same quarter that our partners report the sale of the underlying product. We rely on our partners’ earning
releases and other information from our partners to determine the sales of our partners’ products and to estimate the related royalty revenues. If our partners report incorrect
sales, or if our partners delay reporting of their earnings release, our royalty estimates may need to be revised and/or our financial reporting may be delayed.
Uncertainties in the interpretation and application of the 2017 Tax Cuts and Jobs Act could materially affect our tax obligations and effective tax rate.
The 2017 Tax Cuts and Jobs Act (the Tax Act) was enacted on December 22, 2017, and significantly affected U.S. tax law, including by changing how the U.S. imposes
tax on certain types of income of corporations and by reducing the general U.S. corporate income tax rate. The U.S. Department of Treasury has broad authority to issue
regulations and interpretative guidance that may significantly impact how we will apply the law and impact our results of operations in the period issued.
The Tax Act requires certain complex computations not previously provided in U.S. tax law. As such, the application of accounting guidance for such items is currently
uncertain. Further, compliance with the Tax Act and the accounting for such provisions require accumulation of certain information not previously required or regularly
produced. As a result, we have provided a provisional estimate on the effect of the Tax Act in our financial statements. As additional and other regulatory guidance is issued by
the applicable taxing authorities, as accounting treatment is clarified, as we perform additional analysis on the application of the law, and as we refine estimates in calculating
the effect, our final analysis, which will be recorded in the period completed, may be different from our current provisional amounts, which could materially affect our tax
obligations and effective tax rate.
Our ability to use our net operating loss carryforwards and certain other tax attributes to offset future taxable income may be subject to certain limitations.
As of December 31, 2019, we had U.S. federal and state net operating loss carryforwards (NOLs) of approximately $31.5 million and $119.1 million, respectively. Our
federal NOLs expire through 2037 and our state NOLs begin to expire in 2028, if not utilized. Under the Tax Act, any federal NOLs arising in taxable years ending after
December 31, 2017 will carry forward indefinitely. As of December 31, 2019, we had federal and California research and development tax credit carryforwards of
approximately $0.6 million and $22.9 million, respectively. The federal research and development tax credit carryforwards expire in various years through 2038, if not utilized.
The California research and development credit will carry forward indefinitely. Under Sections 382 and 383 of Internal Revenue Code of 1986, as amended (Code) if a
corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes, such as research
33
tax credits, to offset its future post-change income and taxes may be limited. In general, an “ownership change” occurs if there is a cumulative change in our ownership by “5%
shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. We believe we have experienced certain
ownership changes in the past and have reduced our deferred tax assets related to NOLs and research and development tax credit carryforwards accordingly. In the event that it
is determined that we have in the past experienced additional ownership changes, or if we experience one or more ownership changes as a result future transactions in our stock,
then we may be further limited in our ability to use our NOLs and other tax assets to reduce taxes owed on the net taxable income that we earn in the event that we attain
profitability. Furthermore, under the Tax Act, although the treatment of tax losses generated in tax years beginning before December 31, 2017 has generally not changed, tax
losses generated in tax years beginning after December 31, 2017 may only offset 80% of our taxable income. This change may require us to pay federal income taxes in future
years despite having potentially generated a loss for federal income tax purposes in prior years. Any such limitations on the ability to use our NOLs and other tax assets could
adversely impact our business, financial condition and operating results.
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 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.
34
Conversion of our outstanding convertible notes may result in losses, result in the dilution of existing stockholders, create downward pressure on the price of our common
stock, and restrict our ability to take advantage of future opportunities.
In May 2018, we issued $750.0 million principle amount of the 2023 Notes. The sale of the 2023 Notes may 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 2023 Notes are convertible. The
convertible notes may be converted into cash and shares of our common stock, if any (subject to our right or obligation 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 convertible notes upon conversion, there will be dilution to our shareholders equity and the market price of our
shares may decrease due to the additional selling pressure in the market. Any downward pressure on the price of our common stock caused by the sale or potential sale of shares
issuable upon conversion of the convertible notes could also encourage short sales by third parties, creating additional selling pressure on our stock. Upon the occurrence of
certain circumstances, holders of the convertible 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 convertible notes and the obligations that we incurred by issuing them may restrict our ability to take advantage of certain future opportunities, such as engaging in future
debt or equity financing activities.
As of December 31, 2019, we had $750.0 million aggregate principal amount of 2023 Notes. The notes are convertible into cash, and if applicable, shares of our common
stock under certain circumstances, including trading price conditions related to our common stock. Upon conversion, we are required to record a gain or loss for the difference
between the fair value of the notes to be extinguished and their corresponding net carrying value. The fair value of the notes to be extinguished depends on our current
incremental borrowing rate. If our incremental borrowing rate at the time of conversion is lower than the implied interest rate of the notes, we will record a loss in our
consolidated statement of income during the period in which the notes are converted.
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 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 investments are subject to market and credit risks that could diminish their value and these risks could be greater
during periods of extreme volatility or disruption in the financial and credit markets, which could adversely impact our
business, financial condition, results of operations, liquidity and cash flows.
Our investments are subject to risks of credit defaults and changes in market values. Periods of macroeconomic weakness or recession, heightened volatility or disruption
in the financial and credit markets could increase these risks, potentially resulting in other than temporary impairment of assets in our investment portfolio. Any event reducing
the estimated fair value of these securities, other than on a temporary basis, could have a material and adverse effect on our business, results of operations, financial condition,
liquidity and cash flows. If our investment manager, fails to react appropriately to difficult
market, economic and geopolitical conditions, our investment portfolio could incur material losses.
We have a risk management framework in place to identify, assess and prioritize risks, including the market and credit
risks to which our investments are subject. As part of that framework, we test our investment portfolio based on various market
scenarios. Under certain stressed market scenarios, unrealized losses on our investment portfolio could lead to material
reductions in its carrying value.
A decline in fair value below the amortized cost of a security requires management to assess whether an impairment has occurred. The decision on whether to record an
impairment is determined in part by our assessment of the financial condition and prospects of a particular issuer, projections of future cash flows and recoverability of the
particular security as well as management’s assertion of whether it is more likely than not that we will sell the particular security before recovery.
35
Our charter documents and concentration of ownership may hinder or prevent change of control transactions.
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. Such provisions 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.
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 share-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 or changed securities analysts' reports or recommendations; future sales or shorting 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. Concerns
over inflation, energy costs, geopolitical issues, public health emergencies, the availability and cost of credit, and the U.S. financial markets have in the past contributed to, and
may continue in the future to contribute to, increased volatility and diminished expectations for the economy and the markets. For example, the outbreak of a novel strain of
coronavirus has affected the People’s Republic of China and elsewhere and has affected worldwide equity markets. 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.
Item 2.
Properties
The following table summarizes our principal facilities leased as of December 31, 2019, including the location and size of each facility, and their designated use. We also
lease facilities in other locations. We believe our facilities are adequate for our current and near-term needs, and we will be able to locate additional facilities, as needed.
36
Location
San Diego, CA
Emeryville, CA
Cambridge, United Kingdom
Approximate
Square Feet
7,000
13,000
28,000
Operation
Lease Expiration Date
Corporate headquarters office
Office and laboratory
Office and laboratory
June 2023
August 2021
September 2026
Item 3.
Legal Proceedings
See “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (10), Commitments and Contingencies—Legal
Proceedings.”
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
Our common stock is traded on the Nasdaq Global Market under the symbol “LGND.” As of February 14, 2020, there were approximately 446 holders of record of the
common stock.
Except for 2007, during which we declared a cash dividend on our common stock of $2.50 per share, we have not paid any dividends on our common stock in the past
and currently do not expect to pay cash dividends or make any other distributions on common stock in the future. We expect to retain our future earnings, if any, for use in the
operation and expansion of our business, to pay down debt and potentially for share repurchases. Any future determination to pay dividends on common stock will be at the
discretion of our board of directors and will depend upon our financial condition, results of operations, capital requirements and such other factors as the board deems relevant.
The following table presents information regarding repurchases by us of our common stock during the three months ended December 31, 2019 under the stock
repurchase program approved by our board of directors in September 2019, under which we may acquire up to $500 million of our common stock in open market and
negotiated purchases for a period of up to three years.
October 1 - October 31, 2019
November 1 - November 30, 2019
December 1 - December 31, 2019
Total
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number of
Shares Purchased
Average Price Paid
Per Share
—
625,409
135,519
760,928
$
$
$
$
—
107.74
107.47
107.69
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)
—
625,409
135,519
760,928
$
$
$
408,730
341,351
326,786
Since December 31, 2019 and as of February 21, 2020, we acquired 405,527 additional shares during 2020, and the maximum dollar value of shares that may yet be
purchased under the repurchase program was $290.0 million.
The information required by Item 201(d) of Regulation S-K is incorporated by reference to the 2020 Annual Meeting Proxy Statement as defined in Item 10 below.
37
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 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 Composite-Total Return
NASDAQ Biotechnology Index
Value of $100 Invested Over Time
12/31/2014
12/31/2015
12/31/2016
12/31/2017
12/31/2018
12/31/2019
$
$
$
100.00 $
100.00 $
100.00 $
203.76
106.96
111.77
$
$
$
190.96
116.45
87.91
$
$
$
257.34
150.96
106.95
$
$
$
255.03
146.67
97.47
$
$
$
196.00
200.49
121.94
38
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, 2019, 2018, 2017, 2016 and 2015 and the balance sheet data as of December 31,
2019, 2018, 2017, 2016 and 2015 are derived from our consolidated financial statements.
The comparability of the information is affected by a variety of factors, including acquisitions and divestitures of businesses, issuance and repayment of debt, share-based
compensation expense, and repurchases of common stock under our stock repurchase programs. In addition, the consolidated statement of operations data for each of the years
ended December 31, 2017, 2016 and 2015 and the selected consolidated balance sheet data as of December 31, 2017, 2016 and 2015 set forth in the tables below do not reflect
the adoption of Topic 606 and continue to be reported under the standards in effect for those periods. Additionally, the selected consolidated balance sheet data as of December
31, 2018, 2017, 2016 and 2015 set forth in the tables below do not reflect the adoption of Topic 842 regarding leases and continue to be reported under Topic 840 for those
periods. The selected consolidated financial data in this section are not intended to replace our consolidated financial statements and related notes. Our historical results are not
necessarily indicative of our future results.
Consolidated Statements of Operations Data:
Royalties
Material sales
License fees, milestones, and other revenues
Total revenues
Cost of material sales
Amortization of intangibles
Research and development
General and administrative
Total operating costs and expenses
Gain from sale of Promacta license
Income from operations
Total other income (expense), net
Income tax benefit (expense)
Income (loss) from continuing operations including noncontrolling interests
Less: Net loss attributable to noncontrolling interests
Income (loss) from continuing operations
Discontinued operations
Net income (loss)
Basic per share amounts:
Income (loss) from continuing operations
Discontinued operations
Net income (loss)
Weighted average number of common shares-basic
Diluted per share amounts:
Income (loss) from continuing operations
Discontinued operations
Net income (loss)
Weighted average number of common shares-diluted
2019
2018
2017
2016
2015
Year Ended December 31,
$
$
$
$
$
(in thousands, except per share amounts)
46,976 $
31,489
41,817
128,556 $
29,123
93,774
88,685 $
22,070
30,347
59,423 $
22,502
27,048
120,282
11,347
16,864
55,908
41,884
126,003
812,797
807,076
(10,437)
(167,337)
629,302
—
629,302
—
$629,302
251,453
6,337
15,792
27,863
37,734
87,726
—
163,727
9,603
(30,009)
143,321
—
143,321
—
$143,321
141,102
5,366
12,120
26,887
28,653
73,026
—
68,076
(10,845)
(44,675)
12,556
—
12,556
—
$12,556
108,973
5,571
10,643
21,221
27,653
65,088
—
43,885
(35,925)
(10,327)
(2,367)
—
(2,367)
731
$(1,636)
33.13 $
—
33.13 $
18,995
31.85 $
—
31.85 $
19,757
6.77 $
—
6.77 $
0.60 $
—
0.60 $
(0.11) $
0.04
(0.08) $
21,160
21,032
20,831
5.96 $
—
5.96 $
0.53 $
—
0.53 $
(0.11) $
0.04
(0.08) $
24,067
23,481
20,831
38,194
27,662
6,058
71,914
5,807
2,375
11,005
25,398
44,585
—
27,329
8,000
192,115
227,444
(2,380)
229,824
—
$229,824
11.61
—
11.61
19,790
10.83
—
10.83
21,228
39
2019
2018
2017
2016
2015
(in thousands)
December 31,
Consolidated Balance Sheet Data:
Cash, cash equivalents, short-term investments, restricted cash and investments $
$
Working capital (deficit)
Total assets
$
Other long-term obligations (excludes long-term portions of deferred revenue,
net and deferred gain)
Total notes payable, net (including current portion)
Retained earnings (accumulated deficit)
Total stockholders’ equity
$
$
$
$
1,070,597 $
1,106,643 $
1,494,915 $
776,445 $
788,291 $
1,260,803 $
208,099 $
(1,847) $
671,021 $
149,393 $
(64,076) $
601,585 $
71,722 $
638,959 $
400,105 $
767,232 $
7,776 $
636,297 $
(229,197) $
560,914 $
9,981 $
224,529 $
(400,924) $
399,788 $
3,603 $
212,910 $
(431,127) $
341,290 $
229,947
(8,109)
503,061
3,330
201,985
(429,491)
237,282
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) will help readers understand our results of operations, financial
condition, and cash flow. It is provided in addition to the accompanying consolidated financial statements and notes. Comparisons under this heading refer to twelve months
ended December 31, 2019 and 2018, respectively, unless otherwise indicated.
Our MD&A is organized as follows:
Results of Operations. Detailed discussion of our revenue and expenses for twelve months ended December 31, 2019 and 2018. A comparison of our results of
operations for twelve months ended December 31, 2018 and 2017 can be found under “Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on February 28, 2019.
Liquidity and Capital Resources. Discussion of key aspects of our consolidated statements of cash flows, changes in our financial position, and our financial
commitments.
Off-Balance Sheet Arrangements. We have no off-balance sheet arrangements.
Contractual Obligations. Tabular disclosure of known contractual obligations as of December 31, 2019.
Critical Accounting Policies and Estimates. Discussion of significant changes we believe are important to understand the assumptions and judgments underlying our
consolidated financial statements.
Recent Accounting Pronouncements. For summary of recent accounting pronouncements applicable to our consolidated financial statements, see “Item 8. Financial
Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (1), Basis of Presentation and Summary of Significant Accounting Policies.”
•
•
•
•
•
•
Results of Operations
Revenue
(Dollars in thousands)
Royalty Revenue
Material Sales
License fees, milestones and other revenue
Total revenue
2019
2018
Change
% Change
$
46,976 $
31,489
41,817
128,556 $
29,123
93,774
(81,580)
2,366
(51,957)
$
120,282 $
251,453 $
(131,171)
(63) %
8 %
(55) %
(52) %
40
Royalty revenue is a function of our partners' product sales and the applicable royalty rate. Promacta and Kyprolis royalty rates are under a tiered royalty rate structure
with the highest being 9.4% and 3.0%, respectively. Evomela has a fixed royalty rate of 20%. On March 6, 2019, we sold all of our rights, title and interest in and to the
Promacta license to RPI. Subsequent to March 6, 2019, we no longer recognize revenue related to sales of Promacta. See “Item 8. Financial Statements and Supplementary Data
—Notes to Consolidated Financial Statements—Note (2), Sale of Promacta License.”
Royalty revenue decreased in 2019 as compared to 2018 driven primarily by the above mentioned sale of the Promacta license in March 2019. Material sales increased
year over year in 2019 due to timing of customer purchases of Captisol for use in clinical trials and in commercialized products. The decrease in license fee, milestones and other
revenues in 2019 compared to 2018 was primarily driven by a $47.0 million OmniAb platform license fee received from WuXi and $20.0 million received from Roivant upon
entering into the GRA license agreement to develop and commercialize RVT-1502 (formerly named LGD-6972) during 2018, partially offset by the additional revenue
generated in 2019 from our Vernalis acquisition in October 2018.
The following table represents royalty revenue by program:
(in millions)
Promacta
Kyprolis
Evomela
Other
Total
2019 Estimated
Partner Product Sales Effective Royalty Rate
2019 Royalty
Revenue
2018 Estimated
Partner Product Sales
Effective Royalty
Rate
2018 Royalty
Revenue
$
$
225.1
1,095.4
26.0
194.1
1,540.6
6.3%
2.3%
20.0%
1.3%
$
$
14.2
25.0
5.2
2.6
47.0
$
$
1,173.4
980.5
28.1
163.5
2,345.5
8.5%
2.2%
20.0%
1.2%
$
$
99.3
21.7
5.7
1.9
128.6
Operating Costs and Expenses
(Dollars in thousands)
Cost of material sales
Amortization of intangibles
Research and development
General and administrative
Total operating costs and expenses
2019
2018
Change
% Change
$
$
11,347 $
16,864
55,908
41,884
6,337 $
15,792
27,863
37,734
126,003 $
87,726 $
5,010
1,072
28,045
4,150
38,277
79 %
7 %
101 %
11 %
44 %
Total operating costs and expenses for 2019 increased $38.3 million or 44% compared with 2018. Cost of material sales increased year over year in 2019 primarily due to
higher material sales as a result of timing of customer purchases and mix of Captisol sales in 2019. Amortization of intangibles increased year over year in 2019 primarily due to
the acquisitions of Vernalis in October 2018 and Ab Initio in July 2019 as well as $2.7 million of accelerated amortization of the GRA asset due to the unlikelihood of continued
program development. Research and development expenses increased year over year in 2019 due to timing of internal development costs, the Vernalis acquisition, and
amortization of other economic rights during 2019. General and administrative expenses increased year over year in 2019 primarily due to increased business development
activities, an increase in share-based compensation and the Vernalis acquisition.
We do not provide forward-looking estimates of costs and time to complete our ongoing research and development projects as such estimates would involve a high
degree of uncertainty. Uncertainties include our inability to predict the outcome of research and clinical studies, regulatory requirements placed upon us by regulatory
authorities such as the FDA and EMA, our inability to predict the decisions of our partners, our ability to fund research and development programs, competition from other
entities of which we may become aware in future periods, predictions of market potential for products that may be derived from our work, and our ability to recruit and retain
personnel or third-party contractors with the necessary knowledge and skills to perform certain research. Refer to “Item 1A. Risk Factors” for additional discussion of the
uncertainties surrounding our research and development initiatives.
41
Other income (expense)
(Dollars in thousands)
Gain (loss) from Viking
Interest income
Interest expense
Other income (expense), net
Total other income (expense,) net
2019
2018
Change
% Change
$
2,888 $
28,430
50,187 $
13,999
(35,745)
(6,010)
(48,276)
(6,307)
(47,299)
14,431
12,531
297
$
(10,437) $
9,603 $
(20,040)
(94) %
103 %
(26) %
(5) %
(209) %
The fluctuation in the gain (loss) from Viking is driven by the changes in the fair value of the Viking common stock and warrants.
Interest income consists primarily of interest earned on our short-term investments. The year over year increase in 2019 was due to the increase in our short-term
investment balances as a result of the proceeds from the 2023 Notes financing on May 22, 2018 and the proceeds from the sale of the Promacta license in March 2019.
Interest expense includes the 0.75% coupon cash interest expense in addition to the non-cash accretion of discount (including the amortization of debt issuance costs) on
our 2019 Notes and 2023 Notes. The year over year decrease in 2019 was primarily due to lower average debt outstanding balance as compared to the prior year. The 2019
Notes were paid off upon the maturity date in August 2019. See “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note
(7), Convertible Senior Notes.”
Other income (expense), net, for the twelve months ended December 31, 2019, consists primarily of a $5.1 million reduction in the value of our Selexis commercial
license right. See additional information in “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (1), Basis of
Presentation and Summary of Significant Accounting Policies - Commercial License and Other Economic Rights.” Other income (expense), net, for the twelve months ended
December 31, 2018, consists primarily of changes in the fair value of contingent liabilities associated with our Crystal and Metabasis acquisitions and net changes in derivative
instrument expense associated with our convertible notes and bond hedge transactions. See additional information in “Item 8. Financial Statements and Supplementary Data—
Notes to Consolidated Financial Statements—Note (7), Convertible Senior Notes.”
Income tax expense
(Dollars in thousands)
Income before income tax expense
Income tax expense
Income from operations
Effective Tax Rate
2019
2018
Change
% Change
$
$
796,639
(167,337)
$
$
173,330
(30,009)
623,309
(137,328)
629,302
$
143,321
$
485,981
360 %
458 %
339 %
21 %
17 %
Our effective tax rate for 2019 and 2018 was 21% and 17%, respectively. Our tax rate is affected by recurring items, such as the U.S. federal and state statutory tax rates
and the relative amounts of income we earn in those jurisdictions, which we expect to be fairly consistent in the near term. It is also affected by discrete items that may occur in
any given year, but are not consistent from year to year. In addition to state income taxes, the items below had the most significant impact on the difference between our
statutory U.S. income tax rate and our effective tax rate.
$1.2 million (0.1%) decrease due to the release of a valuation allowance primarily relating to research and development tax credits.
$0.9 million (0.1%) decrease from research and development tax credits
$0.8 million (0.1%) decrease due to excess tax benefits from share-based compensation which are recorded as a discrete item within the provision for income
tax pursuant to ASU 2016-09
2019
•
•
•
2018
•
$8.1 million (5%) decrease due to excess tax benefits from share-based compensation which are recorded as a discrete item within the provision for income tax
pursuant to ASU 2016-09
42
•
•
•
•
•
$4.2 million (2%) decrease due to changes in valuation allowance primarily relating to capital loss carryovers and research and development tax credits.
$3.1 million (2%) increase from expired NOLs and credits
$2.8 million (2%) reduction from research and development tax credits
$0.9 million (1%) increase from non-cash contingent consideration charges that are nondeductible for tax purposes
$0.9 million (1%) increase from Section 162(m) limitation
Liquidity and Capital Resource
At December 31, 2019, we had approximately $1,011.5 million in cash, cash equivalents, and short-term investments, of which approximately $6.8 million was held by
our foreign subsidiaries. Cash and cash equivalents and short-term investments increased by $293.2 million from last year, due to factors described in the "Cash Flow
Summary" below. Our primary source of liquidity, other than our holdings of cash, cash equivalents, and investments, which increased during 2019 primarily from the sale of
the Promacta license, has been cash flows from operations. Our ability to generate cash from operations provides us with the financial flexibility we need to meet operating,
investing, and financing needs.
Historically, we have liquidated our short-term investments and/or issued debt and equity securities to finance our business needs as a supplement to cash provided by
operating activities. Our short-term investments include U.S. government debt securities, investment-grade corporate debt securities, mutual funds 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 as a result of a milestone and an upfront license payment as well as 6.0 million shares of common stock in Viking.
In August 2014, we issued the 2019 Notes with aggregate principal amount of $245.0 million. During 2018, $217.7 million in principal of the 2019 Notes were converted
into cash. In June 2019, we received notices for conversion of $1.0 million of principal amount of the 2019 Notes, which were settled in cash upon the 2019 Notes' maturity date
in August 2019. On August 15, 2019, the 2019 Notes maturity date, we paid the noteholders the remaining $26.3 million principal amount.
In May 2018, we issued the 2023 Notes with an aggregate principal amount of $750.0 million. A portion of the proceeds from such issuance totaling $49.7 million were
used to repurchase 260,000 shares of our common stock. The 2023 Notes were not convertible as of December 31, 2019. It is our intent and policy to settle conversions through
combination settlement, which essentially involves payment in cash equal to the principal portion and delivery of shares of common stock for the excess of the conversion value
over the principal portion. See detail in “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (7), Convertible Senior
Notes.”
In September 2018, our Board of Directors authorized us to repurchase up to $200.0 million of our common stock from time to time over a period of up to three years.
On January 23, 2019, our Board of Directors increased the share repurchase authorization by $150.0 million. The available amount under the $350.0 million repurchase plan
was fully utilized during the third quarter of 2019.
On September 11, 2019, our Board of Directors approved a stock repurchase program authorizing the repurchase of up to $500.0 million of our common stock from time
to time over the next three years. We expect to acquire shares primarily through open-market transactions and have entered into a Rule 10b5-1 trading plan, and may enter into
additional Rule 10b5-1 trading plans in the future, to facilitate open-market repurchases. The timing and amount of repurchase transactions will be determined by management
based on our evaluation of market conditions, share price, legal requirements and other factors. Our prior $350.0 million stock repurchase program mentioned above was
terminated in connection with the approval of the new stock repurchase program. Authorization to repurchase $326.8 million of our common stock remained available as of
December 31, 2019. See “Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchase of Equity Securities.”
We believe that existing funds, cash generated from operations and existing sources of and access to financing are adequate to satisfy our needs for working capital;
capital expenditure and debt service requirements; continued advancement of research and development efforts; potential stock repurchases; and other business initiatives we
plan to strategically pursue, including acquisitions and strategic investments.
43
As of December 31, 2019, we had $8.9 million in fair value of contingent consideration liabilities associated with prior acquisitions to be settled in future periods.
Cash Flow Summary
(in thousands)
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
2019
2018
2017
$
$
$
(29,336) $
466,918 $
(485,172) $
194,059 $
(423,269) $
328,585 $
88,570
(79,179)
(7,523)
In 2019, we generated $827 million from the sale of the Promacta license (including $14.2 million recorded to revenue related to the Promacta royalty for the period
between January 1, 2019 and March 6, 2019), used cash for net purchases of short-term investments, used $453.0 million to repurchase our common stock, used $103.8 million
to pay federal and state estimated income taxes, paid off the remaining balance of the 2019 Notes in the amount of $27.3 million, paid $12.0 million for the purchase of Novan
economic rights and paid $11.8 million for the Ab Initio acquisition (net of cash acquired).
In 2018, we generated cash from operations, from issuance of the 2023 Notes and associated warrants, and from issuance of common stock under employee stock plans.
During the same period we used cash for investing activities, including the acquisition of commercial rights, net purchases of short-term investments, payments made to acquire
Vernalis, payments to CVR holders and capital expenditures. We also used cash for financing activities, including principal payments related to conversions of the 2019 Notes,
payments to purchase the bond hedge associated with the 2023 Notes, payments for taxes related to net share settlement of equity awards and to repurchase shares of our
common stock.
In 2017, we generated cash from operations and from issuance of common stock under employee stock plans. During the same period we used cash for investing
activities, including net purchases of short-term investments, payments made to acquire Crystal, payments to CVR holders and capital expenditures. We also used cash to pay
taxes related to net share settlement of equity awards and to repurchase shares of our common stock.
Off-Balance Sheet Arrangements
We do not participate in any transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured
finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited
purposes. During the fiscal year ended December 31, 2019, we were not involved in any “off-balance sheet arrangements” within the meaning of the rules of the SEC.
We lease our office facilities under operating lease arrangements with varying terms through September 2026. The agreements provide for increases in annual rents
based on changes in the Consumer Price Index or fixed percentage increases of 3.0%. We had no off-balance sheet arrangements at December 31, 2019, 2018 and 2017.
Contractual Obligations
As of December 31, 2019, future minimum payments due under our contractual obligations are as follows (in thousands):
Purchase obligations (1)
Notes payable (2)
Operating lease obligations (3)
Payments Due by Period
Total
Less than 1 year
1-2 years
3-4 years
Thereafter
$
$
$
19,646 $
769,219 $
13,866 $
12,139 $
5,625 $
1,914 $
7,507 $
11,250 $
4,482 $
— $
752,344 $
3,977 $
—
—
3,493
Amounts represent our commitments under our supply agreement with Hovione for Captisol purchases.
Amounts represent contractual amounts due under our 2023 Notes, including interest based on the fixed rate of 0.75% per year.
44
We lease an office facility, which we have fully vacated under operating lease arrangements expiring on February 2023. We sublet the facility through the end of our lease. As of December 31, 2019, we expect to
receive aggregate future minimum lease payments totaling $0.9 million (non-discounted) over the duration of the sublease agreement, which are not included in the table above.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues
and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. The SEC has defined a company’s critical
accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make
its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified
the critical accounting policies and judgments addressed below. We also have other key accounting policies, which involve the use of estimates, judgments, and assumptions
that are significant to understanding our results. For additional information, see “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial
Statements—Note (1), Basis of Presentation and Summary of Significant Accounting Policies.” Although we believe that our estimates, assumptions, and judgments are
reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments, or
conditions.
Revenue Recognition
On January 1, 2018, we adopted ASC 606, which amends the guidance for recognition of revenue from contracts with customers using the modified-retrospective method
applied to those contracts that were not completed as of January 1, 2018. We apply the following five-step model in order to determine the revenue: (i) identification of the
promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether
they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction
price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
We receive royalty revenue on sales by our partners of products covered by patents that we or our partners own under the contractual agreements. We do not have future
performance obligations under these license arrangements. We generally satisfy our obligation to grant intellectual property rights on the effective date of the contract.
However, we apply the royalty recognition constraint required under the guidance for sales-based royalties which requires a sales-based royalty to be recorded no sooner than
the underlying sale. Therefore, royalties on sales of products commercialized by our partners are recognized in the quarter the product is sold. Our partners generally report sales
information to us on a one quarter lag. Thus, we estimate the expected royalty proceeds based on an analysis of historical experience and interim data provided by our partners
including their publicly announced sales. Differences between actual and estimated royalty revenues are adjusted for in the period in which they become known, typically the
following quarter.
Our contracts with customers often will include future contingent milestone based payments. We include contingent milestone based payments in the estimated
transaction price when it is probable to estimate the amount of the payment. These estimates are based on historical experience, anticipated results and our best judgment at the
time. If the contingent milestone based payment is sales-based, we apply the royalty recognition constraint and record revenue when the underlying sale has taken place.
Significant judgments must be made in determining the transaction price for our sales of intellectual property. Because of the risk that products in development with our partners
will not reach development based milestones or receive regulatory approval, we generally recognize any contingent payments that would be due to us upon the development
milestone or regulatory approval. Depending on the terms of the arrangement, we may also defer a portion of the consideration received because we have to satisfy a future
obligation. We use an observable price to determine the stand-alone selling price for separate performance obligations or a cost plus margin approach when one is not available.
For R&D services that we recognize over time, we measure our progress using an input method. The input methods we use are based on the effort we expend or costs we
incur toward the satisfaction of our performance obligation. We estimate the amount of effort we expend, including the time we estimate it will take us to complete the activities,
or costs we incur in a given period, relative to the estimated total effort or costs to satisfy the performance obligation. This results in a percentage that we multiply by the
transaction price to determine the amount of revenue we recognize each period. This approach requires us to make numerous estimates and use significant judgement. If our
estimates or judgements change over the course of the collaboration, they may affect the timing and amount of revenue that we recognize in the current and future periods.
45
Revenue from material sales is recognized when control of Captisol material or intellectual property license rights is transferred to our customers in an amount that
reflects the consideration we expect to receive from our customers in exchange for those products. This process involves identifying the contract with a customer, determining
the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing
revenue when the performance obligations have been satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to
the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. We consider a performance
obligation satisfied once we have transferred control of the product, meaning the customer has the ability to use and obtain the benefit of the Captisol material or intellectual
property license right. We recognize revenue for satisfied performance obligations only when we determine there are no uncertainties regarding payment terms or transfer of
control. Sales tax and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. We have elected to recognize the cost for freight and
shipping when control over Captisol material has transferred to the customer as an expense in cost of material sales. We expense incremental costs of obtaining a contract when
incurred if the expected amortization period of the asset that we would have recognized is one year or less or the amount is immaterial. We did not incur any incremental costs
of obtaining a contract during the periods reported.
We occasionally have sub-license obligations related to arrangements for which we receive license fees, milestones and royalties. We evaluate the determination of gross
as a principal versus net as an agent reporting based on each individual agreement.
Intangible Assets and Other Long-Lived Assets — Impairment Assessments
We regularly perform reviews to determine if the carrying values of our long-lived assets are impaired. A review of identifiable intangible assets and other long-lived
assets is performed when an event occurs indicating the potential for impairment. If indicators of impairment exist, we first assess the impairment evaluation and then assess the
recoverability of the affected long-lived assets and compare their fair values to the respective carrying amounts if needed. An impairment evaluation is based on an
undiscounted cash flow analysis at the lowest level at which cash flows of the long-lived assets are largely independent of other groups of assets and liabilities.
In order to estimate the fair value of identifiable intangible assets and other long-lived assets, we estimate the present value of future cash flows from those assets. The
key assumptions that we use in our discounted cash flow model are the amount and timing of estimated future cash flows to be generated by the asset over an extended period of
time and a rate of return that considers the relative risk of achieving the cash flows, the time value of money, and other factors that a willing market participant would consider.
Significant judgment is required to estimate the amount and timing of future cash flows and the relative risk of achieving those cash flows.
Assumptions and estimates about future values and remaining useful lives are complex and often subjective. They can be affected by a variety of factors, including
external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts. For example, if our future
operating results do not meet current forecasts or if we experience a sustained decline in our market capitalization that is determined to be indicative of a reduction in fair value
of our reporting unit, we may be required to record future impairment charges for purchased intangible assets. Impairment charges could materially decrease our future net
income and result in lower asset values on our balance sheet.
Contingent Liabilities
In October 2017, we acquired Crystal for total cash consideration of $27.2 million, plus contingent consideration of up to an additional $10.5 million over a five year
period following the acquisition date based on certain research milestones and a portion of the payments that we receive from a specified part of the historical Crystal business.
The contingent consideration is measured at fair value using an income approach valuation technique, specifically with probability weighted and discounted cash flows. The fair
value of the liability is assessed at each reporting date and 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. The fair value of the contingent consideration
liability as of December 31, 2019 was $2.7 million.
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 proceeds are 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
46
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.
See additional information in “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (5), Fair Value
Measurement.”
Income Taxes
Our provision for income taxes, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect our best assessment of estimated future taxes to be
paid. Significant judgments and estimates based on interpretations of existing tax laws or regulations in the United States are required in determining our provision for income
taxes. Changes in tax laws, statutory tax rates, and estimates of our future taxable income could impact the deferred tax assets and liabilities provided for in the consolidated
financial statements and would require an adjustment to the provision for income taxes.
Deferred tax assets are regularly assessed to determine the likelihood they will be recovered from future taxable income. A valuation allowance is established when we
believe it is more likely than not the future realization of all or some of a deferred tax asset will not be achieved. In evaluating our ability to recover deferred tax assets within
the jurisdiction which they arise, we consider all available positive and negative evidence. Factors reviewed include the cumulative pre-tax book income for the past three years,
scheduled reversals of deferred tax liabilities, our history of earnings and reliability of our forecasts, projections of pre-tax book income over the foreseeable future, and the
impact of any feasible and prudent tax planning strategies.
We recognize the impact of a tax position in our financial statements only if that position is more likely than not of being sustained upon examination by taxing
authorities, based on the technical merits of the position. Tax authorities regularly examine our returns in the jurisdictions in which we do business and we regularly assess the
tax risk of our return filing positions. Due to the complexity of some of the uncertainties, the ultimate resolution may result in payments that are materially different from our
current estimate of the tax liability. These differences, as well as any interest and penalties, will be reflected in the provision for income taxes in the period in which they are
determined.
Recent Accounting Pronouncements
For the summary of recent accounting pronouncements applicable to our consolidated financial statements, see “Item 8. Financial Statements and Supplementary Data—
Notes to Consolidated Financial Statements—Note (1), Basis of Presentation and Summary of Significant Accounting Policies.”
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, 2019, our investment portfolio included investments in available-for-sale securities of $940.0 million and investment in Viking common stock and
warrants of $58.3 million. These securities are subject to market risk and may decline in value based on market conditions.
Equity Price Risk
In order to minimize the impact of potential dilution to our common stock upon the conversion of our then-existing 2019 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. 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. We continue to have the ability to avoid settling the warrants associated with the 2019 Notes in cash after May 22, 2018.
In November 2018, we repurchased a total of 525,000 warrants. As of December 31, 2019, 849,292 warrants had expired, and 1,890,359 warrants remained outstanding.
47
Our 2023 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. As of
December 31, 2019, the “if-converted value” did not exceed the principal amount of the 2023 Notes. See detail in “Item 8. Financial Statements and Supplementary Data—
Notes to Consolidated Financial Statements—Note (7), Convertible Senior Notes.”
Foreign Currency Risk
Through our licensing and business operations, together with our recent acquisition of Vernalis, 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 license
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 changes in interest rates related primarily to our investment portfolio. Our investment policy and strategy are focused on the preservation of capital
and supporting our liquidity requirements. We use a combination of internal and external management to execute our investment strategy. We typically invest in highly rated
securities, with the primary objective of minimizing the risk of principal loss. Our investment policy generally requires securities to be investment grade and limits the amount
of credit exposure to any one issuer. We have historically maintained a relatively short average maturity for our investment portfolio, and we believe a hypothetical 100 basis
point adverse move in interest rates across all maturities would not materially impact the fair market value of the portfolio in either period.
48
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
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
50
51
52
53
55
55
57
49
To the Stockholders and the Board of Directors of Ligand Pharmaceuticals Incorporated
Opinion on the Financial Statements
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of Ligand Pharmaceuticals Incorporated (the Company) as of December 31, 2019 and 2018, and the related
consolidated statements of operations, comprehensive income , stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2019, and the
related notes, (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December
31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over
financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (2013 framework) and our report dated February 27, 2020 expressed an unqualified opinion thereon.
Adoption of ASU No. 2016-02
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of Accounting Standards
Update (ASU) No. 2016-02, Leases (Topic 842), and the related amendments.
Adoption of ASU No. 2014-09
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for recognizing revenue due to the adoption of Accounting
Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606), and the amendments in ASUs 2015-14, 2016-10, and 2016-12, effective January 1,
2018.
Adoption of ASU No. 2016-01
As discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for financial instruments due to the adoption of Accounting
Standards Update (ASU) 2016-01, Financial Instruments- Recognition and Measurement of Financial Assets and Financial Liabilities, effective January 1, 2018.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be
communicated to the audit committee and that: (1) relate to accounts or disclosures that
50
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matters does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate
opinion on the critical audit matters or on the account or disclosure to which they relate.
Description of the Matter
Uncertain Tax Positions
As discussed in Note 11 to the consolidated financial statements, the Company had unrecognized income tax benefits of $29 million related to
its uncertain tax positions at December 31, 2019. The Company uses judgment to (1) determine whether, based on the technical merits, a tax
position is more likely than not to be sustained and (2) measure the amount of tax benefit that qualifies for recognition. Estimated tax benefits
related to uncertain tax positions that are not more likely than not to be sustained are reported as unrecognized income tax benefits.
How We Addressed the
Matter in Our Audit
Auditing management's analysis of the Company’s uncertain tax positions and the amount of recognized tax benefit is complex and involves
judgment because management’s estimate is based upon interpretations of tax laws, and legal rulings.
We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls over the Company’s
accounting process related to uncertain tax positions. For example, we tested controls over management’s identification of uncertain tax
positions and its application of the recognition and measurement principles, including management’s review of the inputs and calculations of
recognized tax benefits.
Description of the Matter
Our audit procedures included, among others, testing the completeness and accuracy of the underlying data used by the Company to determine
its uncertain tax positions. We involved our tax professionals to assess the technical merits of the Company’s tax positions including its
consideration of relevant tax laws and current interpretations. In addition, we compared the estimated liabilities for unrecognized income tax
benefits to similar positions in prior periods and assessed the historical accuracy of management’s estimates of its uncertain tax positions by
comparing the estimates with the resolution of those positions as applicable. We also evaluated the adequacy of the Company’s disclosures
included in Note 11 in relation to these tax matters.
Gain from sale of Promacta license
As discussed in Note 2 to the consolidated financial statements, on March 6, 2019 the Company sold the Promacta-related rights, title and
interest in and to intellectual property and related know-how for $827 million in cash. Of the total cash proceeds from the sale, $14.2 million
was recorded as revenue related to the Promacta royalty for the period between January 1, 2019 and March 6, 2019, and the remaining $812.8
million was recorded to income from operations in accordance with ASC 610-20, Other Income - Gains and Losses from the Derecognition of
Nonfinancial Assets.
How We Addressed the
Matter in Our Audit
Auditing the sale of Promacta license was especially challenging as the transaction was highly complex and the conclusions involved
interpretation of complex accounting standards. This transaction required the exercise of auditor judgment in evaluating management’s
determination of when control passed to the customer.
We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls over management’s process for
evaluating the transaction. For example, we tested controls over management’s review of the technical assessment over the asset sale.
Our auditing procedures included, among others, obtaining and reading the agreements relating to the Promacta license sale and related
documentation to evaluate the Company’s accounting conclusions. We performed procedures to test whether the terms of the agreement
transferred all technology, rights and materials to the counter party. We vouched proceeds of the sale and that all obligations had been satisfied
as of the transaction date.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2016.
San Diego, California
February 27, 2020
51
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Investment in Viking
Accounts receivable, net
Inventory
Derivative asset
Income taxes receivable
Other current assets
Total current assets
Deferred income taxes, net
Intangible assets, net
Goodwill
Commercial license and other economic rights
Property and equipment, net
Operating lease right-of-use assets
Other assets
Total assets
Current liabilities:
Accounts payable
Accrued liabilities
Current contingent liabilities
Deferred revenue
Derivative liability
2019 convertible senior notes, net
Total current liabilities
2023 convertible senior notes, net
Long-term contingent liabilities
Deferred income taxes, net
Long-term operating lease liabilities
Other long-term liabilities
Total liabilities
Commitments and contingencies
LIABILITIES AND STOCKHOLDERS’ EQUITY
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000 shares authorized; zero issued and outstanding at December 31, 2019 and 2018
Common stock, $ 0.001 par value; 60,000 shares authorized; 16,823 and 20,766 shares issued and outstanding at December 31, 2019 and 2018,
respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings (accumulated deficit)
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
December 31,
2019
2018
71,543 $
939,989
58,335
30,387
7,296
—
11,361
4,734
1,123,645
25,608
210,448
95,229
20,090
7,185
10,353
2,357
117,164
601,217
55,448
55,850
7,124
22,576
142
11,019
870,540
46,521
219,793
86,646
31,460
5,372
—
471
1,494,915 $
1,260,803
2,420 $
9,836
2,607
2,139
—
—
17,002
638,959
6,335
32,937
9,970
22,480
727,683
—
17
367,326
(216)
400,105
767,232
4,183
19,200
5,717
3,286
23,430
26,433
82,249
609,864
6,825
—
—
951
699,889
—
21
791,114
(1,024)
(229,197)
560,914
See accompanying notes to these consolidated financial statements.
$
1,494,915 $
1,260,803
52
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Year Ended December 31,
2019
2018
2017
$
46,976 $
128,556 $
31,489
41,817
120,282
11,347
16,864
55,908
41,884
126,003
812,797
807,076
2,888
28,430
(35,745)
(6,010)
(10,437)
796,639
(167,337)
629,302
29,123
93,774
251,453
6,337
15,792
27,863
37,734
87,726
—
163,727
50,187
13,999
(48,276)
(6,307)
9,603
173,330
(30,009)
143,321
$
$
33.13 $
18,995
31.85 $
19,757
6.77 $
21,160
5.96 $
24,067
88,685
22,070
30,347
141,102
5,366
12,120
26,887
28,653
73,026
—
68,076
(2,048)
2,060
(13,460)
2,603
(10,845)
57,231
(44,675)
12,556
0.60
21,032
0.53
23,481
Revenues:
Royalties
Material sales
License fees, milestones and other revenues
Total revenues
Operating costs and expenses:
Cost of material sales
Amortization of intangibles
Research and development
General and administrative
Total operating costs and expenses
Gain from sale of Promacta license
Income from operations
Other income (expense):
Gain (loss) from Viking
Interest income
Interest expense
Other income (expense), net
Total other income (expense), net
Income before income tax expense
Income tax expense
Net income
Basic net income per share
Shares used in basic per share calculation
Diluted net income per share
Shares used in diluted per share calculation
See accompanying notes to these consolidated financial statements.
53
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income
Unrealized net gain on available-for-sale securities, net of tax
Foreign currency translation
Less: Reclassification of net realized gains included in net income, net of tax
Comprehensive income
Year Ended December 31,
2019
2018
2017
$
$
629,302 $
200
608
—
143,321 $
73
(921)
—
630,110 $
142,473 $
12,556
143
—
(400)
12,299
See accompanying notes to these consolidated financial statements.
54
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
Common Stock
Balance at January 1, 2017
Issuance of common stock under employee stock compensation plans, net
Reclassification of equity component of currently redeemable convertible
notes
Share-based compensation
Repurchase of common stock
Other comprehensive loss
Cumulative-effect adjustment from adoption of ASU 2016-09
Net income
Balance at December 31, 2017
Issuance of common stock under employee stock compensation plans, net
Reclassification of equity component of currently redeemable convertible
notes
Share-based compensation
Repurchase of common stock
Other comprehensive income
Cumulative-effect adjustment from adoption of ASU 2016-01
Cumulative-effect adjustment from adoption of ASU 2014-09, net of tax
Derivative associated with 2019 Notes and Bond Hedge
Loss on settlement of 2019 Notes
Warrant repurchase in connection with 2019 Notes
Loss on repurchase of warrants in connection with 2019 Notes
Tax effect on 2019 Notes transactions
Derivative associated with 2023 Notes and Bond Hedge
Warrant derivative in connection with 2023 Notes
Tax effect for 2023 Notes transactions
Foreign currency translation adjustment
Other tax adjustments
Net income
Balance at December 31, 2018
Issuance of common stock under employee stock compensation plans, net
Share-based compensation
Repurchase of common stock
Unrealized net gain on available-for-sale securities, net of deferred tax
Foreign currency translation adjustment
Other tax adjustments
Net income
Balance at December 31, 2019
Shares
Amount
20,909,301
$
253,364
—
—
(14,000)
—
—
—
21,148,665
$
399,116
—
—
(782,248)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
20,765,533
$
179,838
—
21
—
—
—
—
—
—
—
21
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
21
—
—
(4,122,133)
(4)
—
—
—
—
16,823,238
$
—
—
—
—
17
Additional
paid-in
capital
Accumulated
other
comprehensive
income (loss)
Accumulated
deficit
Total
stockholders’
equity
$
769,653
$
2,743
$
(431,127)
$
(5,558)
10,704
24,916
(1,966)
—
456
—
—
—
—
—
(257)
—
—
—
—
—
—
—
17,647
—
12,556
$
798,205
$
2,486
$
(400,924)
$
16,417
18,859
20,846
(127,481)
—
—
—
(1,559)
3,187
(30,472)
1,792
(1,680)
(1,807)
97,805
(3,181)
—
183
—
—
—
—
—
73
(2,662)
—
—
—
—
—
—
—
—
—
(921)
—
—
—
—
—
—
—
2,662
25,581
—
—
—
—
—
—
—
—
—
163
143,321
$
791,114
$
(1,024)
$
(229,197)
$
(1,421)
24,515
(448,429)
—
—
1,547
—
—
—
—
200
608
—
—
$
367,326
$
(216)
$
—
—
—
—
—
—
629,302
400,105
$
341,290
(5,558)
10,704
24,916
(1,966)
(257)
18,103
12,556
399,788
16,417
18,859
20,846
(127,481)
73
—
25,581
(1,559)
3,187
(30,472)
1,792
(1,680)
(1,807)
97,805
(3,181)
(921)
346
143,321
560,914
(1,421)
24,515
(448,433)
200
608
1,547
629,302
767,232
See accompanying notes to these consolidated financial statements.
55
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Year Ended December 31,
2019
2018
2017
$
629,302 $
143,321 $
12,556
Gain from sale of Promacta license
Change in estimated fair value of contingent liabilities
Realized gain on sale of short-term investment
Depreciation and amortization of intangible assets
(Gain) loss on equity investment in Viking
Amortization/accretion of premium (discount) on investments, net
Amortization of debt discount and issuance fees
Amortization of commercial license and other economic rights
Share-based compensation
Deferred income taxes, net
Royalties recorded in retained earnings upon adoption of ASC 606
Other
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net
Inventory
Accounts payable and accrued liabilities
Income taxes receivable
Other economic rights
Other
Net cash provided by (used in) operating activities
Investing activities
Proceeds from sale of Promacta license
Purchase of commercial license rights
Cash paid for acquisition, net of cash acquired
Purchases of property and equipment
Purchases of short-term investments
Proceeds from sale of short-term investments
Proceeds from maturity of short-term investments
Proceeds from commercial license rights
Proceeds received from repayment of Viking note receivable
Cash paid for equity method investment
Other, net
Net cash provided by (used in) investing activities
Financing activities
Repayment of debt
Gross proceeds from issuance of 2023 Convertible Senior Notes
Payment of debt issuance costs
Proceeds from issuance of warrants
Purchase of convertible bond hedge
Proceeds from bond hedge settlement
Payments to convert holders for bond conversion
Net proceeds from stock option exercises and ESPP
Taxes paid related to net share settlement of equity awards
Share repurchases
Repurchase of warrants
Payments to CVR Holders
56
(812,797)
(30)
(41)
18,361
(2,888)
(10,274)
29,988
25,370
24,515
74,829
—
(1,456)
25,463
(2,061)
(6,826)
(11,219)
(12,000)
2,428
(29,336)
812,797
—
(11,840)
(2,553)
(2,356,545)
535,877
1,494,851
—
3,448
(2,611)
12,784
(47,658)
(5,452)
43,954
1,934
20,846
29,739
32,707
2,832
(29,544)
(2,559)
(4,542)
318
—
(5,458)
194,059
—
(10,000)
—
2,580
(831)
10,955
(1,114)
(81)
11,619
759
24,915
44,518
—
(870)
(8,358)
(843)
(1,713)
(460)
—
(5,062)
88,570
—
—
(5,856)
(887)
(1,434,255)
131,942
892,873
(26,653)
(2,156)
(254,258)
86,985
109,649
—
—
7,054
—
(1,000)
(4,669)
466,918
(27,323)
—
—
—
—
12,401
(12,401)
2,997
(4,418)
(453,048)
(380)
(3,000)
3,914
—
(1,000)
200
—
—
(423,269)
(79,179)
(217,674)
750,000
(16,900)
90,000
(140,250)
439,559
(439,581)
20,183
(3,765)
(122,868)
(30,094)
(25)
—
—
—
—
—
—
—
4,517
(10,074)
(1,966)
—
—
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Effect of exchange rate changes on cash
Cash, cash equivalents and restricted cash at beginning of year
Cash, cash equivalents and restricted cash at end of year
Supplemental disclosure of cash flow information
Cash paid during the year:
Interest paid
Taxes paid
Restricted cash in other current assets
Supplemental schedule of non-cash investing and financing activities
Accrued inventory purchases
Unrealized gain on AFS investments
Purchase of fixed assets recorded in accounts payable
(485,172)
(47,590)
83
119,780
72,273
5,827
$
103,817 $
730
170
$
$
256
$
495
$
$
$
$
$
$
$
$
328,585
99,375
(215)
20,620
119,780
1,513
$
341 $
2,616
2,059
48
15
$
$
$
$
(7,523)
1,868
—
18,752
20,620
1,838
157
—
1,007
144
—
See accompanying notes to these consolidated financial statements.
57
Unless the context requires otherwise, references in this report to “Ligand,” “we,” “us,” the “Company,” and “our” refer to Ligand Pharmaceuticals Incorporated and its
consolidated subsidiaries.
1. Basis of Presentation and Summary of Significant Accounting Policies
Business
We are a biopharmaceutical company with a business model primarily based on developing or acquiring assets which generate royalty, milestone or other passive revenue for us
using a lean corporate cost structure. We operate in one business segment: development and licensing of biopharmaceutical assets.
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.
Basis of Presentation
Our consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of our parent company and its wholly-owned subsidiaries.
All intercompany transactions and balances have been eliminated in consolidation.
Reclassifications
Certain reclassifications have been made to the previously issued financial statements to conform with the current period presentation. Specifically, our investment in Viking
warrants was reclassified from “other current assets” to “investment in Viking” in the audited consolidated balance sheet as of December 31, 2018.
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
consolidated financial statements and the accompanying notes. Actual results may differ from those estimates.
Concentrations of Business Risk
Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash equivalents and investments. We invest excess cash
principally in United States government debt securities, investment grade corporate debt securities, mutual funds and certificates of deposit. We have 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.
Revenue from significant partners, which is defined as 10% or more of our total revenue, was as follows:
Partner A
Partner B
Partner C
2019
13 %
27 %
< 10%
December 31,
2018
40 %
13 %
20 %
2017
46 %
19 %
< 10%
We obtain Captisol primarily from two sites at a single supplier, Hovione. If this supplier were not able to supply the requested amounts of Captisol from each site, and if our
safety stocks of material were depleted, we would be unable to continue to derive revenues from the sale of Captisol until we obtained material from an alternative source,
which could take a considerable length of time.
58
Cash Equivalents & Short-term Investments
Cash equivalents consist of all investments with maturities of three months or less from the date of acquisition. Short-term investments primarily consist of investments in debt
and equity securities and mutual funds. Debt securities have effective maturities greater than three months and less than twelve months from the date of acquisition. We classify
our short-term investments as "available-for-sale". Such investments are carried at fair value, with unrealized gains and losses on debt securities included in the statement of
comprehensive income (loss) and unrealized gains and losses on equity securities and mutual funds included the consolidated statement of operations. Mutual funds are valued
at their net asset value (NAV) on the last day of the period. We determine the cost of investments based on the specific identification method.
Accounts Receivable
Trade accounts receivable are recorded at the net invoice value and are not interest bearing. We consider receivables past due based on the contractual payment terms which
range from 30 to 90 days. We reserve specific receivables if collectability is no longer reasonably assured. We re-evaluate such reserves on a regular basis and adjust the
reserves as needed. Once a receivable is deemed to be uncollectible, such balance is charged against the reserve.
Inventory
Inventory, which consists of finished goods, is stated at the lower of cost or net realizable value. We determine cost using the first-in, first-out method or the specific
identification method. We analyze our inventory levels periodically and write down inventory to 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,
2019, 2018 and 2017.
Property and Equipment
Property and equipment are stated at cost, subject to review for impairment, and depreciated over the estimated useful lives of the assets, which generally range from three to ten
years, using the straight-line method. Amortization of leasehold improvements is recorded over the shorter of the lease term or estimated useful life of the related asset.
Maintenance and repairs are charged to operations as incurred. When assets are sold, or otherwise disposed of, the cost and related accumulated depreciation are removed from
the accounts and any gain or loss is included in operating expense.
Business Combinations
The acquisition method of accounting for business combinations requires us to use significant estimates and assumptions, including fair value estimates, as of the business
combination date and to refine those estimates as necessary during the measurement period (defined as the period, not to exceed one year, in which we may adjust the
provisional amounts recognized for a business combination).
Under the acquisition method of accounting, we recognize separately from goodwill the identifiable assets acquired, the liabilities assumed, including contingent consideration
and all contractual contingencies, generally at the acquisition date fair value. Contingent purchase consideration to be settled in cash are remeasured to estimated fair value at
each reporting period with the change in fair value recorded in other income (expense), net. Costs that we incur to complete the business combination such as investment
banking, legal and other professional fees are not considered part of consideration and we charge them to general and administrative expense as they are incurred.
We measure goodwill as of the acquisition date as the excess of consideration transferred, which we also measure at fair value, over the net of the acquisition date amounts of
the identifiable assets acquired and liabilities assumed. In addition, IPR&D is capitalized and assessed for impairment annually. IPR&D is amortized upon product
commercialization or upon out-licensing the underlying intellectual property where we have no active involvement in the licensee's development activities. IPR&D is amortized
over the estimated life of the commercial product or licensing arrangement.
Should the initial accounting for a business combination be incomplete by the end of a reporting period that falls within the measurement period, we report provisional amounts
in our financial statements. During the measurement period, we adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts
and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date and we record those
adjustments to our financial statements in the period of change, if any.
59
Under the acquisition method of accounting for business combinations, if we identify changes to acquired deferred tax asset valuation allowances or liabilities related to
uncertain tax positions during the measurement period and they relate to new information obtained about facts and circumstances that existed as of the acquisition date, those
changes are considered a measurement period adjustment and we record the offset to goodwill. We record all other changes to deferred tax asset valuation allowances and
liabilities related to uncertain tax positions in current period income tax expense.
Contingent Liabilities
In connection with the acquisition of Crystal in October 2017, we may be required to pay up to an additional $10.5 million in purchase consideration upon achievement of
certain commercial and development milestones to the Crystal shareholders.
In connection with the acquisition of CyDex in January 2011, we 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. In connection with the
acquisition of Metabasis in January 2010, we issued Metabasis stockholders four tradable CVRs for each Metabasis share. The fair values of the CVRs are remeasured at each
reporting date through the term of the related agreement.
Any change in fair value is recorded in our consolidated statement of operations. For additional information, see “Note (5), Fair Value Measurement and Note (8), Balance
Sheet Account Details.”
Goodwill, Intangible Assets and Other Long-Lived Assets
Goodwill, which has an indefinite useful life, represents the excess of cost over fair value of net assets acquired. Goodwill is reviewed for impairment at least annually during
the fourth quarter, or more frequently if an event occurs indicating the potential for impairment. During the goodwill impairment review, we assess qualitative factors to
determine whether it is more likely than not that the fair value of our reporting unit is less than the carrying amount, including goodwill. We operate in one reporting unit. The
qualitative factors include, but are not limited to, macroeconomic conditions, industry and market considerations, and the overall financial performance. If, after assessing the
totality of these qualitative factors, we determine that it is not more likely than not that the fair value of our reporting unit is less than the carrying amount, then no additional
assessment is deemed necessary. Otherwise, we proceed to perform the quantitative assessment. We will then evaluate goodwill for impairment by comparing the estimated fair
value of the reporting unit to its carrying value, including the associated goodwill. To determine the fair value, we generally use a combination of market approach based on
comparable publicly traded companies in similar lines of businesses and the income approach based on estimated discounted future cash flows. Our cash flow assumptions
consider historical and forecasted revenue, operating costs and other relevant factors. We may also elect to bypass the qualitative assessment in a period and elect to proceed to
perform the quantitative assessment for the goodwill impairment test. We performed the annual assessment for goodwill impairment during the fourth quarter of 2019, noting no
impairment.
Our identifiable intangible assets are typically composed of acquired core technologies, licensed technologies, customer relationships and trade names. The cost of identifiable
intangible assets with finite lives is generally amortized on a straight-line basis over the assets’ respective estimated useful lives. We regularly perform reviews to determine if
any event has occurred that may indicate that intangible assets with finite useful lives and other long-lived assets are potentially impaired. If indicators of impairment exist, an
impairment test is performed to assess the recoverability of the affected assets by determining whether the carrying amount of such assets exceeds the undiscounted expected
future cash flows. If the affected assets are not recoverable, we estimate the fair value of the assets and record an impairment loss if the carrying value of the assets exceeds the
fair value. Factors that may indicate potential impairment include a significant decline in our stock price and market capitalization compared to the net book value, significant
changes in the ability of a particular asset to generate positive cash flows, and the pattern of utilization of a particular asset.
Commercial license and other economic rights
60
Commercial license and other economic rights consist of the following (in thousands):
Aziyo & CorMatrix
Palvella
Selexis
Dianomi
Less: accumulated amortization attributed to principal or research and development
Total commercial license and other economic rights, net
As of December 31,
2019
2018
$
$
17,696 $
10,000
8,602
2,000
38,298
(18,208)
20,090 $
17,696
10,000
8,602
—
36,298
(4,838)
31,460
Commercial license and other economic rights as of December 31, 2019 represent a portfolio of future milestone and royalty payment rights acquired from Selexis in April
2013 and April 2015, CorMatrix in May 2016, Palvella in December 2018, and Dianomi in January 2019. Commercial license rights acquired are accounted for as financial
assets, and other economic rights are accounted for as funded research and developments as further discussed below.
In May 2019, we entered into a development funding and royalties agreement with Novan, pursuant to which we would receive certain payments at specified milestones, as well
as royalties on any future net sales of SB206, a product candidate being developed to treat molluscum contagiosum, and any other Novan products used for the treatment of
molluscum (“Novan Molluscum Products”). We paid Novan an upfront payment of $12.0 million, which Novan is required to use to fund the development of SB206. We are
not obligated to provide additional funding to Novan for the development or commercialization of SB206. Pursuant to the agreement, we would receive up to $20.0 million of
milestone payments upon the achievement by Novan of certain regulatory milestones for SB206 or any other Novan Molluscum Product and commercial milestones. In
addition to the milestone payments, Novan will pay us tiered royalties from 7.0% to 10.0% based on aggregate annual net sales of SB206 or any other Novan Molluscum
Product in North America. We determined the economic rights related to Novan should be characterized as a funded research and development arrangement, thus we account
for it in accordance with ASC 730-20, Research and Development Arrangement, and reduce our asset as the funds are expended by Novan. As of December 31, 2019, Novan
had used up the $12.0 million upfront payment provided by us. As such, our other economic rights related to Novan has been fully amortized as of December 31, 2019.
In December 2018, we entered into a development funding and royalties agreement with Palvella. Pursuant to the agreement, we will receive up to $8.0 million of milestone
payments upon the achievement by Palvella of certain corporate, financing and regulatory milestones for PTX-022, a product candidate being developed to treat pachyonychia
congentia. In addition to the milestone payments, Palvella will pay us tiered royalties from 5.0% to 9.8% based on aggregate annual worldwide net sales of any PTX-022
products, if approved, subject to Palvella’s right to reduce the royalty rates by making payments in certain circumstances. We made an upfront payment of $10.0 million, which
Palvella is required to use to fund the development of PTX-022. We are not obligated to provide additional funding to Palvella for development or commercialization of PTX-
022. We determined the economic rights related to Palvella should be characterized as a funded research and development arrangement, thus we account for it in accordance
with ASC 730-20, and will reduce our asset as the funds are expended by Palvella. We will evaluate the remaining asset basis for impairment on an ongoing basis. It is
anticipated that the cost basis of the asset will be reduced to zero prior to the receipt of any payments from Palvella. Therefore, we will recognize milestones and royalties as
revenue when earned.
In May 2017, we entered into a royalty agreement with Aziyo pursuant to which we will receive royalties from certain marketed products that Aziyo acquired from CorMatrix.
Pursuant to the agreement, we received $10.0 million in 2017 from Aziyo to buydown the royalty rates on the products CorMatrix sold to Aziyo. The agreement closed on May
31, 2017, in connection with the closing of the asset sale from CorMatrix to Aziyo (the “CorMatrix Asset Sale”). Per the agreement, we will receive a 5% royalty on the
products Aziyo acquired in the CorMatrix Asset Sale, reduced from the original 20% royalty from CorMatrix pursuant to the previously disclosed interest purchase agreement,
dated May 3, 2016 (the “Original Interest Purchase Agreement”) between CorMatrix and us. In addition, Aziyo has agreed to pay us up to $10.0 million of additional milestones
tied to cumulative net sales of the products Aziyo acquired in the CorMatrix Asset Sale and to extend the term on these royalties by one year. The royalty agreement will
terminate on May 31, 2027. In addition, in May 2017, we entered into an amended and restated interest purchase agreement (the “Amended Interest Purchase Agreement”) with
CorMatrix, which supersedes in its entirety the Original Interest Purchase Agreement. Other than removing the commercial products sold to Aziyo in the CorMatrix Sale, the
terms of the Amended Interest Purchase Agreement remain unchanged with respect to the CorMatrix
61
developmental pipeline products, including the royalty rate of 5% on such pipeline products. The Amended Interest Purchase Agreement will terminate 10 years from the date
of the first commercial sale of such products.
We account for the Aziyo commercial license right as a financial asset in accordance with ASC 310, Receivables, and amortize the commercial license right using the effective
interest method whereby we forecast expected cash flows over the term of the arrangement to arrive at an annualized effective interest. The annual effective interest associated
with the forecasted cash flows from the royalty agreement with Aziyo as of December 31, 2019 is 23%. Revenue is calculated by multiplying the carrying value of the
commercial license right by the effective interest. The payments received in 2019 were accordingly allocated between revenue and the amortization of the commercial license
rights.
For commercial license rights, we have elected a prospective approach to account for changes in estimated cash flows and selected a method for determining when an
impairment would be recognized and how to measure that impairment. In circumstances where our new estimate of expected cash flows is greater than previously expected, we
will update our yield prospectively. In circumstances where our new estimate of expected cash flows is less than previously expected and below our original estimated yield we
record an impairment. Impairment is recognized by reducing the financial asset to an amount that represents the present value of our most recent estimate of expected cash
flows discounted by the original effective interest rate. In circumstances where our new estimate of expected cash flows is less than previously expected, but not below our
original estimated yield, we update our yield prospectively.
We account for commercial license rights related to developmental pipeline products such as Selexis and Dianomi on a non-accrual basis. These developmental pipeline
products are non-commercialized, non-approved products that require FDA or other regulatory approval, and thus have uncertain cash flows. The developmental pipeline
products are on a non-accrual basis as we are not yet able to forecast future cash flows given their pre-commercial stages of development. We will prospectively update the yield
model under the effective interest method once the underlying products are commercialized and we can reliably forecast expected cash flows. Income will be calculated by
multiplying the carrying value of the commercial license right by the effective interest rate. We regularly perform reviews to determine if any event has occurred that may
indicate the carrying value of these commercial license rights are potentially impaired. If the affected commercial license rights are not recoverable, we estimate the fair value of
the assets and record an impairment loss if the carrying value of the assets exceeds the fair value. We recorded a $5.1 million reduction in the carrying value of the Selexis asset
which was reflected in other expense, net, in our consolidated statement of operations for the twelve months ended December 31, 2019.
Revenue Recognition
Our revenue is generated primarily from royalties on sales of products commercialized by our partners, Captisol material sales, license fees and development, regulatory and
sales based milestone payments.
On January 1, 2018, we adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606), which amends the guidance for
recognition of revenue from contracts with customers by using the modified-retrospective method applied to those contracts that were not completed as of January 1, 2018. The
results for reporting periods beginning January 1, 2018, are presented in accordance with the new standard, although comparative information has not been restated and
continues to be reported under the accounting standards and policies in effect for those periods. See additional information in Disaggregation of Revenue subsection below. Our
accounting policies under the new standard were applied prospectively and are noted below.
Royalties, License Fees and Milestones
We receive royalty revenue on sales by our partners of products covered by patents that we or our partners own under the contractual agreements. We do not have future
performance obligations under these license arrangements. We generally satisfy our obligation to grant intellectual property rights on the effective date of the contract.
However, we apply the royalty recognition constraint required under the guidance for sales-based royalties which requires a sales-based royalty to be recorded no sooner than
the underlying sale. Therefore, royalties on sales of products commercialized by our partners are recognized in the quarter the product is sold. Our partners generally report sales
information to us on a one quarter lag. Thus, we estimate the expected royalty proceeds based on an analysis of historical experience and interim data provided by our partners
including their publicly announced sales. Differences between actual and estimated royalty revenues are adjusted for in the period in which they become known, typically the
following quarter.
Our contracts with customers often will include future contingent milestone based payments. We include contingent milestone based payments in the estimated transaction price
when it is probable to estimate the amount of the payment. These estimates are based on historical experience, anticipated results and our best judgment at the time. If the
contingent milestone based
62
payment is sales-based, we apply the royalty recognition constraint and record revenue when the underlying sale has taken place. Significant judgments must be made in
determining the transaction price for our sales of intellectual property. Because of the risk that products in development with our partners will not reach development based
milestones or receive regulatory approval, we generally recognize any contingent payments that would be due to us upon the development milestone or regulatory approval.
Depending on the terms of the arrangement, we may also defer a portion of the consideration received because we have to satisfy a future obligation. We use an observable price
to determine the stand-alone selling price for separate performance obligations or a cost plus margin approach when one is not available.
For R&D services that we recognize over time, we measure our progress using an input method. The input methods we use are based on the effort we expend or costs we incur
toward the satisfaction of our performance obligation. We estimate the amount of effort we expend, including the time we estimate it will take us to complete the activities, or
costs we incur in a given period, relative to the estimated total effort or costs to satisfy the performance obligation. This results in a percentage that we multiply by the
transaction price to determine the amount of revenue we recognize each period. This approach requires us to make estimates and use judgement. If our estimates or judgements
change over the course of the collaboration, they may affect the timing and amount of revenue that we recognize in the current and future periods.
Material Sales
We recognize revenue when control of Captisol material or intellectual property license rights is transferred to our customers in an amount that reflects the consideration we
expect to receive from our customers in exchange for those products. This process involves identifying the contract with a customer, determining the performance obligations in
the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance
obligations have been satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own
or together with other resources that are readily available to the customer and is separately identified in the contract. We consider a performance obligation satisfied once we
have transferred control of the product, meaning the customer has the ability to use and obtain the benefit of the Captisol material or intellectual property license right. We
recognize revenue for satisfied performance obligations only when we determine there are no uncertainties regarding payment terms or transfer of control. Sales tax and other
taxes we collect concurrent with revenue-producing activities are excluded from revenue. We have elected to recognize the cost for freight and shipping when control over
Captisol material has transferred to the customer as an expense in cost of material sales. We expense incremental costs of obtaining a contract when incurred if the expected
amortization period of the asset that we would have recognized is one year or less or the amount is immaterial. We did not incur any incremental costs of obtaining a contract
during the periods reported.
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits
(contract liabilities) on the consolidated balance sheet. Except for royalty revenue, we generally receive payment at the point we satisfy our obligation or soon after. Therefore,
we do not generally carry a contract asset balance. Any fees billed in advance of being earned are recorded as deferred revenue. During the twelve months ended December 31,
2019, the amount recognized as revenue that was previously deferred at prior year-end was $3.3 million. During the twelve months ended December 31, 2018, the amount
recognized as revenue that was previously deferred at prior year-end was $2.3 million.
We have revenue sharing arrangements whereby certain revenue proceeds are shared with a third party. The revenue standard requires an entity to determine whether it is a
principal or an agent in these transactions by evaluating the nature of its promise to the customer. We received $4.6 million royalty payments from a license partner during 2019
of which $4.0 million was paid to a third-party in-licensor. We recorded net revenue of $0.6 million as we believe we are an agent in the transaction. We recorded an immaterial
amount due to third-party in-licensors as general and administrative expenses as we are the principal in the transaction during 2019.
Disaggregation of Revenue
Royalty revenue for 2019, 2018 and 2017 are reported as below (in thousands):
63
Promacta
Kyprolis
Evomela
Other
2019(1)
2018(1)
2017(2)
Year ended December 31,
$
$
$
14,193
25,046
5,171
2,566
46,976
$
99,260 $
21,686
5,658
1,952
128,556 $
62,918
16,413
7,155
2,199
88,685
(1) Royalty revenue for 2019 and 2018 was reported under the current revenue recognition guidance (ASC 606).
(2) Royalty revenue for 2017 was reported under the legacy revenue recognition guidance (ASC 605).
The following table represents disaggregation of Material Sales and License fees, milestone and other (in thousands), which are not affected by the adoption of ASC 606:
Material Sales
Captisol
License fees, milestones and other
License fees
Milestones
Other
Preclinical Study and Clinical Trial Accruals
2019
2018
2017
Year ended December 31,
$
$
31,489 $
6,199
23,451
12,167
41,817 $
29,123 $
78,195
6,577
9,002
93,774 $
22,070
13,665
11,093
5,589
30,347
Substantial portions of our preclinical studies and all of our clinical trials have been performed by third-party laboratories, CROs. We account for a significant portion of the
clinical study costs according to the terms of our contracts with CROs. The terms of the CRO contracts may result in payment flows that do not match the periods over which
services are provided to us under such contracts. Our objective is to reflect the appropriate preclinical and clinical trial expenses in our financial statements in the same period as
the services occur. As part of the process of preparing our financial statements, we rely on cost information provided by our CROs. We are also required to estimate certain of
our expenses resulting from the obligations under the CRO contracts. Accordingly, our preclinical study and clinical trial accrual is dependent upon the timely and accurate
reporting of CROs and other third-party vendors. We periodically evaluate our 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.
Research and Development Expenses
Research and development expense consists of labor, material, equipment, and allocated facilities costs of our scientific staff who are working pursuant to our collaborative
agreements and other research and development projects. Also included in research and development expenses are third-party costs incurred for our 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. In addition, the amortization of the above mentioned other economic rights such as Palvella and Novan are included in research and
development expenses in accordance with ASC 730-20.
Share-Based Compensation
We incur share-based compensation expense related to restricted stock, ESPP, and stock options.
64
Restricted stock unit (RSU) and performance stock unit (PSU) are all considered restricted stock. The fair value of restricted stock is determined by the closing market price of
our common stock on the date of grant. We recognize share-based compensation expense based on the fair value on a straight-line basis over the requisite service periods of the
awards, taking into consideration of forfeitures as they occur. PSU represents a right to receive a certain number of shares of common stock based on the achievement of
corporate performance goals and continued employment during the vesting period. At each reporting period, we reassess the probability of the achievement of such corporate
performance goals and any expense change resulting from an adjustment in the estimated shares to be released are treated as a cumulative catch-up in the period of adjustment.
We use the Black-Scholes-Merton option-pricing model to estimate the fair value of stock purchases under ESPP and stock options granted. The model assumptions include
expected volatility, term, dividends, and the risk-free interest rate. We look to historical and implied volatilities of our stock to determine the expected volatility. The expected
term of an award is based on historical forfeiture experience, exercise activity, and on the terms and conditions of the stock awards. The expected dividend yield is determined
to be 0% given that except for 2007, during which we declared a cash dividend on our common stock of $2.50 per share, we have not paid any dividends on our common stock
in the past and currently do not expect to pay cash dividends or make any other distributions on common stock in the future. The risk-free interest rate is based upon U.S.
Treasury securities with remaining terms similar to the expected term of the share-based awards.
We grant options, RSUs and PSUs to employees and non-employee directors. Non-employee directors are accounted for as employees. Options and RSUs granted to certain
non-employee directors typically vest one year from the date of grant. Options granted to employees typically vest 1/8 on the six month anniversary of the date of grant, and
1/48 each month thereafter for forty-two months. RSUs and PSUs granted to employees vest over three years. All option awards generally expire ten years from the date of
grant.
Share-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.
Derivatives
In May 2018, we issued $750.0 million aggregate principal amount of 2023 Notes, bearing cash interest at a rate of 0.75% per year, payable semi-annually, as further described
in “Note (7), Convertible Senior Notes.” Concurrently with the issuance of the notes, we entered into a series of convertible note hedge and warrant transactions which in
combination are designed to reduce the potential dilution to our stockholders and/or offset the cash payments we are required to make in excess of the principal amount upon
conversion of the notes. The conversion option associated with the 2023 Notes temporarily met the criteria for an embedded derivative liability which required bifurcation and
separate accounting. In addition, the note hedge and warrants were also temporarily classified as a derivative asset and liability, respectively, on our consolidated balance sheet.
As a result of shareholder approval to increase the number of authorized shares of our common stock on June 19, 2018, as discussed in “Note (7), Convertible Senior Notes,”
the derivative asset and liabilities were reclassified to additional paid-in capital. Changes in the fair value of these derivatives prior to being classified in equity were reflected in
other expense, net, in our consolidated statements of operations for the twelve months ended December 31, 2018.
In connection with our 2019 Notes, which we issued in August 2014 for $245.0 million aggregate principal amount, on May 22, 2018, we amended it making an irrevocable
election to settle the entire note in cash. As a result, we reclassified from equity to derivative liability the fair value of the conversion premium as of May 22, 2018. Amounts
paid in excess of the principal amount would be offset by an equal receipt of cash under the corresponding convertible bond hedge. As a result, we reclassified from equity to
derivative asset the fair value of the bond hedge as of May 22, 2018. Changes in the fair value of these derivatives are reflected in other expense, net, in our consolidated
statements of operations.
In connection with the payoff of the 2019 Notes in August 15, 2019, the bond hedge was settled and accordingly, the derivative asset and derivative liability were settled to zero.
See detail in “Note (7), Convertible Senior Notes.”
Income Taxes
The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for the expected future tax benefit to be derived from tax loss
and credit carryforwards. Deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected
65
to be realized. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the provision for income taxes in the period that includes the enactment
date.
Deferred tax assets are regularly assessed to determine the likelihood they will be recovered from future taxable income. A valuation allowance is established when we believe
it is more likely than not the future realization of all or some of a deferred tax asset will not be achieved. In evaluating the ability to recover deferred tax assets within the
jurisdiction which they arise we consider all available positive and negative evidence. Factors reviewed include the cumulative pre-tax book income for the past three years,
scheduled reversals of deferred tax liabilities, history of earnings and reliable forecasting, projections of pre-tax book income over the foreseeable future, and the impact of any
feasible and prudent tax planning strategies.
We recognize the impact of a tax position in our financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities,
based on the technical merits of the position. Tax authorities regularly examine our returns in the jurisdictions in which we do business and we regularly assess the tax risk of our
return filing positions. Due to the complexity of some of the uncertainties, the ultimate resolution may result in payments that are materially different from our current estimate
of the tax liability. These differences, as well as any interest and penalties, will be reflected in the provision for income taxes in the period in which they are determined.
Income (loss) Per Share
Basic income (loss) per share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted income per
share is computed based on the sum of the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Diluted loss per
share is computed based on the sum of the weighted average number of common shares outstanding during the period.
Potentially dilutive common shares consist of shares issuable under 2019 and 2023 convertible senior notes, stock options and restricted stock. 2019 and 2023 convertible
senior notes have a dilutive impact when the average market price of the Company’s common stock exceeds the applicable conversion price of the respective notes. It is our
intent and policy to settle conversions through combination settlement, which essentially involves payment in cash equal to the principal portion and delivery of shares of
common stock for the excess of the conversion value over the principal portion. In addition, post May 22, 2018, the 2019 Notes can only be settled in cash and therefore there
will be no further impact on income (loss) per share of these notes. Potentially dilutive common shares from stock options and restricted stock are determined using the average
share price for each period under the treasury stock method. In addition, the following amounts are assumed to be used to repurchase shares: proceeds from exercise of stock
options and the average amount of unrecognized compensation expense for stock options and restricted stock. In loss periods, basic net loss per share and diluted net loss per
share are identical since the effect of otherwise dilutive potential common shares is anti-dilutive and therefore excluded.
The following table presents the calculation of weighted average shares used to calculate basic and diluted earnings per share (in thousands):
Weighted average shares outstanding:
Dilutive potential common shares:
Restricted stock
Stock options
Warrants associated with 2019 Notes
2019 Convertible Senior Notes
Shares used to compute diluted income per share
Potentially dilutive shares excluded from calculation due to anti-dilutive effect
Comprehensive Income (Loss)
Year Ended December 31,
2019
2018
2017
18,995
21,160
21,032
43
719
—
—
19,757
8,926
72
1,125
1,017
693
24,067
2,845
141
1,000
94
1,214
23,481
335
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,
foreign currency translation adjustments, and 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).
66
Foreign Currency Translation
The British Pound Sterling is the functional currency of Vernalis and the corresponding financial statements have been translated into U.S. Dollars in accordance with ASC 830-
30, Translation of Financial Statements. Assets and liabilities are translated at end-of-period rates while revenues and expenses are translated at average rates in effect during
the period in which the activity took place. Equity is translated at historical rates and the resulting cumulative translation adjustments are included as a component of
accumulated other comprehensive income (loss).
Accounting Standards Recently Adopted
Leases - In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This standard requires organizations that lease assets to recognize the assets and liabilities
created by those leases. The standard also requires disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash
flows arising from leases. In 2018, the FASB issued guidance that provides an optional transition method for adoption of this standard, which allows organizations to initially
apply the new requirements at the effective date, recognize a cumulative effect adjustment to the opening balance of retained earnings, and continue to apply the legacy
guidance in ASC 840, Leases (Topic 840), including its disclosure requirements, in the comparative periods presented. We adopted this standard on January 1, 2019 by applying
this optional transition method. For leases with a term of 12 months or less, we elected to not recognize lease assets and lease liabilities and expense the leases over a straight-
line basis for the term of those leases. In addition, we elected the available package of practical expedients upon adoption, which allowed us to carry forward our historical
assessment of whether existing agreements contained a lease and the classification of our existing operating leases. We did not elect to use the hindsight practical expedient to
determine the lease term or evaluate impairment for existing leases. We continue to report our financial position as of December 31, 2018 under Topic 840 in our audited
consolidated balance sheet. The adoption of this standard update resulted in the recognition of right-of-use assets of approximately $5.2 million and lease liabilities of
approximately $5.9 million on our consolidated balance as of January 1, 2019, with no material impact to our consolidated statement of operations. See "Note (6), Leases" for
further information regarding the impact of the adoption of ASU 2016-02 on our financial statements.
Accounting Standards Not Yet Adopted
Financial Instruments - In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic
326), which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of
financial instruments, including trade receivables. ASU 2016-13 is effective for us beginning in the first quarter of 2020, with early adoption permitted. This standard includes
our financial instruments, such as accounts receivable, investments that are generally of high credit quality, and commercial license rights. Previously, when credit losses were
measured under GAAP, an entity generally only considered past events and current conditions in measuring the incurred loss. The new guidance requires us to identify, analyze,
document and support new methodologies for quantifying expected credit loss estimates for our financial instruments, using information such as historical experience and
current economic conditions, plus the use of reasonable supportable forecast information. We will adopt this standard effective January 1, 2020, and we currently do not expect
the adoption to result in a material impact to our consolidated financial statements.
Goodwill Impairment Testing - In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which eliminates the requirement to perform a
hypothetical purchase price allocation to measure goodwill impairment. Under the new standard the goodwill impairment test is performed by comparing the fair value of a
reporting unit with its carrying amount, and recognizing an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value, although
it cannot exceed the total amount of goodwill allocated to that reporting unit. This standard is effective for us beginning in the first quarter of 2020, with earlier adoption
permitted. We will adopt this standard effective January 1, 2020 and do not expect the adoption to have a material impact on our consolidated financial statements.
Fair Value Measurement - In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Disclosure Framework—Changes to the Disclosure Requirements for
Fair Value Measurement (Topic 820), which modifies the disclosure requirements on fair value measurements. ASU 2018-13 is effective for us beginning in the first quarter of
2020, with earlier adoption permitted. We will adopt this standard effective January 1, 2020, and will include the required disclosure beginning in our Quarterly Report on Form
10-Q for the quarter ended March 31, 2020.
Collaborative Arrangements - In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements: Clarifying the Interaction between Topic 808 and Topic 606
(Topic 808). The new standard clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under Topic 606, Revenue from
Contracts with Customers, when the counterparty is a customer for a good or service that is a distinct unit of account. The amendments also preclude entities from presenting
consideration from transactions with a collaborator that is not a customer together with revenue
67
recognized from contracts with customers. The new standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early
adoption is permitted in any interim period for entities that have adopted ASC 606. The standard should be applied retrospectively to the period when we initially adopted ASC
606. We will adopt this standard effective January 1, 2020, and do not expect the adoption will result in material impact to our consolidated financial statements.
We do not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on our consolidated financial
statements or disclosures.
2. Sale of Promacta License
On March 5, 2019, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with RPI Finance Trust (“RPI”), doing business as “Royalty Pharma”, who
is not an affiliate. Under the Asset Purchase Agreement, we sold, transferred, assigned and conveyed to RPI, and RPI purchased, acquired and accepted from us, all of our
rights, title and interest in and to the Purchased Assets, which include among other things the intellectual property and related know-how generated by us in connection with the
license agreement (collectively, the “Purchased Assets”), dated December 29, 1994, by and between Novartis (as successor in interest to SmithKline Beecham Corporation) and
Ligand, which allowed us to receive a royalty on net sales of Promacta. We concluded the sale does not qualify as a sale of a business, but as a sale of a non-financial asset. At
the closing on March 6, 2019, RPI paid us $827.0 million in cash and we do not have any remaining performance obligations related to Novartis or RPI for Promacta. The
carrying value of our Promacta asset as of March 6, 2019 was zero. Of the total cash proceeds from the sale, $14.2 million was recorded to revenue related to the Promacta
royalty for the period between January 1, 2019 and March 6, 2019, and the remaining $812.8 million was recorded to income from operations in accordance with ASC 610-20,
Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets.
3. Investment in Viking
Our ownership in Viking was approximately 10.3% as of December 31, 2019, and we account for it as investment in an available-for-sale security, which is measured at fair
value, with changes in fair value recognized in net income.
Prior to February 2018, we accounted for our investment in Viking under the equity method. As a result of Viking's public stock offerings, we recorded a dilution gain of $2.7
million for the year ended December 31, 2017. These amounts were recognized in Loss from Viking in our consolidated statement of operations. Our equity ownership interest
in Viking decreased during the first quarter of 2018 to approximately 12.4% due to Viking's financing events in February 2018. As a result, in February 2018, we concluded that
we did not exert significant influence over Viking and discontinued accounting for our investment in Viking under the equity method. Viking is considered a related party as we
maintain a seat on Viking's board of directors.
As of December 31, 2019 and December 31, 2018, we recorded our common stock in Viking at fair value of $48.4 million and $46.2 million, respectively. We also have
outstanding warrants to purchase 1.5 million shares of Viking's common stock at an exercise price of $1.50 per share. We recorded the warrants in "investment in Viking" in
our consolidated balance sheets at fair value of $9.9 million and $9.3 million at December 31, 2019 and 2018, respectively. See further discussion in “Note (5), Fair Value
Measurement.”
Subsequent to the adoption of ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10), on January 1, 2018, we no longer account for our investment in Viking under
the equity method; instead, it is measured at fair value, with changes in fair value recognized in net income (loss).
4. Business Combinations
As set forth below, we completed three acquisitions from January 1, 2017 through December 31, 2019, and all were accounted for as business combinations. We applied the
acquisition method of accounting. Accordingly, we recorded the tangible and intangible assets acquired and liabilities assumed at their estimated fair values as of the applicable
date of acquisition. For each acquisition, we did not incur any material acquisition related costs.
Ab Initio Acquisition
On July 23, 2019, we acquired privately-held Ab Initio, an antigen-discovery company located in South San Francisco, California. Ab Initio has a patented antigen technology
that is synergistic with the OmniAb® therapeutic antibody discovery platform, providing our current and potential new partners enhanced capabilities for the discovery of
therapeutic antibodies
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against difficult-to-access cellular targets. Ab Initio has a collaboration agreement with Pfizer to discover novel therapeutic antibodies against an undisclosed target in the GPCR
superfamily.
The purchase price of $12.0 million included $11.84 million cash consideration paid upon acquisition, net of cash acquired, and $0.15 million cash holdback for potential
indemnification claims. As the acquisition is not considered significant, pro forma information has not been provided.
The preliminary allocation of the consideration was allocated to the acquisition date fair values of acquired assets and assumed liabilities as follows (in thousands):
Cash and other assets
Accounts payable and accrued liabilities
Deferred tax liabilities, net
Intangibles assets with finite life - core technologies
Goodwill
$
$
28
(83)
(1,609)
7,400
6,275
12,011
None of the goodwill is deductible for tax purposes. The fair value of the core technologies was determined based on the discounted cash flow method that estimated the present
value of the hypothetical royalty/ milestone streams from the licensing of the antigen-discovery technology and collaboration agreement. These projected cash flows were
discounted to present value using a discount rate of 12.0%. The fair value of the core technologies is being amortized on a straight-line basis over the weighted average
estimated useful life of approximately 20 years.
The estimated fair values of assets acquired and liabilities assumed, including deferred tax assets and liabilities, and purchased intangibles are provisional. The accounting for
these amounts falls within the measurement period and therefore we may adjust these provisional amounts to reflect new information obtained about facts and circumstances
that existed as of the acquisition date.
Vernalis Acquisition
In October 2018, we acquired Vernalis, a structure-based drug discovery biotechnology company for $43.0 million, funded through cash on hand. The acquisition of Vernalis
increases our overall portfolio of fully-funded programs. As Vernalis' operations are not considered material, pro forma information is not provided.
The final purchase consideration was allocated to the acquisition date fair values of acquired assets and assumed liabilities as follows (in thousands):
Cash and cash equivalents
Restricted cash
Other assets
Accounts payable and accrued liabilities
Restructuring and product reserves
Deferred revenue
Intangibles assets with finite life - core technologies
Goodwill
$
$
34,286
2,836
6,383
(3,479)
(9,241)
(746)
7,000
5,939
42,978
None of the goodwill is deductible for tax purposes. The fair value of the core technologies was based on the discounted cash flow method that estimated the present value of the
hypothetical royalty/milestone streams derived from the licensing of the related technologies. These projected cash flows were discounted to present value using a discount rate
of 34.0%. The fair value of the core technology is being amortized on a straight-line basis over the weighted average estimated useful life of approximately nine years.
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Crystal Acquisition
On October 6, 2017, we acquired all of the assets and liabilities of Crystal. Crystal is a biotechnology company focused in avian genetics and the generation of fully-human
therapeutic engineering of animals for the generation of fully-human therapeutic antibodies through its OmniChicken® technology. Under the terms of the agreement, we were
to pay Crystal selling shareholders $27.2 million in cash including a $2.2 million working capital adjustment, and up to an additional $10.5 million of cash consideration based
on Crystal’s achievement of certain research and business milestones prior to December 31, 2019. In addition, Crystal’s selling shareholders will receive 10% of revenues
realized by Ligand above $15 million between the closing date and December 31, 2022 from existing collaboration agreements between Crystal and three of its collaborators,
and Crystal’s selling shareholders will receive 20% of revenues above $1.5 million generated between the closing date and December 31, 2022 pursuant to a fourth existing
collaboration agreement with a large pharmaceutical company. As of December 31, 2019, $0.02 million of the initial $27.2 million of cash consideration remained outstanding.
At the closing of the acquisition, we recorded an $8.4 million contingent liability for amounts potentially due to Crystal shareholders. The initial fair value of the liability was
determined using a probability weighted income approach incorporating the estimated future cash flows from potential milestones and revenue sharing. These cash flows were
then discounted to present value using discount rates based on our estimated corporate credit rating, and averaged to approximately 4.6%. Refer to Note 5 Fair Value
Measurement for further discussion. The liability has been periodically assessed based on events and circumstances related to the underlying milestones, and any changes in fair
value are 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. For additional information, see “Note (8), Balance Sheet Account Details.”
The final aggregate acquisition consideration was determined to be $35.7 million, consisting of (in thousands):
Cash paid to Crystal shareholders
Cash payable to Crystal Shareholders
Assumed liabilities
Fair value of contingent consideration
Total consideration
$
$
26,877
336
129
8,401
35,743
The acquisition consideration was allocated to the acquisition date fair values of acquired assets and assumed liabilities as follows (in thousands):
Cash and cash equivalents
Accounts receivable
Prepaid expenses and other assets
Property and equipment, net
Current liabilities assumed
Deferred revenue
Deferred tax liabilities, net
Intangible asset with finite life - core technology
Goodwill
Total consideration
$
$
224
2,513
201
589
(354)
(4,624)
(9,503)
36,000
10,697
35,743
The fair value of the core technology, or OmniChicken technology, was based on the discounted cash flow method that estimated the present value of a hypothetical royalty
stream derived from the licensing of the OmniChicken technology. These projected cash flows were discounted to present value using a discount rate of 10.8%. The fair value of
the core technology is being amortized on a straight-line basis over the estimated useful life of 20 years.
The excess of the acquisition date consideration over the fair values assigned to the assets acquired and the liabilities assumed was $10.7 million and was recorded as goodwill,
which is not deductible for tax purposes and is primarily attributable to Crystal’s potential revenue growth from combining the Crystal and Ligand businesses and workforce, as
well as the benefits of access to different markets and customers.
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5. Fair Value Measurement
We measure 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. We establish 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 provides a summary of the assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2019 and 2018 (in thousands):
December 31, 2019
Assets:
Short-term investments (1)
Investment in Viking common stock
Investment in Viking warrants (2)
Total assets
Liabilities:
Contingent liabilities - Crystal (3)
Contingent liabilities - Cydex
Contingent liabilities - Metabasis (4)
Liability for amounts owed to a former licensor
Total liabilities
December 31, 2018
Assets:
Short-term investments (1)
Investment in Viking common stock
Investment in Viking warrants (2)
Total assets
Liabilities:
Contingent liabilities - Crystal (3)
Contingent liabilities - Cydex
Contingent liabilities - Metabasis (4)
Liability for amounts owed to a former licensor
Total liabilities
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
$
$
$
939,989 $
48,425
9,910
998,324 $
2,659 $
348
5,935
75
9,017 $
3,073 $
48,425
9,910
61,408 $
— $
—
—
75
75 $
936,791 $
—
—
936,791 $
— $
—
5,935
—
5,935 $
125
—
—
125
2,659
348
—
—
3,007
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
$
$
$
601,217 $
46,191
9,257
656,665 $
6,477 $
514
5,551
199
12,741 $
1,326 $
46,191
9,257
56,774 $
— $
—
—
199
199 $
599,891 $
—
—
599,891 $
— $
—
5,551
—
5,551 $
—
—
—
—
6,477
514
—
—
6,991
(1) Short-term investments in marketable debt and equity securities are classified as available-for-sale securities based on management's intentions and are at 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. Short-term investments in mutual funds are valued at their net asset value (NAV) on the last day of the period. We have classified marketable securities with original maturities of
greater than one year as
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short-term investments based upon our ability and intent to use any and all of those marketable securities to satisfy the liquidity needs of our current operations. In addition, we have investment in warrants
resulting from Seelos milestone payments that were settled in shares during the first quarter of 2019 and are at level 3 of the fair value hierarchy, based on black scholes value estimated by management as of
December 31, 2019.
(2) Investment in Viking warrants, which we received as a result of Viking’s partial repayment of the Viking note receivable and our purchase of Viking common stock and warrants in April 2016, is classified
as level 1 as the fair value is determined using quoted market prices in active markets for the same securities. The change of the fair value is recorded in “Gain (loss) from Viking” in our consolidated statement
of operations. See further discussion in “Note (3), Investment in Viking. ”
(3) The fair value of Crystal contingent liabilities was determined using a probability weighted income approach. Most of the contingent payments are based on development or regulatory milestones as
defined in the merger agreement with Crystal. The fair value is subjective and is affected by changes in inputs to the valuation model including management’s estimates regarding the timing and probability of
achievement of certain developmental and regulatory milestones. During the twelve months ended December 31, 2019, we paid $3.0 million contingent liability on development milestones to former Crystal
shareholders. At December 31, 2019, $1.8 million of the development and regulatory milestones were considered to be achieved and will be paid to former Crystal shareholders during the first half of 2020.
(4) In connection with our acquisition of Metabasis in January 2010, we issued Metabasis stockholders four tradable CVRs, one CVR from each of four respective series of CVR, for each Metabasis share. The
CVRs entitle Metabasis stockholders to cash payments as frequently as every six months as cash is received by us from proceeds from the sale or partnering of any of the Metabasis drug development
programs, among other triggering events. The liability for the CVRs is determined using quoted prices in a market that is not active for the underlying CVR. The carrying amount of the liability may fluctuate
significantly based upon quoted market prices and actual amounts paid under the agreements may be materially differ than the carrying amount of the liability. Several of the Metabasis drug development
programs have been outlicensed to Viking, including VK2809. VK2809 is a novel selective TR-β agonist with potential in multiple indications, including hypercholesterolemia, dyslipidemia, NASH, and X-
ALD. Under the terms of the agreement with Viking, we may be entitled to up to $375.0 million of development, regulatory and commercial milestones and tiered royalties on potential future sales including a
$10.0 million payment upon initiation of a Phase 3 clinical trial. Another Metabasis drug development program, RVT-1502, has been outlicensed to Metavant. RVT-1502 is a novel, orally-bioavailable, small
molecule, glucagon receptor antagonist or “GRA.”
A reconciliation of the level 3 financial instruments as of December 31, 2019 is as follows (in thousands):
Liabilities
Fair value of level 3 financial instruments as of December 31, 2018
Payments to CVR holders and other contingency payments
Fair value adjustments to contingent liabilities
Fair value of level 3 financial instruments as of December 31, 2019
Assets Measured on a Non-Recurring Basis
$
$
6,991
(3,050)
(934)
3,007
We apply fair value techniques on a non-recurring basis associated with valuing potential impairment losses related to our goodwill, indefinite-lived intangible assets, and long-
lived assets.
We evaluate goodwill and indefinite-lived intangible assets annually for impairment and whenever circumstances occur indicating that goodwill might be impaired. We
determine the fair value of our reporting unit based on a combination of inputs, including the market capitalization of Ligand, as well as Level 3 inputs such as discounted cash
flows, which are not observable from the market, directly or indirectly. We determine the fair value of our indefinite-lived intangible assets using the income approach based on
Level 3 inputs.
Other than a reduction in the value of our Selexis commercial license right disclosed in “Note (1), Basis of Presentation and Summary of Significant Accounting Policies -
Commercial license and other economic rights” and a GRA intangible asset, there were no impairment of our goodwill, indefinite-lived assets, or long-lived assets recorded
during the twelve months ended December 31, 2019.
Fair Value of Financial Instruments
In August 2014 and May 2018, we issued the 2019 Notes and 2023 Notes, respectively. We use quoted market rates in an inactive market, which are classified as a Level 2
input, to estimate the current fair value of our 2019 and 2023 Notes. The carrying value of the notes does not reflect the market rate. See “Note (7), Convertible Senior Notes”
for additional information related to the fair value.
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6. Leases
We lease certain office facilities and equipment primarily under various operating leases. Our leases have remaining contractual terms up to seven years, some of which include
options to extend the leases for up to seven years. Our lease agreements do not contain any material residual value guarantees, material restrictive covenants, or material
termination options. Our operating lease costs are primarily related to facility leases for administration offices and research and development facilities, and our finance leases are
immaterial.
Lease assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists. Lease assets represent the right
to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are initially
recognized based on the present value of lease payments over the lease term calculated using our incremental borrowing rate generally applicable to the location of the lease
asset, unless the implicit rate is readily determinable. Lease assets also include any upfront lease payments made and lease incentives. Lease terms include options to extend or
terminate the lease when it is reasonably certain that those options will be exercised.
In addition to base rent, certain of our operating leases require variable payments, such as insurance and common area maintenance. These variable lease costs, other than those
dependent upon an index or rate, are expensed when the obligation for those payments is incurred. Leases with an initial term of 12 months or less are not recorded on the
balance sheet, and the expense for these short-term leases and for operating leases is recognized on a straight-line basis over the lease term.
The depreciable life of lease assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of
exercise.
Operating Lease Assets and Liabilities (in thousands):
Lease assets
Current lease liabilities
Non-current lease liabilities
Total lease liabilities
$
$
$
December 31, 2019
Balance Sheet Classification
10,353
Operating lease right-of-use assets
(1,242)
Accrued liabilities
(9,970)
Long-term operating lease liabilities
(11,212)
During the twelve months ended December 31, 2019, we entered into several new lease agreements including our San Diego headquarter expansion, opening new Las Vegas
office and a new United Kingdom office lease, which resulted an increase in lease assets and liabilities of $6.1 million and $6.0 million, respectively.
Maturity of Operating Lease Liabilities (in thousands):
Maturity Dates
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less imputed interest
Present value of lease liabilities
$
$
December 31, 2019
1,914
2,221
2,261
1,988
1,989
3,493
13,866
(2,654)
11,212
As of December 31, 2019, our operating leases have a weighted-average remaining lease term of 6 years and a weighted-average discount rate of 6%. Cash paid for amounts
included in the measurement of operating lease liabilities was $1.8 million for the twelve months ended December 31, 2019. Operating lease expense was $2.1 million (net of
sublease income of $0.7 million) for the twelve months ended December 31, 2019, respectively.
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7. Convertible Senior Notes
0.75% Convertible Senior Notes due 2019
In August 2014, we issued $245.0 million aggregate principal amount of 2019 Notes, resulting in net proceeds of $239.3 million. The implied estimated effective rate of the
liability component of the 2019 Notes was 5.83%. The 2019 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 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 our 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 our 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 May 22, 2018, we entered into a supplemental indenture whereby we made an irrevocable election to settle the entire 2019 Notes in cash. As such, we would have been
required to deliver cash to settle the principal and any premium due upon conversion. As a result of the requirement to deliver cash to settle any premium due upon conversion,
on May 22, 2018, we reclassified from equity to liability the conversion option (a derivative) fair value of $341.6 million. In accordance with ASC 815, Derivatives and
Hedging, the derivative was adjusted to its fair value as of December 31, 2018 to $23.4 million with the resulting $118.7 million increase, net of payments made, reflected in
other expense, net, in our consolidated statements of operations for the year ended December 31, 2018.
In March and April 2018, we received notices for conversion of $21.8 million of principal amount of the 2019 Notes which were settled in May and June 2018. We paid the
noteholders the conversion value of the notes in cash, up to the principal amount of the 2019 Notes. The excess of the conversion value over the principal amount, totaling $31.6
million, was paid in shares of common stock. In July and August 2018, we received notices for conversion of $195.9 million of principal amount of the 2019 Notes which were
settled in October and November 2018. We paid the noteholders the $195.9 million principal amount and the excess of conversion value over the principal amount, totaling
$439.6 million, in cash. The equity dilution and cash conversion premium payment upon conversion of the 2019 Notes was offset by the reacquisition of the shares and cash
under the convertible bond hedge transactions entered into in connection with the offering of the 2019 Notes. As a result of the conversions, we recorded a $3.2 million loss on
extinguishment of debt calculated as the difference between the estimated fair value of the debt and the carrying value of the 2019 Notes as of the settlement dates. To measure
the fair value of the converted 2019 Notes as of the settlement dates, the applicable interest rates were estimated using Level 2 observable inputs and applied to the converted
notes using the same methodology as in the issuance date valuation.
In June 2019, we received notices for conversion of $1.0 million of principal amount of the 2019 Notes, which were settled in cash upon the 2019 Notes' maturity date in August
2019. As a result, we paid the noteholders (1) the $1.0 million principal amount, and (2) the excess of conversion value over the principal portion in an amount of $0.5 million in
cash.
On August 15, 2019, the 2019 Notes maturity date, we paid the noteholders the remaining $26.3 million principal amount and $11.9 million bond premium, which was
classified as a derivative liability, in cash. We recorded the decrease in fair value of the derivative liability of $11.0 million in other expense, net, in our consolidated statements
of operations for the twelve months ended December 31, 2019.
Convertible Bond Hedge and Warrant Transactions
In August 2014, we entered into convertible bond hedges and sold warrants covering 3,264,643 shares of our common stock to minimize the impact of potential dilution to our
common stock and/or offset the cash payments we were required to make in excess of the principal amount upon conversion of the 2019 Notes.
74
The convertible bond hedges had an exercise price of $75.05 per share and are exercisable when and if the 2019 Notes were converted. If upon conversion of the 2019 Notes,
the price of our common stock was above the exercise price of the convertible bond hedges, the counterparties would have delivered 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 were separate transactions entered
into by us and were not part of the terms of the 2019 Notes. Holders of the 2019 Notes and warrants did not have any rights with respect to the convertible bond hedges. We
paid $48.1 million for these convertible bond hedges and recorded the amount as a reduction to additional paid-in capital.
As a result of the irrevocable cash election, conversion notices received relating to the 2019 Notes after May 22, 2018 must be fully settled in cash and amounts paid in excess
of the principal amount would be offset by an equal receipt of cash under the convertible bond hedge. We have accounted for the bond hedge as a derivative asset and market it
to market at the end of each reporting period. We reclassified from equity to derivative asset the remaining bond hedge fair value of $340.0 million and marked it to market as of
December 31, 2018 to $22.6 million with the resulting $119.4 million increase, net of $471.2 million in payments received, reflected in other expense, net, in our consolidated
statements of operations for the twelve months ended December 31, 2018. Upon the 2019 Notes payoff on August 15, 2019, the bond hedge was settled, with the remaining
$10.2 million fair value decrease reflected in other expense, net, in our consolidated statement of operations for the twelve months ended December 31, 2019.
Concurrently with the convertible bond hedge transactions, we entered into warrant transactions whereby we sold warrants to acquire 3,264,643 shares of common stock with an
exercise price of $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. We 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 we do not have the obligation and do not intend to file any registration statement with the SEC registering the issuance of the
shares under the warrants. We continue to have the ability to avoid settling the warrants associated with the 2019 Notes in cash after May 22, 2018. Accordingly, the warrants
continue to be classified in additional paid in capital.
In November 2018, we modified agreements with one of the bond hedge counterparties to cash settle a total of 525,000 warrants. As the modifications required the warrants to
be cash settled, the fair value of the warrants was reclassified from stockholders’ equity to a derivative liability on the modification dates, resulting in a $28.3 million deduction
to additional paid-in-capital during 2018. We settled these repurchases for total consideration of $30.1 million and recorded a $1.8 million loss during 2018 on the change in the
fair value of the derivative liabilities between their modification and settlement dates, which was included in other expense, net in the consolidated statement of operations for
the twelve months ended December 31, 2018. As of December 31, 2019 and 2018, 1,890,359 and 2,739,643 warrants remain outstanding, respectively.
0.75% Convertible Senior Notes due 2023
In May 2018, we issued $750 million aggregate principal amount of 2023 Notes, bearing cash interest at a rate of 0.75% per year, payable semi-annually. The net proceeds from
the offering, after deducting the initial purchasers' discount and offering expenses, were approximately $733.1 million. The 2023 Notes will be convertible into cash, shares of
common stock, or a combination of cash and shares of common stock, at our election, based on an initial conversion rate, subject to adjustment, of 4.0244 shares per $1,000
principal amount of the 2023 Notes which represents an initial conversion price of approximately $248.48 per share.
Holders of the 2023 Notes may convert the notes at any time prior to the close of business on the business day immediately preceding November 15, 2022, under any of the
following circumstances:
(1) during any fiscal quarter (and only during such fiscal quarter) commencing after September 30, 2018, 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 our 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 our common stock on such trading day and the conversion rate on each such trading day; or
75
(3) upon the occurrence of certain specified corporate events as specified in the indenture governing the notes.
At the May 22, 2018 issuance date of the 2023 Notes, we did not have the necessary number of authorized but unissued shares of our common stock available to settle the
conversion option of the 2023 Notes in shares. Therefore, in accordance with guidance found in ASC 815-15 – Embedded Derivatives, the conversion option of the Notes was
deemed an embedded derivative requiring bifurcation from the 2023 Notes (host contract) and separate accounting as a derivative liability. The fair value of the conversion
option derivative liability at May 22, 2018 was $144.0 million, which was recorded as a reduction to the carrying value of the debt. This debt discount is amortized to interest
expense over the term of the debt using the effective interest method. Up to the date in which we received shareholder approval on June 19, 2018 to increase the authorized
number of shares of our common stock, the conversion option was accounted for as a liability with the resulting change in fair value of $13.5 million during that period reflected
in other expense, net, in our consolidated statements of operations for the twelve months ended December 31, 2018. As of December 31, 2019, the debt discount remains and
continues to be amortized to interest expense.
The notes will have a dilutive effect to the extent the average market price per share of common stock for a given reporting period exceeds the conversion price of $248.48. As
of December 31, 2019, the “if-converted value” did not exceed the principal amount of the 2023 Notes.
In connection with the issuance of the 2023 Notes, we incurred $16.9 million of issuance costs, which primarily consisted of underwriting, legal and other professional fees. The
portion of these costs allocated to the conversion option totaling $3.2 million was recorded as interest expense for the twelve months ended December 31, 2018. The portion of
these costs allocated to the liability component totaling $13.7 million is amortized to interest expense using the effective interest method over the five year expected life of the
2023 Notes.
It is our intent and policy to settle conversions through combination settlement, which essentially involves payment in cash equal to the principal portion and delivery of shares
of common stock for the excess of the conversion value over the principal portion.
Convertible Bond Hedge and Warrant Transactions
In conjunction with the 2023 Notes, in May 2018, we entered into convertible bond hedges and sold warrants covering 3,018,327 shares of our common stock to minimize the
impact of potential dilution to our common stock and/or offset the cash payments we are required to make in excess of the principal amount upon conversion of the 2023 Notes.
The convertible bond hedges have an exercise price of $248.48 per share and are exercisable when and if the 2023 Notes are converted. We paid $140.3 million for these
convertible bond hedges. If upon conversion of the 2023 Notes, the price of our 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 us and are not part of the terms of the 2023 Notes. Holders of the 2023 Notes and warrants will not have any
rights with respect to the convertible bond hedges.
Concurrently with the convertible bond hedge transactions, we entered into warrant transactions whereby we sold warrants covering 3,018,327 shares of common stock with an
exercise price of $315.38 per share, subject to certain adjustments. We received $90.0 million for these warrants. The warrants have various expiration dates ranging from
August 15, 2023 to February 6, 2024. 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 common stock issuable upon exercise of the warrants will be in unregistered shares, and we do not
have the obligation and do not intend to file any registration statement with the SEC registering the issuance of the shares under the warrants.
For the period from May 22, 2018, the issuance date of the bond hedge and warrant transactions, to June 19, 2018, the date shareholders approved an increase in our authorized
shares of common stock, the bond hedges and warrants required cash settlement and were accounted for as a derivative asset and liability, respectively, with the resulting
increase in fair value of $19.2 million and $7.5 million reflected in other expense, net, in our consolidated statements of operations for twelve months ended December 31,
2018.
The following table summarizes information about the equity and liability components of the 2019 Notes and 2023 Notes (in thousands).
76
Principle amount of 2019 Notes outstanding
Unamortized discount (including unamortized debt issuance cost)
Total current portion of notes payable
Principle amount of 2023 Notes outstanding
Unamortized discount (including unamortized debt issuance cost)
Total long-term portion of notes payable
Carrying value of equity component of 2023 Notes
Fair value of convertible senior notes outstanding (Level 2)
December 31, 2019
December 31, 2018
$
$
$
$
$
$
—
—
—
750,000
(111,041)
638,959
101,422
647,280
$
$
$
$
$
$
27,326
(893)
26,433
750,000
(140,136)
609,864
127,997
713,533
As of December 31, 2019, there were no events of default or violation of any covenants under our financing obligations.
8. Balance Sheet Account Details
Short-term Investments
The following table summarizes the various investment categories at December 31, 2019 and 2018 (in thousands):
Cost
Gross unrealized
gains
Gross unrealized
losses
Estimated
fair value
December 31, 2019
Short-term investments
Bank deposits
Corporate bonds
Corporate equity securities
Commercial paper
Warrants
Mutual fund
December 31, 2018
Short-term investments
Bank deposits
Corporate bonds
Corporate equity securities
Commercial paper
U.S. Government bonds
Municipal bonds
$
$
$
$
411,690 $
63,818
4,506
210,525
—
250,635
941,174 $
311,066 $
53,223
135
225,731
7,982
2,017
600,154 $
188 $
161
416
43
125
—
933 $
26 $
1
1,191
8
—
—
1,226 $
(3) $
—
(1,850)
(16)
—
(249)
(2,118) $
(29) $
(45)
—
(76)
(9)
(4)
(163) $
411,875
63,979
3,072
210,552
125
250,386
939,989
311,063
53,179
1,326
225,663
7,973
2,013
601,217
Property and equipment are 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
77
December 31,
2019
2018
$
$
6,307 $
2,729
999
10,035
(2,850)
7,185 $
4,183
2,418
936
7,537
(2,165)
5,372
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 $1.5 million, $0.9 million,
and $0.4 million was recognized for the twelve months ended ended December 31, 2019, 2018, and 2017, respectively, and was included in operating expenses.
Goodwill and identifiable intangible assets consist of the following (in thousands):
Indefinite lived intangible assets
Goodwill
Definite lived intangible assets
Complete technology
Less: Accumulated amortization(1)
Trade name
Less: Accumulated amortization
Customer relationships
Less: Accumulated amortization
Total goodwill and other identifiable intangible assets, net
As of December 31,
2019
2018
$
95,229 $
86,646
242,813
(50,203)
2,642
(1,180)
29,600
(13,224)
$
305,677 $
235,413
(35,070)
2,642
(1,048)
29,600
(11,744)
306,439
(1) Accumulated amortization for complete technology includes immaterial amount of foreign currency translation adjustments for the complete technology acquired from the Vernalis acquisition.
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 $16.9
million, $15.8 million, and $12.1 million was recognized for the years ended December 31, 2019 and 2018, and 2017, respectively. Estimated amortization expense for the
years ending December 31, 2020 through 2024 is $14.1 million per year. For each of the years ended December 31, 2019, 2018, and 2017, there was no material impairment of
intangible assets with finite lives.
Accrued liabilities consist of the following (in thousands):
Compensation
Legal
Amounts owed to former licensees
Royalties owed to third parties
Payments due to broker for share repurchases
Return reserve
Restructuring
Current operating lease liabilities
Other
Contingent liabilities:
December 31,
2019
2018
1,986 $
1,135
381
—
—
3,027
—
1,242
2,065
9,836 $
4,045
942
428
1,025
4,613
3,590
1,093
—
3,464
19,200
$
$
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 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 as frequently as every six months as proceeds are received by us
78
upon the sale or licensing of any of the Metabasis drug development programs and upon the achievement of specified milestones.
In connection with the acquisition of Crystal in October 2017, we entered into contingent liabilities based on achievement of certain research and business milestones as well as
certain revenue goal. See “Note (4), Business Combinations” for more information.
The following table summarizes rollfoward of contingent liabilities as of December 2019 and 2018 (in thousands):
Cydex
Metabasis
Crystal
December 31, 2017
Payments
$
1,589 $
3,971
8,401
(25) $
(3,860)
(1,000)
Total $
13,961 $
(4,885) $
Fair Value
Adjustment
December 31, 2018
Payments
Fair Value
Adjustment
Repurchases
December 31, 2019
(1,050) $
5,440
(924)
3,466 $
514 $
5,551
6,477
(50) $
—
(3,000)
12,542 $
(3,050) $
(116) $
904
(818)
(30) $
— $
(520)
—
(520) $
348
5,935
2,659
8,942
9. Stockholders’ Equity
Share-based Compensation Expense
The following table summarizes share-based compensation expense (in thousands):
Share-based compensation expense as a component of:
Research and development expenses
General and administrative expenses
Stock Plans
2019
December 31,
2018
2017
$
$
9,641 $
8,352 $
14,874
12,494
24,515 $
20,846 $
14,235
10,680
24,915
In June 2019, our 2002 Stock Incentive Plan was amended to increase the number of shares available for issuance by 0.8 million shares. As of December 31, 2019, there were
0.9 million shares available for future option grants or direct issuance under the Amended 2002 Plan.
Following is a summary of our stock option plan activity and related information:
Balance at December 31, 2018
Granted
Exercised
Forfeited
Balance at December 31, 2019
Exercisable at December 31, 2019
Options vested and expected to vest as of December 31, 2019
Shares
1,736,304 $
338,617 $
(112,011) $
(6,531) $
1,956,379 $
1,454,726 $
1,956,379 $
Weighted
Average
Exercise
Price
66.71
116.69
23.65
139.37
77.54
61.82
77.54
Weighted
Average
Remaining
Contractual
Term in
Years
Aggregate
Intrinsic
Value
(In thousands)
5.47 $
125,858
5.45
4.42
5.45 $
72,002
70,345
72,002
The weighted-average grant-date fair value of all stock options granted during 2019, 2018 and 2017 was $48.65, $58.85 and $53.17 per share, respectively. The total intrinsic
value of all options exercised during 2019, 2018 and 2017 was approximately $10.4 million, $51.9 million and $13.3 million, respectively.
79
Cash received from options exercised, net of fees paid, in 2019, 2018 and 2017 was $2.6 million, $19.8 million and $4.7 million, respectively.
Following is a further breakdown of the options outstanding as of December 31, 2019:
Range of exercise prices
$9.96 - $12.81
$14.47
$21.92
$32.00 - $74.42
$85.79 - $100.38
$101.15 - $113.76
$117.97
$119.30 - $159.01
$159.81 - $171.28
$195.91
Options
outstanding
195,148
212,116
195,955
374,059
301,459
98,112
272,687
282,475
7,050
17,318
Weighted
average
remaining life
in years
1.01
2.11
3.13
4.43
6.66
7.98
9.12
8.01
8.52
8.47
1,956,379
5.45
Weighted average
exercise price
$10.25
$14.47
$21.92
$63.72
$93.41
$109.91
$117.97
$151.55
$166.40
$195.91
$77.54
Options
exercisable
195,148
198,116
195,955
374,059
239,220
46,066
56,830
129,541
2,473
17,318
Weighted average
exercise price
$10.25
$14.47
$21.92
$63.72
$92.25
$107.65
$117.97
$149.80
$164.90
$195.91
1,454,726
$61.82
The assumptions used for the specified reporting periods and the resulting estimates of weighted-average grant date fair value per share of options granted:
Risk-free interest rate
Expected volatility
Expected term
2019
1.4%-2.6%
40%-49%
4.6 to 5.9 years
Year Ended December 31,
2018
2.7%-3.0%
33%-36%
5.1 to 5.8 years
2017
2.0%-2.2%
43%-47%
6.5 to 6.8 years
As of December 31, 2019, there was $23.2 million of total unrecognized compensation cost related to non-vested stock options. That cost is expected to be recognized over a
weighted average period of 2.4 years.
Restricted Stock Activity
The following is a summary of our restricted stock activity and related information:
Outstanding at December 31, 2018
Granted
Vested
Forfeited
Outstanding at December 31, 2019
Shares
132,273
118,498
(102,846)
(666)
147,259
Weighted-Average
Grant Date Fair
Value
$130.63
$115.90
$121.55
$134.36
$125.11
As of December 31, 2019, unrecognized compensation cost related to non-vested stock awards amounted to $11.2 million. That cost is expected to be recognized over a
weighted average period of 1.5 years.
Employee Stock Purchase Plan
As of December 31, 2019, 59,263 shares of our common stock are available for future issuance under the Amended Employee Stock Purchase Plan, or ESPP. The ESPP permits
eligible employees to purchase up to 1,250 shares of Ligand common stock per calendar year at a discount through payroll deductions. The price at which stock is purchased
under the ESPP is equal to
80
85% of the fair market value of the common stock on the first of a six month offering period or purchase date, whichever is lower. There were 4,745, 3,386 and 3,061 shares
issued under the ESPP in 2019, 2018 and 2017, respectively.
Share Repurchases
In May 2018, in conjunction with our 2023 Notes debt offering, we repurchased 260,000 shares of our common stock at a cost of $191.14 per share. In September 2018, the
board of directors authorized us to repurchase up to $200.0 million of our common stock from time to time over a period of up to three years (the “Repurchase Program”). On
January 23, 2019, the board of directors elected to increase the Repurchase Program, authorizing us to repurchase up to a maximum of $350.0 million of our outstanding
common stock under the Repurchase Program.
On September 11, 2019, our Board of Directors approved a stock repurchase program authorizing the repurchase of up to $500.0 million of our common stock from time to
time over the next three years. We expect to acquire shares primarily through open-market transactions and have entered into a Rule 10b5-1 trading plan, and may enter into
additional Rule 10b5-1 trading plans in the future, to facilitate open-market repurchases. The timing and amount of repurchase transactions will be determined by management
based on our evaluation of market conditions, share price, legal requirements and other factors. Our prior $350.0 million stock repurchase program mentioned above was
terminated in connection with the approval of the new stock repurchase program. Authorization to repurchase $326.8 million of our common stock remained available as of
December 31, 2019.
During the twelve months ended December 31, 2019, 2018 and 2017, we repurchased 4,122,133 shares for $448.4 million, 782,248 shares for $127.5 million, and 14,000 shares
for $2.0 million, respectively.
10. Commitment and Contingencies: Legal Proceedings
We record 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, we record the minimum estimated liability related to the claim in accordance with ASC 450, Contingencies. As
additional information becomes available, we assess the potential liability related to our pending litigation and revises our estimates. Revisions in our estimates of potential
liability could materially impact our results of operations.
On July 27, 2018, AG Oncon, LLC, AG Ofcon, Ltd., Calamos Market Neutral Income Fund, Capital Ventures International, Citadel Equity Fund Ltd., Opti Opportunity Master
Fund, Polygon Convertible Opportunity Master Fund, Wolverine Flagship Fund Trading Limited, as plaintiffs, filed a complaint in the Court of Chancery of the State of
Delaware (AG Oncon, LLC v. Ligand Pharmaceuticals Inc.) alleging claims for violation of the Trust Indenture Act, breach of contract, and others against us. On May 24, 2019,
the Court granted our motion to dismiss and the Delaware Supreme Court subsequently affirmed the decision of the Court of Chancery dismissing this case with prejudice.
In November 2017, CyDex, our wholly-owned subsidiary, received a Paragraph IV certification Notice Letter from Teva stating that Teva had submitted an ANDA to the FDA,
seeking approval to manufacture, offer to sell, and sell a generic version of EVOMELA® prior to the expiration of any of U.S. Patent Nos. 8,410,077 (“the ’077 patent”);
9,200,088 (“the ’088 patent”), or 9,493,582 (“the ’582 patent”), and alleging that these patents, each of which relates to Captisol®, are invalid, unenforceable, and/or will not be
infringed by Teva’s ANDA product. On December 20, 2017, CyDex filed a complaint against Teva in the U.S. District Court for the District of Delaware, asserting that the
filing of Teva’s ANDA constitutes infringement of each of the ’077 patent, the ’088 patent, and the ’582 patent. On March 22, 2018, Teva filed an answer and counterclaims
seeking declarations of non-infringement and invalidity as to each of the asserted patents and, on April 12, 2018, CyDex filed an answer to Teva’s counterclaims. On October
31, 2019, CyDex, Teva, and Acrotech Biopharma L.L.C. (the holder of the NDA for EVOMELA®) entered into a Confidential Settlement Agreement, settling this patent
litigation. As a result of the settlement, Teva will be permitted to market a generic version of EVOMELA® in the United States on June 1, 2026 or earlier under certain
circumstances. The terms of the settlement agreement are otherwise confidential.
On April 9, 2019, CyDex received a Paragraph IV certification Notice Letter from Alembic Global Holdings SA (“Alembic”) stating that Alembic had submitted an ANDA to
the FDA, seeking approval to manufacture, offer to sell, and sell a generic version of EVOMELA® prior to the expiration of any of the ’077 patent; the ’088 patent, the ’582
patent, or U.S. Patent No. 10,040,872 (“the ’872 patent”), and alleging that these patents, each of which relates to Captisol®, are invalid, unenforceable, and/or would not be
infringed by Alembic’s ANDA product. On May 23, 2019, CyDex filed a complaint against Alembic, Alembic Pharmaceuticals, Ltd., and Alembic Pharmaceuticals, Inc. in the
U.S. District Court for the District of Delaware, asserting that the filing of Alembic’s ANDA constitutes infringement of each of the ’088 patent and the ’582 patent. On July
81
29, 2019, Alembic filed an answer and counterclaims seeking declarations of non-infringement and invalidity as to each of the asserted patents and, on August 19, 2019, CyDex
filed an answer to Alembic’s counterclaims. On December 16, 2019, the Court entered a Scheduling Order, setting October 2, 2020, as the fact discovery cut off, March 5,
2021, as the close of expect discovery, and May 17, 2021, as the first day of a five to six day bench trial.
On September 16, 2019, CyDex received a Paragraph IV certification Notice Letter from Lupin Ltd. (“Lupin”) stating that Lupin had submitted an ANDA to the FDA, seeking
approval to manufacture, offer to sell, and sell a generic version of EVOMELA® prior to the expiration of any of the ’077 patent; the ’088 patent, the ’582 patent, or the ’872
patent, and alleging that these patents, each of which relates to Captisol®, are invalid, unenforceable, and/or would not be infringed by Lupin’s ANDA product. CyDex filed a
complaint on October 29, 2019, alleging patent infringement against Lupin. Lupin filed an answer on December 11, 2019 and counterclaimed for declaratory judgments of
invalidity and non-infringement as to all four patents and CyDex filed its answer to Lupin's counterclaims on January 2, 2020.
On October 31, 2019, we received three civil complaints filed in the US District Court for the Northern District of Ohio on behalf of several Indian tribes. The Northern District
of Ohio is the Court that the Judicial Panel on Multi-District Litigation (“JPML”) has assigned several hundred civil cases which have been designated as a Multi-District
Litigation (“MDL”) and captioned In Re: National Prescription Opiate Litigation. The allegations in these complaints focus on the activities of defendants other than the
company and no individualized factual allegations have been advanced against us in any of the three complaints. We reject all claims raised in the complaints and intend to
vigorously defend these matters.
11. Income Taxes
The Tax Act was enacted on December 22, 2017 and includes a number of changes to existing tax laws that impact us, most notably it reduces the US federal corporate tax rate
from 35% to 21%, for tax years beginning after December 31, 2017. The Tax Act made modifications to allowable tax depreciation, the deductability of compensation for
officers, the deductibility of meals and entertainment expenses, and the deductibility of interest expense.
The components of the income tax expense (benefit) for continuing operations are as follows (in thousands):
Current expense (benefit):
Federal
State
Foreign
Deferred expense (benefit):
Federal
State
Year Ended December 31,
2019
2018
2017
$
89,471 $
3,103
(66)
92,508
— $
424
(158)
266
74,627
202
29,928
(185)
$
167,337 $
30,009 $
—
111
261
372
44,075
228
44,675
82
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 (in thousands):
Tax at federal statutory rate
State, net of federal benefit
Contingent liabilities
Share-based compensation
FDII
Research and development credits
Change in uncertain tax positions
Rate change for changes in federal or state law
Change in valuation allowance
Expired NOLs and credits
Change in derivatives
Other
Year Ended December 31,
2019
2018
2017
$
167,294 $
2,466
18
(819)
(402)
(879)
441
(210)
(1,193)
—
—
621
$
167,337 $
36,400 $
1,635
948
(8,131)
—
(2,758)
858
178
(4,225)
3,054
615
1,435
30,009 $
20,031
622
903
(4,019)
—
(2,821)
1,308
32,429
(4,169)
—
—
391
44,675
We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. Significant components
of our deferred tax assets and liabilities as of December 31, 2019 and 2018 are shown below. We assess the positive and negative evidence to determine if sufficient future
taxable income will be generated to use the existing deferred tax assets. Our evaluation of evidence resulted in management concluding that the majority of our deferred tax
assets will be realized. However, we maintain a valuation allowance to offset certain net deferred tax assets as management believes realization of such assets are uncertain as
of December 31, 2019, 2018 and 2017. The valuation allowance increased $136.9 million in 2019, decreased $2.5 million in 2018 and decreased $8.4 million in 2017.
We offset all deferred tax assets and liabilities by jurisdiction, as well as any related valuation allowance, and present them on our consolidated balance sheet as a non-current
deferred income tax asset or liability (as applicable). Deferred tax assets (liabilities) are comprised of the following:
83
Deferred tax assets:
Net operating loss carryforwards
Research credit carryforwards
Fixed assets and intangibles
Accrued expenses
Deferred revenue
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
Investment in Viking
Deferred revenue
Other
Net deferred tax liabilities
Deferred income taxes, net
December 31,
2019
2018
(in thousands)
$
150,727 $
14,843
419
171
—
17,960
184,120
(141,338)
$
42,782 $
(18)
—
(41,664)
(1,040)
(2,937)
(3,488)
(964)
(50,111) $
57,181
31,101
1,637
657
957
11,430
102,963
(4,476)
98,487
(179)
(2,905)
(44,643)
(1,759)
(2,480)
—
—
(51,966)
$
$
(7,329) $
46,521
As of December 31, 2019, we had federal net operating loss carryforwards set to expire through 2037 of $31.5 million and $119.1 million of state net operating loss
carryforwards that begin to expire in 2028. We also have $0.6 million of federal research and development credit carryforwards, which expire through 2038. We have $22.9
million of California research and development credit carryforwards that have no expiration date. In addition, we have approximately $713.8 million of non-U.S. net operating
loss carryovers and approximately $14.6 million of non-U.S. capital loss carryovers that have no expiration date. We have a full valuation allowance against these non-U.S. tax
attributes.
Pursuant to Section 382 and 383 of the Internal Revenue Code of 1986, as amended, utilization of our net operating losses and credits may be subject to annual limitations in the
event of any significant future changes in its ownership structure. These annual limitations may result in the expiration of net operating losses and credits prior to utilization. The
deferred tax assets as of December 31, 2019 are net of any previous limitations due to Section 382 and 383.
We account 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. Our 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, 2019, 2018 and 2017 is as follows (in thousands):
Balance at beginning of year
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Balance at end of year
December 31,
2019
2018
2017
30,289 $
543
(54)
(2,042)
29,363 $
1,247
336
(657)
28,736 $
30,289 $
38,770
1067
109
(10,583)
29,363
$
$
84
Included in the balance of unrecognized tax benefits at December 31, 2019 is $27.1 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.
We recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2019 and December 31, 2018, we recognized an immaterial
amount of interest and penalties. We file income tax returns in the United States, various state jurisdictions, United Kingdom, and Canada with varying statutes of limitations.
The federal statute of limitation remains open for the 2016 tax year to the present. The state income tax returns generally remain open for the 2015 tax year through the
present. Net operating loss and research credit carryforwards arising prior to these years are also open to examination if and when utilized.
We are subject to taxation in the U.S. and various states and foreign jurisdictions. With few exceptions, as of December 31, 2019, we are no longer subject to state, local or
foreign examinations by tax authorities for tax years before 2015 and we are no longer subject to U.S. federal income or payroll tax examinations for tax years before 2017. No
tax returns are currently under examination by any tax authorities. Net operating loss and research credit carryforwards arising prior to these years are also open to examination
if and when utilized. We believe our reserve for unrecognized tax benefits and contingent tax issues is adequate with respect to all open years.
12. Summary of Unaudited Quarterly Financial Information
The following financial information reflects all normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the results and cash
flows of interim periods. Summarized quarterly data for 2019 and 2018 are as follows (in thousands, except per share amounts):
First Quarter*
Second Quarter
Third Quarter
Fourth Quarter
2019
Total revenues
Total operating costs and expenses
Income tax (expense) benefit
Net income (loss)
Basic per share amounts:
Net income (loss)
Diluted per share amounts:
Net income (loss)
Weighted average shares—basic
Weighted average shares—diluted
*includes pre-tax gain from sale of Promacta license of $812,797.
2018
Total revenues
Total operating costs and expenses
Income tax (expense) benefit
Net income (loss)
Basic per share amounts:
Net income (loss)
Diluted per share amounts:
Net income (loss)
Weighted average shares—basic
Weighted average shares—diluted
43,484 $
29,738
(176,376)
666,337
24,987 $
29,117
3,609
(14,419)
24,808 $
29,966
4,620
(15,251)
27,003
37,182
810
(7,365)
32.59 $
(0.74) $
(0.81) $
(0.43)
31.32 $
(0.74) $
(0.81) $
(0.43)
20,447
21,277
19,558
19,558
18,770
18,770
17,243
17,243
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
56,157 $
19,116
(10,033)
45,279
90,043 $
19,868
(22,419)
73,160
45,663 $
22,301
(11,864)
67,362
59,590
26,441
14,307
(42,482)
2.13 $
3.45 $
3.19 $
(2.02)
1.83 $
2.99 $
2.80 $
(2.02)
21,209
24,800
21,212
24,438
21,148
24,052
21,071
21,071
$
$
$
$
$
$
85
13. Subsequent Event
On February 11, 2020, we announced the signing of an agreement to acquire the core assets, partnered programs and ion channel technology from Icagen for $15 million in
cash. Icagen will also be entitled to receive up to an additional $25 million of cash payments based on certain revenue achievements. The transaction is subject to certain closing
conditions, including a vote of Icagen stockholders, and is expected to close in April 2020.
86
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
We are responsible for maintaining 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 have 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, and
have concluded our disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2019.
There have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2019 that have materially affected, or
are reasonably likely to materially affect, our internal control over financial reporting.
(b) Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial
reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles
generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect
our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted
accounting principles; providing reasonable assurance that receipts and expenditures are made in accordance with our management and directors; and providing reasonable
assurance that
unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis.
Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would
be prevented or detected.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of
the effectiveness of our internal control over financial reporting based on the framework established by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) as set forth in the 2013 Internal Control-Integrated Framework. Based on our evaluation under the 2013 framework in Internal Control - Integrated
Framework, management concluded that our internal controls over financial reporting were effective as of December 31, 2019.
Ernst & Young LLP, an independent registered public accounting firm, has audited the Company’s consolidated financial statements included in this Annual Report
on Form 10-K and has issued an attestation report, included herein, on the effectiveness of our internal control over financial reporting as of December 31, 2019.
87
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Ligand Pharmaceuticals Incorporated
Opinion on Internal Control Over Financial Reporting
We have audited Ligand Pharmaceuticals Incorporated’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Ligand
Pharmaceuticals Incorporated (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the
Company as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the
three years in the period ended December 31, 2019, and the related notes and our report dated February 27, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
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. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ Ernst & Young LLP
San Diego, California
February 27, 2020
88
Item 9B.
Other Information
None.
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 (1) the nature of any amendment to the Code of Conduct that applies to our principal executive officer, principal financial officer, principal accounting officer
or controller or persons performing similar functions and (2) the nature of any waiver, including an implicit waiver, from a provision of our Code of Conduct that is granted to
one of these specified officers, the name of such person who is granted the waiver and the date of the waiver on our website in the future. 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,
3911 Sorrento Valley Blvd, Suite 110, San Diego, CA 92121.
The other information under Item 10 is hereby incorporated by reference to Ligand’s Definitive Proxy Statement to be filed with the SEC within 120 days of
December 31, 2019.
Item 11.
Executive Compensation
Item 11 is hereby incorporated by reference to Ligand’s Definitive Proxy Statement to be filed with the SEC within 120 days of December 31, 2019.
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 within 120 days of December 31, 2019.
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 within 120 days of December 31, 2019.
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 within 120 days of December 31, 2019.
89
Item 15.
Exhibits and Financial Statement Schedule
(a) The following documents are included as part of this Annual Report on Form 10-K.
PART IV
(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
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
49
50
51
52
53
55
55
57
(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 of Exhibit
Form
File Number
Date of Filing
Exhibit
Number
Filed
Herewith
Incorporated by Reference
2.1
2.2
2.3
3.1
3.2
3.3
3.4
3.5
3.6
4.1
4.2
4.3
10.1#
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
Rule 2.7 Announcement issued by Ligand Holdings UK Ltd.,
dated August 9, 2018
Asset Purchase Agreement, dated March 5, 2019, by and among
Ligand Pharmaceuticals Incorporated and RPI Financial Trust
Amended and Restated Certificate of Incorporation of the
Company.
8-K
8-K
8-K
S-4
Certificate of Amendment of the Amended and Restated
Certificate of Incorporation of the Company, dated June 14, 2000 10-K
Certificate of Amendment of the Amended and Restated
Certificate of Incorporation of the Company, dated June 30, 2004 10-Q
001-33093
December 18, 2015
001-33093
August 9, 2018
001-33093
March 5, 2019
333-58823
July 9, 1998
0-20720
March 29, 2001
0-20720
August 5, 2004
Certificate of Amendment of the Amended and Restated
Certificate of Incorporation of the Company, dated November 17,
2010
Certificate of Amendment of the Amended and Restated
Certification of Incorporation of the Company, dated June 19,
2018
Third Amended and Restated Bylaws of the Company
Specimen stock certificate for shares of the common stock of the
Company
Indenture, dated as of May 22, 2018, between the Company and
Wilmington Trust, National Association, as trustee, including the
form of 0.75% Convertible Senior Notes due 2023
Description of Registered Securities
2002 Stock Incentive Plan (as amended and restated through June
6, 2019)
8-K
001-33093
November 19, 2010
S-8
8-K
333-233130
001-33093
August 8, 2019
September 10, 2015
10-K
001-33093
March 1, 2018
8-K
001-33093
May 22, 2018
2.1
2.1
2.1
3.1
3.5
3.6
3.1
3.6
3.1
4.1
4.1
DEF
001-33093
April 24, 2019
Appendix A
X
90
10.2#
10.3#
10.4#
10.5#
10.6#
10.7#
10.8#
10.9#
10.10
10.11
10.12
10.13
10.14
10.15
10.16†
10.17†
10.18
10.19†
10.20†
X
2002 Employee Stock Purchase Plan (as amended and restated
effective June 6, 2019)
Form of Stock Option Grant Notice and Stock Option Agreement
under the Company’s 2002 Stock Incentive Plan
Form of Stock Issuance Agreement for non-employee directors 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
Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit
Agreement under the Company’s 2002 Stock Incentive Plan -
Performance-Based RSU Form
Form of Executive Officer Change in Control Severance Agreement
Amended and Restated Severance Plan, dated December 20, 2008
Amended and Restated Director Compensation and Stock Ownership
Policy, effective March 28, 2019
TR Beta Contingent Value Rights Agreement, dated January 27, 2010,
among the Company, Metabasis Therapeutics, Inc., David F. Hale and
Mellon Investor Services LLC
Glucagon Contingent Value Rights Agreement, dated January 27,
2010, among the Company, Metabasis Therapeutics, Inc., David F.
Hale and Mellon Investor Services LLC
General Contingent Value Rights Agreement, dated January 27, 2010,
among the Company, Metabasis Therapeutics, Inc., David F. Hale and
Mellon Investor Services LLC
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
Amendment of General Contingent Value Rights Agreement dated
May 20, 2014 among the Company, Metabasis Therapeutics, Inc.,
David F. Hale and Computershare Inc.
Amendment of TR Beta Contingent Value Rights Agreement dated
May 20, 2014 among the Company, Metabasis Therapeutics, Inc.,
David F. Hale and Computershare, Inc.
Captisol® Supply Agreement, dated December 20, 2002, among
CyDex, Inc., Hovione LLC, Hovione FarmaCiencia S.A., Hovione
Pharmascience Limited and Hovione International Limited
1st Amendment to Captisol® Supply Agreement, dated July 29, 2005,
among CyDex, Inc., Hovione LLC, Hovione FarmaCiencia S.A.,
Hovione Pharmascience Limited and Hovione International Limited
2nd Amendment to Captisol® Supply Agreement, dated March 1,
2007, among CyDex, Inc., Hovione LLC, Hovione
FarmaCiencia S.A., Hovione Pharmascience Limited, and Hovione
International Limited
3rd Amendment to Captisol® Supply Agreement, dated January 25,
2008, among CyDex, Inc., Hovione LLC, Hovione
FarmaCiencia S.A., Hovione Pharmascience Limited, and Hovione
International Limited
4th Amendment to Captisol® Supply Agreement, dated September 28,
2009, among CyDex Pharmaceuticals, Inc., Hovione LLC, Hovione
FarmaCiencia S.A., Hovione Pharmascience Limited and Hovione
International Limited
DEF
001-33093
April 24, 2019
Appendix B
10-K
001-33093
February 24, 2014
10.5
S-1
333-131029
January 13, 2006
10.289
10-K
001-33093
March 1, 2018
10-K
8-K
8-K
001-33093
001-33093
001-33093
March 1, 2018
August 22, 2007
December 24, 2008
8-K
001-33093
January 28, 2010
8-K
001-33093
January 28, 2010
8-K
001-33093
January 28, 2010
8-K
001-33093
January 31, 2011
8-K
001-33093
May 22, 2014
8-K
001-33093
May 22, 2014
10-K
001-33093
March 3, 2011
10.6
10.7
10.1
10.2
10.2
10.3
10.4
10.1
10.1
10.2
10.1
10-K
001-33093
March 3, 2011
10.101
10-K
001-33093
March 3, 2011
10.102
10-K
001-33093
March 3, 2011
10.103
10-K
001-33093
March 3, 2011
10.104
91
10.21†
10.22
10.23†
10.24†
10.25†
10.26†
10.27†
10.28†
10.29†
10.30†
10.31†
10.32†
10.33†
10.34†
10.35
10.36
10.37
10.38
10.39†
10.40†
10.41†
License Agreement, dated September 3, 1993, between CyDex L.C. and
The University of Kansas
First Amendment to License Agreement, dated August 4, 2004, between
CyDex, Inc. and The University of Kansas
Second Amendment to License Agreement, dated August 4, 2004,
between CyDex, Inc. and The University of Kansas
Acknowledgement Agreement, dated February 22, 2008, between
CyDex, Inc. and The University of Kansas
Exclusive License Agreement, dated June 4, 1996, between Pfizer, Inc.
and The University of Kansas
Addendum to Nonexclusive License Agreement, dated December 11,
2001, between CyDex, Inc. and Pfizer, Inc.
Amendment to License Agreement, dated May 12, 2006, between
CyDex, Inc. and Prism Pharmaceuticals, Inc.
Supply Agreement, dated March 5, 2007, between CyDex, Inc. and
Prism Pharmaceuticals, Inc.
License and Supply Agreement, dated October 12, 2005, between
CyDex Pharmaceuticals, Inc. and Proteolix, Inc.
Supply Agreement, dated June 13, 2011 by and between CyDex
Pharmaceuticals, Inc. and Merck Sharp & Dohme Corporation
10-K
10-K
10-K
10-K
10-K
10-K
10-K
10-K
10-K
001-33093
March 3, 2011
001-33093
March 3, 2011
001-33093
March 3, 2011
001-33093
March 3, 2011
001-33093
March 3, 2011
001-33093
March 3, 2011
001-33093
March 3, 2011
001-33093
March 3, 2011
000-28298
February 23, 2010
10-Q/A
001-33093
November 2, 2017
License Agreement, by and between CyDex Pharmaceuticals, Inc. and
Spectrum Pharmaceuticals, Inc., dated as of March 8, 2013
Supply Agreement, by and between CyDex Pharmaceuticals, Inc. and
Spectrum Pharmaceuticals, Inc., dated as of March 8, 2013
Royalty Stream and Milestone Payments Purchase Agreement, dated
April 29, 2013, between the Company and Selexis S.A.
Master License Agreement dated May 21, 2014 among the Company,
Metabasis Therapeutics, Inc. and Viking Therapeutics, Inc.
10-Q
10-Q
10-Q
10-Q
001-33093
May 8, 2013
001-33093
May 8, 2013
001-33093
August 1, 2013
001-33093
August 5, 2014
Letter Agreement, dated as of August 12, 2014, between Bank of
America, N.A. and the Company regarding the Base Issuer Warrant
Transaction
Letter Agreement, dated as of August 12, 2014, between Deutsche
Bank AG, London Branch and the Company regarding the Base Issuer
Warrant Transaction
Letter Agreement, dated as of August 14, 2014, between Bank of
America, N.A. and the Company regarding the Additional Issuer
Warrant Transaction
Letter Agreement, dated as of August 14, 2014, between Deutsche
Bank AG, London Branch and the Company regarding the Additional
Issuer Warrant Transaction
First Amendment to Master License Agreement dated September 6,
2014 among the Company, Metabasis Therapeutics, Inc. and Viking
Therapeutics, Inc.
Second Amendment to Master License Agreement, dated April 8, 2015,
among the Company, Metabasis Therapeutics, Inc. and Viking
Therapeutics, Inc.
Development Funding and Royalties Agreement, dated December 13,
2018, by and between Ligand Pharmaceuticals Incorporated and
Palvella Therapeutics, Inc.
8-K
001-33093
August 18, 2014
8-K
001-33093
August 18, 2014
8-K
001-33093
August 18, 2014
8-K
001-33093
August 18, 2014
10-Q
001-33093
October 31, 2014
10-Q
001-33093
August 5, 2015
10.105
10.106
10.107
10.111
10.108
10.11
10.113
10.114
10.22
10.26
10.2
10.3
10.2
10.2
10.2
10.4
10.6
10.8
10.9
10.1
10-K
001-33093
February 28, 2019
10.48
92
10.42†
10.43†
10.44†
10.45
10.46
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
10.55
10.56
10.57
10.58
10.59†
Sublicense Agreement between the Company, Pharmacopeia, Inc. and
Retrophin LLC dated as of February 16, 2012, as amended through
Amendment No. 5 to Sublicense Agreement, dated March 20, 2018.
Lease, dated November 3, 2015, between the Company and 3911/3931
SVB, LLC
8-K
001-33093
November 10, 2015
Interest Purchase Agreement, dated May 3, 2016, between the Company
and CorMatrix Cardiovascular, Inc.
8-K/A
001-33093
May 9, 2016
Amended and Restated Interest Purchase Agreement, dated May 31,
2017, between the Company and CorMatrix Cardiovascular, Inc.
License Agreement, dated March 5, 2018, between the Company and
Roivant Sciences GmbH
Letter Agreement, dated as of May 17, 2018, between Barclays Capital
Inc. and the Company regarding the Base Convertible Note Hedge
Transaction
Letter Agreement, dated as of May 17, 2018, between Barclays Capital
Inc. and the Company regarding the Base Warrant Transaction
Letter Agreement, dated as of May 17, 2018, between Deutsche Bank
AG and the Company regarding the Base Convertible Note Hedge
Transaction
Letter Agreement, dated as of May 17, 2018, between Deutsche Bank
AG and the Company regarding the Base Warrant Transaction
Letter Agreement, dated as of May 17, 2018, between Goldman Sachs
& Co. LLC and the Company regarding the Base Convertible Note
Hedge Transaction
Letter Agreement, dated as of May 17, 2018, between Goldman Sachs
& Co. LLC and the Company regarding the Base Warrant Transaction
Letter Agreement, dated as of May 18, 2018, between Barclays Capital
Inc. and the Company regarding the Additional Convertible Note Hedge
Transaction
Letter Agreement, dated as of May 18, 2018, between Barclays Capital
Inc. and the Company regarding the Additional Warrant Transaction
Letter Agreement, dated as of May 18, 2018, between Deutsche Bank
AG and the Company regarding the Additional Convertible Note Hedge
Transaction
Letter Agreement, dated as of May 18, 2018, between Deutsche Bank
AG and the Company regarding the Additional Warrant Transaction
Letter Agreement, dated as of May 18, 2018, between Goldman Sachs
& Co. LLC and the Company regarding the Additional Convertible
Note Hedge Transaction
Letter Agreement, dated as of May 18, 2018, between Goldman Sachs
& Co. LLC and the Company regarding the Additional Warrant
Transaction
Platform License Agreement, dated March 23, 2015, by and between
Open Monoclonal Technology, Inc. and WuXi AppTec
Biopharmaceuticals Co., Ltd.
10-Q
10-Q
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
001-033093
August 9, 2017
001-33093
May 9, 2018
001-00393
May 22, 2018
001-00393
May 22, 2018
001-00393
May 22, 2018
001-00393
May 22, 2018
001-00393
May 22, 2018
001-00393
May 22, 2018
001-00393
May 22, 2018
001-00393
May 22, 2018
001-00393
May 22, 2018
001-00393
May 22, 2018
8-K
001-00393
May 22, 2018
8-K
001-00393
May 22, 2018
10-Q
001-33093
August 8, 2018
93
X
10.1
10.1
10.2
10.2
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-Q
001-33093
August 8, 2018
10.14
10-Q
10-K
10-K
001-33093
August 8, 2018
001-33093
March 1, 2018
001-33093
March 1, 2018
10.15
10.60
10.60
10-Q
001-33093
August 8, 2019
10.1
Amendment Number 1 to Platform License Agreement, dated June 11,
2017, by and between Open Monoclonal Technology, Inc. and WuXi
Biologics (Hong Kong) Limited (as successor-in-interest to WuXi
AppTec Biopharmaceuticals Co., Ltd.)
Amendment Number 2 to Platform License Agreement, dated June 25,
2018, by and between Open Monoclonal Technology, Inc. and WuXi
Biologics Ireland Limited (as successor-in-interest to WuXi Biologics
(Hong Kong) Limited).
Form of Indemnification Agreement between the Company and each of
its directors
Form of Indemnification Agreement between the Company and each of
its officers
Addendum, dated May 22, 2019, by and among Ligand Pharmaceuticals
Incorporated, CyDex Pharmaceuticals, Inc., and Acrotech Biopharma
LLC (as successor-in-interest to Spectrum Pharmaceuticals, Inc.), to that
certain License Agreement between Ligand Pharmaceuticals Incorporated
and Spectrum Pharmaceuticals, Inc., dated March 8, 2013
Subsidiaries of the Company
Consent of Independent Registered Public Accounting Firm
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.
The following financial information from our Annual Report on Form
10-K for the fiscal year ended December 31, 2019, formatted in iXBRL
(inline eXtensible Business Reporting Language): (i) Consolidated
Balance Sheets, (ii) Consolidated Statements of Operations, (iii)
Consolidated Statement of Comprehensive Income, (iv) Consolidated
Statements of Stockholders' Equity, (v) Consolidated Statements of Cash
Flows, and (vi) the Notes to Consolidated Financial Statements.
The cover page from the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2019, formatted in Inline XBRL and
contained in Exhibit 101.
10.60†
10.61†
10.62#
10.63#
10.64†
21.1
23.1
31.1
31.2
32.1
101
104
X
X
X
X
X
X
X
† 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.
None
Item 16.
Form 10-K Summary
94
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.
SIGNATURES
LIGAND PHARMACEUTICALS INCORPORATED
By:
/S/ JOHN L. HIGGINS
John L. Higgins,
Chief Executive Officer
Date: February 27, 2020
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/ JOHN W. KOZARICH
John W. Kozarich
/s/ JASON M. ARYEH
Jason M. Aryeh
/s/ SARAH BOYCE
Sarah Boyce
/s/ TODD C. DAVIS
Todd C. Davis
/s/ NANCY R. GRAY
Nancy R. Gray
/s/ JOHN L. LAMATTINA
John L. LaMattina
/s/ SUNIL PATEL
Sunil Patel
/s/ STEPHEN L. SABBA
Stephen L. Sabba
Chief Executive Officer and Director (Principal Executive Officer)
February 27, 2020
Title
Date
Executive Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
February 27, 2020
Director and Chairman of the Board
February 27, 2020
Director
Director
Director
Director
Director
Director
Director
95
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
Exhibit 4.3 DESCRIPTION OF THE REGISTRANT’S SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934 Ligand Pharmaceuticals Incorporated (“Ligand,” “we,” “our” and “us”) has one class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended: our common stock. Description of Common Stock General The following summary of the terms of our common stock does not purport to be complete and is subject to and qualified in its entirety by reference to our Amended and Restated Certificate of Incorporation, as amended (the “certificate of incorporation”), and the Amended and Restated Bylaws, as amended (the “bylaws”), which are filed as exhibits to our most recent Annual Report on Form 10-K and are incorporated by reference herein. Under our certificate of incorporation, the total number of shares of all classes of stock that we have authority to issue is 65,000,000, consisting of 5,000,000 shares of preferred stock, par value $0.001 per share, and 60,000,000 shares of common stock, par value $0.001 per share. Common Stock Voting Rights The holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders, including the election of directors, and do not have cumulative voting rights. Accordingly, the holders of a majority of the shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they so choose. Dividends Subject to limitations under Delaware law and preferences that may be applicable to any then outstanding preferred stock, holders of common stock are entitled to receive ratably those dividends, if any, as may be declared by our board of directors out of legally available funds. Liquidation Upon our liquidation, dissolution or winding up, the holders of common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities of our company, subject to the prior rights of any preferred stock then outstanding. 1
Rights and Preferences Holders of common stock have no preemptive or conversion rights or other subscription rights and there are no redemption or sinking funds provisions applicable to the common stock. Fully Paid and Nonassessable All outstanding shares of our common stock are fully paid and nonassessable and the shares of common stock offered hereby will be fully paid and nonassessable. Anti-Takeover Effects of Provisions of Our Certificate of Incorporation, Our Bylaws and Delaware Law Some provisions of Delaware law, our certificate of incorporation and our bylaws contain provisions that could make the following transactions more difficult: acquisition of us by means of a tender offer; acquisition of us by means of a proxy contest or otherwise; or removal of our incumbent officers and directors. It is possible that these provisions could make it more difficult to accomplish or could deter transactions that stockholders may otherwise consider to be in their best interest or in our best interests, including transactions that might result in a premium over the market price of our shares. These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because negotiation of these proposals could result in an improvement of their terms. Undesignated Preferred Stock The ability to authorize undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of us. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of our company. Requirements for Advance Notification of Stockholder Nominations and Proposals Our bylaws establish advance notice procedures with respect to stockholder proposals and the nomination
of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors. These provisions could have the effect of delaying until the next stockholder meeting stockholder actions that are favored by the holders of a majority of our outstanding voting securities. Elimination of Stockholder Action by Written Consent Our certificate of incorporation eliminates the right of stockholders to act by written consent without a meeting. 2
Special Meetings Our bylaws state that a special meeting of the stockholders may be called by our president and shall be called by our president or secretary upon written request from our board of directors or upon a written request from stockholders owning at least 10% of the entire capital stock of the company issued and outstanding and entitled to vote. Delaware Anti-Takeover Statute We are subject to Section 203 of the Delaware General Corporation Law. This statute regulating corporate takeovers prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for three years following the date that the stockholder became an interested stockholder, unless: • prior to the date of the transaction, the Board approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; • the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding (a) shares owned by persons who are directors and also officers and (b) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or • on or subsequent to the date of the transaction, the business combination is approved by the Board and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Section 203 defines a business combination to include: • any merger or consolidation involving the corporation and the interested stockholder; • any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation; • subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; • any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the
interested stockholder; or 3
• the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. In general, Section 203 defines an interested stockholder as an entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by such entity or person. Fair Market Value Provision Our certificate of incorporation contains a fair market value provision that requires the approval of the holders of 66 2/3% of our outstanding voting stock as a condition to a merger or certain other business transactions with, or proposed by, any person that beneficially owns, directly or indirectly, 15% or more of our voting stock (an “Interested Stockholder”), except in cases where a majority of the Continuing Directors (as defined below) approve the transaction or certain minimum price criteria and other procedural requirements are met. A “Continuing Director” is (i) a director who was originally elected upon incorporation of Ligand, (ii) a director who is not an Interested Stockholder or affiliated with an Interested Stockholder, or (iii) a director whose nomination or election to our board of directors is recommended or approved by a majority of the Continuing Directors. The minimum price criteria are recommended or approved by a majority of the Continuing Directors. The minimum price criteria generally require that, in a transaction in which stockholders are to receive payments, holders of our common stock must receive, on the consummation date of the transaction, a value equal to the higher of (A) the highest price paid by the Interested Stockholder for common stock during the prior two years and (B) the highest closing sale price of common stock during the 30-day period before (1) the announcement of the transaction or (2) the date on which the Interested Stockholder became an Interested Stockholder, whichever is higher. In addition, such payment must be made in cash or in the type of consideration paid by the Interested Stockholder for the greatest portion of its shares. Our board of directors believes that this fair market value provision helps assure that all our stockholders will be treated similarly if
certain kinds of business transactions are effected. However, this fair market value provision may make it more difficult to accomplish certain transactions that are opposed by the incumbent board of directors and that could be beneficial to stockholders. Amendment of Charter Provisions The amendment of any of the above provisions, except for the provision making it possible for our board of directors to issue preferred stock, would require approval by holders of at least 66 2/3% of our then outstanding common stock. The provisions of Delaware law, our certificate of incorporation and our bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests. 4
Amendment of Bylaws The affirmative vote of the holders of at least the majority of the total voting power of all outstanding shares of our voting stock is required for stockholders to amend our bylaws. This provision makes it more difficult to circumvent the anti-takeover provisions of our bylaws. Our board of directors is authorized to make, amend, supplement or repeal our bylaws; provided that no amendment or supplement to the bylaws adopted by the board of directors may vary or conflict with any amendment or supplement duly adopted by the stockholders. Listing Our common stock is listed for trading on the Nasdaq Global Market under the symbol “LGND.” Transfer Agent and Registrar The transfer agent and registrar for our common stock is Computershare Trust Company N.A. 5
LIGAND PHARMACEUTICALS INCORPORATED
DIRECTOR COMPENSATION AND STOCK OWNERSHIP POLICY
(Amended and Restated Effective March 28, 2019)
I. DIRECTOR COMPENSATION
Exhibit 10.9
Non-employee members of the board of directors (the “Board”) of Ligand Pharmaceuticals Incorporated (the “Company”) shall be eligible to receive cash and equity
compensation effective as of March 28, 2019 (the “Restatement Effective Date”), as set forth in this Director Compensation Policy. The cash compensation and stock awards
described in this Director Compensation Policy shall be paid or be made, as applicable, automatically and without further action of the Board, to each member of the Board who
is not an employee of the Company or any parent or subsidiary of the Company (each, an “Independent Director”) who may be eligible to receive such cash compensation or
stock awards, unless such Independent Director declines the receipt of such cash compensation or stock awards by written notice to the Chairman of the Board. This Director
Compensation Policy shall remain in effect until it is revised or rescinded by further action of the Board. The terms and conditions of this Director Compensation Policy shall
supersede any prior cash or equity compensation arrangements between the Company and its directors.
1. Cash Compensation.
a. Annual Retainer. Each Independent Director shall be eligible to receive an annual retainer of $50,000 for service on the Board. In addition, an Independent
Director serving as:
i. chairman of the Board shall be eligible to receive an additional annual retainer of $30,000 for such service;
ii. chairman of the Audit Committee shall be eligible to receive an additional annual retainer of $20,000 for such service;
iii. members (other than the chairman) of the Audit Committee shall be eligible to receive an additional annual retainer of $10,000 for such service;
iv. chairman of the Compensation Committee shall be eligible to receive an additional annual retainer of $15,000 for such service;
v. members (other than the chairman) of the Compensation Committee shall be eligible to receive an additional annual retainer of $7,500 for such
service;
vi. chairman of the Nominating and Corporate Governance Committee shall be eligible to receive an additional annual retainer of $10,000 for such
service; and
vii. members (other than the chairman) of the Nominating and Corporate Governance Committee shall be eligible to receive an additional annual retainer
of $5,000 for such service.
b. Payment of Cash Compensation. Annual retainer fees shall be paid after each annual meeting of the Company’s stockholders in advance for the upcoming year of
service and shall be prorated for the period of the year served for Independent Directors who are elected or appointed to the Board
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at a time other than the date of the annual meeting of the Company’s stockholders; provided, however, that an Independent Director may elect in writing prior
to the date of an annual meeting to receive all or a portion of his annual retainer fee in the form of such number of fully vested shares of the Company’s
common stock as is equal to (i) the amount of the annual retainer the Independent Director has elected to receive in the form of shares of the Company’s
common stock, divided by (ii) the closing price per share of the Company’s common stock on the Nasdaq Global Market (or such other established stock
exchange or national quotation system on which the stock is quoted) on the date of the annual meeting. Committee retainer fees shall also be paid annually after
each annual meeting of the Company’s stockholders in advance for the upcoming year of service and shall be prorated for any partial quarters served for
Independent Directors who serve on a committee for a partial year.
2. Equity Compensation. The Independent Directors shall be granted the following stock awards. The stock awards described below shall be granted under and shall be
subject to the terms and provisions of the Company’s 2002 Stock Incentive Plan (the “2002 Plan”) and shall be granted subject to the execution and delivery of award
agreements, including attached exhibits, in substantially the same forms previously approved by the Board.
a. Initial Stock Awards. A person who is initially elected or appointed to the Board on or after the Restatement Effective Date, and who was or is an Independent
Director at the time of such initial election or appointment, shall be eligible to receive the following stock awards on the date of such initial election or
appointment (each, an “Initial Stock Award”):
i. that number of restricted stock units determined by dividing (A) $145,000, by (B) the average closing price per share of the Company’s common stock
on the Nasdaq Global Market (or such other established stock exchange or national quotation system on which the stock is quoted) for the 30-calendar
day period prior to the date of grant; and
ii. that number of stock options having a value of $280,000, calculated on the grant date in accordance with the Black-Scholes option pricing model
(utilizing the same assumptions that the Company utilizes in preparation of its financial statements).
b. Subsequent Stock Awards. A person who is an Independent Director as of the date of each annual meeting of the Company’s stockholders and who is re-elected
for another year of service as an Independent Director at such annual meeting automatically shall be eligible to receive the following stock awards on the date
of each such annual meeting of the Company’s stockholders on or after the Restatement Effective Date (each, a “Subsequent Stock Award”):
i. that number of restricted stock units determined by dividing (A) $95,000, by (B) the average closing price per share of the Company’s common stock
on the Nasdaq Global Market (or such other established stock exchange or national quotation system on which the stock is quoted) for the 30-calendar
day period prior to the date of grant; and
ii. that number of stock options having a value of $190,000, calculated on the grant date in accordance with the Black-Scholes option pricing model
(utilizing the same assumptions that the Company utilizes in preparation of its financial statements).
An Independent Director elected for the first time to the Board at an annual meeting of stockholders shall only receive an Initial Restricted Stock grant in
connection with such election, and shall not receive a Subsequent Restricted Stock grant on the date of such meeting as well. The stock awards described in this clause shall be
referred to as “Subsequent Stock Awards.”
c. Termination of Employment of Employee Directors. Members of the Board who are employees of the Company or any parent or subsidiary of the Company who
subsequently terminate their
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employment with the Company and any parent or subsidiary of the Company and remain on the Board will not receive any Initial Stock Awards pursuant to
clause 2(a) above, but to the extent that they are otherwise eligible, will be eligible to receive, after termination from employment with the Company and any
parent or subsidiary of the Company, Subsequent Stock Awards as described in clause 2(b) above.
d. Vesting of Stock Awards Granted to Independent Directors.
i. Initial Stock Awards granted hereunder shall vest in three (3) equal annual installments on each of the first three (3) anniversaries following the date of
grant, subject to the Independent Director’s continuing service on the Board through each such vesting date.
ii. Subsequent Stock Awards granted hereunder shall vest in full on the earlier of (A) the date of the annual meeting of the Company’s stockholders next
following the grant date (it being understood that the Subsequent Stock Awards shall vest on the date of such annual meeting whether or not the
Independent Director is re-elected at such meeting, so long as the Independent Director serves through such meeting) and (B) on the first anniversary
of the date of grant, subject to the Independent Director’s continuing service on the Board through each such vesting date.
iii. Any stock awards granted hereunder shall vest in full in the event of a Change in Control or a Hostile Take-Over (each as defined in the 2002 Plan) to
the extent the Independent Director is serving on the Board at the time of such transaction or in the event an Independent Director ceases to serve on
the Board by reason of death or Permanent Disability as defined in the 2002 Plan.
iv. Any unvested stock awards will be forfeited to the Company in the event an Independent Director ceases to serve on the Board prior to the vesting of
such awards.
e. Effect of Termination of Board Service on Stock Options. An Independent Director shall be able to exercise his or her stock options that were vested at the time of
his or her cessation of Board service until the first to occur of (i) the third anniversary of the date of his or her cessation of Board service, or (ii) the original
expiration date of the term of such stock options.
f. Term of Stock Options. Each stock option granted hereunder shall have a term of ten (10) years measured from the date of grant.
g. Exercise Price of Stock Options. The exercise price per share of any stock options granted hereunder shall be equal to one hundred percent (100%) of the Fair
Market Value (as defined in the 2002 Plan) of the common stock on the date of grant.
II. DIRECTOR STOCK OWNERSHIP GUIDELINES
Independent Directors are expected to own and hold shares of the Company’s common stock with a value equal to three times the annual cash retainer for service as
an Independent Director (without regard to any retainers paid for committee service or service as chairman of the Board). The stock ownership level should be achieved by each
Independent Director on or before April 30, 2014 or, if later, within three years after the Independent Director’s first appointment to the Board.
Stock that counts toward satisfaction of these guidelines include: shares of common stock owned outright by the Independent Director and his or her immediate
family members who share the same household, whether held individually or jointly; restricted stock where the restrictions have lapsed; shares acquired upon stock
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option exercise; shares purchased in the open market; and shares held in trust for the benefit of the Independent Director or his or her family. Restricted stock units, which
represent the right to receive shares, do not count towards satisfaction of these guidelines. Shares held in trust may be included. Due to the complexities of trust accounts,
requests to include shares held in trust should be submitted to the Secretary of the Company and the Chairman of the Board will make the final decision as to whether to include
those shares.
An Independent Director will be deemed to be in compliance with these guidelines if the Fair Market Value (as defined in the 2002 Plan) of the shares of the
Company’s common stock held by such Independent Director on any date prior to the deadline for his or her compliance equals or exceeds the required multiple of his or her
annual cash retainer. After meeting the requirements set forth in these guidelines, any subsequent decreases in the market value of the Company’s common stock shall not be
considered, so long as the Independent Director continues to hold at least the same number of shares of the Company’s common stock as he or she did when the guidelines were
first met or exceeded by such Independent Director.
The guidelines may be waived for Independent Directors, at the discretion of the Board, if compliance would create hardship or prevent an Independent Director
from complying with a court order, as in the case of a divorce settlement.
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CERTAIN MATERIAL (INDICATED BY ASTERISKS) HAS BEEN OMITTED FROM THIS DOCUMENT PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
SUBLICENSE AGREEMENT
THIS SUBLICENSE AGREEMENT (the “Agreement”) is made and entered into effective as of February 16, 2012 (the “Effective
Date”) by and between Ligand Pharmaceuticals Incorporated, a corporation organized under the laws of Delaware and having a place of
business at 11085 North Torrey Pines Road, Suite 300, La Jolla, CA, 92037 and its wholly owned subsidiary, Pharmacopeia, Inc. (as successor
in interest to Pharmacopeia Drug Discovery Inc.) (“PCOP”), a limited liability company organized under the laws of Delaware and having a
place of business at 11085 North Torrey Pines Road, Suite 300, La Jolla, CA, 92037 (collectively, Ligand Pharmaceuticals Incorporated and
PCOP shall be known as “Ligand”) and Retrophin, LLC, a limited liability company organized under the laws of Delaware and having a place
of business at 330 Madison Avenue, 6th Floor, New York, NY, 10017 (“Retrophin”). Ligand and Retrophin are each referred to herein by
name or individually as a “Party” or collectively as the “Parties.”
RECITALS
WHEREAS, Ligand has in-licensed certain patent rights and know-how rights with respect to the Licensed Compounds (as defined
below) and has the right to sublicense the same;
WHEREAS, Retrophin desires to obtain from Ligand sublicenses relating to the Licensed Compounds and Ligand desires to grant such
sublicenses to Retrophin, all on the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements set forth below, the receipt and
sufficiency of which is hereby acknowledged, the Parties hereby agree as follows:
Article 1.
DEFINITIONS
The terms in this Agreement with initial letters capitalized shall have the meaning set forth below or, if not listed below, the meaning
designated in places throughout this Agreement.
1.1 “AAA” has the meaning set forth in Section 14.3.1.
1.2 “Act” means the United States Food, Drug and Cosmetic Act, as amended.
1.3 “Active Compound” has the meaning set forth in Appendix 2 hereto.
1.4 “Affiliate” of a Person means any other Person which (directly or indirectly) is controlled by, controls or is under common control
with such Person. For the purposes of this definition, the term “control” (including, with correlative meanings, the terms “controlled by” and
“under common control with”) as used with respect to a Person means (i) in the case of a corporate entity, direct or indirect ownership of voting
securities entitled to cast at least [***] of the votes in the election of directors or (ii) in the case of a non-
corporate entity, direct or indirect ownership of at least [***] of the voting securities with the power to direct the management and policies of
such entity.
1.5 “Agreement” has the meaning set forth in the initial paragraph herein and includes all Appendices attached hereto, as the same may
be amended or supplemented from time to time.
1.6 “Approval” means, with respect to any Licensed Product in any regulatory jurisdiction, approval from the applicable Regulatory
Authority sufficient for the manufacture, distribution, use and sale of the Licensed Product in such jurisdiction in accordance with applicable
Laws.
1.7 “BMS” means Bristol-Myers Squibb Company, a Delaware corporation headquartered at 345 Park Avenue, New York, New York
10154.
1.8 “BMS Know-How” means [***]. BMS Know-How shall not include [***].
1.9 “Business Day” or “business day” means a day other than Saturday, Sunday or any day on which commercial banks located in New
York, New York are authorized or obligated by applicable Laws to close.
1.10 [***].
1.11 [***].
1.12 “Combination Product” means [***].
1.13 “Commercialization” or “Commercialize” means activities directed to commercially manufacturing, obtaining pricing and
reimbursement approvals, carrying out Phase 4 Trials for, marketing, promoting, distributing, importing or selling a pharmaceutical product.
1.14 “Commercially Reasonable Efforts” means, with respect to Licensed Compounds and Licensed Products, the carrying out of
Development or Commercialization activities in a [***]. Without limiting the foregoing, Commercially Reasonable Efforts requires that a
Party: (i) [***] (ii) [***] (iii) [***] (iv) [***] (v) [***].
1.15 “Competitive Compound” means any [***] that is [***] unless Ligand has[***]. Ligand shall not [***].
1.16 “Confidential Information” means all trade secrets, processes, formulae, data, know-how, improvements, inventions, chemical or
biological materials, assays, techniques, marketing plans, strategies, customer lists, or other information that has been created, discovered, or
developed by a Party, or has otherwise become known to a Party, or to which rights have been assigned to a Party, as well as any other
information, agreements and materials that are deemed confidential or proprietary to or by a Party (including all information and materials of a
Party’s customers and any other Third Party and their consultants), in each case that are disclosed by such Party to the other Party, regardless
of whether any of the foregoing are marked “confidential” or “proprietary” or communicated to the other by the disclosing Party in oral,
written, graphic, or electronic form.
1.17 “Controlled” or “Controls”, when used in reference to intellectual property, means the legal authority or right of a Party hereto (or
any of its Affiliates) to grant a license or sublicense of intellectual property rights to another Party, or to otherwise
disclose proprietary or trade secret information to such other Party, without breaching the terms of any agreement with a Third Party, or
misappropriating the proprietary or trade secret information of a Third Party.
1.18 “Core Patent Rights” means the patents and patent applications that are listed in Appendix 1 hereto and (a) [***] that [***] listed
in Appendix 1 hereto [***] and [***] (but in each case, only with respect to [***] listed in Appendix 1 hereto), (b) all [***] foregoing[***],
together with all [***] thereof (but in each case, only with respect to [***] in Appendix 1 hereto).
1.19 “Cover,” “Covered” or “Covering” means, with respect to patent rights, that the making, using, importation, offer for sale or sale
of an invention claimed in such patent rights or the conducting of an activity that, in the absence of a license under such patent rights, would
infringe at least one Valid Claim of such patent rights whether present in an issued patent or in a patent application if it issued as a patent
containing such claim.
1.20 “Development” means non-clinical and clinical drug development activities reasonably related to the development and submission
of information to a Regulatory Authority, including toxicology, pharmacology and other discovery and pre-clinical efforts, test method
development and stability testing, manufacturing process development, formulation development, delivery system development, quality
assurance and quality control development, statistical analysis, clinical studies (including, pre- and post-approval studies and specifically
excluding regulatory activities directed to obtaining pricing and reimbursement approvals). When used as a verb, “Develop” means to engage in
Development.
1.21 “Development Plan” means, with respect to any Licensed Product, a comprehensive, multi-year plan specifying the anticipated
timing and technical details of Development activities for such Licensed Product, including the indications to be targeted, line of therapy,
timelines for completing key activities, phasing of development, primary endpoints, criteria for continuing activities, study size, comparator
drugs, combination drugs, timelines for data preparation and filing of regulatory submissions, toxicology and pharmacology studies and
manufacturing process development and scale up. An outline of the initial Development Plan as of the Effective Date is attached hereto as
Appendix 3.
1.22 “Dollar” or “$” means the lawful currency of the United States.
1.23 “Effective Date” has the meaning set forth in the initial paragraph of this Agreement.
1.24 “EMEA” means the European Agency for the Evaluation of Medicinal Products, or any successor agency thereto.
1.25 “Excluded Claim” means a Dispute that concerns (a) the validity or infringement of a patent, trademark or copyright or (b) any
antitrust, anti-monopoly or competition law or regulation, whether or not statutory.
1.26 “Executive” means for Ligand, the Chief Executive Officer of Ligand (or such individual’s designee) and for Retrophin, the Chief
Executive Officer of Retrophin (or such individual’s designee). If either position is vacant or either position does not exist, then the person
having the most nearly equivalent position (or such individual’s designee) shall be deemed to be the Executive of the relevant Party.
1.27 “Exit Transaction” means: (i) [***]
1.28 “FDA” means the U.S. Food and Drug Administration, or any successor agency thereto.
1.29 “Field” means the diagnosis, prevention, treatment or control of any human or animal disease, disorder or condition.
1.30 “First Commercial Sale” means, with respect to any Licensed Product, the first sale for use or consumption by the general public
of such Licensed Product in any country in the Territory after Approval of such Licensed Product has been granted, or such marketing and sale
is otherwise permitted, by the Regulatory Authority of such country.
1.31 “GAAP” means generally accepted accounting principles in the United States.
1.32 “IND” means an Investigational New Drug Application, as defined in the Act, filed with the FDA or its foreign counterparts.
1.33 “Indemnification Claim” has the meaning set forth in Section 12.3.
1.34 “Indemnitee” has the meaning set forth in Section 12.3.
1.35 “Indemnitor” has the meaning set forth in Section 12.3.
1.36 “JNDA” means a New Drug Application filed with the Koseisho required for marketing approval for the applicable Licensed
Product in Japan.
1.37 “JNDA Approval” means the approval of a JNDA by the Koseisho for the applicable Licensed Product in Japan.
1.38 “JNDA Filing” means the submission to the Koseisho of a JNDA for the applicable Licensed Product in Japan.
1.39 “Know-How” means [***].
1.40 “Koseisho” means the Japanese Ministry of Health and Welfare, or any successor agency thereto.
1.41 “Laws” means all laws, statutes, rules, regulations, ordinances and other pronouncements having the effect of law of any federal,
national, multinational, state, provincial, county, city or other political subdivision, agency or other body, domestic or foreign.
1.42 “License” means any agreement transferring rights with respect to any Licensed Compound or any Licensed Product by Retrophin
(or an Affiliate of Retrophin) to any Third Party licensee, including any license, sublicense, co-development, co-promotion, distribution, joint
venture, development and commercialization collaboration or similar transaction involving a transfer of rights with respect to a Licensed
Compound or Licensed Product. “License” shall also include any further transfer of such rights by a Third Party licensee to any other Third
Party. “License” also refers to the corresponding arrangement for the grant by Retrophin of rights back to BMS and Ligand with respect to one
or more Licensed Compound(s) and Licensed Product(s) pursuant to Article 3.
1.43 “Licensed Compounds” means:
(a) the [***];
(b) any [***];
(c) any [***]; and
(d) any [***].
1.44 “Licensed Product” means any pharmaceutical product containing a Licensed Compound (alone or with other active ingredients),
in all forms, presentations, formulations and dosage forms.
1.45 “Listed Compounds” means those compounds identified in Appendix 4.
1.46 “Losses and Claims” has the meaning set forth in Section 12.1.
1.47 “MAA Approval” means approval by the EMEA of a marketing authorization application (“MAA”) filed with the EMEA for the
applicable Licensed Product under the centralized European procedure. If the centralized EMEA filing procedure is not used, MAA Approval
shall be achieved upon the first Approval for the applicable Licensed Product in any two of the following countries: France, Germany, Italy,
Spain or the United Kingdom.
1.48 “MAA Filing” means the submission to the EMEA of a MAA for the applicable Licensed Product under the centralized European
procedure. If the centralized EMEA filing procedure is not used, MAA Filing shall be achieved upon the first filing of a marketing
authorization application for the applicable Licensed Product in any two of the following countries: France, Germany, Italy, Spain or the
United Kingdom.
1.49 “Major Market Countries” means the[***]. “Major Market Country” [***].
1.50 “NDA” means a New Drug Application filed with the FDA required for marketing approval for the applicable Licensed Product in
the U.S.
1.51 “NDA Approval” means the approval of a NDA by the FDA for the applicable Licensed Product in the U.S.
1.52 “NDA Filing” means the submission to the FDA of a NDA for the applicable Licensed Product.
1.53 “Net Sales” means, with respect to any [***]:
(a) [***]; provided, however, that where any such [***];
(b) [***];
(c) [***]; and
(d) [***].
Net Sales shall be determined [***]. In the case of any Combination Product sold in the Territory, Net Sales for such Combination
Product shall be calculated by [***].
Net Sales shall not include any [***].
1.54 “Orphan Licensed Product” means a Licensed Product that receives orphan drug designation from the FDA pursuant to 21 C.F.R.
Part 316, or from a Regulatory Authority pursuant to a comparable rule or regulation in a foreign jurisdiction, including the orphan indications
set forth in the Development Plan.
1.55 “Other Patent Rights” means (i) [***] (a) [***] or (b) [***] and (ii) [***].
1.56 “Patent Rights” means the Core Patent Rights and the Other Patent Rights.
1.57 “Person” means any individual, firm, corporation, partnership, limited liability company, trust, business trust, joint venture
company, governmental authority, association or other entity.
1.58 “Phase 2 Trial” means a human clinical trial of a Licensed Product, the principal purpose of which is a determination of safety and
efficacy in the target patient population, as described in 21 C.F.R. 312.21(b), or a similar clinical study prescribed by the Regulatory
Authorities in a foreign country. For purposes of this Agreement, “initiation of a Phase 2 Trial” for a Licensed Product means the first dosing
of such Licensed Product in a human patient in a Phase 2 Trial.
1.59 “Phase 3 Trial” means a human clinical trial of a Licensed Product on a sufficient number of subjects that is designed to establish
that a pharmaceutical product is safe and efficacious for its intended use, and to determine warnings, precautions, and adverse reactions that
are associated with such pharmaceutical product in the dosage range to be prescribed, which trial is intended to support Approval of a Licensed
Product, as described in 21 C.F.R. 312.21(c), or a similar clinical study prescribed by the Regulatory Authorities in a foreign country. For
clarity, any human clinical trial may qualify as a Phase 3 Trial if it supports Approval of a Licensed Product without the need to conduct a
Phase 3 Trial. For purposes of this Agreement, “initiation of a Phase 3 Trial” for a Licensed Product means the first dosing of such Licensed
Product in a human patient in a Phase 3 Trial.
1.60 “Phase 4 Trial” means a human clinical trial for a Licensed Product commenced after receipt of Approval in the country for which
such trial is being conducted and that is conducted within the parameters of the Approval for the Licensed Product. Phase 4 Trials may include
epidemiological studies, modeling and pharmacoeconomic studies, investigator sponsored clinical trials of the Licensed Product and post-
marketing surveillance studies.
1.61 “Proprietary Compound of BMS or Ligand” means any compound or other agent being developed or sold, (a) as of the March 27,
2006 or at any time thereafter, by BMS or its Affiliates, or their contractors or collaborators, or (b) as of the Effective Date or any time
thereafter, by Ligand or its Affiliates, or their contractors or collaborators.
1.62 “Regulatory Authority” means any national or supranational governmental authority, including the FDA, EMEA or Koseisho (i.e.,
the Japanese Ministry of Health and Welfare, or any successor agency thereto), that has responsibility in countries in the Territory over the
Development and/or Commercialization of Licensed Compounds and Licensed Products.
1.63 “Sublicensee” means any Third Party to whom rights are transferred with respect to any Licensed Compound or Licensed Product,
including through any license, sublicense, co-development, co-discovery, co-promotion, distribution, joint venture,
Development and Commercialization collaboration or similar transaction between a Party (or an Affiliate of a Party) and a Third Party.
“Sublicensee” shall also include any Third Party to whom such rights are transferred through further sublicense by a Sublicensee.
“Sublicensee” shall include any Third Party that is a party to a License agreement.
1.64 “Territory” means any country in the world.
1.65 “Third Party” means any Person other than Retrophin, Ligand and their respective Affiliates.
1.66 “Title 11” has the meaning set forth in Section 13.7.
1.67 “United States” or “U.S.” means the United States of America and its territories and possessions (including Puerto Rico).
1.68 [***].
1.69 “Valid Claim” means a claim of (i) an issued and unexpired patent or a supplementary protection certificate, which claim has not
been held invalid or unenforceable by a court or other government agency of competent jurisdiction from which no appeal can be or has been
taken and has not been held or admitted to be invalid or unenforceable through re-examination or disclaimer, opposition procedure, nullity suit
or otherwise or (ii) a pending patent application; provided, however, that if a claim of a pending patent application shall not have issued within
[***] after the earliest filing date from which such claim takes priority, such claim shall not constitute a Valid Claim for the purposes of this
Agreement unless and until a patent issues with such claim.
LICENSE GRANTS
2.1 Patent Rights and Know-How.
ARTICLE 2.
2.1.1 Core Patent Rights and Know-How. Subject to the terms and conditions set forth in this Agreement (including the
reservation of rights in Section 2.5), Ligand hereby grants to Retrophin a non-transferable (except in accordance with Section 15.4), exclusive
sublicense, with the right to further sublicense in accordance with Section 2.2, under the Core Patent Rights and Know-How solely to the
extent reasonably necessary to, make, use (including in activities directed at the research and Development of Licensed Compounds), have
made, sell, have sold, offer to sell, export, import and otherwise exploit or Commercialize Licensed Compounds and Licensed Products in the
Field in the Territory.
2.1.2 Other Patent Rights. Subject to the terms and conditions set forth in this Agreement (including the reservation of rights in
Section 2.5), Ligand hereby grants to Retrophin a non-transferable (except in accordance with Section 15.4), non-exclusive sublicense, with the
right to further sublicense in accordance with Section 2.2, under the Other Patent Rights solely to the extent reasonably necessary or useful to
make, use (including in activities directed at the research and Development of Licensed Compounds), have made, sell, offer to sell, export and
import and otherwise exploit or Commercialize Licensed Compounds and Licensed Products in the Field in the Territory, provided, however,
that no rights are granted under this Section 2.1.2 (or otherwise under this Agreement) with respect to any Proprietary Compound of BMS or
Ligand. For clarification, no rights are granted under this Section 2.1.2 (or otherwise under this
Agreement) to co-formulate or use in combination a Licensed Compound with any Proprietary Compound of BMS or Ligand. The rights
granted by Ligand to Retrophin under this Section 2.1.2 include the right to make, have made, use (including in activities directed at the
research and Development of Licensed Compounds), export and import intermediates and starting materials reasonably necessary for the
manufacture of Licensed Compounds, and to practice methods reasonably necessary for the manufacture of Licensed Compounds, and to
practice methods reasonably necessary for manufacturing such intermediates and starting materials, but only for the purposes of
manufacturing, using, importing or exporting Licensed Compounds in the Field in the Territory. For clarification, no rights are granted to sell
or offer to sell any such intermediates or starting materials, or use such intermediates or starting materials for any purpose other than for the
purposes of manufacturing Licensed Compounds.
2.2 Sublicenses.
2.2.1 Retrophin shall have the right to grant sublicenses with respect to the rights licensed to Retrophin under Sections 2.1.1 and
2.1.2 to any Affiliate of Retrophin for so long as such Affiliate remains an Affiliate of Retrophin; provided, however, that (i) such Affiliate
shall agree in writing to be bound by and subject to the terms and conditions of this Agreement in the same manner and to the same extent as
Retrophin and (ii) Retrophin shall remain responsible for the performance of this Agreement and shall cause such Affiliate to comply with the
terms and conditions of this Agreement. In addition, Retrophin shall have the right to grant sublicenses with respect to the rights licensed to
Retrophin under Sections 2.1.1 and 2.1.2 to Third Parties.
2.2.2 Retrophin shall have the right to enter into a License agreement with a Third Party; provided, however, to the extent any
such License agreement grants rights with respect to any Licensed Compound:
Retrophin’s ability to perform its obligations under this Agreement, (B) Ligand’s rights under this Agreement, (C) [***] or (D) [***].
(i) such License agreement shall be consistent with the terms and conditions of this Agreement, and shall not limit (A)
(ii) in such License agreement, the Sublicensee shall agree in writing to be bound to Retrophin by terms and conditions
that are substantially similar to, or less favorable to the Sublicensee than, or otherwise allow Retrophin to fully perform the corresponding
terms and conditions of this Agreement;
(iii) such License agreement shall comply with Section 8.10.2 hereof regarding minimum royalty payments;
(iv) promptly after the execution of such License agreement, Retrophin shall provide a copy of such License agreement
to Ligand, with financial and other confidential or proprietary commercial terms redacted consistent with the public filing of such license
agreement with the Securities and Exchange Commission (“SEC”), or, if not filed with the SEC, then with financial and other confidential or
proprietary commercial terms redacted (to the extent that such other commercial terms are not reasonably necessary for Ligand to determine
Retrophin’s compliance with this Agreement). [***];
5.1.1 and 6.1), the payment of all
(v) Retrophin shall remain responsible for the performance of this Agreement (including its obligations under Sections
payments due, making reports and keeping books and records and shall use commercially reasonable efforts to monitor such Sublicensee’s
compliance with the terms of such License;
(vi) any sublicense rights granted by Retrophin in a License (to the extent such sublicensed rights are granted to
Retrophin in this Agreement) shall terminate on a country-by-country and Licensed Product-by-Licensed Product basis effective upon (i) the
termination under Section 13.2 of the license from Ligand to Retrophin with respect to such sublicensed rights or (ii) the termination under
Section 13.2 of the license from BMS to Ligand with respect to such sublicensed rights; provided, however, that such sublicensed rights shall
not terminate if, as of the effective date of such termination by Ligand under Section 13.2 of this Agreement or BMS under Section 13.2 of the
Upstream License Agreement, the Sublicensee is not in material breach of its obligations to Retrophin under its License agreement, and within
[***] days of such termination the Sublicensee agrees in writing to be bound directly to BMS or Ligand, as the case may be, under a license
agreement substantially similar to this Agreement [***], as the case may be, with respect to the rights sublicensed hereunder, substituting such
Sublicensee for Retrophin or Ligand, as the case may be; and
(vii) such Sublicensees shall have the right to grant further sublicenses with respect to the Development or
Commercialization of Licensed Products, provided that such further sublicenses shall be in accordance with and subject to all of the terms and
conditions of this Section 2.2.
For purposes of clarification, the preceding provisions of this Section 2.2.2 shall not apply to Licensed Compounds with respect to which
Retrophin [***] Ligand a License.
2.2.3 In accordance with the foregoing, unless Ligand agrees otherwise in writing, any License shall [***].
2.2.4 It shall be a [***].
2.3 No Trademark License. No right or license, express or implied, is granted to Retrophin to use any trademark, trade name, trade
dress or service mark owned or Controlled by BMS, Ligand or any of their respective Affiliates. Retrophin, at its sole cost and expense, shall
be responsible for the selection, registration and maintenance of all trademarks which it employs in connection with its activities conducted
pursuant to this Agreement, if any, and shall own and control such trademarks.
2.4 No Implied Licenses. No license or other right is or shall be created or granted hereunder by implication, estoppel or
otherwise. All such licenses and rights are or shall be granted only as expressly provided in this Agreement.
2.5 Retained Rights.
2.5.1 Retrophin understands and agrees that BMS shall retain the rights specified in Section 2.5 of the Upstream License
Agreement.
2.5.2 Subject to the Upstream License Agreement, all rights not expressly granted under Section 2.1 are reserved by Ligand and
may be used by Ligand for any purpose. Ligand expressly reserves and retains the right (i) to make, have made and use Licensed Compounds
for any internal research purposes (including but not limited to for
purposes of screening in support of Ligand’s internal research programs), (ii) to support the filing and prosecution of patent applications, and
(iii) to make, have made and use any Licensed Compound solely for use as an intermediate or starting material in the manufacture of any
compound which is not a Licensed Compound.
2.5.3 Subject to the exclusive rights granted to Retrophin under this Article 2 and subject to the restrictions on use of
Retrophin’s Confidential Information under Article 11, [***]. For purposes of clarity, nothing in the foregoing shall be construed to reserve to
Ligand the right to engage in the discovery, Development and/or Commercialization of Active Compounds Covered by the Core Patent Rights
exclusively licensed to Retrophin hereunder.
2.6 Upstream License Agreement. Notwithstanding anything to the contrary in this Agreement, Retrophin understands and agrees
(i) that this Agreement is subordinate to the Upstream License Agreement and the sublicense granted to Retrophin under this Agreement is
limited in scope to the rights granted to Ligand in the Upstream License Agreement; (ii) this Agreement may be terminated if the Upstream
License Agreement is terminated (iii) it will comply with all provisions of the Upstream License Agreement relevant to its activities as a
Sublicensee (as defined in the Upstream License Agreement); (iv) BMS’ exercise of its rights under the Upstream License Agreement shall not
constitute a breach hereunder; (v) it will not take any action that would result in a breach of the Upstream License Agreement; and (vi) it will
cooperate with and assist Ligand to meet its obligations under the Upstream License Agreement. Retrophin acknowledges that it has been
provided with a copy of the Upstream License Agreement.
ARTICLE 3.
LIGAND RIGHT OF FIRST NEGOTIATION
3.1 BMS Right of First Negotiation. In the event that Retrophin desires to enter into a License arrangement with respect to any
Licensed Compound (“Business Opportunity”), BMS shall be granted the Right of First Negotiation set forth in Article 3 of the Upstream
License Agreement. Retrophin shall comply with the terms set forth in Sections 3.1.1 and 3.1.3-3.1.6 of the Upstream License Agreement. For
the purposes of this Section 3.1, “Pharmacopeia” shall be replaced with “Retrophin” in Sections 3.1.1 and 3,1.3-3.1.6 of the Upstream License
Agreement.
3.2 Ligand Right of Second Negotiation.
3.2.1 In the event that Retrophin desires to enter into a Business Opportunity, before entering into negotiations with any Third
Party and after following the procedure set forth in Section 3.1 above, with respect to such License, Retrophin shall notify Ligand and provide
Ligand with information necessary or useful to Ligand to evaluate the proposed License arrangement (“Evaluation Information”). The Parties
shall negotiate in good faith the terms pursuant to which Ligand may obtain such Business Opportunity for a period of [***] days following
the date of such notice (such period referred to as the “Ligand Negotiation Period”).
3.2.2 Unless otherwise agreed between the Parties, [***].
3.2.3 Any License agreement entered into by Retrophin with a Third Party shall be consistent with the terms and conditions of
this Agreement and shall fully enable Retrophin to fully perform all of its obligations under the Agreement which will continue
in effect. As set forth in Section 2.2, any Sublicensee shall be bound by the terms and conditions of this Agreement in the same manner as
Retrophin.
ARTICLE 4.
TRANSFER OF KNOW-HOW
4.1 Documentation. Prior to the Effective Date, Ligand has provided to Retrophin one (1) electronic or paper copy of all
documents, data or other information Controlled by Ligand as of the Effective Date to the extent that such documents, data and information are
(i) reasonably necessary or useful for the manufacture, Development or Commercialization of the Listed Compounds (including SAR
information) and subject to the Know-How license under Section 2.1 and (ii) are reasonably available to Ligand without undue searching;
provided however, that subject to the last sentence of this Section 4.1, the foregoing shall in no event require Ligand to provide copies of
manufacturing run records or laboratory notebook records; further provided that if Retrophin determines it needs additional documents, data or
information for the manufacture, Development or Commercialization of the Licensed Compounds (including SAR information), Ligand shall
use commercially reasonable efforts (at Retrophin’s cost and expense) to determine whether it has such additional information and if Ligand
has such information, it shall provide such information to Retrophin at Retrophin’s cost and expense. Such documentation shall be deemed to
be the Confidential Information of Ligand and shall not be used by Retrophin for any purpose other than Development, manufacture or
Commercialization of Licensed Compounds and Licensed Products in accordance with this Agreement. Retrophin acknowledges that it has
received from Ligand such documents, data and information prior to the Effective Date through access to the electronic data room established
by Ligand for the Listed Compound and that Ligand has allowed Retrophin to print such documents. Ligand shall have no obligation to
reformat or otherwise alter or modify any such materials, or to create materials in electronic form, in order to provide them to Retrophin;
provided, that such information is readable by Retrophin in its current form. Any and all such materials delivered to Retrophin pursuant to this
Section 4.1 are and shall remain, as between the Parties, the sole property of Ligand. Notwithstanding the foregoing, if at any time during the
term of this Agreement Retrophin identifies particular documents, data or information (including laboratory notebook records) that are within
the Know-How, but were not previously delivered to Retrophin, and that are reasonably necessary or useful for the continued manufacture,
Development or Commercialization of a Licensed Compound or Licensed Product (including materials requested in connection with an audit
or other inquiry by a Regulatory Authority), or are reasonably necessary or useful to support the filing and/or prosecution of patent rights
Covering the Licensed Compounds or Licensed Products, Ligand shall promptly provide such material to Retrophin upon request to the extent
that such items are in Ligand’s possession and are available without undue searching.
4.2 Materials. Ligand shall have no obligation to provide Retrophin with samples of any compounds or other materials (other than
the information provided under Section 4.1) under this Agreement, provided that upon written request by Retrophin, Ligand will authorize in
writing the transfer by [***] to Retrophin of all existing clinical supplies of Licensed Product and all existing supplies of the active
pharmaceutical ingredient of Licensed Product (including other materials that may be provided by or for Ligand to Retrophin pursuant to this
Agreement, the “Transferred Materials”). Retrophin shall be responsible for any and all fees charged by [***] in connection with the transfer
of the Transferred Materials to Retrophin. Any Transferred Materials are provided “AS IS”. Retrophin shall be fully responsible for its and its
Affiliates’, Sublicensees’ and
contractors’ use, storage, handling and disposition of the Transferred Materials. Under no circumstances shall Ligand be liable or responsible
for Retrophin’s or its Affiliates’, Sublicensees’ and contractors’ use, storage, handling or disposition of the Transferred Materials, and
Retrophin assumes sole responsibility for any claims, liabilities, damages and losses that might arise as a result of Retrophin’s and its
Affiliates’, Sublicensees’ and contractors’ use, storage, handling or disposition of any Transferred Material. Retrophin shall indemnify, defend
and hold harmless Ligand and its Affiliates, and their respective officers, directors, employees, agents, licensors, and their respective
successors, heirs and assigns and representatives, from and against any and all damages, liabilities, losses, costs and expenses (including,
without limitation, reasonable legal expenses, costs of litigation and reasonable attorney’s fees) arising in connection with any claims, suits,
proceedings, whether for money damages or equitable relief, of any kind, arising out of or relating, directly or indirectly, to Retrophin’s, or any
of its Affiliates’, Sublicensees’ or contractors’ use, storage, handling or disposition of any Transferred Material. Transferred Materials may
only be provided to Retrophin, its Affiliates, Sublicensees and contractors. The Transferred Materials shall be used by Retrophin solely for
purposes of supporting the Development of the Licensed Compounds and Licensed Products.
DEVELOPMENT
5.1 Development and Development Plan.
ARTICLE 5.
5.1.1 Commercially Reasonable Efforts. Retrophin (or its Sublicensees, as applicable) shall use sustained Commercially
Reasonable Efforts to Develop at least one Licensed Compound and Licensed Product, including using Commercially Reasonable Efforts to
expeditiously carry out the clinical development for the Licensed Compounds and Licensed Products (including expeditiously pursuing
regulatory filings and Approvals and marketing authorizations for at least one Licensed Compound and Licensed Product) in accordance with
the Development Plan.
5.1.2 Development Plan. The initial Development Plan is attached hereto as Appendix 3 to the Agreement.
5.2 Development Reports. Retrophin will provide Ligand with (a) semi-annual written development reports within [***] days
following June and December of each [***] and (b) quarterly telephonic development reports within [***] days following March and
September of each [***], in each case presenting a summary of the Development activities accomplished by Retrophin during the applicable
period, including as applicable updates to the Development Plan, and significant results, information and data generated with respect to
Licensed Compounds and Licensed Products. Upon reasonable request by Ligand, Retrophin shall also meet in-person with Ligand to review
Retrophin’s Development activities for the Licensed Compounds and Licensed Products. In addition, prior to Retrophin entering into a License
agreement with a Third Party, upon reasonable request by Ligand, but no more than once per [***], Retrophin shall present to Ligand, at
Retrophin’s facilities, summaries of (and, at the request of Ligand, with copies of) clinical protocols, investigator brochures, regulatory
submissions and correspondence from regulatory agencies with respect to Licensed Compound and Licensed Product that have been prepared
or received by Retrophin as of the date of such request by Ligand.
5.3 Records. Retrophin shall maintain complete and accurate records of all work conducted in furtherance of the Development and
Commercialization of the Licensed Compounds and Licensed Products and all material results, data and developments made in
conducting such activities. Such records shall be maintained sufficient detail and in good scientific manner appropriate for patent and
regulatory purposes. If Ligand believes in good faith that Retrophin may not be complying with its obligations under this Section 5.3, Ligand
shall provide written notice thereof to Retrophin identifying the basis for Ligand’s belief, and Retrophin shall allow an independent Third Party
that has expertise in reviewing the books and records and financial information, obligations and agreements of pre-clinical and clinical stage
bio-technology companies, as to which Retrophin has no reasonable objection, to review such records on behalf of Ligand to verify that
Retrophin is complying with this Section 5.3. Such review shall be conducted no more frequently than once per any twelve (12) month period,
at Ligand’s cost and upon reasonable advance notice at mutually agreed upon times during normal business hours; provided, however, if the
independent Third Party determines that Retrophin is not in compliance with this Section 5.3 and Retrophin would owe Ligand at least 10%
more in royalties or other payments, Retrophin shall reimburse Ligand for all costs and expenses related to the independent Third Party’s
review.
5.4 Development Responsibilities and Costs. Retrophin shall have sole responsibility for, and shall bear the cost of conducting, all
Development with respect to the Licensed Compounds and Licensed Products.
5.5 Regulatory Responsibilities and Costs. Retrophin [***]. Retrophin shall be responsible for meeting the requirements of all
pre-approval inspections required by any Regulatory Authorities. Except as set forth in Section 13.4, Retrophin or its Affiliate or Sublicensee
shall own all INDs, NDAs, Approvals and submissions in connection therewith and all Approvals shall be obtained by and in the name of
Retrophin or its Affiliate or Sublicensee.
5.6 Subcontracting. Subject to and without limiting Section 2.2, Retrophin may perform any activities in support of its
Development or Commercialization of Licensed Compounds and Licensed Products through subcontracting to a Third Party contractor or
contract service organization; provided, however: (a) Retrophin shall enter into an appropriate written agreement with any such Third Party
subcontractor such that the subcontractor shall be bound by all applicable provisions of this Agreement to the same extent as Retrophin and
such that Ligand’s rights under this Agreement and BMS’ rights under the Upstream License Agreement are not adversely affected; (b) any
such Third Party subcontractor to whom Retrophin discloses Confidential Information of Ligand shall enter into an appropriate written
agreement obligating such Third Party to be bound by obligations of confidentiality and restrictions on use of such Confidential Information
that are no less restrictive than the obligations in this Agreement; (c) Retrophin will obligate such Third Party to agree in writing to assign or
license (with the right to grant sublicenses) to Retrophin any inventions (and any patent rights covering such inventions) made by such Third
Party in performing such services for Retrophin; and (d) Retrophin shall at all times be responsible for the performance of such subcontractor.
ARTICLE 6.
COMMERCIALIZATION
6.1 Retrophin Obligations. Retrophin (or its Sublicensees, as applicable) shall use sustained Commercially Reasonable Efforts to
Commercialize at least [***] Licensed Product in the Territory, including the Major Market Countries. Without limiting the foregoing,
Retrophin shall:
6.1.1 use Commercially Reasonable Efforts to obtain Approvals in a Major Market Country with respect to at least [***]
Licensed Product and to effect the First Commercial Sale thereof in such country as soon as reasonably practicable after receipt of such
Approvals;
6.1.2 Initiation of a Phase 2 Trial for at least [***] Licensed Compound no later than [***];
6.1.3 File for Approval for at least [***] Orphan Licensed Product no later than [***]; and
6.1.4 File for Approval for at least [***] Licensed Product other than the first Orphan Licensed Product no later than [***].
6.2 Continued Availability. Following the First Commercial Sale of a Licensed Product in a Major Market Country in the
Territory and until the expiration or termination of this Agreement, Retrophin shall use Commercially Reasonable Efforts to supply and keep
such Licensed Product reasonably available to the public in such country.
6.3 Marking. Each Licensed Product Commercialized by Retrophin under this Agreement shall be marked (to the extent not
prohibited by applicable Laws): (i) with a notice that such Licensed Product is sold under a license from BMS and Ligand and (ii) with
applicable patent and other intellectual property notices relating to the Core Patent Rights in such a manner as may be required by applicable
Law.
6.4 Reports. Retrophin shall provide Ligand with semi-annual written reports within [***] days following the end of June and
December of each [***] summarizing significant commercial activities and events with respect to Licensed Products during the just ended six
month period.
ARTICLE 7.
MANUFACTURE AND SUPPLY
7.1 Manufacture and Supply. Retrophin shall be solely responsible at its expense for making or having made all of its
requirements of the Licensed Compounds and Licensed Products.
ARTICLE 8.
FINANCIAL TERMS
8.1 Consideration. In partial consideration of the rights granted by Ligand to Retrophin pursuant to this Agreement, Retrophin
shall make the payments to Ligand as provided for in this Article 8.
8.2 Development Milestone Payments.
8.2.1 Development Milestone Payments. Retrophin shall make milestone payments to Ligand upon achievement of each of the
milestone events in the amounts set forth below in Table 1. The first milestone payment shall be payable by Retrophin to Ligand within [***]
days of execution of the Agreement. Notwithstanding Section 15.4 or any other provision herein, the last milestone payment shall be payable
by Retrophin to Ligand upon the Closing of Retrophin’s Exit Transaction. Subject to Section 8.2.2, the remainder of the milestone payments
set forth below will be payable by Retrophin to Ligand within [***] days of the achievement of the specified milestone event with
respect to each Licensed Compound. The milestone payments shall not be refundable or returnable in any event, nor shall they be creditable
against royalties or other payments.
Table 1
Milestone Event
Milestone Payment
Execution of Agreement
$1.15 million
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
$[***]
$[***]
$[***]
$[***]
$[***]
$[***]
$[***]
$[***]
$[***]
$[***]
In the event that a milestone event is achieved that triggers a development milestone payment as set forth above, if the [***]. For
example, [***].
8.2.2 [***].
8.2.3 [***].
8.3 Royalty Payments.
8.3.1 Retrophin shall pay to Ligand in cash the following royalty payments on the total aggregate annual Net Sales in the
Territory of all Licensed Products in a particular [***] by Retrophin, its Affiliates, and Sublicensees in the Territory:
Aggregate Annual Worldwide Net Sales of All Licensed Products in a [***]
Royalty Rate for Licensed Products in a [***]
Up to [***] Dollars ($[***])
More than [***] Dollars ($[***])
[***] %
[***] %
By way of example, in a given [***], if the aggregate annual worldwide Net Sales for all Licensed Products is $ [***], the royalty
payment under this Section 8.3.1 would be calculated in accordance with the following formula: [***] Million Dollars.
8.3.2 Royalty Term. Royalties shall be payable on a [***] of (i) [***] or (ii) [***] or (iii) [***].
8.3.3 [***]. [***]. Prior to Retrophin or its Sublicensee exercising its [***] under this Section 8.3.3, Retrophin shall provide
Ligand with [***]. The Parties shall discuss the best course of action to resolve such potential [***], provided that such discussions shall not
limit or delay Retrophin’s or its Sublicensee’s right to [***].
Except as set forth above, [***].
8.3.4 Royalty Conditions. The royalties under Section 8.3.1 shall be subject to the following conditions:
a) that only one royalty shall be due with respect to the same unit of Licensed Product;
b) that no royalties shall be due upon the sale or other transfer among Retrophin, its Affiliates, or Sublicensees, but in such cases
the royalty shall be due and calculated upon Retrophin’s or its Affiliate’s or Sublicensee’s Net Sales of Licensed Product to the first
independent Third Party; and
c) no royalties shall accrue on the disposition of Licensed Product in reasonable quantities by Retrophin, its Affiliates or
Sublicensees as part of an expanded access program, as bona fide samples, as part of Phase 4 Trials or as donations to non-profit institutions or
government agencies for non-commercial purposes; provided, however, in each case, that neither Retrophin, its Affiliate or Sublicensees
receives any payment for such Licensed Product.
8.4 Manner of Payment. All payments to be made by Retrophin hereunder shall be made in Dollars by wire transfer of
immediately available funds to such United States bank account as shall be designated by Ligand. Late payments shall bear interest at the rate
provided in Section 8.9.
8.5 Sales Reports and Royalty Payments. After the First Commercial Sale of a Licensed Product and during the term of this
Agreement, Retrophin shall furnish to Ligand a written report, within [***] days after the end of each [***] (or portion thereof, if this
Agreement terminates during a [***]), showing the amount of royalty due for such [***] (or portion thereof). Royalty payments for each [***]
shall be due at the same time as such written report for the [***]. With each [***], Retrophin shall deliver to Ligand a full and accurate
accounting to include at least the following information:
[***]
[***]
[***]
[***]
[***]
If no royalty or payment is due for any royalty period hereunder, Retrophin shall so report.
8.6 Sales Record Audit. Retrophin shall keep, and shall cause each of its Affiliates, and Sublicensees, if any, to keep, full and
accurate books of accounting in accordance with GAAP as may be reasonably necessary for the purpose of calculating the royalties payable to
Ligand. Such books of accounting (including those of Retrophin’s
Affiliates, and Sublicensees, if any) shall be kept at their principal place of business and, with all necessary supporting data, shall during all
reasonable times for the [***] years next following the end of the [***] to which each shall pertain, be open for inspection at reasonable times
upon written notice by Ligand and at Ligand’s sole cost, no more than once per any [***] month period, by an independent nationally
recognized certified public accounting firm selected by Ligand as to which Retrophin has no reasonable objection, for the purpose of verifying
royalty statements for compliance with this Agreement. Such accountant must have agreed in writing to maintain all information learned in
confidence, except as necessary to disclose to Ligand such compliance or noncompliance by Retrophin. The results of each inspection, if any,
shall be[***]. Ligand shall pay for such inspections, except that in the event there is any upward adjustment in aggregate royalties payable for
the [***] period of such inspection of more than [***] of the amount paid, Retrophin shall pay for the reasonable out-of-pocket costs of such
inspection. Any underpayments shall be paid by Retrophin within [***] of notification of the results of such inspection. Any overpayments
shall be fully creditable against amounts payable in subsequent payment periods or, if no such amounts become payable within [***] days after
notification of such results, shall be refunded.
8.7 Currency Exchange. With respect to Net Sales invoiced in Dollars, the Net Sales and the amounts due to Ligand hereunder
shall be expressed in Dollars. With respect to Net Sales invoiced in a currency other than Dollars, the Net Sales shall be expressed in the
domestic currency of the entity making the sale, together with the Dollar equivalent, calculated using the arithmetic average of the spot rates
on the close of business on the last Business Day of [***] in which the Net Sales were made. The “closing mid-point rates” found in the “dollar
spot forward against the dollar” table published by The Financial Times, or any other publication as may be agreed to by the Parties in writing,
shall be used as the source of spot rates to calculate the average as defined in the preceding sentence. All payments shall be made in Dollars.
8.8 Tax Withholding. In the event that any withholding taxes or similar charges are levied or assessed by any taxing authority in
the Territory with respect to payments made by Retrophin to Ligand under this Agreement, Retrophin shall pay such taxes or similar charges to
the proper taxing authority. Retrophin may deduct the amount of such taxes or similar charges paid by Retrophin to such taxing authority from
the applicable royalties or other payment otherwise payable to Ligand, subject to the following. Retrophin shall promptly provide Ligand with
evidence of such tax payment obligation together with an original receipt for such tax payments (or a certified copy, if the original is not
available) and other documentation as Ligand reasonably determines is required for the purpose of Ligand’s tax returns. Retrophin, its
Affiliates and Sublicensees shall cooperate with Ligand to enable the claiming of a reduction or exemption from withholding taxes on
payments under any applicable convention on the avoidance of double taxation or similar agreement in force and shall provide to Ligand
proper evidence of payments of withholding tax and assist Ligand by obtaining or providing in as far as possible the required documentation
for the purpose of Ligand’s tax returns. Retrophin’s obligation vis-a-vis the tax authorities shall remain unaffected by the provisions of this
Section 8.8.
8.9 Interest Due. Without limiting any other rights or remedies available to Ligand, Retrophin shall pay Ligand interest on any
payments that are not paid on or before the date [***] days after the date such payments are due under this Agreement at a rate of one and
[***] per month or the maximum applicable legal rate, if less, calculated on the total number of days payment is delinquent.
8.10 [***].
8.10.1 In addition to the above milestone and royalty payments, Retrophin shall pay to Ligand the following [***]:
a) [***]; and
b) [***].
8.10.2 [***]:
[***]
[***]
[***]
[***]
[***]
[***]
8.10.3 Such [***]. Such [***] to Ligand shall be due within [***] days following [***].
8.10.4 For purposes of this Section 8.10, [***], but does not include (i) [***] or (ii) [***].
ARTICLE 9.
REPRESENTATIONS AND WARRANTIES; DISCLAIMER;
LIMITATION OF LIABILITY
9.1 Mutual Representations and Warranties. Each Party represents and warrants to the other Party that (i) it has all requisite
corporate power and authority to enter into this Agreement and to perform its obligations under this Agreement, (ii) execution of this
Agreement and the performance by such Party of its obligations hereunder have been duly authorized, (iii) this Agreement is legally binding
and enforceable on such Party in accordance with its terms and (iv) the performance of this Agreement by it does not create a material breach
or material default under any other agreement to which it is a Party.
9.2 Representations, Warranties and Covenants of Ligand. Ligand represents, warrants and covenants that as of the Effective
Date: (i) there is no litigation pending, or to the knowledge of Ligand threatened, which alleges, or any written communication alleging, that
Ligand’s activities with respect to the Patent Rights or the Licensed Compounds have infringed or misappropriated any of the intellectual
property rights of any Third Party, (ii) all fees (including legal fees) required to be paid by Ligand in order to maintain the Patent Rights have
been paid to date, (iii) it has not previously granted, assigned, transferred, conveyed, encumbered, mortgaged, pledged, hypothesized or
licensed (or granted an option to assign, transfer, convey, encumber, mortgage, pledge, hypothesize or license) its right, title and interest in the
Patent Rights or the Know-How, (iv) all of its actions related to its use of the Patent Rights and Know-How and the Development and
Commercialization of the Licensed Compounds and Licensed Products complied with all applicable legal requirements and complied in all
material respects with all regulatory requirements (except for the actions of Ligand’s clinical research organization, Cetero Research, as to
which no representations or warranties are made hereunder), (v) to the knowledge of Ligand (A) the Patent Rights and Know-How are
subsisting, valid and enforceable and Ligand has not received any notice of a claim alleging that any of the Patent Rights infringes or otherwise
violates any intellectual property or proprietary right of any Third Party, (B) the manufacture, Development and
Commercialization of the Listed Compound by Ligand did not interfere with the intellectual property rights of Third Parties, (C) it has not
received any notice that any Person is infringing the Patent Rights and (D) it has not received any notice that a patent application within the
Patent Rights is the subject of any pending interference, opposition, cancellation, protest or other challenge or adversarial proceeding, (vi) it
has complied with the terms and conditions of the Upstream License Agreement in all material respects and has the necessary right, title and
power to sublicense the Patent Rights or the Know-How, (vii) it has discontinued its internal drug discovery and development programs for the
Listed Compound and that it has no active internal programs for the discovery or development of the Listed Compound and (vii) other than the
Core Patent Rights, Ligand does not Control any patent(s) or patent application(s) that are reasonably necessary or useful for the Development
or Commercialization of any Listed Compound or that claims the composition of matter of any Listed Compound or a method of manufacture
or use of any Listed Compound.
9.3 Representations, Warranties and Covenants of Retrophin.
9.3.1 Retrophin covenants that (i) all of its activities related to its use of the Patent Rights and Know-How, and the Development
and Commercialization of the Licensed Compounds and Licensed Products, pursuant to this Agreement shall comply with all applicable legal
and regulatory requirements and (ii) it shall not knowingly engage in any activities (A) that use the Patent Rights and/or Know-How in a
manner that is outside the scope of the license rights granted to it hereunder or (B) that infringe the intellectual property rights of any Third
Party.
9.3.2 Retrophin has not, directly or indirectly, offered, promised, paid, authorized or given, and will not in the future, offer,
promise, pay, authorize or give, money or anything of value, directly or indirectly, to any Government Official (as defined below) or Other
Covered Party (as defined below) for the purpose of: (i) influencing any act or decision of the Government Official or Other Covered Party;
(ii) inducing the Government Official or Other Covered Party to do or omit to do an act in violation of a lawful duty; (iii) securing any
improper advantage; or (iv) inducing the Government Official or Other Covered Party to influence the act or decision of a government or
government instrumentality, in order to obtain or retain business, or direct business to, any person or entity, in any way related to this
Agreement. For purposes of this Agreement: (i) “Government Official” means any official, officer, employee or representative of: (A) any
federal, state, provincial, county or municipal government or any department or agency thereof; (B) any public international organization or
any department or agency thereof; or (C) any company or other entity owned or controlled by any government; and (ii) “Other Covered Party”
means any political party or party official, or any candidate for political office.
9.3.3 Retrophin maintains and shall maintain a system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets, including
records of payments to any third parties, Government Officials and Other Covered Parties; (iii) access to assets is permitted only in accordance
with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any differences.
9.3.4 Anti-Corruption Compliance.
9.3.4.1 In performing under this Agreement, Retrophin and its Affiliates agree to comply with all applicable anti-
corruption laws, including Foreign Corrupt Practices Act of 1977, as amended (“FCPA”) and all laws enacted to implement the OECD
Convention on Combating Bribery of Foreign Officials in International Business Transactions.
9.3.4.2 Any third party who represents Retrophin or its Affiliates in connection with, or who will be involved in
performing, this Agreement or any related activity, shall certify to compliance with all applicable anti-corruption laws and the obligations set
forth in this Section 9.3.5 prior to any involvement in this Agreement or any related activity.
subject matter of this Agreement or in any way personally benefiting, directly or indirectly, from this Agreement.
9.3.4.3 Retrophin is not aware of any Government Official or Other Covered Party having any financial interest in the
9.3.4.4 No political contributions or charitable donations shall be given, offered, promised or paid at the request of any
Government Official or Other Covered Party that is in any way related to this Agreement or any related activity, without Ligand’s prior written
approval.
this Section 9.3, Ligand shall have the right to unilaterally terminate this Agreement.
9.3.4.5 In the event that Retrophin violates the FCPA or any applicable anti-corruption law or breaches any provision in
9.4 Disclaimer. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY
REPRESENTATIONS OR WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING ANY EXPRESS OR
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY
PATENT RIGHTS, CONFIDENTIAL INFORMATION OR KNOW-HOW OF SUCH PARTY OR ANY LICENSE GRANTED BY SUCH
PARTY HEREUNDER, OR WITH RESPECT TO ANY COMPOUNDS, INCLUDING BUT NOT LIMITED TO THE TRANSFERRED
MATERIALS, OR PRODUCTS. FURTHERMORE, EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY
MAKES ANY REPRESENTATIONS OR WARRANTIES THAT ANY PATENT, PATENT APPLICATION, OR OTHER PROPRIETARY
RIGHTS INCLUDED IN PATENT RIGHTS, CONFIDENTIAL INFORMATION OR KNOW-HOW LICENSED BY SUCH PARTY TO
THE OTHER PARTY HEREUNDER ARE VALID OR ENFORCEABLE OR THAT USE OF SUCH PATENT RIGHTS, CONFIDENTIAL
INFORMATION OR KNOW-HOW CONTEMPLATED HEREUNDER DOES NOT INFRINGE ANY PATENT RIGHTS OR OTHER
INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY.
9.5 Limitation of Liability. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT OR OTHERWISE, NEITHER
PARTY SHALL BE LIABLE TO THE OTHER WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT, WHETHER
UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY, FOR ANY
INCIDENTAL, INDIRECT, SPECIAL, EXEMPLARY, PUNITIVE, MULTIPLE, OR CONSEQUENTIAL
DAMAGES (INCLUDING CONSEQUENTIAL DAMAGES CONSISTING OF LOST PROFITS, LOSS OF USE, DAMAGE TO
GOODWILL, OR LOSS OF BUSINESS) AND, IN ANY CASE, LIGAND SHALL NOT BE LIABLE IN AN AMOUNT GREATER THAN
THE AMOUNTS PAID BY RETROPHIN TO LIGAND UNDER ARTICLE 8 OF THIS AGREEMENT; PROVIDED, HOWEVER, THAT
THE FOREGOING SHALL NOT APPLY TO ANY BREACH BY RETROPHIN OF THE LICENSES GRANTED TO IT UNDER THIS
AGREEMENT THAT IS AN INFRINGEMENT OF PATENT RIGHTS NOT INCLUDED IN THE PATENT RIGHTS LICENSED TO
RETROPHIN HEREUNDER, OR ANY BREACH BY EITHER PARTY OF THIS ARTICLE 9 OR ARTICLE 11 HEREOF.
ARTICLE 10.
OWNERSHIP; PATENT MAINTENANCE; INFRINGEMENT; EXTENSIONS
10.1 Ownership of Inventions. Inventorship of inventions conceived or reduced to practice in the course of activities performed
under or contemplated by this Agreement shall be determined by application of United States patent Laws pertaining to inventorship. If such
inventions are jointly invented by one or more employees, consultants or contractors of each Party, such inventions shall be jointly owned
(“Joint Invention”), and if one or more claims included in an issued patent or pending patent application which is filed in a patent office in the
Territory claim such Joint Invention, such claims shall be jointly owned (“Joint Patent Rights”). If such an invention is solely invented by an
employee, consultant or contractor of a Party, such invention shall be owned by such Party, and any patent filed claiming such solely owned
invention shall also be owned by such Party. Subject to Section 5.6 with respect to contractors, each Party shall enter into binding agreements
obligating all employees, consultants and contractors performing activities under or contemplated by this Agreement, including activities
related to the Patent Rights, Licensed Compounds or Licensed Products, to assign his/her interest in any invention conceived or reduced to
practice in the course of such activities to the Party for which such employee, consultant or contractor is providing its services. This Agreement
shall be understood to be a joint research agreement in accordance with 35 U.S.C. § 103(c)(3) to develop the Licensed Compounds and
Licensed Products. The filing, prosecution, maintenance and enforcement of Joint Patent Rights which are Core Patent Rights shall be handled
in accordance with this Article 10.
10.2 Filing, Prosecution and Maintenance of Core Patent Rights. Retrophin shall be responsible, using outside patent counsel
selected by Retrophin and acceptable to Ligand, such acceptance not to be unreasonably withheld or delayed, for the preparation, prosecution
(including, without limitation, any interferences, reissue proceedings and reexaminations) and maintenance of Core Patent Rights. Promptly
following the Effective Date, the Parties shall cooperate to expeditiously transfer such responsibility for the further preparation, prosecution
and maintenance of Core Patent Rights to such outside patent counsel. Retrophin shall be responsible for all costs incurred by Retrophin with
respect to such preparation, prosecution and maintenance of Core Patent Rights so long as Retrophin remains responsible for such preparation,
prosecution and maintenance. Upon request by Ligand, Retrophin (or its patent counsel) shall provide Ligand with an update of the filing,
prosecution and maintenance status for each of the Core Patent Rights. Each Party shall reasonably consult with and cooperate with the other
Party with respect to the preparation, prosecution and maintenance of the Core Patent Rights reasonably prior to any deadline or action with the
U.S. Patent & Trademark Office or any foreign patent office, and Retrophin (or its patent counsel) shall furnish to Ligand copies of all relevant
documents reasonably in advance of such consultation. Retrophin (or its patent counsel) shall provide to Ligand
copies of any papers relating to the filing, prosecution or maintenance of the Core Patent Rights promptly upon their being filed or received.
Retrophin shall not knowingly take any action during prosecution and maintenance of the Core Patent Rights that would materially adversely
affect them (including any reduction in claim scope), without Ligand’s prior consent, such consent not to be unreasonably withheld,
conditioned or delayed.
10.3 Patent Abandonment.
10.3.1 Generally. In no event will Retrophin knowingly permit any of the Core Patent Rights to be abandoned in any country in
the Territory or elect not to file a new patent application claiming priority to a patent application within the Core Patent Rights either before
such patent application’s issuance or within the time period required for the filing of an international (i.e., Patent Cooperation Treaty), regional
(including European Patent Office) or national application, without Ligand first being given an opportunity to assume full responsibility for
the continued prosecution and maintenance of such Core Patent Rights, or the filing of such new patent application. Accordingly, Retrophin
(or its patent counsel) shall provide Ligand with notice of the allowance and expected issuance date of any patent within the Core Patent
Rights, or any of the aforementioned filing deadlines, and Ligand shall provide Retrophin with prompt notice as to whether Ligand desires
Retrophin to file such new patent application. In the event that Retrophin decides either (i) not to continue the prosecution or maintenance of a
patent application or patent within Core Patent Rights in any country or (ii) not to file such new patent application requested to be filed by
Ligand, Retrophin shall provide Ligand with notice of this decision at least [***] days prior to any pending lapse or abandonment thereof.
10.3.2 Ligand Option to Assume Responsibility. Ligand shall thereupon have the right, but not the obligation, to assume
responsibility for all reasonably documented external costs (subject to Section 10.3.3) thereafter incurred associated with the filing and/or
further prosecution and maintenance of such patents and patent applications, on a patent-by-patent and country-by-country basis. The outside
patent counsel selected by Retrophin shall proceed with such filing and/or further prosecution and maintenance promptly upon receipt of
written notice from Ligand of its election to assume such responsibility, with such filing to occur prior to the issuance of the patent to which
the application claims priority or expiration of the applicable filing deadline, as set forth above. In the event that Ligand assumes such
responsibility for such filing, prosecution and maintenance costs (subject to Section 10.3.3), upon the reasonable request by Ligand, Retrophin
shall transfer the responsibility for such filing, prosecution and maintenance of such patent applications and patents to outside patent counsel
selected by Ligand; provided, however, Retrophin shall (i) provide sufficient written notice to Ligand of any such election such that the
relevant transfer shall not prejudice the filing, prosecution and/or maintenance of patent rights (where possible, such notice shall be provided at
least [***] days prior to any pending lapse or abandonment thereof); (ii) transfer or cause to be transferred to Ligand or its patent counsel the
complete prosecution file for the relevant patents and patent applications, including all correspondence and filings with patent authorities with
respect thereto; and (iii) at the reasonable request of Ligand and without demanding any further consideration therefore, do all things
necessary, proper or advisable, including without limitation the execution, acknowledgment and recordation of specific assignments, oaths,
declarations and other documents on a country-by-country basis, to assist Ligand in obtaining, perfecting, sustaining and/or enforcing such
patent(s). Such patent applications and patents shall
otherwise continue to be subject to all of the terms and conditions of the Agreement in the same way as the other Core Patent Rights, as
applicable.
10.3.3 Retrophin Responsibility for Patent Costs. Notwithstanding anything to the contrary under this Article 10, unless the
Parties otherwise agree in writing, Retrophin shall remain responsible for all costs incurred after the Effective Date with respect to preparation,
prosecution and maintenance of the Core Patent Rights covering Licensed Compounds.
10.4 Enforcement of Core Patent Rights Against Infringers.
10.4.1 Enforcement by Retrophin.
a) In the event that Ligand or Retrophin becomes aware of a suspected infringement of any Core Patent Right exclusively
licensed to Retrophin under this Agreement, such Party shall notify the other Party promptly, and following such notification, the Parties shall
confer. Retrophin shall have the right, but shall not be obligated, to bring an infringement action with respect to such infringement at its own
expense, in its own name and entirely under its own direction and control, subject to the following. Ligand shall reasonably assist Retrophin (at
Retrophin’s expense) in any action or proceeding being prosecuted if so requested, and shall lend its name to and join as a nominal party in
such actions or proceedings if reasonably requested by Retrophin or required by applicable Laws. Ligand shall have the right to participate and
be represented in any such suit by its own counsel at its own expense. No settlement of any such action or proceeding which restricts the
scope, or adversely affects the enforceability, of a Core Patent Right may be entered into by Retrophin without the prior written consent of
Ligand, which consent shall not be unreasonably withheld, delayed or conditioned.
b) Ligand shall have the right at its discretion to grant to Retrophin such rights (including assignment of the applicable Core
Patent Rights) as may be necessary for Retrophin to exercise its rights under this Section 10.4 (including defending or enforcing any Core
Patent Rights) without Ligand’s involvement. In the event of such grant of rights (including assignment) with respect to any Core Patent
Rights, such Core Patent Rights shall continue to be treated as Core Patent Rights and shall otherwise continue to be subject to all of the terms
and conditions of the Agreement in the same way as the other applicable Core Patent Rights. For purposes of clarity, election or non-election
by Ligand to grant or assign rights to Retrophin under this Section 10.4.1(b) shall not limit Ligand’s obligations under Section 10.4.1(a) to
reasonably assist Retrophin in any action or proceeding, or to join in such action or proceeding upon request by Retrophin if such joinder is
necessary under applicable Laws for Retrophin to exercise its rights under this Section 10.4.
10.4.2 Enforcement by Ligand. If Retrophin elects not to bring any action for infringement described in Section 10.4.1 and so
notifies Ligand, then Ligand may bring such action at its own expense, in its own name and entirely under its own direction and control,
subject to the following. Retrophin shall reasonably assist Ligand (at Ligand’s expense) in any action or proceeding being prosecuted if so
requested, and shall lend its name to such actions or proceedings if requested by Ligand or required by applicable Laws. Retrophin shall have
the right to participate and be represented in any such suit by its own counsel at its own expense. No settlement of any such action or
proceeding which restricts the scope, or adversely affects the enforceability, of a Core
Patent Right may be entered into by Ligand without the prior written consent of Retrophin, which consent shall not be unreasonably withheld,
delayed or conditioned.
10.4.3 Withdrawal. If either Party brings an action or proceeding under this Section 10.4 and subsequently ceases to pursue or
withdraws from such action or proceeding, it shall promptly notify the other Party and the other Party may substitute itself for the withdrawing
Party under the terms of this Section 10.4.
10.4.4 Damages. In the event that either Party exercises the rights conferred in this Section 10.4 and recovers any damages or
other sums in such action, suit or proceeding or in settlement thereof, such damages or other sums recovered shall [***]. If such recovery is
insufficient [***]. If after such [***] any funds shall remain from such damages or other sums recovered, such funds shall be [***] under this
Section 10.4; provided, however, that if [***].
10.5 Patent Term Extension. Ligand and Retrophin shall each cooperate with one another and shall use commercially reasonable
efforts in obtaining patent term extension (including without limitation, any pediatric exclusivity extensions as may be available) or
supplemental protection certificates or their equivalents in any country with respect to patent rights covering the Licensed Products. If elections
with respect to obtaining such patent term extensions are to be made, Retrophin shall have the right to make the election to seek patent term
extension or supplemental protection; provided, however, such election will be made so as to maximize the period of marketing exclusivity for
the Licensed Product. For such purpose, for all Approvals Retrophin shall provide Ligand with written notice of any expected Approval at least
[***] days prior to the expected date of Approval, as well as notice within [***] business days of receiving each Approval confirming the date
of such Approval. Notification of the receipt of an Approval shall be in accordance with Section 15.2.
10.6 Data Exclusivity and Orange Book Listings.
10.6.1 With respect to data exclusivity periods (such as those periods listed in the FDA’s Orange Book (including without
limitation any available pediatric extensions) or periods under national implementations of Article 10.1(a)(iii) of Directive 2001/EC/83, and all
international equivalents), Retrophin shall use commercially reasonable efforts consistent with its obligations under applicable Law to seek,
maintain and enforce all such data exclusivity periods available for the Licensed Products. With respect to filings in the FDA Orange Book
(and foreign equivalents) for issued patents for a Licensed Product, Retrophin shall, consistent with its obligations under applicable Law, list in
a timely manner and maintain all applicable Core Patent Rights and other patents Controlled by Retrophin required to be filed by it, or that it is
permitted to file, under applicable Law. At least [***] days prior to an anticipated deadline for the filing of patent listing information for Core
Patent Rights, Retrophin will consult with Ligand regarding the content of such filing. In the event of a dispute between the Parties as to
whether a Core Patent Right can be filed and/or the content of such filing, the Parties will take expedited steps to resolve the dispute as
promptly as possible, including seeking advice of an independent legal counsel to guide their decision. Ligand shall use commercially
reasonable efforts consistent with its obligations under applicable Law to provide reasonable cooperation to Retrophin in filing and maintaining
such Orange Book (and foreign equivalent) listings.
10.6.2 Without limiting the foregoing, Ligand shall have the right at its discretion to grant to Retrophin such rights (including
assignment of the applicable Core
Patent Rights) as may be necessary for Retrophin to exercise its rights under this Section 10.6 (including seeking, maintaining and enforcing all
data exclusivity periods) without Ligand’s involvement. In the event of such grant of rights (including assignment) with respect to any Core
Patent Rights, such Core Patent Rights shall continue to be treated as Core Patent Rights and shall otherwise continue to be subject to all of the
terms and conditions of the Agreement in the same way as the other applicable Core Patent Rights. For purposes of clarity, election by Ligand
to grant or assign rights to Retrophin under this Section 10.6.2 shall not limit Ligand’s obligation under Section 10.6.1 to provide reasonable
cooperation to Retrophin to the extent such cooperation is reasonably necessary for Retrophin in filing and maintaining such Orange Book (and
foreign equivalent) listings.
10.7 Notification of Patent Certification. Each Party shall notify and provide the other Party with copies of any allegations of
alleged patent invalidity, enforceability or non-infringement of a Core Patent Right pursuant to a Paragraph IV Patent Certification by a Third
Party filing an Abbreviated NDA, an application under §505(b)(2) or other similar patent certification by a Third Party, and any foreign
equivalent thereof. Such notification and copies shall be provided to the other Party within [***] days after such Party receives such
certification, and shall be sent to the address set forth in Section 15.2. In addition, upon request by Ligand, Retrophin shall provide reasonable
assistance and cooperation (including, without limitation, making available to Ligand documents possessed by Retrophin that are reasonably
required by Ligand and making available personnel for interviews and testimony) in any actions reasonably undertaken by Ligand to contest
any such patent certification.
ARTICLE 11.
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
11.1 Nondisclosure. Each Party agrees that, for so long as this Agreement is in effect and for a period of [***] years thereafter, a
Party (the “Receiving Party”) receiving or possessing Confidential Information of the other Party (the “Disclosing Party”) (or that has received
any such Confidential Information from the other Party prior to the Effective Date) shall (i) maintain in confidence such Confidential
Information using not less than the efforts such Receiving Party uses to maintain in confidence its own proprietary information of similar kind
and value, but in no event shall the Receiving Party use less than a reasonable standard of care, (ii) not disclose such Confidential Information
to any Third Party without the prior written consent of the Disclosing Party, except for disclosures expressly permitted below, and (iii) not use
such Confidential Information for any purpose except those permitted by this Agreement (it being understood that this clause (iii) shall not
create or imply any rights or licenses not expressly granted hereunder).
11.1.1 Confidentiality of Know-How for Disclosure Purposes. During such time as the license to the Know-How granted under
Section 2.1 is in effect, solely for disclosure purposes to Third Parties, the Know-How shall be deemed to be Confidential Information of
Ligand and Retrophin under Article 11, Ligand and Retrophin shall be deemed to be a Disclosing Party of the Know-How under Article 11,
and Ligand and its respective Affiliates shall be deemed not to have known such Know-How prior to disclosure for the purposes of Section
11.1.2(b). Other than for disclosure purposes to Third Parties, the Know-How shall solely be the Confidential Information of Ligand.
11.1.2 Exceptions. The obligations in Section 11.1 shall not apply with respect to any portion of the Confidential Information
that the Receiving Party can show by competent proof:
a) is publicly disclosed by the Disclosing Party, either before or after it is disclosed to the Receiving Party hereunder;
b) was known to the Receiving Party or any of its Affiliates, without any obligation to keep it confidential or any restriction on
its use, prior to disclosure by the Disclosing Party;
c) is subsequently disclosed to the Receiving Party or any of its Affiliates by a Third Party lawfully in possession thereof and
without any obligation to keep it confidential or any restriction on its use;
d) is published by a Third Party or otherwise becomes publicly available or enters the public domain, either before or after it is
disclosed to the Receiving Party; or
e) has been independently developed after disclosure by the Disclosing Party by employees or contractors of the Receiving
Party or any of its Affiliates without the aid, application or use of Confidential Information of the Disclosing Party.
11.2 Authorized Disclosure. The Receiving Party may disclose Confidential Information belonging to the Disclosing Party to the
extent (and only to the extent) such disclosure is reasonably necessary in the following instances:
a) filing or prosecuting patents;
b) regulatory filings;
c) prosecuting or defending litigation;
d) subject to Section 11.4, complying with applicable governmental Laws and regulations (including the rules and regulations of
the Securities and Exchange Commission or any national securities exchange) and with judicial process, if in the reasonable opinion of the
Receiving Party’s counsel, such disclosure is necessary for such compliance; and
e) disclosure (i) in connection with the performance of this Agreement and solely on a “need to know basis” to Affiliates,
potential or actual collaborators (including potential Sublicensees) or employees, contractors or agents; or (ii) solely on a “need to know basis”
to potential or actual investment bankers, investors, lenders, or acquirers; each of whom in the case of clause (i) or (ii) prior to disclosure must
be bound by written obligations of confidentiality and non-use no less restrictive than the obligations set forth in this Article 11; provided,
however, that the Receiving Party shall remain responsible for any failure by any Person who receives Confidential Information pursuant to
this Article 11 to treat such Confidential Information as required under this Article 11.
If and whenever any Confidential Information is disclosed in accordance with this Section 11.2, such disclosure shall not cause any such
information to cease to be Confidential Information except to the extent that such disclosure results in a public
disclosure of such information (otherwise than by breach of this Agreement). Where reasonably possible and subject to Section 11.4, the
Receiving Party shall notify the Disclosing Party of the Receiving Party’s intent to make such disclosure pursuant to paragraphs (r) through (v)
of this Section 11.2 sufficiently prior to making such disclosure so as to allow the Disclosing Party adequate time to take whatever action it
may deem appropriate to protect the confidentiality of the information.
11.3 Terms of this Agreement. The Parties acknowledge that the terms of this Agreement shall be treated as Confidential
Information of both Parties.
11.4 Securities Filings. In the event either Party proposes to file with the Securities and Exchange Commission or the securities
regulators of any state or other jurisdiction a registration statement or any other disclosure document which describes or refers to this
Agreement under the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, or any other applicable Laws, the
Party shall notify the other Party of such intention and shall provide such other Party with a copy of relevant portions of the proposed filing not
less than [***] business days prior to such filing (and any revisions to such portions of the proposed filing a reasonable time prior to the filing
thereof), including any exhibits thereto relating to this Agreement and shall use reasonable efforts to obtain confidential treatment of any
information concerning this Agreement that such other Party requests be kept confidential and shall only disclose Confidential Information
which it is advised by counsel is legally required to be disclosed. No such notice shall be required under this Section 11.4 if the substance of
the description of or reference to this Agreement contained in the proposed filing has been included in any previous filing made by the other
Party hereunder or otherwise approved by the other Party.
11.5 Publication.
11.5.1 Publication by Ligand. Ligand may publish or present data and/or results relating to a Licensed Compound or Licensed
Product in scientific journals and/or at scientific conferences, subject to the prior review, comment and approval by Retrophin as follows.
Ligand shall provide Retrophin with the opportunity to review any proposed abstract, manuscript or presentation which discloses information
relating to a Licensed Compound or Licensed Product by delivering a copy thereof to Retrophin no less than [***] days before its intended
submission for publication or presentation. Retrophin shall have twenty (20) days from its receipt of any such abstract, manuscript or
presentation in which to notify Ligand in writing of any specific objections to the disclosure. In the event Retrophin objects to the disclosure in
writing within such [***] day period, Ligand agrees not to submit the publication or abstract or make the presentation containing the objected-
to information until the Parties have agreed to the content of the proposed disclosure and Ligand shall delete from the proposed disclosure any
Retrophin Confidential Information or Know-How or the identity of any Licensed Compound or Licensed Product, or any information relating
to the Licensed Compound or its improvements that could limit or jeopardize any rights of Retrophin, upon reasonable request by Retrophin.
Failure to object to the disclosure in writing within such [***] day period shall be deemed approval. Once any such abstract or manuscript is
accepted for publication, Ligand will provide Retrophin with a copy of the final version of the manuscript or abstract. For clarification, this
Section 11.5.1 shall not limit or restrict Ligand’s ability to publish or present publicly information on compounds which are not Licensed
Compounds or Licensed Products, provided such publication or presentation does not contain Retrophin Confidential Information or identify
any
Licensed Compound or Licensed Product. Retrophin acknowledges BMS’ right to publish or otherwise publicly disclose any licensed BMS
Know-How at any time.
11.5.2 Publication by Retrophin. Retrophin may publish or present data and/or results relating to a Licensed Compound or
Licensed Product in scientific journals and/or at scientific conferences, subject to attribution to Ligand of any data generated by or on behalf of
Ligand prior to the Effective Date as well as the prior review and comment by Ligand as follows. Retrophin shall provide Ligand with the
opportunity to review any proposed abstract, manuscript or presentation which discloses information relating to a Licensed Compound or
Licensed Product by delivering a copy thereof to Ligand no less than [***] days before its intended submission for publication or presentation.
Ligand shall have [***] days from its receipt of any such abstract, manuscript or presentation in which to notify Retrophin in writing of any
specific objections to the disclosure, such objections to be limited to matters involving the disclosure of Ligand Confidential Information, or a
good faith and documented concern by Ligand that such publication would otherwise result in material commercial harm to Ligand. In the
event Ligand objects to the disclosure in writing within such [***] day period, Retrophin agrees not to submit the publication or abstract or
make the presentation containing the objected-to information until the Parties have agreed to the content of the proposed disclosure, and
Retrophin shall delete from the proposed disclosure any Ligand Confidential Information upon the reasonable request by Ligand. The Parties
agree to take all reasonable steps to address and resolve a notice of objection by Ligand within [***] days of receipt of such notice. Once any
such abstract or manuscript is accepted for publication, Retrophin will provide Ligand with a copy of the final version of the manuscript or
abstract, a copy of which may be provided to BMS by Ligand.
ARTICLE 12.
INDEMNITY
12.1 Retrophin Indemnity. Retrophin shall indemnify, defend and hold harmless Ligand and its Affiliates, and their respective
officers, directors, employees, agents, licensors, and their respective successors, heirs and assigns and representatives, from and against any and
all claims, damages, losses, suits, proceedings, liabilities, costs (including reasonable legal expenses, costs of litigation and reasonable
attorney’s fees) or judgments, whether for money or equitable relief, of any kind, arising out of any claim, action, lawsuit or other proceeding
brought by a Third Party (“Losses and Claims”) arising out of or relating, directly or indirectly, (i) to the research, Development,
Commercialization (including promotion, advertising, offering for sale, sale or other disposition), transfer, importation or exportation,
manufacture, labeling, handling or storage, or use of, or exposure to, any Licensed Compound and/or any Licensed Product by or for Retrophin
or any of its Affiliates, Sublicensees, agents and/or contractors, (ii) to Retrophin’s (or its Affiliates’ and/or Sublicensees’) use and practice
otherwise of the Patent Rights or Know-How, including claims based on (A) product liability, bodily injury, risk of bodily injury, death or
property damage, (B) infringement or misappropriation of Third Party patents, copyrights, trademarks or other intellectual property rights or
(C) the failure to comply with applicable Laws related to the matters referred to in the foregoing clauses (i) and (ii) with respect to any
Licensed Compound and/or any Licensed Product, or (iii) Retrophin’s gross negligence, recklessness or willful misconduct or Retrophin’s
material breach of any representation, warranty or covenant set forth in this Agreement; except in any such case for Losses and Claims to the
extent reasonably attributable to Ligand having committed an act or acts of gross negligence, recklessness or willful
misconduct or having materially breached any representation or warranty set forth in this Agreement.
12.2 Ligand Indemnity. Ligand shall indemnify, defend and hold harmless Retrophin and its Affiliates, and their respective
officers, directors, employees, agents, licensors, and their respective successors, heirs and assigns and representatives, from and against any and
all Losses and Claims arising out of or relating, directly or indirectly to (i) Ligand’s gross negligence, recklessness or willful misconduct or (ii)
Ligand’s material breach of any representation, warranty or covenant set forth in this Agreement; except in any such case for Losses and
Claims to the extent reasonably attributable to Retrophin having committed an act or acts of gross negligence, recklessness or willful
misconduct or having materially breached any representation or warranty set forth in this Agreement. For the avoidance of doubt, “Ligand’s
gross negligence, recklessness or willful misconduct” shall not include any acts or omissions on the part of any Third Parties, including
Ligand’s clinical research organization, Cetero Research.
12.3 Indemnification Procedure. A claim to which indemnification applies under Section 12.1 or Section 12.2 shall be referred to
herein as an “Indemnification Claim”. If any Person or Persons (collectively, the “Indemnitee”) intends to claim indemnification under this
Article 12, the Indemnitee shall notify the other Party (the “Indemnitor”) in writing promptly upon becoming aware of any claim that may be
an Indemnification Claim (it being understood and agreed, however, that the failure by an Indemnitee to give such notice shall not relieve the
Indemnitor of its indemnification obligation under this Agreement except and only to the extent that the Indemnitor is actually prejudiced as a
result of such failure to give notice). The Indemnitor shall have the right to assume and control the defense of the Indemnification Claim at its
own expense with counsel selected by the Indemnitor and reasonably acceptable to the Indemnitee; provided, however, that an Indemnitee shall
have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitee, if representation of such Indemnitee by the
counsel retained by the Indemnitor would be inappropriate due to actual or potential differing interests between such Indemnitee and any other
party represented by such counsel in such proceedings. If the Indemnitor does not assume the defense of the Indemnification Claim as
aforesaid, the Indemnitee may defend the Indemnification Claim but shall have no obligation to do so. The Indemnitee shall not settle or
compromise the Indemnification Claim without the prior written consent of the Indemnitor, and the Indemnitor shall not settle or compromise
the Indemnification Claim in any manner which would have an adverse effect on the Indemnitee’s interests (including any rights under this
Agreement or the scope or enforceability of the Patents Rights or Know-How), without the prior written consent of the Indemnitee, which
consent, in each case, shall not be unreasonably withheld or delayed. The Indemnitee shall reasonably cooperate with the Indemnitor at the
Indemnitor’s expense and shall make available to the Indemnitor all pertinent information under the control of the Indemnitee, which
information shall be subject to Article 11.
12.4 Insurance. Retrophin shall, beginning with the initiation of the first clinical trial for a Licensed Product, maintain at all times
thereafter during the term of the Agreement, and until the later of (i) [***] or (ii) the date [***], comprehensive general liability insurance
from a recognized, creditworthy insurance company, on a claims-made basis, with endorsements for contractual liability and product liability,
and with coverage limits of not less than [***]. The minimum level of insurance set forth herein shall not be construed to create a limit on
Retrophin’s liability hereunder. Within [***] days following written request from Ligand, Retrophin shall furnish to Ligand a certificate of
insurance
evidencing such coverage as of the date. Retrophin shall use commercially reasonable efforts to cause such certificate of insurance, as well as
any certificates evidencing new coverages of Retrophin, to include a provision whereby [***] written notice shall be received by Ligand prior
to coverage cancellation by either Retrophin or the insurer and of any new coverage. In the case of a cancellation of such coverage, Retrophin
shall promptly provide Ligand with a new certificate of insurance evidencing that Retrophin’s coverage meets the requirements in the first
sentence of this Section 12.4.
ARTICLE 13.
TERM AND TERMINATION
13.1 Term. This Agreement shall commence as of the Effective Date and, unless sooner terminated in accordance with the terms
hereof or by mutual written consent, shall continue until neither Party has any obligation under this Agreement to make payments to the other
Party.
13.2 Termination By Ligand.
13.2.1 Insolvency. Ligand shall have the right to terminate this Agreement with respect to any or all licenses granted to
Retrophin pursuant to Article 2 of this Agreement, at Ligand’s sole discretion, upon delivery of written notice to Retrophin upon the filing by
Retrophin in any court or agency pursuant to any statute or regulation of the United States or any other jurisdiction a petition in bankruptcy or
insolvency or for reorganization or similar arrangement for the benefit of creditors or for the appointment of a receiver or trustee of Retrophin
or its assets, or if Retrophin is served with an involuntary petition against it in any insolvency proceeding, upon the [***] day after such service
if such involuntary petition has not previously been stayed or dismissed, or upon the making by Retrophin of an assignment of substantially all
of its assets for the benefit of its creditors.
13.2.2 Breach. Subject to Section 13.2.4 below, Ligand shall have the right to terminate this Agreement with respect to any or all
licenses granted to Retrophin pursuant to Article 2 of this Agreement, at Ligand’s sole discretion, upon delivery of written notice to Retrophin
in the event of any material breach by Retrophin of any terms and conditions of this Agreement (other than failure to use Commercially
Reasonable Efforts to Develop or Commercialize the Licensed Compounds and a Licensed Product, which breach is covered under Section
13.2.3); provided, however, such breach has not been cured within forty-five (45) days after written notice thereof is given by Ligand to
Retrophin specifying the nature of the alleged breach; provided, however, that to the extent such material breach involves the failure to make a
payment when due, such breach must be cured within twenty (20) days after written notice thereof is given by Ligand to Retrophin.
13.2.3 Failure to Use Commercially Reasonable Efforts. Subject to Section 13.2.4 below, Ligand shall have the right to
terminate this Agreement with respect to any or all licenses granted to Retrophin pursuant to Article 2 of this Agreement on a country-by-
country basis (except as otherwise set forth in this Section 13.2.3), at Ligand’s sole discretion, in the event that Retrophin (a) fails to use
Commercially Reasonable Efforts (by itself or through its Affiliates or Sublicensees) to Develop and Commercialize at least one (1) Licensed
Compound and Licensed Product or (b) fails to comply with the specific diligence obligations set forth in Sections 6.1.2 and 6.1.3 of this
Agreement; provided, however, that Retrophin has not exercised such Commercially Reasonable Efforts or complied with such specific
diligence obligations in the applicable
country or countries within sixty (60) days following written notice by Ligand. For clarity, it is understood and acknowledged that
Commercially Reasonable Efforts in the Development of a Licensed Compound or Licensed Product in a particular country may include
sequential implementation of clinical trials and/or intervals between clinical trials for data interpretation and clinical program planning and any
period associated with such program, to the extent such implementation is consistent with the scientific, technical and commercial factors
relevant to Development of such Licensed Compound or Licensed Product in such country.
13.2.4 Disputed Breach. If Retrophin disputes in good faith the existence or materiality of a breach specified in a notice
provided by Ligand pursuant to Section 13.2.2, or a failure to use Commercially Reasonable Efforts specified in a notice provided by Ligand
pursuant to Section 13.2.3, and Retrophin provides notice to Ligand of such dispute within the applicable forty-five (45) day or sixty (60) day
period, Ligand shall not have the right to terminate this Agreement unless and until the existence of such material breach or failure by
Retrophin has been determined in accordance with Article 14 and Retrophin fails to cure such breach within sixty (60) days following such
determination (except to the extent such breach involves the failure to make a payment when due, which breach must be cured within five (5)
Business Days following such determination). It is understood and acknowledged that during the pendency of such a dispute, all of the terms
and conditions of this Agreement shall remain in effect and the Parties shall continue to perform all of their respective obligations hereunder.
The Parties further agree that any payments that are made by one Party to the other Party pursuant to this Agreement pending resolution of the
dispute shall be promptly refunded if an arbitrator or court determines pursuant to Article 14 that such payments are to be refunded by one
Party to the other Party.
13.2.5 Termination for [***]. Subject to the terms of this Section 13.2.5, Ligand shall have the right to terminate this Agreement
(on a country-by-country or worldwide basis, as Ligand may elect), [***], in the event that (a) [***] or (b) [***]. In the event the Parties are
unable to reach agreement regarding whether or not a compound is a [***], and the Parties have not resolved such dispute through good faith
discussions, such dispute will be resolved through performance of the relevant scientific determination by an independent Third Party testing
provider or other scientific expert who shall be mutually and reasonably selected by both Parties. The findings of such Third Party scientific
expert with respect to such dispute shall be binding on the Parties, and the costs of such testing shall be borne by the Party whom the
independent determination does not favor.
13.2.6 Termination of Upstream License Agreement. Subject to Section 13.5.1, if the Upstream License Agreement, in whole or
in part, is terminated for any reason, the corresponding rights granted to Retrophin shall be terminated effective upon termination of the
Upstream License Agreement.
13.3 Termination by Retrophin. Retrophin may terminate this Agreement in the event of material breach by Ligand; provided,
however, that such breach has not been cured within sixty (60) days after written notice thereof is given by Retrophin to Ligand.
Notwithstanding the foregoing, if Ligand disputes in good faith the existence or materiality of such breach and provides notice to Retrophin of
such dispute within such sixty (60) day period, Retrophin shall not have the right to terminate this Agreement in accordance with this Section
13.3 unless and until it has been determined in accordance with Article 14 that this Agreement was materially breached by Ligand and Ligand
fails to cure such breach
within sixty (60) days following such determination. It is understood and acknowledged that during the pendency of such a dispute, all of the
terms and conditions of this Agreement shall remain in effect and the Parties shall continue to perform all of their respective obligations
hereunder. The Parties further agree that any payments that are made by one Party to the other Party pursuant to this Agreement pending
resolution of the dispute shall be promptly refunded if an arbitrator or court determines pursuant to Article 14 that such payments are to be
refunded by one Party to the other Party.
13.4 Effect of Termination. Upon termination of this Agreement or any right or license pursuant to Section 13.2.1, 13.2.2, 13.2.3
or 13.2.5, the rights and obligations of the Parties shall be as set forth in this Section 13.4.
13.4.1 Upon termination of this Agreement, either in its entirety or with respect to one or more applicable countries (each, a
“Terminated Country”) pursuant to Section 13.2.1, 13.2.2, 13.2.3 or 13.2.5 hereof (the rights and obligations of the Parties as to the remaining
countries of the Territory in which termination under Section 13.2.3 or 13.2.5 has not occurred, being unaffected by such termination), the
following shall apply:
a) [***].
b) [***].
c) All amounts due or payable to [***] shall remain due and payable.
d) Should Retrophin have [***], Retrophin shall [***].
e) Should Retrophin have [***].
f) Retrophin shall [***].
g) If Retrophin has the [***].
h) Retrophin shall [***].
i) Retrophin shall [***].
j) Retrophin hereby[***].
k) Neither Party shall be relieved of any obligation that accrued prior to the effective date of such termination or expiration.
l) Each Party shall have the right to retain all amounts previously paid to it by the other Party, subject to any applicable
determination of an arbitrator or court pursuant to Article 14.
m) It is understood and agreed that Ligand shall be entitled to [***] as a remedy to enforce the provisions of this Section 13.4,
in addition to any other remedy to which it may be entitled by applicable Law.
13.5 Termination by BMS.
13.5.1 Any rights granted by Ligand pursuant to this Agreement shall terminate on a country-by-country and Licensed Product-by-
Licensed Product basis effective upon termination under Section 13.2 of the Upstream License Agreement with respect to such sublicensed
rights; provided, however, that such sublicensed rights shall not
terminate if, as of the effective date of such termination by BMS under Section 13.2 of the Upstream License Agreement, Retrophin is not in
material breach of its obligations to Ligand under this Agreement, and within sixty (60) days of such termination Retrophin agrees in writing to
be bound directly to BMS under a license agreement substantially similar to this Agreement with respect to the rights sublicensed hereunder,
substituting Retrophin for Ligand.
13.5.2 BMS may terminate the Upstream License Agreement where (a) Retrophin or its Affiliate (alone or in collaboration with a Third
Party) undertakes the clinical development of a product that contains a [***] prior to the first U.S. NDA Approval being obtained for a
Licensed Compound or (b) Retrophin or its Affiliate (alone or in collaboration with a Third Party) markets a product that contains a [***]
within [***] years following the first U.S. NDA Approval for a Licensed Product.
13.6 Scope of Termination. Except as otherwise expressly provided herein, termination of this Agreement shall be as to all countries
in the Territory and all Licensed Compounds and Licensed Products.
(i) Survival. The following provisions shall survive termination or expiration of this Agreement, as well as any other
provision which by its terms or by the context thereof, is intended to survive such termination: Article 1 (as applicable), Article 5 (with respect
to obligations arising prior to expiration or termination of this Agreement), Article 8 (with respect to obligations arising prior to expiration or
termination of this Agreement), Section 9.4, Section 9.5, Section 10.1, 10.4.4 (with respect to an action, suit or proceeding commenced prior to
termination), Section 10.7, Article 11, Article 12 (with respect to Losses and Claims arising from activities and breaches that take place prior to
expiration or termination of this Agreement), this Section 13.6(i), Section 13.7, Article 14 and Article 15. Termination or expiration of this
Agreement shall not relieve the Parties of any liability or obligation which accrued hereunder prior to the effective date of such termination or
expiration nor preclude either Party from pursuing all rights and remedies it may have hereunder or at law or in equity, subject to Article 14,
with respect to any breach of this Agreement nor prejudice either Party’s right to obtain performance of any obligation. All other obligations
shall terminate upon expiration of this Agreement.
13.7 Bankruptcy. The Parties agree that in the event a Party becomes a debtor under Title 11 of the U.S. Code (“Title 11”), this
Agreement shall be deemed to be, for purposes of Section 365(n) of Title 11, a license to rights to “intellectual property” as defined therein.
Each Party as a licensee hereunder shall have the rights and elections as specified in Title 11. Any agreements supplemental hereto shall be
deemed to be “agreements supplementary to” this Agreement for purposes of Section 365(n) of Title 11.
ARTICLE 14.
DISPUTE RESOLUTION; ARBITRATION
14.1 Dispute Resolution. The Parties agree that the procedures set forth in this Section 14.1 shall be the exclusive mechanism for
resolving any bona fide disputes, controversies or claims (collectively, “Disputes”) between the Parties that arise from time to time pursuant to
this Agreement relating to any Party’s rights and/or obligations hereunder that cannot be resolved through good faith negotiation between the
Parties.
14.2 Executive Mediation. Any Dispute shall first be referred to an Executive from each Party for attempted resolution by good
faith negotiations. Any such Dispute shall be submitted to such Executives no later than [***] days following such request by
either Party. Such Executives shall attempt in good faith to resolve any such Dispute within [***] days after submission of the Dispute. In the
event the Executives are unable to resolve the Dispute, the Parties shall otherwise negotiate in good faith and use reasonable efforts to settle.
14.3 Arbitration.
14.3.1 If the Parties are not able to fully settle a Dispute pursuant to Section 14.2 above, and a Party wishes to pursue the
matter, each such Dispute that is not an Excluded Claim or subject to expedited arbitration in accordance with Section 14.4 below, shall be
finally resolved by binding arbitration in accordance with the Commercial Arbitration Rules and Supplementary Procedures for Large
Complex Disputes of the American Arbitration Association (“AAA”), and judgment on the arbitration award may be entered in any court
having jurisdiction thereof; provided, however, that the Federal Rules of Evidence shall apply with regard to the admissibility of evidence in
such hearing.
14.3.2 The arbitration shall be conducted by a panel of three persons experienced in the pre-clinical and clinical stage
pharmaceutical business. Within [***] days after initiation of arbitration, each Party shall select one person to act as arbitrator and the two
Party-selected arbitrators shall select a third arbitrator within [***] days of their appointment. If the arbitrators selected by the Parties are
unable or fail to agree upon the third arbitrator, the third arbitrator shall be appointed by the AAA. In any case the arbitrator shall not be an
Affiliate, employee, consultant, officer, director or stockholder of either Party, or otherwise have any current or previous relationship with
either Party or their respective Affiliates. The Parties shall have the right to be represented by counsel. The place of arbitration shall be New
York, NY. All proceedings and communications shall be in English.
14.3.3 Either Party may apply to the arbitrators for interim injunctive relief until the arbitration award is rendered or the
controversy is otherwise resolved. Either Party also may, without waiving any remedy under this Agreement, seek from any court having
jurisdiction any injunctive or provisional relief necessary to protect the rights or property of that Party pending the arbitration award. The
arbitrators shall have no authority to award punitive or any other type of damages not measured by a Party’s compensatory damages. Each
Party shall bear its own costs and expenses and attorneys’ fees and an equal share of the arbitrators’ fees and any administrative fees of
arbitration.
14.3.4 Except to the extent necessary to confirm an award or as may be required by Law, neither a Party nor an arbitrator may
disclose the existence, content, or results of an arbitration without the prior written consent of both Parties. In no event shall an arbitration be
initiated after the date when commencement of a legal or equitable proceeding based on the dispute, controversy or claim would be barred by
the applicable New York statute of limitations.
14.3.5 The arbitrators shall use their commercially reasonable efforts to rule on each disputed issue within days after completion
of the hearing described in Section 14.3. The determination of the arbitrators as to the resolution of any dispute shall be binding and conclusive
upon all Parties. All rulings of the arbitrator shall be in writing and shall be delivered to the Parties except to the extent that the Commercial
Arbitration Rules of the AAA provide otherwise. Nothing contained herein shall be construed to permit the arbitrator to award punitive,
exemplary or any similar damages.
14.3.6 The (i) attorneys’ fees of the Parties in any arbitration, (ii) fees of the arbitrator and (iii) costs and expenses of the
arbitration shall be borne by the Parties in a proportion determined by the arbitrator.
14.3.7 For all Excluded Claims, the Parties hereby submit to the exclusive jurisdiction of the Supreme Court of the State of New
York, New York County and the United States District Court for the Southern District of New York. For clarity, each party may seek
injunctive or other equitable relief for Excluded Claims in accordance with this Section 14.3.7. Each Party agrees that service of any process,
summons, notice or document by personal delivery, by registered mail, or by a recognized international express delivery service to such Party’s
respective address set forth in Section 15.2 shall be effective service of process for any action, suit or proceeding in the district court or state
court with respect to any matters to which it has submitted to jurisdiction in this Section 14.3.7. Each Party irrevocably and unconditionally
waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated
hereby in the district court or state court, and hereby and thereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. Each
Party hereto also hereby waives to the fullest extent permitted by applicable Laws, any right it may have to a trial by jury in respect to any
litigation directly or indirectly arising out of, under or in connection with this Agreement. Each Party hereto (i) certifies that no representative,
agent or attorney of the other Party has represented, expressly or otherwise, that such other Party would not, in the event of litigation, seek to
enforce that foregoing waiver and (ii) acknowledges that it and the other Party hereto have been induced to enter into this Agreement, as
applicable, by, among other things, the mutual waivers and certifications in this Section 14.3.7.
14.4 Expedited Arbitration. The Parties agree that it is important to be able to clarify any disputes regarding [***] quickly.
Accordingly, if: (i) Ligand [***]; (ii) [***]; or (iii) [***]; then the Parties shall resolve such dispute in accordance with this Section 14.4.
Arbitration under this Section 14.4 shall be conducted in the same manner and subject to the same terms and conditions as arbitration under
Section 14.3, provided that: (i) the Parties shall designate in writing a single arbitrator within fifteen (15) days of written notice of the dispute;
(ii) the arbitrator and the Parties shall meet, and each Party shall provide to the arbitrator a written summary of all disputed issues, such Party’s
position on such disputed issues and such Party’s proposed ruling on the merits of each such issue within fifteen (15) days after the designation
of the arbitrator; (iii) the arbitrator shall use his or her commercially reasonable efforts to rule on each disputed issue within fifteen (15) days
after completion of the hearing described in Section 14.3; (d) the arbitrator shall select one of the requested positions as his decision, and shall
not have the authority to render any substantive decision other than to so select the position of either Ligand or Retrophin; and (e) the Parties
shall use good faith efforts to complete any expedited arbitration pursuant to this Section 14.4 promptly.
MISCELLANEOUS
15.1 Severability. If any one or more of the provisions of this Agreement is held to be invalid or unenforceable, the provision shall
be considered severed from this Agreement and shall not serve to invalidate any remaining provisions hereof. The Parties shall make a good
faith effort to replace any invalid or unenforceable provision with a
ARTICLE 15.
valid and enforceable one such that the objectives contemplated by the Parties when entering this Agreement may be realized.
15.2 Notices. Any notice required or permitted to be given by this Agreement shall be in writing and shall be delivered by hand or
overnight courier with tracking capabilities or mailed postage prepaid by first class, registered or certified mail addressed as set forth below
unless changed by notice so given:
If to Ligand:
Ligand Pharmaceuticals Incorporated
11085 North Torrey Pines Road, Suite 300
La Jolla, CA 92037
Attention: General Counsel
With a copy to (which shall not constitute notice hereunder):
Latham & Watkins LLP
12636 High Bluff Drive, Suite 400
San Diego, CA 92130
Attention: Faye H. Russell, Esq.
If to Retrophin:
Retrophin LLC
330 Madison Avenue, 6th Floor
New York, NY 10017
Attention: Martin Shkreli
With a copy to (which shall not constitute notice hereunder):
Katten Muchin Rosenman LLP
575 Madison Avenue
New York, NY 10022
Attention: Evan L. Greebel, Esq.
Any such notice shall be deemed given on the date received. A Party may add, delete, or change the person or address to
whom notices should be sent at any time upon written notice delivered to the Party’s notices in accordance with this Section 15.2.
15.3 Force Majeure. Neither Party shall be liable for delay or failure in the performance of any of its obligations hereunder
(including, without limitation Sections 6.1.2 and 6.1.3 of this Agreement) if such delay or failure is due to causes beyond its reasonable control,
including acts of God, fires, earthquakes, strikes and labor disputes, acts of war, terrorism, civil unrest or intervention of any governmental
authority (“Force Majeure”); provided, however, that the affected Party promptly notifies the other Party and further provided that the affected
Party shall use its commercially reasonable efforts to avoid or remove such causes of non-performance and to mitigate the effect of such
occurrence and shall continue performance with the utmost dispatch whenever such causes are removed. When such circumstances arise, the
Parties shall negotiate in good faith any
modifications of the terms of this Agreement that may be necessary or appropriate in order to arrive at an equitable solution.
15.4 Assignment.
15.4.1 Ligand may, without Retrophin’s consent, assign or transfer all of its rights and obligations hereunder, in connection with
any transfer of all of the Patent Rights and Know-How, to any Affiliate of Ligand or to any Third Party (including a successor in interest);
provided, however, that such assignee or transferee agrees in writing to be bound by the terms of this Agreement.
15.4.2 Retrophin may assign or transfer all of its rights and obligations hereunder without consent to an Affiliate of Retrophin or
to a successor in interest by reason of merger, consolidation or sale of all or substantially all of the assets of Retrophin; provided however, that
(i) Retrophin’s rights and obligations under this Agreement shall be assumed by its successor in interest and shall not be transferred separate
from all or substantially all of its other business assets, (ii) such assignment includes all Approvals and all rights and obligations under this
Agreement, (iii) such successor in interest or Affiliate shall have agreed prior to such assignment or transfer to be bound by the terms of this
Agreement in writing and (iv) where this Agreement is assigned or transferred to an Affiliate, Retrophin remains responsible for the
performance of this Agreement.
15.4.3 Subject to the foregoing, this Agreement shall inure to the benefit of and be binding on the Parties’ successors and
assigns. Any assignment or transfer in violation of the foregoing shall be null and void and wholly invalid, the assignee or transferee in any
such assignment or transfer shall acquire no rights whatsoever, and the non-assigning non-transferring Party shall not recognize, nor shall it be
required to recognize, such assignment or transfer.
15.5 Further Assurances. Each Party agrees to do and perform all such further acts and things and shall execute and deliver such
other agreements, certificates, instruments and documents necessary or that the other Party may deem advisable in order to carry out the intent
and accomplish the purposes of this Agreement and to evidence, perfect or otherwise confirm its rights hereunder.
15.6 Waivers and Modifications. The failure of any Party to insist on the performance of any obligation hereunder shall not be
deemed to be a waiver of such obligation. Waiver of any breach of any provision hereof shall not be deemed to be a waiver of any other breach
of such provision or any other provision on such occasion or any succeeding occasion. No waiver, modification, release or amendment of any
obligation under or provision of this Agreement shall be valid or effective unless in writing and signed by all Parties hereto.
15.7 Choice of Law. This Agreement shall be governed by, enforced, and shall be construed in accordance with the laws of the
State of New York without regard to its conflicts of law provisions.
15.8 Publicity. The Parties agree to issue a press release regarding the execution of this Agreement, in a form to be mutually
agreed upon by the Parties. Subject to the provisions of Sections 11.2, 11.4 and 11.5, each Party agrees not to issue any other press release or
public statement disclosing the existence of this Agreement or any other information relating to this Agreement, the other Party, or the
transactions contemplated
hereby without the prior written consent of the other Party; provided, however, that any disclosure which is required by applicable Laws or the
rules of a securities exchange, as reasonably advised by the disclosing Party’s counsel, may be made subject to the following. The Parties agree
that any such required disclosure will not contain confidential business or technical information and, if disclosure of confidential business or
technical information is required by applicable Laws, the Parties will use appropriate diligent efforts to minimize such disclosure and obtain
confidential treatment for any such information which is disclosed to a governmental agency. Each Party agrees to provide to the other Party a
copy of any public announcement regarding this Agreement or the subject matter thereof as soon as reasonably practicable under the
circumstances prior to its scheduled release. Except under extraordinary circumstances, or as otherwise required under applicable Laws or the
rules of a securities exchange, each Party shall provide the other with an advance copy of any such announcement at least forty eight (48) hours
prior to its scheduled release. Each Party shall have the right to expeditiously review and recommend changes to any such announcement and,
except as otherwise required by applicable Laws or the rules of a securities exchange, the Party whose announcement has been reviewed shall
remove any Confidential Information of the reviewing Party that the reviewing Party reasonably deems to be inappropriate for disclosure. The
contents of any announcement or similar publicity which has been reviewed and approved by the reviewing Party can be re-released by either
Party without a requirement for re-approval. Nothing in this Section 15.8 shall be construed to prohibit Retrophin or its Affiliates or
Sublicensees from making a public announcement or disclosure regarding the stage of development of Licensed Products in Retrophin’s (or its
Affiliates’ or Sublicensees’) product pipeline or disclosing clinical trial results regarding such Licensed Products, as may be required by
applicable Laws or the rules of a securities exchange, as reasonably advised by Retrophin’s (or its Affiliates’ or Sublicensees’) counsel.
15.9 Relationship of the Parties. Each Party is an independent contractor under this Agreement. Nothing contained herein is
intended or is to be construed so as to constitute Ligand and Retrophin as partners, agents or joint venturers. Neither Party shall have any
express or implied right or authority to assume or create any obligations on behalf of or in the name of the other Party or to bind the other Party
to any contract, agreement or undertaking with any Third Party.
15.10 Headings. Headings and captions are for convenience only and are not be used in the interpretation of this Agreement.
15.11 Entire Agreement. This Agreement (including all Appendices attached hereto, which are incorporated herein by reference)
(i) sets forth all of the covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties hereto,
(ii) constitutes and contains the complete, final and exclusive understanding and agreement of the Parties with respect to the subject matter
herein and (iii) cancels, supersedes and terminates all prior agreements and understanding between the Parties with respect to the subject matter
hereof. For the avoidance of doubt, the confidentiality agreement entered into by Ligand and Retrophin effective as of December 11, 2011 (the
“Confidentiality Agreement”) shall remain in effect with respect to all Confidential Information (as that term is defined in the Confidentiality
Agreement) disclosed by the Parties that does not pertain to the subject matter of this Agreement. All Confidential Information (as that term is
defined in the Confidentiality Agreement) pertaining to the subject matter of this Agreement disclosed to Ligand by Retrophin under the
Confidentiality Agreement shall be considered Confidential Information (as that term is defined in this Agreement) of Retrophin disclosed
under this Agreement and shall be
subject to the terms and conditions of this Agreement; and all Confidential Information (as that term is defined in the Confidentiality
Agreement) pertaining to the subject matter of this Agreement disclosed to Retrophin by Ligand under the Confidentiality Agreement shall be
considered Confidential Information (as that term is defined in this Agreement) of Ligand disclosed under this Agreement and shall be subject
to the terms and conditions of this Agreement. There are no covenants, promises, agreements, warranties, representations, conditions or
understandings, whether oral or written, between the Parties other than as set forth herein. No subsequent alteration, amendment, change or
addition to this Agreement shall be binding upon the Parties hereto unless reduced to writing and signed by the respective authorized officers
of the Parties.
15.12 Counterparts. This Agreement may be executed in counter-parts with the same effect as if both Parties had signed the same
document. All such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument.
15.13 Exports. Retrophin agrees not to export or re-export, directly or indirectly, any information, technical data, the direct
product of such data, samples or equipment received or generated under this Agreement in violation of any applicable export control Laws.
15.14 Interpretation.
15.14.1 Each of the Parties acknowledges and agrees that this Agreement has been diligently reviewed by and negotiated by
and between them, that in such negotiations each of them has been represented by competent counsel and that the final agreement contained
herein, including the language whereby it has been expressed, represents the joint efforts of the Parties hereto and their counsel. Accordingly,
in interpreting this Agreement or any provision hereof, no presumption shall apply against any Party hereto as being responsible for the
wording or drafting of this Agreement or any such provision, and ambiguities, if any, in this Agreement shall not be construed against any
Party, irrespective of which Party may be deemed to have authored the ambiguous provision.
15.14.2 The definitions of the terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes”
and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same
meaning and effect as the word “shall.” The word “any” shall mean “any and all” unless otherwise clearly indicated by context.
15.14.3 Unless the context requires otherwise, (a) any definition of or reference to any agreement, instrument or other document
herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or
otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or therein), (b) any
reference to any Laws herein shall be construed as referring to such Laws as from time to time enacted, repealed or amended, (c) any reference
herein to any person shall be construed to include the person’s successors and assigns, (d) the words “herein”, “hereof” and “hereunder”, and
words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, and (e) all
references herein to Articles, Sections
or Appendices, unless otherwise specifically provided, shall be construed to refer to Articles, Sections and Appendices of this Agreement.
* * *
[signature page follows]
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective duly authorized officers as of the
date first set forth above.
LIGAND PHARMACEUTICALS RETROPHIN, LLC
INCORPORATED
(“Ligand”) (“Retrophin”)
By: /s/ Charles Berkman By: /s/ Martin Shkreli
Name: Charles Berkman Name: Martin Shkreli
Title: Vice President, General Counsel and Title: Chief Executive Officer
Secretary
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Appendix 1
Core Patent Rights
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Appendix 2
“Active Compound” means a compound that [***].
“[***]” means [***].
“[***]” means the [***].
Active Compound
Appendix 3
Development Plan
(attached hereto)
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Appendix 4
Listed Compounds
AMENDMENT TO
SUBLICENSE AGREEMENT
***Certain information (indicated by asterisks) has been
omitted from this document because it is not material and would
likely cause competitive harm to the registrant if publicly disclosed.
THIS AMENDMENT TO SUBLICENSE AGREEMENT (the “Amendment”) is made and entered into as of December 11, 2012
(“Amendment Effective Date”) and amends the Sublicense Agreement effective as of February 16, 2012 (the “Sublicense Agreement”) by and
between Ligand Pharmaceuticals Incorporated, a corporation organized under the laws of Delaware and having a place of business at 11119 North
Torrey Pines Road, Suite 200, La Jolla, CA, 92037 and its wholly owned subsidiary, Pharmacopeia, LLC (as successor in interest to Pharmacopeia Drug
Discovery Inc.) (“PCOP”), a limited liability company organized under the laws of Delaware and having a place of business at 11119 North Torrey
Pines Road, Suite 200, La Jolla, CA, 92037 (collectively, Ligand Pharmaceuticals Incorporated and PCOP shall be known as “Ligand”) and Retrophin,
Inc., a corporation organized under the laws of Delaware and having a place of business at 777 Third Avenue, 22 nd Floor, New York, NY, 10017
(“Retrophin”).
WHEREAS, Ligand and Retrophin have previously entered into the Sublicense Agreement; and
WHEREAS, Ligand and Retrophin desire to amend certain terms of the Sublicense Agreement as set forth herein.
NOW THEREFORE, in consideration of the foregoing premises and the mutual covenants contained herein, the Parties, intending to be legally
bound, agree as follows:
1 . Capitalized Terms. The capitalized terms used herein and not otherwise defined shall have the same definitions as provided in the Sublicense
Agreement.
2. Amendments.
(a) Development Milestone Payments. Table 1 of Section 8.2.1 of the Agreement is hereby amended in its entirety as follows:
“Table 1
Milestone Event
***Certain information (indicated by asterisks) has been
Milestone Payment
omitted from this document because it is not material and would
likely cause competitive harm to the registrant if publicly disclosed.
Execution of Agreement
$1.15 million
The earlier of (a) December 31, 2012 or (b) initiation
of the first Phase 2 Trial for a Licensed Product
$1.15 million (the “Second Milestone”); provided, that if
the Second Milestone is received by Ligand prior to
December 31, 2012, Retrophin shall make an additional
$150,000 payment simultaneously with the payment of the
Second Milestone (for an aggregate payment of $1.3
million) (the $150,000 additional payment, an “Additional
Payment”)1
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1) If the Second Milestone and any Additional Payment is not received by Ligand on or before December 31, 2012, Ligand shall have the right to
terminate the Agreement pursuant to Section 13.2.2 with immediate effect as of December 31, 2012 by providing written notice to Retrophin,
notwithstanding (a) the cure period for the failure to make a payment when due set out in said Section 13.2.2 (Breach) or (b) the provisions of
Section 13.2.4 (Disputed Breach). In addition, and for clarity, the provisions of Section 13.4 (Effect of Termination) shall be operative, including,
without limitation, the provisions of subsections (c), (k) and (m) related to amounts then due and payable. “
(b) Exit Transaction Milestone. Section 8.2.2 of the Agreement is amended by replacing [***] with [***].
(c) Expedited Arbitration. Section 14.4 of the Agreement is hereby amended in its entirety as follows:
“The Parties agree that it is important to be able to clarify any disputes regarding [***] quickly. Accordingly, if: (i) Ligand [***]; (ii)
[***]; (iii) [***]; or (iv) [***]; then the Parties shall resolve such dispute in accordance with this Section 14.4. Arbitration under this
Section 14.4 shall be conducted in the same manner
and subject to the same terms and conditions as arbitration under Section 14.3, provided that: (i) the Parties shall designate in writing a
single arbitrator within fifteen (15) days of written notice of the dispute; (ii) the arbitrator and the Parties shall meet, and each Party shall
provide to the arbitrator a written summary of all disputed issues, such Party’s position on such disputed issues and such Party’s proposed
ruling on the merits of each such issue within fifteen (15) days after the designation of the arbitrator; (iii) the arbitrator shall use his or her
commercially reasonable efforts to rule on each disputed issue within fifteen (15) days after completion of the hearing described in Section
14.3; (iv) the arbitrator shall select one of the requested positions as his decision, and shall not have the authority to render any substantive
decision other than to so select the position of either Ligand or Retrophin; and (v) the Parties shall use good faith efforts to complete any
expedited arbitration pursuant to this Section 14.4 promptly.”
***Certain information (indicated by asterisks) has been
omitted from this document because it is not material and would
likely cause competitive harm to the registrant if publicly disclosed.
3. No Other Amendments. Except as provided herein, the Sublicense Agreement shall continue in full force and effect.
4. Release.
(a) As used in this Clause, “Related Persons and Entities” in connection with a Party means any and all past, present, and future parents,
subsidiaries, affiliates, partners, owners, joint venturers, stockholders, predecessors, successors, officers, members, directors,
administrators, employees, agents, representatives, consultants, attorneys, insurers, heirs, executors, assignors or assignees, retirement
plans (and/or their trustees) of that Party and any other person, firm, or corporation with whom that Party is now or may hereinafter be
affiliated, and any of them.
(b) Retrophin and its Affiliates and any and all officers, directors, owners, predecessors, or successors, of that Party hereby fully and forever,
knowingly, voluntarily, and irrevocably release, acquit, discharge, and promises not to sue Ligand and its Related Persons and Entities,
from, without limitation, any and all claims, demands, damages, obligations, losses, causes of action, costs, expenses, attorneys’ fees,
judgments, liabilities, duties, debts, liens, accounts, obligations, contracts/agreements, promises, representations, actions, and causes of
action, other proceedings and indemnities of any nature whatsoever arising from or in any way related to: (i) the quality of the medication;
or (ii) compliance of the medication with specifications of Governmental Authorities delivered pursuant to the Sublicense Agreement; or
(iii) Ligand’s conduct during diligence and negotiations leading to the Sublicense Agreement, whether accrued or contingent, secured or
unsecured, negligent or intentional, known or unknown, suspected or unsuspected, and whether based on law, equity, contract, tort,
statute, or other legal or equitable theory of recovery, whether mature or to mature in the future, which from the beginning of time to the
date of this Amendment, Retrophin and its Affiliates and any and all officers, directors, owners, predecessors, or successors, of that Party
had, now have, or claims to have against Ligand and its Related Persons and Entities, or any other person or entity described above.
(c) Retrophin acknowledges that it may later discover material facts in addition to, or different from, those which it now knows or believes to be
true. Retrophin further acknowledges that there may be future events, circumstances or occurrences materially different from those it
knows or believes likely to occur. It is the intention of Retrophin to fully, finally and forever settle and generally release all claims,
disputes and differences described above occurring prior to the date hereof.
The releases provided in this Amendment shall remain in full effect notwithstanding the discovery or existence of any such additional or
different facts or occurrence of any such future events, circumstances or conditions.
***Certain information (indicated by asterisks) has been
omitted from this document because it is not material and would
likely cause competitive harm to the registrant if publicly disclosed.
(d) Retrophin and its Affiliates and any and all officers, directors, owners, predecessors, or successors, of that Party hereby expressly waive the
benefit of any statute or rule of law that, if applied to this Amendment would otherwise exclude from its binding effect any claims
described above not known by it to exist which arose prior to the signing of this Amendment. Retrophin acknowledges that it has read and
fully understands the provisions of California Civil Code section 1542, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT
TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH, IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
Retrophin, being aware of said Code Section, hereby expressly waives, on behalf of itself and its Affiliates and any and all officers,
directors, owners, predecessors, or successors, of that Party, any rights and benefits that they may have under section 1542 of the
California Civil Code to the full extent that they may lawfully waive such rights and benefits, and shall waive any rights and benefits they
may have under any other statutes or common law principles of similar effect.
(e) This Amendment and its terms, including, but not limited to, the Release set forth in this Section 4, and the execution of this Amendment, shall
not be construed as an admission of liability or fault by either of the Parties.
5. Governing Law. This Amendment shall be governed by, enforced, and shall be construed in accordance with the laws of the State of New York
without regard to its conflicts of law provisions.
6. Counterparts. This Amendment may be executed in counter-parts with the same effect as if both Parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Parties have executed this Amendment to Sublicense Agreement through their duly authorized representatives to
be effective as of the Amendment Effective Date.
***Certain information (indicated by asterisks) has been
omitted from this document because it is not material and would
likely cause competitive harm to the registrant if publicly disclosed.
LIGAND PHARMACEUTICALS RETROPHIN, INC.
INCORPORATED
By: /s/ Matthew Foehr By: /s/ Martin Shkreli
Title: Vice President, Corporate Development Title: Chief Executive Officer
Date: 12/20/12 Date: 12/19/2012
AMENDMENT NO. 2 TO
SUBLICENSE AGREEMENT
***Certain information (indicated by asterisks) has been
omitted from this document because it is not material and would
likely cause competitive harm to the registrant if publicly disclosed.
THIS AMENDMENT NO. 2 TO SUBLICENSE AGREEMENT (the “Amendment”) is made and entered into as of January 7, 2013
(“Amendment Effective Date”) and amends the Sublicense Agreement effective as of February 16, 2012, as amended pursuant to that certain
Amendment to Sublicense Agreement dated December 11, 2012 (the “Sublicense Agreement”) by and between Ligand Pharmaceuticals Incorporated, a
corporation organized under the laws of Delaware and having a place of business at 11119 North Torrey Pines Road, Suite 200, La Jolla, CA, 92037 and
its wholly owned subsidiary, Pharmacopeia, LLC (as successor in interest to Pharmacopeia Drug Discovery Inc.) (“PCOP”), a limited liability company
organized under the laws of Delaware and having a place of business at 11119 North Torrey Pines Road, Suite 200, La Jolla, CA, 92037 (collectively,
Ligand Pharmaceuticals Incorporated and PCOP shall be known as “Ligand”) and Retrophin, Inc., a corporation organized under the laws of Delaware
and having a place of business at 777 Third Avenue, 22nd Floor, New York, NY, 10017 ( “Retrophin”).
WHEREAS, Ligand and Retrophin have previously entered into the Sublicense Agreement; and
WHEREAS, Ligand and Retrophin desire to amend certain terms of the Sublicense Agreement as set forth herein.
NOW THEREFORE, in consideration of the foregoing premises and the mutual covenants contained herein, the Parties, intending to be legally
bound, agree as follows:
1 . Capitalized Terms. The capitalized terms used herein and not otherwise defined shall have the same definitions as provided in the Sublicense
Agreement.
2. Amendments.
Development Milestone Payments. Table 1 of Section 8.2.1 of the Agreement is hereby amended in its entirety as follows:
“Table 1
Milestone Event
***Certain information (indicated by asterisks) has been
Milestone Payment
omitted from this document because it is not material and would
likely cause competitive harm to the registrant if publicly disclosed.
Execution of Agreement
$1.15 million
The earlier of (a) March 31, 2013 or (b) initiation of
the first Phase 2 Trial for a Licensed Product
$1.3 million (the “Second Milestone”); provided, that if
the Second Milestone is received by Ligand (a) prior to or
on January 31, 2013, Retrophin shall make an additional
$50,000 payment simultaneously with the payment of the
Second Milestone (for an aggregate payment of $1.2
million), (b) after January 31, 2013 but prior to or on
February 28, 2013, Retrophin shall make an additional
$100,000 payment simultaneously with the payment of the
Second Milestone (for an aggregate payment of $1.4
million), and (c) after February 28, 2013 but prior to or on
March 31, 2013, Retrophin shall make an additional
$150,000 payment simultaneously with the payment of the
Second Milestone (for an aggregate payment of $1.45
an “Additional
million)
Payment”)1
additional
payment,
(the
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[***]
1) If the Second Milestone and any Additional Payment is not received by Ligand on or before March 31, 2013, Ligand shall have the right to
terminate the Agreement pursuant to Section 13.2.2 with immediate effect as of March 31, 2013 by providing written notice to Retrophin,
notwithstanding (a) the cure period for the failure to make a payment when due set out in said Section 13.2.2 (Breach) or (b) the provisions of
Section 13.2.4 (Disputed Breach). In addition, and for clarity, the provisions of Section 13.4 (Effect of Termination) shall be operative, including,
without limitation, the provisions of subsections (c), (k) and (m) related to amounts then due and payable.”
3. No Other Amendments. Except as provided herein, the Sublicense Agreement shall continue in full force and effect.
***Certain information (indicated by asterisks) has been
omitted from this document because it is not material and would
likely cause competitive harm to the registrant if publicly disclosed.
4. Release.
(a) As used in this Clause, “Related Persons and Entities” in connection with a Party means any and all past, present, and future parents,
subsidiaries, affiliates, partners, owners, joint venturers, stockholders, predecessors, successors, officers, members, directors,
administrators, employees, agents, representatives, consultants, attorneys, insurers, heirs, executors, assignors or assignees, retirement
plans (and/or their trustees) of that Party and any other person, firm, or corporation with whom that Party is now or may hereinafter be
affiliated, and any of them.
(b) Retrophin and its Affiliates and any and all officers, directors, owners, predecessors, or successors, of that Party hereby fully and forever,
knowingly, voluntarily, and irrevocably release, acquit, discharge, and promises not to sue Ligand and its Related Persons and Entities,
from, without limitation, any and all claims, demands, damages, obligations, losses, causes of action, costs, expenses, attorneys’ fees,
judgments, liabilities, duties, debts, liens, accounts, obligations, contracts/agreements, promises, representations, actions, and causes of
action, other proceedings and indemnities of any nature whatsoever arising from or in any way related to the Sublicense Agreement, as
amended pursuant to this Amendment, whether accrued or contingent, secured or unsecured, negligent or intentional, known or unknown,
suspected or unsuspected, and whether based on law, equity, contract, tort, statute, or other legal or equitable theory of recovery, whether
mature or to mature in the future, which from the beginning of time to the date of this Amendment, Retrophin and its Affiliates and any
and all officers, directors, owners, predecessors, or successors, of that Party had, now have, or claims to have against Ligand and its
Related Persons and Entities, or any other person or entity described above.
(c) Retrophin acknowledges that it may later discover material facts in addition to, or different from, those which it now knows or believes to be
true. Retrophin further acknowledges that there may be future events, circumstances or occurrences materially different from those it
knows or believes likely to occur. It is the intention of Retrophin to fully, finally and forever settle and generally release all claims,
disputes and differences described above occurring prior to the date hereof. The releases provided in this Amendment shall remain in full
effect notwithstanding the discovery or existence of any such additional or different facts or occurrence of any such future events,
circumstances or conditions.
(d) Retrophin and its Affiliates and any and all officers, directors, owners, predecessors, or successors, of that Party hereby expressly waive the
benefit of any statute or rule of law that, if applied to this Amendment would otherwise exclude from its binding effect any claims
described above not known by it to exist which arose prior to the signing of this Amendment. Retrophin acknowledges that it has read and
fully understands the provisions of California Civil Code section 1542, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT
TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH, IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
Retrophin, being aware of said Code Section, hereby expressly waives, on behalf of itself and its Affiliates and any and all officers,
directors, owners, predecessors, or successors, of that Party, any rights and benefits that they may have under section 1542 of the
California Civil Code to the full extent that they may lawfully waive such rights and benefits, and shall waive any rights and benefits they
may have under any other statutes or common law principles of similar effect.
***Certain information (indicated by asterisks) has been
omitted from this document because it is not material and would
likely cause competitive harm to the registrant if publicly disclosed.
(e) This Amendment and its terms, including, but not limited to, the Release set forth in this Section 4, and the execution of this Amendment, shall
not be construed as an admission of liability or fault by either of the Parties.
5. Governing Law. This Amendment shall be governed by, enforced, and shall be construed in accordance with the laws of the State of New York
without regard to its conflicts of law provisions.
6. Counterparts. This Amendment may be executed in counter-parts with the same effect as if both Parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Parties have executed this Amendment to Sublicense Agreement through their duly authorized representatives to
be effective as of the Amendment Effective Date.
***Certain information (indicated by asterisks) has been
omitted from this document because it is not material and would
likely cause competitive harm to the registrant if publicly disclosed.
LIGAND PHARMACEUTICALS RETROPHIN, INC.
INCORPORATED
By: /s/ Charles Berkman By: /s/ Martin Shkreli
Name: Charles Berkman Name: Martin Shkreli
Title: Vice President, General Counsel and Title: Chief Executive Officer
Secretary
Date: January 7, 2013 Date: January 7, 2013
AMENDMENT NO. 3 TO SUBLICENSE AGREEMENT
***Certain information (indicated by asterisks) has been
omitted from this document because it is not material and would
likely cause competitive harm to the registrant if publicly disclosed.
THIS AMENDMENT NO. 3 TO SUBLICENSE AGREEMENT (the “Amendment”) is made and entered into as of February 27,
2015 (“Amendment Effective Date”) and amends the Sublicense Agreement effective as of February 16, 2012, as amended pursuant to that
certain Amendment to Sublicense Agreement dated December 11, 2012 and Amendment to Sublicense Agreement dated January 7, 2013 (the
“Sublicense Agreement”) by and between Ligand Pharmaceuticals Incorporated, a corporation organized under the laws of Delaware and
having a place of business at 11119 North Torrey Pines Road, Suite 200, La Jolla, CA, 92037 and its wholly owned subsidiary, Pharmacopeia,
LLC (as successor in interest to Pharmacopeia Drug Discovery Inc.) (“PCOP”), a limited liability company organized under the laws of
Delaware and having a place of business at 11119 North Torrey Pines Road, Suite 200, La Jolla, CA, 92037 (collectively, Ligand
Pharmaceuticals Incorporated and PCOP shall be known as “Ligand”) and Retrophin, Inc., a corporation organized under the laws of Delaware
and having a place of business at 777 Third Avenue, 22nd Floor, New York, NY, 10017 (“Retrophin”).
WHEREAS Ligand and Retrophin have previously entered into the Sublicense Agreement; and
WHEREAS, Ligand and Retrophin desire to amend certain terms of the Sublicense Agreement as set forth herein.
BACKGROUND
NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants contained herein, the Parties, intending to
be legally bound, agree as follows:
1. Capitalized Terms. The capitalized terms used herein and not otherwise defined shall have the same definitions as provided in the
Sublicense Agreement
2. Amendments.
a) Sections 6.1.2 and 6.1.4 of the Sublicense Agreement are hereby removed.
b) Section 6.1.3 of the Sublicense Agreement is hereby amended to read as follows:
“File for Approval for at least one (1) Orphan Licensed Product (“ Approval Submission”) no later than [***] (“Filing
Deadline”); provided that if Retrophin exercises its Extension Option (as defined below), then the Filing Deadline shall become
(a) [***] if the Approval Submission is filed pursuant to the Code of Federal Regulations Title 21, Subpart H (“ Subpart H”) or
(b) [***], if the Approval Submission is not eligible to be filed pursuant to Subpart H. In order to exercise the Extension Option,
prior to or on [***] (“Extension Date”), Retrophin shall either (a) pay to Ligand [***] or (b) issue to Ligand, or ensure that
Ligand receives, that number of shares of capital stock of Retrophin equal to [***] as determined by the average of the closing
prices for such capital stock over a five (5) trading day period ending three (3) trading days before the Extension Date
(“Extension Option”).
c) Development Milestone Events. The third milestone event in Table 1 for $[***] shall be amended and restated as follows:
***Certain information (indicated by asterisks) has been
omitted from this document because it is not material and would
likely cause competitive harm to the registrant if publicly disclosed.
“[***]”
3. No Other Amendments. Except as provided herein, the Sublicense Agreement shall continue in full force and effect.
4. Governing Law. This Amendment shall be governed by, enforced, and shall be construed in accordance with the laws of the State of
New York without regard to its conflicts of law provisions.
5. Counterparts. This Amendment may be executed in counter-parts with the same effect as if both Parties had signed the same
document. All such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same
instrument.
[Signature Page Follows]
IN WITNESS WHEREOF, the Parties have executed this Amendment to Sublicense Agreement through their duly authorized
***Text Omitted and Filed Separately with
the Securities and Exchange Commission.
Confidential Treatment Requested Under
17 C.F.R. Sections 200.80(b)(4) and 240.24b-2.
representatives to be effective as of the Amendment Effective Date.
LIGAND PHARMACEUTICALS RETROPHIN, INC.
INCORPORATED
By: /s/ Matthew W. Foehr By: /s/ Steve Aselage
Name: Matthew W. Foehr Name: Steve Aselage
Title: President/COO Title: CEO
AMENDMENT NO. 4 TO SUBLICENSE AGREEMENT
***Text Omitted and Filed Separately with
the Securities and Exchange Commission.
Confidential Treatment Requested Under
17 C.F.R. Sections 200.80(b)(4) and 240.24b-2.
THIS AMENDMENT NO. 4 TO SUBLICENSE AGREEMENT (the “Amendment”) is made and entered into as of September 17,
2015 (“Amendment Effective Date”) and amends the Sublicense Agreement effective as of February 16, 2012, as amended pursuant to that
certain Amendment to Sublicense Agreement dated December 11, 2012, Amendment No. 2 to Sublicense Agreement dated January 7, 2013,
and Amendment No. 3 to Sublicense Agreement dated February 27, 2015 (the “ Sublicense Agreement”) by and between Ligand
Pharmaceuticals Incorporated, a corporation organized under the laws of Delaware and having a place of business at 11119 North Torrey Pines
Road, Suite 200, La Jolla, CA, 92037 and its wholly owned subsidiary, Pharmacopeia, LLC (as successor in interest to Pharmacopeia Drug
Discovery Inc.) (“PCOP”), a limited liability company organized under the laws of Delaware and having a place of business at 11119 North
Torrey Pines Road, Suite 200, La Jolla, CA, 92037 (collectively, Ligand Pharmaceuticals Incorporated and PCOP shall be known as
“Ligand”) and Retrophin, Inc., a corporation organized under the laws of Delaware and having a place of business at 12255 El Camino Real,
San Diego, CA 92130 (“Retrophin”).
BACKGROUND
WHEREAS Ligand and Retrophin have previously entered into the Sublicense Agreement pursuant to which Ligand sublicensed to
Retrophin rights under the License Agreement dated March 27, 2006 between PCOP and Bristol-Myers Squib Company (the “Upstream
License”); and
WHEREAS, Ligand and Retrophin desire to amend certain terms of the Sublicense Agreement and the Upstream Agreement as set
forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants contained herein, the Parties, intending to
be legally bound, agree as follows:
1. Capitalized Terms. The capitalized terms used herein and not otherwise defined shall have the same definitions as provided in the
Sublicense Agreement
2. Amendments to Milestone Payments.
a) Development Milestone Payments. Table 1 of Section 8.2.1 of the Agreement is hereby amended in its entirety as follows:
(a) Milestone Event
(b) Milestone Payment
(c) Execution of Agreement
(d) $1.15 million
***Text Omitted and Filed Separately with
the Securities and Exchange Commission.
Confidential Treatment Requested Under
17 C.F.R. Sections 200.80(b)(4) and 240.24b-2.
( e ) The earlier of (a) December 31, 2012 or (b)
initiation of the first Phase 2 Trial for a Licensed
Product
( f ) $1.3 million (the “Second Milestone”); provided,
that if the Second Milestone is received by Ligand
(a) prior to or on January 31, 2012, Retrophin shall
make an additional $50,000 payment simultaneously
with the payment of the Second Milestone (for an
aggregate payment of $1.35 million), (b) after
January 31, 2013 but prior to or on February 28,
2013, Retrophin shall make an additional $100,00
payment simultaneously with the payment of the
Second Milestone (for an aggregate payment of $1.4
million), and (c) after February 28, 2013 but prior to
or on March 31, 2013, Retrophin shall make an
additional $150,000 payment of
the Second
Milestone (for an aggregate payment of $1.45
million) (the additional payment, an “Additional
Payment”)1
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
1 If the Second Milestone and any Additional Payment is not received by Ligand on or before March 31, 2013, Ligand shall have the right to terminate the Agreement pursuant
to Section 13.2.2 with immediate effect as of March 31, 2013 by providing written notice to Retrophin, notwithstanding (a) the cure period for the failure to make a payment
when due set out in said Section 13.2.2 (Breach) or (b) the provisions of Section 13.2.4 (Disputed Breach). In addition, and for clarity, the provisions of Section 13.4 (Effect of
Termination) shall be operative, including, without limitation, the provisions of subsections (c),(k), and (m) related to amounts then due and payable.”
b) Section 8.10 of the Sublicense Agreement is hereby deleted in its entirety.
***Text Omitted and Filed Separately with
the Securities and Exchange Commission.
Confidential Treatment Requested Under
17 C.F.R. Sections 200.80(b)(4) and 240.24b-2.
3. Consideration. Retrophin shall pay Ligand (i) $850,000 in consideration for the amendments set forth in this Amendment, and (ii)
$150,000 for the efforts to amend the Upstream License Agreement in accordance with Section 4 of this Amendment, in each case such
payment shall be non-refundable and shall be made within 5 days of execution of this Amendment by both parties.
4. Efforts to Amend Upstream License Agreement.
(a) Ligand will use reasonable best efforts to obtain a waiver of Sections 3.1 and 13.2.5 by BMS for the Asia Pacific Region. “Asia
Pacific Region” means Japan, China, S. Korea, Taiwan, Thailand and Vietnam.
(b) Ligand will use reasonable best efforts to obtain BMS’ agreement to the standby license provided by Section 2.2.2(v) in which
event, Section 2.2.2(v) would be amended substantially in the form of the following language:
“…provided, that, that such sublicensed rights shall not terminate if, as of the effective date of termination by BMS under Section
13.2, the Sublicensee is not in material default under its license agreement with Ligand in which case Sublicensee will assume all of
Ligand’s rights and obligation under this Sublicense Agreement and be bound directly to BMS substituting Sublicensee for Ligand
and subject to the payment to Ligand of all royalties and milestones under the sublicense agreement to the extent they exceed
payments due to BMS under this Sublicense Agreement and payment to BMS of all royalties and milestones under this Upstream
Agreement.”
(c) Ligand will use reasonable best efforts to obtain BMS’s agreement to the following amendments to the termination provisions of
the Upstream Agreement.
i. Section 13.4 (b) of the Upstream Agreement amended to read as set forth below:
“[***]”
ii. Section 13.4(f) amended as set forth below:
“Ligand will [***].”
iii. Section 13.4(i) deleted.
(d) For the avoidance of doubt, any such efforts by Ligand made under this Sublicense Agreement shall not require Ligand to pay BMS
any fee or concede and existing rights, but rather shall solely involve the use of logic and reason to seek to persuade BMS.
5. Amendments to Sublicense Agreement.
a) For the avoidance of doubt, none of the following amendments to the Sublicense Agreement are intended to cause a breach of the
Upstream Agreement and any amendment that would otherwise cause such a breach shall be null and void ab initio.
b) Section 1 of the Sublicense Agreement is hereby amended to include the following:
“1.70 “Asia Pacific Region” means Japan, China, S. Korea, Taiwan, Thailand and Vietnam.”
***Text Omitted and Filed Separately with
the Securities and Exchange Commission.
Confidential Treatment Requested Under
17 C.F.R. Sections 200.80(b)(4) and 240.24b-2.
c) Section 2.2.2 (vi) is hereby revised as set forth below:
“…provided however, that such sublicensed rights shall not terminate if, as of the effective date of termination by Ligand under
Article 13, the Sublicensee is not in material default under its license agreement with Retrophin in which case Sublicensee will
assume all of Retrophin’s rights and obligation under this Sublicense Agreement and be bound directly to Ligand respectively
substituting Sublicensee for Retrophin and subject to the payment to Retrophin of all royalties and milestones under the
sublicense agreement to the extent they exceed payments due to Ligand under this Sublicense Agreement and payment to Ligand
of all royalties and milestones under this Sublicense Agreement to the extent they exceed payments due to BMS under the
Upstream Agreement.”
d) Section 3.2 of the Sublicense Agreement is hereby amended to include the following:
“3.2.4 The provisions of Sections 3.2.1 and 3.2.2 shall not apply within the Asia Pacific Region.”
e) Section 13.1.1 is hereby amended to add at the beginning of the first sentence “Subject to Section 13.7…”
f) Section 13.2.6 is hereby deleted.
g) Section 13.3 is hereby amended to add prior to the first sentence:
“Retrophin may terminate this Agreement for convenience upon [***] ([***]) days prior written notice to Ligand and all of the
provisions of Section 13.4 will survive termination of this Agreement pursuant to this Section 13.3.”
h) The following amendments will be effective (i) as between Ligand and Retrophin at a time when there is no breach claimed by
BMS under the Upstream Agreement, and/or (ii) at any time upon BMS’s agreement to amend or waive the applicable sections
of the termination provisions in the Upstream Agreement;
a. Section 13.4(b) is hereby amended as set forth below:
“[***]”
b. Section 13.4(f) amended as set forth below:
“Retrophin will [***].”
c. Section 13.4(i) deleted.
6. Further Agreements.
a) Ligand further agrees that it will not, by act or omission, cause the termination of the Upstream Agreement provided
however Ligand may terminate the Upstream Agreement for good cause with Retrophin’s prior written consent, not to be
unreasonably withheld. Upon receipt by Ligand of any notice of default or any event that could likely lead to termination
of the Upstream Agreement, Ligand will promptly notify Retrophin and work with Retrophin to effect cure of the default
or concession with BMS.
***Text Omitted and Filed Separately with
the Securities and Exchange Commission.
Confidential Treatment Requested Under
17 C.F.R. Sections 200.80(b)(4) and 240.24b-2.
b) To the extent BMS shall not agree to the amendments proposed in Section 4 above, Ligand will, to the extent it does not
cause a default under the Upstream Agreement, work with Retrophin in good faith and without further consideration and
without refund of payments made hereunder to achieve the objectives contemplated by this Amendment by making
further efforts to seek agreement from BMS.
7. No Other Amendments. Except as provided herein, the Sublicense Agreement shall continue in full force and effect.
8. Governing Law. This Amendment shall be governed by, enforced, and shall be construed in accordance with the laws of the State of New
York without regard to its conflicts of law provisions.
9. Counterparts. This Amendment may be executed in counter-parts with the same effect as if both Parties had signed the same document. All
such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument.
[Signature Page Follows]
IN WITNESS WHEREOF, the Parties have executed this Amendment to Sublicense Agreement through their duly authorized
representatives to be effective as of the Amendment Effective Date.
***Text Omitted and Filed Separately with
the Securities and Exchange Commission.
Confidential Treatment Requested Under
17 C.F.R. Sections 200.80(b)(4) and 240.24b-2.
LIGAND PHARMACEUTICALS RETROPHIN, INC.
INCORPORATED
By: /s/ Charles Berkman By: /s/ Laura Clague
Name: Charles Berkman Name: Laura Clague
Title: VP, General Counsel & Secretary Title: Chief Financial Officer
AMENDMENT NO. 5 TO SUBLICENSE AGREEMENT
***Text Omitted and Filed Separately
with Securities and Exchange Commission
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4) and 240.24b-2 of the
Securities Exchange Act of 1934, as amended.
Exhibit 10.2
THIS AMENDMENT NO. 5 TO SUBLICENSE AGREEMENT (the “Amendment”) is made and entered into as of March 20,
2018 (“Amendment Effective Date”) and amends the Sublicense Agreement effective as of February 16, 2012, as amended pursuant to that
certain Amendment to Sublicense Agreement dated December 11, 2012, Amendment No. 2 to Sublicense Agreement dated January 7, 2013,
Amendment No. 3 to Sublicense Agreement dated February 27, 2015 and Amendment No. 4 to Sublicense Agreement dated September 17,
2015 (the “Sublicense Agreement”) by and between Ligand Pharmaceuticals Incorporated, a corporation organized under the laws of
Delaware and having a place of business at 3911 SORRENTO VALLEY BOULEVARD, SUITE 110, SAN DIEGO, CA 92121 and its
wholly owned subsidiary, Pharmacopeia, LLC (as successor in interest to Pharmacopeia Drug Discovery Inc.) (“PCOP”), a limited liability
company organized under the laws of Delaware and having a place of business at 3911 SORRENTO VALLEY BOULEVARD, SUITE 110,
SAN DIEGO, CA 92121 (collectively, Ligand Pharmaceuticals Incorporated and PCOP shall be known as “ Ligand”) and Retrophin Inc., a
corporation organized under the laws of Delaware and having a place of business AT 3721 VALLEY CENTRE DRIVE, SUITE 200, SAN
DIEGO, CA 92130 (“Retrophin”).
BACKGROUND
WHEREAS Ligand and Retrophin have previously entered into the Sublicense Agreement pursuant to which Ligand sublicensed to
Retrophin rights under the License Agreement dated March 27, 2006 between PCOP and Bristol-Myers Squib Company (the “Upstream
License”); and
WHEREAS, Ligand and Retrophin desire to amend certain terms of the Sublicense Agreement as set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants contained herein, the parties, intending to
be legally bound, agree as follows:
1. Capitalized Terms. The capitalized terms used herein and not otherwise defined shall have the same definitions as provided in the
Sublicense Agreement.
2. Amendments.
a) Section 6.1.3 of the Sublicense Agreement is hereby amended to read as follows:
“6.1.3 File for Approval for at least one (1) Orphan Licensed Product (“Approval Submission”) no later than [***] (“Filing
Deadline”);
***Confidential Treatment Requested
[***].
b) Section 8.2.1 of the Sublicense Agreement is hereby amended to read as follows:
“8.2.1 Development Milestone Payments. Retrophin shall make milestone payments to Ligand upon achievement of each of
the milestone events in the amounts set forth below in Table 1. The first milestone payment shall be payable by Retrophin to
Ligand within thirty (30) days of execution of the Agreement. Notwithstanding Section 15.4 or any other provision herein, the
last milestone payment shall be payable by Retrophin to Ligand upon the Closing of Retrophin’s Exit Transaction. Subject to
Section 8.2.2, the remainder of the milestone payments set forth below, with the exception of the milestone payment for
Initiation of the first Phase 3 Trial for the first Licensed Product, will be payable by Retrophin to Ligand within thirty (30)
days of the achievement of the specified milestone event with respect to each Licensed Compound. The milestone for
Initiation of the first Phase 3 Trial for the first Licensed Product will be payable by Retrophin to Ligand within ten (10) days
of the execution of Amendment No. 5 by both Parties. The milestone payments shall not be refundable or returnable in any
event, nor shall they be creditable against royalties or other payments.
Table 1
***Confidential Treatment Requested
68
Milestone Event
Milestone Payment
Execution of Agreement
$1.15 million
The earlier of (a) December 31, 2012 or (b) initiation of
the first Phase 2 Trial for a Licensed Product
$1.3 million (the “Second Milestone”); provided, that if
the Second Milestone is received by Ligand (a) prior to or
on January 31, 2012, Retrophin shall make an additional
$50,000 payment simultaneously with the payment of the
Second Milestone (for an aggregate payment of $1.35
million), (b) after January 31, 2013 but prior to or on
February 28, 2013, Retrophin shall make an additional
$100,000 payment simultaneously with the payment of the
Second Milestone (for an aggregate payment of $1.4
million), and (c) after February 28, 2013 but prior to or on
March 31, 2013, Retrophin shall make an additional
$150,000 payment of the Second Milestone (for an
aggregate payment of $1.45 million) (the additional
payment, an “Additional Payment”)2
At or prior to Initiation of the first Phase 3 Trial for the
first Licensed Product
$4.6 million
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
***Confidential Treatment Requested
69
2If the Second Milestone and any Additional Payment is not received by Ligand on or before March 31, 2013, Ligand shall have the right to terminate the
Agreement pursuant to Section 13.2.2 with immediate effect as of March 31, 2013 by providing written notice to Retrophin, notwithstanding (a) the cure period for
the failure to make a payment when due set out in said Section 13.2.2 (Breach) or (b) the provisions to Section 13.2.4 (Disputed Breach). In addition, and for clarity,
the provisions of Section 13.4 (Effect of Termination) shall be operative, including, without limitation, the provisions of subsections (c), (k), and (m) related to
amounts then due and payable.”
In the event that a milestone event is achieved that triggers a development milestone payment as set forth above, if the preceding
milestone events have not occurred such that the previous development milestone payments have not been previously paid, all such
previous development milestone payments shall become due and payable upon achievement of such milestone event. For example, if
a Phase 3 Trial is initiated that triggers a development milestone payment as set forth above without a Phase 2 Trial supporting such
Phase 3 Trial being previously initiated (and consequently the applicable initiation of Phase 2 Trial milestone payment has not been
previously paid to Ligand), in addition to the milestone payment for the initiation of the Phase 3 Trial, Retrophin shall also pay to
Ligand the applicable milestone payment for the initiation of a Phase 2 Trial.”
3. No Other Amendments. Except as provided herein, the Sublicense Agreement shall continue in full force and effect.
4. Governing Law. This Amendment shall be governed by, enforced, and shall be construed in accordance with the laws of the State of
New York without regard to its conflicts of law provisions.
5 . Counterparts. This Amendment may be executed in counter-parts with the same effect as if both Parties had signed the same
document. All such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the Parties have executed this Amendment to Sublicense Agreement through their duly authorized representatives
to be effective as of the Amendment Effective Date.
LIGAND PHARMACEUTICALS RETROPHIN, INC.
INCORPORATED
By: /s/ Charles S. Berkman By: /s/ Stephen Aselage
Name: Charles S. Berkman Name: Stephen Aselage
Title: Sr. VP, General Counsel & Secretary Title: CEO
***Confidential Treatment Requested
70
***Confidential Treatment Requested
71
LIGAND PHARMACEUTICALS INCORPORATED
LIST OF SUBSIDIARIES
Exhibit 21.1
Name
Ab Initio Biotherapeutics, Inc.
Adjacent Acquisition Co., LLC
Glycomed Incorporated
Allergan Ligand Retinoid Therapeutics, Inc.
Ligand Pharmaceuticals International, Inc.
Ligand Biopharmaceuticals Incorporated
Ligand JVR, Inc.
Ligand Pharmaceuticals UK Limited
Ligand Pharmaceuticals (Canada) Incorporated
Seragen Incorporated
Seragen Technology, Inc.
Pharmacopeia, LLC
Metabasis Therapeutics, Inc.
Neurogen Corporation
CyDex Pharmaceuticals, Inc.
Open Monoclonal Technology, Inc.
OMT I, Inc.
OMT II, Inc.
Crystal Bioscience, Inc.
Vernalis plc
Vernalis (R&D) Limited
Vernalis Group Limited
Vernalis Therapeutics Inc.
Vernalis (Canada) Inc.
Vernalis (Canada II) Inc.
Vernalis Development Limited
Vernalis Research Limited
Cita NeuroPharmaceuticals Inc.
Jurisdiction of Incorporation
Delaware
Delaware
California
Delaware
Delaware
Delaware
Delaware
United Kingdom
Canada
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
California
England and Wales
England and Wales
England and Wales
Delaware
Canada
Canada
England and Wales
England and Wales
Canada
Exhibit 23.1
We consent to the incorporation by reference in the following Registration Statements:
Consent of Independent Registered Public Accounting Firm
(1) Registration Statement (Form S-8 No. 333-233130) pertaining to the 2002 Stock Incentive Plan, as amended and restated of Ligand Pharmaceuticals Incorporated,
(2) Registration Statement (Form S-8 No. 333-212775) pertaining to the 2002 Stock Incentive Plan, as amended and restated of Ligand Pharmaceuticals Incorporated,
(3) Registration Statement (Form S-8 No. 333-182547) pertaining to the 2002 Stock Incentive Plan, as amended and restated of Ligand Pharmaceuticals Incorporated,
(4) Registration Statement (Form S-8 No. 333-160132) pertaining to the 2002 Stock Incentive Plan, as amended and restated, and Employee Stock Purchase Plan, as amended
and restated of Ligand Pharmaceuticals Incorporated, and
(5) Registration Statement (Form S-8 No. 333-131029) pertaining to the 2002 Stock Incentive Plan and 2002 Employee Stock Purchase Plan of Ligand Pharmaceuticals
Incorporated;
of our reports dated February 27, 2020, with respect to the consolidated financial statements of Ligand Pharmaceuticals Incorporated and the effectiveness of internal control
over financial reporting of Ligand Pharmaceuticals Incorporated included in this Annual Report (Form 10-K) of Ligand Pharmaceuticals Incorporated for the year ended
December 31, 2019.
San Diego, California
February 27, 2020
/s/ Ernst & Young LLP
I, John L. Higgins, certify that:
Exhibit 31.1
1. I have reviewed this Annual Report on Form 10-K of Ligand Pharmaceuticals Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer 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)
a)
b)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
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 officer 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):
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: February 27, 2020
/s/ John L. Higgins
John L. Higgins
Chief Executive Officer
(Principal Executive Officer)
I, Matthew Korenberg, certify that:
1. I have reviewed this Annual Report on Form 10-K of Ligand Pharmaceuticals Incorporated;
Exhibit 31.2
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer 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)
a)
b)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
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 officer 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):
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: February 27, 2020
/s/ Matthew Korenberg
Matthew Korenberg
Executive Vice President, Finance and Chief Financial Officer
(Principal Financial Officer)
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, 2019, 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)
(2)
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
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date:
February 27, 2020
/s/ John L. Higgins
Exhibit 32.1
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, 2019, as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Matthew Korenberg, Executive 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)
Date:
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
February 27, 2020
/s/ Matthew Korenberg
Matthew Korenberg
Executive 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.