Ligand Pharmaceuticals and Metabasis Therapeutics enter into definitive merger agreement

Ligand Pharmaceuticals Incorporated (NASDAQ: LGND) and Metabasis Therapeutics, Inc. (NASDAQ: MBRX) announced today they have entered into a definitive merger agreement under which Ligand will acquire all of the outstanding shares of Metabasis.

Under the transaction, Metabasis stockholders will receive a cash payment at the closing of the transaction of approximately $3.2 million, less Metabasis’ estimated net liabilities at closing and an amount to be deposited in the stockholders’ representative’s fund (Metabasis currently estimates the closing payment to be approximately $1.8 million in cash). In addition, Metabasis stockholders will receive for each Metabasis share four tradable Contingent Value Rights (“CVRs”) that will be registered on a Form S-4 registration statement to be filed by Ligand with the Securities and Exchange Commission. The CVRs will entitle Metabasis stockholders to cash payments as frequently as every six months as cash is received by Ligand from proceeds from the sale or partnering of any of the Metabasis drug development programs, among other triggering events. Ligand has committed to spend at least $8 million in new research and development funding on the Metabasis programs within 42 months following the closing of the transaction.

The Ligand and Metabasis Boards of Directors have unanimously voted in favor of the transaction. Stockholders of Metabasis representing approximately 29% of the outstanding shares of Metabasis have signed voting agreements in support of the transaction. Merriman Curhan Ford acted as financial advisor to Metabasis with respect to this transaction.

“This transaction utilizes a creative structure that we believe is potentially highly beneficial to the stockholders of both companies,” said John L. Higgins, President and Chief Executive Officer of Ligand Pharmaceuticals. “Ligand obtains numerous high-quality partnered and development-stage programs that will increase our revenue potential and expand our pipeline of proprietary assets. In exchange, the non-partnered Metabasis programs will be advanced by a company with strong and proven research credentials, with the goal of generating cash proceeds payable directly to Metabasis stockholders. If any or all of the Metabasis programs are financially successful, stockholders at both companies will benefit meaningfully from their shared participation in the programs.”

Mark D. Erion, Ph.D., President, Chief Executive Officer and Chief Scientific Officer of Metabasis, stated, "Metabasis has built a pipeline of product candidates and drug development programs that have the potential to one day yield new therapies for metabolic and chronic liver diseases, but due to our limited financial and operational resources, we are unable to independently realize their full potential value. Ligand's strong research and business development capabilities, coupled with its solid financial position and its commitment to additional research and development funding as part of this transaction, gives Metabasis' portfolio of programs the potential to deliver significant future value to Metabasis' stockholders."

Highlights of the Proposed Transaction

• Under the terms of the agreement, Ligand will pay at the closing of the transaction approximately $3.2 million in cash, less Metabasis’ estimated net liabilities at closing (currently estimated to then be over $1.3 million) and less an amount deposited in the stockholders’ representative’s fund. At this time, Metabasis estimates the net cash that will be available for distribution to stockholders of Metabasis at closing will be approximately $1.8 million.
• In addition to cash, Metabasis stockholders will receive tradable Contingent Value Rights (one of each series of CVRs (or 4 in total), for each former Metabasis share) that may result in additional cash payments to the CVR holders including the following:
  • Approximately two-thirds of any milestone payments, royalties or saleback proceeds collected from Metabasis’ partnership with Roche for the development of treatments for hepatitis;
  • 50% of any net proceeds received for licensing or selling Metabasis’ thyroid receptor β program for hyperlipidemia and/or glucagon program for diabetes for any transaction entered into in the six years following closing, 40% and 30%, respectively, of any proceeds from such a transaction entered into in the seventh and eighth years following closing, and 20% of any proceeds from such a transaction entered into in the ninth and tenth years following closing;
  • 90% of any net proceeds received for licensing or selling Metabasis’ MB07133 program for the treatment of hepatocellular carcinoma for any transaction entered into in the six months following closing, 30% of any proceeds from such a transaction entered into after the sixth month anniversary of closing and before the two year anniversary of closing, and 10% of any proceeds from such a transaction entered into in the third through tenth years following closing;
  • 60% of any net proceeds from any disposition of Metabasis’ equity interest in PeriCor Therapeutics, Inc., which in partnership with Schering-Plough Corporation is in Phase III development of a compound for the prevention of adverse cardiovascular and cerebrovascular outcomes in patients undergoing coronary artery bypass graft surgery;
  • 50% of any net proceeds received for licensing or selling any of Metabasis’ other drug development programs or certain platform technologies for any transaction occurring with respect to any such program before Ligand has made research and development investments in excess of a specified amount on such program, and 25% in the event Ligand’s investments exceed such amount on such program; and
  • any shortfall in Ligand’s commitment to spend at least $8 million in funding Metabasis programs over 42 months following the close of the transaction.
• Aside from what is due to Metabasis’ CVR holders and subject to certain obligations, Ligand will retain all rights and economic interests in the programs and have full control over the development decisions for the pipeline programs. Ligand has agreed to spend a minimum of $7 million on Metabasis programs over the 30 months following closing, unless both the glucagon and TRß programs have failed or a major licensing event has occurred for at least one of those two programs, and to spend a grand total of $8 million within the 42 months following closing.
• A Metabasis stockholder representative will monitor compliance with Ligand’s funding obligation and oversee the collection and disbursement of cash to the CVR holders. A rights agent will be retained to collect any cash payments due to the CVR holders and will disburse net proceeds, if any, every six months.
• The transaction is expected to close in early 2010 and is subject to approval by Metabasis’ stockholders and other customary closing conditions.

With the acquisition of Metabasis, Ligand does not anticipate any change to its year-end 2009 financial outlook. For 2010, the required cash payment of $3.2 million is projected to be largely offset by the potential receipt of a cash milestone from Roche for the advancement of its program for hepatitis, net of the portion of that payment to be allocated to CVR holders. The obligation for funding Metabasis’ programs is not expected to materially change Ligand’s overall spending over the next several years, as spending for R&D projects can be directed as needed to the highest priority programs.

Metabasis Contributes the Following to Ligand

• Hepatitis Program – Metabasis entered into a fully funded collaboration and license agreement with Roche in 2008 to develop new treatments for hepatitis C viral infection utilizing the proprietary HepDirect® liver-targeting technology. The lead HepDirect Nucleoside, MB11362, was declared a clinical candidate in the second quarter of 2009. Advanced preclinical development studies are ongoing in preparation for a first-in-human clinical program. Under the terms of the license agreement, Roche will fund 100% of the program costs and will make milestone and royalty payments upon the achievement of certain development events and commercialization of MB11362 and/or other applicable HepDirect compounds covered under the agreement. Ligand will retain approximately one-third of any payments received.
• Glucagon Receptor Antagonist Program – Metabasis has developed chemically novel, potent, orally bioavailable glucagon antagonists for treating type 2 diabetes. The lead compound, MB11262, has shown significant and consistent lowering of blood glucose when dosed orally in numerous diabetic animal models and is currently in advanced lead optimization stage. Ligand will retain 50% to 80% of the net proceeds of any transaction for this program.
• Thyroid Receptor β Agonist Program – Thyroid receptor activation in the liver affects the expression of several genes, leading to reductions in LDL, triglycerides and LP(a) while its activation in extra-hepatic tissues result in dose-limiting side effects. Metabasis has developed a liver-targeted TRβ agonist, MB07811, using HepDirect prodrug technology and other structural characteristics for the treatment of hyperlipidemia. Phase I single and multi-dose clinical trials of MB07811 have been completed. In addition, Metabasis has an advanced discovery program to identify second-generation TRß agonists with potential improvements in the therapeutic index for lowering cholesterol and other lipids associated with cardiovascular risks. Ligand will retain 50% to 80% of the net proceeds of any transaction for this program.
• MB07133 Program – Metabasis has developed MB07133, a HepDirect prodrug of the intermediate form of a known oncolytic, which is designed to deliver high concentration of the active form of the drug for the treatment of hepatocellular carcinoma. Metabasis has completed a repeat cycle Phase I/II clinical trial of MB07133. Ligand will retain 10% to 90% of the net proceeds of any transaction for this program.
• PeriCor Therapeutics – Metabasis has a common stock ownership position in PeriCor Therapeutics, Inc., a private, clinical-stage company focused on myocardial protection. PeriCor sublicensed rights from Metabasis to acadesine and three additional Adenosine Regulating Agents in 2005. PeriCor recently licensed acadesine to Schering-Plough and the compound is in a Phase III clinical trial for the prevention of adverse cardiovascular and cerebrovascular outcomes in patients undergoing coronary artery bypass graft surgery. Ligand will retain 40% of the net proceeds of any disposition of its PeriCor stock.
• HepDirect Technology: HepDirect technology supplements Ligand’s core drug discovery technology platform of ligand-dependent gene expression and ultra-high throughput combinatorial chemistry screening. HepDirect is a prodrug technology that targets delivery of certain drugs to the liver by using a proprietary chemical modification that renders a drug biologically inactive until cleaved by a liver-specific enzyme. HepDirect may improve efficacy and/or safety of certain drugs and can be applied to marketed or new drug products. Ligand will retain 50% to 75% of any net proceeds received for licensing or selling the HepDirect technology.
• Other Product Candidates and R&D Programs – Metabasis has other product candidates, including MB07803 for diabetes and pradefovir for hepatitis B, and early stage R&D programs including glucokinase activators for diabetes and DGAT-1 inhibitors for obesity. Ligand will retain 50% to 75% of the net proceeds for any deal generated from these programs.

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