Ligand Pharmaceuticals Incorporated 2017 Proxy Statement l 17
Compensation Discussion and Analysis
This Compensation Discussion and Analysis (“CD&A”) describes our compensation philosophy and programs, the compensation decisions the compensation committee made under those programs, and the factors considered in making those decisions. This CD&A focuses on the compensation of our named executive officers or “NEOs”, who for 2016 were:
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Name | Title |
John L. Higgins | Chief Executive Officer |
Matthew W. Foehr | President and Chief Operating Officer |
Charles S. Berkman | Vice President and General Counsel |
Matthew Korenberg | Vice President, Finance and Chief Financial Officer |
Executive Summary
Overview and Objectives of Our Executive Compensation Program
The compensation committee has designed our executive compensation program to provide compensation opportunities that:
attract, motivate and retain individuals of superior ability and managerial talent critical to its long-term success;
align executives’ interests with the Company’s corporate strategies, business objectives and the long-term interests of the Company’s stockholders;
create incentives to achieve key strategic and corporate performance objectives; and
enhance the executives’ incentive to increase the Company’s stock price and maximize stockholder value.
Within this framework our compensation program has been developed with the following key principles in mind:
We Intend to Pay for Performance. The majority of our named executive officers’ total compensation as shown in our Summary Compensation Table below ties compensation directly to the achievement of corporate objectives, increases in our stock price or both. We emphasize pay for performance in order to align executive compensation with our business strategy and the creation of long-term stockholder value.
Our Compensation Program Supports Our Corporate Objectives and Stockholder Interests. Our compensation program is designed to align executive officer compensation with our corporate strategies, business objectives and the long-term interests of our stockholders by rewarding successful execution of our business plan and tying a significant portion of total compensation opportunities to equity incentives.
Key Elements of Our Compensation Program. Our compensation program is designed to achieve these objectives through a combination of the following types of compensation:
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◦ | annual variable performance bonus awards payable in cash; |
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◦ | long-term stock-based incentive awards comprised of a significant portion of performance-based equity; and |
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◦ | employee benefits and perquisites, including change in control severance arrangements. |
Each element of our executive compensation program is discussed in greater detail below.
Ligand's Strong 2016 Corporate Performance
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Our Company’s fiscal year 2016 accomplishments, guided by our named executive officers, illustrate the success of our executive compensation program, and included, among other things, the following:
Successful Business Development: The Company’s shots-on-goal portfolio increased through licensing and acquisitions by approximately 30 during 2016, finishing the year with over 155 shots on goal. Additionally, the Company acquired a portfolio of synthetic royalty/milestone rights from CorMatrix.
OmniAb Business: The Company smoothly integrated the OmniAb technology into the organization. In addition, the Company increased customer service, reduced risks related to the technology and expanded the intellectual property.
Continued Optimization of Captisol Business: In 2016, the Company entered into 90 new Captisol research contracts and had significant year-over-year increases in sample requests from prospective partners. The Company also expanded its Captisol intellectual property portfolio with new patents issued expanding patent term on Captisol to 2033.
Research and Development: In 2016, the Company continued to advance its product pipeline, including the initiation of our Glucagon Receptor Antagonist Phase 2 clinical trial.
Operational Achievements: During 2016, the Company had its fifth consecutive year of being cash flow positive with solid financial growth. The Company successfully contained costs while integrating the OmniAb business within the organization.
Performance Graph
The graph below shows the five-year cumulative total stockholder return assuming the investment of $100 and is based on the returns of the component companies weighted monthly according to their market capitalizations. The graph compares total stockholder returns of our common stock, of all companies traded on the NASDAQ Stock market, as represented by the NASDAQ Composite® Index, and of the NASDAQ Biotechnology Stock Index, as prepared by The NASDAQ Stock Market Inc. The NASDAQ Biotechnology Stock Index tracks approximately 162 domestic biotechnology stocks.
The stockholder return shown on the graph below is not necessarily indicative of future performance and we will not make or endorse any predictions to future stockholder returns.
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2016 Compensation Programs and Decisions
In line with our executive compensation program’s emphasis on pay for performance, compensation awarded to our named executive officers for 2016 reflected our financial results and overall compensation philosophy:
Base Salary Adjustments: During 2016, our named executive officers received increases to their base salaries of between 4% and 9%. The Company provides its named executive officers with a base salary that approximates the 25th percentile for similar positions at our peer group, and these increases were determined to be appropriate by our compensation committee to ensure that the base salaries of our named executive officers continued to be generally consistent with this pay positioning philosophy.
Pay-for-Performance Annual Incentive Bonuses: For 2016, our Company focused on certain key business development objectives and objectives related to business development, the Captisol business, the OmniAb business, the successful management of the Glucagon Receptor Antagonist Phase 2 clinical trial and operational goals. Our compensation program for 2016 was designed to support the Company’s focus on these areas and together achievement in these areas represented 100% of our named executive officers’ total bonus opportunity. Based on corporate performance in these five areas during 2016, as summarized above, our compensation committee determined that our executive officers should be paid their bonuses at the 90% of targeted levels. The annual bonuses awarded to our named executive officers for 2016 are discussed below under “Annual Performance-Based Cash Compensation.”
Equity Emphasis on Performance-Based Equity Awards: Our compensation committee continued its practice of ensuring that a substantial portion of our named executive officers’ total compensation is awarded in the form of long-term equity incentive awards. In 2016, at least 25% of each named executive officer’s equity awards were granted in the form of performance-based stock awards.
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◦ | Stock Options: Fifty percent of each named executive officer’s annual awards was granted in the form of stock options, which we consider to be performance based awards as they provide value to our executives only if our stock price increases. These stock options are subject to our standard four year vesting schedule.
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◦ | Performance-Based Restricted Stock Units: In 2016, the compensation committee also awarded performance-based restricted stock units to our named executive officers, which awards represented approximately 25% of the total value of the long-term equity incentive awards granted to our named executive officers in 2016. These performance-based restricted stock units will vest based on objectives related to our revenues for the two year performance period commencing January 1, 2016 and ending December 31, 2017 and our new OmniAb shots-on-goal transactions during the three year performance period commencing January 1, 2016 and ending December 31, 2018, with each such objective equally weighted. The compensation committee selected the foregoing performance measures because they represent the key financial and operational performance metrics for which the executives are responsible, thereby creating the clearest link between executive actions, corporate results and continued long-term success for the Company.
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◦ | Time-Based Restricted Stock Units: The remainder of the long-term equity incentive awards granted to our named executive officers was granted in the form of restricted stock units that are subject to our standard three year vesting schedule.
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In light of the Company’s overall performance during 2016, the compensation committee believes that the named executive officers’ 2016 compensation was appropriate.
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Ligand's Executive Compensation Best Practices
We regularly review and refine our executive compensation program to ensure that it continues to reflect practices and policies that are aligned with our pay-for-performance philosophy. The following practices and policies we believe are in line with current best practices for aligning executive and shareholder interests and sound corporate governance practices:
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Compensation Practice | Ligand Policy |
Pay for Performance | YES | A majority of our executives’ total direct compensation is performance-based |
Annual “Say on Pay” Vote | YES | We seek an annual non-binding advisory vote from our shareholders to approve the executive compensation programs disclosed in our CD&A, tabular disclosure and related narrative in our proxy |
Independent Compensation Consultant | YES | The compensation committee retains an independent compensation consultant |
Annual Compensation Risk Assessment | YES | Each year we perform an assessment of any risks that could result from our compensation plans and programs |
Stock Ownership Guidelines for Directors | YES | We have stock ownership guidelines for non-employee directors of 3.0 times their annual retainer |
Employment Agreements | NO | We do not provide our executive officers with employment agreements |
Excise Tax Gross-ups | NO | We do not provide tax gross ups to our executives for "excess parachute payments" |
Repricing or Exchange of Underwater Stock Options | NO | We prohibit option repricing without stockholder approval |
Single Trigger Change in Control Vesting/Benefits | NO | We do not provide for single-trigger vesting or payment of benefits for our executives upon a change in control. Rather, we provide double-trigger (or both a change in control and termination of an executive’s employment) before vesting is accelerated |
Response to 2016 Say on Pay Vote
In May 2016, we held a stockholder advisory vote on the compensation of our named executive officers, commonly referred to as a say-on-pay vote. Our stockholders overwhelmingly approved the compensation of our named executive officers, with over 99% of stockholder votes cast in favor of our 2016 say-on-pay resolution (excluding abstentions and broker non-votes). As we evaluated our compensation practices and talent needs throughout 2016, we were mindful of the strong support our stockholders expressed for our compensation philosophy. As a result, following our annual review of our executive compensation philosophy, the compensation committee decided to generally retain our existing approach to executive compensation for our continuing executives, with an emphasis on short- and long-term incentive compensation that rewards our senior executives when they deliver value for our stockholders.
The Role of the Compensation Committee and Executive Officers in Setting Compensation
The compensation committee has the primary authority to determine the Company’s compensation philosophy and to establish compensation for the Company’s executive officers. In determining each level of compensation and the total package, the compensation committee reviewed a variety of sources, to determine and set compensation.
The chief executive officer aids the compensation committee by providing annual recommendations regarding the compensation of all executive officers, other than himself. Each named executive officer and senior executive management team member, in turn, participates in an annual performance review with the chief executive officer to provide input about his contributions to the Company’s success for the period being assessed. The performance of our chief executive officer and senior executive management team as a group is reviewed annually by the compensation committee.
In 2016, the compensation committee retained Radford, an AonHewitt Company and an independent compensation consulting firm, to assist it in the formulation of the peer group used to determine executive equity compensation during 2016 and to advise regarding the determination of the other key elements of the executive compensation program. Radford reports to and is accountable to the compensation committee, and may not conduct any other work for us without the authorization of the compensation committee. Radford did not provide any services to us in 2016 beyond its engagement as an advisor to the
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compensation committee on executive compensation matters. After review and consultation with Radford, the compensation committee has determined that Radford is independent and there is no conflict of interest resulting from retaining Radford currently or during the year ended December 31, 2016. In reaching these conclusions, the compensation committee considered the factors set forth in Exchange Act Rule 10C-1 and NASDAQ listing standards.
As in prior years, the compensation committee and the Company’s management also consulted several independent compensation surveys to assist them in determining market pay practices for compensating executive officers. These surveys were reviewed to compare the Company’s compensation levels to the market compensation levels, taking into consideration the other companies’ size, the industry, the individual executive’s level of responsibility and his years of experience. For 2016, the current executive salaries were evaluated against the Radford Global Life Sciences Compensation Report using data from comparable companies. These surveys were used due to the competitiveness in hiring employees within the biotechnology industry as well as in our geographic location and we believe they represent the types of companies with which we compete for executive talent. With respect to the foregoing survey data, the identities of the individual companies included in the surveys were not provided to the compensation committee, and the compensation committee did not refer to individual compensation information for such companies. Instead, the compensation committee only referred to the statistical summaries of the compensation information for the companies included in such surveys.
Additionally, the compensation committee worked with Radford to confirm a peer group of companies in the United States for which compensation information can be provided to the compensation committee. This is necessary so the Company can offer compensation that is competitive within that group of companies. The peer group companies for 2016 compensation included ACADIA Pharmaceuticals, Acorda Therapeutics, AMAG Pharmaceuticals, Anacor Pharmaceuticals, ARIAD Pharmaceuticals, Array BioPharma, Depomed, Dyax, Dynavax Technologies, Exelixis, Halozyme Therapeutics, Horizon Pharma, ImmunoGen, Ironwood Pharmaceuticals, Isis Pharmaceuticals, Momenta Pharmaceuticals, Nektar Therapeutics, Neurocrine Biosciences, PDL BioPharma, Repligen and Theravance.
The selected companies in our peer group are companies that fall within a reasonable range of comparison factors and/or that we may compete with for executive talent. In addition to the criteria related to finding companies with similar business models and at a similar stage of development as Ligand, the other criteria used in the identification and selection of the peer group included business/labor market competitors in the biotechnology industry similar in size and complexity to us, companies with market values between $560 million and $5.5 billion (based on trading values in December 2015 when the peer group was selected) and companies with products in comparable stages of development to our products. We also focused on companies with multiple product candidates, as opposed to single product companies. The peer group was not selected on the basis of executive compensation levels. The peer group revisions from the 2015 peer group were intended to ensure that the peer group more accurately reflects companies that are our peers in terms of our current business model and stage of development, including the number of programs maintained by the Company and the importance of licensing to the Company's business model.
The peer group compensation data is limited to publicly available information and therefore does not provide precise comparisons by position as offered by more comprehensive survey data. The survey data, however, can be used to provide pooled compensation data for positions closely akin to those held by each named executive officer. In addition, the pool of senior executive talent from which we draw and against which we compare ourselves extends beyond the limited community of our immediate peer group and includes a wide range of other organizations outside of our traditional competitors, which range is represented by such surveys. As a result, the compensation committee uses peer group data to analyze the overall competitiveness of our compensation with our direct publicly traded peers in the United States and our general compensation philosophy, and to determine equity award levels for the named executive officers, but also relies on industry survey data in determining actual executive compensation. For purposes of this compensation discussion and analysis, references to our “peer group” include both the peer group of companies listed above and the survey data reviewed by our compensation committee.
The compensation committee has adopted a compensation philosophy that places a greater emphasis on long-term equity incentive compensation for our named executive officers than cash compensation. As a result, the compensation committee generally sets target total cash compensation below the median (e.g., at approximately the 25th percentile) of executive officers performing similar job functions at companies in our peer group. At the same time, the compensation committee emphasizes long-term equity incentive compensation by setting target equity compensation above the median of executive officers performing similar job junctions at companies in our peer group. However, we strongly believe in retaining the best talent among our senior executive management team and while we believe that comparisons to market data are a useful tool, we do not believe that it is appropriate to establish executive compensation levels based solely on a comparison to data from
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these companies. Therefore, the compensation committee may approve total compensation packages for senior executive management that vary from the foregoing positioning based on several factors, including overall experiences, accumulated years of service with us, level of responsibilities and/or performance ratings. Our 2016 total compensation for our named executive officers was generally consistent with the foregoing compensation philosophy.
In addition, the mix of compensation paid to our named executive officers is intended to ensure that total compensation reflects our overall success or failure, including our long-term stock performance, and to motivate executive officers to meet appropriate performance measures. In determining each element of compensation for any given year, our compensation committee considers and determines each element individually and then reviews the resulting total compensation and determines whether it is reasonable and competitive. We do not have a pre-established policy or target for the allocation between either cash and non-cash or short-term and long-term incentive compensation.
The compensation levels of our named executive officers reflect to a significant degree their varying roles and responsibilities. Mr. Higgins, in his role as chief executive officer, has the greatest level of responsibility among our named executive officers and, therefore, receives the highest level of pay. This is also consistent with the practices of the companies in our peer group and the summary compensation data included in the summaries of comparable companies reviewed by our compensation committee.
Base Compensation
As discussed above, the Company provides its named executive officers with a base salary that approximates the 25th percentile for similar positions at our peer group, but may vary from such level based on:
industry experience, knowledge and qualifications;
the salary levels in effect for comparable positions within the Company’s principal industry marketplace competitors; and
internal comparability considerations.
As a general matter, the base salary for each executive officer is initially established through negotiation at the time the officer is hired, taking into account the officer’s qualifications, experience, prior salary and competitive salary information. Increases in base salary from year to year are based upon the performance of the executive officers as well as market positioning considerations, as assessed by the chief executive officer (for executives other than himself) and approved by the compensation committee. The compensation committee assesses these factors with respect to the chief executive officer.
During 2016, our named executive officers received increases to their base salaries of between 4% and 9%, as follows: Mr. Higgins, 4.6% increase; Mr. Foehr, 4.1% increase; Mr. Korenberg, 8.6% increase; and Mr. Berkman, 6.5% increase. These increases were determined to be appropriate by our compensation committee to ensure that the base salaries of our named executive officers continued to be generally consistent with our pay positioning philosophy, as described above. Base salaries paid to our named executive officers for 2016 are disclosed below in the table entitled “Summary Compensation Table.”
Performance-Based Compensation
Annual Performance-Based Cash Compensation
It is the compensation committee’s objective to have a substantial portion of each named executive officer’s compensation contingent upon the Company’s performance. For each of our named executive officers, all of his annual bonus compensation is dependent on the Company’s performance relative to specified performance objectives.
The annual performance-based bonus program consists of a cash award if certain corporate performance objectives are satisfied. The Company sets annual incentive targets so that each executive’s total target cash compensation (inclusive of base salary) approximates the 25th percentile of target total cash opportunities offered by our peer group. Under the Company’s 2016 program, the potential performance bonus for the chief executive officer is up to 75% of base salary, 50% of base salary for Mr. Foehr, and 40% of base salary for the other named executive officers.
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In determining the performance compensation awarded to each named executive officer, the Company evaluates the Company’s performance in a number of areas. At the beginning of each year, our board of directors sets corporate objectives for the year. These objectives are set by the board of directors after considering management input and our overall strategic objectives. These objectives generally relate to factors such as strategic objectives, achievement of product development objectives, establishment of new collaborative arrangements and general operational goals. Following the conclusion of each year, the compensation committee determines the level of achievement for each year relative to these corporate objectives. This achievement level is then applied to each named executive officer’s target bonus to determine that year’s total annual bonus. The compensation committee retains the discretion to reduce the final bonus payout to a named executive officer.
At the beginning of 2016, our board of directors, with input provided by our named executive officers, established our Company goals for the year. The compensation committee then reviewed and considered a proposed Company-wide (including named executive officers) bonus program in view of the Company goals, including the proportional emphasis to be placed on each objective annual bonus determination purposes.
The Company goals approved by the compensation committee for 2016 for purposes of annual bonus achievement included:
Business Development Goals (40% Weighting)
Complete at least nine licensing deals
Evaluate and, if appropriate, pursue potential acquisitions
Goals Related to OmniAb Business (25% Weighting)
Successfully integrate the OMT business
Increase customer service and awareness of OmniAb platform via successful partner meetings, publications and presentations
Evaluate and reduce risks related to OmniAb business
Expand intellectual property and scientific offering to clients through development of new platforms, expansion of available antibody services
Goals Related to Optimization of Captisol Business (20% Weighting)
Manage current business to maximize revenue and manage competitive threats
Expand existing relationships and generate at least 40 new research contracts, expand customer sample requests to new annual highs
Extend and expand key manufacturing relationships
Expand intellectual portfolio to further leverage additional uses
Goals Related to GRA Phase 2 Trial(5% Weighting)
Successful project management of the Glucagon Receptor Antagonist Phase 2 clinical trial
Operational Goals (10% Weighting)
Deliver superior partner customer service focused on information timeliness, technical support, issue resolution and commercial planning
Organizational staff planning and expansion and improvement of data management systems
Effective financial and administrative management and tax planning
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In evaluating management’s performance against our 2016 corporate objectives in January 2017, our compensation committee determined to award a corporate achievement level of 90% relative to those objectives. This determination was made in the discretion of the compensation committee after its review of our overall corporate performance relative to each of the objectives listed above. In general, quantitative objectives were not established for most of the corporate objectives during 2016. Instead these performance objectives were used as a guide by the compensation committee in determining overall corporate performance as they represented those areas in which the named executive officers and our employees generally were expected to focus their efforts.
With respect to the business development goals, the compensation committee awarded full credit, for an achievement level of 100%, noting that in 2016, the Company completed nine new licensing deals that increased the Company’s shots-on-goal portfolio by at least 14. The Company also completed the acquisition of the portfolio of certain royalty and milestone right from CorMatrix in May 2016.
With respect to the goals related to our OmniAb business, the compensation committee awarded full credit, for an achievement level of 100%, noting our successful integration of the OMT business, the launch of the new OmniAb.com website, the hosting of OmniAb specific events and presentations, the implementation of customer surveying, the implementation of various risk reduction strategies and additional intellectual property achievements.
With respect to the goals related to the optimization of our Captisol business, the compensation committee awarded partial credit, for an achievement level of 75%, noting that the Company entered into 81 new Captisol research contracts. The Company worked with key vendors and partners to maximize revenue potential and volatility, had new patents issued and expanded key manufacturing relationships and improved manufacturing efficiencies.
With respect to the goal related to successful project management of the Glucagon Receptor Antagonist Phase 2 clinical trial, the compensation committee awarded full credit, for an achievement level of 100%, noting that the trial was initiated on time and the program remains on budget.
With respect to the operational goals, which were entirely qualitative goals and not objectively determinable, the compensation committee determined an overall achievement level of 50% was appropriate given its subjective determination of the Company’s overall performance in this area during 2016. The compensation committee noted that in 2016, the Company was cash-flow positive for the fifth consecutive year. The Company effectively managed its customer service operations, expanded the finance team and implemented a new data management system.
As a result of the foregoing determinations, all of our named executive officers received bonus awards equal to 90% of their target awards.
The actual bonus awards paid to our named executive officers for 2016 are disclosed below in the table entitled “Summary Compensation Table.”
Long-Term Performance-Based Equity Incentive Program
In accordance with our compensation philosophy, the Company’s longer-term performance-based compensation is based on equity ownership. The Company believes that equity ownership in the Company is important to tie the ultimate level of an executive officer’s compensation to the performance of the Company’s stock and stockholder gains while creating an incentive for sustained growth.
We generally provide equity compensation to our named executive officers through grants of stock options, performance stock units and restricted stock units. The grants are designed to align the interests of our named executive officers with those of the stockholders and provide each individual with a significant incentive to manage the Company from the perspective of an owner with an equity stake in the business. The compensation committee views granting options and restricted stock unit awards as a retention device and therefore also reviews the status of vesting and number of vested verses unvested options and restricted stock unit awards at the time of grant. Guidelines for the number of stock options and restricted stock unit awards granted to each executive officer are determined using a procedure approved by the compensation committee based upon several factors, including the executive officer’s level of responsibility, salary grade, performance and the value of the stock option and restricted stock unit awards at the time of grant. With respect to our named executive officers, we generally make awards to such officers at the time of initial hire based on an evaluation of the foregoing factors. Additional grants,
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other than the annual awards to executives, may be made following a significant change in job responsibility or in recognition of a significant achievement. Annual awards are made to our named executive officers when such awards are deemed appropriate by the compensation committee based on an evaluation of the foregoing factors.
Given the position of executive cash compensation relative to market (which is set at approximately the 25th percentile), our compensation committee has emphasized long-term equity incentive compensation to ensure total compensation is competitive. The long-term equity incentive awards granted to the named executive officers in 2016 were set at approximately the 75th percentile level of equity awards for similar positions at our peer group companies, adjusted using the above factors and taking into consideration such equivalency factors as our number of shares outstanding and market capitalization, compared to the peer group companies.
Time-based stock options granted under our 2002 Stock Incentive Plan, as amended (the "2002 Plan"), generally have a four-year vesting schedule designed to provide an incentive for continued employment. The options generally expire ten years from the date of the grant. This provides a reasonable time frame during which executive officers and other employees who receive grants can benefit from the appreciation of the Company’s shares. The exercise price of options granted under our 2002 Plan, is equal to 100% of the fair market value of the underlying stock on the date of grant. Accordingly, the option will provide a return to the executive officer only if the market price of the shares appreciates over the option term. Time-based restricted stock unit awards generally vest in equal installments over three years. We also grant performance-based equity awards to our named executive officers.
Commencing in 2015, the compensation committee introduced performance-based restricted stock units as a component of our annual long-term equity incentive awards for our named executive officers. Since 2015, the “target” number of performance-based restricted stock units granted to our named executive officers each year has represented approximately 25% of the total value of the long-term equity incentive awards granted to our named executive officers. Of the remainder of the long-term equity incentive awards granted to our named executive officers, 50% of the total value of the long-term incentive awards is granted in the form of stock options that are subject to our standard four year vesting schedule, as described above, and 25% of the total value of the long-term incentive awards is granted in the form of restricted stock units that are subject to our standard three year vesting schedule, as described above.
2016 Long-Term Incentive Awards.
In January 2016, our compensation committee awarded long-term incentive awards to our named executive officers as described in the Grants of Plan-Based Awards table below.
The time-based stock options and restricted stock units vest in accordance with the standard vesting schedules described above.
With respect to the performance-based restricted stock units granted in 2016, a named executive officer may earn up to 137.5% of the “target” number of performance-based restricted stock units based on performance relative to the performance objectives established for these awards. The performance-based restricted stock units will vest based on objectives related to our revenues for the two year performance period commencing January 1, 2016 and ending December 31, 2017 and our new OmniAb shots-on-goal transactions during the three year performance period commencing January 1, 2016 and ending December 31, 2018, with each such objective equally weighted (and a possible performance multiplier of 150% for “maximum” performance relative to the revenue objective and a possible performance multiplier of 125% for “maximum” performance relative to the OmniAb shots-on-goal transactions objectives). Threshold performance levels, below which no vesting will be awarded, were also established for each performance objective. The compensation committee selected the foregoing performance measures because they represent the key financial and operational performance metrics for which the executives are responsible, thereby creating the clearest link between executive actions, corporate results and continued long-term success for the Company.
Vesting of 2015 Performance-Based Restricted Stock Units.
In January 2015, our named executive officers were granted performance-based restricted stock units. A named executive officer may earn up to 137.5% of the “target” number of performance-based restricted stock units based on performance relative to the performance objectives established for these awards. The performance-based restricted stock units will vest based on objectives related to our non-GAAP earnings per share growth for the two year performance period commencing January 1, 2015 and ending December 31, 2016 and our new shots-on-goal transactions during the three year performance
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period commencing January 1, 2015 and ending December 31, 2017, with each such objective equally weighted (and a possible performance multiplier of 150% for “maximum” performance relative to the non-GAAP earnings per share growth objective and a possible performance multiplier of 125% for “maximum” performance relative to the shots-on-goal transactions objectives). Threshold performance levels, below which no vesting will be awarded, were also established for each performance objective. The compensation committee selected the foregoing performance measures because they represent the key financial and operational performance metrics for which the executives are responsible, thereby creating the clearest link between executive actions, corporate results and continued long-term success for the Company.
In February 2017, the compensation committee certified our achievement relative to the non-GAAP earnings per share growth objective for purposes of the 2015 performance-based restricted stock units. The threshold, target and maximum performance levels for the non-GAAP earnings per share growth-based component of the awards were as follows: less than 35%, 0% payout; 35%, 50% payout; 45%, 100% payout; and equal to or greater than 55%, 150% payout. Our non-GAAP earnings per share growth for purposes of the 2015 performance-based restricted stock units for the two year performance period commencing January 1, 2015 and ending December 31, 2016 was 48%, resulting in a 115% payout with respect to these units. A reconciliation of non-GAAP earnings per share for this purpose to GAAP earnings per share is shown in Appendix A.
All of the equity awards granted to our named executive officers are disclosed below in the table entitled “Grants of Plan-Based Awards in Fiscal Year 2016.”
Other Elements of Compensation and Perquisites
We also provide our named executive officers and other employees the following benefits and perquisites.
Medical Insurance. The Company provides to each named executive officer, the named executive officer’s spouse and children such health, dental and vision insurance coverage as the Company may from time to time make available to its other executives of the same level of employment. The Company pays a portion of the premiums for this insurance for all employees.
Life and Disability Insurance. The Company provides each named executive officer such disability and/or life insurance as the Company in its sole discretion may from time to time make available to its other executive employees of the same level of employment. The Company pays the premiums for this life insurance coverage for the named executive officers.
Defined Contribution Plan. The Company and its designated affiliates offer the Section 401(k) Savings/Retirement Plan (the "401(k) Plan"), a tax-qualified retirement plan, to their eligible employees. The 401(k) Plan permits eligible employees to defer from 1% to 90% of their annual eligible compensation, subject to certain limitations imposed by the Internal Revenue Code. The employees’ elective deferrals are immediately vested and non-forfeitable in the 401(k) Plan. The Company also makes matching contributions to the 401(k) Plan. In 2016, the match was equal to $0.40 per each $1.00 contributed by an employee up to an annual maximum of $4,800 per year.
Employee Stock Purchase Plan. The Company’s 2002 Employee Stock Purchase Plan, as amended, which is intended to qualify under Section 423 of the Internal Revenue Code, permits participants to purchase Company stock on favorable terms. Plan participants are granted a purchase right to acquire shares of common stock at a price that is 85% of the stock price on either the first day of the six month offering period or the stock price on the last day of the six month offering period, whichever is lower. The purchase dates occur on the last business days of December and June of each year. To pay for the shares, each participant may authorize periodic payroll deductions from 1% to 10% of his or her cash compensation, subject to certain limitations imposed by the Internal Revenue Code. All payroll deductions collected from the participant in an offering period are automatically applied to the purchase of common stock on that offering period’s purchase date provided the participant remains an eligible employee and has not withdrawn from the employee stock purchase plan prior to that date.
Other. The Company makes available certain other perquisites or fringe benefits to executive officers and other employees, such as tuition reimbursement, professional society dues and food and recreational fees incidental to official company functions, including board meetings. The aggregate of these other benefits was less than $10,000 for each executive officer in the last fiscal year.
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Severance and Change in Control Arrangements
We believe that reasonable severance benefits for our named executive officers are important because it may be difficult for our executive officers to find comparable employment within a short period of time following an involuntary termination of employment. We also believe that it is important to protect our named executive officers in the event of a change in control transaction involving us. In addition, it is our belief that the interests of stockholders will be best served if the interests of our senior management are aligned with them, and providing change in control severance benefits should eliminate, or at least reduce, the reluctance of senior management to pursue potential change in control transactions that may be in the best interests of stockholders. Accordingly, the severance arrangements we have entered into with each of our executive officers provide for severance benefits in specified circumstances, as well as benefits in connection with an involuntary termination following a change in control.
Change in Control Arrangements
The Company has a change in control severance agreement with each of the named executive officers. In the event a named executive officer’s employment is terminated by us without cause or he or she resigns for good reason within 24 months following a change in control of the Company, he or she will be eligible to receive a severance benefit equal to:
one times (two times for Mr. Higgins) the annual rate of base salary in effect for such officer at the time of involuntary termination; plus
one times (two times for Mr. Higgins) the greater of: (a) the maximum target bonus for the fiscal year in which the termination occurs; or (b) the maximum target bonus for the fiscal year in which the change in control occurs, if different; plus
twelve (twenty-four for Mr. Higgins) multiplied by the monthly premium the executive would be required to pay for continued health coverage for himself or herself and his or her eligible dependents.
The foregoing severance amount will be payable in a lump sum following the officer’s termination of employment, subject to the officer’s execution of a general release of claims acceptable to us.
The change in control severance agreements also provide that all of a named executive officer’s outstanding stock awards will vest in the event of such a termination. In addition, the post-termination exercise period of a named executive officer’s stock options will be extended from three months to the date that is nine months following the date of termination (but in no event beyond the original expiration date of such options).
For purposes of the change in control severance agreements, an involuntary termination is either a termination of a named executive officer’s employment by us without cause or his resignation for good reason. “Cause” is generally defined as an officer’s conviction of, or plea of “guilty” or “no contest” to, a felony under the laws of the United States or any state thereof, an officer’s willful and material breach of any obligation or duty under the employment agreement, the Company’s confidentiality and proprietary rights agreement or the Company’s written employment or other written policies that have previously been furnished to the officer, which breach is not cured within 30 days after written notice thereof is received by the officer, if such breach is capable of cure, the officer’s gross negligence or willful misconduct, including without limitation, fraud, dishonesty or embezzlement, in the performance of his duties, or the officer’s continuing failure or refusal to perform his assigned duties or to comply with reasonable directives of the board of directors that are consistent with the officer’s job duties (which directives are not in conflict with applicable law), which failure is not cured within 30 days after written notice thereof is received by the officer.
For purposes of the change in control severance agreements, “good reason” is generally defined as a material diminution in the officer’s authority, duties or responsibilities, a material diminution in the officer’s base compensation, a material change in the geographic location at which the officer must perform his duties, or any other action or inaction that constitutes a material breach by the Company or any successor or affiliate of its obligations to the officer under the employment agreement. An officer must provide written notice to the Company of the occurrence of any of the foregoing events or conditions without his written consent within 90 days of the occurrence of such event. The Company will have a period of 30 days to cure such event or condition after receipt of written notice of such event from the officer. Any voluntary termination of an officer’s employment for “good reason” must occur no later than the date that is six months following the initial occurrence of one of the foregoing events or conditions.
Ligand Pharmaceuticals Incorporated 2017 Proxy Statement l 28
For purposes of the change in control severance agreements, a “change in control” has generally the same definition as given to such term under our 2002 Plan, as described below.
Amended and Restated Severance Plan
We maintain the Ligand Pharmaceuticals Incorporated Amended and Restated Severance Plan to provide severance payments to our employees and the employees of our subsidiaries upon an involuntary termination of employment without cause. Each of the named executive officers is eligible to participate in the severance plan, provided that he or she is not subject to disciplinary action or a formal performance improvement plan at the time of termination. However, if, as a result of his or her involuntary termination by us without “cause,” a named executive officer would be eligible to receive severance under any individual change in control severance agreement, employment agreement or other arrangement providing severance benefits, as approved by our board of directors or a committee thereof, such named executive officer will not be eligible for benefits under the severance plan.
Under the terms of the severance plan, a named executive officer will be eligible to receive (1) a lump sum payment in cash for his fully earned but unpaid base salary and accrued but unused vacation through the date of termination, (2) an amount equal to his base salary for the severance period, which period will be equal to (a) two months plus (b) one week for each year of service as of the date of termination and (c) continued health coverage at the same cost as was in effect for the named executive officer at the date of termination throughout such severance period, provided that such named executive officer elects continued coverage under COBRA. The foregoing cash severance benefit will be payable in a lump sum following the officer’s termination of employment, subject to the officer’s execution of a general release of claims acceptable to us.
For purposes of the severance plan, “cause” is generally defined as an officer’s conviction of (or entry of a plea of no contest to) any felony or any other criminal act, an officer’s commission of any act of fraud or embezzlement, an officer’s unauthorized use or disclosure of confidential or proprietary information or trade secrets of the Company or our subsidiaries, or an officer’s commission of any material violation of the Company’s policies, or an officer’s commission of any other intentional misconduct which adversely affects the business or affairs of the Company in a material manner.
Change in Control Acceleration of Equity Awards
Equity awards granted under the 2002 Plan to the named executive officers may be subject to accelerated vesting in the event of a “change in control.”
Equity award agreements under the 2002 Plan, which cover each of the named executive officers, provide that such equity awards will automatically vest in the event of a “change in control” where the option is not assumed or replaced by a successor.
Under the 2002 Plan, a “change in control’ is generally defined as:
a merger, consolidation or reorganization of the Company in which 50% or more of its voting securities change ownership;
the sale, transfer or other disposition of all or substantially all of the Company’s assets in complete liquidation or dissolution of the Company; or
a change in control of the Company effected through a successful tender offer for more than 50% of the Company’s outstanding common stock or through a change in the majority of our board of directors as a result of one or more contested elections for board membership.
In addition, the performance-based restricted stock units granted to the named executive officers in 2016 contain additional vesting provisions that will apply in the event of a change in control. In the event of a change in control prior to December 31, 2017, the number of performance-based restricted stock units in which a named executive will be eligible to vest under each performance-based restricted stock unit will be set at the “target” number of restricted stock units, which “target” restricted stock units will continue to be eligible to vest based solely on the participant’s continued employment or service, with 50% of such “target” units vesting on December 31, 2017 and 50% of such “target” units vesting on December 31, 2018. In the event of a change in control after December 31, 2017 but prior to December 31, 2018, the remaining number of restricted stock units in which a participant will be eligible to vest under each performance-based restricted stock unit will be
Ligand Pharmaceuticals Incorporated 2017 Proxy Statement l 29
set at 50% of the “target” number of restricted stock units, which “target” restricted stock units will continue to be eligible to vest based solely on the participant’s continued employment or service through December 31, 2018.
Further, the performance-based restricted stock units granted to the named executive officers in 2015 contain
additional vesting provisions that will apply in the event of a change in control. In the event a change in control had occurred prior to December 31, 2016, the number of performance-based restricted stock units in which a named executive would have been eligible to vest under each performance-based restricted stock unit would have been set at the “target” number of restricted stock units, which “target” restricted stock units would have continued to be eligible to vest based solely on the participant’s continued employment or service, with 50% of such “target” units vesting on December 31, 2016 and 50% of such “target” units vesting on December 31, 2017. In the event of a change in control after December 31, 2016 but prior to December 31, 2017, the remaining number of restricted stock units in which a participant will be eligible to vest under each performance-based restricted stock unit will be set at 50% of the “target” number of restricted stock units, which “target” restricted stock units will continue to be eligible to vest based solely on the participant’s continued employment or service through December 31, 2017.
Policies Regarding Tax Deductibility of Compensation
Section 162(m) of the Internal Revenue Code restricts the ability of publicly held companies to take a federal income tax deduction for compensation paid to certain of their executive officers to the extent that compensation exceeds $1.0 million per covered officer in any fiscal year. However, this limitation does not apply to compensation that is “qualified performance-based compensation” under Section 162(m) of the Internal Revenue Code. While we consider the tax deductibility of each element of executive compensation as a factor in our overall compensation program, the compensation committee retains the discretion to approve compensation that may not qualify for the compensation deduction if, in light of all applicable circumstances, it would be in our best interest for such compensation to be paid without regard to whether it may be tax deductible.
Risk Assessment of Compensation Policies and Programs
In March 2017, management and Radford assessed our compensation policies and programs for all employees for purposes of determining the relationship of such policies and programs and the enterprise risks faced by the Company and presented its assessment to our compensation committee. Based on these assessments, management recommended, and the compensation committee concluded, that none of our compensation policies or programs create risks that are reasonably likely to have a material adverse effect on the Company. In connection with their review, management and the compensation committee noted certain key attributes of our compensation policies and programs that help to reduce the likelihood of excessive risk taking, including:
The program design provides a balanced mix of cash and equity compensation, fixed and variable compensation and annual and long-term incentives.
Corporate performance objectives are designed to be consistent with the Company’s overall business plan and strategy, as approved by the board of directors.
The determination of executive incentive awards is based on a review of a variety of indicators of performance, reducing the risk associated with any single indicator of performance.
The Company’s equity awards generally vest over multi-year periods.
The compensation committee has the right to exercise negative discretion over executive annual incentive plan payments.
Ligand Pharmaceuticals Incorporated 2017 Proxy Statement l 30
Summary Compensation Table
The following table provides information regarding the compensation earned by our named executive officers during the fiscal years ended December 31, 2016, 2015 and 2014 |
| | | | | | | | | | | | | | |
Name and Principal Position | | Year | | Salary($) | | Stock Awards ($)(1) | | Option Awards ($)(1) | | Non-Equity Incentive Plan Compensation ($)(2) | | All Other Compensation ($)(3) | | Total |
John L. Higgins, | | 2016 | | 573,958 | | 1,992,215 | | 2,393,068 | | 387,421 | | 5,978 | | 5,352,640 |
Chief Executive Officer | | 2015 | | 547,336 | | 1,794,131 | | 1,810,851 | | 392,029 | | 6,369 | | 4,550,716 |
| | 2014 | | 510,198 | | 595,360 | | 4,552,951 | | 383,097 | | 5,650 | | 6,047,256 |
Matthew W. Foehr, | | 2016 | | 429,292 | | 973,888 | | 1,169,942 | | 193,181 | | 74,954(4) | | 2,841,257 |
President and Chief Operating Officer | | 2015 | | 410,472 | | 1,250,322 | | 1,356,995 | | 196,000 | | 143,501(5) | | 3,357,290 |
| | 2014 | | 375,360 | | 372,100 | | 3,115,177 | | 187,900 | | 5,400 | | 4,055,937 |
Matthew Korenberg, | | 2016 | | 378,750 | | 664,015 | | 797,704 | | 118,500 | | 7,872 | | 1,966,841 |
Vice President, Finance and Chief Financial Officer | | 2015 | | 140,673 | | 1,255,080 | | 1,340,490 | | 56,269 | | 5,464 | | 2,797,976 |
Charles S. Berkman, | | 2016 | | 329,167 | | 376,275 | | 452,035 | | 136,350 | | 6,343 | | 1,300,170 |
Vice President and General Counsel | | 2015 | | 308,592 | | 512,641 | | 517,400 | | 117,882 | | 5,937 | | 1,462,452 |
| 2014 | | 288,938 | | 186,050 | | 958,516 | | 115,711 | | 5,700 | | 1,554,915 |
| |
(1) | Reflects the grant date fair value for stock and option awards granted in 2014, 2015 and 2016, calculated in accordance with FASB ASC Topic 718. The assumptions used to calculate the value of stock and option awards are set forth under Note 8 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on February 28, 2017. With respect to the restricted stock unit awards included in the Summary Compensation Table that were granted during 2016 with performance-based vesting conditions, these amounts include the grant date fair values attributable to performance-based restricted stock units granted to each of the named executive officers based on the estimated probable outcome of the performance based objectives applicable to such awards on the grant date. The full grant date fair value of the performance-based restricted stock units awarded to our named executive officers during fiscal year 2016, assuming maximum achievement of the applicable performance objectives is as follows: Mr. Higgins $1,369,659, Mr. Foehr $669,548, Mr. Korenberg $456,510, Mr. Berkman $258,700. |
| |
(2) | Represents performance bonus awards under the management bonus plan earned in 2014, 2015 and 2016, but paid in the subsequent year. |
| |
(3) | With the exception of Mr. Foehr in 2015 and 2016, represents life insurance premiums paid by the Company for each year represented in the table and $4,800 in 401(k) matching funds paid by the Company for each named executive officer. |
| |
(4) | Pursuant to the management rights letter between Viking Therapeutics, Inc. ("Viking"), and the Company dated May 21, 2014, the Company nominated Mr. Foehr to serve as a member of Viking’s board of directors. During 2016, in connection with Mr. Foehr’s service as a director of Viking, Mr. Foehr received (1) $33,170 in cash payments and (2) $36,084 in option awards (representing the aggregate grant date fair value of the option awards as reported by Viking, computed in accordance with authoritative accounting guidance). Additionally, Mr. Foehr received life insurance premiums paid by the Company for 2016 of $600, taxable fringe benefits of $419 and $4,800 in 401(k) matching funds paid by the Company in 2016. |
(5) During 2015, in connection with Mr. Foehr’s service as a director of Viking, Mr. Foehr received (1) $22,113 in cash payments and (2) $115,569 in option awards (representing the aggregate grant date fair value of the option awards as reported by Viking, computed in accordance with authoritative accounting guidance). Additionally, Mr. Foehr received life insurance premiums paid by the Company for 2015 of $600, taxable fringe benefits of $419 and $4,800 in 401(k) matching funds paid by the Company in 2015.
Ligand Pharmaceuticals Incorporated 2017 Proxy Statement l 31
Grants of Plan-Based Awards in Fiscal Year 2016
The following table summarizes plan-based awards granted to our named executive officers during the last fiscal year.
|
| | | | | | | | | | | | | | | | | | | | | | |
Name | Grant Date | Date of Board Action approving Award | Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) | Estimated Future Payouts Under Equity Incentive Plan Awards (2) | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | All Other Option Awards: Number of Securities Underlying Options (#)(4) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards ($) ($)(5) |
Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | | | | |
John L. Higgins | 1/18/16 | 1/18/16 | — |
| 431,250 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| 2/11/16 | 1/18/16 | — |
| — |
| — |
| 7,257 |
| 11,611 |
| 15,965 |
| — |
| — |
| — |
| 996,108 |
|
| 2/11/16 | 1/18/16 | — |
| — |
| — |
| — |
| — |
| — |
| 11,611 |
| — |
| — |
| 996,108 |
|
| 2/11/16 | 1/18/16 | — |
| — |
| — |
| — |
| — |
| — |
| — |
| 55,391 |
| 85.79 |
| 2,393,068 |
|
Matthew W. Foehr | 1/18/16 | 1/18/16 | — |
| 215,000 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| 2/11/16 | 1/18/16 | — |
| — |
| — |
| 3,548 |
| 5,676 |
| 7,804 |
| — |
| — |
| — |
| 486,944 |
|
| 2/11/16 | 1/18/16 | — |
| — |
| — |
| — |
| — |
| — |
| 5,676 |
| — |
| — |
| 486,944 |
|
| 2/11/16 | 1/18/16 | — |
| — |
| — |
| — |
| — |
| — |
| — |
| 27,080 |
| 85.79 |
| 1,356,995 |
|
Matthew Korenberg | 1/18/16 | 1/18/16 | — |
| 152,000 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| 2/11/16 | 1/18/16 | — |
| — |
| — |
| 2,419 |
| 3,870 |
| 5,321 |
| — |
| — |
| — |
| 332,007 |
|
| 2/11/16 | 1/18/16 | — |
| — |
| — |
| — |
| — |
| — |
| 3,870 |
| — |
| — |
| 332,007 |
|
| 2/11/16 | 1/18/16 | — |
| — |
| — |
| — |
| — |
| — |
| — |
| 18,464 |
| 85.79 |
| 797,704 |
|
Charles S. Berkman | 1/18/16 | 1/18/16 | — |
| 132,000 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| 2/11/16 | 1/18/16 | — |
| — |
| — |
| 1,370 |
| 2,193 |
| 3,015 |
| — |
| — |
| — |
| 188,137 |
|
| 2/11/16 | 1/18/16 | — |
| — |
| — |
| — |
| — |
| — |
| 2,193 |
| — |
| — |
| 188,137 |
|
| 2/11/16 | 1/18/16 | — |
| — |
| — |
| — |
| — |
| — |
| — |
| 10,463 |
| 85.79 |
| 452,035 |
|
| |
(1)
| Represents the target cash bonus awards granted under our annual performance bonus program. Actual bonus amounts paid are reflected in the Summary Compensation Table above. |
| |
(2) | The performance-based restricted stock units will vest based on objectives related to our revenue growth for the two year performance period commencing January 1, 2016 and ending December 31, 2017 and our OmniAb new shots-on-goal transactions during the two year performance period commencing January 1, 2016 and ending December 31, 2018, with each such objective equally weighted (and a possible performance multiplier of 150% for “maximum” performance relative to the revenue growth objectives and a possible performance multiplier of 125% for “maximum” performance relative to the OmniAb new shots-on-goal transactions objectives). Threshold performance levels, below which no vesting will be awarded, were also established for each performance objective. For a description of the change in control provisions applicable to the foregoing equity award, see “Severance and Change in Control Arrangements” above. |
| |
(3) | The restricted stock unit awards granted to the named executive officers vest in equal installments over a three year period. For a description of the change in control provisions applicable to the foregoing equity awards, see “Severance and Change in Control Arrangements” above. |
| |
(4) | Each option grant to the named executive officers vests 12.5% after six months from grant and the remainder in 42 equal monthly installments. For a description of the change in control provisions applicable to the foregoing equity awards, see “Severance and Change in Control Arrangements” above. |
| |
(5) | Represents the fair value of the stock option or stock award at the time of grant as determined in accordance with the provisions of FASB ASC Topic 718. The assumptions used to calculate the value of stock and option awards are set forth under Note 8 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the |
Ligand Pharmaceuticals Incorporated 2017 Proxy Statement l 32
SEC on February 28, 2017. With respect to awards, the vesting of which is performance-based, the grant date fair value is based on the estimated probable outcome of the performance objectives applicable to such awards on the grant date.
Outstanding Equity Awards at Fiscal Year-End
The following table provides information on all stock and option awards held by the named executive officers of the Company as of December 31, 2016. All outstanding equity awards are in shares of the Company’s common stock.
|
| | | | | | | | | | | | | | | | | | | |
| Option Awards | | Stock Awards |
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable(1) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested (#)(2) | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) | Equity Incentive Plan Awards: Number of Unearned Shares, Unit or Other Rights That Have Not Vested (#) | Equity incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(3) |
John L. Higgins | 27,149 |
| — |
| — |
| 21.00 |
| 2/22/2018 |
| | — |
| — |
| — |
| — |
|
| 62,444 |
| — |
| — |
| 16.14 |
| 2/14/2019 |
| | — |
| — |
| — |
| — |
|
| 48,125 |
| — |
| — |
| 9.96 |
| 2/14/2020 |
| | — |
| — |
| — |
| — |
|
| 110,332 |
| — |
| — |
| 10.05 |
| 2/16/2021 |
| | — |
| — |
| — |
| — |
|
| 160,666 |
| — |
| — |
| 14.47 |
| 2/8/2022 |
| | — |
| — |
| — |
| — |
|
| 102,542 |
| 4,458 |
| — |
| 21.92 |
| 2/15/2023 |
| | — |
| — |
| — |
| — |
|
| 14,334 |
| — |
| — |
| 32.00 |
| 6/3/2023 |
| | — |
| — |
| — |
| — |
|
| 53,125 |
| 21,875 |
| — |
| 74.42 |
| 2/11/2024 |
| | — |
| — |
| — |
| — |
|
| 20,000 |
| — |
| — |
| 74.42 |
| 2/11/2024 |
| | — |
| — |
| — |
| — |
|
| 25,758 |
| 30,440 |
| — |
| 56.26 |
| 2/10/2025 |
| | — |
| — |
| — |
| — |
|
| 11,540 |
| 43,851 |
| — |
| 85.79 |
| 2/11/2026 |
| | — |
| — |
| — |
| — |
|
| — |
| — |
| — |
| — |
| — |
| | 24,907(4) |
| 2,530,800 |
| — |
| — |
|
| — |
| — |
| — |
| — |
| — |
| | 15,945(5) |
| 1,620,171 |
| 7,972(5) |
| 810,035 |
|
| — |
| — |
| — |
| — |
| — |
| | — |
| — |
| 11,161(6) |
| 1,134,069 |
|
Matthew W. Foehr | 51,734 |
| — |
| — |
| 9.97 |
| 4/17/2021 |
| | — |
| — |
| — |
| — |
|
| 60,000 |
| — |
| — |
| 14.47 |
| 2/8/2022 |
| | — |
| — |
| — |
| — |
|
| 69,958 |
| 3,042 |
| — |
| 21.92 |
| 2/15/2023 |
| | — |
| — |
| — |
| — |
|
| 51,875 |
| 13,125 |
| — |
| 74.42 |
| 2/11/2024 |
| | — |
| — |
| — |
| — |
|
| 19,302 |
| 22,811 |
| — |
| 56.26 |
| 2/10/2025 |
| | — |
| — |
| — |
| — |
|
| 5,642 |
| 21,438 |
| — |
| 85.79 |
| 2/11/2026 |
| | — |
| — |
| — |
| — |
|
| — |
| — |
| — |
| — |
| — |
| | 16,083(7) |
| 1,634,194 |
| — |
| — |
|
| — |
| — |
| — |
| — |
| — |
| | 9,112(5) |
| 925,870 |
| 4,556(5) |
| 462,935 |
|
| | | | | | | | | 5,676(6) |
| 576,738 |
|
Matthew Korenberg | 8,333 |
| 16,667 |
| — |
| 104.59 |
| 8/5/2025 |
| | — |
| — |
| — |
| — |
|
| 3,847 |
| 14,617 |
| — |
| 85.79 |
| 2/11/2026 |
| | — |
| — |
| — |
| — |
|
| — |
| — |
| — |
| — |
| — |
| | 7,870 (8) |
| 799,671 |
| — |
| — |
|
| — |
| — |
| — |
| — |
| — |
| | 6,000(5) |
| 609,660 |
| 3,000(5) |
| 304,830 |
|
| — |
| — |
| — |
| — |
| — |
| | — |
| — |
| 3,870(6) |
| 393,231 |
|
Charles S. Berkman | 4,688 |
| — |
| — |
| 14.47 |
| 2/8/2022 |
| | — |
| — |
| — |
| — |
|
| 4,492 |
| 833 |
| — |
| 21.92 |
| 2/15/2023 |
| | — |
| — |
| — |
| — |
|
| 2,083 |
| 5,833 |
| — |
| 74.42 |
| 2/11/2024 |
| | — |
| — |
| — |
| — |
|
| 1,672 |
| 8,697 |
| — |
| 56.26 |
| 2/10/2025 |
| | — |
| — |
| — |
| — |
|
| 2,180 |
| 8,283 |
| — |
| 85.79 |
| 2/11/2026 |
| | — |
| — |
| — |
| — |
|
| — |
| — |
| — |
| — |
| — |
| | 6,063 (9) |
| 616,061 |
| — |
| — |
|
| — |
| — |
| — |
| — |
| — |
| | 4,556(5) |
| 462,935 |
| 2,728(5) |
| 231,468 |
|
| — |
| — |
| — |
| — |
| — |
| | — |
| — |
| 2,193(6) |
| 222,831 |
|
Ligand Pharmaceuticals Incorporated 2017 Proxy Statement l 33
| |
(1) | Each option grant to the named executive officers has a ten year term from the date of grant. Except as described below, each option vests 12.5% after six months from grant and the remainder in 42 equal monthly installments. For a description of the change in control provisions applicable to the stock option awards, see “Severance and Change in Control Arrangements” above. |
| |
(2) | Except as described in footnotes 5 and 6 below, the restricted stock unit awards granted to the named executive officers vest in equal installments over a three year period following the date of grant. For a description of the change in control provisions applicable to the stock awards, see “Severance and Change in Control Arrangements” above.
|
| |
(3) | Computed by multiplying the closing market price of our common stock on December 30, 2016, the last trading day of 2016, of $101.61, by the number of shares of common stock subject to such award. |
| |
(4) | The table above reflects the remaining unvested restricted stock units from the following grants of restricted stock units to Mr. Higgins, which vest in equal installments over a three year period from the date of grant: 2,666 unvested restricted stock units granted on February 12, 2014, 10,630 unvested restricted stock units granted on February 10, 2015, and 11,611 unvested restricted stock units granted on February 11, 2016. For a description of the change in control provisions applicable to the stock awards, see “Severance and Change in Control Arrangements” above. |
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(5) | Represents the performance-based restricted stock units granted to the named executive officer in 2015. A named executive officer may earn up to 137.5% of the “target” number of performance-based restricted stock units based on performance relative to the performance objectives established for these awards. The performance-based restricted stock units granted in 2015 will vest based on objectives related to our non-GAAP earnings per share growth for the three year performance period commencing January 1, 2015 and ending December 31, 2016, and our new shots-on-goal transactions during the three year performance period commencing January 1, 2015 and ending December 31, 2017, with each such objective equally weighted (and a possible performance multiplier of 150% for “maximum” performance relative to the non-GAAP earnings per share objective and a possible performance multiplier of 125% for “maximum” performance relative to the shots-on-goal transactions objective). |
In February 2017, the compensation committee certified our achievement relative to the non-GAAP earnings per share growth objectives for purposes of the 2015 performance-based restricted stock units. The threshold, target and maximum performance levels for the non-GAAP earnings per share growth-based component of the awards were as follows: less than 35%, 0% payout; 35%, 50% payout; 45%, 100% payout; and equal to or greater than 55%, 150% payout. Our non-GAAP earnings per share growth for purposes of the 2015 performance-based restricted stock units for the two year performance period commencing January 1, 2015 and ending December 31, 2016 was 48%, resulting in a 115% of “target” payout with respect to the units eligible to vest based on the non-GAAP earnings per share growth objectives. The performance condition applicable to these awards was satisfied as of December 31, 2016, although they did not vest, by their terms, until our compensation committee’s certification of such results in February 2017. The actual number of units that vested in February 2017 are reported in the column titled “Number of Shares or Units of Stock That Have Not Vested” above with respect to the portion of the 2015 awards tied to non-GAAP earnings per share growth as follows: Mr. Higgins, 9,168; Mr. Foehr, 5,239; Mr. Korenberg, 3,450; and Mr. Berkman, 2,619.
The “target” number of performance-based restricted stock units granted to the named executive officers in 2015 that remain eligible to vest based on the shots-on-goal transaction objective are reported in the column titled “Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested” above as follows: Mr. Higgins, 7,972; Mr. Foehr, 4,556; Mr. Korenberg, 3,000; and Mr. Berkman, 2,278.
| |
(6) | Represents the “target” number of performance-based restricted stock units granted to the named executive officer in 2016. The performance-based restricted stock units granted in 2016 will vest based on objectives related to our revenue growth for the two year performance period commencing January 1, 2016 and ending December 31, 2017 and our OmniAb new shots-on-goal transactions during the two year performance period commencing January 1, 2016 and ending December 31, 2018 with each such objective equally weighted (and a possible performance multiplier of 150% for “maximum” performance relative to the revenue growth objective and a possible performance multiplier of 125% for “maximum” performance relative to the OmniAb shots-on-goal transactions objective). Threshold performance levels, below which no vesting will be awarded, were also established for each performance objective. For a description of the change in control provisions applicable to the foregoing equity awards, see “Severance and Change in Control Arrangements” above. The “target” number of performance-based restricted stock units granted to each of the named executive officers reflected in the column above are as follows: Mr. Higgins, 11,611; Mr. Foehr, 5,676; Mr. Korenberg, 3,870; and Mr. Berkman, 2,193. |
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(7) | The table above reflects the remaining unvested restricted stock units from the following grants of restricted stock units to Mr. Foehr, which vest in equal installments over a three year period: 1,666 unvested restricted stock units granted on February 12, 2014, 8,741 unvested restricted stock units granted on February 10, 2015, and 5,676 unvested restricted stock units granted on February 11, 2016. For a description of the change in control provisions applicable to the stock awards, see “Severance and Change in Control Arrangements” above. |
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(8) | The table above reflects the remaining unvested restricted stock units from the following grants of restricted stock units to Mr. Korenberg: 4,000 unvested restricted stock units granted on August 5, 2015, and 3,870 unvested restricted stock units granted February 11, 2016. For a description of the change in control provisions applicable to the stock awards, see “Severance and Change in Control Arrangements” above. |
| |
(9) | The table above reflects the remaining unvested restricted stock units from the following grants of restricted stock units to Mr. Berkman, which vest in equal installments over a three year period: 833 unvested restricted stock units granted on February 12, 2014, 3,037 unvested restricted stock units granted on February 10, 2015, and 2,193 unvested restricted stock units granted on February 11, 2016. For |
Ligand Pharmaceuticals Incorporated 2017 Proxy Statement l 34
a description of the change in control provisions applicable to the stock awards, see “Severance and Change in Control Arrangements” above.
Option Exercises and Stock Vested During Fiscal Year 2016
The following table provides information on stock option exercises and stock vesting in fiscal 2016 by the named executive officers of the Company.
|
| | | | | | | | | | | |
| Option Awards | | Stock Awards |
Name | No. of Shares Acquired on Exercise (#) | | Value Realized Upon Exercise ($)(1) | | Number of Shares Acquired on Vesting (#) | | Value Realized on Vesting ($)(2) |
John L. Higgins | 6,000 |
| | 469,500 |
| | 10,648 |
| | 915,409 |
|
Matthew W. Foehr | 25,275 |
| | 2,596,826 |
| | 8,038 |
| | 691,027 |
|
Matthew Korenberg | — |
| | — |
| | 2,000 |
| | 246,600 |
|
Charles S. Berkman | 30,347 |
| | 2,076,803 |
| | 3,185 |
| | 273,814 |
|
| |
(1) | The value realized upon exercise of stock options reflects the price at which shares acquired upon exercise of the stock options were sold or valued for income tax purposes, net of the exercise price for acquiring the shares. |
| |
(2) | Computed by multiplying the closing market price of our restricted stock on the vesting date by the number of shares of restricted stock subject to such award vesting on the applicable vesting date. |
Potential Payments Upon Termination or Change in Control
The following table summarizes potential change in control and severance payments to each named executive officer as of December 31, 2016. The three right-hand columns describe the payments that would apply in three different potential scenarios—a termination without cause prior to a change in control or more than 24 months following a change in control; a change in control without a termination of employment; or a termination of employment as a result of the named executive officer’s resignation for good reason or termination of employment by us other than for cause, in each case within 24 months following a change in control. The table assumes that the termination or change in control occurred on December 31, 2016. For purposes of estimating the value of accelerated equity awards to be received in the event of a termination of employment or change in control, we have assumed a price per share of our common stock of $101.61, which represents the closing market price of our common stock as reported on the NASDAQ Global Market on December 30, 2016, the last trading day of 2016. All cash severance benefits will be paid in a lump sum.
Ligand Pharmaceuticals Incorporated 2017 Proxy Statement l 35
|
| | | | | | | | | | | |
Name | | Benefit | | Termination Without Cause; No Change of Control ($) | | Change of Control; No Termination ($)(1) | | Termination Without Cause or Resignation for Good Reason within 24 Months Following a Change of Control ($)(2) |
John L. Higgins | | Salary | | 206,410 |
| | — |
| | 1,150,000 |
|
| | Bonus | | — |
| | — |
| | 862,500 |
|
| | Option acceleration | | — |
| | 3,024,216 |
| | 3,024,216 |
|
| | Stock Award acceleration | | — |
| | 5,330,765 |
| | 5,330,765 |
|
| | Benefits continuation | | 9,323 |
| | — |
| | 62,180 |
|
| | Total value: | | 215,733 |
| | 8,354,981 |
| | 10,429,661 |
|
Matthew W. Foehr | | Salary | | 121,282 |
| | — |
| | 430,000 |
|
| | Bonus | | — |
| | — |
| | 215,000 |
|
| | Option acceleration | | — |
| | 1,972,914 |
| | 1,972,914 |
|
| | Stock Award acceleration | | — |
| | 3,136,802 |
| | 3,136,802 |
|
| | Benefits continuation | | 7,458 |
| | — |
| | 31,090 |
|
| | Total value: | | 128,740 |
| | 5,109,716 |
| | 5,785,806 |
|
Matthew Korenberg | | Salary | | 70,641 |
| | — |
| | 380,000 |
|
| | Bonus | | — |
| | — |
| | 152,000 |
|
| | Option acceleration | | — |
| | 231,241 |
| | 231,241 |
|
| | Stock Award acceleration | | — |
| | 1,802,561 |
| | 1,802,561 |
|
| | Benefits continuation | | 5,594 |
| | — |
| | 31,090 |
|
| | Total value: | | 76,235 |
| | 2,033,802 |
| | 2,596,892 |
|
Charles S. Berkman | | Salary | | 150,192 |
| | — |
| | 330,000 |
|
| | Bonus | | — |
| | — |
| | 132,000 |
|
| | Option acceleration | | — |
| | 750,427 |
| | 750,427 |
|
| | Stock Award acceleration | | — |
| | 1,301,827 |
| | 1,301,827 |
|
| | Benefits continuation | | 11,187 |
| | — |
| | 31,090 |
|
| | Total value: | | 161,379 |
| | 2,052,254 |
| | 2,545,344 |
|
| |
(1) | The 2002 Plan provides that options or restricted stock units will vest in the event of a change in control and the options or restricted stock units are not assumed or replaced by a successor. This disclosure assumes that the successor does not assume or replace the options or restricted stock units. |
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(2) | The change in control severance agreements with each of our named executive officers provide that all of a named executive officer’s outstanding stock awards will vest in the event of an involuntary termination. |
Compensation of Directors
The following table provides information related to the compensation of each of our non-employee directors for fiscal 2016.
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| | | | | | | | | | | |
Name | Cash Fees ($) | | Stock Awards ($)(9) | | Option Awards ($)(9) | | Total ($) |
Jason M. Aryeh(1) | 64,724 |
| | 74,205 |
| | 140,557 |
| | 279,486 |
|
Todd Davis(2) | 47,716 |
| | 96,633 |
| | 140,557 |
| | 284,906 |
|
David Knott (4) | — |
| | — |
| | — |
| | — |
|
John W. Kozarich(5) | 81,509 |
| | 74,205 |
| | 140,557 |
| | 296,271 |
|
Sunil Patel(6) | 55,144 |
| | 74,205 |
| | 140,557 |
| | 269,906 |
|
Stephen L. Sabba(7) | 70,144 |
| | 74,205 |
| | 140,557 |
| | 284,906 |
|
John L. LaMattina(8) | 30,216 |
| | 96,633 |
| | 140,557 |
| | 267,406 |
|
| |
(1) | As of December 31, 2016, Mr. Aryeh held options to purchase 8,395 shares of our common stock and 622 restricted stock units. During 2016, Mr. Aryeh received 622 restricted stock units with a grant date fair value of $74,205 and 2,329 stock options with a grant date fair value of $140,557. |
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(2) | As of December 31, 2016, Mr. Davis held options to purchase 5,083 shares of our common stock and 622 restricted stock units. During 2016, Mr. Davis received 810 restricted stock units with a grant date fair value of $96,633 and 2,329 stock options with a grant date fair value of $140,557. Mr. Davis elected to receive 188 shares of fully vested stock in lieu of $22,500 of his 2016 cash retainer for his services as a non-employee director. |
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(4) | Mr. Knott decided not to stand for reelection at the 2016 annual meeting of stockholders. As a result, he ceased serving as a member of our board of directors on May 23, 2016. As of December 31, 2016, Mr. Knott did not hold any options or restricted stock units. |
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(5) | As of December 31, 2016, Dr. Kozarich held options to purchase 32,900 shares of our common stock and 622 restricted stock units. During 2016, Dr. Kozarich received 622 restricted stock units with a grant date fair value of $74,205 and 2,329 stock options with a grant date fair value of $140,557. |
Ligand Pharmaceuticals Incorporated 2017 Proxy Statement l 36
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(6) | As of December 31, 2016, Mr. Patel held options to purchase 30,400 shares of our common stock and 622 restricted stock units. During 2016, Mr. Patel received 622 restricted stock units with a grant date fair value of $74,205 and 2,329 stock options with a grant date fair value of $140,557. |
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(7) | As of December 31, 2016, Dr. Sabba held options to purchase 35,400 shares of our common stock and 622 restricted stock units. During 2016, Dr. Sabba received 622 restricted stock units with a grant date fair value of $74,205 and 2,329 stock options with a grant date fair value of $140,557. |
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(8) | As of December 31, 2016, Dr. LaMattina held options to purchase 30,400 shares of our common stock and 622 restricted stock units. During 2016, Dr. LaMattina received 810 restricted stock units with a grant date fair value of $96,633 and 2,329 stock options with a grant date fair value of $140,557. Dr. LaMattina to receive 188 shares of fully vested stock in lieu of $22,500 of his 2016 cash retainer for his services as a non-employee director. |
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(9) | Reflects the grant date fair value for stock and option awards granted in 2016, calculated in accordance with FASB ASC Topic 718. The assumptions used to calculate the value of stock and option awards are set forth under Note 8 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on February 26, 2017. With the exception of Todd Davis and John L. LaMattina, each director received 622 restricted stock units and 2,329 options. |
Narrative to Director Compensation Table
Non-employee members of our board of directors are paid fees for their service as a director and are reimbursed for expenses incurred in connection with such service.
Under our director compensation policy, each director is eligible to receive an annual retainer of $45,000. No meeting fees will be paid. In addition, the chairperson of the board will receive an additional annual retainer of $30,000, the chairperson of the audit committee will receive an additional annual retainer fee of $20,000, the chairperson of the compensation committee will receive an additional annual retainer of $15,000 and the chairperson of the nominating and corporate governance committees will receive an additional annual retainer fee of $10,000. Members of the audit committee will receive an additional annual retainer of $10,000, members of the compensation committee will receive an additional annual retainer of $7,500 and members of the nominating and corporate governance committee will receive an additional annual retainer of $5,000. Directors may elect to receive their retainers in cash or vested shares of our common stock, which shares will be issued under our 2002 Plan.
At each annual meeting, non-employee directors will automatically be granted (i) that number of restricted stock units determined by dividing (a) $75,000, by (b) the average closing price per share of the Company’s common stock on the Nasdaq Global Market (or such other established stock exchange or national quotation system on which the stock is quoted) for the 30-calendar day period prior to the date of grant, and (ii) that number of stock options having a value of $140,000, calculated on the grant date in accordance with the Black-Scholes option pricing model (utilizing the same assumptions that the Company utilizes in preparation of its financial statements). The foregoing awards will vest in full on the earlier of (i) the date of the annual meeting of the Company’s stockholders next following the grant date, and (ii) on the first anniversary of the date of grant.
Upon initial election to the board of directors, each non-employee director will automatically be granted (i) that number of restricted stock units determined by dividing (a) $113,000, by (b) the average closing price per share of the Company’s common stock on the Nasdaq Global Market (or such other established stock exchange or national quotation system on which the stock is quoted) for the 30-calendar day period prior to the date of grant, and (ii) that number of stock options having a value of $205,000, calculated on the grant date in accordance with the Black-Scholes option pricing model (utilizing the same assumptions that the Company utilizes in preparation of its financial statements). The foregoing awards will vest in three equal annual installments on each of the first three anniversaries following the date of grant.
All awards will vest in full in the event of a change in control or a hostile take-over, each as defined under our 2002 Plan.
Non-Employee Director Ownership Guidelines. In addition, the director compensation policy contains an ownership guideline so that members of the board are required to own shares with a value of at least three times the then-current annual retainer after they had completed three years of board service. As of the date of this proxy statement, all non-employee directors were in compliance with these guidelines.
Compensation Committee Interlocks and Insider Participation
Relationships and Independence of the Compensation Committee Members
Ligand Pharmaceuticals Incorporated 2017 Proxy Statement l 37
During fiscal 2016, the compensation committee was composed of Messrs. Aryeh and Davis and Dr. LaMattina. No executive officer of the Company served on the board of directors or compensation committee of any entity which has one or more executive officers serving as members of the Company’s board of directors or compensation committee.
Ligand Pharmaceuticals Incorporated 2017 Proxy Statement l 38
|
|
Compensation Committee Report |
The compensation committee of the Company’s board of directors has submitted the following report for inclusion in this proxy statement:
The compensation committee reviewed this Compensation Discussion and Analysis and discussed its contents with the Company’s management. Based on the review and discussions, the compensation committee has recommended to the board of directors that this Compensation Discussion and Analysis be included in this proxy statement and our annual report for the year ended December 31, 2016.
This report of the compensation committee shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such acts.
The foregoing report has been furnished by the compensation committee.
Todd C. Davis, Chairperson of the Compensation Committee
Jason M. Aryeh
John L. LaMattina, Ph.D.
Ligand Pharmaceuticals Incorporated 2017 Proxy Statement l 39
The following is the report delivered by the audit committee of the Company’s board of directors with respect to the principal factors considered by such committee in its oversight of the accounting, auditing and financial reporting practices of the Company for 2016.
The audit committee oversees the Company’s financial reporting process on behalf of the board of directors. Management has the primary responsibility for the financial statements and the reporting process including the systems of internal controls. In fulfilling its oversight responsibilities, the audit committee reviewed and discussed the audited financial statements in the Company’s annual report with management, including a discussion of any significant changes in the selection or application of accounting principles, the reasonableness of significant judgments, the clarity of disclosures in the financial statements and the effect of any new accounting initiatives.
The audit committee reviewed and discussed with Ernst & Young LLP, who is responsible for expressing an opinion on the conformity of the Company’s audited consolidated financial statements with generally accepted accounting principles, their judgments as to the quality, not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed with the audit committee under generally accepted auditing standards, including those matters required under Auditing Standard No. 16 (Communications with Audit Committees). In addition, the audit committee has discussed with Ernst & Young LLP their independence from management and the Company, and has received from Ernst & Young LLP the written disclosures and the letter required by the Public Company Accounting Oversight Board Rule 3526.
The audit committee met with Ernst & Young LLP to discuss the overall scope of their services, the results of their audit and reviews, its evaluation of the Company’s internal controls and the overall quality of the Company’s financial reporting. Ernst & Young LLP, as the Company’s independent registered public accounting firm, also periodically updates the audit committee about new accounting developments and their potential impact on the Company’s reporting. The audit committee’s meetings with Ernst & Young LLP were held with and without management present. The audit committee is not employed by the Company, nor does it provide any expert assurance or professional certification regarding the Company’s financial statements. The audit committee relies, without independent verification, on the accuracy and integrity of the information provided, and representations made, by management and the Company’s independent registered public accounting firm.
In reliance on the reviews and discussions referred to above, the audit committee has recommended to the Company’s board of directors that the audited consolidated financial statements be included in this proxy statement and in our annual report for the year ended December 31, 2016.
This report of the audit committee shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such acts.
The foregoing report has been furnished by the audit committee.
Stephen L. Sabba, M.D., Chairperson of the Audit Committee
Todd C. Davis
Sunil Patel
Compensation Plans
We have two compensation plans approved by our stockholders under which our equity securities are authorized for issuance to employees and directors for goods or services, the 2002 Plan and the Employee Stock Purchase Plan.
The following table summarizes information about our equity compensation plans as of December 31, 2016:
Ligand Pharmaceuticals Incorporated 2017 Proxy Statement l 40
|
| | | | | | | | | |
| | (a) Number of securities to be issued upon exercises of outstanding options, warrants and rights | | (b) Weighted- average exercise price of outstanding options, warrants and rights | | (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a)) |
Equity compensation plans approved by security holders | | 1,752,275 |
| | 42.12 |
| | 998,056(1) |
|
Equity compensation plans not approved by security holders(2) | | — |
| | — |
| | — |
|
| | 1,752,275 |
| | 42.12 |
| | 998,056(1) |
|
| |
(1) | At December 31, 2016, 987,759 and 70,297 shares were available under the 2002 Plan and the Employee Stock Purchase Plan, respectively, for future grants of awards. |
| |
(2) | There are no equity compensation plans (including individual compensation arrangements) not approved by the Company’s security holders. |
Certain Relationships and Related Transactions
We describe below transactions and series of similar transactions, since the beginning of fiscal year 2016, with respect to which we were a party, will be a party, or otherwise benefited, in which:
the amounts involved exceeded or will exceed $120,000; and
a director, nominee for director, executive officer, holder of more than 5% of our common stock or any member of their immediate family had or will have a direct or indirect material interest.
Pursuant to our audit committee charter, the audit committee of our board of directors is responsible for reviewing and approving all transactions with related parties. We have not adopted written procedures for review of, or standards for approval of, these transactions, but instead the audit committee of our board of directors intends to review such transactions on a case by case basis. In addition, the compensation committee of our board of directors and/or our board of directors will review approve all compensation-related policies involving our directors and executive officers.
The severance arrangements we have entered into with each of our executive officers provide for severance benefits in specified circumstances, as well as benefits in connection with a change in control. See “Compensation Discussion and Analysis—Severance and Change in Control Arrangements.”
Our certificate of incorporation and our amended and restated bylaws provide that we will indemnify each of our directors and officers to the fullest extent permitted by the Delaware General Corporation Law. Further, we have entered into indemnification agreements with each of our directors and officers, and we have purchased a policy of directors’ and officers’ liability insurance that insures our directors and officers against the cost of defense, settlement or payment of a judgment under certain circumstances.
Pursuant to the management rights letter between Viking Therapeutics, Inc. ("Viking"), and the Company dated May 21, 2014, the Company nominated Mr. Foehr to serve as a member of Viking’s board of directors. During 2016, in connection with Mr. Foehr’s service as a director of Viking, Mr. Foehr received (1) $33,170 in cash payments and (2) $36,084 in option awards (representing the aggregate grant date fair value of the option awards as reported by Viking, computed in accordance with authoritative accounting guidance).
In May 2016, we entered into a purchase agreement to acquire certain royalty and milestone rights from CorMatrix Cardiovascular, Inc. (“CorMatrix”) for approximately $17.5 million. Two of our directors at the time of the transaction, Jason Aryeh and David Knott, each owned less than 1% of Cormatrix. In addition, Mr. Aryeh was a director of CorMatrix.
Ligand Pharmaceuticals Incorporated 2017 Proxy Statement l 41
Mr. Aryeh recused himself from all of our board’s consideration of the transaction with CorMatrix and the vote to approve such transaction. Neither Mr. Aryeh or Mr. Knott received a direct payment as part of the CorMatrix transaction.
All future transactions between the Company and its officers, directors, principal stockholders and affiliates will be approved by the audit committee or a majority of the independent and disinterested members of the board of directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s executive officers and directors, and persons who own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the SEC. Executive officers, directors and greater than 10% stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to the Company, or written representations from certain reporting persons, we have determined that all Section 16(a) filing requirements applicable to its officers, directors and greater than 10% beneficial owners were satisfied during the fiscal year ended December 31, 2016.
Deadline For Proposals For Next Annual Meeting
The deadline for submitting a stockholder proposal for inclusion in our proxy statement and form of proxy for the 2017 annual meeting of stockholders is December 15, 2017 (120 calendar days in advance of the anniversary of the date of this proxy statement). Stockholders wishing to submit proposals or director nominations that are to be included in such proxy statement and proxy must also do so by December 15, 2017. Stockholders are advised to review our amended and restated bylaws, which contain additional requirements with respect to advance notice of stockholder proposals and director nominations. Our current amended and restated bylaws are available at the SEC’s website, www.sec.gov, or upon written request to our Corporate Secretary at the address listed below. Stockholder proposals and director nominations should be directed to Corporate Secretary, Ligand Pharmaceuticals Incorporated, 3911 Sorrento Valley Boulevard, Suite 110, San Diego CA, 92121.
In addition, the proxy solicited by the board of directors for the next annual meeting of stockholders will confer discretionary authority to vote on any stockholder proposal presented at that meeting, unless the Company receives notice of such proposal no later than a reasonable period of time prior to the mailing of proxy materials for such annual meeting.
Annual Report on Form 10-K
Stockholders that received the Notice of Internet Availability of Proxy Materials can access this Proxy Statement and our fiscal 2016 Annual Report at http://www.envisionreports.com/LGND, which does not have cookies that identify visitors to the site. A copy of the Annual Report of the Company on Form 10-K for the 2016 fiscal year has been mailed concurrently with this proxy statement to all stockholders that received a copy of the proxy materials in the mail. The Annual Report is not incorporated into this proxy statement and is not considered proxy solicitation material. Written requests for copies of our Annual Report to stockholders may also be directed to our Corporate Secretary, Ligand Pharmaceuticals Incorporated, 3911 Sorrento Valley Boulevard Suite 110, San Diego, CA 92121.
Solicitation of Proxies
The Company will bear the entire cost of solicitation, including the preparation, assembly, printing and mailing of this proxy statement, the proxy and any additional solicitation material furnished to stockholders. Copies of solicitation material will be furnished to brokerage houses, fiduciaries and custodians holding shares in their names that are beneficially owned by others so that they may forward this solicitation material to such beneficial owners. In addition, the Company may reimburse such persons for their costs of forwarding the solicitation materials to such beneficial owners. The original solicitation of proxies by mail may be supplemented by solicitation by telephone, telegram or other means by directors, officers, employees or agents of the Company. No additional compensation will be paid to directors, officers or employees of the Company for any such services. Except as described above, the Company does not presently intend to solicit proxies other than by internet.
Ligand Pharmaceuticals Incorporated 2017 Proxy Statement l 42
Householding of Proxy Materials
The SEC has adopted rules that permit companies and intermediaries (such as brokers) to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially results in a reduced usage of natural resources and cost savings for companies.
A number of brokers with account holders who are our stockholders will be “householding” our proxy materials. A single proxy statement and one annual report will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that they will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. Any stockholder at a shared address to which a single copy of the documents was delivered and who wishes to receive a separate copy of the documents can request a copy of the documents by sending a written request to our Corporate Secretary, Ligand Pharmaceuticals Incorporated, 3911 Sorrento Valley Boulevard, Suite 110, San Diego, CA 92121, or contact our Corporate Secretary at (858) 550-7500. Also, if you no longer wish to participate in “householding” and would prefer to receive a separate proxy statement and annual report in the future, please notify your broker or direct your written request to Corporate Secretary, Ligand Pharmaceuticals Incorporated, 3911 Sorrento Valley Boulevard, Suite 110, San Diego, CA 92121, or contact our Corporate Secretary at (858) 550-7500. Stockholders who currently receive multiple copies of the proxy statement at their address and would like to request “householding” of their communications should contact their broker.
Other Business
As of the date of this proxy statement, the board of directors knows of no other business that will be presented for consideration at the annual meeting. If other matters are properly brought before the annual meeting, however, it is the intention of the persons named in the accompanying proxy to vote the shares represented thereby on such matters in accordance with their best judgment.
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By Order of the Board of Directors, |
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/s/ CHARLES S. BERKMAN
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Charles S. Berkman |
Vice President, General Counsel & Secretary |
April 14, 2017
Ligand Pharmaceuticals Incorporated 2017 Proxy Statement l 43
Appendix A - Reconciliation on Non-GAAP Financial Measures
The following table outlines our calculation for purposes of determining the achievement relative to the non-GAAP earnings per share growth for the 2015 performance-based restricted stock units. Our non-GAAP earnings per share growth for purposes of the 2015 performance-based restricted stock units for the two year performance period commencing January 1, 2015 and ending December 31, 2016 was 48% as non-GAAP earnings per share grew from $1.52 for the year ended December 31, 2014 to $3.33 for the year ended December 31, 2016, resulting in a 115% payout with respect to these units.
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| | | | | | | |
| Year ended December 31, |
| 2016 | | 2014 |
Amounts shown in thousands, except share and per share data. | |
| | | |
Net income | $ | (1,636 | ) | | $ | 12,024 |
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Stock-based compensation expense | 18,893 |
| | 11,270 |
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Non-cash interest expense(1) | 10,926 |
| | 3,693 |
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Amortization related to acquisitions | 8,622 |
| | — |
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Loss from Viking(2) | 23,132 |
| | — |
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Increase in contingent liabilities(3) | 3,334 |
| | 5,135 |
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Fair market value adjustment on Viking note and warrants(4) | (462 | ) | | — |
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Mark-to-market adjustment for investments owed to licensors(5) | (36 | ) | | 465 |
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Non-cash income taxes | 10,327 |
| | — |
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Discontinued operations, net of tax | (731 | ) | | — |
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Adjusted net income from continuing operations | $ | 72,369 |
| | $ | 32,587 |
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Diluted per-share amounts: | | | |
Net income | $ | (0.08 | ) | | $ | 0.56 |
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Stock-based compensation expense | 0.91 |
| | 0.53 |
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Non-cash interest expense(1) | 0.52 |
| | 0.17 |
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Amortization related to acquisitions | 0.41 |
| | — |
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Loss from Viking(2) | 1.11 |
| | — |
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Increase in contingent liabilities(3) | 0.16 |
| | 0.24 |
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Fair market value adjustment on Viking note and warrants(4) | (0.02 | ) | | — |
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Mark-to-market adjustment for investments owed to licensors(5) | — |
| | 0.02 |
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Non-cash income taxes | 0.50 |
| | — |
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Discontinued operations, net of tax | (0.04 | ) | | — |
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2019 Senior Convertible Notes share count adjustment | (0.14 | ) | | — |
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Adjusted net income from continuing operations | $ | 3.33 |
| | $ | 1.52 |
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Weighted average shares used in calculation of GAAP diluted earnings per share | 20,831 |
| | 21,433 |
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Shares excluded due to anti-dilutive effect on GAAP net loss | 1,884 |
| | — |
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Weighted average dilutive potential common shares issuable of 2019 Senior Convertible Notes | (995 | ) | | — |
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Weighted average shares used in calculation of adjusted diluted earnings per share | 21,720 |
| | 21,433 |
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(1) Non-cash debt related costs are calculated in accordance with the authoritative accounting guidance for convertible debt instruments that may be settled in cash.
Ligand Pharmaceuticals Incorporated 2017 Proxy Statement l 44
(2) Loss from Viking reflects our share of Viking's net loss of $5.1M for the twelve months ended December 31, 2016 and the decrease in the book value of our equity method investment in Viking of $10.6 million for the twelve months ended December 31, 2016, as a result of our decreased ownership percentage in Viking after Viking's financing and an in impairment charge of $7.4 million for the year ended December 31, 2016 as a result of an other than temporary decrease in the value of our investment in Viking.
(3) Changes in fair value of contingent consideration related to CyDex and Metabasis transactions.
(4) Changes in fair value of Viking Therapeutics, Inc. note receivable and warrants.
(5) Amounts due to Bristol-Myers Squibb relating to sale of shares of Retrophin, Inc.
The table above reflects the method for calculating non-GAAP earnings per share in place as of the date of the grant of the performance-based restricted stock units.
Ligand Pharmaceuticals Incorporated 2017 Proxy Statement l 45