SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, StateD.C. PostalCode20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):February 26, 2007
LIGAND PHARMACEUTICALS INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
000-20720
(Commission File Number)
10275 Science Center Drive,
San Diego,California
(Address of principal executive offices)
(858) 550-7500
(Registrant's telephone number, including area code)
77-0160744
(I.R.S. Employer Identification No.)
92121-1117
(Zip Code)
Item 2.01. Completion of Acquisition or Disposition of Assets.
On September 6, 2006, Ligand Pharmaceuticals Incorporated, a
Delaware corporation (the "Company"), King Pharmaceuticals, Inc., a Tennessee
corporation ("King Pharmaceuticals"), and King Pharmaceuticals Research and
Development, Inc., a Delaware corporation and wholly owned subsidiary of King
Pharmaceuticals ("King R&D", and together with King Pharmaceuticals, "King")
entered into a Purchase Agreement (the "Purchase Agreement"), pursuant to which
King agreed to acquire all of the Company's rights in and to AVINZA(R) (morphine
sulfate extended-release capsules) in the United States, its territories and
Canada, including, among other things, all AVINZA(R) inventory, records and
related intellectual property, and assume certain liabilities as set forth in
the Purchase Agreement (collectively, the "Transaction"). In addition, King,
subject to the terms and conditions of the Purchase Agreement, offered
employment following the closing of the Transaction (the "Closing") to, and
hired, approximately 60 of the Company's existing sales representatives that
support the sale of AVINZA(R). Closing of the Transaction occurred on
February 26, 2007.
Pursuant to the Purchase Agreement, at Closing the Company was paid
$295 million in cash which represents the purchase price of $246 million
including certain inventory adjustments set forth in the Purchase Agreement, as
amended, plus approximately $49 million in reimbursement of payments to Organon
and others. Of the net cash proceeds, $15 million are set aside in an escrow
account to fund potential indemnity claims by King under the Purchase Agreement.
King also assumed certain AVINZA(R)-related liabilities, including a royalty
obligation to Organon Pharmaceuticals USA Inc. and other obligations and
royalties under contracts assigned as part of the Transaction. There will be
post-closing fees and expenses associated with the Transaction.
King further agreed to pay the Company a 15% royalty on King's
annual net sales of AVINZA(R) or any reformulation or derivation thereof for the
first 20 months following the Closing and thereafter through November 25, 2017,
as follows:
o if annual net sales are $200 million or less, 5% of all such net sales;
o if annual net sales exceed $200 million but do not exceed $250 million,
10% of all such net sales; and
o if annual net sales exceed $250 million, 10% on all net sales up to and
including $250 million, plus 15% of net sales in excess of $250 million.
Also on September 6, 2006, Ligand and King entered into a Contract
Sales Force Agreement (the "Sales Agreement"), pursuant to which King
Pharmaceuticals agreed to conduct a detailing program to promote the sale of
AVINZA(R) for an agreed upon fee, subject to the terms and conditions of the
Sales Agreement. Pursuant to the Sales Agreement, King Pharmaceuticals has
agreed to perform certain minimum monthly product details, which commenced in
October 2006 and were to continue (i) for a period of six months following such
date, (ii) until the Closing or (iii) until the earlier termination of the
Purchase Agreement. Thus the Sales Agreement terminated at the Closing. Ligand
expects total payments under the Sales Agreement, including reimbursement to
King of certain marketing and sales costs to be approximately $7million.
On January 3, 2007, the Company and King executed an amendment to
the Purchase Agreement (the "Amendment") effective as of November 30, 2006 and a
letter agreement effective as of December 29, 2006 (the "Side Letter"). Under
the Amendment, the parties agreed that King could make offers to the Ligand
sales representatives, plus its regional business managers starting on
November 30,2006, such offers to be contingent on the Closing. The Parties
agreed on certain related termination, bonus and severance terms with respect to
those sales representatives that did not receive offers from King.
The parties further amended the Purchase Agreement to move the
outside date or deadline for the Closing from December 31, 2006 to February 28,
2007. As part of the Amendment, the parties agreed that termination of the Sales
Agreement would be subject to 60 days advance notice, instead of the original 30
days.
In connection with the Loan, King and Ligand executed the Side
Letter on January 3, 2007 which provides that Ligand would repay the
Loan, with interest then due on January 8, 2007 and, if the Closing occurred
on or before February 28, 2007 the interest will be refunded to Ligand at the
Closing. Thus the reimbursement payment that Ligand received at the Closing
included this interest refund.
The parties also amended the Purchase Agreement as of the Closing,
principally to address certain second-source manufacturing, inventory and
related items. Among other terms the parties agreed that Ligand's second source
manufacturing arrangement for AVINZA(R) would be wound down and that the
inventory adjustments at Closing would include a $6 million adjustment for
anticipated higher cost of goods for King. The parties further agreed to
transfer two batches of AVINZA(R) recently completed at the second source as
part of Ligand's product inventory to be transferred at the Closing, but
otherwise not to assign or transfer the second source arrangement and related
contracts and liabilities to King. Ligand will remain responsible for these
contracts and liabilities. The parties also agreed that Ligand would not market
any controlled release solid oral dosage formulation containing morphine and its
salts as its sole active ingredient in the United States or Canada, consistent
with the original AVINZA(R) license from Elan Corporation plc.
The Purchase Agreement was approved by the Company's stockholders at
a special meeting held on February 12, 2007. The Closing was subject to certain
customary closing conditions, including, but not limited to, the stockholder
approval, the conversion of all outstanding 6% Convertible Subordinated Notes
due 2007 of the Company which was completed in November 2006, and the expiration
of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended. Early termination of this waiting period was granted in
October 2006.
There were no material relationships between the Company, its
affiliates, directors or officers, and King or its subsidiaries, other than the
Transaction.
The Purchase Agreement was filed on September 11, 2006 as Exhibit
2.1 to the Company's Current Report on Form 8-K. The Sales Agreement was filed
on September 12, 2006 as Exhibit 10.1 to the Company's Current Report on Form
8-K. Amendment Number 1 to Purchase Agreement, Contract Sales Force Agreement
and Confidentiality Agreement was filed on January 5, 2007 as Exhibit 2.1 to the
Company's Current Report on Form 8-K. Amendment Number 2 to Purchase Agreement
is filed as Exhibit 2.1 to this report. The foregoing descriptions of the
Purchase Agreement and the Sales Agreement, as amended, do not purport to be
complete and are qualified in their entirety by reference to such agreements and
amendments.
The press release announcing the Closing is attached as Exhibit
99.1. Unaudited pro forma financial statements showing how the Transaction might
have affected historical financial statements if the Transaction had been
consummated in prior periods were included in the Company's definitive proxy
statement filed with the Commission on January 24, 2007.
Item 9.01 Financial Statements And Exhibits
(d) Exhibits
EXHIBIT NUMBER DESCRIPTION
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2.1 Amendment Number 2 to Purchase Agreement, by and between Ligand
and King effective as of February 26, 2007
99.1 Press release of the Company dated February 26, 2007
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned.
LIGAND PHARMACEUTICALS INCORPORATED
Date : February 28, 2007 By: /s/Warner R. Broaddus
Name: Warner R. Broaddus
Title: Vice President, General Counsel & Secretary