##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2011
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 0-24274
 LA JOLLA PHARMACEUTICAL COMPANY
  Delaware
    
    33-0361285(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)4370 La Jolla Village Drive, Suite 400
    
    92122San Diego, CA
    
    (Zip Code)(Address of principal executive offices)
  þ o
 o þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 Yes o No þ




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##### 



LA JOLLA PHARMACEUTICAL COMPANY
FORM 10-Q
QUARTERLY REPORT
 INDEX
 PART I. FINANCIAL INFORMATIONITEM 1. Condensed Consolidated Financial Statements  UnauditedCondensed Consolidated Balance Sheets as of June 30, 2011 and
December 31, 2010
    
    
    1Condensed Consolidated Statements of Operations for the three and six months
ended June 30, 2011 and 2010
    
    
    2Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 2011 and 2010
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21ITEM 4. Controls and Procedures
    
    
    26PART II. OTHER INFORMATIONITEM 1A. Risk Factors
    
    
    26ITEM 6. Exhibits
    
    
    29SIGNATURES
    
    
    30Exhibit 31.1Exhibit 31.2Exhibit 32.1




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PART I. FINANCIAL INFORMATION
 
 ITEM 1.
    
    CONDENSED FINANCIAL STATEMENTS  UNAUDITED
 LA JOLLA PHARMACEUTICAL COMPANY
 
 Condensed Consolidated Balance Sheets
 June 30,
    
    
    December 31,2011
    
    
    2010(Unaudited)
    
    
    (See Note)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    5,792
    
    
    $
    6,866Prepaids and other current assets
    
    
    19
    
    
    
    67Total current assets
    
    
    5,811
    
    
    
    6,933Total assets
    
    $
    5,811
    
    
    $
    6,933LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS (DEFICIT) EQUITYCurrent liabilities:Accounts payable
    
    $
    26
    
    
    $
    39Accrued expenses
    
    
    99
    
    
    
    178Accrued payroll and related expenses
    
    
    72
    
    
    
    85Derivative liabilities
    
    
    6,677
    
    
    
    6,102Total current liabilities
    
    
    6,874
    
    
    
    6,404Series C-11 redeemable convertible
preferred stock, $0.0001 par value; 11,000
shares authorized, 5,325 and 5,573 shares
issued and outstanding at June 30, 2011 and
December 31, 2010, respectively (redemption
value and liquidation preference in the
aggregate of $5,325 at June 30, 2011 and
$5,652 at December 31, 2010) (see Notes 1 and
5)
    
    
    5,325
    
    
    
    47Commitments and contingenciesStockholders (deficit) equity:Common stock
    
    
    3
    
    
    
    Additional paid-in capital
    
    
    423,485
    
    
    
    428,563Accumulated deficit
    
    
    (429,876
    )
    
    
    (428,081
    )Total stockholders (deficit) equity
    
    
    (6,388
    )
    
    
    482Total liabilities, redeemable
convertible preferred stock and
stockholders (deficit) equity
    
    $
    5,811
    
    
    $
    6,933
 Note:
    
    The condensed consolidated balance sheet at December 31, 2010 has been derived from the
audited consolidated financial statements as of that date but does not include all of the
information and disclosures required by U.S. generally accepted accounting principles (see Note 1).   1




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LA JOLLA PHARMACEUTICAL COMPANY
 
 Condensed Consolidated Statements of Operations
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Expenses:Research and development
    
    $
    177
    
    
    $
    9
    
    
    $
    177
    
    
    $
    9General and administrative
    
    
    727
    
    
    
    901
    
    
    
    1,205
    
    
    
    2,667Total expenses
    
    
    904
    
    
    
    910
    
    
    
    1,382
    
    
    
    2,676Loss from operations
    
    
    (904
    )
    
    
    (910
    )
    
    
    (1,382
    )
    
    
    (2,676
    )Other income (expense):Fair value of derivative
liabilities upon issuance
    
    
    
    
    
    
    (5,015
    )
    
    
    
    
    
    
    (5,015
    )Adjustments to fair value
of derivative liabilities
    
    
    5,382
    
    
    
    2,985
    
    
    
    (647
    )
    
    
    2,985Financing transaction costs
    
    
    
    
    
    
    (164
    )
    
    
    
    
    
    
    (164
    )Other income (expense), net
    
    
    236
    
    
    
    
    
    
    
    234
    
    
    
    (1
    )Net income (loss)
    
    
    4,714
    
    
    
    (3,104
    )
    
    
    (1,795
    )
    
    
    (4,871
    )Preferred stock dividend
forfeited (earned)
    
    
    78
    
    
    
    (87
    )
    
    
    78
    
    
    
    (87
    )Net income (loss) and
comprehensive income (loss)
attributable to common
stockholders
    
    $
    4,792
    
    
    $
    (3,191
    )
    
    $
    (1,717
    )
    
    $
    (4,958
    )Net income (loss) per basic
share (Note 2 and Note 9)
    
    $
    0.39
    
    
    $
    (4.13
    )
    
    $
    (0.26
    )
    
    $
    (6.93
    )Net income (loss) per diluted
share (Note 2 and Note 9)
    
    $
    0.01
    
    
    $
    (4.13
    )
    
    $
    (0.26
    )
    
    $
    (6.93
    )Shares used in computing basic
net income (loss) per share
(Note 2 and Note 9)
    
    
    12,389
    
    
    
    772
    
    
    
    6,700
    
    
    
    715Shares used in computing
diluted net income (loss) per
share (Note 2 and Note 9)
    
    
    556,871
    
    
    
    772
    
    
    
    6,700
    
    
    
    715
   2




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LA JOLLA PHARMACEUTICAL COMPANY
 
 Condensed Consolidated Statements of Cash Flows
 Six Months EndedJune 30,2011
    
    
    2010Operating activities:Net loss
    
    $
    (1,795
    )
    
    $
    (4,871
    )Adjustments to reconcile net loss to net cash used for operating
activities:Share-based compensation expense
    
    
    131
    
    
    
    304Issuance of Series C-11 Preferred Stock for services
    
    
    
    
    
    
    12Fair value of derivative liabilities upon issuance
    
    
    
    
    
    
    5,015Loss (gain) on adjustments to fair value of derivative liabilities
    
    
    647
    
    
    
    (2,985
    )Change in operating assets and liabilities:Prepaids and other current assets
    
    
    48
    
    
    
    436Accounts payable and accrued expenses
    
    
    (92
    )
    
    
    (33
    )Accrued payroll and related expenses
    
    
    (13
    )
    
    
    (64
    )Net cash used for operating activities
    
    
    (1,074
    )
    
    
    (2,186
    )Financing activities:Proceeds from issuance of derivative obligations
    
    
    
    
    
    
    6,003Net cash provided by financing activities
    
    
    
    
    
    
    6,003Net (decrease) increase in cash and cash equivalents
    
    
    (1,074
    )
    
    
    3,817Cash and cash equivalents at beginning of period
    
    
    6,866
    
    
    
    4,254Cash and cash equivalents at end of period
    
    $
    5,792
    
    
    $
    8,071Supplemental schedule of noncash investing and financing activities:Issuance of common stock at par value, offset by paid-in capital
reduction
    
    $
    
    
    
    $
    290Conversion of preferred stock into common stock
    
    $
    (248
    )
    
    $
    Reclassification of preferred stock currently redeemable
    
    $
    5,532
    
    
    $
    Accrued dividends payable in preferred stock
    
    $
    
    
    
    $
    87Forfeiture of preferred stock dividends
    
    $
    (78
    )
    
    $
    
   3




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LA JOLLA PHARMACEUTICAL COMPANY
 
 Notes to Condensed Consolidated Financial Statements
 June 30, 2011
 1. Basis of Presentation
    1 1 1 1 1 1 1 1 1 1 1 1 1
  4




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1
 1 1 1
 1 1
 1
  5




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2. Accounting Policies
 Principles of Consolidation
  Use of Estimates
  Recent Accounting Pronouncements
   Impairment of Long-Lived Assets
    6




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Reverse Stock Split
  Net Income (Loss) Per Share
  Derivative Liabilities
    7




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3. Fair Value of Financial Instruments
  
    
    Level 1  Quoted prices in active markets for identical assets or liabilities.
    
    Level 2  Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or liabilities; quoted
prices in markets that are not active; or other inputs that are observable or
can be corroborated by observable market data for substantially the full term
of the assets or liabilities.
    
    Level 3  Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets or
liabilities.
     Fair Value Measurements at June 30, 2011Balance at
    
    
    Quoted Prices in
    
    
    Significant Other
    
    
    SignificantJune 30,
    
    
    Active Markets
    
    
    Observable Inputs
    
    
    Unobservable Inputs2011
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Embedded derivative
liabilities
    
    $
    4,333
    
    
    $
    
    
    
    $
    
    
    
    $
    4,333Warrant derivative
liabilities
    
    
    2,344
    
    
    
    
    
    
    
    
    
    
    
    2,344Total
    
    $
    6,677
    
    
    $
    
    
    
    $
    
    
    
    $
    6,677
  Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)Embedded Derivative
    
    
    Warrant DerivativeLiabilities
    
    
    Liabilities
    
    
    TotalBeginning balance at December 31, 2010
    
    $
    5,170
    
    
    $
    932
    
    
    $
    6,102Adjustments to estimated fair value
    
    
    159
    
    
    
    5,870
    
    
    
    6,029Forfeited accrued dividends payable in
Series C-11 Preferred
    
    
    (72
    )
    
    
    
    
    
    
    (72
    )Ending balance at March 31, 2011
    
    
    5,257
    
    
    
    6,802
    
    
    
    12,059Adjustments to estimated fair value
    
    
    (924
    )
    
    
    (4,458
    )
    
    
    (5,382
    )Ending balance at June 30, 2011
    
    $
    4,333
    
    
    $
    2,344
    
    
    $
    6,677
  8




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4. GliaMed Asset Purchase
     5. Securities Purchase Agreement
 1 1 1 1 1 1 1
  9




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1 1 1
 1 1
 Allocation of Proceeds
 1 1 1 1
 Common Stock
  Redeemable Preferred Stock
 1 1 1 1 1
 Voting Rights
   10




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Dividends
 1 th th 1 1 1 1
  Conversion Rights
  1 1 1 1 1 1 1 1 1
  Liquidation Preference
 1 1
  11




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Redemption Rights
 1 1 1 1
 1 1 1 1 1 1
 Restrictions
 1
 Accounting Treatment
 1 1
 1 1
 1 1
  12




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1 1 1 1
 1 1 1 1
 Derivative Liabilities
 1 1 1 1 1 1 1 1
 1 1 1 1
 Accounting Treatment
 1 1
 1 1 1 1 1 1 1 1
  13




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Fair Value Measurements atDecember 31, 2010
    
    
    June 30, 2011Embedded Derivatives of Series
C-11 Preferred (including
dividends paid in Series
C-11 Preferred in November
2010)
    
    $
    5,098
    
    
    $
    4,333Embedded Derivatives of accrued
dividends payable in Series
C-11 Preferred
    
    
    72
    
    
    
    Series D-11 Warrants
    
    
    702
    
    
    
    694Series C-21 Warrants for:Series C-21 Preferred
    
    
    (1,175
    )
    
    
    210Series D-21 Warrants
    
    
    1,405
    
    
    
    1,440$
    6,102
    
    
    $
    6,677
 1 1
 1 1
 1
 December 31,
    
    
    June 30,2010
    
    
    2011Closing price per share of common stock
    
    $
    2.60
    
    
    $
    0.0086Conversion price per share
    
    $
    1.50
    
    
    $
    0.006Volatility
    
    
    84.6
    %
    
    
    84.1
    %Risk-free interest rate
    
    
    2.19
    %
    
    
    1.29
    %Credit spread
    
    
    14.2
    %
    
    
    14.9
    %Remaining expected lives of underlying
securities (years)
    
    
    6.3
    
    
    
    4.0
  14




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1 1 1
 1
 December 31,
    
    
    June 30,2010
    
    
    2011Closing price per share of common stock
    
    $
    2.60
    
    
    $
    0.0086Conversion price per share
    
    $
    1.50
    
    
    $
    0.006Volatility
    
    
    98.9
    %
    
    
    62.8
    %Risk-free interest rate
    
    
    1.02
    %
    
    
    0.39
    %Remaining expected lives of underlying securities (years)
    
    
    2.8
    
    
    
    1.8
 1 1 1 1 1 1 1 1
 1 1 1
 December 31,
    
    
    June 30,2010
    
    
    2011Closing price per share of common stock
    
    $
    2.60
    
    
    $
    0.0086Conversion price per share
    
    $
    1.50
    
    
    $
    .006Volatility
    
    
    84.6
    %
    
    
    84.1
    %Risk-free interest rate
    
    
    2.19
    %
    
    
    1.29
    %Credit spread
    
    
    14.2
    %
    
    
    14.9
    %Remaining expected lives of underlying securities (years)
    
    
    6.3
    
    
    
    4.0
 1 1 1 1
 6. Stockholders Equity
 Share-Based Compensation
   15




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Research and development
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    General and administrative
    
    
    63
    
    
    
    81
    
    
    
    131
    
    
    
    304Share-based compensation
expense included in
operating expenses
    
    $
    63
    
    
    $
    81
    
    
    $
    131
    
    
    $
    304
  16




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Three and Six MonthsEndedJune 30,Options:
    
    2011
    
    
    2010Risk-free interest rate
    
    
    
    
    
    
    2.6
    %Dividend yield
    
    
    
    
    
    
    0.0
    %Volatility
    
    
    
    
    
    
    106.5
    %Expected life (years)
    
    
    
    
    
    
    5.8
 Three and Six MonthsEndedJune 30,ESPP:
    
    2011
    
    
    2010Risk-free interest rate
    
    
    
    
    
    
    0.2
    %Dividend yield
    
    
    
    
    
    
    0.0
    %Volatility
    
    
    
    
    
    
    90.5
    %Expected life (months)
    
    
    
    
    
    
    3
   Outstanding OptionsWeighted-AverageNumber of
    
    
    ExerciseShares
    
    
    PriceBalance at December 31, 2010
    
    
    98,015
    
    
    $
    203.70Granted
    
    
    
    
    
    $
    Forfeited / Expired
    
    
    (6,841
    )
    
    $
    211.72Balance at June 30, 2011
    
    
    91,174
    
    
    $
    203.10
  17




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Restricted Stock Units
    Weighted-AverageGrant DateNumber of
    
    
    Fair ValueShares
    
    
    per ShareRestricted stock units outstanding at December 31, 2009
    
    
    20,209
    
    
    $
    17.00Cancelled
    
    
    (20,209
    )
    
    $
    17.00Restricted stock units outstanding at June 30, 2010
    
    
    
    
    
    $
    
 7. Retention Payments
     18




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8. 401(k) Plan
    19




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9. Net Income (Loss) per Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010NumeratorNet income (loss)
    
    $
    4,714
    
    
    $
    (3,104
    )
    
    $
    (1,795
    )
    
    $
    (4,871
    )Preferred stock dividends
forfeited (earned)
    
    
    78
    
    
    
    (87
    )
    
    
    78
    
    
    
    (87
    )Numerator for basic EPS  net
income (loss) attributable to
common stockholders
    
    
    4,792
    
    
    
    (3,191
    )
    
    
    (1,717
    )
    
    
    (4,958
    )Effect of dilutive securities:Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Numerator for diluted EPS 
net income (loss) attributable
to common stockholders
    
    $
    4,792
    
    
    $
    (3,191
    )
    
    $
    (1,717
    )
    
    $
    (4,958
    )Denominator:Weighted-average shares outstanding:Basic EPS
    
    
    12,389
    
    
    
    772
    
    
    
    6,700
    
    
    
    715Effect of dilutive convertible
preferred stock
    
    
    544,482
    
    
    
    
    
    
    
    
    
    
    
    Denominator for diluted EPS
    
    
    556,871
    
    
    
    772
    
    
    
    6,700
    
    
    
    715Basic EPS
    
    $
    0.39
    
    
    $
    (4.13
    )
    
    $
    (0.26
    )
    
    $
    (6.93
    )Diluted EPS
    
    $
    0.01
    
    
    $
    (4.13
    )
    
    $
    (0.26
    )
    
    $
    (6.93
    )
 1
 10. Commitments and Contingencies
    20




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements
  Overview and Recent Developments
   1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
   21




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1
 1 1
 1
  
    
    Pursue potential other strategic transactions, which could include
mergers, license agreements or other collaborations, with third parties where we seek
new compounds for development and seek additional capital; and/or
 
    
    Develop, sell or out-license our Riquent program, although we may not
receive any significant value upon such a sale or license.
  1 1 1
 1 1 1 1 1 1
  22




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1 1
 1 1
 Critical Accounting Policies and Estimates
    Recent Accounting Pronouncements
   23




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Results of Operations
    1 1
   24




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Liquidity and Capital Resources
  1
 1 1
     
    
    our ability to consummate a strategic transaction such as a merger,
license agreement or other collaboration with a third party where we seek new
compounds for development and seek additional capital; and
 
    
    our ability to sell, out-license or otherwise develop our Riquent
program;
  25




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Off-Balance Sheet Arrangements
  
 ITEM 4.
    
    CONTROLS AND PROCEDURES
   
 PART II. OTHER INFORMATION
 
 ITEM 1A.
    
    Risk Factors
 I. RISK FACTORS RELATING TO LA JOLLA PHARMACEUTICAL COMPANY AND THE INDUSTRY IN WHICH WE OPERATE.
   26




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We have only limited assets, no ongoing clinical trials and no products.
  1
 Although we are attempting to pursue potential strategic transactions, there is no assurance that
we will be successful and, even if we are successful, our stockholders may suffer dilution or other
reductions in value as part of our acquisition of new assets.
     27




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Our ability to raise additional capital and enter into strategic transactions requires the approval
of certain investors from the May 2010 financing.
 1 1 1 1 1
 The May 2010 financing has already caused, and will continue to cause, our existing stockholders to
suffer substantial dilution.
 1 1 1 1 1 1 1 1 1 1
 Our financial reporting is complicated and may confuse investors.
 FASB Topic of Derivatives and Hedging Managements Discussion & Analysis of Financial Condition and
Results of Operations
  28




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ITEM 6.
    
    EXHIBITS
 ExhibitNumber
    
    Description10.1
    
    
    Amendment Agreement, dated June 30, 2011, by and among La Jolla
Pharmaceutical Company and the undersigned parties thereto (1)31.1
    
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 (1)
    
    Previously filed with the Companys Current Report on Form 8-K, filed July 5, 2011 and
incorporated by reference herein.  29




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SIGNATURES
  La Jolla Pharmaceutical CompanyDate:  August 12, 2011
    /s/ Deirdre Y. GillespieDeirdre Y. Gillespie, M.D.President and Chief Executive Officer
(On behalf of the Registrant)/s/ Gail A. SloanGail A. SloanChief Financial Officer and Secretary
(As Principal Financial and Accounting Officer)  30