Ligand Exercises First Option to Buy Down ONTAK Royalties

    Business Editors/Health/Medical Writers
    BIOWIRE2K

    SAN DIEGO--(BUSINESS WIRE)--Jan. 7, 2005--Ligand Pharmaceuticals (NASDAQ:LGND) announced today it has exercised the first option under its November 2004 agreement with Eli Lilly and Company (NYSE:LLY) to buy down a portion of the royalties payable to Lilly on sales of Ligand's marketed cancer drug ONTAK(R) (denileukin diftitox) in the United States. Ligand recorded sales of $34.3 million for ONTAK in calendar year 2003 and $25.9 million in the first three quarters of 2004.
    Ligand will make a one-time cash payment of $20 million to Lilly in exchange for elimination of the ONTAK royalties due to Lilly on net sales in the United States in 2005, and a reduced reverse-tiered royalty scale on net sales in the U.S. thereafter above a certain threshold.
    "The exercise of this option has important strategic and financial value for Ligand and our stockholders," said Paul V. Maier, Ligand's senior vice president and chief financial officer. "We believe the reduced royalty obligations will be accretive to earnings beginning in 2005. Additionally, we believe the improved gross margins, going forward, together with the improved CMS reimbursement environment in 2005 compared to 2004, will provide ONTAK with a more attractive brand profit profile, incentivizing the company to make further development and commercial investments to expand its market potential."
    Under the recent agreement between the two companies, Ligand and Lilly each have two options related to ONTAK royalties. Ligand has an independent option exercisable in January 2005 and another independent option exercisable in April 2005 to buy down a portion of the ONTAK royalty stream on net sales in the U.S. for a total consideration of $33 million. Lilly has options in 2005 to trigger the same royalty buydown on Ligand's part for a total consideration of up to $37 million, depending on whether Ligand has exercised one or both of its options and ONTAK has achieved certain sales levels.
    Ligand has now exercised the first option under the agreement. The second option in April 2005 provides that Ligand may make a one-time cash payment of $13 million in exchange for the elimination of the ONTAK royalties due to Lilly on net sales in the U.S. in 2006 and a reduced reverse-tiered royalty scale thereafter. If both Ligand options are exercised, Ligand would make total payments of $33 million for elimination of all royalty payments due on U.S. sales through year-end 2006 and elimination of all royalties on U.S. sales of $38 million or less going forward. Thereafter, beginning in 2007, Ligand would pay royalties to Lilly on a reverse-tiered scale (from 20% to 10%) only on annual U.S. sales in excess of $38 million for the minimum tier and in excess of $72 million for the maximum tier threshold for the remaining patent life (through 2014). Sales outside the U.S. (if ONTAK gains marketing approval in other geographies) are excluded from this agreement and will continue at the previous non-tiered contract royalty rate of 20%. Neither party is obligated to exercise either of its options and the options will expire if not exercised by the specified dates.

    About ONTAK

    In February 1999, the U.S. Food and Drug Administration granted Seragen, Inc., a wholly owned subsidiary of Ligand, marketing approval for ONTAK for the treatment of patients with persistent or recurrent cutaneous T-cell lymphoma (CTCL) whose malignant cells express the p55 (CD25) component of the IL2 receptor. Lilly's royalty interest in ONTAK arises out of Lilly's prior relationship with Seragen, which was renegotiated in connection with Ligand's acquisition of Seragen in 1998. Recent and current ONTAK development programs include Phase II clinical trials in patients with chronic lymphocytic leukemia, peripheral T-cell lymphoma, B-cell non-Hodgkin's lymphoma, non-small cell lung cancer, and graft-versus-host disease, indications that represent significantly larger market opportunities than CTCL.

    About Ligand

    Ligand discovers, develops and markets new drugs that address critical unmet medical needs of patients in the areas of cancer, pain, 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). For more information, go to www.ligand.com.

    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 include statements regarding the accretiveness of the transaction; gross margins, profit profile, development and commercial investments, market potential, and the CMS reimbursement environment; exercise of options and related payments and royalty reductions; results of ongoing ONTAK clinical studies and further marketing approvals. Actual events or results may differ from Ligand's expectations. There can be no assurance that additional options will be exercised and thus payments made or royalties reduced; that the transaction will be accretive; that profits or margins will improve; that CMS reimbursement policies will not change; that ONTAK sales or the market will continue to grow; that Ligand will make further investments in the development of ONTAK; that clinical studies will be successful or that further marketing approvals will be granted. 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 at 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.

--30--TM/la*

CONTACT: Ligand Pharmaceuticals Paul V. Maier Senior VP and CFO 858-550-7573 or Abe Wischnia Senior Director of Investor Relations and Corporate Communications 858-550-7850

KEYWORD: CALIFORNIA INDUSTRY KEYWORD: PHARMACEUTICAL MEDICAL BIOTECHNOLOGY PRODUCT SOURCE: Ligand Pharmaceuticals

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