XML 21 R8.htm IDEA: XBRL DOCUMENT
v3.20.2

Basis of Presentation and Summary of Significant Accounting Policies | 9 Months Ended
--- | ---
Sep. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Basis of Presentation and Summary of Significant Accounting Policies | 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 2019 Annual Report. Interim financial results are not necessarily indicative of the results that may be expected for the full year. Reclassifications Certain amounts in the prior period condensed consolidated financial statements have been reclassified to conform with the current period presentation. Specifically, effective the second quarter of 2020, we began to include our investment in Viking in “short-term investments” in the condensed consolidated balance sheet, and present “gain (loss) from short-term investments” in the condensed consolidated statements of operations to include both the gain (loss) from investment in Viking and other short-term investments, which was previously included in “other income, net”. As a result, the audited consolidated balance sheet as of December 31, 2019 and the condensed consolidated statements of operations for the three and nine months ended September 30, 2019 have been reclassified to conform to the current period presentation. Significant Accounting Policies We have described our significant accounting policies in Note 1, Basis of Presentation and Summary of Significant Accounting Policies, of Notes to Consolidated Financial Statements in our 2019 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. Impact of COVID-19 Pandemic The current COVID-19 worldwide pandemic has presented substantial public health and economic challenges and is affecting our employees and partners, patients, communities and business operations, as well as the U.S. and global economy and financial markets. International and U.S. governmental authorities in impacted regions have taken actions in an effort to slow the spread of COVID-19, including issuing varying forms of “stay-at-home” orders, and restricting business functions outside of one’s home. In response, we have restricted in-person access to our executive offices, our administrative employees are mostly working remotely, and we have limited the number of staff in our research and development laboratories and other facilities. The continued spread of the COVID-19 pandemic and the measures taken by the governments of countries have affected, and could continue to affect, our business and the business of our partners, including future disruptions to our supply chain and the manufacture or shipment of drug substance and finished drug product for Captisol, delays by us or our partners in the initiation or enrollment of patients in clinical trials, discontinuations by patients enrolled in clinical trials, difficulties launching or commercializing products and other related activities, which could delay ongoing clinical trials, increase development costs, reduce royalty revenues and have a material adverse effect on our business, financial condition and results of operations. Several of our partners have reported that their operations have been impacted including delays in research and development programs and deprioritizing clinical trials in favor of treating patients who have contracted the virus or to prevent the spread of the virus. This may lead to clinical trial protocol deviations or to discontinuation of treatment for patients who are currently enrolled in the clinical trials being conducted by us or our partners. In addition, certain of our partners have reported negative impacts on product sales which will impact our royalty revenues. Some of our partners are working to develop drugs to treat COVID-19. For example, we are supplying Captisol to partners, including Gilead for Veklury® (remdesivir), the first FDA-approved treatment for COVID-19 for the treatment of patients with COVID-19 requiring hospitalization and, as a result, we have extended our Captisol supply agreement with Gilead until September 2030 and worked to increase our manufacturing of Captisol to meet this increased demand. We believe our existing production capacity, together with our planned expansion, will provide adequate supply of Captisol and do not expect any significant risk or disruption to our supply chain for the foreseeable future. In addition, certain of our OmniAb and Vernalis partners have initiated antibody discovery programs for the potential treatment of COVID-19. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, the businesses of our partners, our results of operations and our financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact, including the timing and extent of governments reopening or further restricting activities, and the economic impact on local, regional, national and international markets. Accounting Standards Recently Adopted Credit Losses - In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326), which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables and available for sale debt securities. This standard includes our financial instruments, such as accounts receivable, investments that are generally of high credit quality, and commercial license rights. Previously, when credit losses were measured under GAAP, an entity generally only considered past events and current conditions in measuring the incurred loss. The new guidance requires us to identify, analyze, document and support new methodologies for quantifying expected credit loss estimates for our financial instruments, using information such as historical experience and current economic conditions, plus the use of reasonable supportable forecast information. We adopted ASU 2016-13 on January 1, 2020, using a modified retrospective transition method, which requires a cumulative-effect adjustment, if any, to the opening balance sheet of retained earnings to be recognized on the date of adoption with prior periods not restated. The cumulative-effect adjustment, net of tax, recorded on January 1, 2020, is approximately $5.2 million on our unaudited condensed consolidated balance sheet as of January 1, 2020. Results for periods after January 1, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported under previously applicable accounting standards. See additional disclosure on credit losses under “Short-term Investments”, “Accounts Receivable and Allowance for Credit Losses” and “Commercial License and Other Economic Rights” discussed below. Goodwill Impairment Testing - In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which eliminates the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. Under the new standard the goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount, and recognizing an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value, although it cannot exceed the total amount of goodwill allocated to that reporting unit. We adopted this standard on January 1, 2020, and the adoption did not have a material impact on our condensed consolidated financial statements. Fair Value Measurement - In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820), which modifies the disclosure requirements on fair value measurements. We adopted this standard on January 1, 2020, and the adoption did not have a material impact on our condensed consolidated financial statements. Collaborative Arrangements - In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements: Clarifying the Interaction between Topic 808 and Topic 606 (Topic 808). The new standard clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under Topic 606, Revenue from Contracts with Customers, when the counterparty is a customer for a good or service that is a distinct unit of account. The amendments also preclude entities from presenting consideration from transactions with a collaborator that is not a customer together with revenue recognized from contracts with customers. We adopted this standard on January 1, 2020, and the adoption did not have a material impact on our condensed consolidated financial statements. Income Taxes - In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. The standard is expected to reduce cost and complexity related to accounting for income taxes. The new guidance eliminates certain exceptions and clarifies and amends existing guidance to promote consistent application among reporting entities. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. Depending on the amendment, adoption may be applied on a retrospective, modified retrospective or prospective basis. We adopted this standard on a prospective basis on January 1, 2020, and the adoption did not have a material impact on our condensed consolidated financial statements. Accounting Standards Not Yet 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. The new guidance simplifies accounting for convertible instruments by removing major separation models required under current GAAP. This standard removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This standard is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020 and adoption must be as of the beginning of the Company’s annual fiscal year. We are currently evaluating the impact of this standard 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 condensed consolidated financial statements or disclosures. 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. Royalties We receive royalty revenue on sales by our partners of products covered by patents that we own. 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 sales-based royalty to be recorded 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 are adjusted for in the period in which they become known, typically the following quarter. Contract Revenue Our contract revenue includes service revenue, license fees and future contingent milestone based payments. We recognize service revenue for contracted R&D services performed for our customers over time. We measure our progress using an input method 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 we estimate it will take us to complete the activities, or costs we 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 estimates and use 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. We include contingent milestone based payments in the estimated transaction price when there is a basis to reasonably estimate the amount of the payment. These estimates are based on historical experience, anticipated results and our best judgment at the time. If the contingent milestone based payment is sales-based, 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 based milestones or receive regulatory approval, we generally recognize any contingent payments that would be due to us upon or after the development milestone or regulatory approval. Captisol Sales We recognize revenue when control of Captisol material is transferred to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied. 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. We consider a performance obligation satisfied once we have transferred control of the product, 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. We have elected to recognize the cost for freight and shipping when or after control over Captisol material has transferred to the customer as an expense in cost of Captisol. Sales tax and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. 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. 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. We use an observable price to determine the stand-alone selling price for separate performance obligations or a cost plus margin approach when one is not available. 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 a contract asset balance. Any fees billed in advance of being earned are recorded as deferred revenue. During the three and nine months ended September 30, 2020, the amount recognized as revenue that was previously deferred was $5.8 million and $8.3 million, respectively. During the three and nine months ended September 30, 2019, the amount recognized as revenue that was previously deferred was $1.0 million and $5.0 million, respectively. We expect to satisfy the performance obligations related to long-term deferred revenue within the next 3 years. Disaggregation of Revenue The following table represents disaggregation of royalties, Captisol and contract revenue (in thousands):
|  | Three months ended |  |  | Nine months ended
|  | September 30, |  |  | September 30,
|  | 2020 |  | 2019 |  |  | 2020 |  | 2019
Royalties |  |  |  |  |  |  |  |
| Kyprolis | $ | 6,923 |  |  | $ | 7,602 |  |  |  | $ | 16,809 |  |  | $ | 16,317 |
| Evomela | 1,802 |  |  | 1,515 |  |  |  | 4,577 |  |  | 3,570 |
| Other | 280 |  |  | 650 |  |  |  | 1,365 |  |  | 1,851 |
| Promacta | — |  |  | — |  |  |  | — |  |  | 14,193 |
|  | $ | 9,005 |  |  | $ | 9,767 |  |  |  | $ | 22,751 |  |  | $ | 35,931 |
Captisol |  | $ | 23,389 |  |  | $ | 6,849 |  |  |  | $ | 68,966 |  |  | $ | 24,357 |
Contract |  |  |  |  |  |  |  |
| Service Revenue | $ | 7,341 |  |  | $ | 4,548 |  |  |  | $ | 15,280 |  |  | $ | 12,990 |
| License Fees | 158 |  |  | 243 |  |  |  | 1,793 |  |  | 3,083 |
| Milestone | 960 |  |  | 2,674 |  |  |  | 4,766 |  |  | 15,425 |
| Other | 995 |  |  | 727 |  |  |  | 2,873 |  |  | 1,493 |
|  | $ | 9,454 |  |  | $ | 8,192 |  |  |  | $ | 24,712 |  |  | $ | 32,991 |
Total | $ | 41,848 |  |  | $ | 24,808 |  |  |  | $ | 116,429 |  |  | $ | 93,279 |
Short-term Investments Our investments, excluding investment in Viking, consist of the following at September 30, 2020 and December 31, 2019 (in thousands):
| September 30, 2020 |  | December 31, 2019
| Amortized cost |  | Gross unrealized gains |  | Gross unrealized losses |  | Estimated fair value |  | Amortized cost |  | Gross unrealized gains |  | Gross unrealized losses |  | Estimated fair value
Short-term investments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Bank deposits | $ | 68,226 |  |  | $ | 101 |  |  | $ | — |  |  | $ | 68,327 |  |  | $ | 411,690 |  |  | $ | 188 |  |  | $ | (3) |  |  | $ | 411,875 |
Corporate bonds | 27,125 |  |  | 102 |  |  | — |  |  | 27,227 |  |  | 63,818 |  |  | 161 |  |  | — |  |  | 63,979 |
Commercial paper | 47,943 |  |  | 60 |  |  | — |  |  | 48,003 |  |  | 210,525 |  |  | 43 |  |  | (16) |  |  | 210,552 |
Corporate equity securities | 4,484 |  |  | 415 |  |  | (2,624) |  |  | 2,275 |  |  | 4,506 |  |  | 416 |  |  | (1,850) |  |  | 3,072 |
Mutual fund | 151,513 |  |  | 204 |  |  | — |  |  | 151,717 |  |  | 250,635 |  |  | — |  |  | (249) |  |  | 250,386 |
Warrants | — |  |  | 155 |  |  | — |  |  | 155 |  |  | — |  |  | 125 |  |  | — |  |  | 125 |
| $ | 299,291 |  |  | $ | 1,037 |  |  | $ | (2,624) |  |  | $ | 297,704 |  |  | $ | 941,174 |  |  | $ | 933 |  |  | $ | (2,118) |  |  | $ | 939,989 |
In addition, as of September 30, 2020 and December 31, 2019, we recorded shares of Viking common stock we own at fair value of $33.9 million and $48.4 million, respectively, in “Short-term investments” in our consolidated balance sheets. We also own warrants to purchase up to 1.5 million shares of Viking's common stock at an exercise price of $1.50 per share. We recorded the warrants in “Short-term investments” in our consolidated balance sheet at fair value of $6.6 million and $9.9 million at September 30, 2020 and December 31, 2019, respectively. Gain (loss) from short-term investments on our condensed consolidated statements of operations includes both realized and unrealized gain (loss) from our short-term investments in public equity and warrant securities. For available-for-sale debt securities with unrealized losses, the new credit losses standard (Topic 326) now requires allowances to be recorded instead of reducing the amortized cost of the investment. This standard limits the amount of credit losses to be recognized for available-for-sale debt securities to be 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 new 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, 2020. The following table summarizes our available-for-sale debt securities by contractual maturity (in thousands):
| September 30, 2020
| Amortized Cost |  | Fair Value
Within one year | $ | 121,452 |  |  | $ | 121,610 |
After one year through five years | 21,842 |  |  | 21,947 |
After five years | — |  |  | — |
Total | $ | 143,294 |  |  | $ | 143,557 |
The following table summarizes our available-for-sale debt securities in an unrealized loss position (in thousands):
| Less than 12 months |  | 12 months or greater |  | Total
| Gross Unrealized Losses |  | Estimated Fair Value |  | Gross Unrealized Losses |  | Estimated Fair Value |  | Gross Unrealized Losses |  | Estimated Fair Value
September 30, 2020 |  |  |  |  |  |  |  |  |  |  |
Bank deposits | $ | — |  |  | $ | 5,011 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 5,011 |
Corporate bonds | (0.4) |  |  | 3,007 |  |  | — |  |  | — |  |  | (0.4) |  |  | 3,007 |
Total | $ | (0.4) |  |  | $ | 8,018 |  |  | $ | — |  |  | $ | — |  |  | $ | (0.4) |  |  | $ | 8,018 |
December 31, 2019 |  |  |  |  |  |  |  |  |  |  |
Bank deposits | $ | (3) |  |  | $ | 58,584 |  |  | $ | — |  |  | $ | — |  |  | $ | (3) |  |  | $ | 58,584 |
Commercial paper | (16) |  |  | 79,363 |  |  | — |  |  | — |  |  | (16) |  |  | 79,363 |
Total | $ | (19) |  |  | $ | 137,947 |  |  | $ | — |  |  | $ | — |  |  | $ | (19) |  |  | $ | 137,947 |
Our investment policy is capital preservation and we only invested in U.S.-dollar denominated investments. We held a total of 2 positions which were in an unrealized loss position as of September 30, 2020. 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 nor do we believe 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 and nine months ended September 30, 2020. 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, 2020, we considered the current and expected future economic and market conditions including, but not limited to, the anticipated unfavorable impacts of the surrounding novel coronavirus (COVID-19) pandemic on our business and recorded an adjustment of $(0.1) million and $0.2 million, of allowance for credit losses, respectively, as of September 30, 2020. 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. Goodwill and Other Identifiable Intangible Assets Goodwill and other identifiable intangible assets consist of the following (in thousands):
| September 30, |  | December 31,
| 2020 |  | 2019
Goodwill | $ | 102,136 |  |  | $ | 95,229 |
Definite lived intangible assets |  |  |
Complete technology | 257,317 |  |  | 242,813 |
Less: accumulated amortization(1) | (59,869) |  |  | (50,203) |
Trade name | 2,642 |  |  | 2,642 |
Less: accumulated amortization | (1,279) |  |  | (1,180) |
Customer relationships | 40,700 |  |  | 29,600 |
Less: accumulated amortization | (14,929) |  |  | (13,224) |
Total goodwill and other identifiable intangible assets, net | $ | 326,718 |  |  | $ | 305,677 |
(1) Accumulated amortization for complete technology includes immaterial amount of foreign currency translation adjustments for the complete technology acquired from the Vernalis acquisition.
Commercial License and Other Economic Rights Commercial license and other economic rights consist of the following (in thousands):
|  | September 30, 2020 |  | December 31, 2019
|  | Gross |  | Adjustments(1) |  | Net |  | Gross |  | Adjustments(2) |  | Net
Aziyo and CorMatrix |  | $ | 17,696 |  |  | $ | (9,644) |  |  | $ | 8,052 |  |  | $ | 17,696 |  |  | $ | (5,500) |  |  | $ | 12,196 |
Palvella |  | 10,000 |  |  | (10,000) |  |  | — |  |  | 10,000 |  |  | (7,492) |  |  | 2,508 |
Selexis and Dianomi |  | 10,602 |  |  | (7,820) |  |  | 2,782 |  |  | 10,602 |  |  | (5,216) |  |  | 5,386 |
Total |  | $ | 38,298 |  |  | $ | (27,464) |  |  | $ | 10,834 |  |  | $ | 38,298 |  |  | $ | (18,208) |  |  | $ | 20,090 |
(1) Amounts represent accumulated amortization to principal or research and development expenses of $21.5 million and credit loss adjustments of $6.0 million as of September 30, 2020. (2) Amounts represent accumulated amortization to principal or research and development expenses as of December 31, 2019. Commercial license and other economics rights represent a portfolio of future milestone and royalty payment rights acquired from Selexis in April 2013 and April 2015, CorMatrix in May 2016, Palvella in December 2018, and Dianomi in January 2019. Commercial license rights acquired are accounted for as financial assets and other economic rights are accounted for as funded research and developments as further discussed below. In May 2017, we entered into a Royalty Agreement with Aziyo pursuant to which we will receive royalties from certain marketed products that Aziyo acquired from CorMatrix. We account for the Aziyo commercial license right as a financial asset, and in accordance with ASC 310, Receivables, we amortize the commercial license right using the effective interest method whereby we forecast expected cash flows over the term of the arrangement to arrive at an annualized effective interest. The annual effective interest associated with the forecasted cash flows from the Royalty Agreement with Aziyo as of September 30, 2020 is 23%. Revenue is calculated by multiplying the carrying value of the commercial license right by the effective interest. In December 2018, we entered into a development funding and royalties agreement with Palvella. Pursuant to the agreement, we may receive up to $8.0 million of milestone payments upon the achievement by Palvella of certain corporate, financing and regulatory milestones for PTX-022, a product candidate being developed to treat pachyonychia congentia. In addition to the milestone payments, Palvella will pay us tiered royalties from 5.0% to 9.8% based on any aggregate annual worldwide net sales of any PTX-022 products, subject to Palvella’s right to reduce the royalty rates by making payments in certain circumstances. We paid Palvella an upfront payment of $10.0 million, which Palvella is required to use to fund the development of PTX-022. We are not obligated to provide additional funding to Palvella for the development or commercialization of PTX-022. We determined the economic rights related to Palvella should be characterized as a funded research and development arrangement, thus we account for it in accordance with ASC 730-20, Research and Development Arrangements, and reduce our asset as the funds are expended by Palvella. As of September 30, 2020, the fund has been fully expended by Palvella and our cost basis for the asset has been reduced to zero, we will recognize milestones and royalties as revenue when earned. During the second quarter of 2020, we recorded a $3.0 million milestone from Palvella under contract revenue, which has been included in our condensed consolidated statement of operations for the nine months ended September 30, 2020. We recorded a $5.5 million pre-tax reserve for credit losses upon adoption of the new credit losses on January 1, 2020. 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 nine months ended September 30, 2020, we further considered the current and expected future economic and market conditions surrounding novel coronavirus (COVID-19) pandemic and recorded an additional $0.5 million reserve for credit losses in other expense, net, in our condensed consolidated statement of operations. See further detail described in Note 1, Basis of Presentation and Summary of Significant Accounting Policies, of Notes to Consolidated Financial Statements in our 2019 Annual Report. Other Assets Other assets consist of the following (in thousands):
|  | September 30, |  | December 31,
|  | 2020 |  | 2019
Captisol manufacturing ramp up fee |  | $ | 9,215 |  |  | $ | — |
Long-term investment receivable |  | 2,000 |  |  | — |
Equity investment |  | 813 |  |  | 750 |
Deposits |  | 138 |  |  | 219 |
Other |  | 1,538 |  |  | 1,388 |
Total other assets |  | $ | 13,704 |  |  | $ | 2,357 |
Accrued Liabilities Accrued liabilities consist of the following (in thousands):
|  | September 30, |  | December 31,
|  | 2020 |  | 2019
Compensation |  | $ | 4,840 |  |  | $ | 1,986 |
Professional fees |  | 1,226 |  |  | 1,135 |
Amounts owed to former licensees |  | 407 |  |  | 381 |
Royalties owed to third parties |  | 805 |  |  | — |
Return reserve |  | 2,835 |  |  | 3,027 |
Current operating lease liabilities |  | 1,029 |  |  | 1,242 |
Accrued interest |  | 1,437 |  |  | 690 |
Other |  | 1,919 |  |  | 1,375 |
Total accrued liabilities |  | $ | 14,498 |  |  | $ | 9,836 |
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 until the last tranche vests. 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, |  |  |  |
| 2020 |  | 2019 |  | 2020 |  | 2019 |  |  |  |  |  |  |  |
SBC - Research and development expenses | $ | 3,094 |  |  | $ | 2,481 |  |  | $ | 8,510 |  |  | $ | 7,136 |  |  |  |  |  |  |  |  |
SBC - General and administrative expenses | 4,646 |  |  | 3,816 |  |  | 12,242 |  |  | 11,079 |  |  |  |  |  |  |  |  |
| $ | 7,740 |  |  | $ | 6,297 |  |  | $ | 20,752 |  |  | $ | 18,215 |  |  |  |  |  |  |  |  |
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,
| 2020 |  | 2019 |  |  | 2020 |  | 2019
Risk-free interest rate | 0.3% |  | 1.6% |  |  | 1.0% |  | 2.4%
Dividend yield | — |  | — |  |  | — |  | —
Expected volatility | 59% |  | 41% |  |  | 55% |  | 43%
Expected term | 4.9 |  | 5.3 |  |  | 4.8 |  | 5.2
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. For the three and nine months ended September 30, 2020, all of the 0.70 million and 0.65 million, respectively, weighted average shares of outstanding equity awards as of September 30, 2020 were anti-dilutive due to the net loss for the period. For the three months ended September 30, 2019, all of the 0.70 million weighted average shares of outstanding equity awards as of September 30, 2019 were anti-dilutive due to the net loss for 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 applicable conversion price of the respective notes. 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 |  |  | Nine months ended
| September 30, |  |  | September 30,
| 2020 |  | 2019 |  |  | 2020 |  | 2019
Weighted average shares outstanding: | 16,082 |  |  | 18,770 |  |  |  | 16,222 |  |  | 19,586 |
Dilutive potential common shares: |  |  |  |  |  |  |  |
Restricted stock | — |  |  | — |  |  |  | — |  |  | 35 |
Stock options | — |  |  | — |  |  |  | — |  |  | 728 |
Shares used to compute diluted income per share | 16,082 |  |  | 18,770 |  |  |  | 16,222 |  |  | 20,349 |
Potentially dilutive shares excluded from calculation due to anti-dilutive effect | 7,028 |  |  | 11,549 |  |  |  | 8,330 |  |  | 8,694 |

X
- References No definition available. + Details
Name: | us-gaap_OrganizationConsolidationAndPresentationOfFinancialStatementsAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for the organization, consolidation and basis of presentation of financial statements disclosure, and significant accounting policies of the reporting entity. May be provided in more than one note to the financial statements, as long as users are provided with an understanding of (1) the significant judgments and assumptions made by an enterprise in determining whether it must consolidate a VIE and/or disclose information about its involvement with a VIE, (2) the nature of restrictions on a consolidated VIE's assets reported by an enterprise in its statement of financial position, including the carrying amounts of such assets, (3) the nature of, and changes in, the risks associated with an enterprise's involvement with the VIE, and (4) how an enterprise's involvement with the VIE affects the enterprise's financial position, financial performance, and cash flows. Describes procedure if disclosures are provided in more than one note to the financial statements. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -URI http://asc.fasb.org/topic&trid=2122149 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 810 -URI http://asc.fasb.org/topic&trid=2197479 Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 275 -URI http://asc.fasb.org/topic&trid=2134479 + Details
Name: | us-gaap_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureAndSignificantAccountingPoliciesTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration