Ligand Pharmaceuticals, Elan Corp. In $130M Deal For Oral Morphine

By Randall Osborne

Providing a powerful boost for its plan to reach profitability next year, Ligand Pharmaceuticals Inc. entered an agreement worth up to $130 million with Elan Corp. plc.

¿It¿s not like the other alliances we have done,¿ said Paul Maier, chief financial officer of San Diego-based Ligand. ¿It¿s basically a strategic relationship that has a financial and product component.¿

As for the financial part, Elan will buy $20 million of Ligand stock, and purchase from Ligand up to $110 million in issue price of Zero Coupon Convertible Senior Notes due 2008, with an 8 percent per annum yield to maturity.

The product is Morphelan, Elan¿s once-daily oral morphine formulation in Phase III trials, which Elan will license exclusively to Ligand in the U.S. and Canada.

¿Pain control is a product area that¿s attractive in HIV and oncology clinical settings,¿ Maier said, which makes Morphelan a good fit with Ligand¿s programs. In May, Ligand submitted its first new drug application to the FDA for Panretin gel (aliretinoin) for AIDS-related Kapo si¿s sarcoma. (See BioWorld Today, May 28, 1998, p. 1.)

¿Elan does not have an oncology sales force in the U.S. or Europe, and we¿re building the oncology sales force for commercialization of our products,¿ Maier said.

For Morphelan, Ligand will pay license fees and milestones, while Elan, of Dublin, Ireland, will fund and perform the development work. Elan expects to file a new drug application for Morphelan in 1999, and launch the drug in 2000.

Upon regulatory clearance of the deal, Elan will purchase $30 million in notes from Ligand, convertible into stock at $14 per share, making the up-front portion of the agreement worth $50 million.

¿That¿s sufficient to execute our business plan to profitability in 1999,¿ Maier said.

¿The [remaining] $80 million is available for takedown within the definition of use of funds,¿ he added, and could be used for acquiring more oncology products. ¿It could also be used for the back-end payments on the Seragen/Marathon acquisition.¿

This spring, Ligand disclosed its plan to take over Seragen Inc., a Hopkinton, Mass.-based ¿virtual¿ company that had been sold to Boston University. Ligand bought the rights to Seragen¿s interleukin-2 fusion protein for cutaneous T-cell lymphoma. Part of the transaction is Ligand¿s buyout of Marathon Pharmaceuticals Inc., formed when the university took over Seragen¿s operations. (See BioWorld Today, May 12, 1998, p. 1.)

After the $30 million note purchase in the Elan deal, Elan will buy more notes with an issue price up to $80 million total before the end of next year. The additional notes will be convertible into Ligand stock at a price that averages the closing price for 20 days before issuance of the note, plus a premium, but not less than $14 per share or more than $20.

Upon closing of the equity purchases, the license agreement and the first note takedown, Elan is expected to own about 8 percent of Ligand¿s fully diluted shares outstanding.

Public Markets Essentially Not Open¿

Maier said the deal with Elan provided a safe way to accomplish Ligand¿s goals.

¿The capital markets today are volatile and uncertain, as we all know,¿ he said. ¿Public markets are essentially not open these days to our sector. We found the concept of doing an alliance with a pharmaceutical partner more attractive, and that¿s been historically the source of funding we¿ve sought.¿

Elan, which dissolved its oncology joint venture with Cytogen Corp., of Princeton, N.J., in August, has been busy lately. (See BioWorld Today, Aug. 17, 1998, p. 1.)

Earlier this month, Elan agreed to pay about $150 million in cash and stock warrants for NanoSystems LLC, a drug delivery firm in King of Prussia, Pa. In August, Elan entered a $30 million license agreement with Whitehouse Station, N.J.-based Merck & Co. to improve delivery of an undisclosed Merck drug. (See BioWorld Today, Sept. 15, 1998, p. 1.)

Ligand and Elan have signed a binding letter of agreement. Boards of both companies have approved the deal, which is subject to routine government approvals.