Ligand Reports Financial Results for Second Quarter 2002: Total Revenues Increase 10%, Per Share Loss Decreases 6%.

Business Editors & Health/Medical Writers

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SAN DIEGO--(BW HealthWire)--Aug. 13, 2002

Company Reiterates Full-Year Guidance for Revenue, Operating Profit

Based on Launch of AVINZA(TM)

Ligand Pharmaceuticals Incorporated (Nasdaq: LGND) today reported total revenues for the second quarter ended June 30, 2002, of $19.2 million, compared to $17.5 million for the same period in 2001, an increase of 10%. Net loss for the second quarter was $12.2 million ($0.17 per share), compared to a net loss of $10.6 million ($0.18 per share) for the same period in 2001, an increase of 15% (or a decrease of 6% per share).

For the first half of 2002, total revenues were $44.1 million, compared to $34.5 million in the same period of 2001, an increase of 28%. Net loss for the first half was $18.8 million ($.28 per share), compared to a net loss of $22.2 million ($0.38 per share) for the same period in 2001, a decrease of 15% (26% per share).

"Ligand is pleased to reiterate that we expect to approximately double product sales this year, to between $82 and $90 million, and that we expect to achieve operating profitability for the full year," said Paul V. Maier, Ligand's senior vice president and chief financial officer. "We believe that the launch of AVINZA(TM), combined with the accelerated actions we have taken for our in-line products, will produce strong revenue growth in the second half of this year and enable us to meet our overall goals for the year with a different mix of product sales."

As of June 30, 2002, Ligand had cash, cash equivalents, short-term investments and restricted cash of $44.7 million, compared to $39.7 million at the end of the first quarter, an increase of 13%. In April, Ligand raised gross proceeds of $69.3 million in a private placement of 4.25 million shares of common stock. In June, Ligand used most of the cash proceeds to redeem the $50 million Glycomed 7.5% convertible subordinated debentures that were due in January of 2003. The redemption eliminated $1.9 million of expected interest expense in the second half of 2002 and resulted in a final accretion charge of $1.8 million, which is included in other expense for the second quarter.

"We have transformed our capital structure this year through the elimination of 98% of our year-end 2001 long-term debt," Maier said. "Reducing our interest expense significantly enhances our ability to translate future operating profits into earnings per share, leaving us well-positioned for EPS growth in 2003."

Detailed Results

    Net product sales for the second quarter and first half of 2002
were:

                               2Q 2002   2Q 2001   1H 2002   1H 2001
                                Sales     Sales     Sales     Sales
                              (million) (million) (million) (million)
                              --------- --------- --------- ---------
ONTAK(R)                      $   4.9   $   5.0   $  13.5   $   9.8

Targretin(R) capsules         $   1.2   $   3.3   $   5.0   $   5.7

Targretin gel and             $   0.2   $   1.6   $   1.5   $   3.1
Panretin(R) gel

AVINZA(TM)                    $   4.1       N/A   $   4.1       N/A
                              --------- --------- --------- ---------
Total Net Product Sales       $  10.5   $  10.0   $  24.2   $  18.6

During the second quarter, Ligand's 80-person sales forces launched the company's fifth product, AVINZA (morphine sulfate extended-release capsules) to approximately 9,000 targeted physicians. Medical journal and other media advertising began in August and is expected to continue through the second half of 2002. AVINZA is indicated for the once-daily treatment of chronic, moderate-to-severe pain in patients who require continuous, around-the-clock opioid therapy for an extended period of time.

"The launch of AVINZA is off to a solid start," said Thomas H. Silberg, executive vice president and chief operating officer of Ligand. "We are meeting our commercial timetable and prescriptions are accelerating in line with our expectations. The positive feedback we have received in the form of wholesale orders and re-orders, early prescription demand, and managed care acceptance reaffirms our confidence in our ability to achieve our $30 million sales goal for AVINZA this year. We are particularly pleased with how rapidly we are completing clinical and Pharmacy and Therapeutics (P&T) reviews with leading pharmacy benefits management companies (PBMs). As a result, PBMs covering 33 million lives already have agreed to reimburse AVINZA on a preferred basis, and we expect this number to approach 150-200 million lives over the next several months."

Ligand's initial shipments of AVINZA to wholesalers were $11.5 million. To ensure retail product availability, Ligand provided customers special terms common with new product launches including price discounts and extended payment terms. Given the terms associated with the launch of AVINZA, Ligand recorded only $4.1 million of AVINZA sales in second-quarter revenues and deferred $6.1 million of sales which, net of the associated cost of product sold, are reported in the balance sheet and will be recognized in revenues over the next several quarters based on the underlying prescription growth trends of AVINZA.

As previously announced, second-quarter sales of ONTAK (denileukin diftitox) and Targretin (bexarotene) were negatively affected at quarter-end by several major wholesalers' decisions not to purchase, or to purchase reduced quantities of, the products, as well as by lower-than-expected demand growth during the second quarter. The lower-than-expected demand growth was due primarily to delays in completion and data publication of key ongoing, expanded-use clinical trials in B-cell NHL and CLL, and to delays in the initiation of new, expanded use physician-initiated trials in a number of key indications for ONTAK and Targretin capsules.

In the first seven months of 2002, unit shipments of ONTAK to end users increased 2% compared to the same period of 2001, with extremely strong demand growth in July of 15%. Over the first half of the year (July IMS Xponent data are not yet available), Targretin capsules prescriptions increased 8% (the corresponding number of capsules increased 12%) compared to the same period of 2001, and Targretin gel prescriptions increased 31%.

"We have taken several steps to re-accelerate growth in the second half of this year, and have confirmed positive early results from these initiatives," Silberg said. "For example, we have expanded the scope, improved the content and accelerated the implementation of our consultant advisory meetings (CAMs) with key community oncologists. We also have focused resources on our physician-driven clinical studies, and strengthened our internal organizational capability to execute these. Specifically, we have already held three CAM meetings, and six more are scheduled this year. More importantly, reports of use and recommendations for both ONTAK and Targretin are already emerging from these important clinical discussions. In addition, 20 physician-initiated clinical studies are underway now, with another 10-20 expected to begin by year-end."

Gross margin on product sales was 55% in the second quarter of 2002, compared to 69% in the second quarter of 2001. Gross margin was negatively affected by changes in product mix and customer returns of expired merchandise. In addition, the technology amortization component of cost of sales increased as a percentage of sales, since in-line product sales fell in the second quarter. For the first half of 2002, gross margin was 62%, compared to 68% for the same period of 2001. We expect gross margin to normalize in the second half of this year at or above the second quarter 2001 rate, with quarterly fluctuations due to product mix.

Research and development expenses were $13.7 million in the second quarter of 2002, compared to $13.2 million in the same period of 2001, an increase of 4% that resulted primarily from clinical expenses associated with the pivotal Phase III studies of Targretin capsules in non-small cell lung cancer (NSCLC). For the first half of 2002, R&D expenses were $26.8 million, compared to $25.6 million in the same period of 2001, an increase of 5%.

Selling, general and administrative expenses were $10.3 million in the second quarter of 2002, compared to $8.9 million in the same period of 2001, an increase of 16% due primarily to AVINZA launch expenses. For the first half of 2002, SG&A expenses were $19.9 million, compared to $19.0 million in the same period of 2001, an increase of 5%.

Loss from operations was $9.5 million in the second quarter of 2002, compared to $7.7 million in the same period of 2001, an increase of 23%. For the first half of 2002, operating loss was $11.8 million, compared to $16.0 million in the same period of 2001, a decrease of 26%.

Financial Outlook for 2002

"Based on the analysis we have done since the end of the second quarter, we continue to believe 2002 will be a solid year of growth for Ligand, a year in which we expect to break through to modest operating profitability for the full year and further accelerate overall revenues based on the launch of AVINZA," Maier said. For the year, Ligand reiterates its previous guidance, expecting:

-- Adding Targretin to a Carboplatin/Paclitaxel Regimen May Improve Activity, Disease Stabilization in Late-Stage NSCLC, ASCO Study Shows. Adding Targretin capsules to standard chemotherapy may enhance the activity of lung cancer treatment and reduce the growth rate of the disease without causing unexpected side effects, according to a preliminary analysis of Phase I/II data presented at the annual meeting of the American Society of Clinical Oncology (ASCO). Of the 43 patients enrolled in the open-label study, efficacy data were available on 33 patients who completed at least two cycles of therapy. Overall objective tumor response was 33%: one patient had a complete response (complete regression of tumor), 10 had partial (more than 50% improvement) responses, and an additional 17 patients had stable disease, including two minor responses (25-50% reduction in tumor). In the study, side effects were similar to those previously observed with Targretin and chemotherapy separately. Nine patients withdrew due to adverse events, regardless of relationship to any study drug. There were no Targretin-related deaths or serious adverse events, and no adverse events were identified that could be attributed to the combination of Targretin capsules and chemotherapy.

-- Scientific Article Demonstrates that RXR-Beta Expression Strongly Correlates with Survival in NSCLC Patients. Separately, an article published in the peer-reviewed journal Clinical Cancer Research adds to the body of evidence supporting the role of Targretin capsules in non-small cell lung cancer. In the study, which was not supported by Ligand, Jan Brabender and colleagues showed that low tumor expression of RXR-beta was significantly correlated with poor survival among NSCLC patients, and that low RXR-beta expression was an independent predictor of worse survival in NSCLC. Specifically, 5-year survival rates were 74.1% among 27 patients with higher levels of RXR-beta expression, compared to 34.4% among 61 patients with lower levels of RXR-beta expression (P=.0002). Previous publications have shown that Targretin binds to and activates RXR receptors. In so doing, Targretin may help overcome a functional deficiency in tumor cells that is caused by low levels of RXR, and may thereby delay tumor progression and improve survival.

-- Targretin Phase III NSCLC Trials Accelerating. Approximately 70% of the original 100-plus worldwide sites expected to participate in the pivotal survival studies are now up and running, and work is accelerating on the next 100-plus sites. In addition, patient accruals are accelerating toward our goal to complete patient enrollment by mid-2003. Although it is too early to confirm for certain completion of patient enrollment by mid-2003, patient accrual growth in recent months is particularly encouraging to that end.

-- ONTAK Shows Activity in Patients with Fludarabine-Refractory CLL. In a separate study published at ASCO, eight of nine patients with fludarabine-refractory chronic lymphocytic leukemia who were treated with at least three courses of ONTAK had reductions in peripheral CLL cells, with two of these patients achieving reductions of 99% or more. Three of the nine patients experienced a greater than 50% reduction in the diameter of their cancerous lymph nodes, based on physician exams and CT scans.

-- Ligand Earned $1.1 Million Milestone Payment from Lilly. Lilly's Investigational New Drug application for LY929, the collaboration's second product to enter clinical development, cleared its FDA waiting period. LY929 is a novel peroxisome proliferation activated receptor (PPAR) modulator for the treatment of type II diabetes, metabolic diseases and dyslipidemias.

-- Treatment with Targretin Reduced Cell Proliferation in Psoriatic Skin, SID Study Shows. A second abstract presented at the annual meeting of the Society for Investigational Dermatology suggested a new apoptotic mechanism behind bexarotene's anti-cancer activity in vitro. A third study showed that Targretin + PUVA (psoralen + ultraviolet light) may be useful to treat early-stage CTCL.

-- Ligand Received $3 Million from Royalty Pharma. Ligand received $3 million (included in other revenues for the second quarter) as Royalty Pharma exercised its first option to purchase 0.125% of net sales of three selective estrogen receptor modulator (SERM) products in Phase III development at Pfizer and Wyeth. To date, Royalty has purchased 0.375% of potential future sales for $9 million.

-- PIPE Registration Completed. A resale registration statement (on form S-3) for the shares of Ligand's common stock sold to institutional investors in a private placement in April 2002 was declared effective by the SEC in July 2002, following a full review of the registration statement by the Securities and Exchange Commission, including review of Ligand's 2001 10-K and first quarter 2002 10-Q reports and financial results.

-- Ligand Named to Inc Magazine's "Innovation 50." Ligand was No. 14 on Inc magazine's list of the 50 "most inventive small companies in entrepreneurial America," based on the number of patents granted in the last five years.

Recent Ligand Highlights

-- Adding Targretin to a Carboplatin/Paclitaxel Regimen May Improve Activity, Disease Stabilization in Late-Stage NSCLC, ASCO Study Shows. Adding Targretin capsules to standard chemotherapy may enhance the activity of lung cancer treatment and reduce the growth rate of the disease without causing unexpected side effects, according to a preliminary analysis of Phase I/II data presented at the annual meeting of the American Society of Clinical Oncology (ASCO). Of the 43 patients enrolled in the open-label study, efficacy data were available on 33 patients who completed at least two cycles of therapy. Overall objective tumor response was 33%: one patient had a complete response (complete regression of tumor), 10 had partial (more than 50% improvement) responses, and an additional 17 patients had stable disease, including two minor responses (25-50% reduction in tumor). In the study, side effects were similar to those previously observed with Targretin and chemotherapy separately. Nine patients withdrew due to adverse events, regardless of relationship to any study drug. There were no Targretin-related deaths or serious adverse events, and no adverse events were identified that could be attributed to the combination of Targretin capsules and chemotherapy.

-- Scientific Article Demonstrates that RXR-Beta Expression Strongly Correlates with Survival in NSCLC Patients. Separately, an article published in the peer-reviewed journal Clinical Cancer Research adds to the body of evidence supporting the role of Targretin capsules in non-small cell lung cancer. In the study, which was not supported by Ligand, Jan Brabender and colleagues showed that low tumor expression of RXR-beta was significantly correlated with poor survival among NSCLC patients, and that low RXR-beta expression was an independent predictor of worse survival in NSCLC. Specifically, 5-year survival rates were 74.1% among 27 patients with higher levels of RXR-beta expression, compared to 34.4% among 61 patients with lower levels of RXR-beta expression (P=.0002). Previous publications have shown that Targretin binds to and activates RXR receptors. In so doing, Targretin may help overcome a functional deficiency in tumor cells that is caused by low levels of RXR, and may thereby delay tumor progression and improve survival.

-- Targretin Phase III NSCLC Trials Accelerating. Approximately 70% of the original 100-plus worldwide sites expected to participate in the pivotal survival studies are now up and running, and work is accelerating on the next 100-plus sites. In addition, patient accruals are accelerating toward our goal to complete patient enrollment by mid-2003. Although it is too early to confirm for certain completion of patient enrollment by mid-2003, patient accrual growth in recent months is particularly encouraging to that end.

-- ONTAK Shows Activity in Patients with Fludarabine-Refractory CLL. In a separate study published at ASCO, eight of nine patients with fludarabine-refractory chronic lymphocytic leukemia who were treated with at least three courses of ONTAK had reductions in peripheral CLL cells, with two of these patients achieving reductions of 99% or more. Three of the nine patients experienced a greater than 50% reduction in the diameter of their cancerous lymph nodes, based on physician exams and CT scans.

-- Ligand Earned $1.1 Million Milestone Payment from Lilly. Lilly's Investigational New Drug application for LY929, the collaboration's second product to enter clinical development, cleared its FDA waiting period. LY929 is a novel peroxisome proliferation activated receptor (PPAR) modulator for the treatment of type II diabetes, metabolic diseases and dyslipidemias.

-- Treatment with Targretin Reduced Cell Proliferation in Psoriatic Skin, SID Study Shows. A second abstract presented at the annual meeting of the Society for Investigational Dermatology suggested a new apoptotic mechanism behind bexarotene's anti-cancer activity in vitro. A third study showed that Targretin + PUVA (psoralen + ultraviolet light) may be useful to treat early-stage CTCL.

-- Ligand Received $3 Million from Royalty Pharma. Ligand received $3 million (included in other revenues for the second quarter) as Royalty Pharma exercised its first option to purchase 0.125% of net sales of three selective estrogen receptor modulator (SERM) products in Phase III development at Pfizer and Wyeth. To date, Royalty has purchased 0.375% of potential future sales for $9 million.

-- PIPE Registration Completed. A resale registration statement (on form S-3) for the shares of Ligand's common stock sold to institutional investors in a private placement in April 2002 was declared effective by the SEC in July 2002, following a full review of the registration statement by the Securities and Exchange Commission, including review of Ligand's 2001 10-K and first quarter 2002 10-Q reports and financial results.

-- Ligand Named to Inc Magazine's "Innovation 50." Ligand was No. 14 on Inc magazine's list of the 50 "most inventive small companies in entrepreneurial America," based on the number of patents granted in the last five years.

Web Cast Conference Call

Ligand will host a live web cast, open to all interested parties, of a conference call during which Ligand management will discuss financial results for the second quarter of 2002. The web cast will be available at http://www.streetevents.com and at http://www.ligand.com (investor relations page) on August 14 at 8:30 a.m. Eastern Time (5:30 a.m. Pacific), and will be archived for 30 days.

About Ligand

Ligand discovers, develops and markets new drugs that address critical unmet medical needs of patients in the areas of cancer, skin diseases, men's and women's hormone-related diseases, osteoporosis, metabolic disorders, and cardiovascular and inflammatory diseases. Ligand's proprietary drug discovery and development programs are based on its leadership position in gene transcription technology, primarily related to Intracellular Receptors (IRs) and Signal Transducers and Activators of Transcription (STATs).

Ligand Pharmaceuticals' releases are available on the World Wide Web at www.businesswire.com/cnn/lgnd.htm.

Caution Regarding Forward-Looking Statements

This news release contains certain forward-looking statements by Ligand that involve risks and uncertainties and reflect Ligand's judgment as of the date of this release. These statements include those related to Ligand's financial outlook for 2002, profitability, top-line (revenue) growth, product sales and margins, operating expenses and income, clinical trials and studies, the exercise of options by Royalty Pharma, and the launch and commercialization of AVINZA, which include statements about prescription demand, orders, managed care acceptance and co-promotion. Actual events or results may differ from Ligand's expectations. There can be no assurance that Ligand will increase revenues or margins from currently marketed products or reduce operating losses; that Ligand will be able to achieve its goal of operating profitability; that the results from the periods discussed in this release will be indicative of results for future periods; that results of any clinical study will be confirmed by later studies; that products under development by us or our collaborators will receive marketing approval or that there will be a market for these drugs; that our collaborations and co-promotion negotiations will be successful or continued; that Royalty Pharma will exercise any future options; or that Ligand will receive any milestone payments for the discovery and/or development of any compounds. Additional information concerning these and other risk factors affecting Ligand's business can be found in prior press releases as well as in Ligand's public periodic filings with the Securities and Exchange Commission, available via Ligand's web site at http://www.ligand.com. Ligand disclaims any intent or obligation to update these forward-looking statements beyond the date of this release. This caution is made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Note: Ligand(R), Targretin(R), Panretin(R), AVINZA(TM) and ONTAK(R) are trademarks of Ligand. Full prescribing information for Ligand's products may be obtained in the U.S. from Ligand Professional Services by calling toll free 800-964-5836 or on Ligand's web site at http://www.ligand.com..

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

                  Three Months Ended              Six Months Ended
                      June 30,                        June 30,
                  ----------------------------------------------------
                  2002          2001              2002         2001
                  ----          ----              ----         ----
Revenues:

Product sales  $ 10,465       $ 10,002          $ 24,160    $ 18,609
Collaborative
 research and
  development
   and other
    revenues      8,701          7,487            19,891      15,915
                  -----          -----            ------      ------
 Total revenues  19,166         17,489            44,051      34,524
                 ------         ------            ------      ------

Operating costs and expenses:

Cost of products
 sold             4,681          3,077             9,141       5,916
Research and
 development     13,681         13,191            26,797      25,596
Selling, general and
 administrative  10,279          8,886            19,935      19,043
                 ------          -----            ------      ------
 Total operating costs
  and expenses   28,641         25,154            55,873      50,555
                 ------         ------            ------      ------
Loss from
 operations      (9,475)        (7,665)          (11,822)    (16,031)

Other expense,
 net             (2,771)        (2,950)           (6,999)     (6,165)
                 -------        -------           -------     -------
Net loss       $(12,246)     $ (10,615)        $ (18,821)  $ (22,196)
               =========     ==========        ==========  ==========

Basic and diluted per share amounts:

Net loss       $  (0.17)      $  (0.18)         $  (0.28)    $  (.38)
               =========     ==========        ==========  ==========
Weighted average number of
 common shares
  outstanding    70,413         59,380            68,196      59,119
               =========     ==========        ==========  ==========



                      CONSOLIDATED BALANCE SHEETS
                            (in thousands)


                             June 30, 2002        December 31, 2001
                             -------------        -----------------
Assets                        (Unaudited)

Current assets:
 Cash, cash equivalents and
  short-term investments       $  42,556              $  37,688
 Other current assets             18,663                 15,886
                                  ------                 ------
     Total current assets         61,219                 53,574
Restricted investments             2,189                  2,370
Property and equipment, net       10,238                  9,690
Acquired technology, net          36,358                 37,879
Other assets                      17,653                 13,960
                                  ------                 ------
                               $ 127,657              $ 117,473
                               =========              =========

Liabilities and Stockholders' Equity/(Deficit)

Current liabilities            $  31,681              $  31,726
Zero coupon convertible senior
 notes                                --                 86,078
Convertible subordinated
 debentures                           --                 47,326
Other long-term liabilities        8,964                 10,218
Stockholders' Equity/(Deficit)    87,012                (57,875)
                                  ------                --------
                               $ 127,657              $ 117,473
                               =========              =========