##### 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 September 30, 2010
 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
(State or other jurisdiction of 
incorporation or organization)
    
    33-0361285
(I.R.S. Employer
Identification No.)4365 Executive Drive, Suite 300
    
    92121San Diego, CA
    
    (Zip Code)(Address of principal executive offices)
  Yes þ No o
 Yes o No o
  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 Financial Statements  UnauditedCondensed Consolidated Balance Sheets as of September 30, 2010 and
December 31, 2009
    
    
    1Condensed Consolidated Statements of Operations for the three and nine months
ended September 30, 2010 and 2009
    
    
    2Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 2010 and 2009
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4ITEM 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    19ITEM 4. Controls and Procedures
    
    
    24PART II. OTHER INFORMATIONITEM 1A. Risk Factors
    
    
    25ITEM 6. Exhibits
    
    
    26SIGNATURES
    
    
    27Exhibit 10.9Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 99.1




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. CONDENSED FINANCIAL STATEMENTS  UNAUDITED
 LA JOLLA PHARMACEUTICAL COMPANY
 
 Condensed Consolidated Balance Sheets
  September 30,
    
    
    December 31,2010
    
    
    2009(Unaudited)
    
    
    (See Note)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    7,272
    
    
    $
    4,254Prepaids and other current assets
    
    
    163
    
    
    
    586Total current assets
    
    
    7,435
    
    
    
    4,840Total assets
    
    $
    7,435
    
    
    $
    4,840LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS (DEFICIT) EQUITYCurrent liabilities:Accounts payable
    
    $
    22
    
    
    $
    125Accrued expenses
    
    
    224
    
    
    
    323Accrued payroll and related expenses
    
    
    96
    
    
    
    173Derivative liabilities
    
    
    7,807
    
    
    
    Total current liabilities
    
    
    8,149
    
    
    
    621Series C-1 redeemable convertible preferred stock, $0.0001 par value; 11,000 shares authorized, 5,184 and no
shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively (redemption value and
liquidation preference in the aggregate of $5,454 at September 30, 2010)
    
    
    92
    
    
    
    CommitmentsStockholders (deficit) equity:Common stock, $0.0001 par value; 6,000,000,000 shares authorized, 94,710,059 and 65,722,648 shares
issued and outstanding at September 30, 2010 and December 31, 2009
    
    
    9
    
    
    
    7Additional paid-in capital
    
    
    428,599
    
    
    
    428,533Accumulated deficit
    
    
    (429,414
    )
    
    
    (424,321
    )Total stockholders (deficit) equity
    
    
    (806
    )
    
    
    4,219Total liabilities, redeemable convertible preferred stock and stockholders (deficit) equity
    
    $
    7,435
    
    
    $
    4,840
 Note:
    
    The condensed consolidated balance sheet at December 31, 2009 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.   1




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LA JOLLA PHARMACEUTICAL COMPANY
 
 Condensed Consolidated Statements of Operations
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenue from collaboration agreement
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    8,125Expenses:Research and development
    
    
    4
    
    
    
    (240
    )
    
    
    13
    
    
    
    9,567General and administrative
    
    
    698
    
    
    
    992
    
    
    
    3,366
    
    
    
    5,602Total expenses
    
    
    702
    
    
    
    752
    
    
    
    3,379
    
    
    
    15,169Loss from operations
    
    
    (702
    )
    
    
    (752
    )
    
    
    (3,379
    )
    
    
    (7,044
    )Other income (expense):Excess of fair value of derivative liabilities over proceeds
upon issuance
    
    
    
    
    
    
    
    
    
    
    (5,015
    )
    
    
    Adjustments to fair value of derivative liabilities
    
    
    480
    
    
    
    
    
    
    
    3,465
    
    
    
    Financing transaction costs
    
    
    
    
    
    
    
    
    
    
    (163
    )
    
    
    Interest income and other expense, net
    
    
    
    
    
    
    54
    
    
    
    (1
    )
    
    
    51Net loss and comprehensive loss
    
    
    (222
    )
    
    
    (698
    )
    
    
    (5,093
    )
    
    
    (6,993
    )Preferred stock dividend
    
    
    (247
    )
    
    
    
    
    
    
    (334
    )
    
    
    Net loss and comprehensive loss attributable to common stockholders
    
    $
    (469
    )
    
    $
    (698
    )
    
    $
    (5,427
    )
    
    $
    (6,993
    )Basic and diluted net loss per share
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.07
    )
    
    $
    (0.11
    )Shares used in computing basic and diluted net loss per share
    
    
    94,700
    
    
    
    65,723
    
    
    
    79,308
    
    
    
    62,555
   2




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LA JOLLA PHARMACEUTICAL COMPANY
 
 Condensed Consolidated Statements of Cash Flows
   Nine Months EndedSeptember 30,2010
    
    
    2009Operating activities:Net loss
    
    $
    (5,093
    )
    
    $
    (6,993
    )Adjustments to reconcile net loss to net cash used for operating activities:Depreciation and amortization
    
    
    
    
    
    
    116Gain on write-off/disposal of patents, property and equipment
    
    
    
    
    
    
    (326
    )Share-based compensation expense
    
    
    402
    
    
    
    2,344Settlement of accounts payable and accrued liabilities
    
    
    
    
    
    
    (2,645
    )Issuance of Series C-1 Preferred Stock for services
    
    
    12
    
    
    
    Excess of fair value of derivative liabilities over proceeds upon issuance
    
    
    5,015
    
    
    
    Gain on adjustments to fair value of derivative liabilities
    
    
    (3,465
    )
    
    
    Change in operating assets and liabilities:Prepaids and other current assets
    
    
    423
    
    
    
    39Accounts payable and accrued expenses
    
    
    (202
    )
    
    
    (6,019
    )Accrued payroll and related expenses
    
    
    (77
    )
    
    
    (1,451
    )Net cash used for operating activities
    
    
    (2,985
    )
    
    
    (14,935
    )Investing activities:Sales of short-term investments
    
    
    
    
    
    
    10,000Net proceeds from sale of patents and property and equipment
    
    
    
    
    
    
    841Additions to property and equipment
    
    
    
    
    
    
    (18
    )Increase in patent costs and other assets
    
    
    
    
    
    
    (6
    )Net cash provided by investing activities
    
    
    
    
    
    
    10,817Financing activities:Proceeds from issuance of derivative obligations
    
    
    6,003
    
    
    
    Net proceeds from issuance of Series B Preferred Stock
    
    
    
    
    
    
    6,810Payments on credit facility
    
    
    
    
    
    
    (5,933
    )Payments on obligations under notes payable
    
    
    
    
    
    
    (331
    )Payments on obligations under capital leases
    
    
    
    
    
    
    (45
    )Net cash provided by financing activities
    
    
    6,003
    
    
    
    501Net increase (decrease) in cash and cash equivalents
    
    
    3,018
    
    
    
    (3,617
    )Cash and cash equivalents at beginning of period
    
    
    4,254
    
    
    
    9,447Cash and cash equivalents at end of period
    
    $
    7,272
    
    
    $
    5,830Supplemental schedule of noncash investing and financing activities:Decrease in par value of capital stock from change in par value
    
    
    651
    
    
    
    Issuance of common stock at par value, offset by paid-in capital reduction
    
    
    3
    
    
    
    Accrued dividends payable in Series C-1 Preferred Stock
    
    
    334
    
    
    
    
   3




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LA JOLLA PHARMACEUTICAL COMPANY
 
 Notes to Condensed Consolidated Financial Statements
  September 30, 2010
 1. Basis of Presentation
   Significant 2010 Events
    4




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Significant 2009 Events
 ®
   5




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2. Accounting Policies
 Principles of Consolidation
  Use of Estimates
  Recent Accounting Pronouncements
  Revenue Recognition
 FASB Topic on Revenue
Recognition
  Impairment of Long-Lived Assets
   6




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Accrued Clinical/Regulatory Expenses
  Net 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 September 30, 2010Balance at
    
    
    Quoted Prices in
    
    
    Significant Other
    
    
    SignificantSeptember 30,
    
    
    Active Markets
    
    
    Observable Inputs
    
    
    Unobservable Inputs2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Embedded derivative liabilities
    
    $
    5,126
    
    
    $
    
    
    
    $
    
    
    
    $
    5,126Warrant derivative liabilities
    
    
    2,681
    
    
    
    
    
    
    
    
    
    
    
    2,681Total
    
    $
    7,807
    
    
    $
    
    
    
    $
    
    
    
    $
    7,807
  8




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Fair Value Measurements Using SignificantUnobservable Inputs (Level 3)Embedded Derivative
    
    
    Warrant DerivativeLiabilities
    
    
    Liabilities
    
    
    TotalBeginning balance at December 31, 2009
    
    $
    
    
    
    $
    
    
    
    $
    Issuances
    
    
    5,524
    
    
    
    5,494
    
    
    
    11,018Adjustments to estimated fair value
    
    
    (652
    )
    
    
    (2,813
    )
    
    
    (3,465
    )Accrued dividends payable in Series C-1 Preferred Stock
    
    
    254
    
    
    
    
    
    
    
    254Ending balance at September 30, 2010
    
    $
    5,126
    
    
    $
    2,681
    
    
    $
    7,807
 4. Development and Stock Purchase Agreements
     5. Securities Purchase Agreement
   9




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Allocation of Proceeds
  Common Stock
  Accounting Treatment
  Redeemable Preferred Stock
  Voting Rights
  Dividends
 th th
  10




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Conversion Rights
   Liquidation Preference
  Redemption Rights
   11




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Restrictions
  Accounting Treatment
       12




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Derivative Liabilities
   Accounting Treatment
    Fair Value Measurements atMay 26, 2010
    
    
    September 30, 2010Embedded Derivatives of Series C-1 Preferred
    
    $
    5,524
    
    
    $
    4,872Embedded Derivatives of accrued dividends
payable in Series C-1 Preferred
    
    
    
    
    
    
    254Series D-1 Warrants
    
    
    815
    
    
    
    301Series C-2 Warrants for:Series C-2 Preferred
    
    
    3,049
    
    
    
    1,778Series D-2 Warrants
    
    
    1,630
    
    
    
    602$
    11,018
    
    
    $
    7,807
  13




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May 26, 2010
    
    
    September 30, 2010Closing price per share of common stock
    
    $
    0.061
    
    
    $
    0.035Estimated fair value per share of common stock (after related discounts)
    
    $
    0.010
    
    
    $
    0.006Conversion price per share
    
    $
    0.015
    
    
    $
    0.015Volatility
    
    
    109.2
    %
    
    
    109.2
    %Risk-free interest rate
    
    
    2.68
    %
    
    
    1.75
    %Credit spread
    
    
    17.3
    %
    
    
    15.3
    %Remaining expected lives of underlying securities (years)
    
    
    6.9
    
    
    
    6.6
   14




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May 26, 2010
    
    
    September 30, 2010Closing price per share of common stock
    
    $
    0.061
    
    
    $
    0.035Estimated fair value per share of common stock (after related discounts)
    
    $
    0.010
    
    
    $
    0.006Conversion price per share
    
    $
    0.015
    
    
    $
    0.015Volatility
    
    
    84.4
    %
    
    
    84.4
    %Risk-free interest rate
    
    
    1.28
    %
    
    
    0.64
    %Remaining expected lives of underlying securities (years)
    
    
    3.3
    
    
    
    3.0
   May 26, 2010
    
    
    September 30, 2010Closing price per share of common stock
    
    $
    0.061
    
    
    $
    0.035Estimated fair value per share of common stock (after related discounts)
    
    $
    0.010
    
    
    $
    0.006Conversion price per share
    
    $
    0.015
    
    
    $
    0.015Volatility
    
    
    109.2
    %
    
    
    109.2
    %Risk-free interest rate
    
    
    2.68
    %
    
    
    1.75
    %Credit spread
    
    
    17.3
    %
    
    
    15.3
    %Remaining expected lives of underlying securities (years)
    
    
    6.9
    
    
    
    6.6
  6. Stockholders Equity
 Share-Based Compensation
    15




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Research and development
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    632General and administrative
    
    
    97
    
    
    
    311
    
    
    
    402
    
    
    
    1,712Share-based compensation expense included in operating expenses
    
    $
    97
    
    
    $
    311
    
    
    $
    402
    
    
    $
    2,344
   16




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Nine Months EndedSeptember 30,Options:
    
    2010
    
    
    2009Risk-free interest rate
    
    
    2.6
    %
    
    
    0.6
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Volatility
    
    
    106.5
    %
    
    
    295.0
    %Expected life (years)
    
    
    5.8
    
    
    
    5.6
 Nine Months EndedSeptember 30,ESPP:
    
    2010
    
    
    2009Risk-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, 2009
    
    
    3,508,568
    
    
    $
    6.99Granted
    
    
    6,900,000
    
    
    $
    0.05Forfeited / Expired
    
    
    (875,215
    )
    
    $
    4.41Balance at September 30, 2010
    
    
    9,533,353
    
    
    $
    2.21
 Restricted Stock Units
   17




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Weighted-AverageGrant DateNumber of
    
    
    Fair ValueShares
    
    
    per ShareRestricted stock units outstanding at December 31, 2009
    
    
    2,021,024
    
    
    $
    0.17Cancelled
    
    
    (2,021,024
    )
    
    $
    0.17Restricted stock units outstanding at September 30, 2010
    
    
    
    
    
    $
    
 7. Restructuring Costs
       18




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8. 401(k) Plan
   9. Commitments and Contingencies
  
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements
  Overview and Recent Developments
    19




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
    
    Develop, sell or out-license our Riquent program, although we may not
receive any significant value upon such a sale or license; and
 
    
    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.
    
    
    In January 2009 we entered into a development and commercialization agreement (the
Development Agreement) with BioMarin CF Limited (BioMarin CF), a wholly-owned
subsidiary of BioMarin Pharmaceutical Inc. (BioMarin Pharma) for which we received a
non-refundable commencement payment of $7.5 million pursuant to the Development
Agreement from BioMarin CF and $7.5 million from BioMarin Pharma in exchange for a
newly designated series of our preferred stock pursuant to the securities purchase
agreement. Following the futile results of the first interim efficacy analysis of
Riquent received in February 2009, the Development Agreement was terminated on
March 27, 2009 and all of the Companys Series B-1 preferred shares purchased by
BioMarin Pharma were converted into common shares. Additionally, all rights to Riquent
were returned to us.
  20




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
    
    In February 2009, an Independent Monitoring Board for the Riquent Phase 3 ASPEN
study informed us that, per its review of the first interim efficacy analysis of
Riquent, continuing the study was futile. We subsequently unblinded the data and found
that there was no statistical difference in the primary endpoint, delaying time to
renal flare, between the Riquent-treated group and the placebo-treated group, although
there was a significant difference in the reduction of antibodies to double-stranded
DNA. There were 56 renal flares in 587 patients treated with either 300-mg or 900-mg
of Riquent, and 28 renal flares in 283 patients treated with placebo.
 Based on these results, we immediately discontinued the Riquent Phase 3 ASPEN study and
the further development of Riquent and we significantly reduced our operating costs,
ceased all Riquent manufacturing and regulatory activities and completed a substantial
reduction in personnel in April 2009.
 
    
    In October 2009, we attempted to obtain stockholder approval for a Plan of Complete
Liquidation and Dissolution but the majority of our stockholders failed to return
their proxy cards or otherwise indicate their votes with respect to this proposal.
Accordingly, we were not able to obtain the requisite quorum to conduct business at
the special meeting and were therefore unable to proceed with dissolution.
 
    
    In December 2009, we entered into an Agreement and Plan of Reorganization (the
Merger Agreement) by and among the Company, Jewel Merger Sub, Inc. and Adamis
Pharmaceuticals Corporation (Adamis). The transaction contemplated by the Merger
Agreement was structured as a reverse merger, in which Jewel Merger Sub, Inc., a
wholly-owned subsidiary of the Company, would merge with and into Adamis, with Adamis
surviving (the Merger). On March 3, 2010, the Company and Adamis agreed to terminate
the Merger Agreement as the majority of our stockholders failed to return their proxy
cards or otherwise indicate their votes with respect to the proposals related to the
Merger. Accordingly, we were not able to obtain the requisite quorum to conduct
business at the special meeting. The solicitation of further votes was cancelled due
to the delisting of our common stock from Nasdaq on March 4, 2010.
 Critical Accounting Policies and Estimates
   21




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Derivative Liabilities
    Recent Accounting Pronouncements
  Results of Operations
     22




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Liquidity and Capital Resources
      23




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
    
    our ability to sell, out-license or otherwise develop our Riquent
program; and
 
    
    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.
  Off-Balance Sheet Arrangements
  
 ITEM 4. CONTROLS AND PROCEDURES
    24




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PART II. OTHER INFORMATION
 
 ITEM 1A. Risk Factors
 I. RISK FACTORS RELATING TO LA JOLLA PHARMACEUTICAL COMPANY AND THE INDUSTRY IN WHICH WE OPERATE.
   25




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ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description3.1
    
    
    Certificate of Designations, Preferences and Rights of Series C-1
Convertible Preferred Stock, Series C-2 Convertible Preferred
Stock, Series D-1 Convertible Preferred Stock and Series D-2
Convertible Preferred Stock (previously filed with the Companys
Current Report on Form 8-K filed May 28, 2010 and incorporated by
reference herein)10.1
    
    
    Securities Purchase Agreement, dated as of May 24, 2010 by and
among the Company and the Purchasers named therein (previously filed
with the Companys Current Report on Form 8-K filed May 28, 2010 and
incorporated by reference herein)10.2
    
    
    Form of Series C-2 Preferred Stock Purchase Warrant (previously filed
with the Companys Current Report on Form 8-K filed May 28, 2010 and
incorporated by reference herein)10.3
    
    
    Form of Series D-1 Preferred Stock Purchase Warrant (previously filed
with the Companys Current Report on Form 8-K filed May 28, 2010 and
incorporated by reference herein)10.4
    
    
    Form of Series D-2 Preferred Stock Purchase Warrant (previously filed
with the Companys Current Report on Form 8-K filed May 28, 2010 and
incorporated by reference herein)10.5
    
    
    Chief Executive Officer Employment Agreement, dated as of May 24,
2010, by and between the Company and Deirdre Y. Gillespie, M.D.
(previously filed with the Companys Current Report on Form 8-K filed
May 28, 2010 and incorporated by reference herein)*10.6
    
    
    Confidential Retention Agreement, dated as of May 24, 2010, by
and between the Company and Deirdre Y. Gillespie, M.D. (previously
filed with the Companys Current Report on Form 8-K filed May 28, 2010
and incorporated by reference herein)*10.7
    
    
    Executive Employment Agreement, dated as of May 24, 2010, by and
between the Company and Gail A. Sloan (previously filed with the
Companys Current Report on Form 8-K filed May 28, 2010 and
incorporated by reference herein)*10.8
    
    
    Confidential Retention Agreement, dated as of May 24, 2010, by
and between the Company and Gail A. Sloan (previously filed with the
Companys Current Report on Form 8-K filed May 28, 2010 and
incorporated by reference herein)*10.9
    
    
    La Jolla Pharmaceutical Company Retirement Savings Plan*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 200299.1
    
    
    Net Cash Reporting, pursuant to Section 3.7(c)(ii) of the Securities
Purchase Agreement, dated as of May 24, 2010 by and among the Company
and the Purchasers named therein
 *
    
    This exhibit is a management contract or compensatory plan or arrangement.  26




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SIGNATURES
  La Jolla Pharmaceutical CompanyDate:  November 12, 2010
    /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)  27