10-Q 1 lgnd-20220331.htm 10-Q lgnd-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________________________________________
FORM 10-Q
________________________________________________________________________________________
Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2022
or
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: 001-33093

lgnd-20220331_g1.jpg

LIGAND PHARMACEUTICALS INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware
77-0160744
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
5980 Horton Street, Suite 405
Emeryville
CA94608
(Address of principal executive offices)(Zip Code)
(858) 550-7500
(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Trading symbol:
Name of each exchange on which registered:
Common Stock, par value $0.001 per share
LGND
The Nasdaq Global Market

________________________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”




and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one)
Large Accelerated Filer
Accelerated Filer
Non-Accelerated FilerSmaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒
As of May 5, 2022, the registrant had 16,861,339 shares of common stock outstanding.





LIGAND PHARMACEUTICALS INCORPORATED
QUARTERLY REPORT

FORM 10-Q

TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PART II. OTHER INFORMATION


2



GLOSSARY OF TERMS AND ABBREVIATIONS
AbbreviationDefinition
2021 Annual ReportAnnual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 28, 2022
2023 Notes$750.0 million aggregate principal amount of convertible senior unsecured notes due 2023
Ab InitioAb Initio Biotherapeutics, Inc.
AmgenAmgen, Inc.
APAC
Avista Public Acquisition Corp. II
ASCAccounting Standards Codification
ASUAccounting Standards Update
CompanyLigand Pharmaceuticals Incorporated, including subsidiaries
CVRContingent value right
CrystalCrystal Bioscience, Inc.
CyDexCyDex Pharmaceuticals, Inc.
ESPPEmployee Stock Purchase Plan, as amended and restated
FASBFinancial Accounting Standards Board
FDAFood and Drug Administration
GAAPGenerally accepted accounting principles in the United States
GileadGilead Sciences, Inc.
IcagenIcagen, Inc.
LigandLigand Pharmaceuticals Incorporated, including subsidiaries
Merger AgreementAgreement and Plan of Merger, dated as of March 23, 2022, among APAC, Ligand, OmniAb and Merger Sub
Merger SubOrwell Merger Sub, Inc., a wholly owned subsidiary of APAC
MetabasisMetabasis Therapeutics, Inc.
NDANew Drug Application
OmniAbOmniAb, Inc.
OmniAb BusinessLigand's antibody discovery business
PfenexPfenex Inc.
Q1 2021The Company's fiscal quarter ended March 31, 2021
Q1 2022The Company's fiscal quarter ended March 31, 2022
SBCShare-based compensation expense
SECSecurities and Exchange Commission
Separation AgreementSeparation and Distribution Agreement, dated as of March 23, 2022, among APAC, Ligand and OmniAb
TravereTravere Therapeutics, Inc.
VikingViking Therapeutics, Inc.
xCella
xCella Biosciences, Inc.

3



PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements

LIGAND PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except par value)
March 31, 2022December 31, 2021
ASSETS
Current assets:
   Cash and cash equivalents$14,993 $19,522 
   Short-term investments189,006 321,586 
   Accounts receivable, net41,797 85,453 
   Inventory25,614 27,326 
   Income taxes receivable 6,193 
   Other current assets4,656 4,671 
      Total current assets276,066 464,751 
Deferred income taxes, net35,655 34,482 
Intangible assets, net539,707 551,040 
Goodwill181,206 181,206 
Commercial license rights, net10,121 10,110 
Property and equipment, net24,584 20,511 
Operating lease right-of-use assets15,783 16,542 
Financing lease right-of-use assets15,620 16,207 
Other assets6,442 2,741 
      Total assets$1,105,184 $1,297,590 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable $6,972 $8,403 
   Accrued liabilities15,877 17,579 
   Income taxes liability5,800  
   Current contingent liabilities1,524 2,588 
   Deferred revenue10,503 10,996 
   Current operating lease liabilities1,850 2,053 
   Current financing lease liabilities52 46 
      Total current liabilities42,578 41,665 
2023 convertible senior notes, net176,540 320,717 
Long-term contingent liabilities7,448 8,483 
Deferred income taxes, net39,480 59,095 
Long-term operating lease liabilities16,758 15,494 
Other long-term liabilities29,188 30,977 
      Total liabilities311,992 476,431 
Commitments and contingencies
Stockholders' equity:
   Preferred stock, $0.001 par value; 5,000 shares authorized; zero issued and outstanding at March 31, 2022 and December 31, 2021
  
   Common stock, $0.001 par value; 60,000 shares authorized; 16,861 and 16,767 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively
17 17 
   Additional paid-in capital325,368 372,969 
   Accumulated other comprehensive loss(1,031)(917)
   Retained earnings 468,838 449,090 
      Total stockholders' equity793,192 821,159 
      Total liabilities and stockholders' equity$1,105,184 $1,297,590 

See accompanying notes to unaudited condensed consolidated financial statements.
4





LIGAND PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
Three months ended
March 31,
20222021
Revenues:
   Royalties$13,695 $7,112 
   Captisol12,122 31,272 
   Contract revenue19,876 16,766 
Total revenues45,693 55,150 
Operating costs and expenses:
   Cost of Captisol4,699 8,153 
   Amortization of intangibles11,813 11,786 
   Research and development20,307 17,879 
   General and administrative18,180 12,617 
Total operating costs and expenses54,999 50,435 
Income (loss) from operations(9,306)4,715 
Other income (expense):
   Gain (loss) from short-term investments(12,877)13,061 
   Interest income134 296 
   Interest expense(789)(5,831)
   Other income (expense), net2,698 (6,477)
Total other income (loss), net(10,834)1,049 
Income (loss) before income taxes(20,140)5,764 
Income tax benefit 4,755 12,342 
Net income (loss)$(15,385)$18,106 
     Basic net income (loss) per share$(0.91)$1.10 
     Shares used in basic per share calculations16,824 16,435 
     Diluted net income (loss) per share$(0.91)$1.05 
     Shares used in diluted per share calculations16,824 17,248 

See accompanying notes to unaudited condensed consolidated financial statements.
5






LIGAND PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
Three months ended
March 31,
20222021
Net income (loss):$(15,385)$18,106 
Unrealized net loss on available-for-sale securities, net of tax(114)(55)
Comprehensive income (loss)$(15,499)$18,051 

See accompanying notes to unaudited condensed consolidated financial statements.

6



LIGAND PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(in thousands)
Common StockAdditional paid in capitalAccumulated other comprehensive lossRetained earningsTotal stockholders' equity
SharesAmount
Balance at December 31, 202116,767 $17 $372,969 $(917)$449,090 $821,159 
ASU 2020-06 adoption, net of tax (Note 1)— — (51,130)— 35,133 (15,997)
Issuance of common stock under employee stock compensation plans, net of shares withheld for payroll taxes94 — (5,515)— — (5,515)
Share-based compensation— — 9,044 — — 9,044 
Unrealized net loss on available-for-sale securities, net of deferred tax— — — (114)— (114)
Net loss— — — — (15,385)(15,385)
Balance at March 31, 202216,861 $17 $325,368 $(1,031)$468,838 $793,192 


Common StockAdditional paid in capitalAccumulated other comprehensive lossRetained earnings Total stockholders' equity
SharesAmount
Balance at January 1, 202116,080 $16 $318,358 $(801)$391,952 $709,525 
Issuance of common stock under employee stock compensation plans, net of shares withheld for payroll taxes572 1 20,580 — — 20,581 
Share-based compensation— — 8,405 — — 8,405 
Unrealized net loss on available-for-sale securities, net of deferred tax— — — (55)— (55)
Warrant and bond hedge unwind transactions— — 396 — — 396 
Reacquisition of equity due to 2023 debt extinguishment, net of tax— — (9,086)— — (9,086)
Tax effect for 2023 Notes transactions— — (2,032)— — (2,032)
Net income— — — — 18,106 18,106 
Balance at March 31, 202116,652 $17 $336,621 $(856)$410,058 $745,840 

See accompanying notes to unaudited condensed consolidated financial statements.
7



LIGAND PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (in thousands)
Three months ended
March 31,
20222021
Cash flows from operating activities:
Net income (loss)$(15,385)$18,106 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Change in estimated fair value of contingent liabilities(1,035)1,684 
Depreciation and amortization of intangible assets13,655 12,565 
Amortization of premium on investments, net51 150 
Amortization of debt discount and issuance fees326 4,916 
Amortization of commercial license rights(11)528 
Loss (gain) on debt extinguishment(1,532)4,840 
Share-based compensation9,044 8,405 
Deferred income taxes(16,180)(12,408)
Loss (gain) from short-term investments12,877 (13,090)
Other(80)238 
Changes in operating assets and liabilities:
     Accounts receivable, net43,638 2,411 
     Inventory44 (9,670)
     Accounts payable and accrued liabilities (2,708)470 
     Income tax receivable and payable11,993 1,072 
     Deferred revenue(2,453)(5,695)
     Other assets and liabilities (233)(3,768)
                Net cash provided by operating activities52,011 10,754 
Cash flows from investing activities:
Purchase of short-term investments(38,190)(72,148)
Proceeds from sale of short-term investments132,866 109,407 
Proceeds from maturity of short-term investments24,830 31,500 
Cash paid for equity method investment(750) 
Purchase of property and equipment(4,875)(3,404)
Other (240)
               Net cash provided by investing activities113,881 65,115 
Cash flows from financing activities:
Repurchase of 2023 Notes(163,356)(108,822)
Payments under financing lease obligations(13)(3,801)
Proceeds from convertible bond hedge settlement 16,855 
Payments to convertible bond holders for warrant purchases (16,459)
Net proceeds from stock option exercises and ESPP347 26,493 
Taxes paid related to net share settlement of equity awards(5,862)(5,901)
Payments to CVR Holders(1,416) 
Other(121) 
               Net cash used in financing activities(170,421)(91,635)
Net decrease in cash, cash equivalents and restricted cash(4,529)(15,766)
Cash, cash equivalents and restricted cash at beginning of period19,522 47,963 
Cash, cash equivalents and restricted cash at end of period$14,993 $32,197 
Supplemental disclosure of cash flow information:
Interest paid$359 $241 
Taxes paid$ $344 
Supplemental schedule of non-cash activity:
Accrued fixed asset purchases$2,574 $87 
Accrued inventory purchases$306 $775 
Unrealized loss on AFS investments$(114)$(55)

See accompanying notes to unaudited condensed consolidated financial statements.
8



LIGAND PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements
(Unaudited)


Unless the context requires otherwise, references in this report to “Ligand,” “we,” “us,” the “Company,” and “our” refer to Ligand Pharmaceuticals Incorporated and its consolidated subsidiaries.

1. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

Our condensed consolidated financial statements include the financial statements of Ligand and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. We have included all adjustments, consisting only of normal recurring adjustments, which we considered necessary for a fair presentation of our financial results. These unaudited condensed consolidated financial statements and accompanying notes should be read together with the audited consolidated financial statements included in our 2021 Annual Report. Interim financial results are not necessarily indicative of the results that may be expected for the full year.

Significant Accounting Policies

We have described our significant accounting policies in Note 1, Basis of Presentation and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements in our 2021 Annual Report.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. Actual results may differ from those estimates.

Accounting Standards Updates, Recently Adopted

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). The guidance simplifies the complexity associated with applying U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. More specifically, the amendments focus on the guidance for convertible instruments and derivative scope exception for contracts in an entity’s own equity. Consequently, a convertible debt instrument, such as the Company’s 2023 Notes, will be accounted for as a single liability measured at its amortized cost, if no other features require bifurcation and recognition as derivatives. The new guidance also requires the if-converted method to be applied for all convertible instruments and requires additional disclosures. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

We adopted this guidance effective January 1, 2022 under the modified retrospective approach and the comparative information has not been restated and continues to be presented according to accounting standards in effect for those periods. The cumulative effect of the change was recognized as an adjustment to the opening balance of retained earnings at the date of adoption and our 2023 Notes are no longer bifurcated into separate liability and equity components. The principal amount of the 2023 Notes is classified as a single liability measured at amortized cost in the condensed consolidated balance sheet for the period ended March 31, 2022. Upon adoption of ASU 2020-06 on January 1 2022, we recorded an adjustment to the 2023 Notes liability component, deferred tax liabilities, additional paid-in-capital and retained earnings. This adjustment was calculated based on the carrying amount of the 2023 Notes as if it had always been treated as a single liability measured at amortized cost. Furthermore, we recorded an adjustment to the debt issuance costs contra liability and equity (additional paid-in-capital) components under the same premise, as if debt issuance costs had always been treated as a contra liability only. Under this transition method, the cumulative effect of the accounting change increased the carrying amount of the 2023 Notes by $20.4 million, reduced deferred tax liabilities by $4.4 million, reduced additional paid-in capital by $51.1 million and increased retained earnings by $35.1 million. The net balance of the 2023 Notes at January 1, 2022 is $341.1 million which includes an unamortized discount of $2.2 million.

Revenue

Our revenue is generated primarily from royalties on sales of products commercialized by our partners, Captisol material sales, and contract revenue for services, license fees and development, regulatory and sales based milestone payments.

9



We apply the following five-step model in accordance with ASC 606, Revenue from Contracts with Customers, in order to determine the revenue: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

Royalties

We receive royalty revenue on sales by our partners of products covered by patents that we or our partners own under contractual agreements. We do not have future performance obligations under these license arrangements. We generally satisfy our obligation to grant intellectual property rights on the effective date of the contract. However, we apply the royalty recognition constraint required under the guidance for sales-based royalties which requires a royalty to be recorded no sooner than the underlying sale occurs. Therefore, royalties on sales of products commercialized by our partners are recognized in the quarter the product is sold. Our partners generally report sales information to us on a one quarter lag. Thus, we estimate the expected royalty proceeds based on an analysis of historical experience and interim data provided by our partners including their publicly announced sales. Differences between actual and estimated royalty revenues, which have not been material, are adjusted in the period in which they become known, typically the following quarter.

Captisol Sales

Revenue from Captisol sales is recognized when control of Captisol material is transferred or intellectual property license rights are granted to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products or rights. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. For Captisol material or intellectual property license rights, we consider our performance obligation satisfied once we have transferred control of the product or granted the intellectual property rights, meaning the customer has the ability to use and obtain the benefit of the Captisol material or intellectual property license right. We recognize revenue for satisfied performance obligations only when we determine there are no uncertainties regarding payment terms or transfer of control. Sales tax and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. We have elected to recognize the cost of freight and shipping when control over Captisol material has transferred to the customer as an expense in Cost of Captisol. We expense incremental costs of obtaining a contract when incurred if the expected amortization period of the asset that we would have recognized is one year or less or the amount is immaterial. We did not incur any incremental costs of obtaining a contract during the periods reported.

Contract Revenue

Our contracts with customers often include variable consideration in the form of contingent milestone payments. We include contingent milestone payments in the estimated transaction price when it is probable a significant reversal in the amount of cumulative revenue recognized will not occur. These estimates are based on historical experience, anticipated results and our best judgment at the time. If the contingent milestone payment is based on sales, we apply the royalty recognition constraint and record revenue when the underlying sale has taken place. Significant judgments must be made in determining the transaction price for our sales of intellectual property. Because of the risk that products in development with our partners will not reach development milestones or receive regulatory approval, we generally recognize any contingent payments that would be due to us upon the development milestone or regulatory approval. Depending on the terms of the arrangement, we may also defer a portion of the consideration received if we have to satisfy a future obligation, which typically occurs with our contracts for R&D services.

For R&D services we recognize revenue over time and we measure our progress using an input method. The input methods we use are based on the effort we expend or costs we incur toward the satisfaction of our performance obligation. We estimate the amount of effort we expend, including the time it will take us to complete the activities, or the costs we may incur in a given period, relative to the estimated total effort or costs to satisfy the performance obligation. This results in a percentage that we multiply by the transaction price to determine the amount of revenue we recognize each period. This approach requires us to make numerous estimates and use significant judgement. If our estimates or judgements change over the course of the collaboration, they may affect the timing and amount of revenue that we recognize in the current and future periods.

Some customer contracts are sublicenses which require that we make payments to an upstream licensor related to license fees, milestones and royalties which we receive from customers. In such cases, we evaluate the determination of gross revenue as a principal versus net revenue as an agent reporting based on each individual agreement.

Deferred Revenue

10



Depending on the terms of the arrangement, we may also defer a portion of the consideration received because we have to satisfy a future obligation.

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the consolidated balance sheet. Except for royalty revenue and certain service revenue, we generally receive payment at the point we satisfy our obligation or soon after. Therefore, we do not generally carry any contract asset balance. Any fees billed in advance of being earned are recorded as deferred revenue. During the three months ended March 31, 2022 and 2021, the amount recognized as revenue that was previously deferred was $3.7 million, and $7.3 million, respectively.

Disaggregation of Revenue

The following table represents disaggregation of royalties, Captisol and contract revenue (in thousands):
Three months ended
March 31,
20222021
Royalties
Kyprolis$4,622 $4,287 
Evomela2,701 2,333 
Teriparatide injection 2,911 16 
Rylaze 1,649  
Other1,812 476 
$13,695 $7,112 
Captisol
     Captisol - Core$6,226 $1,253 
     Captisol - COVID(1)
5,896 30,019 
$12,122 $31,272 
Contract revenue
Service Revenue$5,146 $5,462 
License Fees3,086 1,043 
Milestone9,089 8,417 
Other2,555 1,844 
$19,876 $16,766 
Total$45,693 $55,150 
(1) Captisol - COVID represents revenue on Captisol supplied for use in formulation with remdesivir, an antiviral treatment for COVID-19.
11



Short-term Investments
Our short-term investments consist of the following at March 31, 2022 and December 31, 2021 (in thousands):
Amortized costGross unrealized gainsGross unrealized lossesEstimated fair value
March 31, 2022
     Bank deposits$6,231 $ $(50)$6,181 
     Corporate bonds4,899  (84)4,815 
     Commercial paper    
     Corporate equity securities5,807 344 (3,043)3,108 
     Mutual fund152,253  (854)151,399 
US government securities3,245  (74)3,171 
     Warrants 187  187 
$172,435 $531 $(4,105)$168,861 
      Viking common stock20,145 
Total short-term investments$189,006 
December 31, 2021
     Bank deposits$63,389 $13 $(21)$63,381 
     Corporate bonds29,308 17 (38)29,287 
     Commercial paper36,008 2 (12)35,998 
     Corporate equity securities5,807 402 (2,027)4,182 
     Mutual fund152,136  (249)151,887 
     US government securities5,577  (23)5,554 
     Warrants 408  408 
$292,225 $842 $(2,370)$290,697 
     Viking common stock30,889 
Total short-term investments$321,586 


Gain (loss) from short-term investments in our condensed consolidated statements of operations includes both realized and unrealized gain (loss) from our short-term investments in public equity and warrant securities.

Allowances are recorded for available-for-sale debt securities with unrealized losses. This limits the amount of credit losses that can be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases. The provisions of the credit losses standard did not have a material impact on our available-for-sale debt securities during the three months ended March 31, 2022.

The following table summarizes our available-for-sale debt securities by contractual maturity (in thousands):
March 31, 2022
Amortized CostFair Value
Within one year$10,095 $10,011 
After one year through five years6,523 6,398 
Total$16,618 $16,409 

Our investment policy is capital preservation and we only invest in U.S.-dollar denominated investments. We held a total of 13 positions which were in an unrealized loss position as of March 31, 2022. We believe that we will collect the principal and interest due on our debt securities that have an amortized cost in excess of fair value. The unrealized losses are largely due to changes in interest rates and not to unfavorable changes in the credit quality associated with these securities that impacted our assessment on collectability of principal and interest. We do not intend to sell these securities and it is not more-likely-than-not that we will be required to sell these securities before the recovery of the amortized cost basis. Accordingly, no credit losses were recognized for the three months ended March 31, 2022.
12




Accounts Receivable and Allowance for Credit Losses

Our accounts receivable arise primarily from sales on credit to customers. We establish an allowance for credit losses to present the net amount of accounts receivable expected to be collected. The allowance is determined by using the loss-rate method, which requires an estimation of loss rates based upon historical loss experience adjusted for factors that are relevant to determining the expected collectability of accounts receivable. Some of these factors include macroeconomic conditions that correlate with historical loss experience, delinquency trends, aging behavior of receivables and credit and liquidity quality indicators for industry groups, customer classes or individual customers. During the three months ended March 31, 2022, we considered the current and expected future economic and market conditions including, but not limited to, the anticipated unfavorable impacts of the COVID-19 pandemic on our business and recorded an adjustment of $(0.1) million of allowance for credit losses, respectively, as of March 31, 2022.

Inventory

Inventory, which consists of finished goods, is stated at the lower of cost or net realizable value. We determine cost using the first-in, first-out method or the specific identification method.

We analyze our inventory levels periodically and write down inventory to net realizable value if it has become obsolete, has a cost basis in excess of its expected net realizable value or is in excess of expected requirements. There were no write-downs related to obsolete inventory recorded for the three months ended March 31, 2022 and 2021. As of March 31, 2022 inventory consists of Captisol prepayments of $21.1 million, and as of December 31, 2021 inventory consists of Captisol prepayments of $24.6 million.

Goodwill and Other Identifiable Intangible Assets

Goodwill and other identifiable intangible assets consist of the following (in thousands):

March 31,December 31,
20222021
Indefinite-lived intangible assets
     Goodwill$181,206 $181,206 
Definite lived intangible assets
     Complete technology281,097 280,617 
          Less: accumulated amortization(82,861)(78,991)
     Trade name2,642 2,642 
          Less: accumulated amortization(1,477)(1,444)
     Customer relationships40,700 40,700 
          Less: accumulated amortization(18,934)(18,267)
     Contractual relationships362,000 362,000 
          Less: accumulated amortization(43,460)(36,217)
Total goodwill and other identifiable intangible assets, net$720,913 $732,246 

Commercial License Rights

Commercial license rights consist of the following (in thousands):
March 31, 2022December 31, 2021
Gross
Adjustments(1)
NetGross
Adjustments(2)
Net
Aziyo and CorMatrix$17,696 $(9,456)$8,240 $17,696 $(9,461)$8,235 
Selexis and Dianomi10,602 (8,721)1,881 10,602 (8,727)1,875 
    Total$28,298 $(18,177)$10,121 $28,298 $(18,188)$10,110 
(1) Amounts represent accumulated amortization to principal of $11.7 million and credit loss adjustments of $6.5 million as of March 31, 2022.
(2) Amounts represent accumulated amortization to principal of $11.7 million and credit loss adjustments of $6.5 million as of December 31, 2021.

Commercial license rights represent a portfolio of future milestone and royalty payment rights acquired from Selexis, S.A. (Selexis) in April 2013 and April 2015, CorMatrix Cardiovascular, Inc. (CorMatrix) in May 2016, which was later acquired by Aziyo in 2017, and Dianomi Therapeutics, Inc. (Dianomi) in January 2019. Commercial license rights acquired are accounted
13



for as financial assets in accordance with ASC 310, Receivables, as further discussed in Note 1, Basis of Presentation and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements in our 2021 Annual Report.

We estimated the credit losses at the individual asset level by considering the performance against the programs, the company operating performance and the macroeconomic forecast. In addition, we have judgmentally applied credit loss risk factors to the future expected payments with consideration given to the timing of the payment. Given the higher inherent credit risk associated with longer term receivables, we applied a lower risk factor to the earlier years and progressively higher risk factors to the later years. During the three months ended March 31, 2022, we further considered the current and expected future economic and market conditions surrounding the novel coronavirus (COVID-19) pandemic and concluded no further adjustment was needed on the allowance for credit losses as of March 31, 2022.

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):
March 31,December 31,
20222021
Compensation$3,620 $6,532 
Professional fees3,974 2,046 
Amounts owed to former licensees2,677 630 
Royalties owed to third parties 149 
Return reserve 2,420 
Acquisition related liabilities 1,000 
Subcontractor1,757 1,759 
Supplier1,697 848 
Accrued interest394 291 
Other1,758 1,904 
     Total accrued liabilities$15,877 $17,579 

Share-Based Compensation

Share-based compensation expense for awards to employees and non-employee directors is a non-cash expense and is recognized on a straight-line basis over the vesting period. The following table summarizes share-based compensation expense recorded as components of research and development expenses and general and administrative expenses for the periods indicated (in thousands):
Three months ended
March 31,
20222021
SBC - Research and development expenses$3,914 $3,939 
SBC - General and administrative expenses5,130 4,466 
$9,044 $8,405 

14



The fair-value for options that were awarded to employees and directors was estimated at the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions:

Three months ended
March 31,
20222021
Risk-free interest rate1.6%0.5%
Dividend yield
Expected volatility50%63%
Expected term (years)4.75

A limited amount of performance-based restricted stock units (PSUs) contain a market condition based on our relative total shareholder return ranked on a percentile basis against the NASDAQ Biotechnology Index over a three-year performance period, with a range of 0% to 200% of the target amount granted to be issued under the award. Share-based compensation cost for these PSUs is measured using the Monte-Carlo simulation valuation model and is not adjusted for the achievement, or lack thereof, of the performance conditions.

Net Income (Loss) Per Share

Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed based on the sum of the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Diluted net loss per share is computed based on the sum of the weighted average number of common shares outstanding during the period.

Potentially dilutive common shares consist of shares issuable under the 2023 Notes, stock options and restricted stock. The 2023 Notes have a dilutive impact when the average market price of our common stock exceeds the maximum conversion price. It is our intent and policy to settle conversions through combination settlement, which involves payment in cash equal to the principal portion and delivery of shares of common stock for the excess of the conversion value over the principal portion. Potentially dilutive common shares from stock options and restricted stock are determined using the average share price for each period under the treasury stock method. In addition, the following amounts are assumed to be used to repurchase shares: proceeds from exercise of stock options and the average amount of unrecognized compensation expense for the awards. See Note 4, Convertible Senior Notes and Note 6, Stockholders’ Equity.

The following table presents the calculation of weighted average shares used to calculate basic and diluted earnings per share (in thousands):

Three months ended
March 31,
20222021
Weighted average shares outstanding:16,824 16,435 
Dilutive potential common shares:
     Restricted stock 112 
     Stock options 701 
Shares used to compute diluted income per share16,824 17,248 
Potentially dilutive shares excluded from calculation due to anti-dilutive effect6,001 4,277 

For the three months ended March 31, 2022, due to the net loss for the period, all of the 0.4 million weighted average equity awards and 1.8 million of potentially dilutive shares in connection with the adoption of ASU 2020-06 were anti-dilutive. Under the new standard, we are required to reflect the dilutive effect of the 2023 Notes by application of the if-converted method.


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2. Segment Information

ASC 280, Segment reporting, establishes annual and interim reporting standards for an enterprise’s operating segments and related disclosures about its products, services, geographic areas and major customers. An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenue and incur expenses, and for which discrete financial information is regularly evaluated by the chief operating decision maker in deciding how to allocate resources and assess performance.

We are a biopharmaceutical company focused on developing or acquiring technologies that help pharmaceutical companies discover and develop medicines. Our operating segments are identified in the same manner as they are reported internally and used by our chief operating decision maker for the purpose of evaluating performance and allocating resources. Historically, we have disclosed one reportable segment. On March 23, 2022, we entered into the Merger Agreement, pursuant to which APAC will combine with OmniAb, and acquire the OmniAb Business, in a Reverse Morris Trust transaction. Immediately prior to the Merger and pursuant to the Separation Agreement, we will, among other things, transfer the OmniAb Business, including but not limited to the equity interests of Ab Initio Biotherapeutics, Inc., Crystal Bioscience, Inc., Icagen, LLC, Taurus Biosciences, LLC and xCella Biosciences, Inc. to OmniAb (the “Reorganization”) and, in connection therewith, will distribute (the “Distribution”) to Ligand stockholders 100% of the common stock of OmniAb. Immediately following the Distribution, Merger Sub will merge with and into OmniAb (the “Merger”), with OmniAb continuing as the surviving company in the Merger and as a wholly owned subsidiary of APAC.

In connection with the execution of the Merger Agreement, we have made organizational changes to better align our organizational structure with our strategy and operations, and management has reorganized the reportable segments to better reflect how the business is evaluated by the chief operating decision maker. Beginning in the first quarter of 2022, we operate the following two reportable segments: (1) OmniAb business and (2) Ligand core business. The OmniAb business segment is focused on enabling the discovery of therapeutic candidates for our partners by pairing antibody repertoires generated from our proprietary transgenic animals with our OmniAb business platform screening tools. The Ligand core business segment is a biopharmaceutical business focused on developing or acquiring technologies that help pharmaceutical companies deliver and develop medicines.

Our chief operating decision maker relies on internal management reporting processes that provide revenue and operating income by reportable segment for making financial decisions and allocating resources. Segment operating income (loss) represents income (loss) before income taxes, interest income, interest expense, other income (expense), net, unallocated share-based compensation, and unallocated corporate overhead. Our management does not evaluate, manage or measure performance of segments using asset information; accordingly, asset information by segment is not prepared or disclosed.

The following table provides a reconciliation of revenue and operating income by reportable segment to consolidated results and was derived from each segment’s internal financial information as used for corporate management purposes (in thousands):

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Three Months Ended March 31,
20222021
OmniAb business revenue
  Royalties$263 $ 
  Contract8,915 8,559 
Total OmniAb business revenue
9,178 8,559 
Ligand core business revenue
  Royalties13,432 7,112 
  Captisol - Core 6,226 1,253 
  Captisol - COVID5,896 30,019 
  Contract10,961 8,207 
 Total Ligand core business revenue36,515 46,591 
     Total revenue$45,693 $55,150 
Segment operating income (loss)
OmniAb business
$(6,189)$(4,604)
Ligand core business9,991 18,446 
Total segment operating income3,802 13,842 
Unallocated corporate items
Shared-based compensation5,657 4,870 
Other corporate expenses7,451 4,257 
  Total unallocated corporate items13,108 9,127 
Income (loss) from operations$(9,306)$4,715 



3. Fair Value Measurements

Assets and Liabilities Measured on a Recurring Basis

The following table presents the hierarchy for our assets and liabilities measured at fair value (in thousands):
March 31, 2022December 31, 2021
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets:
Short-term investments, excluding Viking(1)
$6,279 $162,394 $188 $168,861 $9,735 $280,553 $409 $290,697 
Investment in Viking common stock20,145   20,145 30,889   30,889 
     Total assets$26,424 $162,394 $188 $189,006 $40,624 $280,553 $409 $321,586 
Liabilities:
CyDex contingent liabilities$ $ $334 $334 $ $ $349 $349 
Metabasis contingent liabilities(2)
 2,782  2,782  3,358  3,358 
Icagen contingent liabilities(3)
  5,376 5,376   7,364 7,364 
xCella contingent liabilities(4)
  480 480     
Amounts owed to former licensor75   75 86   86 
     Total liabilities$75 $2,782 $6,190 $9,047 $86 $3,358 $7,713 $11,157 

1.Excluding our investment in Viking, our short-term investments in marketable debt and equity securities are classified as available-for-sale securities based on management's intentions and are at level 2 of the fair value hierarchy, as these investment securities are valued based upon quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. Short-term investments in mutual funds are valued at their net asset value (NAV) on the last day of the period. We have classified marketable securities with original maturities of greater than one year as short-term investments based upon our ability and intent to use any and all of those marketable securities to satisfy the liquidity needs of our current operations. In addition, we have investment in warrants resulting from Seelos Therapeutics Inc. milestone payments that were settled in shares during the first quarter of 2019 and are at level 3 of the fair value hierarchy, based on Black Scholes value estimated by management on the last day of the period.
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2.In connection with our acquisition of Metabasis in January 2010, we issued Metabasis stockholders