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Ligand Reports Financial Results for 2003 and Provides 2004 Guidance



BW5175 MAR 03,2004 4:32 PACIFIC 07:32 EASTERN



( BW)(CA-LIGAND)(LGND) Ligand Reports Financial Results for 2003 andProvides 2004 Guidance

Business Editors/Health/Medical Writers
BIOWIRE2K

SAN DIEGO--(BUSINESS WIRE)--March 3, 2004--


Record Revenues for Fourth Quarter Produce First Quarter of Profits in Company History Net Product Sales for Year Increase 110%; Total Revenues up 46%

Ligand Pharmaceuticals Incorporated (Nasdaq: LGND) today reportedtotal revenues for the year ended December 31, 2003, of $141.1million, compared to $96.6 million in 2002, an increase of 46%. Lossbefore the non-cash cumulative effect of a change in accountingprinciple for the year was $35.5 million ($0.50 per share), comparedto $32.6 million ($0.47 per share) in 2002, representing an increaseof 9% (6% per share). Including the $2.0 million non-cash cumulativeeffect of the change in accounting principle (FIN 46-R), net loss forthe year ended December 31, 2003, was $37.5 million ($0.53 per share).
For the fourth quarter ended December 31, 2003, total revenueswere $57.6 million, compared to $27.3 million for the same period in2002, an increase of 111%. Income before the non-cash cumulativeeffect of a change in accounting principle for the fourth quarter of2003 was $7.9 million ($0.11 per share or $0.10 per fully dilutedshare) compared to a net loss of $6.7 million ($0.09 per share) forthe same period in 2002. Including the $2.0 million non-cashcumulative effect of the change in accounting principle recorded inthe fourth quarter of 2003, net income was $5.9 million ($0.08 pershare).
"Ligand´s strong financial results for 2003 reflect the impact ofkey growth drivers AVINZA(R) and ONTAK(R), and the exercise of RoyaltyPharma SERM option, which contributed to the company achieving thefirst quarter of profits in its history," said Paul V. Maier, Ligand´ssenior vice president and chief financial officer. "The commercialorganization´s accelerating product sales growth in 2003, more thandouble the 2002 results, reflects the success of AVINZA after ninemonths of co-promotion with Organon and strong prescription demandgrowth of in-line oncology products ONTAK and Targretin(R) capsules.The accelerating prescription growth of AVINZA, which achieved 3.8%market share in the last full week of December 2003, coupled withsignificant progress in new pharmacy distribution, managed careacceptance and positive physician acceptance, met or exceeded key 2003goals. In addition, continued strong other revenues underscore thestrength and evolution of Ligand´s corporate partner portfolio ofproduct assets."
Ligand´s total net product sales for the year were $114.6 million,compared to $54.5 million in 2002, an increase of 110%. For the fourthquarter of 2003, total net product sales were $42.4 million, comparedto $13.9 million for the same period in 2002, an increase of 205%.


Sales of individual products were: 2003 Net 2002 Net 4Q2003 Net 4Q2002 Net Sales Sales Sales Sales (million)(million) (million) (million)----------------------------------------------------------------------AVINZA(R) $66.2 $12.2 $32.0 $2.0----------------------------------------------------------------------ONTAK(R) (denileukin diftitox) $34.3 $26.6 $7.1 $7.4----------------------------------------------------------------------Targretin(R) (bexarotene) capsules $10.1 $12.2 $2.6 $3.6----------------------------------------------------------------------Targretin gel andPanretin(R) (alitretinoin) gel $4.0 $3.4 $.7 $.8----------------------------------------------------------------------Total Net Product Sales $114.6 $54.5 $42.4 $13.8----------------------------------------------------------------------

Research and development expenses were $67.7 million for 2003,compared to $58.8 million in 2002, an increase of 15% that resultedprimarily from clinical expenses associated with the acceleration ofthe SPIRIT I and II Phase III studies of Targretin capsules innon-small cell lung cancer. To date, Ligand has fully enrolled morethan 1,200 patients required for the two studies, and expects survivaldata by the end of this year. In the fourth quarter, R&D expenses were$16.5 million, comparable to $16.4 million in the same period of 2002.
Selling, general, and administrative expenses were $51.7 millionfor 2003, compared to $41.7 million for 2002, an increase of 24%, dueprimarily to increased AVINZA sales and marketing expenses. In thefourth quarter, SG&A expenses were $12.4 million, compared to $11.0million in the same period of 2002, an increase of 13%. Additionally,co-promote expenses for 2003 and the fourth quarter were $9.4 million."Our R&D and SG&A expenses in the fourth quarter and full year were inline with our expectations and the lower end of our annual guidancegiven at the beginning of 2003," Maier said.
Loss from operations was $19.2 million for 2003, compared to $24.2million in 2002, a decrease of 21%. In the fourth quarter, operatingprofit was $10.6 million, compared to an operating loss of $5.5million in the same period of 2002, due to strong product sales growthand the exercise of Royalty Pharma SERM option.
Effective December 31, 2003, Ligand implemented FinancialAccounting Standards Board Interpretation No. 46 (R) "Consolidation ofVariable Interest Entities." As a result of this accounting change,Ligand consolidated Nexus Equity VI LLC, the entity from which thecompany leases one of its corporate office buildings, and recorded a$2.0 million one-time non-cash cumulative effect of a change inaccounting principle.
Net cash generated from operations for the fourth quarter of 2003was $9.2 million. As of December 31, 2003, Ligand had cash, cashequivalents, short-term investments and restricted cash of $100.7million, compared to $74.9 million at the end of 2002, an increase of34%, that resulted primarily from the completion of a privateplacement during the third quarter with net proceeds of $45 millionand positive operating cash flow of $9.2 million generated during thefourth quarter of 2003.

AVINZA Update

"AVINZA had a very strong fourth quarter," Maier said. "Totalprescriptions increased 91% (based on IMS NPA monthly data, which doesnot include institutional use in hospitals, Federal facilities andother non-retail outlets) compared to the prior quarter, reflectingcontinued accelerating growth. In addition, our weekly prescriptionmarket share of 3.8% for the last full week of December 2003 was atthe high end of our goal to achieve 3-4% ´run rate´ as we exited 2003,and achieving our goal of becoming the third largest proprietary brandin the sustained-release opioid market. Since co-promotion began, ouruptake in prescriptions has increased ten-fold and been comparable tothat of the two market leaders at similar stages of their launches,and we believe that results will continue to improve as formularyaccess, retail pharmacy, distribution, and Organon´s primary caresales force productivity also improve."
Ligand estimates that AVINZA retail pharmacy stocking expanded toapproximately 20,000 to 21,000 pharmacies at year end, up from 15,500to 16,500 at the end of the third quarter and ahead of the company´sgoal to have AVINZA available for patients in at least 18,000 to20,000 pharmacies by year end. "We estimate that about 60-70% ofAVINZA´s fourth quarter sales of $32.0 million were covered byprescription demand across all segments (with the balance related toexpanding retail pharmacy, wholesale, and chain distribution), andexpect this percentage to increase further in 2004," Maier said."Fourth quarter was a pleasingly strong quarter of demand-drivengrowth for AVINZA, but sales were also favorably impacted by severalwholesalers´ strong purchases prior to a January 1, 2004, priceincrease. While purchases were limited for good inventory managementand supply reasons, we would still expect some effect on wholesalerpurchases in the next quarter."
Ligand and Organon continued to make substantial progress inincreasing access to AVINZA in managed care. AVINZA now enjoyspreferred national formulary status with pharmacy benefits managersthat cover more than 175 million lives, and Ligand expects this toimprove further as several pending contracts are executed.
In addition, as of February 2004, Ligand estimates that 42 stateMedicaid programs cover AVINZA without restrictions. Cumulatively, 14states have placed AVINZA in a preferred formulary position relativeto at least one of the market leaders. Key formulary additions overthe past 90 days include California, Tennessee and Texas, three of thetop five Medicaid states.

Update on In-Line Oncology Products

"We are pleased with unit demand growth and sales of ONTAK, whichhit a record of $34.3 million (an increase of 29% compared to 2002),based on expanded clinical data and increasing use in CTCL, chroniclymphocytic leukemia, non-Hodgkin´s lymphoma and graft-versus-hostdisease," Maier said. Demand for ONTAK (as measured by unit shipmentsto end users) demonstrated sustained growth, increasing 22% for 2003compared to the prior year. ONTAK unit growth over prior year slowedin the fourth quarter of 2003, while prescriptions for Targretincapsules in the fourth quarter resumed a modest growth trajectory,contributing to an overall increase of 14% for the full year 2003,compared to 2002 (based on IMS NPA data).
"Net sales of ONTAK and Targretin capsules in the fourth quarterwere negatively impacted by increased chargebacks and rebatesreflecting changes in our patient mix and evolving reimbursementrates. We continue to study recently enacted changes to 2004 Centersfor Medicare and Medicaid Services reimbursement rates (ONTAK) andSection 641 of the Medicare Prescription Drug Improvement andModernization Act relating to anti-cancer drugs (Targretin). Earlyassessments indicate a much improved patient access for Targretincapsules and increased challenges for a small sub-segment of ourONTAK/Medicare patients in 2004 and 2005."

Financial Outlook for 2004

"We believe Ligand´s net product sales will continue to acceleratein 2004, based on solid end-user demand for our in-line oncologyproducts and the full year benefit of greatly increased sales andmarketing capabilities and investments behind AVINZA," Maier said. Forthe year, Ligand expects:



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Total revenues between $240 and $265 million

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Net product sales between $210 and $230 million, with AVINZA product sales approximately two-thirds. AVINZA weekly retail Rx market share exiting December 2004 between 6-7%. Gross margin on overall product sales estimated at 79-81%

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Total operating expenses between $180 and $195 million (excluding cost of products sold but including co-promotion expenses)

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Full year operating income between $20 and $25 million

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Basic EPS of $.12 to $.19 per share.

While the company expects full-year positive profits and EPSconsistent with guidance for 2004, Ligand continues to expect at leastone quarter of losses prior to consistent profitability with firsthalf losses and second half strong profits. The Company views 2004 asthe transition year to a high-growth, profitable biopharmaceuticalbusiness with tremendous strength of product assets to drive thatgrowth going forward.

Highlights of Fourth Quarter 2003 and Early 2004

-- Ligand, Royalty Pharma amend SERM royalty agreement. Royalty
Pharma exercised an option on October 1, 2003, to pay Ligand
$12.5 million in exchange for .7% of potential future sales of
three SERMs (selective estrogen receptor modulators) nearing
completion of Phase III development at Pfizer and Wyeth. The
SERMs are lasofoxifene, in Phase III studies for osteoporosis
at Pfizer, and bazedoxifene and bazedoxifene/Premarin(R),
which are in Phase III trials at Wyeth for osteoporosis and
hormone replacement therapy.

-- Ligand earns milestones as Wyeth advances NSP989 into Phase II
studies for contraception. NSP989 is a non-steroidal progestin
resulting from Ligand´s research collaboration with Wyeth.

-- Ligand, TAP agree to extend R&D collaboration to discover and
develop novel SARM drugs. The TAP/Ligand collaboration, which
began in 2001, has been extended for an additional year. The
collaboration already has SARM (selective androgen receptor
modulator) molecules in advanced preclinical development for
the treatment of androgen-related diseases and disorders such
as hypogonadism, osteoporosis, male and female sexual
dysfunction, and frailty.

-- ONTAK shows potential to treat CLL, NHL, and GVHD. ONTAK may
benefit patients with chronic lymphocytic lymphoma (CLL), B-
and T-cell non-Hodgkin´s lymphoma (NHL), and graft-versus-host
disease (GVHD) according to four abstracts from the annual
meeting of the American Society of Hematology.

-- Ligand and Lilly review Phase II data and confirm Lilly´s
decision to advance LY519818 into Phase III studies for type
II diabetes. LY519818 is a novel, potent, oral once-daily
modulator, resulting from Ligand´s research collaboration with
Lilly, for the treatment of type II diabetes.

-- Web Cast Conference Call

Ligand will host a live web cast, open to all interested parties,of a conference call during which Ligand management will discuss thisnews release. The web cast will be available at http://www.ligand.com(investor relations page) and at http://www.streetevents.com onWednesday, March 3, at 8:30 a.m. Eastern time (5:30 a.m. Pacific), andwill be archived for 30 days.

About Ligand

Ligand discovers, develops and markets new drugs that addresscritical unmet medical needs of patients in the areas of cancer, pain,skin diseases, men´s and women´s hormone-related diseases,osteoporosis, metabolic disorders, and cardiovascular and inflammatorydiseases. Ligand´s proprietary drug discovery and development programsare based on its leadership position in gene transcription technology,primarily related to Intracellular Receptors (IRs) and SignalTransducers and Activators of Transcription (STATs). For moreinformation, go to www.ligand.com.

Caution Regarding Forward-Looking Statements

This news release contains certain forward-looking statements byLigand that involve risks and uncertainties and reflect Ligand´sjudgment as of the date of this release. These statements includethose related to the outlook for 2004 financial performance; revenue,product, sales and prescription demand growth; evolution of partnerproduct assets; clinical survival data; AVINZA goals and market leadercomparability; sales and marketing efforts; wholesaler purchases;managed care access; covered lives and Medicare/Medicaidreimbursement. Actual events or results may differ from Ligand´sexpectations. There can be no assurance that Ligand will achieve itsoutlook for 2004; increase revenues or margins or achieve futureprofitability; that the results from the periods discussed in thisrelease will be indicative of results for future periods; that Ligandwill receive any milestone payments for the discovery and/ordevelopment of any partner drugs; that results of any clinical studywill be favorable or confirmed by later studies; that products underdevelopment by Ligand or any of its collaborative partners willreceive marketing approval; that there will be a market for the drugsif successfully developed and thereafter approved; that collaborativeor co-promotion arrangements will be successful or continued; thatAVINZA or any of our oncology products will achieve expected sales orcontinue to grow. Additional information concerning these and otherrisk factors affecting Ligand´s business can be found in prior pressreleases as well as in Ligand´s public periodic filings with theSecurities and Exchange Commission, available via Ligand´s web site athttp://www.ligand.com. Ligand disclaims any intent or obligation toupdate these forward-looking statements beyond the date of thisrelease. This caution is made under the safe harbor provisions of thePrivate Securities Litigation Reform Act of 1995.


LIGAND PHARMACEUTICALS INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except per share data) Three Months Ended Year Ended December 31, December 31, ----------------------------------------- 2003 2002 2003 2002 --------- --------- ---------- ----------Revenues: Product sales $42,394 $13,875 $114,632 $54,522 Collaborative research and development and other revenues 15,214 13,447 26,508 42,118 --------- --------- ---------- ---------- Total revenues 57,608 27,322 141,140 96,640 --------- --------- ---------- ----------Operating costs and expenses: Cost of products sold 8,667 5,519 31,618 20,306 Research and development 16,483 16,370 67,679 58,807 Selling, general and administrative 12,448 10,975 51,661 41,678 Co-promotion expense 9,360 -- 9,360 -- --------- --------- ---------- ---------- Total operating costs and expenses 46,958 32,864 160,318 120,791 --------- --------- ---------- ----------Income (loss) from operations 10,650 (5,542) (19,178) (24,151)Other expense, net (2,702) (1,186) (16,279) (8,445) --------- --------- ---------- ----------Income (loss) before cumulative effect of change in accounting principle 7,948 (6,728) (35,457) (32,596)Cumulative effect of changing method of accounting for variable interest entity (1) (2,005) -- (2,005) -- --------- --------- ---------- ----------Net income (loss) $5,943 $(6,728) $(37,462) $(32,596) ========= ========= ========== ==========Basic (and diluted for three months ended December 31, 2002, and year ended December 31, 2003, and 2002) per share amounts:Net income (loss) before cumulative effect of change in accounting principle $0.11 $ (0.09) $ (0.50) $(0.47)Cumulative effect of change in accounting principle (0.03) -- (0.03) -- --------- --------- ---------- ----------Net income (loss) $0.08 $(0.09) $(0.53) $(0.47) ========= ========= ========== ==========Diluted per share amounts:Net income before cumulative effect of change in accounting principle $0.10Cumulative effect of change in accounting principle (0.02) ---------Net income (loss) $0.08 =========Weighted average shares used to compute net income (loss) per share:Basic 73,098 71,410 70,685 69,119 ========= ========= ========== ==========Diluted (2) 100,877 =========(1) Represents the cumulative effect of the accounting changerecorded in connection with the adoption of FIN 46-R on December 31,2003.(2) Includes common shares that would be issued upon theconversion of convertible notes and the exercise of outstandingwarrants and stock options. LIGAND PHARMACEUTICALS INCORPORATED CONSOLDIATED BALANCE SHEETS (in thousands) December December 31, 2003 31, 2002 --------- ---------AssetsCurrent assets: Cash, cash equivalents and short-term investments $99,034 $64,248 ($9,204 and $8,998 restricted at December 31, 2003 and 2002, respectively) Other current assets 31,123 19,505 --------- --------- Total current assets 130,157 83,753Restricted investments 1,656 10,646Property and equipment, net 23,501 9,672Acquired technology and product rights, net 137,857 148,546Other assets 8,084 17,992 --------- --------- $301,255 $270,609 ========= =========Liabilities and Stockholders´ EquityCurrent liabilities $54,049 $30,535Long-term debt 167,408 155,250Other long-term liabilities 8,518 10,809Stockholders´ equity 71,280 74,015 --------- --------- $301,255 $270,609 ========= =========

--30--AT/sd* CONTACT: Ligand Pharmaceuticals Incorporated Paul V. Maier, 858-550-7573 KEYWORD: CALIFORNIA INDUSTRY KEYWORD: INSURANCE MEDICAL BIOTECHNOLOGY EARNINGS SOURCE: Ligand Pharmaceuticals Incorporated

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