LIGAND PHARMACEUTICALS INC [LGND] Filings

10-Q 1 lgnd-20240930.htm 10-Q lgnd-20240930

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 September 30, 2024


☐			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

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.)

555 Heritage Drive, Suite 200
Jupiter
Florida			33458
(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 Filer

☐

Smaller 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 November 5, 2024, the registrant had 18,895,373 shares of common stock outstanding.

LIGAND PHARMACEUTICALS INCORPORATED

QUARTERLY REPORT

FORM 10-Q

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	ITEM 1. Condensed Consolidated Financial Statements (unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Comprehensive Income (Loss)	6
	Condensed Consolidated Statements of Stockholders' Equity	7
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Condensed Consolidated Financial Statements	11
	ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	32
	ITEM 3. Quantitative and Qualitative Disclosures about Market Risk	39
	ITEM 4. Controls and Procedures	39
PART II. OTHER INFORMATION
	ITEM 1. Legal Proceedings	39
	ITEM 1A. Risk Factors	40
	ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	40
	ITEM 3. Defaults Upon Senior Securities	40
	ITEM 4. Mine Safety Disclosures	40
	ITEM 5. Other Information	40
	ITEM 6. Exhibits	42
	SIGNATURE	42


GLOSSARY OF TERMS AND ABBREVIATIONS
Abbreviation			Definition
2023 Annual Report			Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 29, 2024
2023 Notes			$750.0 million aggregate principal amount of convertible senior unsecured notes due 2023
APAC			Avista Public Acquisition Corp. II (prior to its domestication in Delaware and change of name to OmniAb, Inc.)
ASC			Accounting Standards Codification
ASU			Accounting Standards Update
Company			Ligand Pharmaceuticals Incorporated, including subsidiaries
CVR			Contingent value right
CyDex			CyDex Pharmaceuticals, Inc.
Distribution			The separation of OmniAb Business through a spin-off of OmniAb to Ligand’s shareholders of record as of October 26, 2022 on a pro rata basis
ESPP			Ligand Pharmaceuticals Incorporated Employee Stock Purchase Plan, as amended and restated, effective June 6, 2019
FASB			Financial Accounting Standards Board
FDA			Food and Drug Administration
GAAP			Generally accepted accounting principles in the United States
Ligand			Ligand Pharmaceuticals Incorporated, including subsidiaries
Merger Agreement			Agreement and Plan of Merger, dated as of March 23, 2022, among APAC, Ligand, OmniAb and Merger Sub
Merger Sub			Orwell Merger Sub, Inc., a wholly owned subsidiary of APAC
Metabasis			Metabasis Therapeutics, Inc.
NDA			New Drug Application
New OmniAb			OmniAb, Inc. (formerly known as Avista Public Acquisition Corp. II and after it domestication in Delaware)
OmniAb			OmniAb Operations, Inc. (formerly known as OmniAb, Inc. and prior to being spun off by the Company)
OmniAb Business			Ligand's antibody discovery business (prior to being spun off by the Company)
PDUFA			Prescription Drug User Fee Act
Q3 2023			The Company's fiscal quarter ended September 30, 2023
Q3 2024			The Company's fiscal quarter ended September 30, 2024
SBC			Share-based compensation expense
SEC			Securities and Exchange Commission
Separation Agreement			Separation and Distribution Agreement, dated as of March 23, 2022, among APAC, Ligand and OmniAb
Takeda			Takeda Pharmaceutical Company Limited
Travere			Travere Therapeutics, Inc.
Viking			Viking Therapeutics, Inc.

Cautionary Note Regarding Forward-Looking Statements:

You should read the following report together with the more detailed information regarding our company, our common stock and our financial statements and notes to those statements appearing elsewhere in this document.

This report contains forward-looking statements that involve a number of risks and uncertainties. Although our forward-looking statements reflect the good faith judgment of our management, these statements can only be based on facts and factors currently known by us. Consequently, these forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from results and outcomes discussed in the forward-looking statements.

Forward-looking statements can be identified by the use of forward-looking words such as “believes,” “expects,” “may,” “will,” “plan,” “intends,” “estimates,” “would,” “continue,” “seeks,” “pro forma,” or “anticipates,” or other similar words (including their use in the negative), or by discussions of future matters such as those related to our future results of operations and financial position, royalties and milestones under license agreements, Captisol material sales, product development, and product regulatory filings and approvals, and the timing thereof, the anticipated benefits from the Apeiron transaction, Ligand's status as a high-growth company, as well as other statements that are not historical.

The cautionary statements made in this report are intended to be applicable to all related forward-looking statements wherever they may appear in this report. We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Except as required by law, we assume no obligation to update our forward-looking statements, even if new information becomes available in the future. This caution is made under the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended.

PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

LIGAND PHARMACEUTICALS INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except par value)


	September 30, 2024		December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	63,619	$	22,954
Short-term investments	156,024		147,355
Accounts receivable, net	34,318		32,917
Inventory	16,740		23,969
Income taxes receivable	7,813		6,395
Current derivative assets	11,133		—
Other current assets	19,741		3,839
Total current assets	309,388		237,429
Intangible assets, net	274,905		299,606
Goodwill	105,250		103,370
Long-term portion of financial royalty assets, net	199,251		62,291
Noncurrent derivative assets	19,246		3,531
Property and equipment, net	15,094		15,607
Operating lease right-of-use assets	7,157		6,062
Finance lease right-of-use assets	2,940		3,393
Equity method investment in Primrose Bio	1,245		12,595
Other investments	11,908		36,726
Deferred income taxes, net	78		214
Other assets	8,404		6,392
Total assets	$	954,866	$	787,216
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	4,694	$	2,427
Accrued liabilities	15,600		12,467
Income taxes payable	2,108		—
Deferred revenue	1,152		1,222
Current contingent liabilities	128		256
Current operating lease liabilities	1,066		403
Current finance lease liabilities	24		7
Total current liabilities	24,772		16,782
Long-term deferred revenue	2,508		1,444
Long-term contingent liabilities	3,863		2,942
Long-term operating lease liabilities	6,267		5,755
Deferred income taxes, net	46,404		31,622
Other long-term liabilities	29,874		27,758
Total liabilities	113,688		86,303
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000 shares authorized; zero issued and outstanding at September 30, 2024 and December 31, 2023	—		—
Common stock, $0.001 par value; 60,000 shares authorized; 18,760 and 17,556 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively	19		18
Additional paid-in capital	309,341		198,696
Accumulated other comprehensive loss	1,746		(817)
Retained earnings	530,072		503,016
Total stockholders' equity	841,178		700,913
Total liabilities and stockholders' equity	$	954,866	$	787,216

See accompanying notes to unaudited condensed consolidated financial statements.

LIGAND PHARMACEUTICALS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share amounts)


	Three months ended				Nine months ended
	September 30,				September 30,
	2024		2023		2024		2023
Revenues and other income:
Revenue from intangible royalty assets	$	26,552	$	23,863	$	67,512	$	61,447
Income from financial royalty assets	5,157		25		6,454		1,026
Royalties	31,709		23,888		73,966		62,473
Captisol	6,255		8,608		22,967		24,450
Contract revenue and other income	13,848		372		27,388		16,290
Total revenues and other income	51,812		32,868		124,321		103,213
Operating costs and expenses:
Cost of Captisol	2,449		3,485		8,237		8,871
Amortization of intangibles	8,258		8,238		24,701		25,316
Research and development	5,675		5,532		17,000		19,049
General and administrative	24,475		14,656		53,049		36,798
Financial royalty assets impairment	—		—		26,491		—
Fair value adjustments to partner program derivatives	7,812		—		7,812		—
Total operating costs and expenses	48,669		31,911		137,290		90,034
Gain on sale of Pelican	—		(2,121)		—		(2,121)
Operating income (loss) from continuing operations	3,143		3,078		(12,969)		15,300
Non-operating income and expenses:
Gain (loss) from short-term investments	2,407		(13,184)		98,923		30,340
Interest income	1,347		2,263		6,124		6,018
Interest expense	(741)		(1)		(2,154)		(525)
Other non-operating expense, net	(12,495)		(4,300)		(48,206)		(4,570)
Total non-operating (expenses) income, net	(9,482)		(15,222)		54,687		31,263
(Loss) income before income taxes from continuing operations	(6,339)		(12,144)		41,718		46,563
Income tax benefit (expense)	(833)		1,871		(14,662)		(10,932)
Net (loss) income from continuing operations	(7,172)		(10,273)		27,056		35,631
Net loss from discontinued operations	—		—		—		(1,665)
Net (loss) income	$	(7,172)	$	(10,273)	$	27,056	$	33,966

Basic net (loss) income from continuing operations per share	$	(0.39)	$	(0.59)	$	1.50	$	2.07
Basic net loss from discontinued operations per share	$	—	$	—	$	—	$	(0.10)
Basic net (loss) income per share	$	(0.39)	$	(0.59)	$	1.50	$	1.97
Shares used in basic per share calculation	18,419		17,380		18,061		17,241

Diluted net (loss) income from continuing operations per share	$	(0.39)	$	(0.59)	$	1.46	$	2.00
Diluted net loss from discontinued operations per share	$	—	$	—	—		$	(0.09)
Diluted net (loss) income per share	$	(0.39)	$	(0.59)	1.46		$	1.91
Shares used in diluted per share calculation	18,419		17,380		18,574		17,784

See accompanying notes to unaudited condensed consolidated financial statements.

LIGAND PHARMACEUTICALS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)

(in thousands)


	Three months ended				Nine months ended
	September 30,				September 30,
	2024		2023		2024		2023
Net (loss) income	$	(7,172)	$	(10,273)	$	27,056	$	33,966
Unrealized net (loss) gain on available-for-sale securities, net of tax	121		23		3		40
Foreign currency translation adjustment, net of tax	2,560		—		2,560		—
Comprehensive (loss) income	$	(4,491)	$	(10,250)	$	29,619	$	34,006

See accompanying notes to unaudited condensed consolidated financial statements.

LIGAND PHARMACEUTICALS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(in thousands)


	Common Stock			Additional paid in capital		Accumulated other comprehensive loss		Retained earnings		Total stockholders' equity
	Shares	Amount
Balance at December 31, 2023	17,556	$	18	$	198,696	$	(817)	$	503,016	$	700,913
Issuance of common stock under employee stock compensation plans, net of shares withheld for payroll taxes	368	—		12,228		—		—		12,228
Share-based compensation	—	—		7,334		—		—		7,334
Unrealized loss on available-for-sale securities, net of tax	—	—		—		(93)		—		(93)
Net income	—	—		—		—		86,139		86,139
Balance at March 31, 2024	17,924	$	18	$	218,258	$	(910)	$	589,155	$	806,521
Issuance of common stock under employee stock compensation plans, net of shares withheld for payroll taxes	179	1		9,552		—		—		9,553
Share-based compensation	—	—		11,060		—		—		11,060
Unrealized net loss on available-for-sale securities, net of tax	—	—		—		(25)		—		(25)
Net loss	—	—		—		—		(51,911)		(51,911)
Balance at June 30, 2024	18,103	$	19	$	238,870	$	(935)	$	537,244	$	775,198
Issuance of common stock under employee stock compensation plans, net of shares withheld for payroll taxes	323	—		21,270		—		—		21,270
Issuance of common stock under ATM, net of commissions and fees	334	—		34,030		—		—		34,030
Share-based compensation	—	—		15,171		—		—		15,171
Unrealized net gain on available-for-sale securities, net of tax	—	—		—		121		—		121
Foreign currency translation adjustment, net of tax	—	—				2,560		—		2,560
Net loss	—	—		—		—		(7,172)		(7,172)
Balance at September 30, 2024	18,760	$	19	$	309,341	$	1,746	$	530,072	$	841,178


	Common Stock			Additional paid in capital		Accumulated other comprehensive income (loss)		Retained earnings		Total stockholders' equity
	Shares	Amount
Balance at December 31, 2022	16,951	$	17	$	147,590	$	(984)	$	450,862	$	597,485
Issuance of common stock under employee stock compensation plans, net of shares withheld for payroll taxes	183	—		(762)		—		—		(762)
Share-based compensation	—	—		5,931		—		—		5,931
Unrealized net gain on available-for-sale securities, net of tax	—	—		—		49		—		49
Final distribution of OmniAb	—	—		1,665		—		—		1,665
Net income	—	—		—		—		41,949		41,949
Balance at March 31, 2023	17,134	$	17	$	154,424	$	(935)	$	492,811	$	646,317
Issuance of common stock under employee stock compensation plans, net of shares withheld for payroll taxes	218	—		9,110		—		—		9,110
Share-based compensation	—	—		7,207		—		—		7,207
Unrealized net loss on available-for-sale securities, net of tax	—	—		—		(32)		—		(32)
Net income	—	—		—		—		2,290		2,290
Balance at June 30, 2023	17,352	$	17	$	170,741	$	(967)	$	495,101	$	664,892
Issuance of common stock under employee stock compensation plans, net of shares withheld for payroll taxes	69	1		3,284		—		—		3,285
Share-based compensation	—	—		6,884		—		—		6,884
Unrealized net gain on available-for-sale securities, net of tax	—	—		—		23		—		23
Tax return to provision	—	—		3,085		—		—		3,085
Net loss	—	—		—		—		(10,273)		(10,273)
Balance at September 30, 2023	17,421	$	18	$	183,994	$	(944)	$	484,828	$	667,896

See accompanying notes to unaudited condensed consolidated financial statements.

LIGAND PHARMACEUTICALS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)


	Nine months ended
	September 30,
	2024		2023
Cash flows from operating activities:
Net income	$	27,056	$	33,966
Adjustments to reconcile net income to net cash provided by operating activities:
Change in estimated fair value of contingent liabilities	993		132
Depreciation and amortization of intangible assets	26,612		27,605
Amortization of premium on investments, net	(725)		(938)
Amortization of debt discount and issuance fees	314		159
Non-cash income from financial royalty assets	(4,687)		(883)
CECL adjustment to financial royalty assets	(3,463)		3,190
Impairment loss of financial royalty assets	26,491		924
Loss on derivative assets	14,655		—
Gain on sale of Pelican	—		(2,121)
Losses from equity method investment in Primrose Bio	11,576		—
Fair value adjustment to Primrose Bio securities investments	25,788		—
Share-based compensation	33,565		20,022
Deferred income taxes	(3,108)		6,761
Gain from short-term investments	(98,923)		(30,340)
Lease amortization expense	1,555		1,231
Other	3,123		215
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	(794)		(5,436)
Inventory	7,053		(11,577)
Accounts payable and accrued liabilities	2,617		(7,461)
Income tax receivable and payable	(607)		5,818
Deferred revenue	(1,172)		226
Other assets and liabilities	657		19
Net cash provided by operating activities	68,576		41,512

Cash flows from investing activities:
Acquisition of financial royalty assets	(17,819)		—
Proceeds from financial royalty assets	4,892		349
Purchase of short-term investments	(133,629)		(107,262)
Proceeds from sale of short-term investments	189,563		96,318
Proceeds from maturity of short-term investments	27,751		37,941
Cash paid for investment in Primrose Bio	(998)		(15,235)
Cash paid for Palvella notes receivable	(2,500)		—
Cash paid for Novan acquisition, net of restricted cash received	—		(10,405)
Cash paid for the Agenus transaction	(75,000)		—
Cash paid for Apeiron acquisition, net of cash received	(91,996)		—
Cash paid for InvIOs investment	(4,196)		—
Purchase of property and equipment	(1,109)		(3,104)
Net cash (used in) provided by investing activities	(105,041)		(1,398)

Cash flows from financing activities:
Proceeds from ATM sales, net of commissions and fees	34,030		—
Repayment at maturity/repurchase of 2023 Notes	—		(76,854)
Payments under finance lease obligations	(19)		(40)
Net proceeds from stock option exercises and ESPP	46,251		15,922
Taxes paid related to net share settlement of equity awards	(3,201)		(4,290)
Cash paid for debt issuance costs	(308)		—
Net cash provided by (used in) financing activities	76,753		(65,262)
Effect of exchange rate changes on cash and cash equivalents	377		—
Net increase in cash and cash equivalents	40,665		(25,148)
Cash and cash equivalents at beginning of period	22,954		45,006
Cash and cash equivalents at end of period	$	63,619	$	19,858


Supplemental disclosure of cash flow information:
Interest paid	$	262	$	288
Taxes paid	$	17,346	$	10
Restricted cash in other assets	$	—	$	583
Acquisitions:
Fair value of tangible assets acquired, net of cash and restricted cash received	$	8,965	$	17,887
Goodwill	—		3,709
Financial royalty assets	106,156		—
Intangible assets	—		10,700
Liabilities assumed	(23,125)		(21,891)
Net cash paid for acquisitions	$	91,996	$	10,405

Supplemental schedule of non-cash activity:
Accrued Primrose transaction costs	$	—	$	1,013

Addition of right-of-use assets and lease liabilities	$	1,769	$	—
Accrued fixed asset purchases	$	289	$	409
Accrued debt issuance costs	$	8	$	—
Unrealized gain on AFS investments, net of tax	$	3	$	40

See accompanying notes to unaudited condensed consolidated financial statements.

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

Business

We are a biopharmaceutical company enabling scientific advancement through supporting the clinical development of high-value medicines. We do this by providing financing, licensing our technologies or both. We operate in one reportable segment: development and licensing of biopharmaceutical assets.

Basis of Presentation

Our unaudited 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 2023 Annual Report. Interim financial results are not necessarily indicative of the results that may be expected for the full year.

Reclassification

Certain reclassifications have been made to the previously issued audited consolidated financial statements to conform with the current period presentation. Specifically, within the consolidated balance sheet as of December 31, 2023, our commercial license and other economic rights line has been reclassified to long-term portion of financial royalty assets, net, and to other assets, and a portion of other investments has been reclassified from other assets. Moreover, noncurrent derivative assets as of December 31, 2023, have been reclassified from other assets.

In addition, within the unaudited condensed consolidated statement of operations for the three and nine months ended September 30, 2023, royalties have been reclassified to revenue from intangible royalty assets, and a portion of the contract revenue has been reclassified to income from financial royalty assets.

Discontinued Operations

The Company determined that the spin-off of the OmniAb Business in November 2022 met the criteria for classification as a discontinued operation in accordance with ASC Subtopic 205-20, Discontinued Operations (“ASC 205-20”). Accordingly, the accompanying condensed consolidated financial statements have been updated to present the results of all discontinued operations reported as a separate component of loss in the condensed consolidated statements of operations and comprehensive loss (see Note 5, Spin-off of OmniAb). All disclosures have been adjusted to reflect continuing operations.

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 2023 Annual Report.

Use of Estimates

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

Revenue and Other Income

Our revenue is generated primarily from royalties on sales of products commercialized by our partners, Captisol material sales, income from financial royalty assets, and contract revenue for license fees, technical, regulatory and sales-based milestone payments. Other operating income is primarily related to milestone income received for financial royalty assets that have been fully amortized or where there is no underlying asset recognized on the consolidated balance sheets.

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.

Revenue from Intangible Royalty Assets

We receive royalty revenue from intangible royalty assets 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 when 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.

Income from Financial Royalty Assets

Effective January 1, 2024, we introduced a new line item “income from financial royalty assets”, which was included in “contract revenue” in prior periods. Accordingly, the prior year period amounts have been reclassified to align with the current period presentation.

We recognize income from financial royalty assets when there is a reasonable expectation about the timing and amount of cash flows expected to be collected. Income is calculated by multiplying the carrying value of the financial royalty asset by the periodic effective interest rate.

We account for financial royalty assets related to developmental pipeline or recently commercialized products on a non-accrual basis. Developmental pipeline products are non-commercialized, non-approved products that require FDA or other regulatory approval, and thus have uncertain cash flows. Newly commercialized products typically do not have an established reliable sales pattern, and thus have uncertain cash flows.

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 and Other Income

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.

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.

Other income is primarily related to milestone income received for financial royalty assets that have been fully amortized or where there is no underlying asset recognized on the consolidated balance sheets.

Deferred Revenue

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. Any fees billed in advance of being earned are recorded as deferred revenue. During the three and nine months ended September 30, 2024, the amount recognized as revenue that was previously deferred was $0.2 million and $1.2

million, respectively. During the three and nine months ended September 30, 2023, the amount recognized as revenue that was previously deferred was immaterial.

Disaggregation of Revenue

The following table represents disaggregation of royalties, Captisol and contract revenue and other income (in thousands):


	Three months ended				Nine months ended
	September 30,				September 30,
	2024		2023		2024		2023
Royalties
Kyprolis	$	11,599	$	10,537	$	27,229	$	24,862
Evomela	1,747		2,497		5,877		7,404
Teriparatide injection	2,376		2,800		6,520		9,913
Rylaze	3,886		3,678		10,070		9,315
Filspari	3,206		1,122		7,402		1,707
Vaxneuvance	1,466		1,313		3,962		2,990
Other	2,272		1,916		6,452		5,256
Revenue from intangible royalty assets	26,552		23,863		67,512		61,447
Income from financial royalty assets	5,157		25		6,454		1,026
	31,709		23,888		73,966		62,473

Captisol	6,255		8,608		22,967		24,450

Contract revenue and other income
Milestone and other	13,848		372		25,444		16,290
Other income	—		—		1,944		—
Contract revenue and other income	13,848		372		27,388		16,290

Total	$	51,812	$	32,868	$	124,321	$	103,213

Short-term Investments

Our short-term investments consist of the following at September 30, 2024 and December 31, 2023 (in thousands):



September 30, 2024	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Bond fund	$	39,512	$	—	$	(265)	$	39,247
U.S. government securities	19,051		31		—		19,082
Bank deposits	12,280		21		—		12,301
Corporate bonds	10,969		30		(3)		10,996
Commercial paper	10,591		5		(1)		10,595
Corporate equity securities	6,551		—		(6,058)		493

	$	98,954	$	87	$	(6,327)	92,714
Viking common stock							63,310
Total short-term investments							$	156,024

December 31, 2023
Bond fund	$	63,763	$	—	$	(537)	$	63,226
Bank deposits	17,165		12		(1)		17,176
Corporate bonds	14,850		40		(2)		14,888
Commercial paper	11,578		9		(1)		11,586
U.S. government securities	6,736		18		(3)		6,751
Municipal bonds	1,007		—		(4)		1,003
Corporate equity securities	5,775		—		(5,235)		540
	$	120,874	$	79	$	(5,783)	115,170
Viking common stock							32,185
Total short-term investments							$	147,355

During the nine months ended September 30, 2024, we sold 0.7 million shares of Viking common stock and recognized a realized gain of $60.0 million in total. We did not sell Viking common stock during the three months ended September 30, 2024. During the nine months ended September 30, 2023, we sold 4.5 million shares of Viking common stock and recognized a realized gain of $37.2 million in total. During the three months ended September 30, 2023, there were no sales of Viking common stock.

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 and nine months ended September 30, 2024 and 2023.

The following table summarizes our available-for-sale debt securities by contractual maturity (in thousands):


	September 30, 2024
	Amortized Cost		Fair Value
Within one year	$	91,072	$	91,152
After one year through five years	4,647		4,655
Total	$	95,719	$	95,807

Our investment policy is capital preservation and we only invest in U.S.-dollar denominated investments. We held a total of 32 investments which were in an unrealized loss position with a total of $0.01 million unrealized losses as of September 30, 2024. 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. In July 2024, we sold certain securities before the recovery of the amortized cost basis to fund the Apeiron acquisition. Accordingly, we wrote down the amortized cost of $0.05 million during the nine months ended September 30, 2024. 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 as of September 30, 2024. Accordingly, there was no credit loss recognized for the three months ended September 30, 2024. There were no credit losses recognized for the three and nine months ended September 30, 2023.

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 and nine months ended September 30, 2024, we considered the current and expected economic and market conditions and concluded a decrease of $0.01 million and a decrease of $0.13 million in the allowance for credit losses, respectively. During the three and nine months ended September 30, 2023, we considered the current and expected economic and market conditions and concluded an increase of $0.10 million and an increase of $0.14 million in the allowance for credit losses, respectively.

Inventory

Inventory, which consists of finished goods (Captisol), is stated at the lower of cost or net realizable value. We determine cost using 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 was a $0.1 million and $0.2 million write-down recorded against inventory for the three and nine months ended September 30, 2024, respectively. There was no write-down recorded against inventory for the three and nine months ended September 30, 2023. In addition to finished goods, as of September 30, 2024 and December 31, 2023, inventory included prepayments of $3.3 million and $4.6 million, respectively, to our supplier for Captisol.

Goodwill and Other Identifiable Intangible Assets

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


	September 30,		December 31,
	2024		2023
Indefinite-lived intangible assets
Goodwill	$	105,250	$	103,370
Definite lived intangible assets
Complete technology	39,249		42,911
Less: accumulated amortization	(19,072)		(20,894)
Trade name	2,642		2,642
Less: accumulated amortization	(1,810)		(1,710)
Customer relationships	29,600		29,600
Less: accumulated amortization	(20,280)		(19,161)
Contractual relationships	360,000		360,000
Less: accumulated amortization	(115,424)		(93,782)
Total goodwill and other identifiable intangible assets, net	$	380,155	$	402,976

Financial Royalty Assets, net (formerly known as Commercial License Rights)

Financial royalty assets represent a portfolio of future milestone and royalty payment rights acquired that are passive in nature (i.e., we do not own the intellectual property or have the right to commercialize the underlying products).

Although a financial royalty asset does not have the contractual terms typical of a loan (such as contractual principal and interest), we account for financial royalty assets under ASC 310, Receivables. Our financial royalty assets are classified similar to loans receivable and are measured at amortized cost using the prospective effective interest method described in ASC 835-30 Imputation of Interest.

The effective interest rate is calculated by forecasting the expected cash flows to be received over the life of the asset relative to the initial invested amount. The effective interest rate is recalculated in each reporting period as the difference between expected cash flows and actual cash flows are realized and as there are changes to expected future cash flows.

The gross carrying value of a financial royalty asset is made up of the opening balance, or net purchase price for a new financial royalty asset, which is increased by accrued interest income (except for assets under the non-accrual method) and decreased by cash receipts in the period to arrive at the ending balance.

We evaluate financial royalty assets for recoverability on an individual basis by comparing the effective interest rate at each reporting date to that of the prior period. If the effective interest rate is lower for the current period than the prior period, and if the gross cash flows have declined (expected and collected), we record provision expense for the change in expected cash flows. The provision is measured as the difference between the financial royalty asset’s amortized cost basis and the net present value of the expected future cash flows, calculated using the prior period’s effective interest rate.

In addition to the above allowance, we recognize an allowance for current expected credit losses under ASC 326, Financial Instruments – Credit Losses on our financial royalty assets. The credit rating, which is primarily based on publicly available data and updated quarterly, is the primary credit quality indicator used to determine the credit loss provision.

The carrying value of financial royalty assets is presented net of the cumulative allowance for changes in expected future cash flows and expected credit losses. The initial amount and subsequent revisions in allowances for changes in expected future cash flows and expected credit losses are recorded as part of general and administrative expenses on the condensed consolidated statements of operations.

When we are reasonably certain that a part of a financial royalty asset’s net carrying value (or all of it) is not recoverable, we recognize a permanent impairment which is recorded in a financial royalty asset impairment on the condensed consolidated statements of operations. To the extent there was an allowance previously recorded for this asset, the amount of such impairment is written off against the allowance at the time that such a determination is made. Any future recoveries from such impairment are recognized when cash is collected in a respective period earnings.

The current portion of financial royalty assets represents an estimation for current quarter royalty receipts which are collected during the subsequent quarter. This portion is presented in other current assets on our consolidated balance sheets, net of the allowance for expected credit losses.

For additional information, see Note 6, Financial Royalty Assets, net (formerly known as Commercial License Rights).

Derivative Assets

Derivative assets include instruments used for risk-management purposes, and other instruments. Derivative assets which are not used for risk management purposes, include: (a) acquired rights in future milestone and royalty payments from Agenus Partnered Programs (as defined below), (b) Agenus Warrant (as defined below), (c) option to invest up to $25 million to milestone and royalty rights which expires on June 30, 2025 ("Upsize Option"), and (d) rights to receive from Primrose Bio 50% of milestones on two contracts previously entered into by Primordial Genetics.

In addition, we have entered into a collar arrangement to hedge against the fluctuation risk in Viking's share price (the “Viking Share Collar”). However, because the Viking stock investment is remeasured at fair value through earnings under ASC 321, the Viking Share Collar is not eligible for hedge accounting, but is considered as an economic hedge. All derivatives are measured at fair value on the consolidated balance sheets.

Derivative assets consist of the following (in thousands):


	September 30,		December 31,
	2024		2023
Agenus Upsize Option (expires on 6/30/25)	$	3,815	$	—
Viking shares collar	7,318		—
Total current derivative assets	$	11,133	$	—

Primrose mRNA	$	2,921	$	3,531
Agenus Partner Programs	14,099		—
Agenus Warrant (5 years contractual term)	2,226		—
Total noncurrent derivative assets	$	19,246	$	3,531

A change in the fair value of the Viking Shares Collar that amounted to $(7.9) million and $7.3 million during the three and nine months ended September 30, 2024, respectively, are included in gain (loss) from short-term investments within the condensed consolidated statements of operations. A change in the fair value of Agenus Partner Programs that amounted to $(7.2) million during the three and nine months ended September 30, 2024 is included in fair value adjustments to partner program derivatives within the condensed consolidated statements of operations. A change in the fair value of other derivatives that amounted to $(8.0) million and $(6.8) million during the three and nine months ended September 30, 2024, respectively, are recognized in other non-operating expense, net within the condensed consolidated statements of operations. We acquired the Primrose mRNA derivative on September 18, 2023 with the sale of Pelican business and investment in Primrose Bio transaction. A change in the fair value of the Primrose mRNA derivative that amounted to $(0.6) million during the three and nine months ended September 30, 2024 is included in fair value adjustments to partner program derivatives within the condensed consolidated statements of operations. We did not have any other derivative instruments during the three and nine months ended September 30, 2023.

Equity Method Investment

Investments that we do not consolidate but in which we have significant influence over the operating and financial policies of the investee are classified as equity method investments and are accounted for using the equity method of accounting.

In applying the equity method of accounting, investments are initially recorded at cost and are subsequently adjusted based on our proportionate share of net income or loss of the investee, net of any distributions received from the investee and any impairment.

Other Investments

Other investments represent our investments in equity securities of third parties in which we do not have control or significant influence. Our equity securities investments do not have a readily determinable or estimable fair value and are measured using the measurement alternative, which is cost less impairment, if any, and adjustments resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. The amount of such impairment or adjustment recognized during the period is presented in other non-operating income (expense) in our condensed consolidated statements of operations.

Other investments consist of the following (in thousands):


	September 30,		December 31,
	2024		2023
Equity securities in Primrose Bio	$	6,712	$	32,726
InvIOs investment	4,196		—
Neuritek warrants	—		3,000
Palvella Series C preferred stock	1,000		1,000
Total other investments	$	11,908	$	36,726

During the three months ended September 30, 2024, we recognized a full impairment for our investment in Neuritek warrants.

Other Assets and Other Current Assets

Other assets include economic rights related to the 2023 expansion of our strategic partnership with Palvella to accelerate Phase 3 development of QTORIN rapamycin for the treatment of Microcystic Lymphatic Malformations (“Microcystic LMs”). According to the terms of the second amendment to our development funding and royalties agreement with Palvella (the “Palvella Second Amendment”). Palvella received an upfront payment of $5 million from Ligand. In return for the upfront payment, among other contractual changes, the tiered royalty payable by Palvella to Ligand was increased to between 8.0% and 9.8% based on annual aggregate worldwide net sales of QTORIN rapamycin. We are not obligated to provide additional funding to Palvella for development or commercialization of QTORIN.

We determined the economic rights related to Palvella should be characterized as a funded research and development arrangement, because the contract designated the funds usage for research and development activities, and thus we account for them in accordance with ASC 730-20, Research and Development Arrangement. We reduce our asset as the funds are expended by Palvella. As of September 30, 2024, of the $5 million upfront funding related to the Palvella Second Amendment, $0.7 million of the funding to Palvella was expended. Our CEO and director, Todd Davis, is a director of Palvella. Mr. Davis recused himself from both board's consideration of the agreement between us and Palvella, including any financial analysis, the terms of the Palvella Second Amendment and the vote to approve the Palvella Second Amendment and the related transactions.

In June 2024, we funded Palvella $2.5 million in exchange for a convertible note with a maturity of three years, which is included in other assets in the condensed consolidated balance sheets.

Other current assets primarily include $2.3 million Employee Retention Credit, $6.6 million current portion of financial royalty assets (disclosed in Note 6, Financial Royalty Assets, net), $2.2 million prepaid expenses, and inventory (raw materials and work in process related to the manufacturing of finished goods) for the preparation of commercial supplies of ZELSUVMI™ by Pelthos Therapeutics, a wholly owned subsidiary of Ligand. For additional information on ZELSUVMI, see Note 4, Acquisitions. Below is a summary of the inventory included in other current assets (in thousands):


	September 30,		December 31,
	2024		2023
Raw materials	$	2,495	$	420
Work in process	260		195
Total Pelthos inventory in other current assets	$	2,755	$	615

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):


	September 30,		December 31,
	2024		2023
Compensation	$	3,830	$	4,682
Subcontractor	1,756		1,756
Professional fees	3,296		2,394
Customer deposit	621		621
Supplier	276		303
Royalties owed to third parties	2,989		900
Amounts owed to former licensees	—		45


Other	2,832		1,766
Total accrued liabilities	$	15,600	$	12,467

Contingent Liabilities

In connection with the acquisition of CyDex in January 2011, we recorded a contingent liability for amounts potentially due to holders of the CyDex CVRs and former license holders. The liability is periodically assessed based on events and circumstances related to the underlying milestones, royalties and material sales.

In connection with the acquisition of Metabasis in January 2010, we issued Metabasis stockholders four tradable CVRs for each Metabasis share. The fair values of the CVRs are remeasured at each reporting date through the term of the related agreement.

Any change in fair value is recorded in other non-operating expense, net within our condensed consolidated statement of operations. For additional information, see Note 7, Fair Value Measurements.

Other Long-Term Liabilities

Other long-term liabilities consist of the following (in thousands):


	September 30,		December 31,
	2024		2023
Unrecognized tax benefits	$	14,481	$	14,039
Novan (Pelthos) contract liability	15,324		13,700
Other long-term liabilities	69		19
	$	29,874	$	27,758

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				Nine months ended
	September 30,				September 30,
	2024		2023		2024		2023
SBC - Research and development expenses	$	982	$	1,639	$	2,588	$	5,362
SBC - General and administrative expenses	14,189		5,245		30,977		14,660
	$	15,171	$	6,884	$	33,565	$	20,022

The increase in share-based compensation for the three and nine months ended September 30, 2024 as compared to the prior periods are primarily due to the one-time stock compensation expense associated with the anticipated departure of our former President and Chief Operating Officer (“COO”) during the third quarter of 2024 and the new hires in 2024.

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		Nine months ended
	September 30,		September 30,
	2024	2023	2024	2023
Risk-free interest rate	4.4%	4.3%	4.3%	4.1%
Dividend yield	—	—	—	—
Expected volatility	44.7%	44.7%	44.7%	51.5%
Expected term (years)	4.7	5.2	4.7	5.3

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 (Loss) Income Per Share

Basic net (loss) income per share is calculated by dividing net (loss) income 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. Although we paid off the 2023 Notes in May 2023, it would have a dilutive impact when the average market price of our common stock exceeds the maximum conversion price during the nine months ended September 30, 2023. It was our intent and policy to settle conversions through combination settlement, which involved 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. For additional information, see Note 10, Stockholders’ Equity.

In accordance with ASC 260, Earnings per Share, if a company had a discontinuing operation, the company uses income from continuing operations, adjusted for preferred dividends and similar adjustments, as its control number to determine whether potential common shares are dilutive. The following table presents the calculation of weighted average shares used to calculate basic and diluted earnings per share (in thousands):


	Three months ended		Nine months ended
	September 30,		September 30,
	2024	2023	2024	2023
Weighted average shares outstanding:	18,419	17,380	18,061	17,241
Dilutive potential common shares:
Restricted stock	—	—	173	82
Stock options	—	—	340	302
2023 Notes	—	—	—	159
Shares used to compute diluted income (loss) per share	18,419	17,380	18,574	17,784
Potentially dilutive shares excluded from calculation due to anti-dilutive effect	1,099	4,762	1,815	4,663

For the three months ended September 30, 2024, due to the net loss for the period, the 0.7 million weighted average incremental options and restricted stock awards were anti-dilutive. For the three months ended September 30, 2023, due to the net loss for the period, the 0.3 million weighted average incremental options and restricted stock awards were anti-dilutive.

Foreign Currency Translation

The Euro is the functional currency of Apeiron and the corresponding financial statements have been translated into U.S. Dollars in accordance with ASC 830-30, Translation of Financial Statements. Assets and liabilities are translated at end-of-period rates while revenues and expenses are translated at average rates in effect during the period in which the activity took place. Equity is translated at historical rates and the resulting cumulative translation adjustments are included as a component of accumulated other comprehensive income (loss).

Accounting Standards Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The update, among other things, requires disclosure of certain significant segment expenses. We will adopt the updated accounting guidance in our Annual Report on Form 10-K for the year ending December 31, 2024. We do not expect the adoption of the new accounting guidance will have a material impact to our consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The update requires a public business entity to disclose, on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold. In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local, and foreign and by jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received. Adoption of the ASU allows for either the prospective or retrospective application of the amendment and is effective for annual periods beginning after December 15, 2024, with early adoption permitted. We have not yet completed the assessment of the impact of ASU 2023-09 on our consolidated financial statements.

In November 2024, the FASB issued ASU No. 2024-03, Income Statement—Reporting Comprehensive Income (Subtopic 220-40): Expense Disaggregation Disclosures. This update requires entities to disaggregate operating expenses into specific categories, such as salaries and wages, depreciation, and amortization, to provide enhanced transparency into the nature and

function of expenses. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, with early adoption permitted. ASU 2024-03 may be applied retrospectively or prospectively. We are currently evaluating the new guidance to determine the impact it may have on our consolidated financial statements and related disclosures.

We do not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on our consolidated financial statements or disclosures.

2. Agenus Transaction

On May 29, 2024, we closed the transactions pursuant to the $75 million purchase and sale agreement (the “Agenus Agreement”), dated May 6, 2024, among us and Agenus Inc., Agenus Royalty Fund, LLC, and Agenus Holdings 2024, LLC (collectively, “Agenus”). Under the terms of the Agenus Agreement, we received (i) 18.75% of the licensed royalties and 31.875% of the future licensed milestones paid to Agenus on six-partnered oncology programs, including BMS-986442 (Bristol Myers Squibb), AGEN2373 (Gilead Sciences), INCAGN2385 and INCAGN2390 (Incyte), MK-4830 (Merck), and UGN-301 (UroGen Pharma) (collectively referred as “Agenus Partnered Programs”), and (ii) a synthetic 2.625% royalty on future global net sales of Agenus’ novel immuno-oncology botensilimab in combination with balstilimab (“BOT/BAL”) program, collectively subject to certain events which may adjust the royalty and milestone percentages paid to us. In addition, we received the option to commit an additional $25 million in the same assets on a pro rata basis which expires on June 30, 2025 (“Upsize Option”). We have also agreed to allow Agenus to raise up to an additional $100 million bringing the total syndicated purchase price up to an aggregate of $200 million. As part of the Agenus Agreement, Agenus will grant us security over certain assets related to the programs included in the Agenus Agreement, subject to certain customary exceptions.

In connection with entry into the Agenus Agreement, Agenus issued us a 5-year warrant (“Agenus Warrant”) to purchase 867,052 shares of its common stock, at an exercise price equal to $17.30.

We accounted for all Agenus Partnered Programs, Agenus Warrant and Upsize Option as derivative assets. Upsize Option was presented within current derivative assets line (as it expires on June 30, 2025), and the other derivatives were presented in noncurrent derivative assets line in our condensed consolidated balance sheet. Agenus Partnered Programs are recognized as derivative assets under ASC 815, Derivatives and Hedging, as they have different underlyings (milestone payments and royalties). The commercial milestones and royalties are dependent on the development milestones and the commercial milestone and royalties underlyings are not determined to be predominate. The derivative assets were recorded at fair value as of May 29, 2024, and are marked to fair value at each subsequent reporting period.

The fair value of Agenus Partnered Programs derivative assets is determined as a present value of expected future cash flows adjusted for the level of risk appropriate for a respective program stage. During the three months ended September 30, 2024, certain Agenus partners discontinued development of their partnered programs. These programs may be relicensed at a later date, and Ligand would retain its economic interest upon any relicense activity.

The fair value of Agenus Warrant is determined using a Black-Scholes model. The following assumptions were used as of May 29, 2024, and September 30, 2024, respectively: expected term of 4.0 years and 3.7 years, volatility of 84% and 99%, risk-free rate of 4.7% and 3.6%, Agenus Stock price of $15.03 and $5.48.

The fair value of the Upsize Option was determined using the binomial option pricing model under which we assessed and considered the possible upwards and downwards scenarios through the expiration date of the Upsize Option.

See Note 7, Fair Value Measurements, for additional information on the Agenus Partnered Program derivative assets, Agenus Warrant, and Upsize Option.

We accounted for the acquired BOT/BAL rights as a financial royalty asset which is currently put under the non-accrual method as management cannot reliably estimate future cash flows from this program. The amount of BOT/BAL financial royalty asset was determined as a residual value from the $75 million aggregate investment amount, less fair value of all acquired derivative assets as of May 29, 2024.

3. Sale of Pelican Business and Investment in Primrose Bio

On September 18, 2023, we entered into a merger agreement, pursuant to which our subsidiary, Pelican Technology Holdings, Inc. (“Pelican”) became a wholly owned subsidiary of Primrose Bio. Primrose Bio is a private company focused on synthetic biology. Pelican has developed technology related to PET (protein expression technology) and PelicCRM197 (vaccine material), and has property and equipment, as well as leased property in San Diego, CA. As part of the transaction, we received 2,146,957 common shares, 4,278,293 preferred shares and 474,746 restricted shares of Primrose Bio. Simultaneous with the merger, we entered into a purchase and sale agreement with Primrose Bio and contributed $15 million in exchange for 50% of potential development milestones and certain commercial milestones from two contracts previously entered into by Primordial Genetics. In addition, starting January 1, 2025, we will receive 25% of sales revenue of PeliCRM197 above $3 million and 35% of all PeliCRM197 licensing revenue in perpetuity.

We retained contractual relationships utilizing the Pelican Expression Technology, including the commercial royalty rights to Jazz’s Rylaze, Merck’s Vaxneuvance and V116 vaccines, Alvogen’s Teriparatide, Serum Institute of India’s vaccine programs, including Pneumosil and MenFive vaccines, among others.

We determined that the sale of Pelican meets the definition of a deconsolidation of a business. Net assets sold together with allocated goodwill and cash consideration paid were as follows (in thousands):


Property and equipment, net	$	8,250
Intangible assets	19,895
Other assets	717
Operating lease right-of-use assets	8,693
Finance lease right-of-use assets	20
Accrued liabilities	(630)
Deferred revenue	(495)
Long-term operating lease liabilities	(8,445)
Other liabilities	(74)
Net assets sold	27,931
Allocated goodwill	4,132
Cash consideration paid	15,000
	$	47,063

Fair value of the consideration received includes the following (in thousands):


Equity method investment	$	13,706
Equity securities	32,278
Derivative assets	3,200
	$	49,184

Goodwill allocated to the selling business based on the relative fair value of the Pelican business and Ligand that was written off was $4.1 million, resulting in a $2.1 million gain on sale of Pelican recorded to income (loss) from operations for the three and nine months ended September 30, 2023.

Transaction costs of $1.2 million were allocated to the equity method investment and equity securities based on the relative fair value.

As described above, we will receive 25% of sales revenue of PeliCRM197 above $3 million and 35% of all PeliCRM197 licensing revenue in perpetuity. The considerations are under the loss recovery model and they will be measured based on the gain contingency model under ASC 450, Contingencies, and thus, will be recognized as the underlying contingencies are resolved.

In addition, we will receive 50% of potential development milestones and certain commercial milestones from two contracts previously entered into by Primordial Genetics. The considerations were recognized as derivative assets with a fair value of $3.2 million, at the disposition date, which was included in noncurrent derivative assets in our condensed consolidated balance sheet. They are recognized as derivative assets under ASC 815, Derivatives and Hedging, as they have two underlyings (development and commercial milestones) and (i) the commercial milestones are dependent on the development milestones and (ii) the commercial milestone underlying is not determined to be predominate. The derivative assets were recorded at fair value as of September 18, 2023, and will be marketed to fair value at each reporting period going forward. During the three and nine months ended September 30, 2024, a loss of $0.6 million was recorded to market the derivative assets to fair value and was included in fair value adjustments to partner program derivatives in our condensed consolidated statement of operations. For additional information, see Note 7, Fair Value Measurements.

Investments in Primrose Bio

We account for our common stock investment in Primrose Bio under the equity method as we have the ability to exercise significant influence over Primrose Bio's operating and financial results. In applying the equity method, we record the investment at fair value. Our proportionate share of net loss of Primrose Bio is recorded in our condensed consolidated statements of operations. Our equity method investments are reviewed for indicators of impairment at each reporting period and are written down to fair value if there is evidence of a loss in value that is other-than-temporary. In June 2024, Primrose Bio received an equity investment from an equity firm. In July 2024, Primrose Bio raised additional funds from another equity firm. As a result, we recognized an impairment loss on our equity method investment in the amount of $5.8 million during the nine months ended September 30, 2024. There was no impairment to our equity method investment during the three months ended September 30, 2024. Our share of the net loss of Primrose Bio for the three and nine months ended September 30, 2024 was $1.2 million and $5.8 million, respectively, which reduced Ligand's equity method investment accordingly. Any income or loss

from our equity method investments (including the impairment) is presented in other non-operating income (expense) in our condensed consolidated statement of operations.

We determined that the Series A preferred stock and reserve stock investment in Primrose Bio did not have a readily determinable fair value and therefore elected the measurement alternative in ASC 321 to subsequently record the investment at cost, less any impairments, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. When fair value becomes determinable, from observable price changes in orderly transactions, our investment will be marked to fair value. Our investment in Series A preferred stock and reserve stock has been reduced by $0.03 million and $25.79 million during the three and nine months ended September 30, 2024 in connection with the above mentioned equity funding received by Primrose Bio in June and July 2024.

Former President and Chief Operating Officer Matt Korenberg served as a board member of Primrose Bio beginning in Q4 2023. His employment with Ligand concluded in October 2024, after which Lauren Hay, Vice President of Strategic Planning & Investment Analytics, succeeded him as a board member of Primrose Bio.

4. Acquisitions

Apeiron

On July 15, 2024, we acquired all the outstanding shares of Biologics AG (“Apeiron”), including the royalty rights to QARZIBA® (dinutuximab beta) for the treatment of high-risk neuroblastoma (the “Apeiron Acquisition”) for $100.5 million base consideration. We funded the Apeiron Acquisition from our available cash on hand.

In addition to base consideration, we would also pay Apeiron shareholders an additional consideration based on future commercial and regulatory events, including up to $28.0 million if QARZIBA royalties exceed certain predetermined thresholds by either 2030 or 2034, and pay additional earn-outs on specific future events, primarily related to QARZIBA regulatory approval and commercialization in the USA.

We evaluated this acquisition in accordance with ASC 805, Business Combinations, to discern whether the assets and operations of Apeiron met the definition of a business. We accounted for this transaction as an asset acquisition.

We incurred $4.9 million of transaction costs related to the Apeiron Acquisition, which were included in the amount of total purchase consideration. Financial assets acquired and liabilities assumed in the Apeiron Acquisition were recognized at their fair values. The remaining assets acquired were recognized on a relative fair value basis.

The amount of purchase consideration was allocated to the acquisition date fair values of acquired assets and assumed liabilities as follows (in thousands):


Cash and cash equivalents	$	13,437
Contract assets (financial royalty assets)	106,156
Other assets	8,965
Accounts payable and accrued liabilities	(3,740)
Income tax payable	(1,276)
Deferred tax liabilities, net	(18,109)
Total fair value of net assets acquired	$	105,433

Contract assets acquired are accounted for as a financial royalty asset, similar to loans receivable and are measured at amortized cost using the prospective effective interest method described in ASC 835-30. The acquired contracts assets include QARZIBA and other development phase contract assets.

As QARZIBA is a commercial phase program, we are able to reasonably estimate future cash flows and, as such, we recognize income from QARZIBA financial royalty assets starting from the Apeiron Acquisition effective date, which is calculated by multiplying the carrying value of the financial royalty asset by the periodic effective interest rate. As described in Note 1, Basis of Presentation and Significant Accounting Policies, the effective interest rate is calculated by forecasting the expected cash flows to be received over the life of the asset relative to the initial invested amount. The effective interest rate is recalculated in each reporting period as the differences between expected cash flows and actual cash flows are realized and as there are changes to expected future cash flows. We account for other Apeiron development phase financial royalty assets on a non-accrual basis as there is a higher level of uncertainty over the related expected cash flows.

For tax purposes this transaction is treated as a stock purchase. As a result, we will not obtain a tax stepped-up basis in Apeiron’s underlying assets and will assume the carryover tax basis. As part of the tax purchase price accounting, deferred tax liabilities of $18.1 million have been recorded to reflect the difference between the book and tax basis of the acquired assets.

We account for the earnout liabilities in the Apeiron Acquisition in accordance with ASC450, Contingencies, and will recognize respective liability when the contingency is resolved, and the liability becomes payable. No earnout liability is recognized as of the acquisition date, and as of September 30, 2024.

In conjunction with the Apeiron Acquisition, we have also invested $4.2 million (including $0.2 million transaction costs) in InvIOs Holding AG ("InvIOs") common shares, a privately held spin-off of Apeiron. This investment was part of an €8 million (approximately $8.8 million) round with other investors which would help finance the research and development of three innovative early-stage immuno-oncology assets. Apeiron has previously outlicensed these assets to InvIOs and is entitled to future royalties and milestone payments.

As the result of this investment, we did not obtain control or significant influence in InvIOs. We determined that common stock of InvIOs did not have a readily determinable fair value and therefore elected the measurement alternative in ASC 321 to subsequently record the investment at cost, less any impairments, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. When fair value becomes determinable, from observable price changes in orderly transactions, our investment will be marked to fair value.

Novan

On September 27, 2023, we closed the transaction to acquire certain assets of Novan, Inc. (“Novan”) pursuant to the agreement we entered into with Novan on July 17, 2023 for $15.0 million in cash (which agreement contemplated Novan filing for bankruptcy relief) and provide up to $15.0 million in debtor-in-possession (“DIP”) financing inclusive of a $3.0 million bridge loan funded on the same day. Novan filed for Chapter 11 reorganization on July 17, 2023. On September 27, 2023, the bankruptcy court approved our $12.2 million bid to purchase from Novan its lead product candidate berdazimer gel, 10.3%, all other assets related to the NITRICIL technology platform and the rights to one commercial stage asset. The remaining commercial assets of Novan were to be sold to other parties pursuant to the bankruptcy court's order. The approved $12.2 million bid was credited to the $15.0 million DIP financing, with the balance of $2.8 million and accrued interest repaid to us.

The Novan acquisition was accounted for as a business combination. We recorded $3.1 million of acquisition-related costs for legal, due diligence and other costs in connection with the acquisition within operating expenses in our condensed consolidated statement of operations for the year ended December 31, 2023.

We have finalized purchase accounting for the Novan acquisition. The following table sets forth an allocation of the purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed, with the excess recorded to goodwill (in thousands):


Restricted cash	$	583
Property and equipment, net	13,054
Operating lease right-of-use asset	3,683

LIGAND PHARMACEUTICALS INC [LGND] Filings
LIGAND PHARMACEUTICALS INC [LGNZZ] Filings
LIGAND PHARMACEUTICALS INC [LGNDZ] Filings
LIGAND PHARMACEUTICALS INC [LGNXZ] Filings
LIGAND PHARMACEUTICALS INC [LGNYZ] Filings
10-Q	[2024-11]
10-Q	[2024-08]
10-Q	[2024-05-08]
10-K	[2024-02-29]
10-Q	[2023-11-09]
10-Q	[2023-08-09]
10-Q	[2023-05-08]
10-K	[2023-02-28]
10-Q	[2022-11-08]
10-Q	[2022-08-09]
10-Q	[2022-05-09]
10-K	[2022-02-28]
10-Q	[2021-11-09]
10-Q	[2021-08-03]
10-Q	[2021-05-06]
10-K	[2021-02-24]
10-Q	[2020-11-06]
10-Q	[2020-08-07]
10-Q	[2020-05-08]
10-K	[2020-02-27]
10-Q	[2019-11-08]
10-Q	[2019-08-08]
10-Q	[2019-05-09]
10-K	[2019-02-28]
10-Q	[2018-11-08]
10-Q	[2018-08-08]
10-Q	[2018-05-09]
10-K	[2018-03-01]
10-Q	[2017-11-09]
10-Q	[2017-08-09]
10-Q	[2017-05-09]
10-K	[2017-02-28]
10-Q	[2016-11-14]
10-Q	[2016-08-04]
10-Q	[2016-05-09]
10-K	[2016-02-26]
10-Q	[2015-11-09]
10-Q	[2015-08-05]
10-Q	[2015-05-11]
10-K	[2015-02-23]
10-Q	[2014-10-31]
10-Q	[2014-08-05]
10-Q	[2014-05-07]
10-K	[2014-02-24]
10-Q	[2013-11-08]
10-Q	[2013-08-01]
10-Q	[2013-05-08]
10-K	[2013-03-14]
10-Q	[2012-11-14]
10-Q	[2012-08-08]
10-Q	[2012-05-04]
10-K	[2012-02-23]

LIGAND PHARMACEUTICALS INC [LGND] Filings

LIGAND PHARMACEUTICALS INC [LGNZZ] Filings

LIGAND PHARMACEUTICALS INC [LGNDZ] Filings

LIGAND PHARMACEUTICALS INC [LGNXZ] Filings

LIGAND PHARMACEUTICALS INC [LGNYZ] Filings