Acquisition will make Ligand cash-flow positive this year and adds a reformulation platform.

Ligand Pharmaceuticals is acquiring CyDex Pharmaceuticals for $31.2 million up front and $4.3 million on the one-year anniversary of the deal closing. The deal gives Ligand a cash-flow positive business with a reformulation platform called Captisol.

CyDex shareholders will be entitled to contingent cash payments related to certain transactions and pursuant to a revenue share plan. In addition, Ligand paid approximately $800,000 at close for an adjustment for working capital.

Based in Lenexa, Kansas, CyDex had 2010 revenues of $16.3 million from four marketed drugs, material sales from the selling of Captisol, and license and milestone payments. It will operate as a wholly owned subsidiary of Ligand and is expected to accelerate financial growth, making Ligand profitable and cash-flow positive by the end of this year. Ligand says that its projected 2011 revenue will more than double versus its stand-alone revenue, not including any new licensing revenue or accelerated growth from royalties.

Ligand believes that drug reformulation has become an increasingly valuable solution to the issues related to market erosion due to generic competition and continued clinical and regulatory uncertainty. CyDex has had particular success in the area of intravenous (IV) and topical formulations. Captisol is currently incorporated in five FDA-approved medications marketed by Bristol-Myers Squibb, Pfizer, and Prism Pharmaceuticals.

CyDex is currently developing four Captisol-enabled drugs for future potential licensing: Clopidogrel IV in Phase I for thrombosis; Melphalan IV in Phase II for stem cell conditioning; Budesonide/Azelastine nasal in Phase II for seasonal rhinitis; and Topiramate IV in Phase I development for epilepsy.

In addition, the company is supporting drug development efforts with more than 40 other companies worldwide through material sales collaborations. The firm anticipates selling Captisol to these partners in the coming years for clinical and commercial use.

Post-merger the new entity will reportedly have seven marketed drugs and more than 50 fully funded partnered collaborations. Among the license and royalty-bearing agreements gained from CyDex are deals with Onyx Pharmaceuticals for carfilzomib and Prism for Nexterone.

CyDex and Onyx Pharmaceuticals entered into a collaboration in 2005 to develop a Captisol-enabled IV formulation of carfilzomib for refractory multiple myeloma. Onyx recently reported positive Phase II data for this program and plans to file an NDA this year. CyDex is eligible to receive milestones, royalties, and Captisol material sales revenue from Onyx.

Prism Pharmaceuticals recently received marketing approval from the FDA for the Captisol-enabled IV form of amiodarone, to be marketed as Nexterone. Prism plans to launch Nexterone in the near term. Nexterone was developed by CyDex and licensed to Prism in 2007. CyDex is eligible to receive milestones, royalties, and Captisol material sales revenue from this program.

“This transformational acquisition accelerates Ligand’s financial growth and provides a unique and broad basket of new assets to further expand our business and long-term potential,” comments John Higgins, president and CEO of Ligand. “Ligand will now combine the royalties from seven marketed drugs along with the substantial revenue from the selling of Captisol to advance Ligand toward its goal of turning cash-flow positive with substantial future growth opportunities.”

The up-front acquisition payment to CyDex shareholders is composed of $11.2 million of Ligand’s internal cash and $20 million borrowed on a 42-month secured term loan from Oxford Finance Corporation. Ligand is also exploring additional financing options for up to a further $10 million in borrowing, for a potential total borrowing of $30 million.

For 2011, Ligand expects total revenues to be $22 million to $24 million. The guidance assumes approximately $13 million to $14 million of revenue (partial year accounting) from the CyDex business and approximately $9 million to $10 million of revenue from the original Ligand business, before any revenue for new licensing agreements.

Ligand’s 2011 operating expenses are expected to be $16 million to $18 million, with an average cost of goods as a percentage of material sales to be approximately 35%. If Ligand borrows an additional $10 million during 2011, it anticipates ending 2011 with approximately $20 million of cash.

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