10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

                                                Mark One

[X] Quarterly Report Pursuant to Section 13 or 15(D) of the
Securities Exchange Act of 1934

For the quarterly period ended June 30, 2003 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 number 0-20720

LIGAND PHARMACEUTICALS INCORPORATED
(Exact Name of Registrant as Specified in its Charter)

Delaware
(State or Other Jurisdiciton of Incorporation or Organization)

77-0160744
(I. R. S. Employer Identification No.)

10275 Science Center Drive San Diego, CA
(Address of Principal Executive Offices)

92121-1117
(Zip Code)

Registrant's Telephone Number, Including Area Code: (858) 550-7500

        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 [X]     No [  ]

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X]     No [  ]

        As of July 31, 2003, the registrant had 69,355,579 shares of common stock outstanding.

LIGAND PHARMACEUTICALS INCORPORATED
QUARTERLY REPORT

FORM 10-Q

TABLE OF CONTENTS

COVER PAGE	1
TABLE OF CONTENTS	2
PART I.  FINANCIAL INFORMATION
ITEM 1.   Financial Statements
Consolidated Balance Sheets as of June 30, 2003 (unaudited) and December 31, 2002	3
Consolidated Statements of Operations for the three and six months ended           June 30, 2003 (unaudited) and 2002 (unaudited)	4
Consolidated Statements of Cash Flows for the six months ended           June 30, 2003 (unaudited) and 2002 (unaudited)	5
Notes to Consolidated Financial Statements (unaudited)	6
ITEM 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations	10
ITEM 3.  Quantitative and Qualitative Disclosures about Market Risk	27
ITEM 4.  Controls and Procedures	27
PART II.  OTHER INFORMATION
ITEM 1.  Legal Proceedings	*
ITEM 2.  Changes in Securities and Use of Proceeds	*
ITEM 3.  Defaults upon Senior Securities	*
ITEM 4.  Submission of Matters to a Vote of Security Holders	28
ITEM 5.  Other Information	*
ITEM 6.  Exhibits and Reports on Form 8-K	29
SIGNATURE	31

*No information provided due to inapplicability of item.

2

PART I.   FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS

LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

		June 30, 2003			December 31, 2002
		(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents	$	24,248		$	42,423
	Short-term investments; $9,275 and $8,998 restricted at June 30, 2003 and      December 31, 2002, respectively		17,595			21,825
	Accounts receivable, net (Note 2)		7,689			12,176
	Inventories		4,806			4,841
	Other current assets		2,635			7,308
Total current assets			56,973			88,573
Restricted investments			6,204			10,646
Property and equipment, net			8,843			9,672
Aquired technology and product rights, net			143,194			148,546
Other assets			11,718			17,992
		$	226,932		$	275,429
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable	$	10,819		$	11,979
	Accrued liabilites		18,319			16,606
	Current portion of deferred revenue		4,126			4,683
	Current portion of equipment financing obligations		1,890			2,087
Total current liabilities			35,154			35,355
Long-term debt			155,250			155,250
Long-term portion of deferred revenue			2,430			3,014
Long-term portion of equipment financing obligations			3,403			4,095
Other long-term liabilities			3,638			3,700
Total liabilities			199,875			201,414
Commitments and contingencies (Note 6)
Stockholders’ equity:
	Convertible preferred stock, $0.001 par value; 5,000,000 shares authorized; none issued		—			—
	Common stock, par value $0.001; 130,000,000 shares authorized, 69,417,707 shares and 71,522,156 shares issued at June 30, 2003 and December 31, 2002, respectively		70			72
	Additional paid-in capital		678,577			693,213
	Accumulated other comprehensive loss		(46	)		(43	)
	Accumulated deficit		(650,633	)		(618,316	)
			27,968			74,926
	Treasury stock, at cost; 73,842 shares		(911	)		(911	)
Total stockholders’ equity			27,057			74,015
		$	226,932		$	275,429

See accompaning notes.

3

LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)

		Three months ended June 30,						Six months ended June 30,
			2003			2002			2003			2002
Revenues:
Product sales		$	25,187		$	10,465		$	44,115		$	24,160
Collaborative research and development and         other revenues			3,939			8,701			8,135			19,891
	Total revenues		29,126			19,166			52,250			44,051
Operating costs and expenses:
Cost of product sold			7,766			4,681			14,386			9,141
Research and development			16,859			13,681			33,499			26,797
Selling, general and administrative			13,571			10,279			25,998			19,935
	Total operating costs and expenses		38,196			28,641			73,883			55,873
Loss from operations			(9,070	)		(9,475	)		(21,633	)		(11,822	)
Other income (expense):
Interest income			140			372			383			663
Interest expense			(2,688	)		(2,814	)		(5,370	)		(5,066	)
Debt conversion expense			—			—			—			(2,015	)
Other, net			(379	)		(329	)		(5,697	)		(581	)
	Total other expense, net		(2,927	)		(2,771	)		(10,684	)		(6,999	)
Net loss		$	(11,997	)	$	(12,246	)	$	(32,317	)	$	(18,821	)
Basic and diluted per share amounts:
Net loss		$	(.17	)	$	(.17	)	$	(.46	)	$	(.28	)
Weighted average number of common shares			69,275			70,413			69,754			68,196

See accompaning notes.

4

LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)

		Six Months Ended June 30,
		2003			2002
Operating activities
Net loss		$	(32,317	)	$	(18,821	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Amortization of acquired technology and license rights		5,488			1,708
	Depreciation and amortization of property and equipment		1,274			1,635
	Amortization of debt discount and issuance costs		405			3,139
	Write-off of X-Ceptor purchase right		5,000			—
	Equity in loss of affiliate		572			564
	Debt conversion expense		—			2,015
	Other		547			823
Changes in operating assets and liabilities:
	Accounts receivable, net (Note 2)		4,487			(6,063	)
	Inventories		35			1,451
	Other current assets		4,673			(528	)
	Accounts payable and accrued liabilities		4,686			1,020
	Deferred revenue		(1,141	)		1,033
Net cash used in operating activities			(6,291	)		(12,024	)
Investing activities
Purchases of short-term investments			(499	)		(3,014	)
Proceeds from sale of short-term investments			5,004			2,492
Purchases of property and equipment			(445	)		(2,171	)
Payment for AVINZA® royalty rights			(4,133	)		—
Other, net			150			67
Net cash used in investing activities			77			(2,626	)
Financing activities
Principle payments on equipment financing obligations			(1,140	)		(1,443	)
Proceeds from equipment financing arrangements			251			453
Decrease in restricted investments			4,167			181
Repurchase of common stock			(15,867	)		—
Net proceeds from issuance of common stock			690			69,805
Decrease in other long-term liabilities			(62	)		—
Repayment of long-term debt			—			(50,000	)
Net cash (used in)provided by financing activities			(11,961)			18,996
Net (decrease)increase in cash and cash equivalents			(18,175	)		4,346
Cash and cash equivalents at beginning of period			42,423			20,741
Cash and cash equivalents at end of period		$	24,248		$	25,087
Supplemental disclosure of cash flow information
Interest paid		$	4,664		$	3,792
Supplemental schedule of non-cash investing and financing activities
Conversion of zero coupon convertible senior notes to common stock		$	—		$	86,135
Issuance of common stock for acquired technology			—			5,000
Issuance of common stock for debt conversion incentive			—			2,015

See accompaning notes.

5

LIGAND PHARMACEUTICALS INCORPORATED

Notes to Consolidated Financial Statements

1.    Basis of Presentation

        The consolidated financial statements of Ligand Pharmaceuticals Incorporated (“Ligand” or the “Company”) for the three and six months ended June 30, 2003 and 2002 are unaudited. These financial statements reflect all adjustments, consisting of only normal recurring adjustments which, in the opinion of management, are necessary to fairly present the consolidated financial position as of June 30, 2003 and the consolidated results of operations for the three and six months ended June 30, 2003 and 2002. The results of operations for the period ended June 30, 2003 are not necessarily indicative of the results to be expected for the year ending December 31, 2003. For more complete financial information, these financial statements, and the notes thereto, should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2002 included in the Company’s Annual Report on Form 10-K filed with the SEC.

Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes to the financial statements. Actual results could differ from those estimates.

New Accounting Pronouncements. In November 2002, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 45 (“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires that a liability be recorded for the fair value of the obligation in the guarantor’s balance sheet upon issuance of a guarantee. In addition, FIN 45 requires certain disclosures about each of the entity’s guarantees. The Company does not have any guarantees outstanding.

        In December 2002, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 148, Accounting for Stock-Based Compensation, Transition and Disclosure. SFAS No. 148 provides alternative methods of transition for those entities that elect to voluntarily adopt the fair value accounting provisions of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 148 also requires more prominent disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation as well as pro forma disclosure of the effect in interim financial statements. The transition and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure requirements are effective for the first interim period ending after December 15, 2002. Ligand has not elected to adopt the fair value accounting provisions of SFAS No. 123 and therefore the adoption of SFAS No. 148 did not have a material effect on the Company’s results of operations or financial position.

        In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. FIN 46 requires the consolidation of certain variable interest entities by the primary beneficiary of the entity if the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties or if the equity investors lack the characteristics of a controlling financial interest. FIN 46 is effective for variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied in the first interim or annual period beginning after June 15, 2003. Refer to Note 6 for a discussion of the potential effect of adopting FIN 46 on the Company’s results of operations and financial position.

Loss Per Share. Net loss per share is computed using the weighted average number of common shares outstanding. Basic and diluted net loss per share amounts are equivalent for the periods presented as the inclusion of potential common shares in the number of shares used for the diluted computation would be anti-dilutive.

6

Accounting for Stock-Based Compensation. The Company accounts for stock-based compensation in accordance with Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to Employees, and FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation.

        Pro forma information regarding net loss and loss per share is required by SFAS No. 123, Accounting for Stock-based Compensation, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. The Company’s pro forma information is as follows (in thousands, except for net loss per share information):

	Three Months Ended June 30,						Six Months Ended June 30,
		2003			2002			2003			2002
Net loss as reported	$	(11,997	)	$	(12,246	)	$	(32,317	)	$	(18,821	)
Stock-based employee compensation expense included in reported net loss		405			—			405			—
Less total stock-based compensation expense determined under fair value based method for all awards		(1,913	)		(1,670	)		(3,472	)		(3,128	)
Net loss pro forma		(13,505	)		(13,916	)		(35,384	)		(21,949	)
Net loss per share pro forma		(.19	)		(.20	)		(.51	)		(.32	)

        The fair value for these options was estimated at the dates of grant using the Black-Scholes option valuation model with the following weighted-average assumptions:

	Three Months Ended June 30,			Six Months Ended June 30,
		2003	2002		2003	2002
Risk free interest rate		2.41%	2.80%		2.41%	2.80%
Dividend yield		—	—		—	—
Volatility		76%	77%		76%	77%
Weighted average expected life		5 years	5 years		5 years	5 years

        The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

Inventories.Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Inventories consist of the following (in thousands):

	June 30, 2003		December 31, 2002
Raw materials	$	526	$	65
Work-in-process		1,957		2,914
Finished goods		2,323		1,862
	$	4,806	$	4,841

7

Other Assets.Other assets consist of the following (in thousands):

	June 30, 2003		December 31, 2002
Debt issue costs, net	$	4,668	$	5,073
Payment to extend X-Ceptor purchase    right (Note 5)		—		5,000
Prepaid royalty buyout, net		2,992		3,128
Deferred rent		2,811		2,966
Equity investment in X-Ceptor		693		1,265
Other		554		560
	$	11,718	$	17,992

Accrued Liabilities.Accrued liabilities consist of the following (in thousands):

	June 30, 2003		December 31, 2002
Allowances for product returns, sales incentives, rebates and chargebacks (1)	$	8,302	$	4,820
AVINZA® royalty rights		—		4,133
Royalties		4,091		2,505
Compensation		3,007		2,338
Interest		1,138		880
Other		1,781		1,930
	$	18,319	$	16,606

(1)  Prior to 2003, "Allowances for product returns, sales incentives, rebates and chargebacks" was netted against "Accounts receivable" in the Company's Consolidated Balance Sheets. The 2002 balances have been appropriately reclassified to conform with current year presentation.

Comprehensive Loss. Comprehensive loss represents net loss adjusted for the change during the periods presented in unrealized gains and losses on available-for-sale securities less reclassification adjustments for realized gains or losses included in net loss, as well as foreign currency translation adjustments. The accumulated unrealized gains or losses and cumulative foreign currency translation adjustments are reported as accumulated other comprehensive loss as a separate component of stockholders’ equity. Comprehensive loss is as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
		2003			2002			2003			2002
Comprehensive loss	$	(11,982	)	$	(12,269	)	$	(32,320	)	$	(18,906	)

Reclassifications.Certain reclassifications have been made to amounts included in the prior period's financial statements to conform to the current period presentation.

2. Accounts Receivable Factoring Arrangement

        During the second quarter of 2003, the Company entered into a one-year accounts receivable factoring arrangement under which eligible accounts receivable are sold without recourse to a financing company. Commissions on factored receivables are paid to the finance company based on the gross receivables sold, subject to a minimum annual commission. Additionally, the Company pays interest on the net outstanding balance of the uncollected factored accounts receivable at an interest rate equal to the JPMorgan Chase Bank prime rate. The Company accounts for the sale of receivables under this arrangement in accordance with the requirements of SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities. During the second quarter of 2003, cash in the amount of $18.9 million was received through the factoring arrangement.

8

3. Repurchase of Elan Shares

        In connection with the November 2002 restructuring of the Company’s AVINZA^® license and supply agreement with Elan Corporation, plc (“Elan”), the Company agreed to repurchase approximately 2.2 million Ligand common shares held by an affiliate of Elan for $9.00 a share. The difference between the $9.00 purchase price and the public price of the shares at the time the agreement was signed, approximately $4.1 million, was treated as an additional component of the price paid for the reduced AVINZA^® royalty rate under the restructured license and supply agreement. The shares were repurchased and retired in February 2003.

        In addition, Elan agreed to a 6-month lock-up period on 11.8 million of its remaining 12.2 million Ligand shares. Ligand agreed to changes to Elan’s registration rights to facilitate an orderly distribution of its shares after the lock-up period. In May and July 2003, Elan disclosed that it had sold the remaining 12.2 million Ligand shares to unrelated third parties. In July 2003, Ligand filed a resale registration statement on behalf of the unrelated third parties, registering the resale of the shares they had acquired from Elan.

4. AVINZA^® Co-promotion

        In February 2003, Ligand and Organon Pharmaceuticals USA Inc. (“Organon”) announced that they had entered into an agreement for the co-promotion of AVINZA^®. Under the terms of the agreement, Organon committed to a specified minimum number of primary and secondary product calls delivered to certain high prescribing physicians and hospitals beginning in March 2003. In exchange, Ligand will pay Organon a percentage of AVINZA^® net sales based on the following schedule:

Annual Net Sales of Avinza®	% of Incremental Net Sales Paid to Organon by Ligand
$0-35 million (2003 only)	0% (2003 only)
$0-150 million	30%
$150-300 million	40%
$300-425 million	50%
>$425 million	45%

        Ligand will recognize the expense for amounts due Organon in the period in which the applicable net sales threshold is reached.

        Additionally, Ligand and Organon agreed to equally share all costs for AVINZA^® advertising and promotion, medical affairs and clinical trials. Each company is responsible for its own sales force costs and other expenses. The initial term of the co-promotion agreement is ten years. Organon has the option any time prior to the end of year five to extend the agreement to 2017 by making a $75.0 million payment to Ligand.

5. Option to Acquire X-Ceptor Therapeutics, Inc.

        In connection with a 1999 investment in X-Ceptor Therapeutics, Inc. (“X-Ceptor”), Ligand maintained the right to acquire all of the outstanding stock of X-Ceptor not held by Ligand at June 30, 2002, or to extend the purchase right for 12 months by providing additional funding of $5.0 million. In April 2002, Ligand informed X-Ceptor that it was extending its purchase right. The $5.0 million paid to X-Ceptor in July 2002 was carried as an asset until March 2003, when Ligand informed X-Ceptor that it would not exercise the purchase right. The $5.0 million purchase right was written-off in March 2003 and is included in “Other, net” expense in the accompanying Consolidated Statements of Operations.

6. Commitments and Contingencies

Property Lease

        The Company leases its corporate headquarters from a limited liability company (the “LLC”) in which Ligand holds a 1% ownership interest. The lease agreement provides for increases in annual rent of 4% and terminates in 2014. Ligand also has an option to either purchase the LLC or the leased premises from the LLC at a purchase price equal to the outstanding debt on the property plus a calculated return on the investment made by the LLC’s other shareholder.

9

        In accordance with existing accounting standards, the lease is treated as an operating lease for financial reporting purposes. In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. FIN 46 requires the consolidation of certain variable interest entities by the primary beneficiary of the entity if the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties or if the equity investors lack the characteristics of a controlling financial interest. For variable interest entities created prior to February 1, 2003, the consolidation requirements of FIN 46 must be applied in the Company’s third quarter of 2003. Ligand is in the process of determining whether the LLC will have to be consolidated under FIN 46. If Ligand was required to consolidate the LLC, the Company’s consolidated balance sheet as of June 30, 2003 would reflect additional property and equipment of $12.7 million and additional debt of $12.6 million. The impact of such treatment on the Company’s operating results would not be significant.

Litigation

        The Company is subject to various lawsuits and claims with respect to matters arising out of the normal course of business. Due to the uncertainty of the ultimate outcome of these matters, the impact on future financial results is not subject to reasonable estimates.

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS

        Caution: This discussion and analysis may contain predictions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed at “Risks and Uncertainties”. This outlook represents our current judgment on the future direction of our business. Such risks and uncertainties could cause actual results to differ materially from any future performance suggested. We undertake no obligation to release publicly the results of any revisions to these forward-looking statements to reflect events or circumstances arising after the date of this quarterly report. This caution is made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

        Our trademarks, trade names and service marks referenced herein include Ligand^®, AVINZA^®, ONTAK^®, Panretin^® and Targretin^®. Each other trademark, trade name or service mark appearing in this quarterly report belongs to its owner.

Overview

        We discover, develop and market drugs that address patients’ critical unmet medical needs in the areas of cancer, pain, men’s and women’s health or hormone-related health issues, skin diseases, osteoporosis, and metabolic, cardiovascular and inflammatory diseases. Our drug discovery and development programs are based on our proprietary gene transcription technology, primarily related to Intracellular Receptors, also known as IRs, a type of sensor or switch inside cells that turns genes on and off, and Signal Transducers and Activators of Transcription, also known as STATs, which are another type of gene switch.

        We currently market five products in the United States: AVINZA^®, for the relief of chronic, moderate to severe pain; ONTAK^®, for the treatment of patients with persistent or recurrent cutaneous T-cell lymphoma (or CTCL); Targretin^® capsules, for the treatment of CTCL in patients who are refractory to at least one prior systemic therapy; Targretin^® gel, for the topical treatment of cutaneous lesions in patients with early stage CTCL; and Panretin^® gel, for the treatment of Kaposi’s sarcoma in AIDS patients. AVINZA^® was approved by the Food and Drug Administration (or FDA) in March 2002 and subsequently launched in the U.S. in June 2002. In Europe, we have marketing authorizations for Panretin^® gel and Targretin^® capsules and are currently marketing these products under arrangements with local distributors. In April 2003, we withdrew our ONZAR™ (ONTAK^® in the U.S.) marketing authorization application in Europe for our first generation product. It was our assessment that the cost of the additional clinical and technical information requested by the European Agency for the Evaluation of Medicinal Products (or EMEA) for the first generation product would be better spent on acceleration of the second generation ONTAK^® development. We expect to resubmit the ONZAR™ application with the second generation product in 2004 or early 2005.

10

        We are currently involved in the research phase of research and development collaborations with Eli Lilly and Company (or Lilly) and TAP Pharmaceutical Products Inc. (or TAP). Collaborations in the development phase are being pursued by Abbott Laboratories, Allergan, Inc., GlaxoSmithkline, Organon, Pfizer and Wyeth. We receive funding during the research phase of the arrangements and milestone and royalty payments as products are developed and marketed by our corporate partners. In addition, in connection with some of these collaborations, we received non-refundable up-front payments. As of June 30, 2003, we had deferred revenue of $0.9 million resulting from an up-front payment received under our collaboration agreement with TAP. This amount is being amortized as revenue over the service period of the agreement which runs from June 2001 to June 2004.

        We have been unprofitable since our inception. We expect to incur additional operating losses until sales of our products generate sufficient revenues to cover our expenses. We expect that our operating results will fluctuate from period to period as a result of differences in the timing of expenses incurred, revenues earned from product sales, collaborative arrangements and other sources. Some of these fluctuations may be significant.

Recent Developments

        In February 2003, we announced that we had entered into an agreement for the co-promotion of AVINZA® with Organon Pharmaceuticals USA Inc. (or Organon). Under the terms of the agreement, Organon committed to specified numbers of primary and secondary product calls delivered to high prescribing physicians and hospitals beginning in March 2003. In exchange, we will pay Organon a percentage of AVINZA^® net sales based on the following schedule:

Annual Net Sales of Avinza®	% of Incremental Net Sales Paid to Organon by Ligand
$0-35 million (2003 only)	0% (2003 only)
$0-150 million	30%
$150-300 million	40%
$300-425 million	50%
>$425 million	45%

        We will recognize the expense for the amounts due Organon in the period in which we reach the applicable net sales threshold. Additionally, both companies agreed to share equally all costs for AVINZA^® advertising and promotion, medical affairs and clinical trials. Each company is responsible for its own sales force costs and other expenses. The initial term of the co-promotion agreement is 10 years. Organon has the option any time prior to the end of year five to extend the agreement to 2017 by making a $75.0 million payment to us.

Results of Operations

        Total revenues for the second quarter of 2003 were $29.1 million compared to $19.2 million for the second quarter of 2002. Net loss for the second quarter of 2003 of $12.0 million, or $.17 per share, compares to net loss of $12.2 million, or $0.17 per share for the second quarter of 2002. Loss from operations for the second quarter of 2003 of $9.1 million compares to $9.5 million for the 2002 period.

        For the six months ended June 30, 2003, total revenues were $52.3 million, compared to $44.1 million for 2002, an increase of 18.6%. Net loss for the same period in 2003 was $32.3 million or $0.46 per share compared to a net loss of $18.8 million or $0.28 per share for the 2002 period. Loss from operations for the six months ended June 30, 2003 of $21.6 million compares to $11.8 million for 2002.

Product Sales

        Product sales for the second quarter of 2003 were $25.2 million compared to $10.5 million for the second quarter of 2002, an increase of 140.7%. Product sales for the six months ended June 30, 2003 increased to $44.1 million compared to $24.2 million for the prior year period.

11

        Product revenue for the three months ended June 30, 2003 includes sales of $11.6 million for AVINZA^®, which was launched in the U.S. in June 2002. The increase in second quarter 2003 AVINZA^® sales relative to the prior quarters’ sales is due to increasing prescriptions and additional retail and wholesaler stocking resulting from the increased level of sales and marketing activity in connection with the March 2003 start of the co-promotion arrangement with our co-promotion partner Organon. We expect AVINZA^® prescriptions to continue to increase during the remainder of 2003 as a result of the higher number of sales representatives now actively promoting the product, and a higher level of AVINZA^® - related marketing activity. Any resulting increases in shipments and sales to our wholesaler customers, however, may depend on the level and timing of any such increases in AVINZA^® prescriptions and the further expansion of retail distribution.

        Excluding AVINZA^®, sales of our in-line products for the second quarter of 2003 were $13.5 million compared to $6.4 million in 2002. Sales of ONTAK^® were $9.2 million in the second quarter of 2003 compared to $4.9 million in the second quarter of 2002. Sales of Targretin^® capsules were $2.8 million in the second quarter of 2003 compared to $1.2 million in the second quarter of 2002. Sales of Targretin^® gel and Panretin^® gel increased to $1.5 million in the second quarter of 2003 compared to $0.2 million in 2002. The increase in sales of ONTAK^® and Targretin^® capsules is due to increasing patient demand relative to the prior year period and the negative impact on sales in the second quarter of 2002 of decisions made by several of our major wholesalers not to purchase or to purchase lower quantities of our products in order to reduce inventory carrying levels. Additionally, sales in the second quarter of 2002 were reduced by $1.5 million for higher than estimated returns of expired product as a result of inconsistent inventory rotation by certain distributors and lower than expected demand growth due to delays in completion and data publication of certain expanded use clinical and physician initiated trials.

        Our product sales for any individual quarter can be influenced by a number of factors including changes in demand for a particular product, the level and nature of promotional activity, the timing of announced price increases, and wholesaler inventory practices. We expect that product sales will continue to increase in 2003 due primarily to higher sales of AVINZA^®, which will be promoted for an entire year and will further benefit from our co-promotion arrangement with Organon. We also continue to expect that demand for and sales of ONTAK^® and Targretin^® capsules will increase when and as further data is obtained from ongoing expanded-use clinical trials and the initiation of new expanded-use trials. The level and timing of any such increases, however, are influenced by a number of factors outside our control, including the accrual of patients and overall progress of clinical trials that are managed by third parties.

        Excluding AVINZA^®, our products are small-volume specialty pharmaceutical products that address the needs of cancer patients in relatively small niche markets with substantial geographical fluctuations in demand. To ensure patient access to our drugs, we maintain broad distribution capabilities with inventories held at approximately 150 locations throughout the United States. Furthermore, the purchasing and stocking patterns of our wholesaler customers are influenced by a number of factors that vary with each product. These factors include, but are not limited to, overall level of demand, periodic promotions, required minimum shipping quantities and wholesaler competitive initiatives. As a result, the level of product in the distribution channel may average from two to six months’ worth of projected inventory usage. If any or all of our major distributors decide to substantially reduce the inventory they carry in a given period, our sales for that period could be substantially lower than historical levels.

Collaborative Research and Development and Other Revenues

        Collaborative research and development and other revenues for the quarter ended June 30, 2003 were $3.9 million compared to $8.7 million for the quarter ended June 30, 2002. For the six months ended June 30, 2003, collaborative research and development and other revenues were $8.1 million compared to $19.9 million in the prior year period. A comparison of collaborative research and development and other revenues is as follows (in thousands):

12

	Three Months Ended June 30,				Six Months Ended June 30,
		2003		2002		2003		2002
Collaborative research and development	$	3,862	$	5,624	$	7,980	$	10,736
Royalty sale		—		3,000		—		9,000
Other		77		77		155		155
	$	3,939	$	8,701	$	8,135	$	19,891

        Collaborative research and development revenue includes reimbursement for ongoing research activities, earned development milestones and recognition of prior years’ up-front fees previously deferred in accordance with Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements. Royalty sale revenue represents the sale to third parties of rights and options to future royalties we may earn from the sale of products now in development with our collaborative partners.

        The decrease in ongoing research activities reimbursement revenue for the three months ended June 30, 2003 compared to the corresponding quarter in 2002 is due to lower funding from our research arrangement with Lilly, which contributed $1.4 million to revenue in the second quarter of 2003 compared to $2.3 million in the second quarter of 2002. The initial research term of the Lilly collaboration was extended for one year in November 2002 at a lower level of ongoing research funding. In the second quarter of 2003, we agreed to extend the collaboration again, through November 2004.

        The decrease in ongoing research activities reimbursement revenue for the six months ended June 30, 2003 compared to the corresponding prior period is due to lower funding from our research arrangement with Lilly, which contributed $4.5 million in 2002 versus $2.9 million in 2003. Additionally, the decrease is due to the loss of funding from our collaborative research arrangement with Organon, the research phase of which concluded in February 2002.

        Revenue from up-front fees, which are recognized over the initial contract period during which we provide research services, decreased from $1.4 million for the three months ended June 30, 2002 to $0.4 million for the three months ended June 30, 2003, and from $2.8 million for the six months ended June 30, 2002 to $0.7 million for the six months ended June 30, 2003 due to the completion of the initial research phase of the Lilly collaboration in November 2002.

        These decreases were partially offset by net development milestones earned from GlaxoSmithKline of $0.8 million and Wyeth of $0.1 million in the second quarter of 2003. A development milestone of $0.8 million was earned from Lilly in the second quarter of 2002.

        Revenues from royalty sales represents revenue earned from the sale to Royalty Pharma AG of rights to future royalties from certain collaborative partners’ net sales of three selective estrogen receptor modulator (SERM) products. These products are currently in Phase III clinical development. We earned $6.0 million in the first quarter of 2002 when Royalty Pharma acquired the rights to 0.250% of such product net sales for a period of 10 years. We earned an additional $3.0 million in the second quarter of 2002 when Royalty Pharma exercised its first option to acquire an additional 0.125% of such product net sales. Subsequent to June 30, 2002 Royalty Pharma exercised options to acquire an additional 0.3125% of such product net sales. Royalty Pharma currently holds options to acquire an additional 0.875% of net sales including individual options for $12.5 million to acquire 0.25% of net sales in each of the third and fourth quarters of 2003.

Gross Margin

        Gross margin on product sales was 69.2% for the second quarter of 2003 compared to 55.3% for the second quarter of 2002. Gross margin on product sales for the six months ended June 30, 2003 was 67.4% compared to 62.2% for the prior year period. The increase in the margin in 2003 is due to the relative increases of sales of AVINZA^®and ONTAK^® compared to the second quarter and the first half of 2002. AVINZA^® cost of product sold includes the amortization of license and royalty rights capitalized in connection with the restructuring of our AVINZA^® license and supply agreement in November 2002. The total amount of capitalized license and royalty rights, $114.4 million, is being amortized to cost of product sold on a straight-line basis over 15 years. For ONTAK^®, the total amount of acquired technology, $45.3 million, is being amortized to cost of product sold on a straight-line basis over 15 years. Given the fixed level of amortization of the capitalized AVINZA^® license and royalty rights and the ONTAK^® acquired technology, we expect the AVINZA^® and ONTAK^® gross margin percentages to continue to increase as sales of AVINZA^® and ONTAK^® increase.

13

Research and Development Expenses

        Research and development expenses were $16.9 million in the second quarter of 2003 compared to $13.7 million for the second quarter of 2002. For the six months ended June 30, 2003, research and development expenses were $33.5 million compared to $26.8 million in 2002. The major components of research and development expenses are as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
		2003		2002		2003		2002
Research
Research performed under collaboration agreements	$	3,061	$	4,059	$	5,974	$	8,248
Internal research programs		2,676		2,828		5,538		5,166
Total research		5,737		6,887		11,512		13,414
Development
New product development		7,285		4,749		16,048		7,922
Existing product support (1)		3,837		2,045		5,939		5,461
Total development		11,122		6,794		21,987		13,383
Total research and development	$	16,859	$	13,681	$	33,499	$	26,797

        (1)    Includes costs incurred to comply with U.S. post-marketing regulatory commitments.

        The decrease in expenditures for research performed under collaboration agreements is due to the lower level of research funding agreed to with Lilly in connection with the one-year extension of our collaboration arrangement effective November 2002. Spending for internal research programs remained relatively constant over the three- and six-month periods ended June 30, 2003 and June 30, 2002. The increase in spending on new product development for the second quarter 2003 compared to second quarter 2002 and for the first half of 2003 compared to the first half 2002 is due to higher development funding of Phase III clinical trials for Targretin® capsules in non-small cell lung cancer (or NSCLC) as additional patients are accrued under these ongoing studies. The increases in costs for existing product support in the same periods are due mainly to increased expenditures supporting the ONTAK product.

        We expect research and development expenses to increase further during 2003 as the remaining patients are accrued under the Phase III clinical trials of Targretin^® capsules in non-small cell lung cancer.

        A summary of our significant internal research and development programs is as follows:

Program	Disease/Indication	Development Phase
AVINZA®	Chronic, moderate-to-severe pain	Marketed in U.S. Phase IIIB/IV
ONTAK®	CTCL Chronic lymphocytic leukemia B-cell Non-Hodgkin's lymphoma Psoriasis (severe) Peripheral T-cell lymphoma	Marketed in U.S. Phase II Phase II Phase II Planned Phase II

14

Program	Disease/Indication	Development Phase
Targretin®capsules	CTCL NSCLC first-line NSCLC monotherapy Advanced breast cancer Psoriasis (moderate to severe) Renal cell cancer	Marketed in U.S. and Europe Phase III Planned Phase II/III Phase II Phase II Phase II
Targretin® gel	CTCL Hand dermatitis (eczema) Psoriasis	Marketed in U.S. Phase II Phase II
Panretin® gel	Kaposi's sarcoma	Marketed in U.S. and Europe
Panretin®capsules	Kaposi's sarcoma Bronchial metaplasia	Phase II Phase II
LGD1550 (RAR agonist)	Advanced cancers Acne Psoriasis	Phase II Pre-clinical Pre-clinical
LGD1331 (Androgen antagonist)	Prostate cancer, hirsutism, acne, androgenetic alopecia	Pre-clinical
Glucocorticoid agonists	Inflammation, cancer	Pre-clinical
Mineralocorticoid receptor modulators	Congestive heart failure, hypertension	Research

        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, but are not limited to, our ability to predict the outcome of complex research, our ability to predict the results of clinical studies, regulatory requirements placed upon us by regulatory authorities such as the FDA and the EMEA, our ability to predict the decisions of our collaborative 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 from products that may be derived from our research and development efforts, and our ability to recruit and retain personnel or third-party research organizations with the necessary knowledge and skills to perform certain research and development. Refer to the “Risks and Uncertainties” section for additional discussion of the uncertainties surrounding our research and development initiatives.

Selling, General and Administrative Expenses

        Selling, general and administrative expenses were $13.6 million for the second quarter of 2003 compared to $10.3 million for the second quarter of 2002. Selling, general and administrative expenses for the six months ended June 30, 2003 were $26.0 million compared to $19.9 million for the six months ended June 30, 2002. The increase in 2003 is primarily due to costs associated with additional Ligand sales representatives hired to promote AVINZA^® and higher advertising and promotion expenses for AVINZA^® which was launched in June 2002. Additionally, marketing expenses increased in 2003 in conjunction with our increased emphasis on physician-attended product information and advisory meetings for our oncology products. Selling, general and administrative expenses are expected to continue to increase throughout 2003 as a result of increased selling and marketing activities for AVINZA^® which will be promoted on a broader scale and by a significantly larger sales force as a result of our co-promotion agreement with Organon. Under the co-promotion agreement, we and Organon will share equally all costs for AVINZA^® advertising and promotion, medical affairs and clinical trials. Additionally, if sales of AVINZA^® exceed $35.0 million in 2003, we are required to pay Organon 30% of the net sales in excess of $35.0 million.

15

Other Expenses, Net

        Interest expense decreased to $2.7 million for the second quarter of 2003 compared to $2.8 million for the second quarter of 2002. Interest expense increased to $5.4 million for the six months ended June 30, 2003, compared to $5.1 million for the six months ended June 30, 2002. The 2003 expense primarily represents interest on the $155.3 million of 6% convertible subordinated notes that we issued in November 2002. The 2002 expense represents interest on the $20.0 million in issue price of zero coupon convertible senior notes that was converted into common stock in March 2002 and interest on our outstanding $50.0 million face value of convertible subordinated debentures that was redeemed in June 2002.

        Other expenses, net were $2.9 million for the second quarter of 2003 compared to $2.8 million for the second quarter of 2002. Other expenses, net were $10.7 million for the six months ended June 30, 2003 compared to $7.0 million for the six months ended June 30, 2002. The increase in the net expense for the six months ended June 30, 2003 includes the March 2003 write-off of a $5.0 million one-time payment made in July 2002 to X-Ceptor Therapeutics, Inc. (or X-Ceptor) to extend Ligand’s right to acquire the outstanding stock of X-Ceptor not already held by Ligand. In March 2003, we informed X-Ceptor that we would not exercise the purchase right. This increase is partially offset by the debt conversion expense of $2.0 million incurred in March 2002 in connection with the early conversion of $20.0 million in issue price of zero coupon convertible senior notes into common stock.

Liquidity and Capital Resources

        We have financed our operations through private and public offerings of our equity securities, collaborative research and development and other revenues, issuance of convertible notes, product sales, capital and operating lease transactions, accounts receivable factoring and equipment financing arrangements and investment income.

        At June 30, 2003, working capital was $21.8 million compared to working capital of $53.2 million at December 31, 2002. Cash, cash equivalents, short-term investments, and restricted investments totaled $48.0 million at June 30, 2003 compared to $74.9 million at December 31, 2002. We primarily invest our excess cash in United States government and investment grade corporate debt securities.

        During the second quarter of 2003, the Company entered into a one-year accounts receivable factoring arrangement. We pay commissions to the finance company based on the gross receivables sold, subject to a minimum annual commission. Additionally, we pay interest on the net outstanding balance of the uncollected factored accounts receivable. During the second quarter of 2003, cash in the amount of $18.9 million was received through the factoring arrangement.

        Operating activities used cash of $6.3 million for the six months ended June 30, 2003 compared to $12.0 million for the six months ended June 30, 2002. Operating cash flow in 2003 compared to the prior year period reflects increased product sales across all product lines including sales of AVINZA^® which was launched in June 2002. The increase in product sales was matched by higher balances in our net accounts receivable, which increased $14.4 million. The increase was offset by funds received through our factoring arrangement, which provided cash of $18.9 million for the six months ended June 30, 2003. Operating cash was negatively impacted, however, by higher development expenses to fund clinical trials of our existing products in new indications including Phase III registration trials for Targretin^® capsules in non-small cell lung cancer, and higher selling and marketing expenses for AVINZA^®. Cash flows for the six months ended June 30, 2002 also reflect $9.0 million in cash received in connection with the sale to Royalty Pharma AG of rights to future royalties from certain collaborative partner’s net sales of three selective estrogen receptor modulator (SERM) products.

        Investing activities provided cash of $0.1 million for the six months ended June 30, 2003, and used cash of $2.6 million for the six months ended June 30, 2002. Cash provided in 2003 reflects the net proceeds of $4.5 million from the sale of short-term investments, offset by a $4.1 million payment to Elan in connection with the November 2002 restructuring of the AVINZA ® license and supply agreement and by capital expenditures of $0.4 million. Cash used for investing activities in 2002 reflects the net purchase of short-term investments of $0.5 million and capital expenditures of $2.2 million.

16

        Financing activities used cash of $12.0 million for the six months ended June 30, 2003 and provided cash of $19.0 million for the six months ended June 30, 2002. The use of cash in 2003 reflects the $15.9 million repurchase of approximately 2.2 million shares of our outstanding common stock held by an affiliate of Elan in connection with a November 2002 share repurchase agreement, and net payments of $0.9 million on equipment financing arrangements. These were partially offset by $0.7 million from the issuance of common stock through our employee stock purchase plan and upon exercise of employee stock options and by $4.4 million from the maturing of restricted investments which was subsequently used to pay interest on our 6% convertible subordinated notes. Cash provided from financing activities in 2002 includes net proceeds of $65.9 million through a private placement of 4,252,500 shares of our common stock, $2.7 million from the exercise of employee stock options and $0.9 million from the exercise of a warrant held by Elan in connection with the conversion of zero coupon convertible senior notes. This was offset by the $50.0 million early redemption of convertible subordinated debentures and net payments of $1.0 million on equipment financing arrangements.

        Certain of our property and equipment is pledged as collateral under various equipment financing arrangements. As of June 30, 2003, $5.3 million was outstanding under such arrangements with $1.9 million classified as current. Our equipment financing arrangements have terms of three to five years with interest ranging from 4.75% to 10.66%.

        We expect operating cash flows to benefit in 2003 from increased product sales driven by AVINZA^®. Operating cash will be negatively impacted, however, by higher development expenses to fund clinical trials of our existing products in new indications including Phase III registration trials for Targretin^® capsules in non-small cell lung cancer, and higher selling and marketing expenses on AVINZA^®. Additionally, we are required to pay interest of approximately $4.4 million in November 2003 on the $155.3 million in 6% convertible subordinated notes issued in November 2002. Of the net proceeds from issuance of the 6% convertible subordinated notes, $18.0 million was invested in U.S. government securities and placed with a trustee to pay the first four scheduled interest payments. The first payment of $4.4 million was made in May 2003. These investments are presented as restricted investments in our consolidated balance sheet.

        We lease our office and research facilities under operating lease arrangements with varying terms through July 2015. The Company leases its corporate headquarters from a limited liability company (the “LLC”) in which Ligand holds a 1% ownership interest. The lease agreement provides for increases in annual rent of 4% and terminates in 2014. Ligand also has an option to either purchase the LLC or the leased premises from the LLC at a purchase price equal to the outstanding debt on the property plus a calculated return on the investment made by the LLC’s other shareholder.

        In accordance with existing accounting standards, the lease is treated as an operating lease for financial reporting purposes. In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. FIN 46 requires the consolidation of certain variable interest entities by the primary beneficiary of the entity if the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties or if the equity investors lack the characteristics of a controlling financial interest. For variable interest entities created prior to February 1, 2003, the consolidation requirements of FIN 46 must be applied in the Company’s third quarter of 2003. We are in the process of determining whether the LLC will have to be consolidated under FIN 46. If we were required to consolidate the LLC, however, our consolidated balance sheet as of June 30, 2003 would reflect additional property and equipment of $12.7 million and additional debt of $12.6 million. The impact of such treatment on our operating results would not be significant.

        As of June 30, 2003, future minimum payments, including interest, due under our contractual lease obligations are as follows (in thousands):

	Payments Due by Period
	Total		1 year		2-3 years		4-5 years		After 5 years
Capital lease obligations	$	5,710	$	2,599	$	2,951	$	160	$	—
Operating leases		36,999		3,053		6,296		6,184		21,466
Total contractual lease obligations	$	42,709	$	5,652	$	9,247	$	6,344	$	21,466

17

        We believe our available cash, cash equivalents, short-term investments and existing sources of funding will be sufficient to satisfy our anticipated operating and capital requirements through at least the next 12 months. Our future operating and capital requirements will depend on many factors, including: the effectiveness of our commercial activities; the scope and results of preclinical testing and clinical trials; the pace of scientific progress in our research and development programs; the magnitude of these programs; the time and costs involved in obtaining regulatory approvals; the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims; competing technological and market developments; the efforts of our collaborators; the ability to establish additional collaborations or changes in existing collaborations; and the cost of production.

Critical Accounting Policies

        Certain of our accounting policies require the application of management judgement in making estimates and assumptions that affect the amounts reported in the consolidated financial statements and disclosures made in the accompanying notes. Those estimates and assumptions are based on historical experience and various other factors deemed to be applicable and reasonable under the circumstances. The use of judgement in determining such estimates and assumptions is by nature, subject to a degree of uncertainty. Accordingly, actual results could differ from the estimates made. Management believes there have been no material changes during the six-month period ended June 30, 2003 to the critical accounting policies reported in the Management’s Discussion and Analysis section of our annual report on Form 10-K for the year ended December 31, 2002.

New Accounting Pronouncements

        In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires that a liability be recorded in the guarantor’s balance sheet upon issuance of a guarantee. In addition, FIN 45 requires certain disclosures about each of the entity’s guarantees. The Company does not have any guarantees outstanding.

        In December 2002, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 148, Accounting for Stock-Based Compensation, Transition and Disclosure. SFAS No. 148 provides alternative methods of transition for those entities that elect to voluntarily adopt the fair value accounting provisions of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 148 also requires more prominent disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation as well as pro forma disclosure of the effect in interim financial statements. The transition and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure requirements are effective for the first interim period ending after December 15, 2002. We have not elected to adopt the fair value accounting provisions of SFAS No. 123 and therefore the adoption of SFAS No. 148 did not have a material effect on our results of operations or financial position.

        In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. FIN 46 requires the consolidation of certain variable interest entities by the primary beneficiary of the entity if the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties or if the equity investors lack the characteristics of a controlling financial interest. FIN 46 is effective for variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied in the first interim or annual period beginning after June 15, 2003. Refer to the discussion on Liquidity and Capital Resources in Management’s Discussion and Analysis of Financial Condition and Results of Operations for discussion of the potential effect of adopting FIN 46 on our results of operations and financial position.

18

Risks and Uncertainties

        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.

Risks Related to Our Business

Our product development and commercialization involves a number of uncertainties, and we may never generate sufficient revenues from the sale of products to become profitable.

        We were founded in 1987. We have incurred significant losses since our inception. At June 30, 2003, our accumulated deficit was approximately $651 million. To date, we have received the majority of our revenues from our collaborative arrangements and only began receiving revenues from the sale of pharmaceutical products in 1999. To become profitable, we must successfully develop, clinically test, market and sell our products. Even if we achieve profitability, we cannot predict the level of that profitability or whether we will be able to sustain profitability. We expect that our operating results will fluctuate from period to period as a result of differences in when we incur expenses and receive revenues from product sales, collaborative arrangements and other sources. Some of these fluctuations may be significant.

        Most of our products in development will require extensive additional development, including preclinical testing and human studies, as well as regulatory approvals, before we can market them. We cannot predict if or when any of the products we are developing or those being co-developed with our partners will be approved for marketing. There are many reasons that we or our collaborative partners may fail in our efforts to develop our other potential products, including the possibility that:

• preclinical testing or human studies may show that our potential products are ineffective or cause harmful side effects;
• the products may fail to receive necessary regulatory approvals from the FDA or foreign authorities in a timely manner, or at all;
• the products, if approved, may not be produced in commercial quantities or at reasonable costs;
• the products, once approved, may not achieve commercial acceptance;
• regulatory or governmental authorities may apply restrictions to our products, which could adversely affect their commercial success; or
• the proprietary rights of other parties may prevent us or our partners from marketing the products.

We are building marketing and sales capabilities in the United States and Europe which is an expensive and time-consuming process and may increase our operating losses.

        Developing the sales force to market and sell products is a difficult, expensive and time-consuming process. We have developed a US sales force of about 90 people. We also rely on third-party distributors to distribute our products. The distributors are responsible for providing many marketing support services, including customer service, order entry, shipping, billing and customer reimbursement assistance. In Europe, we will rely initially on other companies to distribute and market our products. We have entered into agreements for the marketing and distribution of our products in territories such as the United Kingdom, Germany, France, Spain, Portugal, Greece, Italy and Central and South America and have established a subsidiary, Ligand Pharmaceuticals International, Inc., with a branch in London, England, to coordinate our European marketing and operations. Our reliance on these third parties means our results may suffer if any of them are unsuccessful or fail to perform as expected. We may not be able to continue to expand our sales and marketing capabilities sufficiently to successfully commercialize our products in the territories where they receive marketing approval. With respect to our co-promotion or licensing arrangements, for example our co-promotion agreement for AVINZA^®, any revenues we receive will depend substantially on the marketing and sales efforts of others, which may or may not be successful.

19

Our small number of products means our results are vulnerable to setbacks with respect to any one product.

        We currently have only five products approved for marketing and a handful of other products/indications that have made significant progress through development. Because these numbers are small, especially the number of marketed products, any significant setback with respect to any one of them could significantly impair our operating results and/or reduce the market prices for our securities. Setbacks could include problems with shipping, distribution, manufacturing, product safety, marketing, government licenses and approvals, intellectual property rights and physician or patient acceptance of the product.

Sales of our specialty pharmaceutical products may significantly fluctuate each period based on the nature of our products, our promotional activities and wholesaler purchasing and stocking patterns.

        Excluding AVINZA^®, our products are small-volume specialty pharmaceutical products that address the needs of cancer patients in relatively small niche markets with substantial geographical fluctuations in demand. To ensure patient access to our drugs, we maintain broad distribution capabilities with inventories held at approximately 150 locations throughout the United States. Furthermore, the purchasing and stocking patterns of our wholesaler customers are influenced by a number of factors that vary with each product, including but not limited to overall level of demand, periodic promotions, required minimum shipping quantities and wholesaler competitive initiatives. As a result, the level of product in the distribution channel may average from two to six months’ worth of projected inventory usage. If any or all of our major distributors decide to substantially reduce the inventory they carry in a given period, our sales for that period could be substantially lower than historical levels.

Our drug development programs will require substantial additional future funding which could hurt our operational and financial condition.

        Our drug development programs require substantial additional capital to successfully complete them, 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.

        Our future operating and capital needs will depend on many factors, including:

• the pace of scientific progress in our research and development programs and the magnitude of these programs;
• the scope and results of preclinical testing and human studies;
• the time and costs involved in obtaining regulatory approvals;
• the time and costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims, competing technological and market developments;
• our ability to establish additional collaborations;
• changes in our existing collaborations;
• the cost of manufacturing scale-up; and
• the effectiveness of our commercialization activities.

        We currently estimate our research and development expenditures over the next 3 years to range between $200 million and $275 million. However, we base our outlook regarding the need for funds on many uncertain variables. Such uncertainties include regulatory approvals, the timing of events outside our direct control such as product launches by partners and the success of such product launches, negotiations with potential strategic partners and other factors. Any of these uncertain events can significantly change our cash requirements as they determine such one-time events as the receipt of major milestones and other payments.

20

        While we expect to fund our research and development activities from cash generated from internal 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. 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.

Some of our key technologies have not been used to produce marketed products and may not be capable of producing such products.

        To date, we have dedicated most of our resources to the research and development of potential drugs based upon our expertise in our IR and STAT technologies. Even though there are marketed drugs that act through IRs, some aspects of our IR technologies have not been used to produce marketed products. In addition, we are not aware of any drugs that have been developed and successfully commercialized that interact directly with STATs. Much remains to be learned about the location and function of IRs and STATs. If we are unable to apply our IR and STAT technologies to the development of our potential products, we will not be successful in developing new products.

We may require additional money to run our business and may be required to raise this money on terms which are not favorable or which reduce our stock price.

        We have incurred losses since our inception and may not generate positive cash flow to fund our operations for one or more years. As a result, we may need to complete additional equity or debt financings to fund our operations. Our inability to obtain additional financing could adversely affect our business. Financings may not be available at all or on favorable terms. In addition, these financings, if completed, still may not meet our capital needs and could result in substantial dilution to our stockholders. For instance, in February and March 2002 we issued to Elan 6.3 million shares upon the conversion of zero coupon convertible senior notes held by Elan, and in April 2002 we issued 4.3 million shares of our common stock in a private placement. These transactions have resulted in the issuance of significant numbers of new shares. In addition, in November 2002 we issued in a private placement $155.3 million in aggregate principal amount of our 6% convertible subordinated notes due 2007, which could be converted into 25,149,025 shares of our common stock.

        If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate one or more of our research or drug development programs, or our marketing and sales initiatives. Alternatively, we may be forced to attempt to continue development by entering into arrangements with collaborative partners or others that require us to relinquish some or all of our rights to technologies or drug candidates that we would not otherwise relinquish.

Our products face significant regulatory hurdles prior to marketing which could delay or prevent sales. Even after approval, government regulation of our business is extensive.

        Before we obtain the approvals necessary to sell any of our potential products, we must show through preclinical studies and human testing that each product is safe and effective. We and our partners have a number of products moving toward or currently in clinical trials, the most significant of which are our Phase III trials for Targretin^® capsules in non-small cell lung cancer and three Phase III trials by our partners involving bazedoxifene and lasofoxifene. Failure to show any product’s safety and effectiveness would delay or prevent regulatory approval of the product and could adversely affect our business. The clinical trials process is complex and uncertain. 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 approvals are received, which could be expensive and time-consuming, and failure to successfully conduct those trials could jeopardize continued commercialization.

21

        The rate at which we complete our clinical trials depends on many factors, including our 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 and the eligibility criteria for the trial. For example, each of our Phase III Targretin^® clinical trials will involve approximately 600 patients and may require significant time and investment to complete enrollments. Delays in patient enrollment may result in increased costs and longer development times. In addition, our collaborative partners have rights to control product development and clinical programs for products developed under the collaborations. As a result, these collaborators may conduct these programs more slowly or in a different manner than we had expected. Even if clinical trials are completed, we or our collaborative partners still may not apply for FDA approval in a timely manner or the FDA still may not grant approval.

        In addition, the manufacturing and marketing of approved products is subject to extensive government regulation, including by the FDA, Drug Enforcement Agency (or DEA) and state and other territorial authorities. The FDA administers processes to assure that marketed products are safe, effective, consistently of uniform, high quality and marketed only for approved indications. For example, while our products are prescribed legally by some physicians for unapproved uses, we may not market our products for such uses. Failure to comply with applicable regulatory requirements can result in sanctions up to the suspension of regulatory approval as well as civil and criminal sanctions.

We face substantial competition which may limit our revenues.

        Some of the drugs that we are developing and marketing will compete with existing treatments. In addition, several companies are developing new drugs that target the same diseases that we are targeting and are taking IR-related and STAT-related approaches to drug development. The principal products competing with our products targeted at the cutaneous t-cell lymphoma market are Supergen/Abbott’s Nipent and interferon, which is marketed by a number of companies, including Schering-Plough’s Intron A. Products that compete with AVINZA^® include Purdue Pharma L.P.‘s OxyContin and MS Contin, Janssen Pharmaceutical Products, L.P.‘s Duragesic, Elan’s Oramorph SR, Faulding’s Kadian and generic sustained release morphine sulfate. Many of our existing or potential competitors, particularly large drug companies, have greater financial, technical and human resources than us and may be better equipped to develop, manufacture and market products. Many of these companies also have extensive experience in preclinical testing and human clinical trials, obtaining FDA and other regulatory approvals and manufacturing and marketing pharmaceutical products. In addition, academic institutions, governmental agencies and other public and private research organizations are developing products that may compete with the products we are developing. These institutions are becoming more aware of the commercial value of their findings and are seeking patent protection and licensing arrangements to collect payments for the use of their technologies. These institutions also may market competitive products on their own or through joint ventures and will compete with us in recruiting highly qualified scientific personnel.

Third-party reimbursement and health care reform policies may reduce our future sales.

        Sales of prescription drugs depend significantly on the availability of reimbursement to the consumer from third party payers, such as government and private insurance plans. These third party payers frequently require drug companies to provide predetermined discounts from list prices, and they are increasingly challenging the prices charged for medical products and services. Our current and potential products may not be considered cost-effective, and reimbursement to the consumer may not be available or sufficient to allow us to sell our products on a competitive basis. For example, we have current and recurring discussions with insurers regarding reimbursement rates for our drugs, including AVINZA^®. We may not be able to negotiate favorable reimbursement rates for our products or may have to pay significant discounts to obtain favorable rates. Only one of our products, ONTAK^®, is currently eligible to be reimbursed by Medicare. Now enacted changes by Medicare to the hospital outpatient payment reimbursement system may adversely affect reimbursement rates for ONTAK^®.

22

        In addition, the efforts of governments and third-party payers to contain or reduce the cost of health care will continue to affect the business and financial condition of drug companies such as us. A number of legislative and regulatory proposals to change the health care system have been discussed in recent years, including price caps and controls for pharmaceuticals. These proposals could reduce and/or cap the prices for our products or reduce government reimbursement rates for products such as ONTAK^®. In addition, an increasing emphasis on managed care in the United States has and will continue to increase pressure on drug pricing. We cannot predict whether legislative or regulatory proposals will be adopted or what effect those proposals or managed care efforts may have on our business. The announcement and/or adoption of such proposals or efforts could adversely affect our profit margins and business.

We rely heavily on collaborative relationships and termination of any of these programs could reduce the financial resources available to us, including research funding and milestone payments.

        Our strategy for developing and commercializing many of our potential products, including products aimed at larger markets, includes entering into collaborations with corporate partners, licensors, licensees and others. These collaborations provide us with funding and research and development resources for potential products for the treatment or control of metabolic diseases, hematopoiesis, women’s health disorders, inflammation, cardiovascular disease, cancer and skin disease, and osteoporosis. These agreements also give our collaborative partners significant discretion when deciding whether or not to pursue any development program. Our collaborations may not continue or be successful.

        In addition, our collaborators may develop drugs, either alone or with others, that compete with the types of drugs they currently are developing with us. This would result in less support and increased competition for our programs. If products are approved for marketing under our collaborative programs, any revenues we receive will depend on the manufacturing, marketing and sales efforts of our collaborators, who generally retain commercialization rights under the collaborative agreements. Our current collaborators also generally have the right to terminate their collaborations under specified circumstances. If any of our collaborative partners breach or terminate their agreements with us or otherwise fail to conduct their collaborative activities successfully, our product development under these agreements will be delayed or terminated.

        We may have disputes in the future with our collaborators, including disputes concerning which of us owns the rights to any technology developed. For instance, we were involved in litigation with Pfizer, which we settled in April 1996, concerning our right to milestones and royalties based on the development and commercialization of droloxifene. These and other possible disagreements between us and our collaborators could delay our ability and the ability of our collaborators to achieve milestones or our receipt of other payments. In addition, any disagreements could delay, interrupt or terminate the collaborative research, development and commercialization of certain potential products, 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. Challenges to or failure to secure patents and other proprietary rights may significantly hurt our business. Our success will depend on our ability and the ability of our licensors to obtain and maintain patents and proprietary rights for our potential products and to avoid infringing the proprietary rights of others, both in the United States and in foreign countries. Patents may not be issued from any of these applications currently on file, or, if issued, may not provide sufficient protection. In addition, disputes with licensors under our license agreements may arise which could result in additional financial liability or loss of important technology and potential products and related revenue, if any.

        Our patent position, like that of many pharmaceutical companies, is uncertain and involves complex legal and technical questions for which important legal principles are unresolved. We may not develop or obtain rights to products or processes that are patentable. Even if we do obtain patents, they may not adequately protect the technology we own or have licensed. In addition, others may challenge, seek to invalidate, infringe or circumvent any patents we own or license, and rights we receive under those patents may not provide competitive advantages to us. Further, the manufacture, use or sale of our products may infringe the patent rights of others.

23

        Several drug companies and research and academic institutions have developed technologies, filed patent applications or received patents for technologies that may be related to our business. Others have filed patent applications and received patents that conflict with patents or patent applications we have licensed for our use, either by claiming the same methods or compounds or by claiming methods or compounds that could dominate those licensed to us. In addition, we may not be aware of all patents or patent applications that may impact our ability to make, use or sell any of our potential products. For example, US patent applications may be kept confidential while pending in the Patent and Trademark Office and patent applications filed in foreign countries are often first published six months or more after filing. Any conflicts resulting from the patent rights of others could significantly reduce the coverage of our patents and limit our ability to obtain meaningful patent protection. While we routinely receive communications or have conversations with the owners of other patents, none of these third parties have directly threatened an action or claim against us. If other companies 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.

        We have had and will continue to have discussions with our current and potential collaborators regarding the scope and validity of our patents and other proprietary rights. If a collaborator or other party successfully establishes that our patent rights are invalid, we may not be able to continue our existing collaborations beyond their expiration. Any determination that our patent rights are invalid also could encourage our collaborators to terminate their agreements where contractually permitted. Such a determination could also adversely affect our ability to enter into new collaborations.

        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 litigation results, a court may find our patents or those of our licensors invalid or may find that we have infringed on a competitor’s rights. If any of our competitors have filed patent applications in the United States which claim technology we also have invented, the 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.

        We have learned that Hoffmann-La Roche Inc. has received a US patent and has made patent filings in foreign countries that relate to our Panretin^® capsules and gel products. We filed a patent application with an earlier filing date than Hoffmann-La Roche’s patent, which we believe is broader than, but overlaps in part with, Hoffmann-La Roche’s patent. We believe we were the first to invent the relevant technology and therefore are entitled to a patent on the application we filed. The Patent and Trademark Office has initiated a proceeding to determine whether we or Hoffmann-La Roche are entitled to a patent. We may not receive a favorable outcome in the proceeding. In addition, the proceeding may delay the Patent and Trademark Office’s decision regarding our earlier application. If we do not prevail, the Hoffmann-La Roche patent might block our use of Panretin^® capsules and gel in specified cancers.

        We have also learned that Novartis AG has filed an opposition to our European patent that covers the principal active ingredient of our ONTAK^® drug. We are currently investigating the scope and merits of this opposition. If the opposition is successful, we could lose our ONTAK^® patent protection in Europe which could substantially reduce our future ONTAK^® sales in that region. We could also incur substantial costs in asserting our rights in this opposition proceeding, as well as in other interference proceedings in the United States.

        We also rely on unpatented trade secrets and know-how to protect and maintain our competitive position. We require our employees, consultants, collaborators 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.

24

Reliance on third-party manufacturers to supply our products risks supply interruption or contamination and difficulty controlling costs.

        We currently have no manufacturing facilities, and we rely on others for clinical or commercial production of our marketed and potential products. In addition, certain raw materials necessary for the commercial manufacturing of our products are custom and must be obtained from a specific sole source. Elan manufactures AVINZA^® for us, Cambrex manufactures ONTAK^® for us and Cardinal Health and Raylo manufacture Targretin^® capsules for us.

        To be successful, we will need to ensure continuity of the manufacture of our products, either directly or through others, in commercial quantities, in compliance with regulatory requirements and at acceptable cost. Any extended and unplanned manufacturing shutdowns could be expensive and could result in inventory and product shortages. While we believe that we would be able to develop our own facilities or contract with others for manufacturing services with respect to all of our products, if we are unable to do so our revenues could be adversely affected. In addition, if we are unable to supply products in development, our ability to conduct preclinical testing and human clinical trials will be adversely affected. This in turn could also delay our submission of products for regulatory approval and our initiation of new development programs. In addition, although other companies have manufactured drugs acting through IRs and STATs on a commercial scale, we may not be able to do so at costs or in quantities to make marketable products.

        The manufacturing process also may be susceptible to contamination, which could cause the affected manufacturing facility to close until the contamination is identified and fixed. In addition, problems with equipment failure or operator error also could cause delays in filling our customers’ orders.

Our business exposes us to product liability risks or our products may need to be recalled, and we may not have sufficient insurance to cover any claims.

        Our business exposes us to potential product liability risks. Our products also may need to be recalled to address regulatory issues. A successful product liability claim or series of claims brought against us could result in payment of significant amounts of money and divert management’s attention from running the business. Some of the compounds we are investigating may be harmful to humans. For example, retinoids as a class are known to contain compounds which can cause birth defects. We may not be able to maintain our insurance on acceptable terms, or our insurance may not provide adequate protection in the case of a product liability claim. To the extent that product liability insurance, if available, does not cover potential claims, we will be required to self-insure the risks associated with such claims. We believe that we carry reasonably adequate insurance for product liability claims.

We use hazardous materials which requires us to incur substantial costs to comply with environmental regulations.

        In connection with our research and development activities, we handle hazardous materials, chemicals and various radioactive compounds. To properly dispose of these hazardous materials in compliance with environmental regulations, we are required to contract with third parties at substantial cost to us. Our annual cost of compliance with these regulations is approximately $600,000. We cannot completely eliminate the risk of accidental contamination or injury from the handling and disposing of hazardous materials, whether by us or by our third-party contractors. In the event of any accident, we could be held liable for any damages that result, which could be significant. We believe that we carry reasonably adequate insurance for toxic tort claims.

Our stock price may be adversely affected by volatility in the markets.

        The market prices and trading volumes for our securities, and the securities of emerging companies like us, have historically been highly volatile and have experienced significant fluctuations unrelated to operating performance. For example, in 2002, the intraday sale price of our common stock on the Nasdaq National Market was as high as $20.50 and as low as $4.64. Future announcements concerning us or our competitors as well as other companies in our industry and other public companies may impact the market price of our common stock. These announcements might include:

25

• the results of research or development testing of ours or our competitors' products;
• technological innovations related to diseases we are studying;
• new commercial products introduced by our competitors;
• government regulation of our industry;
• receipt of regulatory approvals by our competitors;
• our failure to receive regulatory approvals for products under development;
• developments concerning proprietary rights;
• litigation or public concern about the safety of our products; or
• intent to sell or actual sale of our stock held by our corporate partners.

Future sales of our securities may depress the price of our securities.

        Sales of substantial amounts of our securities in the public market could seriously harm prevailing market prices for our securities. These sales might make it difficult or impossible for us to sell additional securities when we need to raise capital.

You may not receive a return on your securities other than through the sale of your securities.

        We have not paid any cash dividends on our common stock to date. We intend to retain any earnings to support the expansion of our business, and we do not anticipate paying cash dividends on any of our securities in the foreseeable future.

Our shareholder rights plan and charter documents may hinder or prevent change of control transactions.

        Our shareholder rights plan and 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 preferred stock without any further action by you. Such 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.

26

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        At June 30, 2003, our investment portfolio included fixed-income securities of $9.1 million. These securities are subject to interest rate risk and will decline in value if interest rates increase. This risk is mitigated, however, due to the relatively short effective maturities of the debt instruments in our investment portfolio. Accordingly, an immediate 10% change in interest rates would have no material impact on our financial condition, results of operations or cash flows. Declines in interest rates over time would, however, reduce our interest income.

        We do not have a significant level of transactions denominated in currencies other than U.S. dollars and as a result we have limited foreign currency exchange rate risk. The effect of an immediate 10% change in foreign exchange rates would have no material impact on our financial condition, results of operations or cash flows.

ITEM 4. CONTROLS AND PROCEDURES

        (a)  Evaluation of disclosure controls and procedures. An evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Company's principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of the end of the period covered by this report are effective to ensure that material information required to be disclosed by the Company, including its consolidated subsidiaries, in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

        (b)   Changes in internal controls. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to their evaluation. There were no significant deficiencies or material weaknesses, and therefore there were no corrective actions taken.

27

PART II.   OTHER INFORMATION
ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        Our Annual Meeting of Stockholders was held on June 20, 2003. The following elections and proposals were approved at the Annual Meeting:

		Votes For	Votes Against	Votes Withheld	Votes Abstaining	Broker Nonvote
1.	Election of a Board of Directors.      The total number of votes cast for,      or withheld for each nominee was      as follows:
	Henry F. Blissenbach	53,136,034	-- --	518,379	-- --	-- --
	Alexander D. Cross, Ph.D.	53,111,754	-- --	542,659	-- --	-- --
	John Groom	53,083,715	-- --	570,698	-- --	-- --
	Irving S. Johnson, Ph.D.	53,108,663	-- --	545,750	-- --	-- --
	John W. Kozarich	53,154,315	-- --	500,098	-- --	-- --
	Carl C. Peck, M.D.	53,142,681	-- --	511,732	-- --	-- --
	David E. Robinson	53,024,918	-- --	629,495	-- --	-- --
	Michael A. Rocca	53,133,953	-- --	520,640	-- --	-- --
2.	Amendment of the 2002 Stock Option/Stock Issuance Plan to increase the authorized number of shares of common stock available for issuance under such plan from 6,825,529 to 7,575,529.	51,480,436	2,061,333	-- --	112,644	-- --
3.	Amendment of the 2002 Employee Stock Purchase Plan to increase the authorized number of shares of common stock available for purchase under such plan from 110,248 to 510,248.	52,542,340	1,019,704	-- --	92,369	-- --
4.	Ratification of the appointment of Deloitte & Touche LLP as the independent auditors for the fiscal year ending December 31, 2003.	53,469,199	114,760	-- --	70,454	-- --

28

ITEM 6. (A)   EXHIBITS

Exhibit 3.1 (1)	Amended and Restated Certificate of Incorporation of the Company (Filed as Exhibit 3.2).
Exhibit 3.2 (1)	Bylaws of the Company, as amended (Filed as Exhibit 3.3).
Exhibit 3.3 (2)	Amended Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock of the Company.
Exhibit 3.5 (5)	Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company dated June 14, 2000.
Exhibit 4.1 (6)	Specimen stock certificate for shares of Common Stock of the Company.
Exhibit 4.2 (3)	Preferred Shares Rights Agreement, dated as of September 13, 1996, by and between the Company and Wells Fargo Bank, N.A. (Filed as Exhibit 10.1)
Exhibit 4.3 (4)	Amendment to Preferred Shares Rights Agreement, dated as of November 9, 1998, between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (Filed as Exhibit 99.1).
Exhibit 4.4 (7)	Second Amendment to the Preferred Shares Rights Agreement, dated as of December 23, 1998, between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (Filed as Exhibit 1).
Exhibit 4.7 (8)	Fourth Amendment to the Preferred Shares Rights Agreement and Certification of Compliance with Section 27 Thereof, dated as of October 3, 2002, between the Company and Mellon Investor Services LLC, as Rights Agent.
Exhibit 4.8 (9)	Registration Rights Agreement dated November 26, 2002 between Ligand Pharmaceuticals Incorporated and UBS Warburg LLC. (Filed as Exhibit 4.2)
Exhibit 10.257	Letter Agreement, dated June 26, 2002, between the Company and James J. L´Italien, Ph.D.
Exhibit 10.258	Letter Agreement, dated May 20, 2003, between the Company and Tod G. Mertes.
Exhibit 10.259	Amendment No. 2 to Amended and Restated Registration Rights Agreement, dated June 25, 2003.
Exhibit 10.260	2002 Employee Stock Purchase Plan, dated July 1, 2002, as amended through June 30, 2003.
Exhibit 99.1	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.
Exhibit 99.2	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.
Exhibit 99.3	Certification by Principal Executive Officer, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.4	Certification by Principal Financial Officer, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

__________________________________

(1)	This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the Company’s Registration Statement on Form S-4 (No. 333-58823) filed on July 9, 1998.
(2)	This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed with the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 1999.
(3)	This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the Company’s Registration Statement on Form S-3 (No. 333-12603) filed on September 25, 1996, as amended.

29

(4)	This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with, the Registration Statement on Form 8-A/A Amendment No. 1 (No. 0-20720) filed on November 10, 1998.
(5)	This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed with the Company’s Annual Report on Form 10-K for the period ended December 31, 2000.
(6)	This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed with the Company’s Registration Statement on Form S-1 (No. 33-47257) filed on April 16, 1992 as amended.
(7)	This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the Registration Statement on Form 8-A/A Amendment No. 2 (No. 0-20720) filed on December 24, 1998.
(8)	This exhibit was previously filed as part of, and is hereby incorporated by reference to the same numbered exhibit filed with the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2002.
(9)	This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the Company’s Registration Statement on Form S-3 (no. 333-102483) filed on January 13, 2003, as amended.

ITEM 6. (B)    REPORTS ON FORM 8-K

         The following reports on Form 8-K were filed or furnished during the quarter ended June 30, 2003:

Date of Filing	Description
April 1, 2003	Item 5 and 7, Other Events	—	Ligand Elects Not To Exercise Option To Purchase X-Ceptor Therapeutics
April 24, 2003	Item 7 and 9, Regulation         FD Disclosure	—	Ligand Reports Financial Results For First Quarter 2003: Record Net Product Sales Up 38% Driven By AVINZA Co-Promotion Launch And Solid Oncology Revenues
May 15, 2003	Item 5 and 7, Other Events	—	Ligand Announces Organizational Changes To Accelerate Operational Improvements

30

LIGAND PHARMACEUTICALS INCORPORATED

June 30, 2003

SIGNATURE

Pursuant to the requirements 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.

Date:   August 1, 2003                           Ligand Pharmaceuticals Incorporated



By:   /S/ PAUL V.MAIER                                          
        Paul V. Maier
        Senior Vice President, Chief Financial Officer

31

EX-10

                                                                  Exhibit 10.257

June 26, 2002

James J. L'Italien, Ph.D..
Senior Vice President, Regulatory
Affairs and Compliance
LIGAND PHARMACEUTICALS INCORPORATED
10275 Science Center Drive
San Diego, CA  92121

Dear James:

          The purpose of this letter agreement is to document the terms of the
severance package to which you will be entitled should your employment with
Ligand Pharmaceuticals Incorporated (the "Company") terminate under certain
specified circumstances.

          Part One of this letter agreement sets forth certain definitional
provisions to be in effect for purposes of determining your benefit
entitlements. Part Two specifies the terms and conditions upon which you may
become entitled to receive severance benefits in the event your employment with
the Company were to be terminated involuntarily whether in connection with
certain changes in control of the Company or otherwise. Part Three concludes
this agreement with a series of general terms and conditions applicable to your
severance benefits.

                             PART ONE -- DEFINITIONS

          DEFINITIONS. For purposes of this letter agreement, including in
particular the application of the special benefit limitations of Part Three, the
following definitions will be in effect:

          AVERAGE COMPENSATION means your average W-2 wages from the Company for
the five (5) calendar years completed immediately prior to the calendar year in
which the Change in Control is effected. Any W-2 wages for a partial year of
employment will be annualized, in accordance with the frequency with which such
wages are paid during such partial year, before inclusion within your Average
Compensation.




James J. L'Italien, Ph.D.
June 26, 2002
Page 2

          BOARD means the Company's Board of Directors.

          CHANGE IN CONTROL means any of the following events:

          (i) a merger or consolidation in which the Company is not the
     surviving entity, except for a transaction the principal purpose of which
     is to change the state in which the Company is incorporated,

          (ii) the sale, transfer or other disposition of all or substantially
     all of the assets of the Company other than in the ordinary course,

          (iii) any reverse merger in which the Company ceases to exist as an
     independent corporation and becomes the subsidiary of another corporation,

          (iv) any Hostile Take-Over,

          (v) the acquisition by any person (or related group of persons),
     whether by tender or exchange offer made directly to the Company's
     stockholders, private purchases from one or more of the Company's
     stockholders, open market purchases or any other transaction, of beneficial
     ownership of securities possessing more than thirty percent (30%) of the
     total combined voting power of the Company's outstanding securities,

          (vi) the acquisition by any person (or related group of persons),
     whether by tender or exchange offer made directly to the Company's
     stockholders, private purchases from one or more of the Company's
     stockholders, open market purchases or any other transaction, of additional
     securities of the Company which increase the total holdings of such person
     (or group) to a level of securities possessing more than fifty percent
     (50%) of the total combined voting power of the Company's outstanding
     securities, or

          (vii) the acquisition by any person (or related group of persons),
     whether by tender or exchange offer made directly to the Company's
     stockholders, private purchases from one or more of the Company's
     stockholders, open market purchases or any other transaction, of securities
     of the Company possessing sufficient voting power in the aggregate to elect
     an absolute majority of the members of the Board (rounded up to the nearest
     whole number).




James J. L'Italien, Ph.D.
June 26, 2002
Page 3

          CODE means the Internal Revenue Code of 1986, as amended.

          COMMON STOCK means the Company's common stock, par value $0.001 per
share.

          EQUITY INCENTIVE PLANS mean any of the following equity incentive
plans of the Company: 1992 Stock Option/Stock Issuance Plan, as amended;
Restricted Stock Purchase Plan, as amended; and 1988 Stock Option Plan, as
amended.

          HEALTH CARE COVERAGE means the continued health care coverage to which
you and your eligible dependents may become entitled under this agreement upon
the Involuntary Termination of your employment other than Termination for Cause.

          HOSTILE TAKE-OVER means either of the following events:

          (i) the acquisition by any person (or related group of persons)
     whether by tender or exchange offer made directly to the Company's
     stockholders, private purchases from one or more of the Company's
     stockholders, open market purchases or any other transaction, of beneficial
     ownership of securities possessing more than thirty percent (30%) of the
     total combined voting power of the Company's outstanding securities
     pursuant to a tender offer made directly to the Company's stockholders
     which the Board does not recommend such stockholders to accept, or

          (ii) a change in the composition of the Board over a period of
     thirty-six (36) consecutive months or less such that a majority of the
     Board members (rounded up to the next whole number) ceases, by reason of
     one or more contested elections for Board membership, to be comprised of
     individuals who either (a) have been Board members continuously since the
     beginning of such period or (b) have been elected or nominated for election
     as Board members during such period by at least a majority of the Board
     members described in clause (a) who were still in office at the time such
     election or nomination was approved by the Board.




James J. L'Italien, Ph.D.
June 26, 2002
Page 4


          INVOLUNTARY TERMINATION means the termination of your employment with
the Company:

          (i) involuntarily upon your discharge or dismissal, or

          (ii) voluntarily upon your resignation in connection with any of the
     following changes to the terms and conditions of your employment: (A) a
     change in your position with the Company which materially reduces your
     level of responsibility, (B) a greater than ten percent (10%) reduction in
     your level of compensation (including base salary, fringe benefits and
     participation in non-discretionary bonus programs under which awards are
     payable pursuant to objective financial or performance standards) or (C) a
     relocation of your principal place of employment by more than fifty (50)
     miles.

          The following guidelines shall determine whether one or more
reductions in compensation should be taken into account for purposes of clause
(ii)(B):

          - Any reduction in compensation which occurs in connection with an
     across-the-board reduction in the level of compensation payable to the
     Company's executive officers or senior management shall not constitute
     grounds for a clause (ii)(B) resignation, unless implemented within
     eighteen (18) months after a Change in Control.

          - In the event of a Hostile Take-Over, the greater than ten percent
     (10%) standard of clause (ii)(B) shall be reduced to zero percent (0%) so
     that any reduction in the level of your compensation shall constitute
     grounds for a clause (ii)(B) resignation.

          In no event shall an Involuntary Termination be deemed to occur should
your employment terminate by reason of death or permanent disability.

          OPTION means any option granted to you under any of the Equity
Incentive Plans which is outstanding at the time of your Involuntary Termination
or any earlier Change in Control. Your outstanding options are to be divided
into two separate categories as follows:

          - ACQUISITION-ACCELERATED OPTIONS: any outstanding Option (or
     installment thereof) which accelerates upon a Change in Control in



James J. L'Italien, Ph.D.
June 26, 2002
Page 5


     accordance with the automatic acceleration provisions of the Equity
     Incentive Plans.

          - SEVERANCE-ACCELERATED OPTIONS: any outstanding Option (or
     installment thereof) which is not an Acquisition-Accelerated Option but
     which accelerates upon your Involuntary Termination, whether or not in
     connection with a Change in Control, as part of your severance benefits
     under this agreement.

          EQUITY PARACHUTE PAYMENT means, with respect to any Option (whether
Acquisition-Accelerated or Severance-Accelerated) or unvested Stock Issuance,
the portion deemed to be a parachute payment under Code Section 280G and the
Treasury Regulations issued thereunder. Such Equity Parachute Payment shall be
calculated in accordance with the valuation provisions established under Code
Section 280G and the applicable Treasury Regulations and will include an
appropriate dollar adjustment to reflect the lapse of your obligation to remain
in the Company's employ as a condition to your vesting in the accelerated
portion of such Option or Stock Issuance.

          OTHER PARACHUTE PAYMENTS mean any payments in the nature of
compensation to which you may become entitled under this letter agreement (other
than the Equity Parachute Payment) or any other arrangement with the Company, to
the extent such payments qualify as parachute payments within the meaning of
Code Section 280G(b)(2) and the Treasury Regulations issued thereunder or would
so qualify if the aggregate present value of such payments exceeded the amount
specified in Code Section 280G(b)(2)(ii).

          STOCK ISSUANCE means the issuance of unvested shares of Common Stock
under the Company's Restricted Stock Plan or any other Equity Incentive Plan.

          TERMINATION FOR CAUSE means an Involuntary Termination of your
employment with the Company by reason of your conviction of any felony or other
criminal act, your commission of any act of fraud or embezzlement, your
unauthorized use or disclosure of confidential information or trade secrets of
the Company or its subsidiaries, or any other intentional misconduct on your
part which adversely affects the business or affairs of the Company in a
material manner.




James J. L'Italien, Ph.D.
June 26, 2002
Page 6


                  PART TWO -- INVOLUNTARY TERMINATION BENEFITS

          You will be entitled to receive the severance benefits specified below
should there occur an Involuntary Termination of your employment during the term
of this letter agreement effected in connection with a Change in Control, other
than an Involuntary Termination which constitutes a Termination for Cause.
However, in the absence of a Hostile Take-Over, these benefits will continue to
be paid you only for so long as you remain available for any consulting services
required of you under Part Two, Paragraph 4 and abide by the restrictive
covenants set forth in Part Two, Paragraph 5.

          1. SEVERANCE PAYMENTS. You will receive severance payments from the
Company for a period of twelve (12) months following your Involuntary
Termination in an aggregate amount equal to the sum of (A) one (1) times the
annual rate of base salary in effect for you at the time of your Involuntary
Termination plus (B) one (1) times the average of the bonuses paid to you for
services rendered in the two (2) fiscal years immediately preceding the fiscal
year of your Involuntary Termination. If a bonus is paid to you for only one of
those years, then the bonus amount under Clause (B) will be equal to one (1)
times such bonus amount. The aggregate severance payments shall be paid to you
in equal installments over the twelve-month period in accordance with the
Company's normal payroll practices and subject to all applicable withholding
taxes. The severance payments will immediately terminate in the event you should
cease to remain available for the consulting services required of you under
Paragraph 4 or in the event you fail to abide by the restrictive covenants set
forth in Paragraph 5. However, in the event your Involuntary Termination occurs
in connection with a Hostile Take-Over, your severance payments will be paid to
you in the form of a single lump sum amount within thirty (30) days after such
Involuntary Termination, and the provisions of Paragraphs 4 and 5 will not
apply.

          2. HEALTH CARE COVERAGE. The Company will, at its expense, provide you
and your eligible dependents with continued health care coverage under the
Company's medical/dental plan until the EARLIER of (i) twelve (12) months after
the effective date of your Involuntary Termination or (ii) the first date that
you are covered under another employer's health benefit program which provides
substantially the same level of benefits without exclusion for pre-existing
medical conditions. Such coverage will be in lieu of any other continued health





James J. L'Italien, Ph.D.
June 26, 2002
Page 7

care coverage to which you or your dependents would otherwise be entitled
pursuant to the requirements of Code Section 4980B by reason of your termination
of employment.

          3. OPTION ACCELERATION AND LAPSE OF RESTRICTIONS. Each of your
outstanding Options under the Equity Incentive Plans will (to the extent not
then otherwise exercisable) automatically accelerate so that each such Option
will become immediately exercisable for the total number of shares of Common
Stock at the time subject to that Option. Each such accelerated Option, together
with all of your other vested Options, will remain exercisable for a period of
twelve (12) months following your Involuntary Termination until the end of the
specified ten (10)-year option term and may be exercised for any or all of the
option shares in accordance with the exercise provisions of the option agreement
evidencing the grant. In addition, all restrictions applicable to the Stock
Issuances you hold (to the extent those restrictions have not previously lapsed
in accordance with the terms of the issuance agreements) will automatically
lapse upon your Involuntary Termination.

          4. CONSULTING SERVICES. Unless your Involuntary Termination occurs in
connection with a Hostile Take-Over, you will make yourself available to perform
consulting services reasonably requested of you during the twelve (12)-month
period following your Involuntary Termination. You will be compensated at an
hourly rate to be agreed upon by you and the Company at the time such consulting
services are to be rendered, and you will be reimbursed for all reasonable
out-of-pocket expenses incurred in rendering such services upon your submission
of appropriate documentation for those expenses.

          5. RESTRICTIVE COVENANTS. For the one hundred twenty (120)-day period
following your Involuntary Termination:

          (i) You will not directly or indirectly, whether for your own account
     or as an employee, director, consultant or advisor, provide services to any
     business enterprise which is at the time in competition with any of the
     Company's then existing or formally planned product lines




James J. L'Italien, Ph.D.
June 26, 2002
Page 8

     and which is located geographically in an area where the Company
     maintains substantial business activities, unless you obtain the prior
     written consent of the Board of Directors.

          (ii)You will not directly or indirectly encourage or solicit any
     individual to leave the Company's employ for any reason or interfere in any
     other manner with the employment relationships at the time existing between
     the Company and its current or prospective employees.

          (iii)You will not induce or attempt to induce any customer, supplier,
     distributor, licensee or other business relation of the Company to cease
     doing business with the Company or in any way interfere with the existing
     business relationship between any such customer, supplier, distributor,
     licensee or other business relation and the Company.

          You acknowledge that monetary damages may not be sufficient to
compensate the Company for any economic loss which may be incurred by reason of
your breach of the foregoing restrictive covenants. Accordingly, in the event of
any such breach, the Company shall, in addition to the cessation of the
severance benefits provided you under this agreement and any remedies available
to the Company at law, be entitled to obtain equitable relief in the form of an
injunction precluding you from continuing to engage in such breach.

          None of the foregoing restrictive covenants shall be applicable in the
event your Involuntary Termination occurs in connection with a Hostile
Take-Over.

          6. BENEFIT REDUCTION. In the event of a Change in Control, the
following limitations shall become applicable:

          a. BENEFIT REDUCTION. If the Change in Control does not constitute a
Hostile Take-Over, first the dollar amount of your severance payment under
Paragraph 1 will be reduced to the extent necessary to assure that the present
value of those benefits will not, when added to the present value of your Equity
Parachute Payment and your Other Parachute Payments, exceed 2.99 times your
Average Compensation. In the event of a Hostile Take-Over, no reduction will be
made to your severance payment (or any other benefit to which you become
entitled hereunder), unless necessary to provide you with the maximum after-tax




James J. L'Italien, Ph.D.
June 26, 2002
Page 9

benefit available, after taking into account any parachute excise tax which
might otherwise be payable by you under Code Section 4999 and any analogous
State income tax provision.

          b. RESOLUTION OF DISPUTES. In the event there is any disagreement
between you and the Company as to whether one or more benefits to which you
become entitled (whether under this letter agreement or otherwise) in connection
with a Change in Control constitute Equity Parachute Payments or Other Parachute
Payments, such dispute is to be resolved as follows:

          - In the event temporary, proposed or final Treasury Regulations in
effect at the time under Code Section 280G specifically address the status of
such benefits or the method for their valuation, the characterization afforded
to such benefits by the Regulations, together with the methods prescribed for
their valuation, shall be controlling.

          - In the event such Regulations do not address the status of the
benefits in dispute, the matter shall be submitted for resolution to independent
counsel mutually acceptable to you and the Company ("Independent Counsel"). The
resolution reached by Independent Counsel shall be final and controlling.
However, should the Independent Counsel determine that the status of the
benefits in dispute can be resolved through the obtainment of a private letter
ruling from the Internal Revenue Service, a formal and proper request for such
ruling shall be prepared and submitted by Independent Counsel, and the
determination made by the Internal Revenue Service in the issued ruling shall be
controlling. All expenses incurred in connection with the retention of
Independent Counsel and (if applicable) the preparation and submission of the
ruling request shall be paid by the Company.

          - The present value of each Equity Parachute Payment and each of the
Other Parachute Payments (including your severance payment and Health Care
Coverage) shall be determined in accordance with the provisions of Code Section
280G(d)(4) and the Treasury Regulations issued thereunder.

          The full amount of your severance benefit under Paragraph 1 shall not
be paid to you until any amounts in dispute under this Paragraph 6.b. have been
resolved in accordance herewith. However, any portion of such severance payment
which would not otherwise exceed the benefit limitation of Paragraph 6.a. even
if all amounts in dispute under this Paragraph 6.b. were to be resolved




James J. L'Italien, Ph.D.
June 26, 2002
Page 10

against you will be paid to you in accordance with the applicable provisions of
this letter agreement.

          c. OVERRIDING LIMITATION. You will in all events be entitled to
receive the full amount of your severance payment under Paragraph 1, to the
extent those benefits, when added to the present value of your Equity Parachute
Payment and your Other Parachute Payments (excluding such severance payment),
will nevertheless qualify as reasonable compensation within the standards
established under Code Section 280G(b)(4).

          d. INTERPRETATION. The provisions of this Paragraph 6 shall in all
events be interpreted in such manner as will avoid the imposition of excise
taxes under Code Section 4999, and the disallowance of deductions under Code
Section 280G(a), with respect to your severance benefits under this letter
agreement.

                     PART THREE -- MISCELLANEOUS PROVISIONS

          1. TERMINATION FOR CAUSE. Should your Involuntary Termination
constitute a Termination for Cause, then the Company shall only be required to
pay you (i) any unpaid compensation earned for services previously rendered
through the date of such termination and (ii) any accrued but unpaid vacation
benefits or sick days, and no benefits will be payable to you under Part Two or
Part Three of this letter agreement.

          2. TERM OF AGREEMENT. The provisions of this letter agreement will
continue in effect for a period of five (5) years from the date hereof.

          3. GENERAL CREDITOR STATUS. The benefits to which you may become
entitled under this letter agreement (except those attributable to your Options
or Stock Issuances) will be paid, when due, from the general assets of the
Company. Your right (or the right of the executors or administrators of your
estate) to receive any such payments will at all times be that of a general
creditor of the Company and will have no priority over the claims of other
general creditors of the Company.

          4. DEATH. Should you die before receipt of all benefits to which you
become entitled under this letter agreement, then the payment of such benefits
will be made, on the due date or dates hereunder had you survived, to the




James J. L'Italien, Ph.D.
June 26, 2002
Page 11

executors or administrators of your estate. Should you die before you exercise
your Severance-Accelerated Options (if any) or any other of your outstanding
vested Options, then each such Option may be exercised, during the applicable
exercise period in effect hereunder for those options at the time of your death,
by the executors or administrators of your estate or by person to whom the
Option is transferred pursuant to your will or in accordance with the laws of
inheritance.

          5. MISCELLANEOUS. The provisions of this letter agreement will be
construed and interpreted under the laws of the State of California. This
agreement incorporates the entire agreement between you and the Company relating
to the subject of severance benefits and supersedes all prior agreements and
understandings with respect to such subject matter. This agreement may only be
amended by written instrument signed by you and another duly-authorized officer
of the Company. If any provision of this letter agreement as applied to any
party or to any circumstance should be adjudged by a court of competent
jurisdiction to be void or unenforceable for any reason, the invalidity of that
provision shall in no way affect (to the maximum extent permissible by law) the
application of such provision under circumstances different from those
adjudicated by the court, the application of any other provision of this letter
agreement, or the enforceability or invalidity of this letter agreement as a
whole. Should any provision of this letter agreement become or be deemed
invalid, illegal or unenforceable in any jurisdiction by reason of the scope,
extent or duration of its coverage, then such provision shall be deemed amended
to the extent necessary to conform to applicable law so as to be valid and
enforceable or, if such provision cannot be so amended without materially
altering the intention of the parties, then such provision shall be stricken and
the remainder of this letter agreement shall continue in full force and effect.

          6 REMEDIES. All rights and remedies provided pursuant to this letter
agreement or by law will be cumulative, and no such right or remedy will be
exclusive of any other. A party may pursue any one or more rights or remedies
hereunder or may seek damages or specific performance in the event of another
party's breach hereunder or may pursue any other remedy by law or equity,
whether or not stated in this letter agreement.

          7. ARBITRATION. Any controversy which may arise between you and the
Company with respect to the construction, interpretation or application of any
of the terms, provisions or conditions of this agreement or any monetary




James J. L'Italien, Ph.D.
June 26, 2002
Page 12

claim arising from or relating to this agreement will be submitted to final and
binding arbitration in San Diego, California in accordance with the rules of the
American Arbitration Association then in effect.

          8. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this agreement shall
confer upon you any right to continue in the employment of the Company for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Company or you, which rights are hereby expressly reserved by
each, to terminate your employment at any time for any reason whatsoever, with
or without cause.

          9. PROPRIETARY INFORMATION. You hereby acknowledge that the Company
may, from time to time during your employment with the Company, disclose to you
confidential information pertaining to the Company's business and affairs. All
information and data, whether or not in writing, of a private or confidential
nature concerning the business or financial affairs of the Company
(collectively, "Proprietary Information") is and will remain the sole and
exclusive property of the Company. In connection with such Proprietary
Information, you agree as follows:

          (i) You will not, during your employment with the Company or at any
     time thereafter, disclose to any third party or directly or indirectly make
     use of any such Proprietary Information other than in connection with, and
     in furtherance of, the Company's business and affairs.

          (ii) You agree that you will use all files, letters, memoranda,
     reports, records, data or other written, reproduced or other tangible
     manifestations of the Proprietary Information, whether created by you or
     others, to which you have access during your employment with the Company,
     only in the performance of your duties with the Company. You will return
     all such materials (whether written, printed or otherwise reproduced or
     recorded) to the Company immediately upon the termination of your
     employment with the Company or upon any earlier request by the Company,
     without retaining any copies, notes or excerpts thereof.

          (iii) Your obligations under this Paragraph 9 will continue in effect
     after the termination of your employment with the Company, whatever the
     reason or reasons for such termination, and the Company will




James J. L'Italien, Ph.D.
June 26, 2002
Page 13

     have the right to communicate with any future or prospective employer
     concerning your continuing obligations under this Paragraph 9.

          Please indicate your acceptance of the foregoing provisions of this
severance agreement by signing the enclosed copy of this letter agreement and
returning it to the Company.

Very truly yours,

LIGAND PHARMACEUTICALS INCORPORATED

/S/DAVID E. ROBINSON

David E. Robinson
Chairman, President and CEO


DER:bjo
agree\severance.jjl


ACCEPTED BY AND AGREED TO

Signature: /S/JAMES J. L'ITALIEN
           ___________________________________
              James J. L'Italien

Dated:     1 AUG 2002
           ___________________________________

EX-10

                                                                  Exhibit 10.258


May 20, 2003

Mr. Tod G. Mertes
Vice President, Controller and Treasurer
LIGAND PHARMACEUTICALS INCORPORATED
10275 Science Center Drive
San Diego, CA  92121

Dear Tod:

          The purpose of this letter agreement is to document the terms of the
severance package to which you will be entitled should your employment with
Ligand Pharmaceuticals Incorporated (the "Company") terminate under certain
specified circumstances.

          Part One of this letter agreement sets forth certain definitional
provisions to be in effect for purposes of determining your benefit
entitlements. Part Two specifies the terms and conditions upon which you may
become entitled to receive severance benefits. Severance benefits accrue under
this letter agreement in the event your employment with the Company were to be
terminated involuntarily in connection with certain changes in control of the
Company. Part Three concludes this letter agreement with a series of general
terms and conditions applicable to your severance benefits.

                             PART ONE -- DEFINITIONS

          DEFINITIONS. For purposes of this letter agreement, including in
particular the application of the special benefit limitations of Part Three, the
following definitions will be in effect:

1.   Average Compensation means your average W-2 wages from the Company for the
     five (5) calendar years completed immediately prior to the calendar year in
     which the Change in Control is effected. Any W-2 wages for a partial year
     of employment will be annualized, in accordance with the frequency with
     which such wages are paid during such partial year, before inclusion within
     your Average Compensation.

2.   Board means the Company's Board of Directors.



Mr. Tod G. Mertes
May 20, 2003
Page 2

3.   Change in Control means any of the following events:

          (i) a merger or consolidation in which the Company is not the
     surviving entity, except for a transaction the principal purpose of which
     is to change the state in which the Company is incorporated,

          (ii) the sale, transfer or other disposition of all or substantially
     all of the assets of the Company other than in the ordinary course of
     business,

          (iii) any reverse merger in which the Company ceases to exist as an
     independent corporation and becomes the subsidiary of another corporation,
     except where there is an insubstantial change in the de facto voting
     control of the Company (e.g. the creation of a holding company),

          (iv) any Hostile Take-Over,

          (v) the acquisition by any person (or related group of persons),
     whether by tender or exchange offer made directly to the Company's
     stockholders, private purchases from one or more of the Company's
     stockholders, open market purchases or any other transaction, of beneficial
     ownership of securities possessing more than thirty percent (30%) of the
     total combined voting power of the Company's outstanding securities,

          (vi) the acquisition by any person (or related group of persons),
     whether by tender or exchange offer made directly to the Company's
     stockholders, private purchases from one or more of the Company's
     stockholders, open market purchases or any other transaction, of additional
     securities of the Company which increase the total holdings of such person
     (or group) to a level of securities possessing more than fifty percent
     (50%) of the total combined voting power of the Company's outstanding
     securities, or



Mr. Tod G. Mertes
May 20, 2003
Page 3

          (vii) the acquisition by any person (or related group of persons),
     whether by tender or exchange offer made directly to the Company's
     stockholders, private purchases from one or more of the Company's
     stockholders, open market purchases or any other transaction, of securities
     of the Company possessing sufficient voting power in the aggregate to elect
     an absolute majority of the members of the Board (rounded up to the nearest
     whole number).

4.   COBRA means the continuation-of-coverage provisions of the Consolidated
     Omnibus Budget Reconciliation Act of 1985, as amended.

5.   Code means the Internal Revenue Code of 1986, as amended.

6.   Common Stock means the Company's common stock, par value $0.001 per share.

7.   Equity Incentive Plans means any of the following equity incentive plans of
     the Company: 1992 Stock Option/Stock Issuance Plan, the 2002 Stock
     Incentive Plan, and the Restricted Stock Purchase Plan, together with any
     amendments or successors to such plans.

8.   Equity Parachute Payment means, with respect to any Option (whether
     Acquisition-Accelerated or Severance-Accelerated) or unvested Stock
     Issuance, the portion deemed to be a parachute payment under Code Section
     280G and the Treasury Regulations issued thereunder. Such Equity Parachute
     Payment shall be calculated in accordance with the valuation provisions
     established under Code Section 280G and the applicable Treasury Regulations
     and will include an appropriate dollar adjustment to reflect the lapse of
     your obligation to remain in the Company's employ as a condition to your
     vesting in the accelerated portion of such Option or Stock Issuance.

9.   ERISA means the Employee Retirement Income Security Act of 1974, as
     amended.

10.  Health Care Coverage means the health care benefits provided by the Company
     to you and your eligible dependents for which you are eligible to continue
     coverage under the provisions of COBRA.

11.  Hostile Take-Over means either of the following events:



Mr. Tod G. Mertes
May 20, 2003
Page 4

          (i) the acquisition by any person (or related group of persons)
     whether by tender or exchange offer made directly to the Company's
     stockholders, private purchases from one or more of the Company's
     stockholders, open market purchases or any other transaction, of beneficial
     ownership of securities possessing more than thirty percent (30%) of the
     total combined voting power of the Company's outstanding securities
     pursuant to a tender offer made directly to the Company's stockholders
     which the Board does not recommend such stockholders to accept, or

          (ii) a change in the composition of the Board over a period of
     thirty-six (36) consecutive months or less such that a majority of the
     Board members (rounded up to the next whole number) ceases, by reason of
     one or more contested elections for Board membership, to be comprised of
     individuals who either (a) have been Board members continuously since the
     beginning of such period or (b) have been elected or nominated for election
     as Board members during such period by at least a majority of the Board
     members described in clause (a) who were still in office at the time such
     election or nomination was approved by the Board.

12.  Involuntary Termination means the termination of your employment with the
     Company:

          (i) upon your involuntary discharge or dismissal, or

          (ii) upon your resignation in connection with any of the following
     changes to the terms and conditions of your employment: (A) a change in
     your position with the Company which materially reduces your level of
     responsibility, (B) a greater than ten percent (10%) reduction in your
     level of compensation (including base salary, fringe benefits and
     participation in non-discretionary bonus programs under which awards are
     payable pursuant to objective financial or performance standards, but
     excluding equity compensation) or (C) a relocation of your principal place
     of employment by more than fifty (50) miles.

          The following guidelines shall determine whether one or more
     reductions in compensation should be taken into account for purposes of
     clause (ii)(B):

               (a) Any reduction in compensation which occurs in connection with
          an across-the-board reduction in the level of compensation payable to



Mr. Tod G. Mertes
May 20, 2003
Page 5
          the Company's executive officers or senior management shall not
          constitute grounds for a clause (ii)(B) resignation, unless
          implemented within eighteen (18) months after a Change in Control.

               (b) In the event of a Hostile Take-Over, the greater than ten
          percent (10%) standard of clause (ii)(B) shall be reduced to zero
          percent (0%) so that any reduction in the level of your compensation
          shall constitute grounds for a clause (ii)(B) resignation.

          In no event shall an Involuntary Termination be deemed to occur should
     your employment terminate by reason of death or permanent disability.

13.  Option means any option granted to you under any of the Equity Incentive
     Plans which is outstanding at the time of your Involuntary Termination or
     any earlier Change in Control. Your outstanding options are to be divided
     into two separate categories as follows:

          (i) Acquisition-Accelerated Options: any outstanding Option (or
     installment thereof) which accelerates upon a Change in Control in
     accordance with the automatic acceleration provisions of the Equity
     Incentive Plans.

          (ii) Severance-Accelerated Options: any outstanding Option (or
     installment thereof) which is not an Acquisition-Accelerated Option but
     which accelerates upon your Involuntary Termination, whether or not in
     connection with a Change in Control, as part of your severance benefits
     under this letter agreement.

14.  Other Parachute Payments mean any payments in the nature of compensation to
     which you may become entitled under this letter agreement (other than the
     Equity Parachute Payment) or any other arrangement with the Company, to the
     extent such payments qualify as parachute payments within the meaning of
     Code Section 280G(b)(2) and the Treasury Regulations issued thereunder or
     would so qualify if the aggregate present value of such payments exceeded
     the amount specified in Code Section 280G(b)(2)(ii).

15.  Stock Issuance means the issuance of unvested shares of Common Stock under
     the Company's Restricted Stock Plan or any other Equity Incentive Plan.



Mr. Tod G. Mertes
May 20, 2003
Page 6

16.  Termination for Cause means an Involuntary Termination or resignation of
     your employment with the Company by reason of your conviction of any felony
     or other criminal act, your commission of any act of fraud or embezzlement,
     your unauthorized use or disclosure of confidential or proprietary
     information or trade secrets of the Company or its subsidiaries, or any
     other intentional misconduct on your part which adversely affects the
     business or affairs of the Company in a material manner.

                  PART TWO -- INVOLUNTARY TERMINATION BENEFITS

          You will be entitled to receive the severance benefits specified below
should there occur an Involuntary Termination of your employment during the term
of this letter agreement effected in connection with a Change in Control, other
than a Termination for Cause. However, in the absence of a Hostile Take-Over,
these benefits will continue to be paid you only for so long as you remain
available for any consulting services required of you under Part Two, Paragraph
4 and abide by the restrictive covenants set forth in Part Two, Paragraph 5.

1.   Severance Payments. You will receive severance payments from the Company
     for a period of twelve (12) months following your Involuntary Termination
     in an aggregate amount equal to the sum of (A) one (1) times the annual
     rate of base salary in effect for you at the time of your Involuntary
     Termination or at the time of the relevant Change in Control, whichever is
     higher plus (B) one (1) times the average of the bonuses (excluding any
     signing bonus) paid to you for services rendered in the two (2) fiscal
     years immediately preceding the fiscal year of your Involuntary Termination
     (annualized if paid for a partial fiscal year). If a bonus is paid to you
     for only one of those years, then the bonus amount under Clause (B) will be
     equal to one (1) times such bonus amount. The aggregate severance payments
     shall be paid to you in equal installments over the twelve-month period in
     accordance with the Company's normal payroll practices and subject to all
     applicable withholding taxes. The severance payments will immediately
     terminate if and only if (i) you should cease to remain available for the
     consulting services required of you under Section 4, or (ii) you fail to
     abide by the restrictive covenants set forth in Section 5 . However, in the
     event your Involuntary Termination occurs in connection with a Hostile
     Take-Over, your severance payments will be paid to you in the form of a
     single lump sum amount within thirty (30) days after such Involuntary
     Termination, and the provisions of Sections 4 and 5 of this Part Two will
     not apply.



Mr. Tod G. Mertes
May 20, 2003
Page 7

2.   Health Care Coverage. The Company will, at its expense, make any COBRA
     payments for you and your eligible dependents in order to continue your
     Health Care Coverage until the earlier of (i) twelve (12) months after the
     effective date of your Involuntary Termination (other than a Termination
     for Cause) or (ii) the first date that you are covered under another
     employer's (or, in the event of rehire, the Company's) health benefit
     program which provides substantially the same level of benefits without
     exclusion for pre-existing medical conditions. Such payments will be in
     lieu of any other continued health care coverage to which you or your
     dependents would otherwise be entitled pursuant to the requirements of Code
     Section 4980B by reason of your termination of employment.

3.   Option Acceleration and Lapse of Restrictions. Each of your outstanding
     Options under the Equity Incentive Plans will (to the extent not then
     otherwise exercisable) automatically accelerate so that each such Option
     will become immediately exercisable for the total number of shares of
     Common Stock at the time subject to that Option. Each such accelerated
     Option, together with all of your other vested Options, will remain
     exercisable for a period of twelve (12) months following your Involuntary
     Termination until the end of the specified ten (10)-year option term. Such
     Option(s) may be exercised for any or all of the option shares in
     accordance with the exercise provisions of the option agreement evidencing
     the grant. In addition, all restrictions applicable to the Stock Issuances
     you hold (to the extent those restrictions have not previously lapsed in
     accordance with the terms of the issuance agreements) will automatically
     lapse upon your Involuntary Termination (except a Termination for Cause).

4.   Consulting Services. Unless your Involuntary Termination occurs in
     connection with a Hostile Take-Over, you will make yourself available to
     perform consulting services reasonably requested of you during the twelve
     (12)-month period following your Involuntary Termination. You will be
     compensated at an hourly rate to be agreed upon by you and the Company at
     the time such consulting services are to be rendered, and you will be
     reimbursed for all reasonable out-of-pocket expenses incurred in rendering
     such services upon your submission of appropriate documentation for those
     expenses.

5.   Restrictive Covenants. For the one hundred twenty (120)-day period
     following your Involuntary Termination:

               (i) You will not directly or indirectly, whether for your own



Mr. Tod G. Mertes
May 20, 2003
Page 8

          account or as an employee, director, consultant or advisor, provide
          services to any business enterprise which is at the time in
          competition with any of the Company's then existing or formally
          planned product lines and which is located geographically in an area
          where the Company maintains substantial business activities, unless
          you obtain the prior written consent of the Board of Directors.

               (ii) You will not directly or indirectly encourage or solicit any
          individual to leave the Company's employ for any reason or interfere
          in any other manner with the employment relationships at the time
          existing between the Company and its current or prospective employees.

               (iii) You will not induce or attempt to induce any customer,
          supplier, distributor, licensee or other business relation of the
          Company to cease doing business with the Company or in any way
          interfere with the existing business relationship between any such
          customer, supplier, distributor, licensee or other business relation
          and the Company.

          You acknowledge that monetary damages may not be sufficient to
          compensate the Company for any economic loss which may be incurred by
          reason of your breach of the foregoing restrictive covenants.
          Accordingly, in the event of any such breach, the Company shall, in
          addition to the cessation of the severance benefits provided you under
          this letter agreement and any remedies available to the Company at
          law, be entitled to obtain equitable relief in the form of an
          injunction precluding you from continuing to engage in such breach.

          None of the foregoing restrictive covenants in this section 5
          shall be applicable in the event your Involuntary Termination occurs
          in connection with a Hostile Take-Over.

6.   Benefit Reduction.

               (i) BENEFIT REDUCTION. If the Change in Control does not
          constitute a Hostile Take-Over, first the dollar amount of your
          severance payment under Paragraph 1 will be reduced to the extent
          necessary to assure that the present value of those benefits will not,
          when added to the present value of your Equity Parachute Payment and
          your Other Parachute Payments, exceed 2.99 times your Average
          Compensation. In the event of a Hostile Take-Over, no reduction will
          be made to your severance payment (or any other benefit to which you
          become entitled hereunder), unless necessary to provide you with the
          maximum after-tax benefit available, after taking into account any



Mr. Tod G. Mertes
May 20, 2003
Page 9

          parachute excise tax which might otherwise be payable by you under
          Code Section 4999 and any analogous State income tax provision.

               (ii) RESOLUTION OF DISPUTES. In the event there is any
          disagreement between you and the Company as to whether one or more
          benefits to which you become entitled (whether under this letter
          agreement or otherwise) in connection with a Change in Control
          constitute Equity Parachute Payments or Other Parachute Payments, such
          dispute is to be resolved as follows:

               A. The matter shall be submitted for resolution to independent
          counsel mutually acceptable to you and the Company ("Independent
          Counsel"). The resolution reached by Independent Counsel shall be
          final and controlling. However, should the Independent Counsel
          determine that the status of the benefits in dispute can be resolved
          by obtaining a private letter ruling from the Internal Revenue
          Service, a formal and proper request for such ruling shall be prepared
          and submitted by Independent Counsel, and the determination made by
          the Internal Revenue Service in the issued ruling shall be
          controlling. All expenses incurred in connection with the retention of
          Independent Counsel and (if applicable) the preparation and submission
          of the ruling request shall be paid by the Company.

               B. The present value of each Equity Parachute Payment and each of
          the Other Parachute Payments (including your severance payment and
          Health Care Coverage) shall be determined in accordance with the
          provisions of Code Section 280G(d)(4) and the Treasury Regulations
          issued thereunder.

          The full amount of your severance benefit under Paragraph 1 shall
          not be paid to you until any amounts in dispute under this Paragraph
          6(ii) have been resolved in accordance herewith. However, any portion
          of such severance payment which would not otherwise exceed the benefit
          limitation of Paragraph 6(i) even if all amounts in dispute under this
          Paragraph 6(ii) were to be resolved against you will be paid to you in
          accordance with the applicable provisions of this letter agreement.

               (iii) OVERRIDING LIMITATION. You will in all events be entitled
          to receive the full amount of your severance payment under Paragraph
          1, to the extent those benefits, when added to the present value of
          your Equity Parachute Payment and your Other Parachute Payments
          (excluding such severance payment), will nevertheless qualify as
          reasonable compensation within the standards established under Code
          Section 280G(b)(4).



Mr. Tod G. Mertes
May 20, 2003
Page 10

               (iv) INTERPRETATION. The provisions of this Section 6 shall in
          all events be interpreted in such manner as will avoid the imposition
          of excise taxes under Code Section 4999, and the disallowance of
          deductions under Code Section 280G(a), with respect to your severance
          benefits under this letter agreement.

                     PART THREE -- MISCELLANEOUS PROVISIONS

1.   Termination for Cause. Should your termination constitute a Termination for
     Cause, then the Company shall only be required to pay you (i) any unpaid
     compensation earned for services previously rendered through the date of
     such termination and (ii) any accrued but unpaid vacation benefits or sick
     days, (iii) any reimbursements then owed to you by the Company and no
     benefits will be payable to you under this letter agreement.

2.   Term of Agreement. The provisions of this letter agreement will continue in
     effect for a period of five (5) years from the date hereof.

3.   General Creditor Status. The benefits to which you may become entitled
     under this letter agreement (except those attributable to your Options or
     Stock Issuances) will be paid, when due, from the general assets of the
     Company. Your right (or the right of the executors or administrators of
     your estate) to receive any such payments will at all times be that of a
     general creditor of the Company and will have no priority over the claims
     of other general creditors of the Company.

4.   Death. Should you die before receipt of all benefits to which you become
     entitled under this letter agreement, then the payment of such benefits
     will be made, on the due date or dates hereunder had you survived, to the
     executors or administrators of your estate. Should you die before you
     exercise your Severance-Accelerated Options (if any) or any other of your
     outstanding vested Options, then each such Option may be exercised, during
     the applicable exercise period in effect hereunder for those options at the
     time of your death, by the executors or administrators of your estate or by
     person to whom the Option is transferred pursuant to your will or in
     accordance with the laws of inheritance.

5.   Miscellaneous. The provisions of this letter agreement will be construed
     and interpreted under ERISA. To the extent ERISA is inapplicable, then the
     laws of the State of California shall control, without regard to that
     state's choice of law provisions. This letter agreement incorporates the
     entire agreement between you and the Company relating to the subject of



Mr. Tod G. Mertes
May 20, 2003
Page 11

     severance benefits and supersedes all prior agreements and understandings
     with respect to such subject matter. This letter agreement may only be
     amended by written instrument signed by you and another duly-authorized
     officer of the Company. If any provision of this letter agreement as
     applied to any party or to any circumstance should be adjudged by an
     arbitrator or court of competent jurisdiction to be void or unenforceable
     for any reason, the invalidity of that provision shall in no way affect (to
     the maximum extent permissible by law) the application of such provision
     under circumstances different from those so adjudicated, the application of
     any other provision of this letter agreement, or the enforceability or
     invalidity of this letter agreement as a whole. Should any provision of
     this letter agreement become or be determined to be invalid, illegal or
     unenforceable in any jurisdiction by reason of the scope, extent or
     duration of its coverage, then such provision shall be deemed amended to
     the extent necessary to conform to applicable law so as to be valid and
     enforceable or, if such provision cannot be so amended without materially
     altering the intention of the parties, then such provision shall be
     stricken and the remainder of this letter agreement shall continue in full
     force and effect.

6.   Remedies. All rights and remedies provided pursuant to this letter
     agreement or by law will be cumulative, and no such right or remedy will be
     exclusive of any other. A party may pursue any one or more rights or
     remedies hereunder or may seek damages or specific performance in the event
     of another party's breach hereunder or may pursue any other remedy by law
     or equity, whether or not stated in this letter agreement.

7.   Arbitration. Any controversy which may arise between you and the Company
     with respect to the construction, interpretation or application of any of
     the terms, provisions or conditions of this letter agreement or any
     monetary claim arising from or relating to this letter agreement will be
     submitted to and exclusively decided by final and binding arbitration in
     San Diego, California in accordance with the rules of the American
     Arbitration Association then in effect.

8.   No Employment or Service Contract. Nothing in this letter agreement shall
     confer upon you any right to continue in the employment of the Company for
     any period of specific duration or interfere with or otherwise restrict in
     any way the rights of the Company or you, which rights are hereby expressly
     reserved by each, to terminate your employment at any time for any reason
     whatsoever, with or without cause.



Mr. Tod G. Mertes
May 20, 2003
Page 12

9.   Proprietary Information. You hereby acknowledge that the Company may, from
     time to time during your employment with the Company, disclose to you
     confidential information pertaining to the Company's business and affairs.
     All information and data, whether or not in writing, of a private or
     confidential nature concerning the business or financial affairs of the
     Company is and will remain subject to a separate Proprietary Information
     and Inventions Agreement (or the like) between you and the Company.

          Please indicate your acceptance of the foregoing provisions of this
severance agreement by signing the enclosed copy of this letter agreement and
returning it to the Company.

Very truly yours,

LIGAND PHARMACEUTICALS INCORPORATED

/S/DAVID E. ROBINSON

David E. Robinson
Chairman, President and CEO


DER:bjo
share\executive severance template.doc
share\agreement\severance Mertes 05-20-03.doc


ACCEPTED BY AND AGREED TO



Signature: /S/TOD G. MERTES
           ________________________

Dated:     July 16, 2003
           ________________________

EX-10

                                                                  Exhibit 10.259

      AMENDMENT NO. 2 TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT

          THIS AMENDMENT NO. 2 TO AMENDED AND RESTATED REGISTRATION RIGHTS
AGREEMENT (the "Agreement") is made on the 25th day of June, 2003, by and among
Ligand Pharmaceuticals Incorporated, a Delaware corporation (the "Company"), and
Elan International Services, Ltd., a Bermuda exempted company ("EIS").

                                    RECITALS

          WHEREAS, the Company, Elan Corporation, plc, a public limited company
organized under the laws of the Republic of Ireland ("Elan"), and EIS and
certain other holders of the Company's capital stock have previously entered
into that certain Amended and Restated Registration Rights Agreement dated June
29, 2000, including the addenda entered into through the date hereof as well as
that certain Amendment No. 1 to Amended and Restated Registration Rights
Agreement dated November 12, 2002 (collectively, the "Prior Agreement").

          WHEREAS, Section 2.6(b) of the Prior Agreement provides that any term
of the Prior Agreement may be amended with the written consent of the Company
and the holders of a majority of the Registrable Securities then outstanding (as
defined in the Prior Agreement).

          WHEREAS, the Company and EIS desire to amend certain terms of the
Prior Agreement as set forth in this Agreement.

                      THE PARTIES HEREBY AGREE AS FOLLOWS:

1. SECTION 1.2(D).

          The first sentence of paragraph (d) of Section 1.2 of the Prior
Agreement is hereby restated in its entirety as follows:

          "(d) In addition to the rights and obligations set forth in this
     Section 1.2, if any Holders holding in the aggregate at least 4,000,000
     shares of Registrable Securities making a request pursuant to this Section
     1.2 additionally request that such registration statement on Form S-3 be
     effected for an offering to be made on a delayed or continuous basis
     pursuant to Rule 415 under the Act covering all Registrable Securities
     owned by such Holders (a `Shelf Registration Statement'), the Company shall
     include such information in the written notice referred to in subsection
     1.2(a)."

2. EFFECT OF PRIOR AGREEMENT.

          Except as set forth herein, the Prior Agreement shall remain in full
force and effect.



3.       MISCELLANEOUS.

          3.1 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto or their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.

          3.2 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.

          3.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

          3.4 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

             [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]








                                      -2-





          IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

                          LIGAND PHARMACEUTICALS INCORPORATED



                          By:     /S/PAUL V. MAIER
                                 ----------------------------------------
                                 Paul V. Maier, Senior Vice President and
                                 Chief Financial Officer
                                 10275 Science Center Drive
                                 San Diego, California 92121









                            ELAN INTERNATIONAL SERVICES, LTD.



                            By:    /S/KEVIN INSLEY
                                   --------------------------------------
                                   Kevin Insley, President
                                   102 St. James Court
                                   Flatts, Smith Parish, Bermuda, FL04












                                   SCHEDULE A
                              SCHEDULE OF INVESTORS


===============================================  ====================
NAME                                             SHARES ISSUED
                                              
- -----------------------------------------------  --------------------

- -----------------------------------------------  --------------------
Elan International Services, Ltd.                5,835,771
- -----------------------------------------------  --------------------

===============================================  ====================

EX-10

                                                                  Exhibit 10.260

                      LIGAND PHARMACEUTICALS INCORPORATED

                        2002 EMPLOYEE STOCK PURCHASE PLAN

                                  JULY 1, 2002
                       (AS AMENDED THROUGH JUNE 30, 2003)


          I. PURPOSE OF THE PLAN

          This Employee Stock Purchase Plan is intended to promote the interests
of Ligand Pharmaceuticals Incorporated, a Delaware corporation, by providing
eligible employees with the opportunity to acquire a proprietary interest in the
Corporation through participation in a payroll deduction-based employee stock
purchase plan designed to qualify under Section 423 of the Code.

          Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.

          II. ADMINISTRATION OF THE PLAN

          The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.

          III. STOCK SUBJECT TO PLAN

          A. The stock purchasable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares of Common Stock
purchased on the open market. The number of shares of Common Stock reserved for
issuance over the term of the Plan shall be 510,248 shares, consisting of (i)
35,248 shares that remained available for issuance, as of the Effective Date,
under the Predecessor Plan as last approved by the Corporation's stockholders
plus (ii) an additional increase of 75,000 shares that was approved by the
Corporation's stockholders at the 2002 Annual Meeting plus (iii) an additional
400,000 shares approved by the Corporation's stockholders subsequent to the
adoption of the Plan.

          B. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and class of securities issuable under
the Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date and (iii) the number and class of
securities and the price per share in effect under each outstanding purchase
right in order to prevent the dilution or enlargement of benefits thereunder.

          IV. OFFERING PERIODS

          A. Shares of Common Stock shall be offered for purchase under the Plan
through a series of successive offering periods, which shall continue until such
time as (i) the maximum number of shares of Common Stock available for issuance
under the Plan shall have been purchased (ii) the Plan Administrator shall have
terminated the offering period as provided below or (iii) the Plan shall have
been sooner terminated.

          B. Each offering period shall consist of one Purchase Interval or such
other duration (not to exceed twenty-four (24) months) as determined by the Plan
Administrator prior to the start date of such offering period.



          C. Each offering period shall consist of a series of one or more
successive Purchase Intervals. Purchase Intervals shall run from (i) the first
business day in January to the last business day in March each year (ii) from
the first business day in April to the last business day in June each year,
(iii) from the first business day in July to the last business day in September
each year and (iv) from the first business day in October to the last business
day in December each year.

          D. It its sole discretion, the Plan Administrator may provide that,
should the Fair Market Value per share of Common Stock on any Purchase Date
within an offering period be less than the Fair Market Value per share of Common
Stock on the start date of that offering period, then immediately after the
purchase of shares of Common Stock on behalf of the participants in that
offering period on that Purchase Date, that offering period will automatically
terminate, and a new offering period will begin on the next business day, with
all participants in the terminated offering period to be automatically
transferred to the new offering period.

          E. The Plan Administrator may in its discretion terminate any ongoing
offering period with respect to future Purchase Interval(s), effective on a
current or future Purchase Date in such offering period when, in the sole
discretion of the Plan Administrator, such termination would be in the best
interests of the Corporation or its stockholders including without limitation to
assure that the Corporation will not recognize, for financial reporting
purposes, any compensation expense in connection with the shares of Common Stock
offered for purchase under the Plan. Upon such early termination, a new offering
period will begin at the time designated by the Plan Administrator.

          V. ELIGIBILITY

          A. Each individual who is an Eligible Employee on the start date of
any offering period under the Plan may enter that offering period on such start
date or on any subsequent Quarterly Entry Date within that offering period,
provided he or she remains an Eligible Employee.

          B. Each individual who first becomes an Eligible Employee after the
start date of an offering period may enter that offering period on any
subsequent Quarterly Entry Date within that offering period on which he or she
is an Eligible Employee.

          C. The date an individual enters an offering period shall be
designated his or her Entry Date for purposes of that offering period.

          D. Except as otherwise provided in Sections IV.D. and V.A. above, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate) on or before his or her scheduled Entry Date. Participants in the
Plan at the expiration of an offering period may be automatically enrolled in
the next offering period at the discretion of the Plan Administrator.

          VI. PAYROLL DEDUCTIONS

          A. The payroll deduction authorized by the Participant for purposes of
acquiring shares of Common Stock during an offering period may be any multiple
of one percent (1%) of the Cash Earnings paid to the Participant during each
Purchase Interval within that offering period, up to a maximum of ten percent
(10%). The deduction rate so authorized shall continue in effect throughout the
offering period, except to the extent such rate is changed in accordance with
the following guidelines:

          (i) The Participant may, at any time during the offering period,
     reduce his or her rate of payroll deduction (or to the extent applicable,
     the percentage of Cash Earnings to serve as his or her lump sum
     contribution for the initial Purchase Interval of the first offering
     period) to become effective as soon as possible after filing the
     appropriate form with the Plan Administrator. The Participant may not,
     however, effect more than one (1) such reduction per Purchase Interval.




          (ii) The Participant may, prior to the commencement of any new
     Purchase Interval within the offering period, increase the rate of his or
     her payroll deduction by filing the appropriate form with the Plan
     Administrator. The new rate (which may not exceed the ten percent (10%)
     maximum) shall become effective on the start date of the first Purchase
     Interval following the filing of such form.

          B. Payroll deductions shall begin on the first pay day
administratively feasible following the Participant's Entry Date into the
offering period and shall (unless sooner terminated by the Participant) continue
through the pay day ending with or immediately prior to the last day of that
offering period. The amounts so collected shall be credited to the Participant's
book account under the Plan, but no interest shall be paid on the balance from
time to time outstanding in such account. The amounts collected from the
Participant shall not be required to be held in any segregated account or trust
fund and may be commingled with the general assets of the Corporation and used
for general corporate purposes.

          C. Payroll deductions shall automatically cease upon the termination
of the Participant's purchase right in accordance with the provisions of the
Plan.

          D. The Participant's acquisition of Common Stock under the Plan on any
Purchase Date shall neither limit nor require the Participant's acquisition of
Common Stock on any subsequent Purchase Date, whether within the same or a
different offering period.

          VII. PURCHASE RIGHTS

          A. GRANT OF PURCHASE RIGHTS. A Participant shall be granted a separate
purchase right for each offering period in which he or she participates. The
purchase right shall be granted on the Participant's Entry Date into the
offering period and shall provide the Participant with the right to purchase
shares of Common Stock, in a series of one or more installments over the
remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.

          Under no circumstances shall purchase rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning of Code Section 424(d)) or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Corporation
or any Corporate Affiliate.

          B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall be
automatically exercised in one or more installments on each successive Purchase
Date within the offering period, and shares of Common Stock shall accordingly be
purchased on behalf of each Participant on each such Purchase Date. The purchase
shall be effected by applying the Participant's payroll deductions (or, to the
extent applicable, his or her lump sum contribution) for the Purchase Interval
ending on such Purchase Date to the purchase of whole shares of Common Stock at
the purchase price in effect for the Participant for that Purchase Date.

          C. PURCHASE PRICE. The purchase price per share at which Common Stock
will be purchased on the Participant's behalf on each Purchase Date within the
offering period shall be equal to eighty-five percent (85%) of the lower of (i)
the Fair Market Value per share of Common Stock on the Participant's Entry Date
into that offering period or (ii) the Fair Market Value per share of Common
Stock on that Purchase Date.

          D. NUMBER OF PURCHASABLE SHARES. The number of shares of Common Stock
purchasable by a Participant on each Purchase Date during the offering period
shall be the number of whole shares obtained by dividing the amount collected
from the Participant through payroll deductions during the Purchase Interval



ending with that Purchase Date (or, to the extent applicable, his or her lump
sum contribution for that Purchase Interval) by the purchase price in effect for
the Participant for that Purchase Date. However, the maximum number of shares of
Common Stock purchasable per Participant on any one Purchase Date shall not
exceed 1,330 shares, subject to periodic adjustments in the event of certain
changes in the Corporation's capitalization. However, the Plan Administrator
shall have the discretionary authority, exercisable prior to the start of any
offering period under the Plan, to increase or decrease the limitations to be in
effect for the number of shares purchasable per Participant and to establish
limitations on the maximum number of shares that may be purchased in total by
all Participants on each Purchase Date during that offering period.

          E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not applied to
the purchase of shares of Common Stock on any Purchase Date because they are not
sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable per Participant or in
total by all Participants on the Purchase Date shall be promptly refunded.

          F. SUSPENSION OF PAYROLL DEDUCTIONS. In the event that a Participant
is, by reason of the accrual limitations in Article VIII, precluded from
purchasing additional shares of Common Stock on one or more Purchase Dates
during the offering period in which he or she is enrolled, then no further
payroll deductions shall be collected from such Participant with respect to
those Purchase Dates. The suspension of such deductions shall not terminate the
Participant's purchase right for the offering period in which he or she is
enrolled, and payroll deductions shall automatically resume on behalf of such
Participant once he or she is again able to purchase shares during that offering
period in compliance with the accrual limitations of Article VIII.

          G. TERMINATION OF PURCHASE RIGHT. The following provisions shall
govern the termination of outstanding purchase rights:

          (i) A Participant may, at any time prior to the next scheduled
     Purchase Date in the offering period, terminate his or her outstanding
     purchase right by filing the appropriate form with the Plan Administrator
     (or its designate), and no further payroll deductions shall be collected
     from the Participant with respect to the terminated purchase right. Any
     payroll deductions collected during the Purchase Interval in which such
     termination occurs shall, at the Participant's election, be immediately
     refunded or held for the purchase of shares on the next Purchase Date. If
     no such election is made at the time such purchase right is terminated,
     then the payroll deductions collected with respect to the terminated right
     shall be refunded as soon as possible.

          (ii) The termination of such purchase right shall be irrevocable, and
     the Participant may not subsequently rejoin the offering period for which
     the terminated purchase right was granted. In order to resume participation
     in any subsequent offering period, such individual must re-enroll in the
     Plan (by making a timely filing of the prescribed enrollment forms) on or
     before his or her scheduled Entry Date into that offering period.

          (iii) Should the Participant cease to remain an Eligible Employee for
     any reason (including death, disability or change in status) while his or
     her purchase right remains outstanding, then that purchase right shall
     immediately terminate, and all of the Participant's payroll deductions for
     the Purchase Interval in which the purchase right so terminates shall be
     immediately refunded. However, should the Participant cease to remain in
     active service by reason of an approved unpaid leave of absence, then the
     Participant shall have the right, exercisable up until the last business
     day of the Purchase Interval in which such leave commences, to (a) withdraw
     all the payroll deductions collected to date on his or her behalf for that
     Purchase Interval or (b) have such funds held for the purchase of shares on
     his or her behalf on the next scheduled Purchase Date. In no event,
     however, shall any further payroll deductions be collected on the
     Participant's behalf during such leave. Upon the Participant's return to
     active service (x) within ninety (90) days following the commencement of



     such leave or (y) prior to the expiration of any longer period for which
     such Participant's right to reemployment with the Corporation is guaranteed
     by statute or contract, his or her payroll deductions under the Plan shall
     automatically resume at the rate in effect at the time the leave began,
     unless the Participant withdraws from the Plan prior to his or her return.
     An individual who returns to active employment following a leave of absence
     that exceeds in duration the applicable (x) or (y) time period will be
     treated as a new Employee for purposes of subsequent participation in the
     Plan and must accordingly re-enroll in the Plan (by making a timely filing
     of the prescribed enrollment forms) on or before his or her scheduled Entry
     Date into the offering period.

          H. CHANGE IN CONTROL. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective date of any
Change in Control, by applying the payroll deductions of each Participant for
the Purchase Interval in which such Change in Control occurs to the purchase of
whole shares of Common Stock at a purchase price per share equal to eighty-five
percent (85%) of the lower of (i) the Fair Market Value per share of Common
Stock on the Participant's Entry Date into the offering period in which such
Change in Control occurs or (ii) the Fair Market Value per share of Common Stock
immediately prior to the effective date of such Change in Control. However, the
applicable limitation on the number of shares of Common Stock purchasable per
Participant shall continue to apply to any such purchase, but not the limitation
applicable to the maximum number of shares of Common Stock purchasable in total
by all Participants on any one Purchase Date.

          The Corporation shall use its best efforts to provide at least ten
(10) days' prior written notice of the occurrence of any Change in Control, and
Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Change in Control.

          I. PRORATION OF PURCHASE RIGHTS. Should the total number of shares of
Common Stock to be purchased pursuant to outstanding purchase rights on any
particular date exceed the number of shares then available for issuance under
the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded. In addition, the Plan Administrator may limit the total number of
shares to be issued on any Purchase Date when, in the sole discretion of the
Plan Administrator, such limitation would be in the best interests of the
Corporation or its stockholders, including without limitation to limit or
eliminate any compensation expense to the Corporation in connection with the
shares of Common Stock to be issued under the Plan. In the event of such a
limitation, the Plan Administrator shall make a pro-rata allocation of the
available shares and any appropriate refund as provided above.

          J. ASSIGNABILITY. The purchase right shall be exercisable only by the
Participant and shall not be assignable or transferable by the Participant.

          K. STOCKHOLDER RIGHTS. A Participant shall have no stockholder rights
with respect to the shares subject to his or her outstanding purchase right
until the shares are purchased on the Participant's behalf in accordance with
the provisions of the Plan and the Participant has become a holder of record of
the purchased shares.

          VIII. ACCRUAL LIMITATIONS

          A. No Participant shall be entitled to accrue rights to acquire Common
Stock pursuant to any purchase right outstanding under this Plan if and to the
extent such accrual, when aggregated with (i) rights to purchase Common Stock
accrued under any other purchase right granted under this Plan and (ii) similar
rights accrued under other employee stock purchase plans (within the meaning of
Code Section 423)) of the Corporation or any Corporate Affiliate, would
otherwise permit such Participant to purchase more than Twenty-Five Thousand
Dollars ($25,000.00) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value per share on the
date or dates such rights are granted) for each calendar year such rights are at
any time outstanding.



          B. For purposes of applying such accrual limitations to the purchase
rights granted under the Plan, the following provisions shall be in effect:

          (i) The right to acquire Common Stock under each outstanding purchase
     right shall accrue in a series of installments on each successive Purchase
     Date during the offering period on which such right remains outstanding.

          (ii) No right to acquire Common Stock under any outstanding purchase
     right shall accrue to the extent the Participant has already accrued in the
     same calendar year the right to acquire Common Stock under one or more
     other purchase rights at a rate equal to Twenty-Five Thousand Dollars
     ($25,000.00) worth of Common Stock (determined on the basis of the Fair
     Market Value per share on the date or dates of grant) for each calendar
     year such rights were at any time outstanding.

          C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Purchase Interval, then the payroll
deductions that the Participant made during that Purchase Interval with respect
to such purchase right shall be promptly refunded.

          D. In the event there is any conflict between the provisions of this
Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.

          IX. EFFECTIVE DATE AND TERM OF THE PLAN

          A. The Plan was adopted by the Board on March 7, 2002, and became
effective at the Effective Time.

          B. The Plan shall serve as the successor to the Predecessor Plan, and
no further purchase rights shall be granted or exercised under the Predecessor
Plan after the Effective Date.

          C. Unless sooner terminated by the Board, the Plan shall terminate
upon the earliest of (i) the last business day in June 2012 or (ii) the date on
which all purchase rights are exercised in connection with a Change in Control.
No further purchase rights shall be granted or exercised, and no further payroll
deductions shall be collected, under the Plan following such termination.

          X. AMENDMENT OF THE PLAN

          A. The Board may alter, amend, suspend or terminate the Plan at any
time. However, no such amendment, modification or termination may adversely
affect any purchase rights outstanding under the Plan without the consent of the
affected Plan participant if such Board action shall become effective prior to
the close of the current Purchase Interval. However, the Plan may be amended or
terminated immediately upon Board action, if and to the extent necessary to
assure that the Corporation will not recognize, for financial reporting
purposes, any compensation expense in connection with the shares of Common Stock
offered for purchase under the Plan, should the financial accounting rules
applicable to the Plan at the Effective Time be subsequently revised so as to
require the Corporation to recognize compensation expense in the absence of such
amendment or termination.

          B. In no event may the Board effect any of the following amendments or
revisions to the Plan without the approval of the Corporation's stockholders:
(i) increase the number of shares of Common Stock issuable under the Plan,
except for permissible adjustments in the event of certain changes in the
Corporation's capitalization, (ii) alter the purchase price formula so as to
reduce the purchase price payable for the shares of Common Stock purchasable
under the Plan or (iii) modify the eligibility requirements for participation in
the Plan.



          XI. GENERAL PROVISIONS

          A. All costs and expenses incurred in the administration of the Plan
shall be paid by the Corporation; however, each Plan Participant shall bear all
costs and expenses incurred by such individual in the sale or other disposition
of any shares purchased under the Plan.

          B. Nothing in the Plan shall confer upon the Participant any right to
continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.

          C. The provisions of the Plan shall be governed by the laws of the
State of California without resort to that State's conflict-of-laws rules.







                                   SCHEDULE A


                          CORPORATIONS PARTICIPATING IN

                          EMPLOYEE STOCK PURCHASE PLAN

                            AS OF THE EFFECTIVE TIME
                            ________________________


                       Ligand Pharmaceuticals Incorporated












                                    APPENDIX

          The following definitions shall be in effect under the Plan:

          A. BOARD shall mean the Corporation's Board of Directors.

          B. CASH EARNINGS shall mean (i) the regular base salary paid to a
Participant by one or more Participating Companies during such individual's
period of participation in one or more offering periods under the Plan plus (ii)
all overtime payments, bonuses, commissions, profit-sharing distributions and
other incentive-type payments received during such period. Such Cash Earnings
shall be calculated before deduction of (A) any income or employment tax
withholdings or (B) any contributions made by the Participant to any Code
Section 401(k) salary deferral plan or any Code Section 125 cafeteria benefit
program now or hereafter established by the Corporation or any Corporate
Affiliate. However, Cash Earnings shall NOT include any contributions made by
the Corporation or any Corporate Affiliate on the Participant's behalf to any
employee benefit or welfare plan now or hereafter established (other than Code
Section 401(k) or Code Section 125 contributions deducted from such Cash
Earnings).

          C. CHANGE IN CONTROL shall mean a change in ownership of the
Corporation pursuant to any of the following transactions:

          (i) a merger, consolidation or other reorganization approved by the
     Corporation's stockholders, UNLESS securities representing more than fifty
     percent (50%) of the total combined voting power of the voting securities
     of the successor corporation are immediately thereafter beneficially owned,
     directly or indirectly and in substantially the same proportion, by the
     persons who beneficially owned the Corporation's outstanding voting
     securities immediately prior to such transaction, or

          (ii) the sale, transfer or other disposition of all or substantially
     all of the assets of the Corporation in complete liquidation or dissolution
     of the Corporation, or

          (iii) the acquisition, directly or indirectly, by a person or related
     group of persons (other than the Corporation or a person that directly or
     indirectly controls, is controlled by or is under common control with the
     Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of
     the 1934 Act) of securities possessing more than fifty percent (50%) of the
     total combined voting power of the Corporation's outstanding securities
     pursuant to a tender or exchange offer made directly to the Corporation's
     stockholders.

          D. CODE shall mean the Internal Revenue Code of 1986, as amended.

          E. COMMON STOCK shall mean the Corporation's common stock.

          F. CORPORATE AFFILIATE shall mean any parent or subsidiary corporation
of the Corporation (as determined in accordance with Code Section 424), whether
now existing or subsequently established.

          G. CORPORATION shall mean Ligand Pharmaceuticals Incorporated, a
Delaware corporation, and any corporate successor to all or substantially all of
the assets or voting stock of Ligand Pharmaceuticals Incorporated that shall by
appropriate action adopt the Plan.

          H. EFFECTIVE TIME shall mean July 1, 2002. Any Corporate Affiliate
that becomes a Participating Corporation after such Effective Time shall
designate a subsequent Effective Time with respect to its employee-Participants.

          I. ELIGIBLE EMPLOYEE shall mean any person who has been continuously
employed by a Participating Corporation for at least three months on a basis
under which he or she is regularly expected to render more than twenty (20)
hours of service per week for more than five (5) months per calendar year for
earnings considered wages under Code Section 3401 (a).




          J. ENTRY DATE shall mean the date an Eligible Employee first commences
participation in the offering period in effect under the Plan. The earliest
Entry Date under the Plan shall be the Effective Time.

          K. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:

                           (i) If the Common Stock is at the time traded on the
         Nasdaq National Market, then the Fair Market Value shall be the closing
         selling price per share of Common Stock on the date in question, as
         such price is reported by the National Association of Securities
         Dealers on the Nasdaq National Market and published in THE WALL STREET
         JOURNAL. If there is no closing selling price for the Common Stock on
         the date in question, then the Fair Market Value shall be the closing
         selling price on the last preceding date for which such quotation
         exists.

                           (ii) If the Common Stock is at the time listed on any
         Stock Exchange, then the Fair Market Value shall be the closing selling
         price per share of Common Stock on the date in question on the Stock
         Exchange determined by the Plan Administrator to be the primary market
         for the Common Stock, as such price is officially quoted in the
         composite tape of transactions on such exchange and published in THE
         WALL STREET JOURNAL. If there is no closing selling price for the
         Common Stock on the date in question, then the Fair Market Value shall
         be the closing selling price on the last preceding date for which such
         quotation exists.

          L. 1933 ACT shall mean the Securities Act of 1933, as amended.

          M. PARTICIPANT shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.

          N. PARTICIPATING CORPORATION shall mean the Corporation and such
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan are listed in attached Schedule A.

          O. PLAN shall mean the Corporation's Employee Stock Purchase Plan, as
set forth in this document.

          P. PLAN ADMINISTRATOR shall mean the committee of two (2) or more
Board members appointed by the Board to administer the Plan.

          Q. PREDECESSOR PLAN shall mean the Corporation's 1992 Employee Stock
Purchase Plan in effect immediately prior to the Effective Date hereunder.

          R. PURCHASE DATE shall mean the last business day of each Purchase
Interval.

          S. PURCHASE INTERVAL shall mean each successive three (3)-month period
within the offering period at the end of which there shall be purchased shares
of Common Stock on behalf of each Participant.

          T. QUARTERLY ENTRY DATE shall mean the first business day in January,
April, July and October each year on which an Eligible Employee may first enter
an offering period.

          U. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.

EX-99

                                                                    EXHIBIT 99.1


                      CHIEF EXECUTIVE OFFICER CERTIFICATION

I, David E. Robinson, Chairman, President and Chief Executive Officer, certify
that:

     1. I have reviewed this quarterly report on Form 10-Q 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(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e)4 and 15d-15(e)4) for the registrant and have:

          a) 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;

          b) 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 on such evaluation; and

          c) 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 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(s) 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):

          a) 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

          b) 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:   August 1, 2003
        ---------------------


        /S/DAVID E. ROBINSON
        ---------------------
        David E. Robinson
        Chairman, President and Chief Executive Officer

EX-99

                                                                    Exhibit 99.2


                      CHIEF FINANCIAL OFFICER CERTIFICATION

I, Paul V. Maier, Senior Vice President, Chief Financial Officer, certify that:

     1. I have reviewed this quarterly report on Form 10-Q 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(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e)4 and 15d-15(e)4) for the registrant and have:

          a) 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;

          b) 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 on such evaluation; and

          c) 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 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(s) 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):

          a) 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

          b) 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:   August 1, 2003
        ---------------------


        /S/PAUL V. MAIER
        ---------------------
        Paul V. Maier
        Senior Vice President, Chief Financial Officer

EX-99

                                                                    EXHIBIT 99.3


                  CERTIFICATION BY PRINCIPAL EXECUTIVE OFFICER
                       PURSUANT TO 18 U.S.C. SECTION 1350,
                       AS ADOPTED PURSUANT TO SECTION 906
                        OF THE SARBANES-OXLEY ACT OF 2002


     In connection with the accompanying Quarterly Report on Form 10-Q of Ligand
Pharmaceuticals Inc. for the quarter ended June 30, 2003, I, David E. Robinson,
Chairman, President and Chief Executive Officer of Ligand Pharmaceuticals Inc.,
hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and
belief, that:

     (1) such Quarterly Report on Form 10-Q for the quarter ended June 30, 2003,
fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and

     (2) the information contained in such Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003, fairly presents, in all material respects, the
financial condition and results of operations of Ligand Pharmaceuticals Inc.



Date: August 1, 2003                    /S/DAVID E. ROBINSON
                                        ------------------------------
                                        David E. Robinson
                                        CHAIRMAN, PRESIDENT AND
                                        CHIEF EXECUTIVE OFFICER

EX-99

                                                                    EXHIBIT 99.4


                    CERTIFICATION BY CHIEF FINANCIAL OFFICER
                       PURSUANT TO 18 U.S.C. SECTION 1350,
                       AS ADOPTED PURSUANT TO SECTION 906
                        OF THE SARBANES-OXLEY ACT OF 2002


     In connection with the accompanying Quarterly Report on Form 10-Q of Ligand
Pharmaceuticals Inc. for the quarter ended June 30, 2003, I, Paul V. Maier,
Senior Vice President, Chief Financial Officer of Ligand Pharmaceuticals Inc.,
hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and
belief, that:

     (1) such Quarterly Report on Form 10-Q for the quarter ended June 30, 2003,
fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and

     (2) the information contained in such Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003, fairly presents, in all material respects, the
financial condition and results of operations of Ligand Pharmaceuticals Inc.



Date: August 1, 2003                    /S/PAUL V. MAIER
                                        ----------------------------
                                        Paul V. Maier
                                        SENIOR VICE PRESIDENT,
                                        CHIEF FINANCIAL OFFICER