By Randall Osborne

In a $71.4 million deal that leaves Ligand Pharmaceuticals Inc. with the sales rights to promising drugs for cancer, leukemia and diabetes, the company is buying all shares of its joint venture with Allergan Inc., thus dissolving the venture.

San Diego-based Ligand will acquire from Allergan, of Irvine, Calif., 3.25 million outstanding shares of their joint venture, Allergan Ligand Retinoid Therapeutics Inc., established in 1994 as an off-balance-sheet financing vehicle.

In June 1995, shareholders paid $10 per share for stock in the joint-venture company. In the buyout, they will get the equivalent of $21.97 per share. The company's stock (NASDAQ:ALRI) closed Thursday at $21.250, up $1.812.

"It's a pretty good deal for shareholders," said analyst David Molowa, of Bear Stearns Co., in New York. Shareholders also get two Ligand warrants (NASDAQ:LGNDW), which closed Thursday at $11.125, up $0.50.

Of the $71.4 million to be paid by Ligand when the deal is concluded Nov. 3, at least $25 million will be paid in cash and no more than $46.4 million will be paid in shares. The $21.97-per-share buyout amount is the full rate cited in a prospectus at the time of the joint venture's public offering, said Ligand spokeswoman Susan Atkins. In June 1998, the per-share amount would have gone up to $28.56. In the year 2000, it would have hit $37.13.

"Not only were we running out of money, but this costs us less" than a buyout would have by the middle of next year, Atkins said. The buyout was intended to happen at the point when the joint venture's cash fell to $10 million. At the end of the second quarter, the venture still had $31.7 million.

David Robinson, president, CEO and chairman of Ligand, said ALRT's burn rate is $10 million to $20 million per quarter, so it has about $20 million now. "At that rate, we would have seen the triggering [of the buyout] sometime in the fourth quarter," he said. "We didn't want to let the cash run down and trip-switch the buyback. We didn't want the board to put the brakes on research and development to conserve cash."

Molowa found "nothing really special" about the buyout. "It was done at the terms of the arrangement. More important was the way [Ligand] renegotiated with Allergan the development of the products."

Drugs under development by the venture are based on retinoids, which are hormones derived from vitamin A that regulate cell growth. Ligand keeps the sales rights for Panretin, a topical gel that has shown positive results in Phase III trials against Kaposi's sarcoma, a skin cancer related to AIDS. A new drug application is expected to be filed this year or early next. (See BioWorld Today, Aug. 28, 1997, p. 1)

Under the terms of the buyout, Ligand will pay Allergan 15 percent of North American sales revenue from topical Panretin and 10 percent of sales revenue from overseas.

Panretin also is under development in an oral formulation for acute promyelocytic leukemia. The oral drug is in Phase III pivotal trials, and Ligand retains the sales rights with the same royalties to Allergan.

With Panretin for Kaposi's sarcoma, Robinson said, "We'll be first in and best-dressed. There is not another topical product in that disease, so we'll have an exclusive."

Ligand also holds the sales rights to the diabetes drugs ALRT 268 and ALRT 324, which are being developed in preclinical trials for non-insulin dependent patients. The company plans another collaboration to further develop these drugs, for which Ligand has agreed to pay Allergan $4.5 million, plus a third of any milestone payments from the new collaborator. Ligand will pay royalties to Allergan of either 6 percent of net sales, or 50 percent of the amount of royalties payable to Ligand, whichever is greater.

Robinson said the collaboration would be worth more than $50 million and would include an up-front payment to Ligand of more than $25 million.

Another drug to which Ligand keeps rights is ALRT1550, an oral drug attacking various cancers which is in Phase I/II human clinical trials. The company will pay Allergan 6 percent royalties on worldwide sales.

Before the buyout, the two companies would have shared the revenues of those drug sales evenly.

What's in the buyout for Allergan? Under the agreement, Allergan will pay Ligand $8.9 million for one-half interest in the assets and technologies of the joint venture. The buyout lets Allergan remain a player in the cancer-drug game without spending as much, Molowa said. "They don't want to become a cancer company, and this is a way for them to participate in that revenue stream," he said.

Allergan also comes away from the joint venture's breakup with the rights to ALRT4310, a skin medication being developed in topical and oral formulations to reduce redness, itching or burning as a result of using retinoid acne ointment or anti-wrinkle cream; ALRT326; and ALRT4204. The latter two are being developed for possible use against Type II diabetes.

Six percent of any sales resulting from its compounds will be paid by Allergan to Ligand as royalties.

Another Ligand retinoid compound, Targretin (LGD1069), was not part of the joint venture but the company will share its development with Allergan under the buyout deal. Targretin selectively activates a subclass of retinoid receptors called RXRs, which play a role in programmed cell death. Targretin is in Phase II trials for Type II diabetes, and Ligand will pay Allergan a third of the royalties for indications other than cancer or skin indications.

About 2,000 other retinoid-based compounds being developed by the joint company will be divided between the two companies, under the same similar royalty deal.

Ligand's stock (NASDAQ:LGND) closed Thursday at $16.939, up $0.562. Allergan's shares (NYSE:AGN) ended the day at $34.75, unchanged. *