By Lisa Seachrist

Washington Editor

WASHINGTON — With the leptin pathway as their target, Ligand Pharmaceuticals Inc. and SmithKline Beecham plc signed a collaboration agreement worth nearly $10 million to develop small molecule drugs to combat obesity.

The deal, which is subject to regulatory approval, calls for London-based SmithKline to invest $5 million in Ligand stock and to purchase a warrant for Ligand shares for $1 million. The collaboration is the second between the two companies.

"This collaboration represents a major expansion of our relationship with SmithKline," said David Robinson, president and CEO of San Diego-based Ligand. "It also represents our expansion into an attractive market. We see it as a signal of good progress for the company."

Under terms of the agreement, SmithKline will purchase 274,423 shares of Ligand common stock for $18.22 per share — a 20 percent premium per share over a 15-day trading average. SmithKline also is purchasing for $1 million a warrant to buy 150,000 shares at $20 per share. The warrant can't be exercised for three years and will expire in five years. If exercised, Ligand would receive another $3 million.

In addition to the up-front payments, SmithKline also will purchase an undisclosed amount of additional Ligand common stock at a 20 percent premium if an undisclosed research milestone is achieved. SmithKline will make cash payments for additional milestones. Ligand also will receive royalties on marketed products.

In return, SmithKline will obtain exclusive worldwide rights to roducts resulting from the obesity collaboration. The research centers on Ligand's STAT (signal transducer and activator of transcription) technology, which focuses on drugs to enhance or inhibit the action of cytokines.

Cytokines are protein hormones that control such key biological activities as the immune and inflammatory responses, blood cell formation, and the growth and differentiation of cells. Most cytokines work by binding to cell receptors and activating the JAK/STAT signal transduction pathway altering gene expression in the cell.

Leptin, the target of the collaboration, is a cytokine that works through this pathway. Ligand and SmithKline will attempt to develop small molecules that will affect appetite by controlling the leptin signaling pathway.

Amgen Inc., of Thousand Oaks, Calif., is developing leptin as a protein drug to treat obesity and Type II diabetes. A Phase II trial of leptin for obesity is ongoing.

The obesity pact between Ligand and SmithKline follows expansion of a $21.5 million hematopoesis collaboration between the two companies, which began in February 1995. The partnership was expanded in February 1997 for $5 million to include a third hematopoetic growth factor as a drug discovery candidate. That collaboration, which was designed to develop oral forms of erythropoetin and colony stimulating factor, also focuses on Ligand's STAT technology.

"Our announcement today is an early-stage collaboration — we won't have a drug on the market next year," Robinson said. "It will require a sustained effort on the part of our partner in order for this to develop."

Ligand's stock (NASDAQ:LGND) closed at $16.125, up 0.75 on the news.

Last year, Ligand signed a deal with Eli Lilly & Co. to use intracellular receptor technology to identify candidate drugs in diabetes, cardiovascular disease and obesity.

"This is the second leg of exploiting our technology in the obesity field," Robinson said. *