SEC Starts Probe into Ligand's acounting. Also, drug it discovered is rejected by the FDA

By Penni Crabtree
September 15, 2005
UNION-TRIBUNE STAFF WRITER

Ligand Pharmaceuticals, a biotechnology company whose questionable accounting has lead to a failing stock price, shareholder lawsuits and a delisting from the Nasdaq, is being investigated by the U.S. Securities and Exchange Commission. The San Diego company announced late Monday that the SEC has launched an official probe related to Ligand's proposed financial restatement for fiscal years 2002, 2003 and the first three quarters of 2004.

Ligand's accounting problems were made public in May, when the company said it had to restate various financial reports because of improper revenue reporting. But investors' fears of a potential accounting problem first emerged in August 2004, when Ligand's auditor abruptly resigned. Ligand spokesman Abe Wischnia said yesterday that the company intends to fully cooperate with the investigation.

While grappling with its latest accounting-related woes, Ligand and its investors had another dose of bad news this week. The U.S. Food and Drug Administration on Tuesday rejected the experimental osteoporosis drug Oporia, which was discovered by Ligand and licensed to drug giant Pfizer.

Though Ligand had nothing to do with the clinical development of the drug, the company was entitled to receive a milestone payment on FDA approval and royalty payments equal to 6 percent of the drug's global sales. The drug, also known as lasofoxifene, is similar to another Ligand-discovered compound that was licensed to Wyeth, under similar financial terms.

It is uncertain whether the FDA's concerns about Oporia, expressed in a "nonapprovable letter" but not disclosed by Pfizer, could weigh on the Wyeth drug. Wyeth is expected to file for FDA approval of its drug next year. Ligand's Wischnia said yesterday that the company is working hard to file the delinquent financial reports. Ligand's failure to meet several filing deadlines caused the Nasdaq to drop the company's stock from its exchange last week.

Ligand's shares now trade on the so-called Pink Sheets, a thinly regulated stock quotation service known for high-risk stocks. The company has less than 60 days to file the reports if it is to qualify for a speedier relistment process. Otherwise, Ligand will have to apply to be relisted as a new company, a much lengthier process.

Wischnia said the company remains delinquent because of the magnitude of the accounting task. Ligand's former accountant, Deloitte Touche, declined to be re-engaged for the job, so the company's new accounting firm, BDO Seidman, has had to do significant additional work, he said.

In addition, Ligand must develop and validate new accounting models for recognizing revenue. "All of these things have taken a whole lot longer than anyone imagined initially," Wischnia said.

Ligand estimated in August that its auditor and outside advisers had already logged 7,900 hours in dealing with the restatement and related issues. Company personnel had put 7,700 hours into the effort, the company said. Ligand has said that its former accounting policies did not meet requirements for reporting of sales as its products left Ligand's warehouse and were shipped to wholesalers.

Several shareholder lawsuits allege that Ligand practiced what is known as "channel stuffing." The company shipped lots of its top-selling product, the painkiller Avinza, to wholesalers to demonstrate to Wall Street that there was strong demand for the drug. But some of the booked sales evaporated after some of the product was returned because it had expired or was subject to steep rebates, the lawsuits allege.