-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IevxQQ4ROa2UFyqjjIUd4XanwRo/2r+aNkf6ihOG2Hvp/wDrpCa4T76aMyF8M3Ip WueL+L9wpDzy7Hhq6BIB/g== 0000899140-05-000884.txt : 20050923 0000899140-05-000884.hdr.sgml : 20050923 20050923154946 ACCESSION NUMBER: 0000899140-05-000884 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20050923 DATE AS OF CHANGE: 20050923 GROUP MEMBERS: THIRD POINT LLC GROUP MEMBERS: THIRD POINT OFFSHORE FUND, LTD. FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: Loeb Daniel S CENTRAL INDEX KEY: 0001300345 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: BUSINESS PHONE: (212) 224-7400 MAIL ADDRESS: STREET 1: THIRD POINT MANAGEMENT COMPANY L.L.C. STREET 2: 360 MADISON AVENUE, 24TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: LIGAND PHARMACEUTICALS INC CENTRAL INDEX KEY: 0000886163 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 770160744 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-43329 FILM NUMBER: 051100605 BUSINESS ADDRESS: STREET 1: 10275 SCIENCE CENTER DRIVE CITY: SAN DIEGO STATE: CA ZIP: 92121-1117 BUSINESS PHONE: 8585507500 MAIL ADDRESS: STREET 1: 10275 SCIENCE CENTER DRIVE CITY: SAN DIEGO STATE: CA ZIP: 92121-1117 SC 13D 1 l2992329b.txt INITIAL FILING SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934* Ligand Pharmaceuticals Incorporated ----------------------------------- (Name of Issuer) Common Stock, par value $0.001 per share ---------------------------------------- (Title of Class of Securities) 53220K207 --------- (CUSIP Number of Class of Securities) Daniel S. Loeb Third Point LLC 390 Park Avenue New York, NY 10022 (212) 224-7400 -------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) Copies to: Jack H. Nusbaum, Esq. Willkie Farr & Gallagher LLP 787 Seventh Avenue New York, NY 10019-6099 (212) 728-8000 September 13, 2005 ------------------ (Date of Event which Requires Filing of this Schedule) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of ss.ss. 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box: [ ] NOTE: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 240.13d-7 for other parties to whom copies are to be sent. * The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). SCHEDULE 13D - ------------------- ------------------ CUSIP No. 53220K207 Page 2 of 10 Pages - ------------------- ------------------ - ----------- -------------------------------------------------------------------- 1 NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Daniel S. Loeb - ----------- -------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [X] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - ----------- -------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - ----------- -------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States - --------------------- --------- ------------------------------------------------ 7 SOLE VOTING POWER 0 NUMBER OF --------- ------------------------------------------------ SHARES 8 SHARED VOTING POWER BENEFICIALLY OWNED BY 7,000,000 EACH --------- ------------------------------------------------ REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH 0 --------- ------------------------------------------------ 10 SHARED DISPOSITIVE POWER 7,000,000 - ----------- -------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON 7,000,000 - ----------- -------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - ----------- -------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 9.47% - ----------- -------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* IN - ----------- -------------------------------------------------------------------- SCHEDULE 13D - ------------------- ------------------ CUSIP No. 53220K207 Page 3 of 10 Pages - ------------------- ------------------ - ----------- -------------------------------------------------------------------- 1 NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Third Point LLC I.D. #13-3922602 - ----------- -------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [X] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - ----------- -------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - ----------- -------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - --------------------- --------- ------------------------------------------------ 7 SOLE VOTING POWER 0 NUMBER OF --------- ------------------------------------------------ SHARES 8 SHARED VOTING POWER BENEFICIALLY OWNED BY 7,000,000 EACH --------- ------------------------------------------------ REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH 0 --------- ------------------------------------------------ 10 SHARED DISPOSITIVE POWER 7,000,000 - ----------- -------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON 7,000,000 - ----------- -------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - ----------- -------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 9.47% - ----------- -------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* OO - ----------- -------------------------------------------------------------------- SCHEDULE 13D - ------------------- ------------------ CUSIP No. 53220K207 Page 4 of 10 Pages - ------------------- ------------------ - ----------- -------------------------------------------------------------------- 1 NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Third Point Offshore Fund, Ltd. - ----------- -------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [X] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - ----------- -------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - ----------- -------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Cayman Islands - --------------------- --------- ------------------------------------------------ 7 SOLE VOTING POWER 0 NUMBER OF --------- ------------------------------------------------ SHARES 8 SHARED VOTING POWER BENEFICIALLY OWNED BY 4,552,600 EACH --------- ------------------------------------------------ REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH 0 --------- ------------------------------------------------ 10 SHARED DISPOSITIVE POWER 4,552,600 - ----------- -------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON 4,552,600 - ----------- -------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - ----------- -------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 6.16% - ----------- -------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* OO - ----------- -------------------------------------------------------------------- This Schedule 13D is being filed on behalf of Third Point LLC, a Delaware limited liability company (the "Management Company"), Third Point Offshore Fund, Ltd., a Cayman Island limited liability exempted company (the "Offshore Fund"), and Daniel S. Loeb, an individual ("Mr. Loeb" and, together with the Management Company and the Offshore Fund, the "Reporting Persons"). This Schedule 13D relates to the common stock, par value $0.001 per share, of Ligand Pharmaceuticals Incorporated, a Delaware corporation (the "Company"). Unless the context otherwise requires, references herein to the "Common Stock" are to such common stock of the Company. The Management Company is the investment manager or adviser to a variety of hedge funds and managed accounts (such funds and accounts, collectively, including but not limited to the Offshore Fund, the "Funds"). The Funds directly own the Common Stock to which this Schedule 13D relates, and the Reporting Persons may be deemed to have beneficial ownership over such Common Stock by virtue of the authority granted to them by the Funds to vote and to dispose of the securities held by the Funds, including the Common Stock. Item 1. Security and Issuer. This statement on Schedule 13D relates to the Common Stock of the Company, and is being filed pursuant to Rules 13d-1 and 13d-5 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The address of the principal executive offices of the Company is 10275 Science Center Drive, San Diego, CA 92121. Item 2. Identity and Background. (a) This statement is filed by the Reporting Persons. Daniel S. Loeb is the managing member of the Management Company and controls the Management Company's business activities. The Management Company is organized as a limited liability company under the laws of the State of Delaware. The Offshore Fund is organized as a limited liability exempted company under the laws of the Cayman Islands. (b) The address of the principal business and principal office of the Management Company and Mr. Loeb is 390 Park Avenue, New York, NY 10022. The address of the principal business and principal office of the Offshore Fund is c/o Walkers SPV Limited, Walker House, Mary Street, P.O. Box 908GT, George Town, Grand Cayman, Cayman Islands, British West Indies. (c) The principal business of the Management Company is to serve as investment manager or adviser to the Funds, and to control the investing and trading in securities of the Funds. The principal business of Mr. Loeb is to act as the managing member of the Management Company. The principal business of the Offshore Fund is to invest and trade in securities. (d) None of the Reporting Persons, nor, to the best of their knowledge, any of their directors, executive officers, general partners or members has, during the last five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). (e) None of the Reporting Persons, nor, to the best of their knowledge, any of their directors, executive officers, general partners or members has, during the last five years, been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. (f) Mr. Loeb is a United States citizen. Item 3. Source and Amount of Funds or Other Consideration. The Funds expended an aggregate of approximately $54,341,445.65 of their own investment capital to acquire the 7,000,000 shares of Common Stock held by them and the Offshore Fund expended an aggregate of approximately $35,342,672.96 of its own investment capital to acquire its 4,552,600 shares of Common Stock. All shares of Common Stock acquired prior to September 7, 2005 were acquired in open market purchases on the Nasdaq National Market and the shares acquired on September 7, 2005 or thereafter were acquired on the Pink Sheets and in directly negotiated transactions with broker-dealer firms. The Funds effect purchases of securities primarily through margin accounts maintained for them with Bear, Stearns Securities Corp. and Goldman, Sachs & Co., which may extend margin credit to the Funds as and when required to open or carry positions in the margin accounts, subject to applicable Federal margin regulations, stock exchange rules and the firm's credit policies. In such instances, the positions held in the margin accounts are pledged as collateral security for the repayment of debit balances in the accounts. Item 4. Purpose of Transaction. On September 13, 2005 the Reporting Persons' beneficial ownership first exceeded 5% of the Company's outstanding shares of Common Stock. The purpose of the acquisition of the shares of Common Stock by the Funds is for investment. The Reporting Persons may cause the Funds to make further acquisitions of Common Stock from time to time or to dispose of any or all of the shares of Common Stock held by the Funds at any time. The Reporting Persons are engaged in the investment business. In pursuing this business, the Reporting Persons analyze the operations, capital structure and markets of companies, including the Company, on a continuous basis through analysis of documentation and discussions with knowledgeable industry and market observers and with representatives of such companies (often at the invitation of management). From time to time, one or more of the Reporting Persons may hold discussions with third parties or with management of such companies in which the Reporting Persons may suggest or take a position with respect to potential changes in the operations, management or capital structure of such companies as a means of enhancing shareholder value. Such suggestions or positions may relate to one or more of the transactions specified in clauses (a) through (j) of Item 4 of Schedule 13D of the Exchange Act, including, without limitation, such matters as disposing of or selling all or a portion of the company or acquiring another company or business, changing operating or marketing strategies, adopting or not adopting certain types of anti-takeover measures and restructuring the company's capitalization or dividend policy. Except as set forth above and in the letter attached hereto as Exhibit 2, the Reporting Persons do not have any present plans or proposals that relate to or would result in any of the actions required to be described in Item 4 of Schedule 13D. Each of the Reporting Persons may, at any time, review or reconsider its position with respect to the Company and formulate plans or proposals with respect to any of such matters, but has no present intention of doing so. Item 5. Interest in Securities of the Issuer. (a) As of the date of this Schedule 13D, the Management Company beneficially owns 7,000,000 shares of Common Stock. The Management Company shares voting and dispositive power over such holdings with Mr. Loeb and with the Funds. The Shares represent 9.47% of the 73,932,315 shares of Common Stock outstanding at October 29, 2004, as reported in the Company's last Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004. As of the date of this Schedule 13D, the Offshore Fund directly beneficially owns 4,552,600 shares of Common Stock, which represents 6.16% of the outstanding shares of Common Stock. None of the other individual Funds owns a number of shares of Common Stock equal to or greater than 5% of such total Common Stock outstanding. (b) The Management Company and Mr. Loeb share voting and dispositive power over the 7,000,000 shares of Common Stock held directly by the Funds. The Management Company, Mr. Loeb and the Offshore Fund share voting power and dispositive power over the 4,552,600 shares of Common Stock held by the Offshore Fund. (c) Schedule A hereto sets forth certain information with respect to transactions by the Funds, at the direction of the Reporting Persons, in the Common Stock during the past sixty days. Schedule B hereto sets forth certain information with respect to transactions by the Offshore Fund at the direction of the Management Company and Mr. Loeb during the past 60 days. All shares of Common Stock acquired prior to September 7, 2005 were acquired in open market purchases on the Nasdaq National Market and the shares acquired on September 7, 2005 or thereafter were acquired on the Pink Sheets and in directly negotiated transactions with broker-dealer firms. Except as set forth above and on Schedule A and Schedule B, during the last sixty days there were no transactions in the Common Stock effected by the Reporting Persons, nor, to the best of their knowledge, any of their directors, executive officers, general partners or members. (d) Other than the Funds which directly hold the shares of Common Stock, and except as set forth in this Item 5, no person is known to have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the shares of Common Stock. (e) Not applicable. Item 6. Contracts, Arrangements, Understandings or Relationships With Respect to Securities of the Issuer. Pursuant to Rule 13d-1(k) promulgated under the Exchange Act, the Reporting Persons have entered into an agreement with respect to the joint filing of this statement, and any amendment or amendments hereto. By virtue of the relationships among the Reporting Persons and the Funds, as described in Item 2, the Reporting Persons and the Funds may be deemed to be a "group" under the Federal securities laws. Except as otherwise set forth in this Schedule 13D, each Reporting Person expressly disclaims beneficial ownership of any of the shares of Common Stock beneficially owned by any other Reporting Person or the Funds and the filing of this Statement shall not be construed as an admission, for the purposes of Sections 13(d) and 13(g) or under any provision of the Exchange Act or the rules promulgated thereunder or for any other purpose, that any Reporting Person is a beneficial owner of any such shares. Except as set forth herein, there are no contracts, arrangements, understandings or relationships among the persons named in Item 2 or between such persons and any other person with respect to any securities of the Company. Item 7. Material to be Filed as Exhibits. 1. Joint Filing Agreement, dated as of September 23, 2005, by and between the Reporting Persons. 2. Letter. Schedule A ---------- (Transactions by the Funds in Common Stock during the past sixty days) Date Transaction Shares Price Per Share ---- ----------- ------ --------------- 8/24/05 Buy 332,000 8.0237 8/25/05 Buy 250,000 8.1479 8/26/05 Buy 19,500 7.8305 8/29/05 Buy 198,500 7.9040 8/30/05 Buy 50,000 7.8660 8/30/05 Buy 50,000 7.8660 8/31/05 Buy 100,000 7.8013 9/1/05 Buy 100,000 7.6944 9/6/05 Buy 275,000 7.2598 9/6/05 Buy 275,000 7.2598 9/6/05 Buy 350,000 7.2596 9/7/05 Buy 600,000 7.2690 9/8/05 Buy 210,000 7.6052 9/8/05 Buy 350,000 7.6120 9/9/05 Buy 200,000 8.1613 9/9/05 Buy 25,000 8.0000 9/12/05 Buy 30,000 8.4143 9/12/05 Buy 135,000 8.4000 9/13/05 Buy 800,000 8.0445 9/13/05 Buy 700,000 8.1213 9/13/05 Buy 700,000 8.0831 9/14/05 Buy 235,000 8.0074 9/14/05 Buy 65,000 8.0564 9/15/05 Buy 100,000 7.8970 9/21/05 Buy 200,000 7.2250 9/22/05 Buy 175,000 7.2793 9/22/05 Buy 375,000 7.4000 9/22/05 Buy 100,000 7.4000 Schedule B ---------- (Transactions by the Offshore Fund in Common Stock during the past sixty days) Date Transaction Shares Price Per Share ---- ----------- ------ --------------- 8/24/05 Buy 220,500 8.0237 8/25/05 Buy 167,000 8.1479 8/26/05 Buy 12,300 7.8305 8/29/05 Buy 133,500 7.9040 8/30/05 Buy 15,000 7.8660 8/30/05 Buy 50,000 7.8660 8/31/05 Buy 52,600 7.8013 9/1/05 Buy 64,400 7.6944 9/6/05 Buy 235,100 7.2598 9/6/05 Buy 350,000 7.2596 9/7/05 Buy 389,600 7.2690 9/8/05 Buy 210,000 7.6052 9/8/05 Buy 154,000 7.6120 9/9/05 Buy 130,000 8.1613 9/9/05 Buy 16,100 8.0000 9/12/05 Buy 30,000 8.4143 9/12/05 Buy 76,900 8.4000 9/13/05 Buy 518,900 8.0445 9/13/05 Buy 454,700 8.1213 9/13/05 Buy 454,700 8.0831 9/14/05 Buy 153,900 8.0074 9/14/05 Buy 42,200 8.0564 9/15/05 Buy 65,000 7.8970 9/21/05 Buy 131,400 7.2250 9/22/05 Buy 115,900 7.2793 9/22/05 Buy 208,900 7.4000 9/22/05 Buy 100,000 7.4000 SIGNATURES After reasonable inquiry and to the best of our knowledge and belief, the undersigned certify that the information set forth in this statement is true, complete and correct. Dated: September 23, 2005 THIRD POINT LLC By: /s/ Daniel S. Loeb ------------------------------------ Name: Daniel S. Loeb Title: Chief Executive Officer /s/ Daniel S. Loeb --------------------------------------- Daniel S. Loeb [SIGNATURE PAGE TO SCHEDULE 13D WITH RESPECT TO LIGAND PHARMACEUTICALS INCORPORATED] EX-1 3 l2992329c.txt JOINT FILING AGREEMENT Exhibit 1 --------- JOINT FILING AGREEMENT PURSUANT TO RULE 13d-1(k)(1) ---------------------------- The undersigned acknowledge and agree that the foregoing statement on Schedule 13D is filed on behalf of each of the undersigned and that all subsequent amendments to this statement on Schedule 13D shall be filed on behalf of each of the undersigned without the necessity of filing additional joint filing agreements. The undersigned acknowledge that each shall be responsible for the timely filing of such amendments, and for the completeness and accuracy of the information concerning it contained therein, but shall not be responsible for the completeness and accuracy of the information concerning the others, except to the extent that it knows or has reason to believe that such information is inaccurate. This Agreement may be executed in any number of counterparts and all of such counterparts taken together shall constitute one and the same instrument. Dated: September 23, 2005 THIRD POINT LLC By: /s/ Daniel S. Loeb ------------------------------------ Name: Daniel S. Loeb Title: Chief Executive Officer /s/ Daniel S. Loeb --------------------------------------------- Daniel S. Loeb [JOINT FILING AGREEMENT FOR SCHEDULE 13D WITH RESPECT TO LIGAND PHARMACEUTICALS INCORPORATED] EX-2 4 l2992329d.txt LETTER Exhibit 2 --------- Third Point Third Point LLC 390 Park Avenue New York, NY 10022 Tel 212 2247400 Fax 224 7401 Via fax and U.S. Mail - --------------------- September 23, 2005 Mr. David E. Robinson Chairman, President & CEO Ligand Pharmaceuticals, Inc 10275 Science Drive Center San Diego, CA 92121-1117 Dear Mr. Robinson: Certain entities advised by Third Point LLC ("Third Point") have acquired 7.0 million shares of Ligand Pharmaceuticals ("Ligand" or the "Company") common stock representing an interest of approximately 9.5% in the Company's outstanding stock. We made these purchases after completing an exhaustive due diligence process of the Company's products, pipeline and management effectiveness (the "Investigation"). Based on our Investigation, we have concluded that Ligand shares, currently around $7.50 per share, trade at approximately half the value of our worst-case estimated value of $14 per share - - as we outline in this letter. We believe this discrepancy is largely due to the overwhelmingly low regard held by the investment community for the management and Board of the Company. When one analyst was queried about the reputation of the senior executives at the Company, he said that you are "the worst CEO in biotech", and another analyst we spoke with attributed the significant valuation disparity between the current stock price and the much higher intrinsic value of the Company to the "David Robinson Discount". I must wonder how in this day and age the Company's Board of Directors has not held you and Paul Maier responsible for your respective failures and shown you both the door long ago - accompanied by a well worn boot planted in the backside. In contrast to your obvious shortcomings as a CEO, the Ligand scientific staff has done a remarkable job developing and gaining approval for an impressive number of compounds and it is they who have generated the significant value in the Company despite your inability to execute on these assets. Accordingly, it is our view that this management team is unable to derive value - ------------------------------------------------------------------------------- from the Company's assets and therefore we insist that the Board of Directors - ----------------------------------------------------------------------------- immediately retain bankers to evaluate strategic options, including a sale of - ----------------------------------------------------------------------------- the Company. This process should - -------------------------------- commence concurrently with the upcoming revision of the Company's audited - ------------------------------------------------------------------------- financial statements. - --------------------- Below we will set forth a sample of the Company's recent Operational and Financial blunders that support our demands that the Company must be sold: The launch of Avinza in Q2'02 was reportedly one of the worst product launches in history. Your shareholders and "street" analysts were disappointed that the much ballyhooed release generated a mere $19M in revenues over the first year after launch with the ONLY once a day sustained release opioid in a $4 billion market. It is our understanding that you only committed some 50 sales people to the release when your main competitor, Purdue Pharmaceuticals used over 800 representatives to sell OxyContin. Your stock price mirrored this marketing debacle, dropping from $20.50 in March 2002 to a low of $3.69 in February 2003. Amusingly, during this period you did an interview with Bloomberg in which you predicted sustained profitability for Ligand beginning in the quarter in which you gave the interview (Q2 `02). Incredibly, a mere three weeks later Ligand announced that it would miss second quarter 2002 estimates badly due to previous channel stuffing issues. As for your predictive powers, since then the Company has posted exactly one profitable quarter (still subject to restatement) and zero profitable years. You then made the decision to allow Organon to detail Avinza starting April 2003. They developed Avinza into a $170M drug (as approximated by IMS Health) still low for a best in class compound in a $4 billion market but nonetheless far better than you alone were able to do. As a result, your stock reached a high of $24.91 on 4/27/04. Once again, destruction of shareholder value ensued. On May 5, 2004, you missed "street" analysts' Q1'04 estimates by $0.12, delivering an EPS loss of ($0.18) versus consensus estimates of ($0.06). You then missed Q2'04 and Q3'04 estimates by $0.13 and $0.08, respectively. On August 3, 2004, Deloitte & Touche resigned as the Company's independent auditor. On March 17, 2005, you announced a delay in the filing of your 2004 10-K. Finally, on March 28, 2005, you announced the failure of PIII pivotal clinical trials for Targretin in non-small cell lung cancer. Over this time, your stock declined from $24.91 to a low of $4.69 on April 18, 2005. On May 20, 2005, the Company announced that it needed to restate consolidated financial statements for FY'02, FY'03, Q1-Q4'03 and Q1-Q3'04. We are puzzled that you have been unable to do so yet. We are further shocked that you have requested three filing extensions (8/1/05, 8/15/05, and 9/2/05) from NASDAQ and, despite being granted an extra month, were unable to meet the deadline. We also understand that you recently cancelled an appearance at the UBS healthcare conference where you were scheduled to appear Monday, September 26th because the financial statements are still not in order. Valuation - --------- Notwithstanding the sorry state of the Company, the apparent lack of financial controls, the consistently disappointing results and the abysmal investor relations, we estimate that the value of Ligand's assets far outstrip the current enterprise value of the Company, currently valued by the market at approximately $700 million on a fully-diluted basis. Using a sum of the parts approach to value the Company, Ligand is worth a minimum of $14/share ($1.5 billion enterprise value). The analysis is as follows: 1. Avinza will generate approximately $170 million in sales for FY'05. With the market suspension of competitor Purdue Pharma's Palladone, a capable Company should be able to grow sales of Avinza considerably. In fact, we strongly believe that you should be able to double sales of Avinza with the appropriate marketing effort. However, using the conservative assumption that Avinza sales remain flat at $170 million and assigning an average specialty pharmaceutical sales multiple of 4x yields a base case fair value for Avinza of $680M. 2. Ontak and Targretin, two small cancer products, will generate approximately $60 million in sales for FY'05. Again, assigning a 4x multiple to these drugs yields a fair value of $240M for these assets. 3. Ligand owns significant royalties on numerous late stage product candidates, including the following: a. SB-497115 (a thrombopoietin agonist for thrombocytopenia) - 12% royalty; partnered with GlaxoSmithKline b. LY-818 (a PPAR modulator for Type II Diabetes) - low double digit royalty; partnered with Eli Lilly c. GSK-516 (a PPAR modulator for cardiovascular disease/dyslipidemia) - tiered royalty ranging from 12% to 8%; partnered with GlaxoSmithKline d. LY-674 (a PPAR modulator for atherosclerosis/dyslipidemia) -- low double digit royalty; partnered with Eli Lilly e. NSP-989 (a PR agonist for contraception) - low double digit royalties; partnered with Wyeth f. Bazedoxifene (Serum Estrogen Receptor Modulator for post-menopausal osteoporosis) - 3% royalty; partnered with Wyeth g. Bazedoxifene-PREMARIN (Serum Estrogen Receptor Modulator for post-menopausal osteoporosis) - 3% royalty; partnered with Wyeth h. ERA-923 (Serum Estrogen Receptor Modulator for Breast Cancer) - mid single digit royalty; partnered with Wyeth. We recommend that the Company stop giving its royalty stream away to Royalty Pharma. Many of the Company's drugs represent $1 billion market opportunities, driving royalty income to Ligand ranging from $30 million to $120 million per product. In particular, we are especially excited about your joint effort with GlaxoSmithKline on SB-497115. While we understand the risks inherent in drug development, we would argue that you should be able to generate a minimum of $120 million in royalty income by 2010. Applying a 10x multiple to $120 million and discounting back four years at 20%, we arrive at a 1-year fair value of approximately $550 million for your royalty business. Again, in our opinion this is a worst-case valuation. It assumes success for only ONE of your royalty products, and assumes that product generates only $1 billion in revenue. Mr. Robinson, Ligand shares currently trades below the 1993 IPO price of $13. You claim in your mission statement that you are committed to `provide a high level of reward for shareholders.' To date, the only high level of reward you have provided is for short sellers. It is time for you to step down from your position and for the Board of Directors to sell the Company to the highest bidder. We have already spoken to investment bankers who would be happy to take the assignment and believe that there are strategic buyers interested in purchasing the Company for a significant premium. I would like to remind the Board of Directors of their fiduciary duty to shareholders, not management. Accordingly, should the Board fail to act or to communicate directly with us, we will take steps to replace the members as soon as practicable through the democratic process. Sincerely, /s/ Daniel S. Loeb - --------------------------------- Daniel S. Loeb Chief Executive Officer Cc: Dr. John W. Kozarich Mr. Michael A. Rocca Mr. Carl Peck Mr. John Groom Mr. Henry F. Blissenbach Dr. Alexander D. Cross Mr. Irving S. Johnson -----END PRIVACY-ENHANCED MESSAGE-----