Ligand Pharmaceuticals Incorporated

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Ligand Pharmaceuticals Incorporated

10275 Science Center Drive
San Diego, California 92121-1117
U.S.A.
Telephone: (858) 550-7500
Fax: (858) 550-7506
Web site: http://www.ligand.com

Public Company
Incorporated: 1987 as Progenx Inc.
Employees: 356
Sales: $48.1 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: LGND
NAIC: 325412 Pharmaceutical Preparation Manufacturing

Operating out of San Diego, California, Ligand Pharmaceuticals Incorporated discovers, develops, and markets new drugs, concentrating on cancer, skin diseases, hormone-related diseases, osteoporosis, metabolic disorders, cardiovascular diseases, and inflammatory diseases. Ligand’s drug development program relies on the company’s expertise on the way hormones work, in particular intracellular receptor (IR) technology. Receptors in the human body permit cells to respond to hormones or other chemical messengers. Similar to IR technology is STAT technology, which Ligand uses to target a receptor located on the surface of a cell rather than the interior. In essence, Ligand develops drugs that attach to a receptor in order to affect the body in a manner similar to the way a hormone naturally acts. In recognition of the company’s expertise in this field, a number of larger and more established global pharmaceutical companies have forged collaborative relationships, including Pfizer, Glaxo Wellcome, American Home Products, SmithKline Beecham, Eli Lilly, Abbott Laboratories, Warner-Lambert, and Elan Corporation.

Formation of Ligand: 1987

Ligand was originally called Progenx, Inc., formed in September 1987 by Brook Byers, partner in the San Francisco venture capital firm of Kleiner Perkins Caufield & Byers. The new company licensed monoclonal antibody technology in order to develop cancer detection and therapy products. While raising $1.6 million in seed money, Byers recruited a chief executive to run the business, settling on Howard Birndorf, a man well seasoned in launching biotechnology start-ups, many of which Byers had previously funded. Although earning a graduate degree in biochemistry, Birndorf also displayed an entrepreneurial spirit, having once helped a friend to establish a chain of shoe stores. He launched his first biotechnology company, Hybritech, in 1978, teaming with medical doctor Ivor Royston. The two men drew up a business plan based on a model they found in a “how-to” book, then convinced Byers’s firm to commit to $300,000 in funding. After taking Hybritech public in 1984, Birndorf departed, and two years later Eli Lilly & Co. purchased the company in a $485 million deal. Although Royston remained dedicated to research, Birndorf found that he loved nurturing start-ups, then turning over management to others to take to the next stage. Forsaking a scientific role, he was involved in the creation of Gen-Probe, Gensa, and Idec, becoming recognized as an expert in start-ups and often hired to speak to groups of entrepreneurs. Byers told the Los Angeles Times, “I really like doing start-ups with Howard because he can get more done in the first year than some people can get done in the first two years. And, in the competitive world of biotech, lead time is all-important.”

In January 1988, Birndorf joined Progenx, which was housed in a far-from-luxurious office located at the La Jolla headquarters of General Atomic. A year later the company shifted its emphasis to IR work, licensing technology from the Salk Institute. In December 1989, it also changed its name to Ligand, an allusion to the scientific term for the chemical complex that forms around a central atom or molecule. As expected, Birndorf’s stay at Ligand was short term. In 1991, he left to take on yet another start-up challenge, Neurocrine Bio-sciences, and was replaced by David Robinson, an executive with 20 years of experience at major pharmaceuticals.

Like Birndorf, Robinson also took an unusual path to becoming a chief executive. Born in Indianapolis, he suffered hardships during his childhood, moving to St. Louis after his father died. His mother struggled to support the family of seven from the wages she earned as a government clerk, forcing Robinson to go to work at the age of 12. Through high school and three years of college, he worked as a janitor at a YMCA, then drove a factory forklift. He got married in 1970 and dropped out of school to travel the world with his wife, eventually landing in Sydney, Australia. There, Robinson completed his undergraduate education, studying political science and history, and became involved in the pharmaceutical industry when he took a job as a sales representative for Schering AG. To further his career he decided to earn an M.B.A. at the University of South Wales, but after he became a rep for Abbott Laboratories, influenced by his brother who already worked for the company, Robinson found himself transferred to Chicago in the middle of his M.B.A. program. Six months later, however, he was returned to Australia and was able to complete his M.B.A. before embarking on a number of stops for Abbott. He worked in Chicago a second time, then moved to Puerto Rico to become commercial director, followed by a promotion to the general manager level in Montevideo, Uruguay, where he stayed from 1980 to 1982. Next he became regional director of Abbott Europe and moved to Paris. After two years, he left Abbott and returned to the United States to assume the presidency of Adria Laboratories, located in Connecticut, a position he held for three years before becoming chief operating officer of Adria’s corporate parent, Erbamont N.V. The position required a heavy travel schedule, as Robinson commuted from his home in Connecticut to offices in Columbus, Ohio, and Milan, Italy. In the meantime, he and his wife had a second child, and after two years as COO he elected to step down in favor of replacing Birndorf at Ligand.

Ligand in 1991, with no sales and only 71 employees, was still very much a small company, especially compared to Erbamont and its $1 billion in annual revenues and 9,000 employees. When Robinson became chief executive he expected to make a success of the business within five years, then turn over the reins to another executive. Success, however, would not come quickly and Robinson remained with Ligand well after his five-year limit.

First Collaborative Agreement: 1991

In 1991, Ligand signed its first research and collaboration agreement with a major pharmaceutical partner when it teamed with Pfizer Inc. to develop osteoprosis therapies. In June 1992, Ligand and Allergan Inc. agreed to work together on skin disorders, in particular Kaposi’s sarcoma, caused by AIDS. Under terms of the deal, Allergan paid $20 million to gain a stake in Ligand. In the spring of 1992, Robinson was also preparing to make an initial public offering (IPO) of Ligand’s stock, but when biotech stocks fell off, the IPO had to be postponed. By the end of the year, underwriters for the offering found a novel way to attract investors. Barron’s described the concept in a 1994 article: “The crux of the revised deal was the creation of two classes of stock—A and B shares—with similar voting rights. The venture capitalists and insiders who owned stock prior to the IPO could convert 25% of their holdings to A shares, but the remainder would be of the B class. The IPO, in turn, would be only of A shares, and that class alone would trade over the counter. The kicker: If, at the end of two years, Ligand’s stock, initially offered at $11, was below $15.875, the company would issue additional shares to each Class A holder to make up the difference in total value.… The revised offering succeeded: Ligand sold 3.75 million Class A shares, netting more than $38 million.”

Essentially, Robinson had two years to build value in Ligand in order to meet the target stock price. In September 1992, he negotiated another collaboration, this time with the English pharmaceutical Glaxo Wellcome, to develop drugs for the treatment of atherosclerosis. Glaxo agreed to also invest $10 million in Ligand, gaining a 6 percent stake in the company. Because of these deals with established drug companies, Ligand was able to book revenues despite not yet having any products to sell. The company’s balance sheet boasted $5.5 million in revenues for 1992, and a $14 million net loss, and $16.1 million in revenues in 1993, with losses growing to $19.5 million. As Ligand approached the two-year mark after the IPO, when its stock needed to average $15.875 over a 60-day period, the company failed to excite investors and the price lingered under $12, despite its best efforts. In the days leading up to the test period, Ligand agreed to work with Abbott Laboratories to work on treatments for inflammatory diseases, and the pharmaceutical division of American Home Products, Wyeth-Ayerst, to research the use of sex steroids in such areas as hormone replacement, anti-cancer therapy, and gynecological diseases. Moreover, Ligand secured the Canadian rights to market the kidney cancer drug Proleukin from Chiron Corp. Proleukin also provided a way for Ligand to build a sales force, albeit a three-man-operation at first, in preparation for the time when the company’s own products were ready to market. In November 1994, Ligand converted Class A shares into Class A Shares and issued additional shares to Class A holders to fulfill its IPO promise. The net effect was that insiders lost value, as the ownership of non-insiders grew from 25 percent to 30 percent.

Company Perspectives:

Ligand’s proprietary drug discovery and development programs are based on its leadership position in gene transcription technology, primarily related to Intracellular Receptors (IR) and Signal Transducers and Activators of Transcription (STATs).

Acquisition of Glycomed: 1995

Early in 1995, Ligand used some of its stock to acquire Glycomed Inc., a struggling California biotech, in a deal valued at $57 million. The company also entered into another research and development collaboration, this time with SmithKline Beecham to work on blood disorders. Ligand gave its new sales force more business in 1995 by acquiring the Canadian rights to sell Photofrin, a bladder cancer drug. In June 1995, Ligand and Allergan made an initial public offering of their cancer research joint venture, Ligand and Allergan Ligan Retinoid Therapeutics Inc. (ALTR), offering $32.5 million in stock. The deal allowed Ligand to buy back the company in five years, but just two years later Allergan elected to pull out of the venture and the two parties divided up the compounds developed by ALTR in order to pursue them separately. Ligand exercised an option to buy all the shares of ALTR, while Allergan paid $8.9 million to gain a one-half interest in ALTR’s assets and technologies. Ligand continued to engage in research with Allergan on Kaposi’s sarcoma, as well as treatments that could prevent blindness.

Ligand landed yet another major drug development deal in October 1997, when Eli Lilly & Co. agreed to pay approximately $200 million over eight years to use IR technology in such areas as diabetes, obesity, and cardiovascular diseases. Supported by so many corporate sponsors, Ligand was well positioned to stay afloat while it waited for its first drug candidates to proceed through clinical trials in order to obtain approval from the Federal Drug Administration. In the spring of 1998, the company’s Panretin capsules, used to fight Kaposi’s sarcoma, produced excellent results in Phase II of the process. Prospects for Ligand’s future appeared quite bright. Early in May 1998, SmithKline Beecham agreed to a collaboration deal to develop oral drugs to prevent obesity. A few days later Ligand acquired Seragen Inc., a Boston biotech, in a $35 million cash and stock transaction. Not only did Ligand pick up Seragen’s manufacturing operation, it acquired the rights to Ontak, a drug awaiting Food and Drug Administration (FDA) approval for use in treating cutaneous T-cell lymphoma (CTCL). Ontak was a good fit for Ligand because of the CTCL drugs it already had in clinical trials, Targetin gel and Targetin capsules. Although the market for CTCL drugs was limited, Ligand was now well positioned to take advantage of the niche. Robinson was so pleased with the Seragen acquisition that he predicted that Ligand would become a profitable business by the end of 1999. He improved his chances to meet that goal when in October 1998 he forged an alliance with Elan Corporation, an Ireland-based pharmaceutical. In order to acquire an 8 percent stake in Ligand, Elan agreed to purchase $20 million in common stock as well as to buy as much as $110 million in the company’s zero coupon convertible notes. In addition, Elan granted Ligand the exclusive rights to market its drug Morphelan in the United States and Canada. Morphelan, a solid once-a-day morphine drug for use by HIV and cancer patients, was in Phase III clinical trials.

To prepare for the next stage in Ligand’s growth, the company began an effort in late 1998 to beef up its sales capabilities in the United States, establishing a 20-person sales force. That number would be doubled in 1999 when in the space of a single week Ligand received FDA approval on two drugs, Panretin gel and Ontak. Although neither held out the prospect of gaining blockbuster status, obtaining approval for two drugs in one week was a notable achievement. By the end of 1999, Ligand also received FDA approval for Targretin, a drug to treat patients with a rare form of lymphoma. It held much greater potential than Ligand’s other products, estimated to generate as much as $100 million per year. Should clinical trials show that Targretin was effective against breast cancer, however, that number would likely grow to $300 million in annual sales.

Despite these positive developments, Ligand did not turn profitable in 1999, nor would it in the foreseeable future. Robinson, who had only planned on running Ligand for five years, was still at the helm after ten. Nevertheless, the company was inching its way towards profitability. Sales from its products were steadily improving, while other drugs made their way through the clinical trial process. Moreover, Ligand was still able to attract major pharmaceuticals to enter into collaborative research agreements. Organa and Bristol-Myers Squibb both signed pacts in 2000. Exactly when Robinson would finally be able to step away from what he considered a successful company, however, remained uncertain.