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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________________________________________
FORM 10-K
_____________________________________________________________________________________________

☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2021
OR

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .
Commission File No. 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) |  | (IRS Employer Identification No.)
5980 Horton Street, Suite 405 |  |
Emeryville |  |
CA |  | 94608
(Address of Principal Executive Offices) |  | (Zip Code)

Registrant’s telephone number, including area code: (858) 550-7500
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 $.001 per share | LGND | The Nasdaq Global Market

Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒
I ndicate 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 the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the Registrant’s voting and non-voting stock held by non-affiliates was approximately $1.8 billion based on the last sales price of the Registrant’s Common Stock on the Nasdaq Global Market of the Nasdaq Stock Market LLC on June 30, 2021. For purposes of this calculation, shares of Common Stock held by directors, officers and 10% stockholders known to the Registrant have been deemed to be owned by affiliates which should not be construed to indicate that any such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the Registrant or that such person is controlled by or under common control with the Registrant.
As of February 23, 2022, the Registrant had 16,852,650 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant’s 2021 Annual Meeting of Stockholders to be filed with the Commission within 120 days of December 31, 2021 are incorporated by reference in Part III of this Annual Report on Form 10-K. With the exception of those portions that are specifically incorporated by reference in this Annual Report on Form 10-K, such Proxy Statement shall not be deemed filed as part of this Report or incorporated by reference herein.

Table of Contents

Part I |
Item 1. | Business | 1
Item 1A. | Risk Factors | 25
Item 1B. | Unresolved Staff Comments | 40
Item 2. | Properties | 40
Item 3. | Legal Proceedings | 40
Item 4. | Mine Safety Disclosures | 40
Part II |
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities | 40
Item 6. | [Reserved] | 42
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 42
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | 49
Item 8. | Consolidated Financial Statements and Supplementary Data | 50
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 91
Item 9A. | Controls and Procedures | 91
Item 9B. | Other Information | 91
Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 91
Part III |
Item 10. | Directors, Executive Officers and Corporate Governance | 95
Item 11. | Executive Compensation | 95
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 95
Item 13. | Certain Relationships and Related Transactions, and Director Independence | 95
Item 14. | Principal Accountant Fees and Services | 95
Part IV |
Item 15. | Exhibits, Financial Statement Schedules | 96
Item 16. | Form 10-K - Summary | 96
Signatures | 101

GLOSSARY OF TERMS AND ABBREVIATIONS
Abbreviation | Definition
2019 Notes | $245.0 million aggregate principal amount of convertible senior unsecured notes due 2019
2023 Notes | $750.0 million aggregate principal amount of convertible senior unsecured notes due 2023
Ab Initio | Ab Initio Biotherapeutics, Inc.
Abvivo | Abvivo, LLC
Aldeyra | Aldeyra Therapeutics, Inc.
Amgen | Amgen, Inc.
ANDA | Abbreviated New Drug Application
API | Active pharmaceutical ingredient
Aptevo | Aptevo Therapeutics
Arcus | Arcus Biosciences, Inc.
ASC | Accounting Standards Codification
ASCO | American Society of Clinical Oncology
ASCT | Autologous Stem Cell Transplantation
ASU | Accounting Standards Update
Aurobindo | Aurobindo Pharma Ltd
Aziyo | Aziyo Med, LLC
Baxter | Baxter International, Inc.
BendaRx | BendaRx Corp.
Bexson Biomedical | Bexson Biomedical, Inc.
BLA | Biologics license application
CStone | CStone Pharmaceuticals (Suzhou) Co., Ltd.
CASI | CASI Pharmaceuticals, Inc.
CI-AKI | Contrast-induced acute kidney injury
Code of Conduct | Code of Conduct and Ethics Policy
CoM | Composition of Matter
Company | Ligand Pharmaceuticals Incorporated, including subsidiaries
Convertible Note | Senior Convertible Promissory Note
COPD | Chronic obstructive pulmonary disease
Cormatrix | Cormatrix Cardiovascular, Inc.
Corvus | Corvus Pharmaceuticals, Inc.
COSO | Committee of Sponsoring Organizations of the Treadway Commission
CRO | Contract Research Organization
Crystal | Crystal Bioscience, Inc.
Cumulus | Cumulus Oncology, Ltd.
CVR | Contingent value right
CyDex | CyDex Pharmaceuticals, Inc.
Daiichi Sankyo | Daiichi Sankyo Company, Ltd.
Dianomi | Dianomi Therapeutics, Inc.
DMF | Drug Master File
ESG | Environmental, Social and Governance
Eisai | Eisai Inc.
Eli Lilly | Eli Lilly and Company
ECM | Extracellular matrix
EPA | Environmental Protection Agency
ESPP | Employee Stock Purchase Plan, as amended and restated

EU | European Union
Exelixis | Exelixis, Inc.
FASB | Financial Accounting Standards Board
FDA | U.S. Food and Drug Administration
FSGS | Focal segmental glomerulosclerosis
GAAP | Generally accepted accounting principles in the United States
Genagon | Genagon Therapeutics AB
GCSF | Granulocyte-colony stimulating factor
GigaGen | GigaGen, Inc.
Gilead | Gilead Sciences, Inc.
GPCR | G-protein coupled receptor
GRA | Glucagon receptor antagonist
HanAll | HanAll Biopharma Co., Ltd.
Harbour | Harbour BioMed Shanghai Co., Ltd.
HBV | Hepatitis B Virus
Hikma | Hikma Pharmaceuticals PLC
Hovione | Hovione FarmCiencia, S.A.
Icagen | Icagen, Inc.
IPR&D | In-Process Research and Development
IRS | Internal Revenue Service
IV | Intravenous
Immunovant | Immunovant Sciences GmbH
IND | Investigational New Drug
Jazz | Jazz Pharmaceuticals, Inc.
Ligand | Ligand Pharmaceuticals Incorporated, including subsidiaries
LTP | Liver targeting prodrug
Lundbeck | Lundbeck A/S
Marinus | Marinus Pharmaceuticals, Inc.
Melinta | Melinta Therapeutics, Inc.
Merck | Merck & Co., Inc.
Metabasis | Metabasis Therapeutics, Inc.
Millennium | Millennium Pharmaceuticals, Inc.
NASH | Non-alcoholic steatohepatitis
NDA | New Drug Application
NOLs | Net Operating Losses
Novan | Novan, Inc.
Novartis | Novartis AG
Nucorion | Nucorion Pharmaceuticals, Inc.
OMT | Open Monoclonal Technology, Inc.
Ono | Ono Pharmaceutical Co., Ltd.
Opthea | Opthea Limited
Orange Book | Publication identifying drug products approved by the FDA based on safety and effectiveness
Original Interest Purchase Agreement | Interest Purchase Agreement, dated May 3, 2016, between the Company and CorMatrix Cardiovascular, Inc.
Palvella | Palvella Therapeutics, Inc.
Par | Par Pharmaceutical, Inc.
Pfenex | Pfenex Inc.

Pfizer | Pfizer, Inc.
PFS | Progression-free Survival
Pharmacopeia | Pharmacopeia, Inc.
Phoenix Tissue | Phoenix Tissue Repair
PPD | Post-Partum Depression
PSU | Performance stock unit
R&D | Research and Development
Roivant | Roivant Sciences GMBH
RSU | Restricted stock unit
SAGE | Sage Therapeutics, Inc.
SARM | Selective Androgen Receptor Modulator
SEC | Securities and Exchange Commission
Sedor | Sedor Pharmaceuticals, Inc., or RODES, Inc.
Seelos | Seelos Therapeutics, Inc.
Selexis | Selexis, SA
Sermonix | Sermonix Pharmaceuticals, LLC
SII | Serum Institute of India
SQ Innovation | SQ Innovation, Inc.
Sunshine Lake Pharma | Sunshine Lake Pharma Co., Ltd.
Takeda | Takeda Pharmaceuticals Company Limited
Talem | Talem Therapeutics LLC
Taurus | Taurus Biosciences LLC
Tax Act | The Tax Cuts and Jobs Act
Teva | Teva Pharmaceuticals USA, Inc., Teva Pharmaceutical Industries Ltd. and Actavis, LLC
Travere | Travere Inc.
TR-Beta | Thyroid hormone receptor beta
Valanbio | Valanbio Therapeutics, Inc.
VDP | Vernalis Design Platform
VentiRx | VentiRx Pharmaceuticals, Inc.
Vernalis | Vernalis plc
Verona | Verona Pharma plc
Viking | Viking Therapeutics
WuXi | WuXi Biologics Ireland Limited
WuXi Agreement | The Platform License Agreement, dated March 23, 2015, by and between Ligand and WuXi, as amended
Xi'an Xintong | Xi'an Xintong Medicine Research
X-ALD | X-linked adrenoleukodystrophy
xCella Biosciences | xCella Biosciences, Inc.
Zydus Cadila | Zydus Cadila Healthcare, Ltd

PART I
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, as well as other statements that are not historical. You should be aware that the occurrence of any of the events discussed under the caption “Risk Factors” could negatively affect our results of operations and financial condition and the trading price of our stock.
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.
References to “Ligand Pharmaceuticals Incorporated,” “Ligand,” the “Company,” “we,” “our” and “us” include Ligand Pharmaceuticals Incorporated and our wholly-owned subsidiaries.
Partner Information
Information regarding partnered products and programs comes from information publicly released by our partners and licensees.
Trademarks
Our trademarks, trade names and service marks referenced herein include Ligand®, 3 Species, 1 License®, Absolutely Omniab™, Advasep®, Animal Intelligence™, BEPro™, Biological Intelligence™, Bonsity®, Captisol®, CyDex®, Icagen®, LTP®, LTP Technology™, Naturally Optimized Human Antibodies®, OmniAb®, OmniChicken®, OmniClic®, OmniDab™, OmniDeep®, OmniFlic®, OmniMouse®, OmniRat®, OmniTaur™, Pelican Expression Technology™, PeliCRM™, Pfenex Expression Technology™, Picobodies™, Three Species, One License®, xCella Biosciences®, XPloration® and XRPro®, which are protected under applicable intellectual property laws and are our property. All other trademarks, trade names and service marks including Kyprolis®, Evomela®, Veklury®, Livogiva®, Zulresso®, Rylaze™, VAXNEUVANCE™, Pneumosil®, Minnebro®, Baxdela®, Carnexiv™, Conbriza®, Nexterone®, Noxafil® and Duavee®, are the property of their respective owners. Solely for convenience, trademarks, trade names and service marks referred to in this report may appear without the ®, ™ or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to such trademarks, trade names and service marks. Use or display by us of other parties’ trademarks, trade dress or products is not intended to and does not imply a relationship with, or endorsement or sponsorship of, us by the trademark or trade dress owners.
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Item 1. | Business

Overview
We are a biopharmaceutical company focused on developing or acquiring technologies that help pharmaceutical companies discover and develop medicines. We employ research technologies such as antibody discovery technologies, ion channel discovery technology, Pseudomonas fluorescens protein expression technology, formulation science and liver targeted pro-drug technologies to assist companies in their work toward securing prescription drug and biologic approvals. We currently have partnerships and license agreements with over 140 pharmaceutical and biotechnology companies. Over 400 programs are in various stages of commercialization, development or research and are fully funded by our collaboration partners and licensees. We have contributed novel research and technologies for approved medicines that treat cancer, osteoporosis, fungal infections and postpartum depression, among others. Our collaboration partners and licensees have programs currently in clinical development targeting cancer, seizure, diabetes, cardiovascular disease, muscle wasting, liver disease, and kidney disease, among others. We have over 1,600 issued patents worldwide.
We have assembled our large portfolio of fully-funded programs either by licensing our own proprietary drug development programs, licensing our platform technologies such as Captisol or OmniAb to partners for use with their proprietary programs, or acquiring existing partnered programs from other companies. Fully-funded programs, which we refer to as “shots on goal,” are those for which our partners pay all of the development and commercialization costs. For our internal programs, we generally plan to advance drug candidates through early-stage drug development or clinical proof-of-concept and then seek partners to continue development and potential commercialization.
Our business model creates value for stockholders by providing a diversified portfolio of biotech and pharmaceutical product revenue streams that are supported by an efficient and low corporate cost structure. Our goal is to offer investors an opportunity to participate in the promise of the biotech industry in a profitable, diversified and lower-risk business, in contrast to a typical biotech company. Our business model is based on doing what we do best: drug discovery, early-stage drug development, product reformulation and partnering. We partner with other pharmaceutical companies to leverage what they do best (late-stage development, regulatory management and commercialization) to ultimately generate our revenue. We believe that focusing on discovery and early-stage drug development while benefiting from our partners’ development and commercialization expertise will reduce our internal expenses and allow us to have a larger number of drug candidates progress to later stages of drug development.
Our revenue consists of three primary elements: royalties from commercialized products, sales of Captisol material, and contract revenue from license, milestone and other service payments. In addition to discovering and developing our own proprietary drugs, we selectively pursue acquisitions to bring in new assets, pipelines, and technologies to aid in generating additional potential new revenue streams.
Impact of COVID-19 Pandemic
Please see impact of COVID-19 pandemic described in Item 8. Consolidated Financial Statements -Note 1, “Basis of Presentation and Summary of Significant Accounting Policies”. For additional information on the various risks posed by COVID-19 pandemic, please read Item 1A. Risk Factors included in this report.
Technologies
A variety of technology platforms that enable elements of drug discovery or development form the basis of our portfolio of fully-funded shots on goal. Platform technologies or individual drugs discovered by Ligand are related to a broad estate of intellectual property that includes over 1,600 patents issued worldwide.
OmniAb Technologies
The OmniAb platform creates and screens diverse antibody pools and is designed to quickly identify optimal antibodies for our partners’ drug development efforts. We harness the power of Biological Intelligence, which we built into our proprietary transgenic animals and paired with our high-throughput screening technologies, to enable the discovery of high-quality, fully-human antibody therapeutic candidates. We believe these antibodies are high quality because they are naturally optimized in our proprietary host systems for affinity, specificity, developability and functional performance. Our partners have access to these antibody therapeutic candidates that are based on unmatched biological diversity and optimized through integration across a full range of technologies, including antigen design, transgenic animals, deep screening and characterization. We provide our partners both integrated end-to-end capabilities and highly customizable offerings, which address critical industry challenges and provide optimized antibody discovery solutions.
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As of December 31, 2021, OmniAb had 57 partners and over 250 active discovery programs, including 25 OmniAb-derived antibodies in clinical development and two approved products, including zimberelimab, which was approved in China for the treatment of recurrent or refractory classical Hodgkin’s lymphoma, and sugemalimab, which was approved in China for the first-line treatment of metastatic (stage IV) nonsmall cell lung cancer in combination with chemotherapy.
Pelican Expression Technology™ Platform
The Pelican Expression Technology platform is a robust, validated, cost-effective and scalable platform for recombinant protein production, and is especially well-suited for complex, large-scale protein production. Global manufacturers have demonstrated consistent success with the platform and the technology is currently out-licensed for multiple commercial and development-stage programs. The versatility of the platform has been demonstrated in the production of enzymes, peptides, antibody derivatives and engineered non-natural proteins. Partners seek the platform as it contributes significant value to biopharmaceutical development programs by reducing timelines and costs associated with research and development through commercial manufacturing of therapeutics and vaccines. Given pharmaceutical industry trends toward large molecules with increased structural complexities, the Pelican Expression Technology platform is well positioned to meet these growing needs as the most comprehensive and broadly available, commercially validated protein production platform in the industry.
We acquired the Pelican Expression Technology through our acquisition of Pfenex in October 2020. As of December 31, 2021, we have agreements with more than 20 partners using this technology in more than 30 active programs. Several of our partners have commercial products and late stage clinical product candidates utilizing Pelican Expression Technology.
Captisol Technology
Captisol is a patent-protected, chemically modified cyclodextrin with a structure designed to optimize the solubility and stability of drugs. Captisol was invented and initially developed by scientists in the laboratories of Dr. Valentino Stella, University Distinguished Professor at the University of Kansas’ Higuchi Biosciences Center for specific use in drug development and formulation. This unique technology has enabled several FDA-approved products, including Gilead’s Veklury®, Amgen’s Kyprolis®, Baxter International’s Nexterone®, Acrotech Biopharma L.L.C.’s and CASI Pharmaceuticals’ Evomela®, Melinta Therapeutics’ Baxdela® and Sage Therapeutics’ Zulresso® There are many Captisol-enabled products currently in various stages of development. We maintain a broad global patent portfolio for Captisol with approximately 440 issued patents worldwide relating to the technology (including 45 in the U.S.) and with the latest expiration date in 2035. Other patent applications covering methods of making Captisol, if issued, extend to 2041.
In addition to solid Captisol powder, we offer our partners access to cGMP manufactured aqueous Captisol concentrate. This product offering was established in 2017 to reduce cycle time and increase Captisol production capacity for large volume drug products. We maintain both Type IV and Type V DMFs with the FDA. These DMFs contain manufacturing and safety information relating to Captisol that our licensees can reference when developing Captisol-enabled drugs. We also have active DMFs in Japan, China and Canada. As of December 31, 2021, Captisol-enabled drugs were being marketed in more than 70 countries, and over 50 partners had Captisol-enabled drugs in development.
HepDirect, LTP, and BEPro Technology Platform
The HepDirect and LTP platforms are our proprietary liver-targeting prodrug technologies that can deliver many different chemical classes of drugs to the liver by using a chemical modification that renders an API biologically inactive until cleaved by a liver-specific enzyme. These technologies may improve the efficacy and/or safety of certain drugs and can be applied to marketed or new drug products to treat liver diseases or diseases caused by hemostasis imbalance of circulating molecules controlled by the liver. As of December 31, 2021, we had active HepDirect/LTP programs with three partners using these technologies across five programs.
The BEPro technology platform is a next generation prodrug technology distinct from HepDirect and LTP prodrug technologies, expanding use to non-liver related diseases. BEPro is specifically applicable to nucleotides and nucleotide analogs for the development of compounds with improved product profiles. Ligand has demonstrated improvements in cell penetration and oral, intravenous and inhaled pharmacokinetics with BEPro-enabled nucleotide analogs. As of December 31, 2021, we have one partner using this technology.
SUREtechnology Platform (owned by Selexis)
We acquired economic rights to various SURE technology Platform programs from Selexis. The SURE technology Platform, developed and owned by Selexis, is a novel technology that improves the way that cells are utilized in the development and manufacturing of recombinant proteins and drugs. As of December 31, 2021, we are entitled to certain economic rights to SUREtechnology Platform license agreements with 11 partners developing or having commercialized 17 programs.
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2021 and Recent Major Business Highlights
The Separation and Distribution of OmniAb Business
In November 2021, we announced plans to explore multiple paths for OmniAb to become a stand-alone public company, with the leading option under consideration at that time being an IPO and eventual distribution of OmniAb shares to Ligand shareholders. We now expect to pursue separation of OmniAb through a direct spin-off of 100% of OmniAb equity to shareholders with Ligand capitalizing the OmniAb business directly with $70 million. OmniAb expects to file a Form 10 with the Securities and Exchange Commission and complete its separation in the first half of 2022. The distribution is expected to qualify as a tax-free transaction for U.S. federal income tax purposes to both Ligand and its shareholders. The separation remains subject to final approval by Ligand’s Board of Directors, and Ligand will continue to evaluate other options to optimize value and ensure flexibility to invest in growth. There can be no assurance that this process will result in Ligand pursuing a particular transaction or consummating any such transaction, or that the anticipated benefits of a separation will materialize should the separation be completed.
OmniAb Technology Platform and Partner Updates
CStone Pharmaceuticals received approval from China’s NMPA for Celjemy® (sugemalimab), an OmniAb-derived anti-PD-L1 monoclonal antibody for the first-line treatment of advanced non-small cell lung cancer (NSCLC) in combination with chemotherapy. Sugemalimab is the second OmniAb-derived antibody to receive regulatory approval. CStone announced complete enrollment in two Phase 3 registrational clinical trials investigating sugemalimab in combination with chemotherapy for the first-line treatment of metastatic gastric adenocarcinoma/gastro-esophageal junction adenocarcinoma or esophageal squamous cell carcinoma. CStone and its partner EQRx announced the publication of positive results from two Phase 3 trials with sugemalimab in Stage III and Stage IV NSCLC in The Lancet Oncology. CStone also announced that its Phase 2 GEMSTONE-201 trial met the primary endpoint of objective response rate in patients with relapsed/refractory (R/R) extranodal natural killer/T-cell lymphoma.
Janssen submitted a BLA to the U.S. FDA in December 2021 seeking approval for teclistamab in R/R multiple myeloma. Teclistamab is an OmniAb-derived bispecific antibody targeting BCMA and CD3. Janssen also presented new data at the American Society of Hematology 2021 conference (ASH) from the MajesTEC-1 study, which showed continued deep and durable response in heavily pretreated patients with multiple myeloma. Janssen previously announced that teclistamab had received U.S. FDA Breakthrough Designation for treatment of R/R multiple myeloma.
Immunovant announced alignment with the FDA on the design of a Phase 3 trial for batoclimab in patients with myasthenia gravis. Immunovant plans to start the Phase 3 study in the first half of 2022, and also expects to initiate pivotal trials in two additional indications during 2022.
Ligand expanded an existing collaboration and license agreement with GlaxoSmithKline (GSK) to leverage Ligand’s Icagen Ion Channel Technology to target neurological diseases. Ligand received an upfront payment of $10 million and is eligible for milestones of up to $247.5 million, and tiered royalties on net sales of any drug from the collaboration commercialized by GSK.
Pelican Platform Updates
Merck announced European Commission approval of VAXNEUVANCE™ for adults 18 years of age and older. VAXNEUVANCE is a 15-valent pneumococcal vaccine utilizing CRM197 vaccine carrier protein produced using the Pelican Expression Technology platform. Additionally, Merck announced the U.S. FDA accepted for priority review the supplemental Biologics License Application (sBLA) for VAXNEUVANCE in infants and children.
Jazz Pharmaceuticals announced submission of an sBLA to the FDA seeking approval for a Monday/Wednesday/Friday (M/W/F) intramuscular dosing schedule for Rylaze™, as a component of a multi-agent chemotherapeutic regimen for the treatment of acute lymphoblastic leukemia (ALL) and lymphoblastic lymphoma (LBL) in adult and pediatric patients one month and older who have developed hypersensitivity to E. coli-derived asparaginase. Jazz presented initial results at ASH from a Phase 2/3 study of Ryalze in adult and pediatric ALL and LBL patients showing Rylaze maintained clinically meaningful level of asparaginase activity throughout the entire duration of treatment on a M/W/F dosing schedule.
Arcellx recently announced the pricing of a $123.8 million initial public offering with proceeds planned to be used to advance their pipeline. Arcellx uses the Pelican Expression Technology platform for the expression of certain proprietary sparX proteins which are used in Arcellx's ARC-SparX platform.
Captisol Technology Updates
Amgen announced U.S. FDA approval of a new Kyprolis® combination regimen with DARZALEX FASPRO and dexamethasone for patients with multiple myeloma at first or subsequent relapse. Additionally, Amgen presented results from a
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Phase 1b study at ASH showing Captisol-enabled Kyprolis in combination with vincristine, dexamethasone, PEG-asparaginase, daunorubicin (VXLD) induction therapy showed positive efficacy results in highly advanced relapsed/refractory pediatric ALL.
Gilead announced the U.S. FDA granted accelerated approval of a supplemental NDA for Veklury in non-hospitalized patients at high risk of disease progression.
Other Business Updates
Travere Therapeutics provided an update on their plans for regulatory submission of sparsentan. Travere plans to submit a NDA to the FDA seeking accelerated approval of sparsentan for IgA nephropathy in the first quarter of 2022 and for FSGS in mid-2022. Travere, in collaboration with its partner Vifor Pharma, plans to submit a combined IgA nephropathy and FSGS Marketing Authorization Application in mid-2022 seeking conditional marketing authorization in Europe.
Verona Pharma announced completion of enrollment in the Phase 3 ENHANCE-1 and ENHANCE-2 randomized trials evaluating ensifentrine for the maintenance treatment of COPD with top-line data expected by the end of 2022 and in the third quarter of 2022, respectively. Verona also reported ensifentrine met all safety objectives in a thorough QT study designed to evaluate effects, if any, of ensifentrine on cardiac conduction in healthy individuals. The results from these studies will support the planned NDA submission of ensifentrine for the maintenance treatment of COPD.
Sermonix Pharmaceuticals closed a $40 million financing with proceeds planned to advance lasofoxifene through late-stage clinical development as an oral SERM to treat women with ESR1 breast cancer mutations. Topline data are expected in the first half of 2022 for the Phase 2 ELAINE 1 trial assessing oral lasofoxifene versus intramuscular fulvestrant and the Phase 2 ELAINE 2 trial of oral lasofoxifene in combination with Eli Lilly and Company's CDK4 and 6 inhibitor Verzenio® (abemaciclib) for the treatment of ER+/HER2- breast cancer in patients with an ESR1 mutation.
Corporate and Governance Highlights
We are committed to policies and practices focused on environmental sustainability, positively impacting our social community and maintaining and cultivating good corporate governance. By focusing on such ESG policies and practices, we believe we can affect a meaningful and positive change in our community and maintain our open, collaborative corporate culture. We will continue our proactive shareholder and employee engagement in 2022. See www.ligand.com for information about our ESG policies and practices.
Partners and Licensees
We currently have partnerships and license agreements with over 140 pharmaceutical and biotechnology companies. Below is a list of our disclosed partners.

Big Pharma | Ticker |  | Biotech | Ticker |  | Biotech, continued | Ticker
Abbott | ABT |  | ABBA | Private |  | Melinta | Private
AstraZeneca | AZN |  | Abvivo | Private |  | Menarini | Private
Baxter | BAX |  | Adept | Private |  | Nanjing King-Friend | 603707
Boehringer Ingelheim | Private |  | Aldeyra | ALDX |  | Neuritek | Private
Eisai | 4523 |  | ALX Oncology | ALXO |  | Novan | NOVN
GSK | GSK |  | Amgen | AMGN |  | Nucorion | Private
Janssen | JNJ |  | Anebulo | Private |  | Ohara | Private
Jazz | JAZZ |  | Aptevo | APVO |  | Oncternal | ONCT
Merck | MRK |  | Arcellx | ACLX |  | OnKure | Private
Merck KGaA | MRK.DE |  | Arcus | RCUS |  | Opthea | OPT
Novartis | NVS |  | Asahi Kasei | 3407 |  | Outlook | OTLK
Ono | 4528 |  | Ascella | Private |  | Palvella | Private
Pfizer | PFE |  | BendaRx | Private |  | Pandion | MRK
Roche | RHHBY |  | Bexson Biomedical | Private |  | Phoenix Tissue | Private
Sanofi | SNY |  | Biocity | Private |  | Pierre-Fabre | Private
Takeda | 4502 |  | Cantex | Private |  | Praxis | PRAX
|  |  | Corvus | CRVS |  | Precision Biologics | Private
|  |  | CStone | 2616.HK |  | Revision | Private

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Specialty Pharma | Ticker |  | CSL | Private |  | RubrYc | Private
Acrotech (Aurobindo) | AUROPHARMA |  | CR Double-Crane | Private |  | Sage | SAGE
Genovac | Private |  | Cumulus | Private |  | Salubris Bio | Private
Aytu Bioscience | AYTU |  | Curon | Private |  | Seagen | SGEN
Aziyo | AZYO |  | Daxor | DXR |  | Seelos | SEEL
Beloteca | Private |  | Denovo | Private |  | Sepsia | Private
BF Bioscience | Private |  | Electra | Private |  | Servier | Private
CASI | CASI |  | Elevation | Private |  | Serum Inst. of India | Private
CorMatrix | Private |  | Exelixis | EXEL |  | Softkemo | Private
EQRx | EQRX |  | Foghorn | FHTX |  | Sunshine Lake | Private
Ferring | Private |  | Genmab | GMAB |  | Talem | Private
Gloria | 2437 |  | Genagon | Private |  | Tizona | Private
Goodness Growth | VRNOF |  | Genentech (Roche) | RHHBY |  | Travere | TVTX
Lundbeck | LUN |  | Genovac | Private |  | Tremeau | Private
Sedor | Private |  | GigaGen | Private |  | Unity | UBX
Sermonix | Private |  | Gilead Sciences | GILD |  | Valanbio | Private
Shionogi | SGIOY |  | Gordian | Private |  | Vaxxas | Private
SQ Innovation | Private |  | Halo | Private |  | Vega | Private
|  |  | HanAll | 9420 |  | VenBio | Private
Generics | Ticker |  | Harbour | 2142 |  | VentiRx | Private
Alvogen | Private |  | IBC Generium | Private |  | Verona | VRNA
Adalvo | Private |  | Ichnos | Private |  | Viking | VKTX
Apotex | Private |  | iMetabolic | Private |  | Xi'an Xintong | Private
BioCad | Private |  | Immunovant | IMVT |  | WuXi | 2269
Gufic | GUFICBIO |  | Innolake Biopharm | Private |  | Zhilkang Hongyi | Private
Hetero | Private |  | Interventional Analgesix | Private |  |  |
Hikma | HIK |  | J-Pharma | Private |  |  |
Indofarma | INAF |  | Jupiter | Private |  |  |
Jubilant | Private |  | Kangchen | Private |  |  |
Mylan | VTRS |  | Kira | Private |  |  |
Par | Private |  | Marinus | MRNS |  |  |
Zydus Cadila | CADILAHC |  | MEI | MEIP |  |  |

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Commercial and Clinical Stage Partnered Portfolio
We have a large portfolio of current and future potential revenue-generating programs, including over 400 fully-funded by our partners. Each white dot on our partnered pipeline chart below represents a fully-funded partnered program, with each section of the chart representing a major Ligand technology or platform.

Approved
Partner Name | Program | Therapeutic Area
Acrotech/CASI | Evomela | Cancer
Alvogen/Adalvo | Teriparatide | Women's Health
Alvogen/Hikma/Nanjing King-Friend | Voriconazole | Infectious Disease
Amgen/Beigene/Ono | Kyprolis | Cancer
Aytu | Tuzistra | Infectious Disease
Aziyo | ECM portfolio | Medical device/Cardiology
Baxter | Nexterone | Cardiovascular
BendaRx | Bendamustine | Cancer
BF Bio/Gufic/Hetero/Indofarma/Jubilant/Zydus | Generic Remdesivir | Infectious Disease
Biocad | Teberif | Inflammatory/Metabolic
C-Stone/Pfizer | Sugemalimab | Cancer
Exelixis/Daiichi-Sankyo | Minnebro | Cardiovascular
Gilead | Veklury | Infectious Disease
Gloria/EQRx | Zimberelimab | Cancer
IBC Generium | GNR-008 | Severe and Rare

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Jazz | Rylaze | Cancer
Lundbeck | Carnexiv | Central Nervous System
Melinta | Baxdela | Infectious Disease
Menarini | Frovatriptan | Central Nervous System
Merck | Noxafil-IV | Infectious Disease
Merck | Vaxneuvance | Infectious Disease
Par | Posaconazole | Infectious Disease
Pfizer | Viviant/Conbriza | Inflammatory/Metabolic
Pfizer | Duavee | Inflammatory/Metabolic
Pfizer | Vfend-IV | Infectious Disease
SAGE | Zulresso | Central Nervous System
Sedor | Sesquient | Central Nervous System
Serum Institute of India | Pneumosil | Infectious Disease
Zydus Cadila | Vivitra | Cancer
Zydus Cadila | Bryxta/ZyBev | Cancer
Zydus Cadila | Maropitant | Central Nervous System
Zydus Cadila | Exemptia | Inflammatory/Metabolic
Zydus Cadila | Vortuxi | Inflammatory/Metabolic
Phase 3/Pivotal or Regulatory Submission Stage
Partner Name | Program | Therapeutic Area
Aldeyra | Reproxalap | Other/Undisclosed
Arcus | Zimberelimab | Cancer
Aytu Bioscience | CCP-07 and CCP-08 | Infectious disease
Eisai | FYCOMPA | Central Nervous System
Harbour | Batoclimab | Cancer
Janssen | Teclistamab | Cancer
Jazz | Rylaze | Cancer
Marinus | Ganaxalone IV | Central Nervous System
Novan | SB206 | Infectious Disease
Novartis | Mekinist (CE-Trametinib) | Cancer
Opthea | OPT-302 | Ophthalmology
Outlook Therapeutics | ONS-5010 | Other/Undisclosed
Palvella | PTX-022 | Other/Undisclosed
Sage | Zulresso | Infectious disease
Serum Institute | CRM197 | Infectious Disease
SQ Innovation | CE-Furosemide | Cardiovascular disease
Sunshine Lake | Vilazodone | Central Nervous System
Takeda | Pevonedistat | Cancer
Travere | Sparsentan | Severe and Rare
Verona | Ensifentrine (RPL554) | Respiratory Disease
Various | Teriparatide | Women's Health
Xi'an Xintong | Pradefovir | Infectious Disease

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Phase 2
Partner Name | Program | Therapeutic Area
Cantex | CX-01 | Cancer
Corvus | Ciforadenant | Cancer
DeNovo | Lisfensine | Neurology
Elevation Oncology | Seribantumab | Cancer
Genmab | Gen1046 | Cancer
Immunovant | Batoclimab | Inflammatory/Metabolic
Janssen | Teclistimab | Cancer
Merck | Berzosertib | Cancer
Merck | V116 | Infectious Disease
Novartis | ECF843 | Inflammatory/Metabolic
Oncternal | Cirmtuzumab | Cancer
Palvella | PTX-022 | Other/Undisclosed
Phoenix Tissue | PTR-01 | Genetic Disease
Precision Biologics | NPC-1C | Cancer
Seelos | Aplindore | Central Nervous System
Sermonix | Lasofoxifene | Cancer
VentiRx | Motolimod | Cancer
Various | JPH-203 | Cancer
Viking | VK5211 | Inflammatory/Metabolic
Viking | VK2809 | Inflammatory/Metabolic
Viking | VK0612 | Inflammatory/Metabolic
Phase 1
Partner Name | Program | Therapeutic Area
Amgen | AMG-330 | Cancer
Apotex | Meloxicam | Migraine
Aptevo | APVO436 | Cancer
Boehringer Ingelheim | Undisclosed | Other/Undisclosed
CSL | CSL-324 | Immunology
Curon | CN1 | Cancer
Daxor | I131 | Cardiovascular disease
Foghorn | FHD-609/BRD9 | Cancer
Halo | CE-Oleic acid | Infectious disease
Hanall | Batoclimab | Cancer
Janssen | JNJ-78306358 | Cancer
Janssen | JNJ-67371244 | Cancer
Janssen | JNJ-70218902 | Cancer
Jupiter Bioscience | Viright | Cancer
MEI Pharma | ME-344 | Cancer
Merck | M6233 | Cancer

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Novartis | MIK-665 | Cancer
Novartis | BCL-201 | Cancer
Nucorion | NUC-1010 | Infectious disease
Revision Therapeutics | Rev0100 | Ophthalmology
Sage | SAGE-689 | Central Nervous System
SalubrisBio | SAL003 | Metabolic disease
Symphogen/Servier | SYM022/SYM023/SYM024/S095029 | Cancer
Takeda | TAK-925 | Severe and Rare
Takeda | TAK-243 | Cancer
Vaxxas | Nanopatch | Infectious Disease
Viking | VK-0214 | Genetic Disease
Xi'an Xintong | MB07133 | Cancer
Zhilkang Hongyi | Anti-4-1BB | Cancer

Selected Commercial Programs
We have multiple programs under license with other companies that have products that are already being commercialized. The following programs represent components of our current portfolio of revenue-generating assets and potential for near-term growth in royalty and other revenue. For information about the royalties owed to us for these programs, see “Royalties” later in this business section.
Kyprolis (Amgen)
We supply Captisol to Amgen for use with Kyprolis (carfilzomib), and granted Amgen an exclusive product-specific license under our patent rights with respect to Captisol. Kyprolis is formulated with Ligand’s Captisol technology and is approved in the United States for the following:
•In combination with dexamethasone, lenalidomide plus dexamethasone, daratumumab plus dexamethasone, or daratumumab and hyaluronidase-fihj and dexamethasone for the treatment of patients with relapsed or refractory multiple myeloma who have received one to three lines of therapy.
•As a single agent for the treatment of patients with relapsed or refractory multiple myeloma who have received one or more lines of therapy.

| Kyprolis (Amgen)
< $250 million | 1.5%
$250 to $500 million | 2.0%
$500 to $750 million | 2.5%
>$750 million | 3.0%

Our agreement with Amgen may be terminated by either party in the event of material breach or bankruptcy, or unilaterally by Amgen with prior written notice, subject to certain surviving obligations. Absent early termination, the agreement will terminate upon expiration of the obligation to pay royalties. Under this agreement, we are entitled to receive revenue from clinical and commercial Captisol material sales and royalties on annual net sales of Kyprolis.
Veklury (Gilead)
We supply Captisol to Gilead for sales of Veklury (remdesivir). Gilead received marketing approval from the FDA in October 2020. Veklury is the first and only antiviral treatment of COVID-19 that is FDA approved. The product has regulatory approvals for the treatment of moderate or severe COVID-19 in over 50 countries and is included in more than 60 ongoing clinical trials. We are supplying Captisol to Gilead under a recently signed 10-year supply agreement. We are also supplying Captisol to Gilead’s voluntary licensing generic partners who are manufacturing remdesivir for 127 low- and middle-income countries. We receive our commercial compensation for this program through the sale of Captisol.
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Teriparatide Injection Product (PF708) (Alvogen/Adalvo/Kangchen)
We acquired the Teriparatide Injection product with the acquisition of Pfenex Inc. in October 2020. Teriparatide Injection is a drug indicated for uses including the treatment of osteoporosis in certain patients at high risk for fracture. Teriparatide Injection was developed using our Pelican Expression Technology and was approved by the FDA in 2019 in accordance with the 505(b)(2) regulatory pathway, with FORTEO as the reference product. Our partner, Alvogen launched the product in June 2020 in the United States. For information regarding the CVR issued to Pfenex equityholders, see note 1, “Basis of Presentation and Summary of Significant accounting Policies—Contingent Liabilities.”
Outside the United States, PF708 received marketing authorization throughout the EU in August 2020 under the tradename Livogiva®, was approved in Saudi Arabia in December 2020 under the name Bonteo and is in various stages of regulatory and marketing application processes around the globe and, upon approval, may be marketed as Teriparatide Injection or under various tradenames, such as Bonsity or Livogiva.
Our partner Alvogen has exclusively licensed the rights to commercialize and manufacture the teriparatide injection product in the United States, while their Adalvo business has the rights to commercialize in the EU, certain countries in the Middle East and North Africa (MENA), and the rest of world (ROW) territories (the latter defined as all countries outside of the EU, U.S. and MENA, excluding Mainland China, Hong Kong, Singapore, Malaysia and Thailand). Kangchen has exclusively licensed to commercialize PF708, upon receipt of applicable marketing authorizations, in Mainland China, Hong Kong, Singapore, Malaysia and Thailand and granted a non-exclusive right to conduct development activities in such countries with respect to PF708. Kangchen is responsible for all regulatory submissions, development costs and costs associated with regulatory approvals in these countries.
In accordance with our agreements with Alvogen, we are eligible to receive tiered royalties on net sales between 25% and 40% prior to an “A” therapeutic equivalence designation, which increases to a flat 50% if an “A” rating is achieved.
In accordance with our EU, MENA and ROW agreements with Adalvo, we may be eligible to receive additional upfront and milestone payments of $1.5 million and may also be eligible to receive up to 60% of gross profit derived from product sales and regional license fees, if approved, depending on geography, cost of goods sold and sublicense fees.
In accordance with our agreement with Kangchen, we may be eligible to receive additional payments of up to $22.5 million upon the achievement of certain development, regulatory, and sales-related milestones. We may be eligible to receive double-digit royalties on any net sales of PF708 in Kangchen’s territory.
Evomela (Acrotech and CASI)
We supply Captisol to Acrotech Biopharma for sales of Evomela in the U.S. and to CASI Pharmaceuticals for sales of Evomela in China. Evomela received market approval by the China National Medical Products Administration (NMPA). It is the only approved and commercially available melphalan product in China. Evomela is a Captisol-enabled melphalan IV formulation which is approved by the FDA for use in two indications:
•a high-dose conditioning treatment prior to ASCT in patients with multiple myeloma; and
•for the palliative treatment of patients with multiple myeloma for whom oral therapy is not appropriate.
Evomela has been granted Orphan Designation by the FDA for use as a high-dose conditioning regimen for patients with multiple myeloma undergoing ASCT. The Evomela formulation avoids the use of propylene glycol, which has been reported to cause renal and cardiac side-effects that limit the ability to deliver higher quantities of therapeutic compounds. The use of the Captisol technology to reformulate melphalan is anticipated to allow for longer administration durations and slower infusion rates, potentially enabling clinicians to safely achieve a higher dose intensity of pre-transplant chemotherapy.
Under the terms of the license agreement, Acrotech Biopharma has marketing rights worldwide excluding China and CASI Pharmaceuticals has rights to market in China. We are eligible to receive over $50 million in potential milestone payments under this agreement, royalties on global net sales of the Captisol-enabled melphalan product and revenue from Captisol material sales. Acrotech and CASI’s obligation to pay royalties will expire at the end of the life of the relevant patents or when a competing product is launched, whichever is earlier, but in no event within ten years of the commercial launch. Our patents and applications relating to the Captisol component of melphalan are not expected to expire until 2033. As described herein, we have entered into a settlement agreement with Teva and Acrotech Biopharma (the holder of the NDA for Evomela) which will allow Teva to market a generic version of Evomela in the United States on June 1, 2026, or earlier under certain circumstances. Absent early termination, the agreement will terminate upon expiration of the obligation to pay royalties. The agreement may be terminated by either party for an uncured material breach or unilaterally by Acrotech and CASI by prior written notice.
Vaxneuvance (V114)
On July 16, 2021, Merck announced FDA approval of Vaxneuvance, a 15-valent pneumococcal conjugate vaccine, also
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known as V114, for the prevention of invasive disease caused by Streptococcus pneumoniae serotypes 1, 3, 4, 5, 6A, 6B, 7F, 9V, 14, 18C, 19A, 19F, 22F, 23F and 33F in adults 18 years of age and older. VAXNEUVANCE is a 15-valent pneumococcal vaccine utilizing CRM197 vaccine carrier protein, which is produced using the patent-protected Pelican Expression Technology™ platform. V114 previously received Breakthrough Therapy Designation from the FDA for the prevention of invasive pneumococcal disease in pediatric patients 6 weeks to 18 years of age and adults 18 years of age and older. Pneumococcal disease in adults is on the rise in many countries, and V114 consists of pneumococcal polysaccharides from 15 serotypes conjugated to CRM197 carrier protein, including serotypes 22F and 33F, which are commonly associated with invasive pneumococcal disease in older adults. On October 20, 2021, Merck announced that the CDC Advisory Committee on Immunization Practices (ACIP) unanimously voted in favor of updates to the pneumococcal vaccination recommendations for adults 65 years and older, and for adults ages 19 to 64 with certain underlying medical conditions or other disease risk factors. In both groups the ACIP voted to provisionally recommend vaccination with either a sequential regimen of Vaxneuvance™ and Pneumovax_23® or a single dose of 20-valent pneumococcal conjugate vaccine. On January 28, 2022, final recommendations were published in the CDC’s Morbidity and Mortality Weekly Report (MMWR). On December 1, 2021, Merck announced the FDA accepted for priority review a sBLA for Vaxneuvance for the prevention of invasive pneumococcal disease in children 6 weeks through 17 years of age, with a PDUFA date of April 1, 2022.
On December 15, 2021, Merck announced the European Commission approval of Vaxneuvance for the prevention of invasive disease and pneumonia caused by Streptococcus pneumoniae in individuals 18 years and older. The approval allows marketing of VAXNEUVANCE in all 27 EU Member States plus Iceland, Norway and Lichtenstein. We are entitled to low single digit royalties derived from net sales, depending on the territory.
Pneumosil (Serum Institute of India, SII)
SII began commercialization of its 10-valent pneumococcal conjugate vaccine, Pneumosil, which is produced using CRM197 made in the Pelican Expression Technology platform, in the second quarter of 2020. Pneumosil is designed primarily to help fight against pneumococcal pneumonia among children, with an advantage of targeting the most prevalent serotypes of the bacterium causing serious illness in developing countries. Pneumosil achieved WHO Prequalification in December 2019, allowing the product to be procured by United Nations agencies and Gavi, the Vaccine Alliance, and subsequently achieved Indian Marketing Authorization in July 2020, and SII announced commercial launch of the product in India in December 2020.
Rylaze(JZP-458) (Jazz Pharmaceuticals)
In July 2021, Jazz announced the launch of Rylaze (asparaginase erwinia chrysanthemi (recombinant)-rywn), previously referred to as JZP458. Rylaze, which was approved by the FDA in June 2021, is a recombinant erwinia asparaginase used as a component of a multi-agent chemotherapeutic regimen for the treatment of ALL or LBL in adult and pediatric patients one month or older who have developed hypersensitivity to E. coli-derived asparaginase. Additionally, Jazz is utilizing our technology for the development of PF745 (JZP341), a long-acting Erwinia asparaginase for the treatment of acute lymphoblastic leukemia and other hematological malignancies. Jazz has worldwide rights to develop and commercialize PF745.
Ligand is eligible to receive up to an additional $155.5 million in milestone payments and tiered low to mid-single digit royalties based on worldwide net sales of any products resulting from this collaboration, including Rylaze.
Nexterone (Baxter)
We have a license agreement with Baxter, related to Baxter's Nexterone, a Captisol-enabled formulation of amiodarone, which is marketed in the United States and Canada. We supply Captisol to Baxter for use in accordance with the terms of the license agreement under a separate supply agreement. Under the terms of the license agreement, we will continue to earn milestone payments, royalties, and revenue from Captisol material sales. We are entitled to earn royalties on sales of Nexterone through early 2033.
Zulresso (SAGE)
We have a license agreement with SAGE, related to SAGE's Zulresso, a Captisol-enabled formulation of brexanolone for the treatment of postpartum depression (PPD). Under the terms of the agreement, we receive royalties and revenue from Captisol material sales.
Noxafil-IV (Merck)
We have a supply agreement with Merck related to Merck’s NOXAFIL-IV, a Captisol-enabled formulation of posaconazole for IV use. NOXAFIL-IV is marketed in the United States, EU and Canada. We receive our commercial compensation for this program through the sale of Captisol.
Duavee or Duavive (bazedoxifene/conjugated estrogens) and Viviant/Conbriza (Pfizer)
Pfizer is marketing bazedoxifene, a selective estrogen receptor modulator, under the brand names Viviant and Conbriza in various territories for the treatment of postmenopausal osteoporosis. Pfizer is responsible for the marketing of bazedoxifene,
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a synthetic drug specifically designed to reduce the risk of osteoporotic fractures while also protecting uterine tissue. Pfizer has combined bazedoxifene with the active ingredient in Premarin to create a combination therapy for the treatment of post-menopausal symptoms in women. Pfizer is marketing the combination treatment under the brand names Duavee and Duavive in various territories. Net royalties on annual net sales of Viviant/Conbriza and Duavee/Duavive are each payable to us through the life of the relevant patents or ten years from the first commercial sale, whichever is longer, on a country by country basis.
Aziyo Portfolio (Aziyo)
We receive a share of revenue from the currently marketed Aziyo portfolio of commercial pericardial repair and CanGaroo® Envelope ECM products. In addition, we have the potential to receive a share of revenue and potential milestones from the currently marketed CanGaroo® ECM Envelope for cardiac implantable electronic devices. Aziyo’s products are medical devices that are designed to permit the development and regrowth of human tissue.
Exemptia, Vivitra, Zybev and Bryxta (Zydus Cadila)
Zydus Cadila’s Exemptia (adalimumab biosimilar) is marketed in India for autoimmune diseases. Zydus Cadila uses the Selexis technology platform for Exemptia. We are entitled to earn royalties on sales by Zydus Cadila for ten years following the first commercial sale.
Zydus Cadila’s Vivitra (trastuzumab biosimilar) is marketed in India for breast cancer. Zydus Cadila uses the Selexis technology platform for Vivitra. We are entitled to earn royalties on sales by Zydus Cadila for ten years following the first commercial sale.
Zydus Cadila’s Bryxta and Zybev (bevacizumab biosimilar) is marketed in India for various indications. Zydus Cadila uses the Selexis technology platform for Bryxta and Zybev. We are entitled to earn royalties on sales by Zydus Cadila for ten years following the first commercial sale.
Minnebro (Exelixis)
Minnebro is marketed in Japan for the treatment of hypertension. Our partner, Exelixis, entered into a collaboration agreement with Daiichi Sankyo for the development of esaxerenone, a mineralocorticoid receptor antagonist. Under the terms of the agreement with Exelixis, we are entitled to receive a royalty on future sales.
Summary of Selected Development Stage Programs
We have multiple fully-funded partnered programs that are either in or nearing the regulatory approval process, or given the area of research or value of the license terms, we consider particularly noteworthy. We are eligible to receive milestone payments and royalties on these programs. This list does not include all of our partnered programs. For information about the royalties owed to Ligand for these programs, see “Royalties” later in this business section. In the case of Captisol-related programs, we are also eligible to receive revenue for the sale of Captisol material supply.
Sparsentan (Travere)
Our partner, Travere, is developing sparsentan for orphan indications of severe kidney diseases and is running an on-going global pivotal Phase 3 clinical trial (DUPLEX) for sparsentan for the treatment of FSGS. Additionally, Travere is running a global pivotal Phase 3 clinical trial (PROTECT) evaluating the long-term nephroprotective potential of sparsentan for the treatment of IgAN nephropathy, a rare, immune complex mediated chronic glomerular disease. Certain patient groups with severely compromised renal function, including those with FSGS and IgAN, exhibit extreme proteinuria resulting in progression to dialysis and a high mortality rate. Sparsentan, with its unique dual blockade of angiotensin and endothelin receptors, is expected to provide meaningful clinical benefits in mitigating proteinuria in indications where there are no approved therapies.
In February of 2021, Travere announced that sparsentan achieved its pre-specified interim FSGS partial remission of proteinuria endpoint (FPRE) in the DUPLEX Phase 3 study after 36 weeks of treatment. Sparsentan demonstrated a statistically significant response on FPRE compared to the active control, irbesartan (p=0.0094). Preliminary results from the interim analysis suggest that sparsentan has been generally well-tolerated and has shown a comparable safety profile to irbesartan. Travere plans to submit an NDA seeking accelerated approval of sparsentan for FSGS in the United States in mid-2022 after obtaining additional estimated glomerular filtration rate (eGFR) data from the DUPLEX Study.
In August of 2021, Travere announced positive topline interim results from the ongoing Phase 3 PROTECT study of sparsentan in IgAN. Sparsentan treatment demonstrated a statistically significant mean reduction of proteinuria from baseline after 36 weeks, more than threefold the reduction of active comparator irbesartan (p<0.0001). In the first quarter of 2022, Travere expects to submit an NDA seeking accelerated approval of sparsentan for IgAN in the United States.
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Additionally, Travere and Vifor Pharma entered into a licensing agreement in September of 2021 for the commercialization of sparsentan in Europe, Australia and New Zealand. Traver and Vifor expect to submit a combined IgAN and FSGS Marketing Authorisation Application (MAA) in mid-2022 for conditional marketing authorization of sparsentan in Europe.
Under our license agreement with Travere, we may be entitled to receive potential milestones of over $70 million and net royalties on future worldwide sales by Travere. The royalty term is expected to be 10 years following the first commercial sale. Travere is responsible for all development costs related to the program.
TR-Beta - VK2809 and VK0214 (Viking)

Our partner, Viking, is developing VK2809, a novel selective TR-Beta agonist with potential in multiple indications, including hypercholesterolemia, dyslipidemia and NASH. VK2809 is currently in a Phase 2b clinical trial (the VOYAGE study) in patients with biopsy-confirmed NASH. Viking has previously announced positive results from a Phase 2a trial of VK2809 in hypercholesterolemia and fatty liver disease. VK0214 is currently in Phase 1 clinical development, and had been granted orphan drug study by the FDA for the treatment of X-ALD. Under the terms of the agreement with Viking, we may be entitled to up to $375 million of development, regulatory and commercial milestones and tiered royalties on potential future sales. Our TR Beta programs partnered with Viking are subject to CVR sharing and a portion of the cash received will be paid out to CVR holders. | TR-Beta - VK2809 and VK0214 (Viking)
< $500 million | 3.5%
$500 to $750 million | 5.5%
>$750 million | 7.5%

Batoclimab (HanAll, Immunovant, and Harbour)
Our partner, HanAll has granted Immunovant an exclusive license for the development, manufacture and marketing of Batoclimab for the treatment of pathogenic IgG-mediated autoimmune diseases in the U.S., Canada, Mexico, the EU, the United Kingdom, Switzerland, Latin America, the Middle East and North Africa. Immunovant recently announced the initiation of a Phase 3 trial in H2 in myasthenia gravis (MG) in the first half of 2022 and another one in another inflammatory disease while expanding into two new indications to be announced by Q3. Additionally, HanAll and Harbour BioMed, are collaborating to develop Batoclimab for similar treatment in China and Korea. Harbour is currently conducting three registrational Phase 2/3 trials in China in MG, thyroid eye disease and Primary Immune Thrombocytopenia. HanAll retains the rights to Batoclimab in Korea and Harbour will control the marketing in China. As part of our agreement with HanAll, we are entitled to development and regulatory milestones and royalties on potential future sales from HanAll and sublicense revenues from Immunovant and Harbour based on amounts received by HanAll.
CRM197
CRM197 is a non-toxic mutant of diphtheria toxin. It is a well characterized protein and functions as a carrier for polysaccharides and haptens, making them immunogenic. CRM197 is used in prophylactic and therapeutic vaccine candidates. We have developed CRM197 production strains using our Protein Expression Technology platform and supply preclinical grade and cGMP CRM197 (PeliCRM™) to several vaccine development focused pharmaceutical customers.
Our partners Merck and SII have exclusively licensed unique production strains for use in their conjugate vaccine products and candidates for pneumococcal and meningitis bacterial infections. Pneumococcus bacterium (Streptococcus pneumoniae) is a leading cause of severe pneumonia and major cause of morbidity and mortality worldwide. In accordance with our CRM197 commercial license agreements with Merck, we are eligible to earn an additional $8 million in development and regulatory milestones and low single digit royalties derived from net sales, depending on territory. CRM-197 made in the Pelican Expression Technology platform is also used by Merck in its investigational vaccine candidates, including the V116. Additionally, in 2021 SII completed a Phase 3 study of a pentavalent meningococcal conjugate vaccine candidate (NmCV-5) that utilizes CRM197 made in the Pelican Expression Technology platform. NmCV-5 prequalification by WHO is projected as early as the third quarter of 2022.
Ensifentrine – RPL554 (Verona)
Our partner, Verona, is currently conducting a comprehensive Phase 3 clinical trial to evaluate the efficacy and safety of nebulized ensifentrine in patients with moderate to severe COPD with top-line results expected in 2022. Under the terms of our agreement with Verona, we are entitled to development and regulatory milestones, including a £5.0 million payment upon the first approval by any regulatory authority, and royalties on potential future sales.
Teclistamab (Janssen)
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Our partner, Janssen, is developing Teclistamab, an off-the-shelf T-cell redirecting , bispecific antibody targeting BCMAxCD3 that was discovered in part with the OmniAb platform technology. Janssen announced that it submitted a BLA on December 29, 2021 for the treatment of patients with relapsed or refractory multiple myeloma. The application was supported by the data from the MajesTEC-1 Phase 2 trial that showed continued deep and durable responses. Teclistamab is also currently conducting several Phase 1 trials in multiple myeloma, as a single agent and in combination with daratumumab or talquetamab or Tecentriq. We are entitled to receive a $25 million milestone payment upon first commercial sale of Teclistamab in the U.S.
JNJ-67371244 (Janssen)
Janssen is also developing JNJ-67371244, an anti-CD33xCD3 antibody discovered in part with the OmniAb platform technology. Janssen is currently conducting a Phase I trial for cancer therapy. We are entitled to earn development and regulatory milestones based on the development of JNJ-67371244.
JNJ-70218902 (Janssen)
Janssen is also developing JNJ-70218902, a T-cell redirecting agent antibody discovered in part with the OmniAb platform technology. Janssen is currently conducting a Phase I trial for cancer therapy for patients with metastatic castration resistant prostate cancer. We are entitled to earn development and regulatory milestones based on the development of JNJ-70218902.
JNJ-78306358 (Janssen)
Janssen is also developing JNJ-78306358, a T-cell redirecting bispecific antibody targeting HLA-G, discovered in part with the OmniAb platform technology. Janssen is currently conducting a Phase 1 trial in patients with advanced solid tumors. We are entitled to earn development and regulatory milestones based on the development of JNJ-78306358.
M6223 (Merck KGaA)
Our partner, Merck KGaA, is currently conducting a Phase 1 trial of M6223, an anti-TIGIT antibody discovered with the OmniAb platform, in patients with metastatic or locally advanced solid unresectable tumors in combination with bintrafusp alfa. Under the terms of the agreement, we are entitled to sublicense revenues, milestones and royalties on potential future net sales.
SARM - VK5211 (Viking)

Viking is also developing VK5211, a novel, potentially best-in-class SARM for patients recovering from hip-fracture. SARMs retain the beneficial properties of androgens without undesired side-effects of steroids or other less selective androgens. In a Phase 2 clinical trial, VK5211 demonstrated statistically significant, dose dependent increases in lean body mass. Under the terms of the agreement with Viking, we may be entitled to up to $270 million of development, regulatory and commercial milestones as well as tiered royalties on potential future sales. | SARM - VK5211 (Viking)
< $500 million | 7.25%
$500 to $750 million | 8.25%
>$750 million | 9.25%

Ganaxalone IV (Marinus)
Our partner, Marinus, is conducting Phase 3 clinical trials with Captisol-enabled ganaxolone IV in patients with refractory status epilepticus. Marinus has exclusive worldwide rights to Captisol-enabled ganaxolone, a GABA A receptor modulator, for use in humans. We are entitled to development and regulatory milestones, revenue from Captisol material sales, and royalties on potential future sales.
APVO436 (Aptevo)
Our partner, Aptevo, is currently conducting a Phase 1 trial of APVO436, a bispecific anti-CD123xCD3 for the treatment of acute myeloid leukemia and high-grade myelodysplastic syndrome. There is a high unmet medical need for targeted immunotherapies such as APVO436, that can potentially treat patients with relapsed or refractory disease, or patients who cannot tolerate traditional chemotherapy. Under the terms of the agreement with Aptevo, we are entitled to development and regulatory milestones and royalties on potential future net sales.
GEN1046 (GenMab)
Our partner, Genmab, in collaboration with BioNTech is currently conducting two Phase 2 trials of GEN1046, a bispecific targeting PD-L1 and 4-1BB, as monotherapy or in combination for use in patients with relapsed/refractory metastatic
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non-small cell lung cancer (NSCLC) or malignant solid tumors. Under the terms of the agreement with Genmab, we are entitled to clinical and regulatory milestones and royalties on potential future sales.
GEN1047 (Genmab)
Genmab is also developing GEN1047, an anti-B7H4xCD3 bispecific antibody, in part isolated from OmniAb platform technology. Genmab is currently conducting a Phase 1/2 trial in solid tumors. Under the terms of the agreement with Genmab, we are entitled to clinical and regulatory milestones and royalties on potential future sales.
Sym022 and Sym023 (Symphogen/Servier)
Our partner, Symphogen (acquired by Servier), is currently conducting Phase 1 trials of SYM022 and SYM023 to determine if they are safe and tolerable for patients with locally advanced/unresectable or metastatic solid tumor malignancies or lymphomas that are refractory to available therapy for which no standard therapy is available. Under the terms of the agreement with Symphogen, we are entitled to sublicense revenues, milestones and royalties on potential future net sales.
Sym024 (Symphogen/Servier)
Symphogen/Servier is also developing an anti-CD73 antibody, developed with OmniAb platform technology, in Phase I trial to assess the safety and tolerability in patients with solid tumors as a monotherapy or in combination with Sym021 (anti-PD-1). Under the terms of the agreement with Symphogen, we are entitled to sublicense revenues, milestones and royalties on potential future net sales.
Sym025/S095029 (Symphogen/Servier)
Symphogen/Servier is also developing an anti-NKG2A antibody, developed with OmniAb platform technology, in Phase 1a/1b trial to assess the safety, tolerability and preliminary anti-neoplastic activity in patients with solid tumors as a monotherapy or in combination with Sym021 (anti-PD-1) or anti-HER2 or anti-EGFR. Under the terms of the agreement with Symphogen, we are entitled to sublicense revenues, milestones and royalties on potential future net sales.
WuXi Partnership
Pursuant to the WuXi Agreement, we have granted WuXi a non-exclusive license to use our OmniRat, OmniMouse and OmniFlic platforms solely to research, develop and make antibodies, and we have agreed to use commercially reasonable efforts to deliver to WuXi animals from such platforms to support WuXi’s licensing rights under the WuXi Agreement. Further, WuXi has the right to out-license antibodies it discovers (whether for itself or at the direction of out-licensees) under the WuXi Agreement to out-licensees worldwide. We are entitled to royalties in the low single digits on net sales of products. Unless earlier terminated, the term of the WuXi Agreement shall continue indefinitely. Either party may terminate the WuXi Agreement upon specified notice of the other party's uncured material breach of the WuXi Agreement. In addition, we have the right to terminate the WuXi Agreement if WuXi or one of its out-licensees challenges the validity of one of our patents covering the platform and WuXi has the right to terminate the WuXi Agreement for convenience following a specified period after notice of termination.
In addition to other earlier stage programs, the following programs have been licensed pursuant to the WuXi Agreement:
Zimberelimab AB122/GLS010 (Arcus and Gloria)
Our partner, WuXi, has outlicensed the rights to certain programs using the OmniAb technology to Arcus and Gloria. Arcus is conducting multiple Phase 1 and Phase 2 trials to evaluate the safety and tolerability and efficacy of Zimberelimab in subjects with advanced solid tumors as monotherapy or in combination with Etrumadenant, domvanalimab. Additionally, Gloria, has announced approval in China for zimberelimab for the treatment of recurrent or refractory classical Hodgkin’s lymphoma. Gloria is also conducting a Phase 2 of zimberelimab monotherapy in patients with recurrent or metastatic cervical cancer. Under the terms of our agreement with WuXi, we are entitled to royalties on potential future sales.
Sugemalimab CS1001 (CStone)
WuXi has also outlicensed the rights to certain programs using the OmniAb technology to CStone. CStone announced approval in China for Sugemalimab (brand name Cejemly®) for first-line treatment of metastatic NSCLC. Pfizer is responsible for the commercialization in China via a 2020 strategic collaboration with CStone while EQRx has licensed exclusive rights to sugemalimab for the development and commercialization outside of China. CStone is currently conducting multiple Phase 2 and Phase 3 trials to evaluate the efficacy and safety of Sugemalimab to treat patients with natural killer cell/T-cell lymphoma and classical Hodgkin’s lymphoma, second line treatment in NSCLC, and gastric or esophageal cancers. Under the terms of our agreement with WuXi, we are entitled to royalties on potential future sales.
Ciforadenant – CPI-444 (Corvus)
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Our partner, Corvus, is conducting a Phase 1b/2 clinical trial in patients with renal cell carcinoma and metastatic castration resistant prostate cancer to evaluate Ciforadenant, an antagonist of adenosine A2A, in combination with the immunotherapy drug atezolizumab. Positive preliminary data was presented in February at ASCO 2020 Genitourinary Cancers Symposium (ASCO-GU) and additional data was presented at ASCO 2020 in May/June. Ciforadenant is also being evaluated in a Phase 1b/2 trial in combination with atezolizumab in patients with non-small cell lung cancer who have failed no more than two prior regimens. Under the terms of our agreement with Corvus, we are entitled to development and regulatory milestones and tiered royalties on potential future sales. The aggregate potential milestone payments from Corvus are approximately $220 million for all indications.
FYCOMPA IV (Eisai)
Our partner, Eisai, recently completed an open-label, single group assignment, multicenter, Phase 2 study in Japan to evaluate the safety and tolerability of intravenous perampanel, formulated with Captisol, as substitute for oral tablets as an adjunctive therapy in patients with partial onset seizures (including secondarily generalized seizures) or primary generalized tonic-clonic seizures. The primary endpoint was the number of patients with adverse events and serious adverse events. We are entitled to revenue from Captisol material sales and tiered royalties on potential future sales.
Pevonedistat - TAK-924 (Millennium/Takeda)
Our partner, Millennium/Takeda, is currently conducting Phase 3 trials for the development of pevonedistat for the treatment of acute myeloid leukemia. Pevonedistat is a Captisol-enabled Nedd8-Activating Enzyme Inhibitor. Under the terms of the clinical-stage agreement, we may be entitled to over $25 million in regulatory and development milestones from Millennium/Takeda, revenue from Captisol material sales and royalties on potential future net sales.
SB206 (Novan)
We acquired certain economic rights to SB206 (KINSOLUS™) from Novan in May 2019. SB206 is a topical nitric-oxide antiviral gel for the treatment of viral skin infections, including molluscum contagiosum (MC). MC is an infection which causes skin lesions that affect approximately 6 million people in the United States annually, with the greatest incidence in children aged one to 14 years. In June of 2021, Novan reported positive topline efficacy and favorable safety data at Week 12 from the B-SIMPLE4 pivotal Phase 3 clinical study of SB206 for the treatment of MC, with primary endpoint achieving statistical significance (p-value < 0.0001) and no serious adverse events related to treatment with SB206. Novan intends to submit an NDA to the FDA for the treatment of MC in the fourth quarter of 2022.
PTX - 022 (Palvella)

We acquired the economic rights to PTX-022 from Palvella in December 2018. PTX-022 is a novel, topical formulation comprising high-strength rapamycin in development to treat pachyonychia congenita (PC). PC is a serious, chronically debilitating lifelong monogenic rare skin disease with no approved treatment. Palvella is conducting the Phase 3 VAPAUS study to evaluate the safety and efficacy of PTX-022 (QTORIN 3.9% rapamycin anhydrous gel) in the treatment of adults with PC. | PTX - 022 (Palvella)
< $50 million | 5.00%
$50 to $100 million | 7.50%
>$100 million | 9.80%

Lasofoxifene (Sermonix)
Lasofoxifene is a selective estrogen receptor modulator for osteoporosis treatment and other diseases, discovered through the research collaboration between Pfizer and us. Our partner, Sermonix has a license for the development of oral lasofoxifene for the United States and additional territories. Under the terms of the agreement, we are entitled to receive over $45 million in potential regulatory and commercial milestone payments as well as royalties on potential future net sales. Sermonix is conducting the Phase 2 ELAINE 1 trial assessing oral lasofoxifene versus intramuscular fulvestrant for the treatment of ER+/HER2- breast cancer in patients with an ESR1 mutation. Lasofoxifene is also being studied in ELAINE 2 trial in combination with Eli Lilly and Company's CDK4 and 6 inhibitor, Verzenio® (abemaciclib). Topline data are expected for both ELAINE trials in the first half of 2022.
Pradefovir (Xi'an Xintong)
Our Chinese licensee, Xi'an Xintong Medicine Research (following its acquisition of Chiva Pharmaceuticals), is developing pradefovir, an oral liver-targeting prodrug of the HBV DNA polymerase/reverse transcriptase inhibitor adefovir, for the potential treatment of HBV infection. Pradefovir was developed using Ligand’s HepDirect technology. In September 2019, Xi'an Xintong Medicine Research reported positive results from a Phase 2 trial of pradefovir, showing good efficacy, safety and tolerability. At the dose of 75 mg, the reduction of DNA viral load, the percentage of no viral load detected, and HBeAg
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negative conversion rate were better than tenofovir disoproxil fumarate (TDF) after 24 weeks of treatment. Overall incidence of side effects was less than TDF and there was no renal or skeletal toxicity. Xi'an Xintong Medicine Research is currently conducting a Phase 3 trial. We are entitled to an annual licensing maintenance fee and royalties on potential future sales.
MB07133 (Xi'an Xintong)
Chinese licensee Xi'an Xintong Medicine Research is also developing MB07133, a liver specific, HepDirect prodrug of cytarabine monophosphate, for the potential treatment of hepatocellular carcinoma and intrahepatic cholangiocarcinoma. MB07133 is currently in Phase 1 in China. We are entitled to an annual licensing maintenance fee and royalties on potential future sales.
Summary of Selected Collaborations
GSK Collaboration
In December 2020, we entered into a license and collaboration agreement with GSK to leverage our unique expertise in small molecule therapeutics targeting transmembrane proteins. The goal of this collaboration is to identify and develop inhibitors of a specific, genetically validated molecular target relevant to neurological diseases. Under the terms of the agreement, we received an upfront payment of $7.0 million and could receive additional development, regulatory and commercialization milestones of up to $154.5 million. We are also entitled to receive tiered royalties should any drug from the collaboration be commercialized. We will be responsible for the majority of preclinical activities up to lead optimization with both Ligand and GSK collaborating to identify candidates for IND-enabling studies. GSK has the exclusive option to license any identified inhibitors and will be responsible for further development and commercialization of any drug candidates identified through the collaboration. In December 2021, we entered into a second collaborative drug discovery program for a new genetically validated molecular target. We received an upfront payment of $10 million and could receive additional development, regulatory and commercialization milestones of up to $247.5 million. We are also entitled to receive tiered royalties should a drug from the collaboration on the second program be commercialized.
Roche Collaboration
In December 2018, we entered into a license and collaboration agreement with Roche to develop and commercialize small molecule ion channel modulators for the treatment of neurological disorders and in May 2020 amended the license and collaboration agreement to include a second target. These programs incorporate our technology platform for ion channel drug discovery and are directed at specific ion channel targets expressed in neurons. Under the terms of the agreement, Roche paid us on a per target basis an upfront payment for program exclusivity and research funding. In addition, we are eligible to potentially receive development and commercial milestone payments of up to $274 million per program and royalty payments if a drug is commercialized. We will be responsible for most preclinical activities up to lead optimization with both us and Roche applying resources to identify candidates for entry into late stage preclinical and IND enabling studies. Thereafter, Roche will be responsible for the further development and commercialization of the programs. In June 2021, we entered into a collaboration on a third program. We are eligible to potentially receive development and commercial milestone payments of $274 million on this program and royalty payments if a drug is commercialized. For all programs we will be responsible for most preclinical activities up to lead optimization with both us and Roche applying resources to identify candidates for entry into late stage preclinical and IND enabling studies. Thereafter, Roche will be responsible for the further development and commercialization of the programs.
Cystic Fibrosis Foundation Collaboration
In May 2018, we announced an award of up to $11 million from the Cystic Fibrosis Foundation for a project focused on the discovery of therapeutics to treat patients with cystic fibrosis (CF) caused by nonsense mutations. Nonsense mutations in the Cystic Fibrosis Transmembrane Conductance Regulator (“CFTR”) gene result in the premature termination of protein synthesis and the formation of truncated, non-functional CFTR. Patients with these mutations in both copies of their CFTR genes currently have no therapies that treat the underlying cause of their disease. The aim of this program is to provide these patients with a transformative therapeutic that will markedly improve their quality of life and lifespan. The award is to support an integrated, multi-year drug discovery initiative. At the North American Cystic Fibrosis Conference in October 2020, we reported the identification and characterization of a class of small molecule agents that enhance CFTR-PTC mutant readthrough and enable functional CFTR currents in combination with aminoglycosides.
Royalties
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We have multiple programs under license with other companies that have products that are already being commercialized. In addition to the table below, we have generally described a typical Captisol and OmniAb royalty arrangement as low- to mid-single digit royalties. The following table represents substantially all of the disclosed information about our royalty arrangements:
Royalty Table

Ligand Licenses With Tiered Royalties
Program | Licensee | Royalty Rate
CE-Meloxicam | Sedor | 8.0% - 10.0%
Ciforadenant | Corvus | Mid-single digit to low-teen royalty
DGAT-1 | Viking | 3.0% - 7.0%
Duavee | Pfizer | 0.5% - 2.5%
Ensifentrine (RPL554) | Verona | Low to mid-single digit royalty
FBPase Inhibitor (VK0612) | Viking | 7.5% - 9.5%
Kyprolis | Amgen | 1.5% - 3.0%
Lasofoxifene | Sermonix | 6.0% - 10.0%
OmniAb-Genagon | Genagon | 4.0% - 6.0%
OmniAb-GigaGen | GigaGen | Mid-single digit royalty
OmniAb-iMetabolic | iMetabolic | <6%
OmniAb-Kira | Kira | Low to mid-single digit royalty
OmniAb-Takeda | Takeda | Low single digit royalty
Oral EPO | Viking | 4.5% - 8.5%
PTX-022 | Palvella | 5.0% - 9.8%
SARM (VK5211) | Viking | 7.25% - 9.25%
SB206 | Novan | 7.0% - 10.0%
TR Beta (VK2809 and VK0214) | Viking | 3.5% - 7.5%
Viviant/Conbriza | Pfizer | 0.5% - 2.5%
Various | Nucorion | 4.0% - 9.0%
Various | Seelos | 4.0% - 10.0%

Ligand Licenses With Fixed Royalties
Program | Licensee | Royalty Rate
4-1BB | Zhilkang Hongyi | Low single digit royalty
AB122 | Arcus | Low single digit royalty
Baxdela | Melinta | 2.5%
CE-Fosphenytoin | Sedor | 11%
Sugemalimab | CStone | 3%
Evomela | Acrotech/CASI | 20%
V114 | Merck | Low single digit royalty
Pneumosil | Serum Institute | Low single digit royalty
MB07133 | Xi'an Xintong | 6%
ME-344 | MEI Pharma | Low single digit royalty
Pradefovir | Xi'an Xintong | 9%
Reproxalap | Aldeyra Therapeutics | Low single digit royalty
Sparsentan | Travere | 9%
Various | Gloria | Low single digit royalty
Zulresso | SAGE | 3%

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Milestone Payments
Our programs under license with our partners may generate milestone payments to us if our partners reach certain development, regulatory and commercial milestones. The following table represents the maximum value of our milestone payment pipeline by development stage, technology and partner (in thousands):

Technology* |  | Stage* |  | Partner*
OmniAb | > $1,600,000 |  | Preclinical | > $10,000 |  | Viking | $1,500,000
Pelican | >$240,000 |  | Clinical | > $530,000 |  | Roche | $543,000
Captisol | > $220,000 |  | Regulatory | > $1,900,000 |  | GSK | $367,000
LTP/Hep Direct | > $280,000 |  | Commercial | > $1,950,000 |  | Janssen | $208,000
NCE/Other | > $2,100,000 |  | Other | > $30,000 |  | Neuritek | $246,000
Total | >$4,400,000 |  | Total | >$4,400,000 |  | Jazz | $150,000
|  |  |  |  |  | Seelos | $139,000
|  |  |  |  |  | Travere | $70,000
|  |  |  |  |  | Other | >$1,180,000
|  |  |  |  |  | Total | >$4,400,000

*All tables exclude any annual access fees and collaboration revenue for development work.
Summary of Selected Internal Development Programs
We have a number of internal development or unpartnered programs focused on a wide-range of potential indications or disease.
The Captisol-enabled (CE)-Iohexol program was established in January 2018 to develop a next-generation contrast agent for diagnostic imaging with a reduced risk of renal toxicity. Contrast-induced acute kidney injury (CI-AKI) is the acute impairment of renal function following intravascular administration of an iodinated contrast agent, and occurs most frequently following coronary angiography, percutaneous coronary intervention and contrast-enhanced computed tomography, especially among patients at risk of renal injury such as those with advanced age, diabetes or heart failure. Currently no products are approved to prevent or treat CI-AKI in this setting, and therefore we believe a significant opportunity exists for a safer formulation of contrast agents. The goal is for CE-Iohexol to improve upon the limitations of existing contrast agents and enable a future partner to gain meaningful market share. In July 2019, we announced positive top-line results from a Phase 1 clinical trial CE-Iohexol conducted in Canada. The trial achieved the primary endpoint by demonstrating pharmacokinetic bioequivalence of CE-Iohexol injection and a reference Iohexol injection (OMNIPAQUE™) after IV administration in healthy adults. CE-Iohexol injection was well tolerated, and adverse events were in line with the known safety profile of OMNIPAQUE. We submitted an IND with the FDA in November and received a “Study May Proceed” letter in December 2020 along with feedback from the FDA on the clinical plan. Initiation of the Phase 2 clinical trial has been deferred as we assess potential partner interest.
The Luminespib/Hsp90 Inhibitor is a Phase 2-ready Hsp90 inhibitor, previously investigated in clinical trials for cancer. Third-party academic drug analyses suggest a potential role for heat shock protein 90 (Hsp90) inhibitors in treating COVID-19 infection. Based on these studies, we are evaluating potential collaborations or partnerships relating to intravenous luminespib (AUY-922) as a potential treatment for patients with COVID-19.
Our primary research and development efforts are led by our teams in Emeryville, California, San Diego, California, and Durham, North Carolina. The following table represents internal programs eligible for further development or partnership:
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Program |  | Development Stage |  | Targeted Indication or Disease
CE-Iohexol |  | Phase 2 |  | Diagnostics
Luminespib/Hsp90 Inhibitor |  | Phase 2 |  | Oncology
CE-Sertraline, Oral Concentrate |  | Phase 1 |  | Depression
PF530 Interferon Beta |  | Phase 1 |  | Immunomodulatory
PF582 Ranibizumab |  | Phase 1 |  | Ocular
CCR1 Antagonist |  | Preclinical |  | Oncology
CE-Busulfan |  | Preclinical |  | Oncology
CE-Cetirizine Injection |  | Preclinical |  | Allergy
CE-Silymarin for Topical formulation |  | Preclinical |  | Sun damage
FLT3 Kinase Inhibitors |  | Preclinical |  | Oncology
GCSF Receptor Agonist |  | Preclinical |  | Blood disorders
Anti-B7-H3 |  | Preclinical |  | Oncology
Anti-TIM3 |  | Preclinical |  | Oncology
Anti-TIGIT |  | Preclinical |  | Oncology
Anti-CD38 |  | Preclinical |  | Oncology
Anti-BDNF |  | Preclinical |  | Oncology
PF529 Pegfilgrastim |  | Preclinical |  | Oncology
PF810 Recombinant Peptide |  | Preclinical |  | Endocrine System

Manufacturing
We contract with a third party manufacturer, Hovione, for Captisol production. Hovione operates FDA-inspected sites in the United States, Macau, Ireland and Portugal. Manufacturing and distribution operations for Captisol are performed primarily at Hovione's Portugal and Ireland facilities. We believe we maintain adequate inventory of Captisol to meet our current and future partner needs.
In the event of a Captisol supply interruption, we are permitted to designate and, with Hovione’s assistance, qualify one or more alternate suppliers. If the supply interruption continues beyond a designated period, we may terminate the agreement. In addition, if Hovione cannot supply our requirements of Captisol due to an uncured force majeure event, we may also obtain Captisol from a third party and have previously identified such parties.
The current term of the agreement with Hovione is through December 2024. The agreement will automatically renew for successive two year renewal terms unless either party gives written notice of its intention to terminate the agreement no less than two years prior to the expiration of the initial term or renewal term. In addition, either party may terminate the agreement for the uncured material breach or bankruptcy of the other party or an extended force majeure event. We may terminate the agreement for extended supply interruption, regulatory action related to Captisol or other specified events. We have ongoing minimum purchase commitments under the agreement.
Competition
Some of the drugs we and our licensees and partners are developing may compete with existing therapies or other drugs in development by other companies. Furthermore, academic institutions, government agencies and other public and private organizations conducting research may seek patent protection with respect to potentially competing products or technologies and may establish collaborative arrangements with our competitors.
Our Captisol business may face competition from other suppliers of similar cyclodextrin excipients or other technologies that are aimed to increase solubility or stability of APIs. Our OmniAb antibody technology faces competition from suppliers of other transgenic animal systems that are also available for antibody drug discovery such as AbCellera Biologics.
Our competitive position also depends upon our ability to obtain patent protection or otherwise develop proprietary products or processes. For a discussion of the risks associated with competition, see below under “Item 1A. Risk Factors.”
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Environmental, Health and Safety (EHS)
We are committed to providing a safe and healthy workplace, promoting environmental excellence in our communities, and complying with all relevant regulations and industry standards. We establish and monitor programs to reduce pollution, prevent injuries, and maintain compliance with applicable regulations. By focusing on such practices, we believe we can affect a meaningful, positive change in our community and maintain a healthy and safe environment. Our animal health facility in Emeryville, California, has accreditation from the Association for Assessment and Accreditation of Laboratory Animal Care, a nonprofit organization that promotes the humane treatment of animals in science through voluntary accreditation and assessment programs. We expect to continue our effort and to refine our EHS policies and practices in 2022. More information on our EHS policies and initiatives is available on our website at www.ligand.com.
Government Regulation
The research and development, manufacturing and marketing of pharmaceutical products are subject to regulation by numerous governmental authorities in the United States and other countries. We and our partners, depending on specific activities performed, are subject to these regulations. In the United States, pharmaceuticals are subject to regulation by both federal and various state authorities, including the FDA. The Federal Food, Drug and Cosmetic Act and the Public Health Service Act govern the testing, manufacture, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion of pharmaceutical products. These activities are subject to additional regulations that apply at the state level. There are similar regulations in other countries as well. For both currently marketed products and products in development, failure to comply with applicable regulatory requirements can, among other things, result in delays, the suspension of regulatory approvals, as well as possible civil and criminal sanctions. In addition, changes in existing regulations could have a material adverse effect on us or our partners. For a discussion of the risks associated with government regulations, see below under “Item 1A. Risk Factors.”
Patents and Proprietary Rights
We believe that patents and other proprietary rights are important to our business. Our policy is to file patent applications to protect technology, inventions and improvements to our inventions that are considered important to the development of our business. We also rely upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain our competitive position.
Patents are issued or pending for the following key products or product families. The scope and type of patent protection provided by each patent family is defined by the claims in the various patents. Patent term may vary by jurisdiction and depend on a number of factors including potential patent term adjustments, patent term extensions, and terminal disclaimers. For each product or product family, the patents and/or applications referred to are in force in at least the United States, and for most products and product families, the patents and/or applications are also in force in European jurisdictions, Japan and other jurisdictions.
Captisol
Patents and pending patent applications covering Captisol and methods of making Captisol are owned by us. The patents covering the Captisol product with the latest expiration date is set to be in 2033 (see, e.g., U.S. Patent No. 9,493,582 (expires Feb. 27, 2033)). Other patent applications covering methods of making Captisol, if issued, potentially have terms to 2041. We have asserted U.S. Patents 8,410,077, 9,200,088, and 9,493,582 against Teva in connection with their attempt to obtain FDA approval to manufacture and sell a generic version of Evomela®. We also own several patents and pending patent applications covering drug products containing Captisol as a component. Globally, we own approximately 440 issued patents covering all of the foregoing Captisol compositions, methods and related technology.
Seven Captisol patents in several families are listed in the Orange Book in connection with numerous prescription drugs currently on the market. These Captisol-enabled drugs include Nexterone (Baxter), Kyprolis (Amgen), Noxafil (Merck), Evomela (Acrotech/CASI), Baxdela (Melinta) and Zulresso (Sage). These patents are listed in the table below, and each patent family containing these patents has pending and/or granted counterparts in Europe, China and Japan.

Orange Book-listed Captisol Patents and Selected Foreign Patents
Country | Patent No. | Title | Expiration (nominal) ‡
United States | 7635773 | Sulfoalkyl Ether Cyclodextrin Compositions | 03/13/2029
United States | 8410077 | Sulfoalkyl Ether Cyclodextrin Compositions | 03/13/2029
United States | 9200088 | Sulfoalkyl Ether Cyclodextrin Compositions | 03/13/2029
United States | 10117951 | Sulfoalkyl Ether Cyclodextrin Compositions | 03/13/2029
United States | 9750822 | Sulfoalkyl Ether Cyclodextrin Compositions | 03/13/2029

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United States | 9493582 | Alkylated Cyclodextrin Compositions And Processes For Preparing And Using The Same | 2/27/2033
United States | 10040872 | Alkylated Cyclodextrin Compositions And Processes For Preparing And Using The Same | 10/21/2033

‡ Expiration dates are calculated as 20 years from the earliest nonprovisional filing date to which priority is claimed, and do not take into account disclaimers or extensions that are or may be available in these jurisdictions.
Subject to compliance with the terms of the respective agreements, our rights to receive royalty payments under our licenses with our exclusive licensors typically extend for the life of the patents covering such developments. For a discussion of the risks associated with patent and proprietary rights, see below under “Item 1A. Risk Factors.”
Kyprolis
Patents protecting Kyprolis include those owned by Amgen and those owned by us. The United States patent listed in the Orange Book relating to Kyprolis with the latest expiration date is not expected to expire until 2029. Patents and applications owned by Ligand relating to the Captisol component of Kyprolis are not expected to expire until 2033. Amgen filed suit against several generic drug companies over their applications to make generic versions of Kyprolis. Several generics have settled with Amgen on confidential terms. However, it has been publicly reported that the U.S. launch date for at least Breckenridge Pharmaceuticals’ generic product will be on a date that is held as confidential in 2027 or sooner, depending on certain occurrences. One generic company, Cipla Limited/Cipla USA, Inc. chose not to settle the litigation with Amgen, and proceeded to trial. The District Court upheld the validity of patent claims from three of the patents and the judgment was upheld on appeal.
OmniAb
At the heart of the OmniAb technology stack are our proprietary transgenic animals, including OmniRat, OmniMouse and OmniChicken, which have been genetically modified to generate antibodies with human sequences to facilitate development of human therapeutic candidates. OmniFlic and OmniClic are common light-chain rats and chickens, respectively, designed to generate bispecific antibodies. OmniTaur provides cow-inspired antibodies with unique structural characteristics for challenging targets. To our knowledge, we are the industry’s only four-species in vivo antibody discovery platform, making OmniAb the most diverse host system available in the industry.
We have received patent protection on OmniAb animals and methods in over 40 jurisdictions, including the United States, multiple countries throughout Europe, Japan and China. These platform patents and applications owned by us are expected to expire between 2028 and 2039 and partners are able to use the OmniAb patented technology to generate novel antibodies, which may be entitled to additional patent protection.
OmniAb’s business will include the Ab Initio computational antigen design technology, Icagen’s ion channel technology, the xPloration high-throughput screening technology, in addition to the suite of OmniAb transgenic animals used for antibody discovery. Ab Initio owns a portfolio of issued patents and pending patent applications directed to SIRP-gamma polypeptides and apelin (APJ) receptor binding domains that includes issued patents in the United States and Europe and patent applications in the United States and multiple other countries. The patents and applications in Ab Initio’s owned portfolio are expected to expire between 2036 and 2040. Icagen owns a portfolio of issued patent and pending patent applications directed to X-ray fluorescence-based detection of binding events and transport across barriers and related inventions, including 22 issued patents in the Unites States and patents issued in Europe, Japan and China as well as pending patent applications in the U.S. and Europe. The patents and applications in Icagen’s portfolio are expected to expire between 2023 and 2040. xCella’s technology includes a microcapillary platform that can screen single B cells for specificity and bioactivity, which expand our existing single- B cell assay capabilities in the OmniAb technology platform. xCella owns a patent portfolio that includes three issued patents in the United States and pending patent applications in the U.S. and multiple other countries. The patents and applications in xCella’s owned portfolio are expected to expire between 2036 and 2040.
OmniAb’s intellectual property will remain with OmniAb following the planned separation of OmniAb into a new public company. For more information regarding the OmniAb separation, see “Business—2021 and Recent Major Business Highlights—The Separation and Distribution of OmniAb Business.”
Ligand UK Development Limited
Under the terms of our sale of Vernalis (R&D) Limited to HitGen in December 2020, Ligand retained a portfolio of fully-funded shots on goal, which now include S65487, a Bcl-2 inhibitor, and S64315, an Mcl-1 inhibitor for treatment of cancers, both of which are partnered with Servier in collaboration with Novartis, VER250840 (an oral, selective Chk1 inhibitor for treatment of cancer), and V158866, a novel, oral, selective fatty acid amide hydrolase (FAAH) inhibitor for CNS disorders, partnered with Neuritek Therapeutics. These programs and their IP are now owned by Ligand UK Development Limited, which
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has a worldwide patent portfolio of over 200 granted patents in over 70 countries. This patent portfolio is mature, with expected expiry dates between 2022 and 2033.
Pelican Expression Technology Platform
We acquired the Pelican Expression Technology platform through acquisition of Pfenex Inc. in October 2020. This acquisition brought a robust portfolio of patents and patent applications along with substantial know-how and trade secrets which protect various aspects of our core Pelican Expression Technology business. As of December 31, 2021, we were the sole owner of a patent portfolio that consisted of over 200 patents and 50 pending patent applications worldwide that provide material coverage for our platform technology, licensed products and product candidates. Our U.S. issued patents expire during the time period beginning in 2025 and ending in 2038. Our owned and exclusively licensed patent portfolio includes claims directed to methods for recombinant protein production and methods for rapid screening of an array of expression systems, tools for protein expression such as P. fluorescens promoters, secretion leaders, plasmid maintenance systems, improved methods for non-standard amino acid incorporation and fusion partners for peptide production. In addition, our IP covers methods for producing certain classes of proteins such as cytokines, growth factors and antibody derivatives, as well as expression strains and methods for production, purification and formulation of certain vaccine antigens, peptides, therapeutic enzymes, human cytokines, etc.
Human Capital Management
We recognize and take care of our employees by offering a wide range of competitive pay, recognition, and benefit programs. We are proud to provide our employees the opportunity to grow and advance as we invest in their education and career development. As of December 31, 2021, we have 154 employees, of whom 118 are involved directly in scientific research and development activities.
We rely on skilled, experienced, and innovative employees to conduct the operations of our company. Our key human capital objectives include identifying, recruiting, retaining, incentivizing and integrating our existing and new employees. We frequently benchmark our compensation practices and benefits programs against those of comparable industries and in the geographic areas where our facilities are located. We believe that our compensation and employee benefits are competitive and allow us to attract and retain skilled labor throughout our organization. Our notable health, welfare and retirement benefits include:
•equity awards through our 2002 Stock Incentive Plan;
•subsidized health insurance;
•401(k) Plan with matching contributions;
•tuition assistance program; and
•paid time off.
We strive to maintain an inclusive environment free from discrimination of any kind, including sexual or other discriminatory harassment. Our employees have multiple avenues available through which inappropriate behavior can be reported, including a confidential hotline. All reports of inappropriate behavior are promptly investigated with appropriate action taken to stop such behavior.
Investor Information
Financial and other information about us is available on our website at www.ligand.com. We make available on our website, without charge, copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. You may obtain copies of these documents by visiting the SEC’s website at www.sec.gov. In addition, we use Twitter (@Ligand_LGND) and our investor relations website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Investors should monitor our Twitter account and our website, in addition to following our press releases, SEC filings, public conference calls and webcasts. These website addresses and the information accessible through out Twitter account are not intended to function as hyperlinks, and the information contained in our website and in the SEC’s website is not intended to be a part of this filing.
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ITEM 1A. | RISK FACTORS

The following is a summary description of some of the many risks we face in our business. You should carefully review these risks in evaluating our business, including the businesses of our subsidiaries. You should also consider the other information described in this report. Additional risks not presently known to us or that we currently deem immaterial also may impair our business.
Risks Related to Our Business Operations and Reliance on Third Parties:
Future revenue based on Kyprolis and Evomela, as well as royalties from our other partnered products, may be lower than expected.
A significant portion of our royalty revenue is based on sales of Kyprolis by Amgen and sales of Evomela by Acrotech Biopharma. Royalties, including payments from Amgen and Acrotech Biopharma, are expected to be a substantial portion of our ongoing revenues for the foreseeable future. Any setback that may occur with respect to any of our partners' products, and in particular Kyprolis, could significantly impair our operating results and/or reduce our revenue and the market price of our stock. Setbacks for the products could include problems with shipping, distribution, manufacturing, product safety, marketing, government regulation or reimbursement, licenses and approvals, intellectual property rights, including Amgen's or Acrotech Biopharma's failure to enforce their respective intellectual property rights, competition with existing or new products and physician or patient acceptance of the products, as well as higher than expected total rebates, returns, discounts, or unfavorable exchange rates. These products also are or may become subject to generic competition. For example, we entered into a settlement agreement with Teva and Acrotech Biopharma (the holder of the NDA for Evomela) which will allow Teva to market a generic version of Evomela in the United States on June 1, 2026, or earlier under certain circumstances. The entry of generic competition for Evomela may materially and adversely affect the revenue we derive from Evomela sales. Also, Amgen has settled patent litigation related to Kyprolis on confidential terms with several parties, but it has been publicly reported that the U.S. launch date for at least Breckenridge Pharmaceuticals’ applicable generic product will be “on a date that is held as confidential in 2027 or sooner, depending on certain occurrences.”
Future revenue from sales of Captisol material to our license partners may be lower than expected.
Revenues from sales of Captisol material to our collaborative partners, including Amgen, Gilead and the Gilead consortium, represent a significant portion of our current revenues. Any setback that may occur with respect to Captisol could significantly impair our operating results and/or reduce the market price of our stock. Setbacks for Captisol could include problems with shipping, distribution, manufacturing, product safety, marketing, government regulation or reimbursement, licenses and approvals, intellectual property rights, competition with existing or new products and physician or patient acceptance of the products using Captisol. In addition, revenue from Captisol sales related to remdesivir may not continue or materially increase due to a number of factors, including: if Gilead successfully develops or manufactures an alternative formulation of remdesivir that does not incorporate Captisol or uses less Captisol in such formulation; if remdesivir is later shown to not be effective or safe for the treatment of COVID-19; the FDA revises or revokes its approval of remdesivir; if alternative therapies or vaccines are approved, including potential treatments for COVID-19 in pill or other forms that are being developed or which may be developed by other companies; or the risk of COVID-19 infection significantly diminishes, in which case the commercial opportunity could be materially and adversely affected. For example, Gilead has announced plans to develop an inhaled dosage form of remdesivir that uses less Captisol than the current formulation and expects results from an ongoing proof-of-concept study later this year.
If products or product candidates incorporating Captisol material were to cause any unexpected adverse events, the perception of Captisol safety could be seriously harmed. If this were to occur, we may not be able to sell Captisol unless and until we are able to demonstrate that the adverse event was unrelated to Captisol, which we may not be able to do. Further, the FDA could require us to submit additional information for regulatory review or approval, including data from extensive safety testing or clinical testing of products using Captisol. This would be expensive and it may delay the marketing of Captisol-enabled products and receipt of revenue related to those products, which could significantly impair our operating results and/or reduce the market price of our stock.
We obtain Captisol from Hovione, our third party manufacturer, primarily at their facilities in Ireland and Portugal. If Hovione were to cease to be able, for any reason, to supply Captisol to us in the amounts we require, or decline to supply Captisol to us, we would be required to seek an alternative source, which could potentially take a considerable length of time and impact our revenue and customer relationships. In the event of a Captisol supply interruption, we are permitted to designate and, with Hovione’s assistance, qualify one or more alternate suppliers, although there is no assurance that we could do so timely or at an acceptable costs, if at all. In addition to manufacturing at Hovione’s facilities in Ireland and Portugal, we have now added final step processing capacity for Captisol in both the United States and England.
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We maintain inventory of Captisol, which has a five year shelf life, at three geographically dispersed storage locations in the United States and Europe. If we were to encounter problems maintaining our inventory, such as natural disasters, at one or more of these locations, it could lead to supply interruptions. In addition, we will rely on Hovione to expand manufacturing capacity of Captisol and any failure by Hovione to timely implement such increased capacity could adversely affect our ability to supply Captisol to our partners. While we believe we maintain adequate inventory of Captisol to meet our current partner needs, and our planned expansion of Captisol capacity will be sufficient to meet future partner needs, our estimates and projections for Captisol demand may not be correct and any supply interruptions could materially adversely impact our operating results. In addition, our plan to invest additional capital for the expansion of Captisol manufacturing capacity may not yield a return on investment if future Captisol sales fall below our expectations.
We currently depend on our arrangements with our partners and licensees to sell products using our Captisol technology. These agreements generally provide that our partners may terminate the agreements at will. If our partners discontinue sales of products using Captisol, fail to obtain regulatory approval for products using Captisol, fail to satisfy their obligations under their agreements with us, choose to utilize a competing product, or if we are unable to establish new licensing and marketing relationships, our financial results and growth prospects would be materially affected. Furthermore, we maintain significant accounts receivable balances with certain customers purchasing Captisol materials, which may result in the concentration of credit risk. We generally do not require any collateral from our customers to secure payment of these accounts receivable. If any of our major customers were to default in the payment of their obligations to us, our business, operating results and cash flows could be adversely affected.
Further, under most of our Captisol outlicenses, the amount of royalties we receive will be reduced or will cease when the relevant patent expires. Our low-chloride patents and foreign equivalents are not expected to expire until 2033, our high purity patents and foreign equivalents, are not expected to expire until 2029 and our morphology patents and foreign equivalents, are not expected to expire until 2026 in the United States, but the initially filed patents relating to Captisol expired starting in 2010 in the United States and in 2016 in most countries outside the United States. If our other intellectual property rights are not sufficient to prevent a generic form of Captisol from coming to market and if in such case our partners choose to terminate their agreements with us, our Captisol revenue may decrease significantly.
We rely heavily on collaboration relationships to generate milestone and royalty payments and our collaboration partners have significant discretion when deciding whether to pursue any development program, and any failure by our partners to successfully develop a product candidate or a termination or breach of any of the related agreements could reduce our milestone and license fee revenue, and potentially reduce future royalties.
Our strategy for developing and commercializing many of our product candidates includes entering into collaboration agreements, outlicenses, and development funding and royalty purchase agreements with corporate partners and others. These agreements give our collaboration partners significant discretion when deciding whether or not to pursue any development program. Our existing collaborations may not continue or be successful, and we may be unable to enter into future collaboration arrangements to develop and commercialize our unpartnered assets.
In addition, our collaborators may develop products, either alone or with others that compete with the types of products they are developing with us (or that we are developing on our own). This would result in increased competition for our or our partners' programs. If product candidates are approved for marketing under our collaboration programs, revenues we receive will depend on the manufacturing, marketing and sales efforts of our collaboration partners, who generally retain commercialization rights under the collaboration agreements. Generally, our current collaboration partners also have the right to terminate their collaborations at will or under specified circumstances. If any of our collaboration partners breach (for example, by not making required payments when due, or at all) or terminate their agreements with us or otherwise fail to conduct their collaboration activities successfully, including due to insolvency events, ongoing product development under these agreements will be delayed or terminated. Disputes or litigation may also arise with our collaborators (with us and/or with one or more third parties), including those over ownership rights to intellectual property, know-how or technologies developed with our collaborators. Such disputes or litigation could adversely affect our rights to one or more of our product candidates. Any such dispute or litigation could delay, interrupt or terminate the collaboration research, development and commercialization of certain potential products, create uncertainty as to ownership rights of intellectual property, or could result in litigation or arbitration. The occurrence of any of these problems could be time-consuming and expensive and could adversely affect our business.
Our collaboration partners may change their strategy or the focus of their development and commercialization efforts with respect to our partnered programs, and the success of our partnered programs could be adversely affected.
If our collaboration partners terminate their collaborations with us or do not commit sufficient resources to the development, manufacture, marketing or distribution of our partnered programs, we could be required to devote additional resources to our partnered programs, seek new collaboration partners or abandon such partnered programs, all of which could reduce our revenues and otherwise have an adverse effect on our business. For example, several of our collaboration partners
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using our OmniAb antibody platform have terminated their contracts or substantially reduced their investment in the antibodies discovered based on the platform. Although we expect growth in the net number of partners with one more active programs based on antibodies discovered using our OmniAb platform, there can be no assurance that our partners will continue their programs or that we will be able to find new collaboration partners interested in discovering antibodies based on our OmniAb platform.
In addition, biopharmaceutical development is inherently uncertain and very few therapeutic candidates ultimately progress through clinical development and receive approval for commercialization. If our partners do not receive regulatory approval for a sufficient number of therapeutic candidates originating from our partnerships, we may not be able to sustain our business model.
Our product candidates, and the product candidates of our partners, face significant development and regulatory hurdles prior to partnering and/or marketing which could delay or prevent licensing, sales-based royalties and/or milestone revenue.
Before we or our partners obtain the approvals necessary to sell any of our unpartnered assets or partnered programs, we must show through preclinical studies and human testing that each potential product is safe and effective. We and/or our partners have a number of partnered programs and unpartnered assets moving toward or currently awaiting regulatory action. Failure to show any product's safety and effectiveness could delay or prevent regulatory approval of a product and could adversely affect our business. The product development and clinical trials process is complex and uncertain. For example, the results of preclinical studies and initial clinical trials may not necessarily predict the results from later large-scale clinical trials. In addition, clinical trials may not demonstrate a product's safety and effectiveness to the satisfaction of the regulatory authorities. A number of companies have suffered significant setbacks in advanced clinical trials or in seeking regulatory approvals, despite promising results in earlier trials. The FDA may also require additional clinical trials after regulatory approvals are received. Such additional trials may be expensive and time-consuming, and failure to successfully conduct those trials could jeopardize continued commercialization of a product.
The speed at which we and our partners complete our scientific studies and clinical trials depends on many factors, including, but not limited to, the ability to obtain adequate supplies of the products to be tested and patient enrollment. Patient enrollment is a function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial and other potential drug candidates being studied. Delays in patient enrollment for our or our partners’ trials may result in increased costs and longer development times. In addition, our partners have rights to control product development and clinical programs for products developed under our collaborations. As a result, these partners may conduct these programs more slowly or in a different manner than expected. Moreover, even if clinical trials are completed, we or our partners still may not apply for FDA or foreign regulatory approval in a timely manner or the FDA or foreign regulatory authority still may not grant approval.
Our product candidate discovery, early-stage development, and product reformulation programs may require substantial additional capital to complete successfully. Our partners’ development programs may require substantial additional capital to complete successfully, arising from costs to: conduct research, preclinical testing and human studies; establish pilot scale and commercial scale manufacturing processes and facilities; and establish and develop quality control, regulatory, marketing, sales and administrative capabilities to support these programs. While we expect to fund our research and development activities from cash generated from operations to the extent possible, if we are unable to do so, we may need to complete additional equity or debt financings or seek other external means of financing. These financings could depress our stock price. If additional funds are required to support our operations and we are unable to obtain them on terms favorable to us, we may be required to cease or reduce further development or commercialization of our products, to sell some or all of our technology or assets or to merge with another entity.
Our OmniAb antibody platform faces specific risks, including the quality of our antibody discovery platform and technological capabilities and their acceptance by new and existing partners in our market.
We utilize our OmniAb technology platform to discover antibodies for further development and potential commercialization by our partners. As a result, the quality and sophistication of our platform is critical to our ability to conduct our research discovery activities and to deliver more promising antibodies and other drugs and to accelerate and lower the costs of discovery as compared to traditional methods for our partnerships. Failure of antibodies discovered using our platform can occur at any stage of discovery, preclinical or clinical development, and any such failures may reduce our partners’ confidence in our platform. We also believe that pharmaceutical and biotechnology companies are likely to be particularly sensitive to defects and errors in the use of our platform, including if our platform fails to deliver meaningful acceleration of certain research timelines accompanied by results at least as good as the results generated using legacy or other alternative technologies. There can be no guarantee that our platform will meet the expectations of pharmaceutical and biotechnology companies. If we are unsuccessful in achieving and maintaining market acceptance of our platform, our business, financial condition, results of operations and prospects could be adversely affected.
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Further, we face significant competition from other companies selling human antibody-generating rodents, especially mice which compete with our OmniMouse platform, including the VelocImmune mouse, the AlivaMab mouse, the Alloy mouse and the Kymouse. Many of our competitors have greater financial, technical and human resources than we do and may be better equipped to develop, manufacture and market competing antibody platforms. Our competitors may render our OmniAb antibody platform obsolete, or limit the commercial value of any product candidates developed using our platform, by advances in existing technological approaches or the development of new or different approaches, potentially eliminating the advantages that we believe our platform offers.
The OmniAb antibody platform could become subject to more extensive government regulation than we currently anticipate, and regulatory compliance obligations and the investigational exemption and approval processes to which our animals may become subject are expensive, time-consuming and uncertain both in timing and in outcome.
We believe our OmniAb platform operations are currently subject to limited direct regulation by the FDA, EMA, comparable foreign authorities or other regulatory bodies. However, our business could in future become subject to more direct oversight by the FDA, EMA or other comparable domestic or international agencies. For example, we may be subject to evolving and variable regulations governing the production of genetically engineered organisms. In particular, the FDA regulates animals whose genomes have been intentionally altered, and the FDA considers such alterations to be new animal drugs that may require approvals or exemptions in order to be commercially marketed or for investigational use in the United States. For example, we have been in communication with the FDA regarding the regulatory requirements applicable to our OmniChickens designed to produce human immunoglobulins, and the FDA has advised us that such approvals or exemptions are not required in light of the early stage of our research. However, the FDA may determine that we are not in compliance with the conditions imposed upon us to avoid the requirement for such approvals or exemptions at present or we may later become subject to such approvals or exemptions. Furthermore, while we have no active plans to operate a manufacturing facility designed to comply with current good manufacturing practices (cGMPs), future market pressures or the lack of available capacity at cGMP manufacturing facilities may necessitate our entry into this market. Complying with such regulations may be expensive, time-consuming and uncertain, and if we fail to comply with any applicable requirements enforced by the FDA with respect to our intentionally genetically altered animals or otherwise, we may be subject to administratively or judicially imposed sanctions, including restrictions on our products or operations, warning or untitled letters, civil or criminal penalties, injunctions, product seizures, product detentions, import bans, product recalls, or adverse publicity requirements, any of which could have an adverse effect on our business, financial condition and operating results.
Our OmniAb antibody platform utilizes various species of animals that could contract disease or die and could otherwise subject us to controversy and adverse publicity, which may interrupt our business operations or harm our reputation.
Our OmniAb platform utilizes animals to discover and produce antibodies. We cannot completely eliminate the risks of animals contracting disease, which from time to time has occurred, or a natural or manmade disaster that could cause death to valuable production animals, in our vivarium facilities, which house our chickens, or those of the contract research organizations (CROs) that maintain our mouse and rat colonies. We cannot make any assurance that we or our CROs will be able to contain or reverse any such instance of disease. Although we maintain backup colonies of our animals, disease or death on a broad scale could materially interrupt business operations as animals are a key part of our antibody discovery programs, which could have a material adverse effect on our results of operations and financial condition.
Further, genetic engineering and testing of animals has been the subject of controversy and adverse publicity. Animal rights groups and other organizations and individuals have attempted to stop animal testing activities by pressing for legislation and regulation in these areas and by disrupting these activities through protests and other means. To the extent the activities of these groups are successful, our research and development activities and the ability for us and our partners to use our technology platform could be interrupted or delayed, our costs could increase and our reputation could be harmed.
Our plan to separate into two independent, publicly traded companies is subject to various risks and uncertainties and may not be completed in accordance with the expected plans or anticipated timeline, or at all and may not achieve the intended benefits, and will involve significant time, expense and management attention, any of which could negatively impact our businesses, financial condition and results of operations.
In November 2021, we announced our intention to split Ligand into two separate, publicly traded companies with one featuring the OmniAb business, including Ab Initio computational antigen design, Icagen’s ion channel technology, xPloration high-throughput screening technology, and the suite of OmniAb animals used for antibody discovery and the other featuring Ligand’s existing collection of core royalties, technologies, pipeline and contracts associated with the Pelican protein expression platform and the Captisol business. Although an IPO and eventual distribution of OmniAb shares to Ligand shareholders was the leading option under consideration at that time, due to market conditions and further review from management and advisors, we expect to achieve the separation through a direct spin of 100% of OmniAb equity to shareholders with Ligand capitalizing the OmniAb business directly. Although we currently are pursuing a direct spin, we will continue to evaluate other options to optimize value and ensure flexibility to invest in growth, including keeping the business together. We
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expect OmniAb to file a Form 10 with the SEC and complete its separation in the first half of 2022. The separation, if pursued, will be subject to market, tax and legal considerations, final approval by our Board of Directors and other customary requirements, and may not occur on the expected timeframe, or at all. Unanticipated developments, including difficulty in separating the assets and resources of our OmniAb business from the rest of our assets and resources, changes to the competitive environment for OmniAb’s or our respective businesses, possible delays in obtaining or failure to obtain tax opinions, regulatory or other approvals or clearances to approve or facilitate the separation, uncertainty in financial markets and other challenges in executing the separation, as planned, could delay or cause the separation to occur on terms or conditions that are different or less favorable than expected.
Executing the proposed separation also requires significant time and attention from management and other employees, which could distract them from other tasks in operating our business. Our plans to pursue the separation may also have negative effects on relationships with our employees, partners, suppliers, and other third parties, disruptions in operations and ultimately harm our businesses, financial condition, results of operations and prospects. Even if the separation is completed, we may not realize some or all of the anticipated strategic, operational and financial benefits from the separation. Following the proposed separation, the combined value of the common stock of the two publicly-traded companies may not be equal to or greater than what the value of our common stock would have been had the proposed separation not occurred.
Our business is subject to risks arising from epidemic diseases, such as the recent COVID-19 pandemic, which has impacted and could continue to impact our business.
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 continue to take 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, at various times during the pandemic, 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. Although we have since lifted most of the restrictions we previously imposed and currently do not believe the COVID-19 pandemic is having a material impact on our business, we cannot guarantee that the COVID-19 pandemic, or a similar event, will not impact our operations in the future.
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. Although we believe that we and our partners have adjusted our business practices to the impacts of the COVID-19 pandemic, we may experience disruptions that could severely impact our business, drug manufacturing and supply chain, nonclinical activities and clinical trials and our partners’ business may be impacted in similar ways, including due to:
•delays or difficulties in enrolling patients in clinical trials;
•delays or difficulties in clinical site initiation, including difficulties in recruiting or supporting clinical site investigators and clinical site staff;
•diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as clinical trial sites and hospital staff supporting the conduct of clinical trials;
•interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others or interruption of clinical trial subject visits and study procedures, which may impact the integrity of subject data and clinical study endpoints;
•interruption or delays in the operations of the FDA or other regulatory authorities, which may impact review and approval timelines;
•interruption of, or delays in receiving, supplies of Captisol or other product or product candidates from contract manufacturing organizations due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems, which may result in cancellations of Captisol orders or refunds if we fail to deliver Captisol timely;
•delays in clinical sites receiving the supplies and materials needed to conduct clinical trials and interruption in global shipping that may affect the transport of clinical trial materials;
•interruptions in nonclinical studies due to restricted or limited operations at laboratory facility or those of outsourced service providers;
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•limitations on employee resources that would otherwise be focused on the conduct of nonclinical studies or clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people;
•delays in receiving approval from local regulatory authorities to initiate planned clinical trials;
•changes in local regulations as part of a response to COVID-19 which may require us to change the ways in which clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;
•delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees;
•refusal of the FDA to accept data from clinical trials in affected geographies outside the United States;
•interruption or delays to discovery and development pipelines; and
•difficulties launching or commercializing products, including due to reduced access to doctors as a result of social distancing protocols.
In addition, if COVID-19 infects our genetically modified animals which form the basis of our OmniAb platform, or if there is an outbreak among our employees who maintain and care for these animals, we and our partners may be unable to produce antibodies for development. Further, the spread of COVID-19 has had and may continue to severely impact the trading price of shares of our common stock and could further severely impact our ability to raise additional capital on a timely basis or at all.
The COVID-19 pandemic continues to evolve. The extent to which the COVID-19 may impact our business, including our drug manufacturing and supply chain, nonclinical activities, clinical trials and financial condition, including due to impacts on our partners’ businesses, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.
Risks Related to Intellectual Property:
Third party intellectual property may prevent us or our partners from developing our potential products; our and our partners’ intellectual property may not prevent competition; and any intellectual property issues may be expensive and time consuming to resolve.
The manufacture, use or sale of our potential products or our licensees' products or potential products may infringe the patent rights of others. If others obtain patents with conflicting claims, we may be required to obtain licenses to those patents or to develop or obtain alternative technology. We may not be able to obtain any such licenses on acceptable terms, or at all. Any failure to obtain such licenses could delay or prevent us from pursuing the development or commercialization of our potential products.
Generally, our success will depend on our ability and the ability of our partners to obtain and maintain patents and other intellectual property rights for our and their potential products. Our patent position is uncertain and involves complex legal and technical questions for which legal principles are unresolved. Even if we or our partners do obtain patents, such patents may not adequately protect the technology we own or have licensed.
We permit our partners to list our patents that cover their branded products in the Orange Book. If a third party submits an NDA or ANDA for a generic drug product that relies in whole or in part on studies contained in our partner’s NDA for their branded product, the third party will have the option to certify to the FDA that, in the opinion of that third party, the patents listed in the Orange Book for our partner’s branded product are invalid, unenforceable, or will not be infringed by the manufacture, use or sale of the third party’s generic drug product. A third party certification that a new product will not infringe Orange Book-listed patents, or that such patents are invalid, is called a paragraph IV patent certification. If the third party submits a paragraph IV patent certification to the FDA, a notice of the paragraph IV patent certification must be sent to the NDA owner and the owner of the patents that are subject to the paragraph IV patent certification notice once the third-party’s NDA or ANDA is accepted for filing by the FDA. A lawsuit may then be initiated to defend the patents identified in the notice. The filing of a patent infringement lawsuit within 45 days of the receipt of notice of a paragraph IV patent certification automatically prevents the FDA from approving the generic NDA or ANDA until the earlier of the expiration of a 30-month period, the expiration of the patents, the entry of a settlement order stating that the patents are invalid or not infringed, a decision in the infringement case that is favorable to the NDA or ANDA applicant, or such shorter or longer period as the court may order. If a patent infringement lawsuit is not initiated within the required 45-day period, the third-party’s NDA or ANDA will not be subject to the 30-month stay.
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Several third-parties have challenged, and additional third parties may challenge, the patents covering our partner’s branded products, including Kyprolis and Evomela, which could result in the invalidation or unenforceability of some or all of the relevant patent claims. We may from time to time become party to litigation or other proceedings as a result of Paragraph IV certifications. For example, as a result of the settlement of one such matter, Teva will be permitted to market a generic version of Evomela® in the United States on June 1, 2026 or earlier under certain circumstances. The terms of the settlement agreement are otherwise confidential. Also, as noted above, Amgen has settled patent litigation related to Kyprolis on confidential terms with several parties, but it has been publicly reported that the U.S. launch date for at least Breckenridge Pharmaceuticals’ applicable generic product will be “on a date that is held as confidential in 2027 or sooner, depending on certain occurrences.”
In addition, we cannot assure you that all of the potentially relevant prior art information that was or is deemed available to a person of skill in the relevant art prior to the priority date of the claimed invention-relating to our and our partners’ patents and patent applications has been found. If such prior art exists, it can invalidate a patent or prevent a patent from issuing from a pending patent application, and we or our partners may be subject to a third party pre-issuance submission of prior art to the United States Patent and Trademark Office. Even if patents do successfully issue and even if such patents cover our or our partner’s products or potential products, third parties may initiate litigation or opposition, interference, re-examination, post-grant review, inter partes review, nullification or derivation action in court or before patent offices, or similar proceedings challenging the validity, enforceability or scope of such patents, which may result in the patent claims being narrowed or invalidated, may allow third parties to commercialize our or our partners’ products and compete directly with us and our partners, without payment to us or our partners, or limit the duration of the patent protection of our and our partners’ technology and products.
Litigation or other proceedings to enforce or defend intellectual property rights are often very complex in nature, may be very expensive and time-consuming, may divert our management’s attention from our core business, and may result in unfavorable results that could adversely impact our ability to prevent third parties from competing with our partner’s products. Any adverse outcome of such litigation or other proceedings could result in one or more or our patents being held invalid or unenforceable, which could adversely affect our ability to successfully execute our business strategy and negatively impact our financial condition and results of operations. However, given the unpredictability inherent in litigation, we cannot predict or guarantee the outcome of these matters or any other litigation. Regardless of how these matters are ultimately resolved, these matters may be costly, time-consuming and distracting to our management, which could have a material adverse effect on our business.
In addition, periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and or applications will be due to the U.S. and various foreign patent offices at various points over the lifetime of our and our licensees’ patents and/or applications. We have systems in place to remind us to pay these fees, and we rely on our outside patent annuity service to pay these fees when due. Additionally, the U.S. and various foreign patent offices require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with rules applicable to the particular jurisdiction. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If such an event were to occur, it could have a material adverse effect on our business.
Any conflicts with the patent rights of others could significantly reduce the coverage of our patents or limit our ability to obtain meaningful patent protection. For example, our European patent related to Agglomerated forms of Captisol was limited during an opposition proceeding, and the rejection of our European patent application related to High Purity Captisol was upheld on appeal. In addition, any determination that our patent rights are invalid may result in early termination of our agreements with our license partners and could adversely affect our ability to enter into new license agreements. We also rely on unpatented trade secrets and know-how to protect and maintain our competitive position. We require our employees, consultants, licensees and others to sign confidentiality agreements when they begin their relationship with us. These agreements may be breached, and we may not have adequate remedies for any breach. In addition, our competitors may independently discover our trade secrets.
We may also need to initiate litigation, which could be time-consuming and expensive, to enforce our proprietary rights or to determine the scope and validity of others' rights. If this occurs, a court may find our patents or those of our licensors invalid or may find that we have infringed on a competitor's rights. In addition, if any of our competitors have filed patent applications in the United States which claim technology we also have invented, the United States Patent and Trademark Office may require us to participate in expensive interference proceedings to determine who has the right to a patent for the technology.
The occurrence of any of the foregoing problems could be time-consuming and expensive and could adversely affect our financial position, liquidity and results of operations.
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The validity, scope and enforceability of any patents that cover our partners’ biologic product candidate can be challenged by third parties.
For biologics, the Biologics Price Competition and Innovation Act of 2009, BPCIA, provides a mechanism for one or more third parties to seek FDA approval to manufacture or sell biosimilar or interchangeable versions of brand name biological products. Due to the large size and complexity of biological products, as compared to small molecules, a biosimilar must be “highly similar” to the reference product with “no clinically meaningful differences between the two.” The BPCIA does not require reference product sponsors to list patents in an Orange Book and does not include an automatic 30-month stay of FDA approval upon the timely filing of a lawsuit. The BPCIA, however, does require a formal pre-litigation process which includes the exchange of information between a biosimilar applicant and a reference biologic sponsor that includes the identification of relevant patents and each parties’ basis for infringement and invalidity. After the exchange of this information, sponsors may then initiate a lawsuit within 30 days to defend the patents identified in the exchange. If the biosimilar applicant successfully challenges the asserted patent claims it could result in the invalidation of, or render unenforceable, some or all of the relevant patent claims or result in a finding of non-infringement. Such litigation or other proceedings to enforce or defend intellectual property rights are often very complex in nature, may be very expensive and time-consuming, may divert our management’s attention from our core business, and may result in unfavorable results that could limit our partners’ ability to prevent third parties from competing with their products or product candidates.
Risks Related to Government Regulation and Legal Proceedings:
Market acceptance and sales of any approved product will depend significantly on the availability and adequacy of coverage and reimbursement from third-party payors and may be affected by existing and future healthcare reform measures.
Sales of the products we license to our collaboration partners and the royalties we receive will depend in large part on the extent to which coverage and reimbursement is available from government and health administration authorities, private health maintenance organizations and health insurers, and other healthcare payors. Significant uncertainty exists as to the reimbursement status of healthcare products. Healthcare payors, including Medicare, are challenging the prices charged for medical products and services. Government and other healthcare payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement for medical products. Even if a product is approved by the FDA, insurance coverage may not be available, and reimbursement levels may be inadequate, to cover the costs associated with the research, development, marketing and sale of the product. If government and other healthcare payors do not provide adequate coverage and reimbursement levels for any product, market acceptance and any sales could be reduced.
From time to time, legislation is implemented to reign in rising healthcare expenditures. By way of example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the ACA, was enacted, which included a number of provisions affecting the pharmaceutical industry, including, among other things, annual, non-deductible fees on any entity that manufactures or imports some types of branded prescription drugs and increases in Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program. Since its enactment, there have been judicial, executive and Congressional challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. Prior to the Supreme Court’s decision, President Biden had issued an executive order to initiate a special enrollment period from February 15, 2021 through August 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA.
Other legislative changes have been proposed and adopted since the ACA was enacted, including aggregate reductions of Medicare payments to providers of 2% per fiscal year, which was temporarily suspended from March 1, 2020 through March 31, 2022, and reduced payments to several types of Medicare providers. Moreover, there has recently been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed bills designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. Individual states in the United States have also become increasingly active in implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. We cannot predict whether other legislative changes will be adopted, if any, or how such changes would affect our operations or financial condition.
If we or our commercialization partners market products in a manner that violates healthcare laws, we may be subject to civil or criminal penalties.
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We and our collaboration partners are subject to federal and state healthcare laws, including fraud and abuse, anti-kickback, false claims, physician payment transparency and civil monetary penalties. These laws may impact, among other things, financial arrangements with physicians, sales, marketing and education programs and the manner in which any of those activities are implemented. If our operations or those of our collaboration partners are found to be in violation of any of those laws or any other applicable governmental regulations, we or our collaboration partners may be subject to penalties, including civil and criminal penalties, damages, fines, imprisonment, exclusion from government healthcare programs or the curtailment or restructuring of operations, any of which could adversely affect our ability to operate our business and our financial condition.
Changes in and actual or perceived failures to comply with applicable data privacy, security and protection laws, regulations, standards and contractual obligations may adversely affect our business, operations and financial performance.
We and our partners may be subject to federal, state, and foreign laws and regulations that govern data privacy and security. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing focus on privacy and data protection issues, which may affect our business and may increase our compliance costs and exposure to liability. In the United States, numerous federal and state laws and regulations govern the collection, use, disclosure, and protection of personal information, including state data breach notification laws, federal and state health information privacy laws, and federal and state consumer protection laws. Each of these laws is subject to varying interpretations by courts and government agencies, creating complex compliance issues. If we fail to comply with applicable laws and regulations we could be subject to penalties or sanctions, including criminal penalties if we knowingly obtain or disclose individually identifiable health information from a covered entity in a manner that is not authorized or permitted by HIPAA or applicable state laws.
We are also or may become subject to rapidly evolving data protection laws, rules and regulations in foreign jurisdictions. For example, the European Union General Data Protection Regulation (GDPR) governs certain collection and other processing activities involving personal data about individuals in the European Economic Area (EEA). Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to provide adequate protection to such personal data, including the United States; in July 2020, the Court of Justice of the European Union (CJEU) limited how organizations could lawfully transfer personal data from the EU/EEA to the United States by invalidating the Privacy Shield for purposes of international transfers and imposing further restrictions on the use of standard contractual clauses (SCCs). The European Commission issued revised SCCs on June 4, 2021 to account for the decision of the CJEU and recommendations made by the European Data Protection Board. The revised SCCs must be used for relevant new data transfers from September 27, 2021; existing standard contractual clauses arrangements must be migrated to the revised clauses by December 27, 2022. The new SCCs apply only to the transfer of personal data outside of the EEA and not the United Kingdom; the UK’s Information Commissioner’s Office launched a public consultation on its draft revised data transfers mechanisms in August 2021 and laid its proposal before Parliament, with the UK SCCs expected to come into force in March 2022, with a two-year grace period. There is some uncertainty around whether the revised clauses can be used for all types of data transfers, particularly whether they can be relied on for data transfers to non-EEA entities subject to the GDPR. As supervisory authorities issue further guidance on personal data export mechanisms, including circumstances where the SCCs cannot be used, and/or start taking enforcement action, we could suffer additional costs, complaints and/or regulatory investigations or fines, and/or if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we provide our services, the geographical location or segregation of our relevant systems and operations, and could adversely affect our financial results.
Compliance with applicable data privacy and security laws, rules and regulations could require us to take on more onerous obligations in our contracts, require us to engage in costly compliance exercises, restrict our ability to collect, use and disclose data, or in some cases, impact our or our partners’ ability to operate in certain jurisdictions. Each of these constantly evolving laws can be subject to varying interpretations. If we fail to comply with any such laws, rules or regulations, we may face government investigations and/or enforcement actions, fines, civil or criminal penalties, private litigation or adverse publicity that could adversely affect our business, financial condition and results of operations.
Changes in funding for the FDA and other government agencies could hinder their ability to hire and retain key leadership and other personnel, or otherwise prevent new products and services from being developed or commercialized in a timely manner, which could negatively impact our business or the business of our partners.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the FDA have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.
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Disruptions at the FDA and other agencies may also slow the time necessary for new drugs and biologics to be reviewed and/or approved by necessary government agencies, which would adversely affect our business or the business of our partners. For example, over the last several years, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. If the timing of FDA’s review and approval of new products is delayed, the timing of our or our partners’ development process may be delayed which would result in delayed milestone revenues and materially harm our operations of business.
Separately, in response to the COVID-19 pandemic, in March 2020, the FDA announced its intention to postpone most inspections of foreign manufacturing facilities, and on March 18, 2020, the FDA temporarily postponed routine surveillance inspections of domestic manufacturing facilities. Subsequently, in July 2020, the FDA resumed certain on-site inspections of domestic manufacturing facilities subject to a risk-based prioritization system. The FDA utilized this risk-based assessment system to assist in determining when and where it was safest to conduct prioritized domestic inspections. Additionally, on April 15, 2021, the FDA issued a guidance document in which the FDA described its plans to conduct voluntary remote interactive evaluations of certain drug manufacturing facilities and clinical research sites, among other facilities. According to the guidance, the FDA may request such remote interactive evaluations where the FDA determines that remote evaluation would be appropriate based on mission needs and travel limitations. In May 2021, the FDA outlined a detailed plan to move toward a more consistent state of inspectional operations, and in July 2021, the FDA resumed standard inspectional operations of domestic facilities and was continuing to maintain this level of operation as of September 2021. More recently, the FDA has continued to monitor and implement changes to its inspectional activities to ensure the safety of its employees and those of the firms it regulates as it adapts to the evolving COVID-19 pandemic. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic. If a prolonged government shutdown occurs, or if global health concerns continue to hinder or prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.
If plaintiffs bring product liability lawsuits against us or our partners, we or our partners may incur substantial liabilities and may be required to limit commercialization of our approved products and product candidates.
As is common in our industry, our partners and we face an inherent risk of product liability as a result of the clinical testing of our product candidates in clinical trials and face an even greater risk for commercialized products. Although we are not currently a party to product liability litigation, if we are sued, we may be held liable if any product or product candidate we develop causes injury or is found otherwise unsuitable during product testing, manufacturing, marketing or sale. Regardless of merit or eventual outcome, liability claims may result in decreased demand for any product candidates, partnered products or products that we may develop, injury to our reputation, discontinuation of clinical trials, costs to defend litigation, substantial monetary awards to clinical trial participants or patients, loss of revenue and product recall or withdrawal from the market and the inability to commercialize any products that we develop. We have product liability insurance that covers our clinical trials up to a $10.0 million annual limit. Our insurance coverage may not be sufficient to cover all of our product liability related expenses or losses and may not cover us for any expenses or losses we may suffer. If we are sued for any injury caused by our product candidates, partnered products or any future products, our liability could exceed our total assets.
We face risks related to handling of hazardous materials and other regulations governing environmental safety.
Our operations are subject to complex and stringent environmental, health, safety and other governmental laws and regulations that both public officials and private individuals may seek to enforce. Our activities that are subject to these regulations include, among other things, our use of hazardous materials and the generation, transportation and storage of waste. Although we have secured clearance from the EPA historically, and currently are operating in material compliance with applicable EPA rules and regulations, our business could be adversely affected if we discover that we or an acquired business is not in material compliance with these rules and regulations. In the future, we may pursue the use of other surfactant substances that will require clearance from the EPA, and we may fail to obtain such clearance. Existing laws and regulations may also be revised or reinterpreted, or new laws and regulations may become applicable to us, whether retroactively or prospectively, that may have a negative effect on our business and results of operations. It is also impossible to eliminate completely the risk of accidental environmental contamination or injury to individuals. In such an event, we could be liable for any damages that result, which could adversely affect our business.
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Risk Related to Our Strategic Transactions:
Any difficulties from strategic acquisitions could adversely affect our stock price, operating results and results of operations.
We may acquire companies, businesses and products that complement or augment our existing business. We may not be able to integrate any acquired business successfully or operate any acquired business profitably. Integrating any newly acquired business could be expensive and time-consuming. Integration efforts often take a significant amount of time, place a significant strain on managerial, operational and financial resources and could prove to be more difficult or expensive than we predict. The diversion of our management's attention and any delay or difficulties encountered in connection with any future acquisitions we may consummate could result in the disruption of our ongoing business or inconsistencies in standards and controls that could negatively affect our ability to maintain third-party relationships. Moreover, we may need to raise additional funds through public or private debt or equity financing, or issue additional shares, to acquire any businesses or products, which may result in dilution for stockholders or the incurrence of indebtedness.
As part of our efforts to acquire companies, business or product candidates or to enter into other significant transactions, we conduct business, legal and financial due diligence with the goal of identifying and evaluating material risks involved in the transaction. Despite our efforts, we ultimately may be unsuccessful in ascertaining or evaluating all such risks and, as a result, might not realize the intended advantages of the transaction. If we fail to realize the expected benefits from acquisitions we may consummate in the future or have consummated in the past, whether as a result of unidentified risks, integration difficulties, regulatory setbacks, litigation with current or former employees and other events, our business, results of operations and financial condition could be adversely affected. If we acquire product candidates, we will also need to make certain assumptions about, among other things, development costs, the likelihood of receiving regulatory approval and the market for such product candidates. Our assumptions may prove to be incorrect, which could cause us to fail to realize the anticipated benefits of these transactions.
In addition, we will likely experience significant charges to earnings in connection with our efforts, if any, to consummate acquisitions. For transactions that are ultimately not consummated, these charges may include fees and expenses for investment bankers, attorneys, accountants and other advisors in connection with our efforts. Even if our efforts are successful, we may incur, as part of a transaction, substantial charges for closure costs associated with elimination of duplicate operations and facilities and acquired IPR&D charges. In either case, the incurrence of these charges could adversely affect our results of operations for particular quarterly or annual periods.
We recently acquired Pfenex, as well as Taurus and xCella. We may not be able to integrate these acquired businesses successfully, achieve the expected growth prospects and synergies, expected royalties and other economics or operate such businesses profitably. In addition, such acquisitions may disrupt our current plans and operations, we may not be able to retain key personnel or preserve existing business relationships following such acquisitions, and may incur unexpected costs, charges or expenses resulting from completion of the acquisitions.
We also recently announced the disposition of Vernalis (R&D) Limited. We may not realize expected future benefits from the Vernalis transaction, including from retained licenses and collaboration economics and as a result of indemnification claims under the Vernalis Purchase Agreement and our retention of certain liabilities associated with the Vernalis business.
If we fail to realize the expected benefits from these acquisitions and Vernalis disposition, our business, results of operations and financial condition could be adversely affected.
Other Risks:
Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or any guidance we may provide.
Our quarterly and annual operating results may fluctuate significantly, which makes it difficult for us to predict our future operating results. These fluctuations may occur due to a variety of factors, many of which are outside of our control, including, but not limited to:
•the royalties from the sales of Kyprolis, Evomela and other products sold by our partners;
•the success of our collaboration partners’ preclinical and clinical programs;
•the timing of Captisol purchases for use in clinical trials and commercial products;
•the timing and cost of, and level of investment in, research, development, regulatory approval and commercialization activities relating to our internal development programs, which may change from time to time;
•expenditures that we may incur to acquire or develop additional product candidates and platform technologies; and
•future accounting pronouncements or changes in our accounting policies.
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The cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results and revenues. This variability and unpredictability could result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of our common stock could decline substantially. Such a stock price decline could occur even when we have met any previously publicly stated revenue or earnings guidance we may provide.
Changes or modifications in financial accounting standards, including those related to revenue recognition, may harm our results of operations.
From time to time, the FASB either alone or jointly with other organizations, promulgates new accounting principles that could have an adverse impact on our results of operations. For example, in May 2014, FASB issued an accounting standard for revenue recognition-Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, or ASC 606-that supersedes most current revenue recognition guidance. The guidance requires a company to recognize revenue upon transfer of goods or services to a customer at an amount that reflects the expected consideration to be received in exchange for those goods or services. The guidance became effective in fiscal 2018.
Under ASC 606, Ligand estimates and books royalties in the same quarter that our partners report the sale of the underlying product. We rely on our partners’ earning releases and other information from our partners to determine the sales of our partners’ products and to estimate the related royalty revenues. If our partners report incorrect sales, or if our partners delay reporting of their earnings release, our royalty estimates may need to be revised and/or our financial reporting may be delayed.
Our ability to use our net operating loss carryforwards and certain other tax attributes to offset future taxable income may be subject to certain limitations.
As of December 31, 2021, we had U.S. federal and state net operating loss carryforwards (NOLs) of approximately $119.6 million and $176.3 million, respectively. Our federal NOLs expire through 2037 and our state NOLs begin to expire in 2032, if not utilized. Under the Tax Act, any federal NOLs arising in taxable years ending after December 31, 2017 will carry forward indefinitely. As of December 31, 2021, we had federal and California research and development tax credit carryforwards of approximately $9.8 million and $29.7 million, respectively. The federal research and development tax credit carryforwards expire in various years through 2041, if not utilized. The California research and development credit will carry forward indefinitely. Under Sections 382 and 383 of Internal Revenue Code of 1986, as amended (Code) if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes, such as research tax credits, to offset its future post-change income and taxes may be limited. In general, an “ownership change” occurs if there is a cumulative change in our ownership by “5% shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. We believe we have experienced certain ownership changes in the past and have reduced our deferred tax assets related to NOLs and research and development tax credit carryforwards accordingly. In the event that it is determined that we have in the past experienced additional ownership changes, or if we experience one or more ownership changes as a result future transactions in our stock, then we may be further limited in our ability to use our NOLs and other tax assets to reduce taxes owed on the net taxable income that we earn in the event that we attain profitability. Furthermore, under the Tax Act, although the treatment of tax losses generated in tax years beginning before December 31, 2017 has generally not changed, tax losses generated in tax years beginning after December 31, 2017 may only offset 80% of our taxable income. This change may require us to pay federal income taxes in future years despite having potentially generated a loss for federal income tax purposes in prior years. Any such limitations on the ability to use our NOLs and other tax assets could adversely impact our business, financial condition and operating results.
The occurrence of a catastrophic disaster could disrupt our business, damage our facilities beyond insurance limits or increase our costs and expenses.
We are vulnerable to damage and business disruptions from natural or man-made disasters, such as earthquakes, tornadoes, severe weather conditions, power loss, fire, floods and similar events, as well as from accidental loss or destruction. If any disaster were to occur, our ability to operate our business could be seriously impaired. We have property, liability, and business interruption insurance which may not be adequate to cover our losses resulting from disasters or other similar significant business interruptions, and we do not plan to purchase additional insurance to cover such losses due to the cost of obtaining such coverage. Any significant losses that are not recoverable under our insurance policies could seriously impair our business, financial condition and prospects. Our ability to obtain Captisol supply from our third-party manufactures could be disrupted if the operations of these manufacturers were affected by a natural or man-made disaster or other business interruption. In addition, we rely on our partners to generate most of our revenues through royalties, Captisol sales and development activities and any disruptions to their business as a result of such disasters could negatively impact our revenues.
We rely on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cyber security incidents, could harm our ability to operate our business effectively.
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Our business is increasingly dependent on critical, complex and interdependent information technology systems, including internet-based systems, to support business processes as well as internal and external communications. We operate some of these systems and networks, but we also rely on third-party providers for various products and services across our operations. Despite the implementation of security measures, our information technology systems and those of our partners and third party service providers are vulnerable to damage from cyber-attacks, computer viruses and malware (e.g. ransomware), security breaches, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures.
Attacks upon information technology systems are increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives and expertise. Furthermore, because the technologies used to obtain unauthorized access to, or to sabotage or disrupt, systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. We may also experience security breaches that may remain undetected for an extended period. Even if identified, we may be unable to adequately investigate or remediate incidents or breaches due to attackers increasingly using tools and techniques that are designed to circumvent controls, to avoid detection, and to remove or obfuscate forensic evidence. As a result of the COVID-19 pandemic, we may also face increased cybersecurity risks due to our reliance on internet technology and the number of our and our service providers’ employees who are (and may continue to be) working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. The White House, SEC and other regulators have also increased their focus on companies’ cybersecurity vulnerabilities and risks.
We and certain of our service providers are from time to time, subject to cyberattacks and security incidents. While we do not believe that we have experienced any significant system failures, accidents or security breaches, if such an event were to occur and cause interruptions in our or our critical third parties’ operations, it could lead to the loss of trade secrets or other intellectual property, as well as the public exposure of personal information of our employees and others, and could result in a material disruption of our clinical and commercialization activities and business operations, in addition to possibly requiring substantial expenditures to remedy. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and our business, reputation, and financial condition could be harmed. Any losses, costs or liabilities may not be covered by, or may exceed the coverage limits of, any or all applicable insurance policies.
The occurrence of a catastrophic disaster could damage our facilities beyond insurance limits or we could lose key data which could cause us to curtail or cease operations.
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We are vulnerable to damage and/or loss of vital data from natural disasters, such as earthquakes, tornadoes, power loss, fire, floods and similar events, as well as from accidental loss or destruction. If any disaster were to occur, our ability to operate our business could be seriously impaired. We have property, liability, and business interruption insurance which may not be adequate to cover our losses resulting from disasters or other similar significant business interruptions, and we do not plan to purchase additional insurance to cover such losses due to the cost of obtaining such coverage. Any significant losses that are not recoverable under our insurance policies could seriously impair our business, financial condition and prospects.
Conversion of our outstanding convertible notes may result in losses, result in the dilution of existing stockholders, create downward pressure on the price of our common stock, and restrict our ability to take advantage of future opportunities.
In May 2018, we issued $750.0 million principal amount of the 2023 Notes. The sale of the 2023 Notes may affect our earnings per share figures, as accounting procedures require that we include in our calculation of earnings per share the number of shares of our common stock into which the 2023 Notes are convertible. The convertible notes may be converted into cash and shares of our common stock, if any (subject to our right or obligation to pay cash in lieu of all or a portion of such shares). If shares of our common stock are issued to the holders of the convertible notes upon conversion, there will be dilution to our shareholders equity and the market price of our shares may decrease due to the additional selling pressure in the market. Any downward pressure on the price of our common stock caused by the sale or potential sale of shares issuable upon conversion of the convertible notes could also encourage short sales by third parties, creating additional selling pressure on our stock. Upon the occurrence of certain circumstances, holders of the convertible notes may require us to purchase all or a portion of their notes for cash, which may require the use of a substantial amount of cash. If such cash is not available, we may be required to sell other assets or enter into alternate financing arrangements at terms that may or may not be desirable. The existence of the convertible notes and the obligations that we incurred by issuing them may restrict our ability to take advantage of certain future opportunities, such as engaging in future debt or equity financing activities.
As of December 31, 2021, we had $343.3 million aggregate principal amount of 2023 Notes. The notes are convertible into cash, and if applicable, shares of our common stock under certain circumstances, including trading price conditions related to our common stock. Upon conversion, we are required to record a gain or loss for the difference between the fair value of the notes to be extinguished and their corresponding net carrying value. The fair value of the notes to be extinguished depends on our current incremental borrowing rate. If our incremental borrowing rate at the time of conversion is lower than the implied interest rate of the notes, we will record a loss in our consolidated statement of income during the period in which the notes are converted.
Impairment charges pertaining to goodwill, identifiable intangible assets or other long-lived assets from our mergers and acquisitions could have an adverse impact on our results of operations and the market value of our common stock.
The total purchase price pertaining to our acquisitions in recent years have been allocated to net tangible assets, identifiable intangible assets, in-process research and development and goodwill. To the extent the value of goodwill or identifiable intangible assets or other long-lived assets become impaired, we will be required to incur material charges relating to the impairment. Any impairment charges could have a material adverse impact on our results of operations and the market value of our common stock.
Our investments are subject to market and credit risks that could diminish their value and these risks could be greater during periods of extreme volatility or disruption in the financial and credit markets, which could adversely impact our business, financial condition, results of operations, liquidity and cash flows.
Our investments are subject to risks of credit defaults and changes in market values. Periods of macroeconomic weakness or recession, heightened volatility or disruption in the financial and credit markets could increase these risks, potentially resulting in other than temporary impairment of assets in our investment portfolio. Any event reducing the estimated fair value of these securities, other than on a temporary basis, could have a material and adverse effect on our business, results of operations, financial condition, liquidity and cash flows. If our investment manager, fails to react appropriately to difficult market, economic and geopolitical conditions, our investment portfolio could incur material losses.
We have a risk management framework in place to identify, assess and prioritize risks, including the market and credit risks to which our investments are subject. As part of that framework, we test our investment portfolio based on various market scenarios. Under certain stressed market scenarios, unrealized losses on our investment portfolio could lead to material reductions in its carrying value.
A decline in fair value below the amortized cost of a security requires management to assess whether an impairment has occurred. The decision on whether to record an impairment is determined in part by our assessment of the financial condition and prospects of a particular issuer, projections of future cash flows and recoverability of the particular security as well as management’s assertion of whether it is more likely than not that we will sell the particular security before recovery.
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Our charter documents and concentration of ownership may hinder or prevent change of control transactions.
Provisions contained in our certificate of incorporation and bylaws may discourage transactions involving an actual or potential change in our ownership. In addition, our Board of Directors may issue shares of common or preferred stock without any further action by the stockholders. Our directors and certain of our institutional investors collectively beneficially own a significant portion of our outstanding common stock. Such provisions and issuances may have the effect of delaying or preventing a change in our ownership. If changes in our ownership are discouraged, delayed or prevented, it would be more difficult for our current Board of Directors to be removed and replaced, even if you or our other stockholders believe that such actions are in the best interests of us and our stockholders.
Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the General Corporation Law of Delaware or our amended and restated certificate of incorporation or amended and restated bylaws, or (iv) any action asserting a claim governed by the internal affairs doctrine. To the extent that any such claims may be based upon federal law claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Furthermore, Section 22 of the Securities Act provides for concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder, and as such, the exclusive jurisdiction clauses set forth above would not apply to such suits. The choice of forum provisions in our amended and restated bylaws may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. By agreeing to these provisions, however, stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder. Furthermore, the enforceability of similar choice of forum provisions in other companies’ certificates of incorporation and bylaws has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. If a court were to find the choice of forum provisions in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.
Our stock price has been volatile and could experience a sudden decline in value.
The market prices for securities of biotechnology and pharmaceutical companies have historically been highly volatile, and the market has recently experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. Continued volatility in the overall capital markets could reduce the market price of our common stock in spite of our operating performance. Further, high stock price volatility could result in higher share-based compensation expense.
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Our common stock has experienced significant price and volume fluctuations and may continue to experience volatility in the future. Many factors may have a significant impact on the market price of our common stock, including, but not limited to, the following factors: results of or delays in our preclinical studies and clinical trials; the success of our collaboration agreements; publicity regarding actual or potential medical results relating to products under development by us or others; announcements of technological innovations or new commercial products by us or others; developments in patent or other proprietary rights by us or others; market perception of our plan to spin out the OmniAb business; comments or opinions by securities analysts or major stockholders or changed securities analysts' reports or recommendations; future sales or shorting of our common stock by existing stockholders; regulatory developments or changes in regulatory guidance; litigation or threats of litigation; economic and other external factors or other disaster or crises; the departure of any of our officers, directors or key employees; period-to-period fluctuations in financial results; and price and volume fluctuations in the overall stock market.
Our results of operations and liquidity needs could be materially negatively affected by market fluctuations and economic downturn.
Our results of operations could be materially negatively affected by economic conditions generally, both in the United States and elsewhere around the world. Concerns over inflation, energy costs, geopolitical issues, public health emergencies, the availability and cost of credit, and the U.S. financial markets have in the past contributed to, and may continue in the future to contribute to, increased volatility and diminished expectations for the economy and the markets. For example, the outbreak of a novel strain of coronavirus has affected the People’s Republic of China and elsewhere and has affected worldwide equity markets. Domestic and international equity markets periodically experience heightened volatility and turmoil. These events may have an adverse effect on us. In the event of a market downturn, our results of operations could be adversely affected by those factors in many ways, including making it more difficult for us to raise funds if necessary, and our stock price may further decline. We cannot provide assurance that our investments are not subject to adverse changes in market value. If our investments experience adverse changes in market value, we may have less capital to fund our operations.

Item 1B. | Unresolved Staff Comments

None.

Item 2. | Properties

The following table summarizes our principal facilities leased as of December 31, 2021, including the location and size of each facility, and their designated use. We also lease facilities in other locations. In 2022, we are expanding our office and research and development facilities in Emeryville and will lease approximately 35,000 square feet of space under leases expiring in 2032. We believe our facilities are adequate for our current and near-term needs, and we will be able to locate additional facilities, as needed.

Location | Approximate Square Feet | Operation | Lease Expiration Date
San Diego, CA | 54,000 | Office and laboratory | March 2024
Emeryville, CA | 22,000 | Corporate headquarter office and laboratory | March 2032
Durham, NC | 30,000 | Office and laboratory | February 2029
Las Vegas, NV | 2,100 | Office | September 2022

Item 3. | Legal Proceedings

See “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (10), Commitments and Contingencies—Legal Proceedings.”

Item 4. | Mine Safety Disclosures

Not applicable.
PART II

Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

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Our common stock is traded on the Nasdaq Global Market under the symbol “LGND.” As of February 23, 2022, there were approximately 398 holders of record of the common stock.
Except for 2007, during which we declared a cash dividend on our common stock of $2.50 per share, we have not paid any dividends on our common stock in the past and currently do not expect to pay cash dividends or make any other distributions on common stock in the future. We expect to retain our future earnings, if any, for use in the operation and expansion of our business, to pay down debt and potentially for share repurchases. Any future determination to pay dividends on common stock will be at the discretion of our board of directors and will depend upon our financial condition, results of operations, capital requirements and such other factors as the board deems relevant.
During the fiscal year ended December 31, 2021, we did not repurchase any shares of our common stock under the stock repurchase program approved by our board of directors in September 2019, under which we may acquire up to $500 million of our common stock in open market and negotiated purchases for a period of up to three years. Authorization to repurchase $248.8 million of our common stock remained available as of December 31, 2021.
The information required by Item 201(d) of Regulation S-K is incorporated by reference to the 2022 Annual Meeting Proxy Statement as defined in Item 10 below.
Performance Graph
The graph below shows the five-year cumulative total stockholder return assuming the investment of $100 and is based on the returns of the component companies weighted monthly according to their market capitalizations. The graph compares total stockholder returns of our common stock, of all companies traded on the Nasdaq Stock market, as represented by the Nasdaq Composite® Index, and of the Nasdaq Biotechnology Stock Index, as prepared by The Nasdaq Stock Market Inc.
The stockholder return shown on the graph below is not necessarily indicative of future performance and we will not make or endorse any predictions as to future stockholder returns.
Value of $100 Invested Over Time

|  |  |  | 12/31/2016 |  | 12/31/2017 |  | 12/31/2018 |  | 12/31/2019 |  | 12/31/2020 |  | 12/31/2021
Ligand |  |  |  | $ | 100.00 |  |  | $ | 134.76 |  |  | $ | 133.55 |  |  | $ | 102.64 |  |  | $ | 97.87 |  |  | $ | 152.01 |
NASDAQ Composite-Total Return |  |  |  | $ | 100.00 |  |  | $ | 129.64 |  |  | $ | 125.96 |  |  | $ | 172.18 |  |  | $ | 249.51 |  |  | $ | 304.85 |
NASDAQ Biotechnology Index |  |  |  | $ | 100.00 |  |  | $ | 121.66 |  |  | $ | 110.88 |  |  | $ | 138.72 |  |  | $ | 175.38 |  |  | $ | 175.41 |

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Item 6. | [RESERVED]

Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) will help readers understand our results of operations, financial condition, and cash flows. It is provided in addition to the accompanying consolidated financial statements and notes. Comparisons under this heading refer to twelve months ended December 31, 2021 and 2020, respectively, unless otherwise indicated.
Our MD&A is organized as follows:
•Results of Operations. Detailed discussion of our revenue and expenses for twelve months ended December 31, 2021 and 2020. A comparison of our results of operations for twelve months ended December 31, 2020 and 2019 can be found under “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 24, 2021.
•Liquidity and Capital Resources. Discussion of key aspects of our consolidated statements of cash flows, changes in our financial position, and our financial commitments.
•Critical Accounting Policies and Estimates. Discussion of significant changes we believe are important to understand the assumptions and judgments underlying our consolidated financial statements.
•Recent Accounting Pronouncements. For summary of recent accounting pronouncements applicable to our consolidated financial statements, see “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (1), Basis of Presentation and Summary of Significant Accounting Policies.”
Results of Operations
Financial results for the year ended December 31, 2021 in this report differ from those included in our earnings release issued February 17, 2022 in that the earnings did not reflect an adjustment to the income tax benefit of $0.4 million that we identified subsequent to the issuance of our earnings release.
Revenue

(Dollars in thousands) | 2021 |  | 2020 |  | Change |  | % Change |
Royalties | $ | 48,927 |  |  | $ | 33,796 |  |  | $ | 15,131 |  |  | 45 | % |
Captisol Sales | 164,250 |  |  | 109,959 |  |  | 54,291 |  |  | 49 | % |
Contract Revenue | 63,956 |  |  | 42,664 |  |  | 21,292 |  |  | 50 | % |
Total revenue | $ | 277,133 |  |  | $ | 186,419 |  |  | $ | 90,714 |  |  | 49 | % |

Royalty revenue is a function of our partners' product sales and the applicable royalty rate. Kyprolis royalty rate is under a tiered royalty rate structure with the highest being 3.0%. Evomela has a fixed royalty rate of 20%. Royalty revenue increased in 2021 as compared to 2020 driven primarily by increases in sales of Evomela and Kryprolis plus the additional royalties from the sale of drugs using the Pelican platform - Rylaze, Pneumosil and Teriparatide. Captisol sales increased year over year in 2021 primarily due to shipments to Gilead for manufacturing Veklury (remdesivir). Contract revenue increased year over year in 2021 due to the continued growth in the OmniAb discovery platform as well as milestone revenue from the acquisitions of Icagen in April 2020 and Pfenex in October 2020.
The following table represents royalty revenue by program:
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(in millions) | 2021 Estimated Partner Product Sales | Effective Royalty Rate | 2021 Royalty Revenue |  | 2020 Estimated Partner Product Sales | Effective Royalty Rate | 2020 Royalty Revenue
Kyprolis | $ | 1,148.9 |  | 2.4% | $ | 27.5 |  |  | $ | 1,094.6 |  | 2.3% | $ | 25.2 |
Evomela | 50.5 |  | 20.0% | 10.1 |  |  | 32.6 |  | 20.0% | 6.4 |
Other | 288.7 |  | 3.9% | 11.3 |  |  | 178.5 |  | 1.2% | 2.2 |
Total | $ | 1,488.1 |  |  | $ | 48.9 |  |  | $ | 1,305.7 |  |  | $ | 33.8 |

Operating Costs and Expenses

(Dollars in thousands) | 2021 |  | 2020 |  | Change |  | % Change
Cost of Captisol | $ | 62,176 |  |  | $ | 30,419 |  |  | $ | 31,757 |  |  | 104 | %
Amortization of intangibles | 47,167 |  |  | 23,442 |  |  | 23,725 |  |  | 101 | %
Research and development | 69,012 |  |  | 59,392 |  |  | 9,620 |  |  | 16 | %
General and administrative | 57,483 |  |  | 64,435 |  |  | (6,952) |  |  | (11) | %
Other operating income | (37,600) |  |  | — |  |  | (37,600) |  |  | N/A
Total operating costs and expenses | $ | 198,238 |  |  | $ | 177,688 |  |  | $ | 20,550 |  |  | 12 | %

Total operating costs and expenses for 2021 increased $20.6 million or 12% compared with 2020.
Cost of Captisol increased year over year in 2021 primarily due to higher sales of Captisol during 2021.
Amortization of intangibles increased year over year in 2021 primarily due to the acquisition of Pfenex in October 2020.
At any one time, we are working on multiple programs. As such, we generally do not track our R&D expenses on a specific program basis. Our R&D expenses increased year over year in 2021 due to the acquisitions of Icagen in April 2020 and Pfenex in October 2020, which primarily consisted of salaries and lab costs associated with Icagen ($16.5 million) and Pfenex ($22.7 million).
General and administrative expenses increased year over year in 2020 primarily due to $20.7 million acquisition and integration related expenses associated with the Pfenex acquisition.
Other operating income in 2021 was due to reducing the fair value of the CVR liability associated to the acquisition of Pfenex to zero, as the CVR payment expiration date passed on December 31, 2021 without achieving the triggering event. We did not have any other operating income in 2020.
We do not provide forward-looking estimates of costs and time to complete our ongoing research and development projects as such estimates would involve a high degree of uncertainty. Uncertainties include our inability to predict the outcome of research and clinical studies, regulatory requirements placed upon us by regulatory authorities such as the FDA and EMA, our inability to predict the decisions of our partners, our ability to fund research and development programs, competition from other entities of which we may become aware in future periods, predictions of market potential for products that may be derived from our work, and our ability to recruit and retain personnel or third-party contractors with the necessary knowledge and skills to perform certain research. Refer to “Item 1A. Risk Factors” for additional discussion of the uncertainties surrounding our research and development initiatives.
Other income (expense)

(Dollars in thousands) | 2021 |  | 2020 |  | Change |  | % Change
Gain (loss) from short-term investments | $ | (3,997) |  |  | $ | (16,933) |  |  | $ | 12,936 |  |  | (76) | %
Interest income | 886 |  |  | 8,078 |  |  | (7,192) |  |  | (89) | %
Interest expense | (19,626) |  |  | (27,420) |  |  | 7,794 |  |  | 28 | %
Other expense, net | (8,860) |  |  | (108) |  |  | (8,752) |  |  | (8104) | %
Total other income (expense), net | $ | (31,597) |  |  | $ | (36,383) |  |  | $ | 4,786 |  |  | 13 | %

The fluctuation in the gain (loss) from short-term investments is primarily driven by the changes in the fair value of our ownership in Viking common stock (an unrealized loss of $9.6 million in 2021 as compared to an unrealized loss of $19.0 million in 2020).
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Interest income consists primarily of interest earned on our short-term investments. The year over year decrease in 2021 resulted from the decrease in our short-term investment balances due to the usage of funds for the 2023 Notes repurchases.
Interest expense includes the 0.75% coupon cash interest expense in addition to the non-cash accretion of discount (including the amortization of debt issuance costs) on our 2023 Notes. The year over year decrease in 2021 was primarily due to lower average debt outstanding balance as compared to the prior year. The 2019 Notes were paid off upon the maturity date in August 2019. During 2021, we repurchased $152.0 million in principal of the 2023 Notes for $156.0 million in cash, including accrued interest of $0.3 million. See “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (7), Convertible Senior Notes.”
Other expense, net, increased year over year in 2021 primarily due to a $7.3 million loss on our debt extinguishments compared to $2.5 million loss on debt extinguishments in 2020. See additional information in “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (1), Basis of Presentation and Summary of Significant Accounting Policies - Commercial License and Other Economic Rights.”
Income tax benefit (expense)

(Dollars in thousands) | 2021 |  | 2020 |  | Change |  | % Change
Income before income tax expense (benefit) | $ | 47,298 |  |  | $ | (10,538) |  |  | $ | 57,836 |  |  | (549) | %
Income tax benefit (expense) | 9,840 |  |  | 7,553 |  |  | 2,287 |  |  | 30 | %
Net income (loss) | $ | 57,138 |  |  | $ | (2,985) |  |  | $ | 60,123 |  |  | (2,014) | %
Effective Tax Rate | (21) | % |  | 72 | % |  |  |  |

Our effective tax rate for 2021 and 2020 was (21)% and 72%, respectively. Our tax rate is affected by recurring items, such as the U.S. federal and state statutory tax rates and the relative amounts of income we earn in those jurisdictions, which we expect to be fairly consistent in the near term. It is also affected by discrete items that may occur in any given year, but are not consistent from year to year. In 2021, the variance from the U.S. federal statutory rate of 21% was primarily attributable to the mix of earnings in jurisdictions with lower statutory rates than the U.S. federal statutory tax rate, primarily due to excess benefits from shared-based compensation. In 2020, the variance from the U.S. federal statutory rate of 21% was primarily attributable to the mix of earnings in jurisdictions with lower statutory rates than the U.S. federal statutory tax rate, primarily the United Kingdom. The items below also had an impact on the difference between our statutory U.S. rate.
2021
•$11.9 million (25.2%) decrease due to excess tax benefits from share-based compensation which are recorded as a discrete item within the provision for income tax pursuant to ASU 2016-09
•$8.2 million (17.3%) decrease due to the revaluation of contingent value rights
•$3.2 million (6.8%) increase from Section 162(m) limitation
•$2.7 million (5.7%) decrease from research and development tax credits
2020
•$2.4 million (22.9%) increase from Section 162(m) limitation
•$1.7 million (15.7%) decrease from the foreign-derived intangible income deduction
•$1.5 million (13.8%) increase from state income taxes
•$0.9 million (8.3%) increase due to non-deductible transaction costs primarily related to the acquisition of Pfenex
•$0.7 million (6.6%) decrease from research and development tax credits
•$0.3 million (3.4%) decrease due to excess tax benefits from share-based compensation which are recorded as a discrete item within the provision for income tax pursuant to ASU 2016-09
Liquidity and Capital Resources
At December 31, 2021, we had approximately $341.1 million in cash, cash equivalents, and short-term investments. Cash and cash equivalents and short-term investments decreased by $70.1 million from last year, due to factors described in the “Cash Flow Summary” below. Our primary source of liquidity, other than our holdings of cash, cash equivalents, and investments, which decreased during 2021 primarily from extinguishment of debt, has been cash flows from operations. Our ability to generate cash from operations provides us with the financial flexibility we need to meet operating, investing, and financing needs.
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Historically, we have liquidated our short-term investments and/or issued debt and equity securities to finance our business needs as a supplement to cash provided by operating activities. Our short-term investments include U.S. government debt securities, investment-grade corporate debt securities, mutual funds and certificates of deposit. We have established guidelines relative to diversification and maturities of our investments in order to provide both safety and liquidity. These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates. Additionally, we own certain securities which are classified as short-term investments that we received as a result of a milestone and an upfront license payment as well as 6.7 million shares of common stock in Viking.
In August 2014, we issued the 2019 Notes with aggregate principal amount of $245.0 million. During 2018, $217.7 million in principal of the 2019 Notes were converted into cash. In June 2019, we received notices for conversion of $1.0 million of principal amount of the 2019 Notes, which were settled in cash upon the 2019 Notes' maturity date in August 2019. On August 15, 2019, the 2019 Notes maturity date, we paid the noteholders the remaining $26.3 million principal amount.
In May 2018, we issued the 2023 Notes with an aggregate principal amount of $750.0 million. A portion of the proceeds from such issuance totaling $49.7 million were used to repurchase 260,000 shares of our common stock. During 2020, we repurchased $254.7 million in principal of the 2023 Notes for $222.8 million in cash, including accrued interest of $0.6 million. During 2021, we repurchased $152.0 million in principal of the 2023 Notes for $156.0 million in cash, including accrued interest of $0.3 million. After the repurchases, $343.3 million in principal amount of the 2023 Notes remain outstanding as of December 31, 2021. During February 2022, we repurchased additional $125.5 million in principal of the 2023 Notes for $123.9 million in cash, including accrued interest of $0.3 million.
We may continue to use cash on hand to repurchase additional 2023 Notes through open-market transactions, including through Rule 10b5-1 trading plan to facilitate open-market repurchases, or otherwise, from time to time. The timing and amount of repurchase transactions will be determined by management based on the evaluation of market conditions, trading price of the 2023 Notes, legal requirements and other factors. The 2023 Notes were not convertible as of December 31, 2021. It is our intent and policy to settle conversions through combination settlement, which essentially 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. See detail in “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (7), Convertible Senior Notes.”
We are obligated to make payments to operating leases, including rental commitments on leases that have not yet commenced. For information on these obligations, see detail in “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (6), Leases.”
We also have commitments under our supply agreement with Hovione for Capitsol purchases. Total purchase obligation as of December 31, 2021 was $40.9 million, of which $24.0 million is expected to be paid within a year and the remain amount is expected to be paid between 1 to 3 years.
In September 2018, our Board of Directors authorized us to repurchase up to $200.0 million of our common stock from time to time over a period of up to three years. On January 23, 2019, our Board of Directors increased the share repurchase authorization by $150.0 million. The available amount under the $350.0 million repurchase plan was fully utilized during the third quarter of 2019.
On September 11, 2019, our Board of Directors approved a stock repurchase program authorizing the repurchase of up to $500.0 million of our common stock from time to time over the next three years. We expect to acquire shares primarily through open-market transactions and have entered into a Rule 10b5-1 trading plan, and may enter into additional Rule 10b5-1 trading plans in the future, to facilitate open-market repurchases. The timing and amount of repurchase transactions will be determined by management based on our evaluation of market conditions, share price, legal requirements and other factors. Our prior $350.0 million stock repurchase program mentioned above was terminated in connection with the approval of the new stock repurchase program. Authorization to repurchase $248.8 million of our common stock remained available as of December 31, 2021. See “Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchase of Equity Securities.”
We believe that existing funds, cash generated from operations and existing sources of and access to financing are adequate to satisfy our needs for working capital; capital expenditure and debt service requirements; continued advancement of research and development efforts; potential stock repurchases; and other business initiatives we plan to strategically pursue, including acquisitions and strategic investments.
As of December 31, 2021, we had $11.1 million in fair value of contingent consideration liabilities associated with the acquisitions to be settled in future periods.
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Cash Flow Summary

(in thousands) |  | 2021 |  | 2020 |  | 2019
Net cash provided by (used in): |  |  |  |  |  |
Operating activities |  | $ | 78,798 |  |  | $ | 54,586 |  |  | $ | (29,336) |
Investing activities |  | $ | 30,523 |  |  | $ | 231,648 |  |  | $ | 466,918 |
Financing activities |  | $ | (137,761) |  |  | $ | (310,545) |  |  | $ | (485,172) |

In 2021, we generated cash from operations, primarily from issuance of common stock under employee stock plans. During the year we generated cash from investing activities due to the proceeds from the sale and maturity of short-term investments. We used cash for financing activities, including the payments related to the extinguishment of certain 2023 Notes.
In 2020, we generated cash from operations, from the sale of Vernalis R&D business and from issuance of common stock under employee stock plans. During the year we used cash for investing activities, including the acquisition of Pfenex, Icagen, xCella and Taurus. We also used cash for financing activities, including the payments related to the extinguishment of certain 2023 Notes and stock repurchases.
In 2019, we generated $827 million from the sale of the Promacta license (including $14.2 million recorded to revenue related to the Promacta royalty for the period between January 1, 2019 and March 6, 2019), used cash for net purchases of short-term investments, used $453.0 million to repurchase our common stock, used $103.8 million to pay federal and state estimated income taxes, paid off the remaining balance of the 2019 Notes in the amount of $27.3 million, paid $12.0 million for the purchase of Novan economic rights and paid $11.8 million for the Ab Initio acquisition (net of cash acquired).
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We also have other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our results. For additional information, see “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (1), Basis of Presentation and Summary of Significant Accounting Policies.” Although we believe that our estimates, assumptions, and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions.
Revenue Recognition
We apply the following five-step model in accordance with ASC 606 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.
We receive royalty revenue on sales by our partners of products covered by patents that we or our partners own under contractual agreements. We do not have future performance obligations under these license arrangements. We generally satisfy our obligation to grant intellectual property rights on the effective date of the contract. However, we apply the royalty recognition constraint required under the guidance for sales-based royalties which requires a royalty to be recorded no sooner than the underlying sale occurs. Therefore, royalties on sales of products commercialized by our partners are recognized in the quarter the product is sold. Our partners generally report sales information to us on a one quarter lag. Thus, we estimate the expected royalty proceeds based on an analysis of historical experience and interim data provided by our partners including their publicly announced sales. Differences between actual and estimated royalty revenues, which have not been material, are adjusted in the period in which they become known, typically the following quarter.
Our contracts with customers often will include variable consideration in the form of contingent milestone-based payments. We include contingent milestone based 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,
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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 the development milestone or regulatory approval. Depending on the terms of the arrangement, we may also defer a portion of the consideration received if we have to satisfy a future obligation, which typically occurs with our contracts for R&D services.
For R&D services we recognize revenue over time and we measure our progress using an input method. The input methods we use are based on the effort we expend or costs we incur toward the satisfaction of our performance obligation. We estimate the amount of effort we expend, including the time it will take us to complete the activities, or the costs we may incur in a given period, relative to the estimated total effort or costs to satisfy the performance obligation. This results in a percentage that we multiply by the transaction price to determine the amount of revenue we recognize each period. This approach requires us to make numerous estimates and use significant judgement. If our estimates or judgements change over the course of the collaboration, they may affect the timing and amount of revenue that we recognize in the current and future periods.
Revenue from Captisol sales is recognized when control of Captisol material or intellectual property license rights is transferred to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products. 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, we consider our performance obligation is satisfied at a point in time, 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. 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.
We occasionally have sub-license obligations related to arrangements for which we receive license fees, milestones and royalties. We evaluate the determination of gross as a principal versus net as an agent reporting based on each individual agreement.
Intangible Assets and Other Long-Lived Assets — Impairment Assessments
We regularly perform reviews to determine if an event occurred that may indicate the carrying values of our intangible and other long-lived assets are impaired. If indicators of impairment exist, we assess the recoverability of the affected long-lived assets by comparing its carrying amounts to its undiscounted cash flows. If the affected assets are not recoverable, we estimate the fair value of the assets and record an impairment loss if the carrying value exceeds the fair value. Factors that may indicate potential impairment include a significant decline in our stock price and market capitalization compared to net book value, significant changes in the ability of an asset to generate positive cash flows and the pattern of utilization of a particular asset.
In order to estimate the fair value of identifiable intangible assets and other long-lived assets, we estimate the present value of future cash flows from those assets. The key assumptions that we use in our discounted cash flow model are the amount and timing of estimated future cash flows to be generated by the asset over an extended period of time and a rate of return that considers the relative risk of achieving the cash flows, the time value of money, and other factors that a willing market participant would consider. Significant judgment is required to estimate the amount and timing of future cash flows and the relative risk of achieving those cash flows.
Assumptions and estimates about future values and remaining useful lives are complex and often subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts. For example, if our future operating results do not meet current forecasts or if we experience a sustained decline in our market capitalization that is determined to be indicative of a reduction in fair value of our reporting unit, we may be required to record future impairment charges for purchased intangible assets. Impairment charges could materially decrease our future net income and result in lower asset values on our balance sheet.
Contingent Liabilities
In connection with our acquisition of Metabasis in January 2010, we issued Metabasis stockholders four tradable CVRs, one CVR from each of four respective series of CVR, for each Metabasis share. The CVRs entitle Metabasis stockholders to
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cash payments as proceeds are received by us from the sale or partnering of any of the Metabasis drug development programs. The fair values of the CVRs are remeasured at each reporting date through the term of the related agreement. Changes in the fair values are reported in the statement of operations as income (decreases) or expense (increases). The carrying amount of the liability may fluctuate significantly based upon quoted market prices and actual amounts paid under the agreements may be materially different than the carrying amount of the liability.
On April 1, 2020, we acquired the core assets, including its partnered programs and ion channel technology from Icagen and certain of its affiliates for total cash consideration of $15.1 million, and a contingent earn-out payment of up to $25.0 million based on certain revenue milestones with an estimated fair value upon acquisition of $4.8 million. The fair value of the earn-out liability was determined using a probability weighted income approach incorporating the estimated future cash flows from expected future milestones. These cash flows were then discounted to present value using a discount rate based on the market participants' cost of debt reflective of Icagen. The fair value of the liability is assessed at each reporting date and the change in fair value is recorded in our consolidated statements of operations. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be materially different than the carrying amount of the liability. The fair value of the contingent consideration liability as of December 31, 2021 was $7.4 million.
On October 1, 2020, we acquired Pfenex, which develops next-generation and novel protein therapeutics to improve existing therapies and create new therapies for biological targets linked to critical, unmet diseases using a protein expression technology platform. The purchase price of $465.1 million included $429.6 million cash consideration paid upon acquisition, and a CVR payment of up to $77.8 million of cash payments based on certain specified milestones with an estimated initial fair value of $37.0 million, net of $1.5 million recorded as post-acquisition expenses based on double trigger accelerate feature. The fair value of the CVR liability was determined using a probability adjusted income approach. These cash flows were then discounted to present value using a discount rate based on the market participants' cost of debt reflective of Pfenex. The liability is periodically assessed based on events and circumstances related to the underlying milestone, and any change in fair value is recorded in our consolidated statements of operations. The fair value of the CVR liability as of December 31, 2021 was reduced to zero as the CVR payment expiration date passed on December 31, 2021 without achieving the payment triggering event.
See additional information in “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (5), Fair Value Measurement.”
Income Taxes
Our provision for income taxes, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect our best assessment of estimated future taxes to be paid. Significant judgments and estimates based on interpretations of existing tax laws or regulations in the United States are required in determining our provision for income taxes. Changes in tax laws, statutory tax rates, and estimates of our future taxable income could impact the deferred tax assets and liabilities provided for in the consolidated financial statements and would require an adjustment to the provision for income taxes.
Deferred tax assets are regularly assessed to determine the likelihood they will be recovered from future taxable income. A valuation allowance is established when we believe it is more likely than not the future realization of all or some of a deferred tax asset will not be achieved. In evaluating our ability to recover deferred tax assets within the jurisdiction which they arise, we consider all available positive and negative evidence. Factors reviewed include the cumulative pre-tax book income for the past three years, scheduled reversals of deferred tax liabilities, our history of earnings and reliability of our forecasts, projections of pre-tax book income over the foreseeable future, and the impact of any feasible and prudent tax planning strategies.
We recognize the impact of a tax position in our financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. Tax authorities regularly examine our returns in the jurisdictions in which we do business and we regularly assess the tax risk of our return filing positions. Due to the complexity of some of the uncertainties, the ultimate resolution may result in payments that are materially different from our current estimate of the tax liability. These differences, as well as any interest and penalties, will be reflected in the provision for income taxes in the period in which they are determined.
Share-Based Compensation
We incur share-based compensation expense related to restricted stock, ESPP, and stock options.
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Restricted stock unit (RSU) and performance stock unit (PSU) are all considered restricted stock. The fair value of restricted stock is determined by the closing market price of our common stock on the date of grant. We recognize share-based compensation expense based on the fair value on a straight-line basis over the requisite service periods of the awards, taking into consideration of forfeitures as they occur. PSU generally represents a right to receive a certain number of shares of common stock based on the achievement of corporate performance goals and continued employment during the vesting period. At each reporting period, we reassess the probability of the achievement of such corporate performance goals and any expense change resulting from an adjustment in the estimated shares to be released are treated as a cumulative catch-up in the period of adjustment. A limited amount of PSUs contain a market condition dependent upon the Company’s relative and absolute total stockholder return over a three-year period, with a range of 0% to 200% of the target amount granted to be issued under the award. Share-based compensation expense for these PSUs is measured using the Monte-Carlo simulation valuation model and is not adjusted for the achievement, or lack thereof, of the market conditions.
We use the Black-Scholes-Merton option-pricing model to estimate the fair value of stock purchases under ESPP and stock options granted. The model assumptions include expected volatility, term, dividends, and the risk-free interest rate. We look to historical and implied volatilities of our stock to determine the expected volatility. The expected term of an award is based on historical forfeiture experience, exercise activity, and on the terms and conditions of the stock awards. The expected dividend yield is determined to be 0% given that except for 2007, during which we declared a cash dividend on our common stock of $2.50 per share, we have not paid any dividends on our common stock in the past and currently do not expect to pay cash dividends or make any other distributions on common stock in the future. The risk-free interest rate is based upon U.S. Treasury securities with remaining terms similar to the expected term of the share-based awards.
We grant options, RSUs and PSUs to employees and non-employee directors. Non-employee directors are accounted for as employees. Options and RSUs granted to certain non-employee directors typically vest one year from the date of grant. Options granted to employees typically vest 1/8 on the six month anniversary of the date of grant, and 1/48 each month thereafter for forty-two months. RSUs and PSUs granted to employees vest over three years. All option awards generally expire ten years from the date of grant.
Share-based compensation expense for awards to employees and non-employee directors is recognized on a straight-line basis over the vesting period until the last tranche vests.
Recent Accounting Pronouncements
For the summary of recent accounting pronouncements applicable to our consolidated financial statements, see “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (1), Basis of Presentation and Summary of Significant Accounting Policies.”

Item 7A. | Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk from interest rates and equity prices which could affect our results of operations, financial condition and cash flows. We manage our exposure to these market risks through our regular operating and financing activities.
Investment Portfolio Risk
At December 31, 2021, our investment portfolio included investments in available-for-sale securities of $321.6 million, including the investment in Viking common stock and warrants of $30.9 million. These securities are subject to market risk and may decline in value based on market conditions.
Equity Price Risk
Our 2023 Notes include conversion and settlement provisions that are based on the price of our common stock at conversion or maturity of the notes, as applicable. As of December 31, 2021, the “if-converted value” did not exceed the principal amount of the 2023 Notes. See detail in “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note (7), Convertible Senior Notes.”
Foreign Currency Risk
Through our licensing and business operations, we are exposed to foreign currency risk. Foreign currency exposures arise from transactions denominated in a currency other than the functional currency and from foreign denominated revenues
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and profit translated into U.S. dollars. Our license partners sell our products worldwide in currencies other than the U.S. dollar. Because of this, our revenues from royalty payments are subject to risk from changes in exchange rates.
We purchase Captisol from Hovione, located in Lisbon, Portugal. Payments to Hovione are denominated and paid in U.S. dollars; however, the unit price of Captisol contains an adjustment factor which is based on the sharing of foreign currency risk between the two parties. The effect of an immediate 10% change in foreign exchange rates would not have a material impact on our financial condition, results of operations or cash flows. We do not currently hedge our exposures to foreign currency fluctuations.
Interest Rate Risk
We are exposed to changes in interest rates related primarily to our investment portfolio. Our investment policy and strategy are focused on the preservation of capital and supporting our liquidity requirements. We use a combination of internal and external management to execute our investment strategy. We typically invest in highly rated securities, with the primary objective of minimizing the risk of principal loss. Our investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer. We have historically maintained a relatively short average maturity for our investment portfolio, and we believe a hypothetical 100 basis point adverse move in interest rates across all maturities would not materially impact the fair market value of the portfolio in either period.
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Item 8. | Consolidated Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

| Page
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) | 52
Consolidated Balance Sheets | 53
Consolidated Statements of Operations | 54
Consolidated Statements of Comprehensive Income (Loss) | 55
Consolidated Statements of Stockholders’ Equity | 57
Consolidated Statements of Cash Flows | 57
Notes to Consolidated Financial Statements | 59

51

Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Ligand Pharmaceuticals Incorporated
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Ligand Pharmaceuticals Incorporated (the Company) as of December 31, 2021 and 2020, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes, (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 28, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
52

|  | Impairment assessment of finite-lived intangibles
Description of the Matter |  | At December 31, 2021, the Company’s finite-lived intangible assets totaled $551.0 million. As discussed in Note 1 to the consolidated financial statements, the Company reviews finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the finite-lived intangibles are not expected to be recovered through future undiscounted cash flows. The Company did not identify indicators of impairment for its finite-lived intangibles at December 31, 2021. Auditing management’s assessment of impairment is challenging due to the high degree of subjective auditor judgment necessary in evaluating management’s identification of indicators of potential impairment and the related assessment of the severity of such indicators in determining whether a triggering event has occurred that requires the Company to evaluate the recoverability of the asset. A high degree of auditor judgment was required to evaluate the significant inputs used in the assessment for potential triggering events which included market conditions, industry and economic trends, changes in regulations, clinical success and historical and forecasted financial results. These possible triggering events could have a significant effect on the Company’s impairment assessment and the determination of whether further quantitative analysis of finite-lived intangible impairment was required.
How We Addressed the Matter in Our Audit |  | We obtained an understanding of management’s process to identify indicators of impairment, including the qualitative analysis and related inputs and assumptions used in performing the analyses. We evaluated the design and tested the operating effectiveness of the controls that address the identification of indicators of impairment. For example, we tested controls over management’s assessment of indicators of impairment. To test the Company’s evaluation of indicators of impairment for finite-lived intangibles, our audit procedures included, among others, assessing the methodologies and testing the completeness and accuracy of the Company’s analysis of events or changes in circumstances. As part of our evaluation, we considered market conditions, industry and economic trends, changes in regulations, clinical success and historical and forecasted financial results, in assessing whether an indicator of impairments exists.

/s/ Ernst & Young LLP
We have served as the Company's auditor since 2016.
San Diego, California
February 28, 2022
53

LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)

| December 31,
| 2021 |  | 2020
ASSETS |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 19,522 |  |  | $ | 47,619 |
Short-term investments | 321,586 |  |  | 363,567 |
Accounts receivable, net | 85,453 |  |  | 56,847 |
Inventory | 27,326 |  |  | 26,487 |
Income taxes receivable | 6,193 |  |  | 2,217 |
Other current assets | 4,671 |  |  | 3,822 |
Total current assets | 464,751 |  |  | 500,559 |
Deferred income taxes, net | 34,482 |  |  | 24,320 |
Intangible assets, net | 551,040 |  |  | 595,330 |
Goodwill | 181,206 |  |  | 189,662 |
Commercial license and other economic rights | 10,110 |  |  | 10,979 |
Property and equipment, net | 20,511 |  |  | 14,434 |
Operating lease assets | 16,542 |  |  | 6,892 |
Finance lease assets | 16,207 |  |  | 15,842 |
Other assets | 2,741 |  |  | 4,267 |
Total assets | $ | 1,297,590 |  |  | $ | 1,362,285 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |
Current liabilities: |  |  |
Accounts payable | $ | 8,403 |  |  | $ | 3,784 |
Accrued liabilities | 17,579 |  |  | 18,530 |
Current contingent liabilities | 2,588 |  |  | 39,884 |
Deferred revenue | 10,996 |  |  | 29,435 |
Current operating lease liabilities | 2,053 |  |  | 1,885 |
Current finance lease liabilities | 46 |  |  | 6,593 |
Total current liabilities | 41,665 |  |  | 100,111 |
2023 convertible senior notes, net | 320,717 |  |  | 442,293 |
Long-term contingent liabilities | 8,483 |  |  | 9,249 |
Deferred income taxes, net | 59,095 |  |  | 64,598 |
Long-term operating lease liabilities | 15,494 |  |  | 5,643 |
Other long-term liabilities | 30,977 |  |  | 30,866 |
Total liabilities | 476,431 |  |  | 652,760 |
Commitments and contingencies |  |  |
Stockholders’ equity: |  |  |
Preferred stock, $0.001 par value; 5,000 shares authorized; zero issued and outstanding at December 31, 2021 and 2020 | — |  |  | — |
Common stock, $0.001 par value; 60,000 shares authorized; 16,767 and 16,080 shares issued and outstanding at December 31, 2021 and 2020, respectively | 17 |  |  | 16 |
Additional paid-in capital | 372,969 |  |  | 318,358 |
Accumulated other comprehensive loss | (917) |  |  | (801) |
Retained earnings | 449,090 |  |  | 391,952 |
Total stockholders’ equity | 821,159 |  |  | 709,525 |
Total liabilities and stockholders’ equity | $ | 1,297,590 |  |  | $ | 1,362,285 |

See accompanying notes to these consolidated financial statements.
54

LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

| Year Ended December 31,
| 2021 |  | 2020 |  | 2019
Revenues: |  |  |  |  |
Royalties | $ | 48,927 |  |  | $ | 33,796 |  |  | $ | 46,976 |
Captisol | 164,250 |  |  | 109,959 |  |  | 31,489 |
Contract revenue | 63,956 |  |  | 42,664 |  |  | 41,817 |
Total revenues | 277,133 |  |  | 186,419 |  |  | 120,282 |
Operating costs and expenses: |  |  |  |  |
Cost of Captisol | 62,176 |  |  | 30,419 |  |  | 11,347 |
Amortization of intangibles | 47,167 |  |  | 23,442 |  |  | 16,864 |
Research and development | 69,012 |  |  | 59,392 |  |  | 55,908 |
General and administrative | 57,483 |  |  | 64,435 |  |  | 41,884 |
Other operating income | (37,600) |  |  | — |  |  | — |
Total operating costs and expenses | 198,238 |  |  | 177,688 |  |  | 126,003 |
Gain from sale of Vernalis R&D | — |  |  | 17,114 |  |  | — |
Gain from sale of Promacta license | — |  |  | — |  |  | 812,797 |
Income from operations | 78,895 |  |  | 25,845 |  |  | 807,076 |
Other income (expense): |  |  |  |  |
Gain (loss) from short-term investments | (3,997) |  |  | (16,933) |  |  | 1,049 |
Interest income | 886 |  |  | 8,078 |  |  | 28,430 |
Interest expense | (19,626) |  |  | (27,420) |  |  | (35,745) |
Other expense, net | (8,860) |  |  | (108) |  |  | (4,171) |
Total other expense, net | (31,597) |  |  | (36,383) |  |  | (10,437) |
Income (loss) before income tax | 47,298 |  |  | (10,538) |  |  | 796,639 |
Income tax benefit (expense) | 9,840 |  |  | 7,553 |  |  | (167,337) |
Net income (loss) | 57,138 |  |  | (2,985) |  |  | 629,302 |
Basic net income (loss) per share | $ | 3.44 |  |  | $ | (0.18) |  |  | $ | 33.13 |
Shares used in basic per share calculation | 16,630 |  |  | 16,185 |  |  | 18,995 |
Diluted net income (loss) per share | $ | 3.31 |  |  | $ | (0.18) |  |  | $ | 31.85 |
Shares used in diluted per share calculation | 17,246 |  |  | 16,185 |  |  | 19,757 |

See accompanying notes to these consolidated financial statements.
55

LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)

| Year Ended December 31,
| 2021 |  | 2020 |  | 2019
Net income (loss) | $ | 57,138 |  |  | $ | (2,985) |  |  | $ | 629,302 |
Unrealized net gain (loss) on available-for-sale securities, net of tax | (116) |  |  | (162) |  |  | 200 |
Foreign currency translation adjustment | — |  |  | (423) |  |  | 608 |
Comprehensive income (loss) | $ | 57,022 |  |  | $ | (3,570) |  |  | $ | 630,110 |

See accompanying notes to these consolidated financial statements.
56

LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in thousands)

| Common Stock |  | Additional paid-in capital |  | Accumulated other comprehensive income (loss) |  | Retain earnings (accumulated deficit) |  | Total stockholders’ equity
| Shares |  | Amount |
Balance at December 31, 2018 | 20,766 |  |  | $ | 21 |  |  | $ | 791,114 |  |  | $ | (1,024) |  |  | $ | (229,197) |  |  | $ | 560,914 |
Issuance of common stock under employee stock compensation plans, net | 180 |  |  | — |  |  | (1,421) |  |  | — |  |  | — |  |  | (1,421) |
Share-based compensation | — |  |  | — |  |  | 24,515 |  |  | — |  |  | — |  |  | 24,515 |
Repurchase of common stock | (4,122) |  |  | (4) |  |  | (448,429) |  |  | — |  |  | — |  |  | (448,433) |
Unrealized net gain on available-for-sale securities, net of deferred tax | — |  |  | — |  |  | — |  |  | 200 |  |  | — |  |  | 200 |
Foreign currency translation adjustment | — |  |  | — |  |  | — |  |  | 608 |  |  | — |  |  | 608 |
Other tax adjustments | — |  |  | — |  |  | 1,547 |  |  | — |  |  | — |  |  | 1,547 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | 629,302 |  |  | 629,302 |
Balance at December 31, 2019 | 16,824 |  |  | 17 |  |  | 367,326 |  |  | (216) |  |  | 400,105 |  |  | 767,232 |
Issuance of common stock under employee stock compensation plans, net | 190 |  |  | — |  |  | 1,535 |  |  | — |  |  | — |  |  | 1,535 |
Share-based compensation | — |  |  | — |  |  | 30,727 |  |  | — |  |  | — |  |  | 30,727 |
Repurchase of common stock | (934) |  |  | (1) |  |  | (77,997) |  |  | — |  |  | — |  |  | (77,998) |
Unrealized net loss on available-for-sale securities, net of deferred tax | — |  |  | — |  |  | — |  |  | (162) |  |  | — |  |  | (162) |
Foreign currency translation adjustment | — |  |  | — |  |  | — |  |  | (423) |  |  | — |  |  | (423) |
Reacquisition of equity due to 2023 debt extinguishment, net of tax | — |  |  | — |  |  | (3,236) |  |  | — |  |  | — |  |  | (3,236) |
Cumulative-effect adjustment from adoption of ASU 2016-13, net of tax | — |  |  | — |  |  | — |  |  | — |  |  | (5,168) |  |  | (5,168) |
Other tax adjustments | — |  |  | — |  |  | 3 |  |  | — |  |  | — |  |  | 3 |
Net loss | — |  |  | — |  |  | — |  |  | — |  |  | (2,985) |  |  | (2,985) |
Balance at December 31, 2020 | 16,080 |  |  | 16 |  |  | 318,358 |  |  | (801) |  |  | 391,952 |  |  | 709,525 |
Issuance of common stock under employee stock compensation plans, net | 687 |  |  | 1 |  |  | 27,744 |  |  | — |  |  | — |  |  | 27,745 |
Share-based compensation | — |  |  | — |  |  | 38,783 |  |  | — |  |  | — |  |  | 38,783 |
Unrealized net loss on available-for-sale securities, net of deferred tax | — |  |  | — |  |  | — |  |  | (116) |  |  | — |  |  | (116) |
Reacquisition of equity due to 2023 debt extinguishment, net of tax | — |  |  | — |  |  | (12,407) |  |  | — |  |  | — |  |  | (12,407) |
Warrant and bond hedge unwind transactions | — |  |  | — |  |  | 491 |  |  | — |  |  | — |  |  | 491 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | 57,138 |  |  | 57,138 |
Balance at December 31, 2021 | 16,767 |  |  | $ | 17 |  |  | $ | 372,969 |  |  | $ | (917) |  |  | $ | 449,090 |  |  | $ | 821,159 |

See accompanying notes to these consolidated financial statements.
LIGAND PHARMACEUTICALS INCORPORATED
57

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

| Year Ended December 31,
| 2021 |  | 2020 |  | 2019
Operating activities |  |  |  |  |
Net income (loss) | $ | 57,138 |  |  | $ | (2,985) |  |  | $ | 629,302 |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |  |  |  |  |
Gain from sale of Promacta license | — |  |  | — |  |  | (812,797) |
Gain from sale of Vernalis R&D | — |  |  | (17,114) |  |  | — |
Change in estimated fair value of contingent liabilities | (36,962) |  |  | 963 |  |  | (30) |
Depreciation of fixed assets and amortization of intangible assets | 51,071 |  |  | 25,691 |  |  | 18,361 |
Loss (gain) short-term investments | 3,997 |  |  | 16,933 |  |  | (1,049) |
Amortization/accretion of premium (discount) on investments, net | 111 |  |  | 1,479 |  |  | (10,274) |
Amortization of debt discount and issuance fees | 16,692 |  |  | 23,077 |  |  | 29,988 |
Loss on debt extinguishment | 7,303 |  |  | 2,466 |  |  | — |
Amortization of commercial license and other economic rights | (125) |  |  | 2,275 |  |  | 25,370 |
Share-based compensation | 38,783 |  |  | 30,727 |  |  | 24,515 |
Deferred income taxes, net | (8,618) |  |  | (19,053) |  |  | 74,829 |
Other | 1,572 |  |  | 191 |  |  | (3,498) |
Changes in operating assets and liabilities, net of acquisitions: |  |  |  |  |
Accounts receivable, net | (28,616) |  |  | (26,061) |  |  | 25,463 |
Inventory | (427) |  |  | (17,799) |  |  | (2,061) |
Accounts payable and accrued liabilities | 2,810 |  |  | (1,245) |  |  | (6,664) |
Income taxes receivable | (3,976) |  |  | 9,144 |  |  | (11,219) |
Other economic rights | — |  |  | — |  |  | (12,000) |
Deferred revenue | (17,870) |  |  | 29,236 |  |  | (1,147) |
Other | (4,085) |  |  | (3,339) |  |  | 3,575 |
Net cash provided by (used in) operating activities | 78,798 |  |  | 54,586 |  |  | (29,336) |
Investing activities |  |  |  |  |
Proceeds from sale of Promacta license | — |  |  | — |  |  | 812,797 |
Cash paid for acquisition, net of cash and restricted cash acquired | — |  |  | (404,884) |  |  | (11,840) |
Purchases of property and equipment | (8,761) |  |  | (4,458) |  |  | (2,553) |
Purchases of short-term investments | (181,325) |  |  | (422,523) |  |  | (2,356,545) |
Proceeds from commercial license rights | 494 |  |  | 1,358 |  |  | — |
Proceeds from sale of short-term investments | 154,230 |  |  | 394,539 |  |  | 535,877 |
Proceeds from maturity of short-term investments | 67,105 |  |  | 644,155 |  |  | 1,494,851 |
Cash paid for equity method investment | — |  |  | (500) |  |  | (1,000) |
Proceeds on sale of Vernalis R&D, net | — |  |  | 22,061 |  |  | — |
Other, net | (1,220) |  |  | 1,900 |  |  | (4,669) |
Net cash provided by investing activities | 30,523 |  |  | 231,648 |  |  | 466,918 |
Financing activities |  |  |  |  |
Repayment of debt | (155,760) |  |  | (222,209) |  |  | (27,323) |
Payments under finance lease obligations | (9,188) |  |  | (9,549) |  |  | — |
Proceeds from bond hedge settlement | 18,938 |  |  | — |  |  | 12,401 |
Payments to convert holders for bond conversion | — |  |  | — |  |  | (12,401) |
Net proceeds from stock option exercises and ESPP | 33,763 |  |  | 3,017 |  |  | 2,997 |
Taxes paid related to net share settlement of equity awards | (6,018) |  |  | (1,481) |  |  | (4,418) |
Share repurchases | — |  |  | (77,998) |  |  | (453,048) |
Repurchase of warrants | (18,446) |  |  | — |  |  | (380) |
Payments to CVR Holders | (1,050) |  |  | (2,325) |  |  | (3,000) |
Net cash used in financing activities | (137,761) |  |  | (310,545) |  |  | (485,172) |
Net decrease in cash, cash equivalents, and restricted cash | (28,440) |  |  | (24,311) |  |  | (47,590) |
Effect of exchange rate changes on cash | — |  |  | — |  |  | 83 |
Cash, cash equivalents and restricted cash at beginning of year | 47,962 |  |  | 72,273 |  |  | 119,780 |
Cash, cash equivalents and restricted cash at end of year | $ | 19,522 |  |  | 47,962 |  |  | 72,273 |

58

Supplemental disclosure of cash flow information |  |  |  |  |
Cash paid during the year: |  |  |  |  |
Interest paid | $ | 3,028 |  |  | $ | 4,463 |  |  | $ | 5,827 |
Taxes paid | $ | 3,722 |  |  | $ | 2,130 |  |  | $ | 103,817 |
Restricted cash in other current assets | $ | — |  |  | $ | 343 |  |  | $ | 730 |
Supplemental schedule of non-cash investing and financing activities |  |  |  |  |
Accrued inventory purchases | $ | 1,974 |  |  | $ | 1,562 |  |  | $ | 170 |
Unrealized (loss) gain on available-for-sale investments | $ | (221) |  |  | $ | (212) |  |  | $ | 256 |
Purchase of fixed assets recorded in accounts payable | $ | 1,567 |  |  | $ | 249 |  |  | $ | 495 |

See accompanying notes to these consolidated financial statements.
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 focused on developing or acquiring technologies that help pharmaceutical companies discover and develop medicines. We operate in one business segment: development and licensing of biopharmaceutical assets.
Principles of Consolidation
The accompanying consolidated financial statements include Ligand and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Basis of Presentation
Our consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of our parent company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results may differ from those estimates.
Concentrations of Business Risk
Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash equivalents and investments. We invest excess cash principally in United States government debt securities, investment grade corporate debt securities, mutual funds and certificates of deposit. We maintain some cash and cash equivalents balances with financial institutions that are in excess of the Federal Deposit Insurance Corporation insurance limits. We have established guidelines relative to diversification and maturities that maintain safety and liquidity. These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates.
59

Revenue from significant partners, which is defined as 10% or more of our total revenue, was as follows:

| Year-ended December 31,
| 2021 |  | 2020 |  | 2019
Partner A | 41% |  | 45% |  | N/A
Partner B | 14% |  | 17% |  | 27%
Partner C | <10% |  | <10% |  | 13%

We obtain Captisol primarily from two sites related to a single supplier, Hovione. If this supplier were not able to supply the requested amounts of Captisol from each site, and if our safety stocks of material were depleted, we would be unable to continue to derive revenues from the sale of Captisol until we obtained material from an alternative source, which could take a considerable length of time.
Cash Equivalents
Cash equivalents consist of highly liquid investments with maturities of three months or less from the date of acquisition.
Short-term Investments
Short-term investments primarily consist of investments in debt and equity securities. We classify our short-term investments as “available-for-sale”. Such investments are carried at fair value, with unrealized gains and losses on debt securities included in the statement of comprehensive income (loss), net of tax, and unrealized gains and losses on equity securities included the consolidated statement of operations. We determine the cost of investments based on the specific identification method. We determine the realized gains or losses on the sale of available-for-sale securities using the specific identification method and includes net realized gains and losses as a component of other income or expense within the consolidated statements of operations.
Debt securities consist of certificates of deposit, corporate debt securities, and securities of government-sponsored entities have effective maturities greater than three months and less than twelve months from the date of acquisition. Debt securities securities available-for-sale in an unrealized loss position are assessed for the current expected credit losses methodology. We start by assessing whether we intend to sell the security, or whether it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through earnings. For debt securities available-for-sale that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, we consider the extent to which fair value is less than amortized cost, any changes in interest rates, and any changes to the rating of the security by a rating agency, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income or loss, as applicable.
Equity securities are mutual funds, investments in privately held companies (non-marketable equity securities), and companies that have completed initial public offerings (marketable equity securities). Mutual funds are valued at their publicly quoted net asset value (NAV) price on the last day of the period. Our non-marketable equity securities without readily determinable market values are initially measured at cost and adjusted to fair value for observable transactions for identical or similar investments of the same issuer or impairment. Our marketable equity securities are measured at fair value. Equity investments are classified as short-term investments, or non-current other assets, based on the nature of the securities and their availability for use in current operations.
Accounts Receivable
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.
60

Inventory
Inventory, which consists of finished goods, is stated at the lower of cost or net realizable value. We determine cost using the first-in, first-out method or the specific identification method. We analyze our inventory levels periodically and write down inventory to net realizable value if it has become obsolete, has a cost basis in excess of its expected net realizable value or is in excess of expected requirements. There were no write downs related to obsolete inventory recorded for the years ended December 31, 2021, 2020 and 2019. As of December 31, 2021 and 2020, inventory consist of Captisol prepayments of $24.6 million and $26.1 million, respectively.
Property and Equipment
Property and equipment are stated at cost, subject to review for impairment, and depreciated over the estimated useful lives of the assets, which generally range from three to ten years, using the straight-line method. Amortization of leasehold improvements is recorded over the shorter of the lease term or estimated useful life of the related asset. Maintenance and repairs are charged to operations as incurred. When assets are sold, or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in operating income or expense.
Acquisitions
We first determine whether a set of assets acquired constitute a business and should be accounted for as a business combination. If the assets acquired are not a business, we account for the transaction as an asset acquisition. Business combinations are accounted for by using the acquisition method of accounting which requires us to use significant estimates and assumptions, especially with respect to intangible assets. We record the excess consideration over the aggregate fair value of tangible and intangible assets, net of liabilities assumed, as goodwill.
Under the acquisition method of accounting, we recognize separately from goodwill the identifiable assets acquired, the liabilities assumed, including contingent consideration and all contractual contingencies, generally at the acquisition date fair value. Contingent purchase consideration to be settled in cash are remeasured to estimated fair value at each reporting period with the change in fair value recorded in statement of operations. Costs that we incur to complete the business combination such as investment banking, legal and other professional fees are not considered part of consideration and we charge them to general and administrative expense as they are incurred.
Should the initial accounting for a business combination be incomplete by the end of a reporting period that falls within the measurement period, we report provisional amounts in our financial statements. During the measurement period, we adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date and we record those adjustments to our financial statements in the period of change, if any.
Under the acquisition method of accounting for business combinations, if we identify changes to acquired deferred tax asset valuation allowances or liabilities related to uncertain tax positions during the measurement period and they relate to new information obtained about facts and circumstances that existed as of the acquisition date, those changes are considered a measurement period adjustment and we record the offset to goodwill. We record all other changes to deferred tax asset valuation allowances and liabilities related to uncertain tax positions in current period income tax expense.
Contingent Liabilities
In connection with the acquisition of Pfenex in October 2020, we entered into a CVR agreement pursuant to which former equity holders of Pfenex received one nontransferable contractual right entitling such holder to receive $2.00 per share (or approximately $77.8 million total) in the event that Pfenex’s teriparatide injection product received notice from the FDA that such product is therapeutically equivalent with respect to FORTEO® (teriparatide injection) on or before December 31, 2021. The FDA did not provide notice of such event prior to the CVR expiration date and as a result, the Pfenex CVRs expired without payment.
In connection with the acquisition of Icagen in April 2020, Icagen selling shareholders will be entitled to receive up to an additional $25 million of cash payments based on certain revenue achievements.
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.
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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 our consolidated statement of operations. For additional information, see “Note (5), Fair Value Measurement and Note (8), Balance Sheet Account Details.”
Goodwill, Intangible Assets and Other Long-Lived Assets
Goodwill, which has an indefinite useful life, represents the excess of cost over fair value of net assets acquired. Goodwill is reviewed for impairment at least annually during the fourth quarter, or more frequently if an event occurs indicating the potential for impairment. During the goodwill impairment review, we assess qualitative factors to determine whether it is more likely than not that the fair value of our reporting unit is less than the carrying amount, including goodwill. We operate in one reporting unit. The qualitative factors include, but are not limited to, macroeconomic conditions, industry and market considerations, and the overall financial performance. If, after assessing the totality of these qualitative factors, we determine that it is not more likely than not that the fair value of our reporting unit is less than the carrying amount, then no additional assessment is deemed necessary. Otherwise, we proceed to perform the quantitative assessment. We will then evaluate goodwill for impairment by comparing the estimated fair value of the reporting unit to its carrying value, including the associated goodwill. To determine the fair value, we generally use a combination of market approach based on Ligand and comparable publicly traded companies in similar lines of businesses and the income approach based on estimated discounted future cash flows. Our cash flow assumptions consider historical and forecasted revenue, operating costs and other relevant factors. We may also elect to bypass the qualitative assessment in a period and elect to proceed to perform the quantitative assessment for the goodwill impairment test. We performed the annual assessment for goodwill impairment during the fourth quarter of 2021, noting no impairment.
Our identifiable intangible assets are typically composed of acquired core technologies, licensed technologies, contractual relationships, customer relationships and trade names. The cost of identifiable intangible assets with finite lives is generally amortized on a straight-line basis over the assets’ respective estimated useful lives. We regularly perform reviews to determine if any event has occurred that may indicate that intangible assets with finite useful lives and other long-lived assets are potentially impaired. If indicators of impairment exist, an impairment test is performed to assess the recoverability of the affected assets by determining whether the carrying amount of such assets exceeds the undiscounted expected future cash flows. If the affected assets are not recoverable, we estimate the fair value of the assets and record an impairment loss if the carrying value of the assets exceeds the fair value. Factors that may indicate potential impairment include market conditions, industry and economic trends, changes in regulations, clinical success, historical and forecasted financial results, market capitalization, significant changes in the ability of a particular asset to generate positive cash flows, and the pattern of utilization of a particular asset. We did not identify indicators of impairment for the finite-lived intangibles at December 31, 2021.
Commercial license and other economic rights
As of December 31, 2021 and 2020, commercial license and other economic rights consist of the following (in thousands):

|  | December 31, 2021 |  | December 31, 2020
|  | Gross |  | Adjustments(1) |  | Net |  | Gross |  | Adjustments(2) |  | Net
Aziyo and CorMatrix |  | $ | 17,696 |  |  | $ | (9,461) |  |  | $ | 8,235 |  |  | $ | 17,696 |  |  | $ | (9,588) |  |  | $ | 8,108 |
Selexis and Dianomi |  | 10,602 |  |  | (8,727) |  |  | 1,875 |  |  | 10,602 |  |  | (7,731) |  |  | 2,871 |
Total |  | $ | 28,298 |  |  | $ | (18,188) |  |  | $ | 10,110 |  |  | $ | 28,298 |  |  | $ | (17,319) |  |  | $ | 10,979 |

(1) Amounts represent accumulated amortization to principal of $11.7 million and credit loss adjustments of $6.5 million as of December 31, 2021.
(2) Amounts represent accumulated amortization to principal of $11.3 million and credit loss adjustments of $6.0 million as of December 31, 2020.
Commercial license and other economic rights as of December 31, 2021 represent a portfolio of future milestone and royalty payment rights acquired from Selexis in April 2013 and April 2015, CorMatrix in May 2016, 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 2019, we entered into a development funding and royalties agreement with Novan, pursuant to which we would receive certain payments at specified milestones, as well as royalties on any future net sales of SB206, a product candidate being developed to treat molluscum contagiosum, and any other Novan products used for the treatment of molluscum (“Novan Molluscum Products”). We paid Novan an upfront payment of $12.0 million, which Novan is required to use to fund the development of SB206. We are not obligated to provide additional funding to Novan for the development or commercialization
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of SB206. Pursuant to the agreement, we would receive up to $20.0 million of milestone payments upon the achievement by Novan of certain regulatory milestones for SB206 or any other Novan Molluscum Product and commercial milestones. In addition to the milestone payments, Novan will pay us tiered royalties from 7.0% to 10.0% based on aggregate annual net sales of SB206 or any other Novan Molluscum Product in North America.
In December 2018, we entered into a development funding and royalties agreement with Palvella. Pursuant to the agreement, we will 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 congenita. In addition to the milestone payments, Palvella will pay us tiered royalties from 5.0% to 9.8% based on aggregate annual worldwide net sales of any PTX-022 products, if approved, subject to Palvella’s right to reduce the royalty rates by making payments in certain circumstances. We made 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 development or commercialization of PTX-022.
We determined the economic rights related to Novan and Palvella should be characterized as a funded research and development arrangement, thus we account for them in accordance with ASC 730-20, Research and Development Arrangement, and reduce our asset as the funds are expended by Novan and Palvella. As of December 31, 2019, Novan had used up the $12.0 million upfront payment provided by us. As such, our other economic rights related to Novan had been fully amortized as of December 31, 2019. As of December 31, 2020, the fund has been fully expended by Palvella and our cost basis for the asset has been reduced to zero, and therefore we will recognize milestones and royalties as revenue when earned. During 2020, we recorded a $3.0 million milestone from Palvella under contract revenue, which has been included in our consolidated statement of operations for the year ended December 31, 2020.
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. Pursuant to the agreement, we received $10.0 million in 2017 from Aziyo to buydown the royalty rates on the products CorMatrix sold to Aziyo. The agreement closed on May 31, 2017, in connection with the closing of the asset sale from CorMatrix to Aziyo (the “CorMatrix Asset Sale”). Per the agreement, we will receive a 5% royalty on the products Aziyo acquired in the CorMatrix Asset Sale, reduced from the original 20% royalty from CorMatrix pursuant to the previously disclosed interest purchase agreement, dated May 3, 2016 (the “Original Interest Purchase Agreement”) between CorMatrix and us. In addition, Aziyo has agreed to pay us up to $10.0 million of additional milestones tied to cumulative net sales of the products Aziyo acquired in the CorMatrix Asset Sale and to extend the term on these royalties by one year. The royalty agreement will terminate on May 31, 2027. In addition, in May 2017, we entered into an amended and restated interest purchase agreement (the “Amended Interest Purchase Agreement”) with CorMatrix, which supersedes in its entirety the Original Interest Purchase Agreement. Other than removing the commercial products sold to Aziyo in the CorMatrix Sale, the terms of the Amended Interest Purchase Agreement remain unchanged with respect to the CorMatrix developmental pipeline products, including the royalty rate of 5% on such pipeline products. The Amended Interest Purchase Agreement will terminate 10 years from the date of the first commercial sale of such products.
We account for the Aziyo commercial license right as a financial asset in accordance with ASC 310, Receivables, and 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 December 31, 2021 is 21.6%. Revenue is calculated by multiplying the carrying value of the commercial license right by the effective interest. The payments received in 2021 were accordingly allocated between revenue and the amortization of the commercial license rights.
Prior to 2020, we accounted for commercial license rights related to developmental pipeline products such as Selexis and Dianomi on a non-accrual basis. These developmental pipeline products are non-commercialized, non-approved products that require FDA or other regulatory approval, and thus have uncertain cash flows. The developmental pipeline products are on a non-accrual basis as we are not yet able to forecast future cash flows given their pre-commercial stages of development. We will prospectively update the yield model under the effective interest method once the underlying products are commercialized and we can reliably forecast expected cash flows. Income will be calculated by multiplying the carrying value of the commercial license right by the effective interest rate. We regularly perform reviews to determine if any event has occurred that may indicate the carrying value of these commercial license rights are potentially impaired. If the affected commercial license rights are not recoverable, we estimate the fair value of the assets and record an impairment loss if the carrying value of the assets exceeds the fair value. During 2020, given the expected cash flow from the Selexis program, we started to account for the Selexis commercial license right as a financial asset in accordance with ASC 310, and 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 Selexis as of December 31, 2021 is 21%. Revenue is calculated by multiplying the carrying value of the commercial license right by the effective interest. The payments received in the year ended December 31, 2021 and 2020 were allocated
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accordingly between revenue and the amortization of the commercial license rights. We still accounted for commercial license rights related to Dianomi on a non-accrual basis as of December 31, 2021.
For commercial license rights, we have elected a prospective approach to account for changes in estimated cash flows and selected a method for determining when an impairment would be recognized and how to measure that impairment. In circumstances where our new estimate of expected cash flows is greater than previously expected, we will update our yield prospectively. In circumstances where our new estimate of expected cash flows is less than previously expected and below our original estimated yield we record an impairment. Impairment is recognized by reducing the financial asset to an amount that represents the present value of our most recent estimate of expected cash flows discounted by the original effective interest rate. In circumstances where our new estimate of expected cash flows is less than previously expected, but not below our original estimated yield, we update our yield prospectively.
As a result of adopting ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit losses on Financial Instruments (Topic 326), we now recognize an allowance for current expected credit losses on the commercial license rights subject to credit risk. We recorded a $5.5 million pre-tax reserve for credit losses upon adoption of the standard 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 twelve months ended December 31, 2021 and 2020, we further considered the current and expected future economic and market conditions surrounding novel coronavirus (COVID-19) pandemic, along with other factors, and recorded an additional $0.5 million each year, for credit losses in other expense, net, in our consolidated statements of operations.
Revenue Recognition
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.
We apply the following five-step model in accordance with ASC 606, Revenue from Contracts with Customers, in order to determine the revenue: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
Royalties
We receive royalty revenue on sales by our partners of products covered by patents that we or our partners own under contractual agreements. We do not have future performance obligations under these license arrangements. We generally satisfy our obligation to grant intellectual property rights on the effective date of the contract. However, we apply the royalty recognition constraint required under the guidance for sales-based royalties which requires a royalty to be recorded no sooner than the underlying sale occurs. Therefore, royalties on sales of products commercialized by our partners are recognized in the quarter the product is sold. Our partners generally report sales information to us on a one quarter lag. Thus, we estimate the expected royalty proceeds based on an analysis of historical experience and interim data provided by our partners including their publicly announced sales. Differences between actual and estimated royalty revenues, which have not been material, are adjusted in the period in which they become known, typically the following quarter.
Captisol Sales
Revenue from Captisol sales is recognized when control of Captisol material or intellectual property license rights is transferred to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products. 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, we consider our performance obligation is satisfied at a point in time, 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. 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.
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Contract Revenue
Our contracts with customers often will include variable consideration in the form of contingent milestone-based payments. We include contingent milestone based 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 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 the development milestone or regulatory approval. Depending on the terms of the arrangement, we may also defer a portion of the consideration received if we have to satisfy a future obligation, which typically occurs with our contracts for R&D services.
For R&D services we recognize revenue over time and we measure our progress using an input method. The input methods we use are based on the effort we expend or costs we incur toward the satisfaction of our performance obligation. We estimate the amount of effort we expend, including the time it will take us to complete the activities, or the costs we may incur in a given period, relative to the estimated total effort or costs to satisfy the performance obligation. This results in a percentage that we multiply by the transaction price to determine the amount of revenue we recognize each period. This approach requires us to make numerous estimates and use significant judgement. If our estimates or judgements change over the course of the collaboration, they may affect the timing and amount of revenue that we recognize in the current and future periods.
We occasionally have sub-license obligations related to arrangements for which we receive license fees, milestones and royalties. We evaluate the determination of gross as a principal versus net as an agent reporting based on each individual agreement.
Deferred Revenue
Depending on the terms of the arrangement, we may also defer a portion of the consideration received if we have to satisfy a future obligation.
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, 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 twelve months ended December 31, 2021, the amount recognized as revenue that was previously deferred at December 31, 2020 was $30.1 million. During the twelve months ended December 31, 2020, the amount recognized as revenue that was previously deferred at December 31, 2019 was $0.9 million.
Disaggregation of Revenue
Royalty revenue for 2021, 2020 and 2019 are reported as below (in thousands):

|  | Year ended December 31,
|  | 2021 |  | 2020 |  | 2019
Kyprolis |  | $ | 27,472 |  |  | $ | 25,164 |  |  | $ | 25,046 |
Evomela |  | 10,079 |  |  | 6,377 |  |  | 5,171 |
Other |  | 11,376 |  |  | 2,255 |  |  | 2,566 |
Promacta |  | N/A |  | N/A |  | 14,193 |
|  | $ | 48,927 |  |  | $ | 33,796 |  |  | $ | 46,976 |

The following table represents disaggregation of Captisol and Contract Revenue (in thousands):
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|  | Year ended December 31,
|  | 2021 |  | 2020 |  | 2019
Captisol |  | $ | 164,250 |  |  | $ | 109,959 |  |  | $ | 31,489 |
Contract |  |  |  |  |  |
Service Revenue |  | 23,712 |  |  | 21,803 |  |  | 16,776 |
License Fees |  | 5,084 |  |  | 4,378 |  |  | 6,199 |
Milestone |  | 28,748 |  |  | 11,516 |  |  | 17,173 |
Other |  | 6,412 |  |  | 4,967 |  |  | 1,669 |
|  | $ | 63,956 |  |  | $ | 42,664 |  |  | $ | 41,817 |

Research and Development Expenses
Research and development expense consists of labor, material, equipment, and allocated facilities costs of our scientific staff who are working pursuant to our collaborative agreements and other research and development projects. Also included in research and development expenses are third-party costs incurred for our research programs including in-licensing costs, CRO costs and costs incurred by other research and development service vendors. We expense these costs as they are incurred. When we make payments for research and development services prior to the services being rendered, we record those amounts as prepaid assets on our consolidated balance sheet and we expense them as the services are provided.
Share-Based Compensation
We incur share-based compensation expense related to restricted stock, ESPP, and stock options.
Restricted stock unit (RSU) and performance stock unit (PSU) are all considered restricted stock. The fair value of restricted stock is determined by the closing market price of our common stock on the date of grant. We recognize share-based compensation expense based on the fair value on a straight-line basis over the requisite service periods of the awards, taking into consideration of forfeitures as they occur. PSU generally represents a right to receive a certain number of shares of common stock based on the achievement of corporate performance goals and continued employment during the vesting period. At each reporting period, we reassess the probability of the achievement of such corporate performance goals and any expense change resulting from an adjustment in the estimated shares to be released are treated as a cumulative catch-up in the period of adjustment. A limited amount of PSUs contain a market condition dependent upon the Company’s relative and absolute total stockholder return over a three-year period, with a range of 0% to 200% of the target amount granted to be issued under the award. Share-based compensation expense for these PSUs is measured using the Monte-Carlo simulation valuation model and is not adjusted for the achievement, or lack thereof, of the market conditions.
The Black-Scholes-Merton option-pricing model is used to estimate the fair value of stock purchases under our ESPP and stock options granted. The model assumptions include expected volatility, term, dividends, and the risk-free interest rate. We look to historical and implied volatilities of our stock to determine the expected volatility. The expected term of an award is based on historical forfeiture experience, exercise activity, and on the terms and conditions of the stock awards. The expected dividend yield is determined to be 0% given that except for 2007, during which we declared a cash dividend on our common stock of $2.50 per share, we have not paid any dividends on our common stock in the past and currently do not expect to pay cash dividends or make any other distributions on common stock in the future. The risk-free interest rate is based upon U.S. Treasury securities with remaining terms similar to the expected term of the share-based awards.
We grant options, RSUs and PSUs to employees and non-employee directors. Non-employee directors are accounted for as employees. Options and RSUs granted to certain non-employee directors typically vest one year from the date of grant. Options granted to employees typically vest 1/8 on the six month anniversary of the date of grant, and 1/48 each month thereafter for forty-two months. RSUs and PSUs granted to employees vest over three years. All option awards generally expire ten years from the date of grant.
Share-based compensation expense for awards to employees and non-employee directors is recognized on a straight-line basis over the vesting period until the last tranche vests.
Derivatives
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In May 2018, we issued $750.0 million aggregate principal amount of 2023 Notes, bearing cash interest at a rate of 0.75% per year, payable semi-annually, as further described in “Note (7), Convertible Senior Notes.” Concurrently with the issuance of the notes, we entered into a series of convertible note hedge and warrant transactions which in combination are designed to reduce the potential dilution to our stockholders and/or offset the cash payments we are required to make in excess of the principal amount upon conversion of the notes. The conversion option associated with the 2023 Notes temporarily met the criteria for an embedded derivative liability which required bifurcation and separate accounting. In addition, the note hedge and warrants were also temporarily classified as a derivative asset and liability, respectively, on our consolidated balance sheet. As a result of shareholder approval to increase the number of authorized shares of our common stock on June 19, 2018, as discussed in “Note (7), Convertible Senior Notes,” the derivative asset and liabilities were reclassified to additional paid-in capital.
In connection with our 2019 Notes, which we issued in August 2014 for $245.0 million aggregate principal amount, on May 22, 2018, we amended it making an irrevocable election to settle the entire note in cash. As a result, we reclassified from equity to derivative liability the fair value of the conversion premium as of May 22, 2018. Amounts paid in excess of the principal amount would be offset by an equal receipt of cash under the corresponding convertible bond hedge. As a result, we reclassified from equity to derivative asset the fair value of the bond hedge as of May 22, 2018. Changes in the fair value of these derivatives are reflected in other expense, net, in our consolidated statements of operations.
In connection with the payoff of the 2019 Notes in August 15, 2019, the bond hedge was settled and accordingly, the derivative asset and derivative liability were settled to zero. See detail in “Note (7), Convertible Senior Notes.”
Income Taxes
The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for the expected future tax benefit to be derived from tax loss and credit carryforwards. Deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the provision for income taxes in the period that includes the enactment date.
Deferred tax assets are regularly assessed to determine the likelihood they will be recovered from future taxable income. A valuation allowance is established when we believe it is more likely than not the future realization of all or some of a deferred tax asset will not be achieved. In evaluating the ability to recover deferred tax assets within the jurisdiction which they arise we consider all available positive and negative evidence. Factors reviewed include the cumulative pre-tax book income for the past three years, scheduled reversals of deferred tax liabilities, history of earnings and reliable forecasting, projections of pre-tax book income over the foreseeable future, and the impact of any feasible and prudent tax planning strategies.
We recognize the impact of a tax position in our financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. Tax authorities regularly examine our returns in the jurisdictions in which we do business and we regularly assess the tax risk of our return filing positions. Due to the complexity of some of the uncertainties, the ultimate resolution may result in payments that are materially different from our current estimate of the tax liability. These differences, as well as any interest and penalties, will be reflected in the provision for income taxes in the period in which they are determined.
Income (Loss) Per Share
Basic income (loss) per share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted 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 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 2023 convertible senior notes, stock options and restricted stock. 2023 convertible senior notes have a dilutive impact when the average market price of the Company’s common stock exceeds the applicable conversion price of the respective notes. It is our intent and policy to settle conversions through combination settlement, which essentially 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 stock options and restricted stock. In loss periods, basic net loss per
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share and diluted net loss per share are identical since the effect of otherwise dilutive potential common shares is anti-dilutive and therefore excluded.
For the twelve months ended December 31, 2020, all of the 0.6 million weighted average shares of outstanding equity awards as of December 31, 2020 were anti-dilutive due to the net loss for the period.
The following table presents the calculation of weighted average shares used to calculate basic and diluted income (loss) per share (in thousands):

| Year Ended December 31,
| 2021 |  | 2020 |  | 2019
Weighted average shares outstanding: | 16,630 |  |  | 16,185 |  |  | 18,995 |
Dilutive potential common shares: |  |  |  |  |
Restricted stock | 96 |  |  | — |  |  | 43 |
Stock options | 520 |  |  | — |  |  | 719 |
Shares used to compute diluted income (loss) per share | 17,246 |  |  | 16,185 |  |  | 19,757 |
Potentially dilutive shares excluded from calculation due to anti-dilutive effect | 4,793 |  |  | 8,458 |  |  | 8,926 |

Comprehensive Income (Loss)
Comprehensive income (loss) represents net income (loss) adjusted for the change during the periods presented in unrealized gains and losses on available-for-sale debt securities, foreign currency translation adjustments, and reclassification adjustments for realized gains or losses included in net income (loss). The unrealized gains or losses are reported on the Consolidated Statements of Comprehensive Income (Loss).
Foreign Currency Translation
The British Pound Sterling was the functional currency of our subsidiary, Vernalis, which was sold in fourth quarter of the year ended December 31, 2020. For the years ended December 31, 2020 and 2019 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).
Impact of COVID-19 Pandemic
To date, we have not experienced material disruptions in our business operations or financial impacts as a result of the COVID-19 pandemic. While it is not possible at this time to estimate the impact that COVID-19 could have on our business in the future, the continued spread of COVID-19 and variants of the virus, the rate of vaccinations regionally and globally and the measures taken by the government authorities, and any future epidemic disease outbreaks, could: disrupt the supply chain and the manufacture or shipment of products and supplies for use by us in our discovery activities and by our partners for their discovery and development activities; delay, limit or prevent us or our partners’ from continuing research and development activities; impede our negotiations with partners and potential partners; impede testing, monitoring, data collection and analysis and other related activities, by us and our partners; interrupt or delay the operations of the FDA or other regulatory authorities, which may impact review and approval timelines for initiation of clinical trials or marketing; impede the launch or commercialization of any approved products; any of which could delay our partnership programs, increase our operating costs, and have a material adverse effect on our business, financial condition and results of operations. In addition, if COVID-19 infects our genetically modified animals, which form the basis of our platform, or if there is an outbreak among our employees who maintain and care for these animals, we and our partners may be unable to produce antibodies for development.
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. In addition, certain of our OmniAb and other license 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
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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 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), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. This guidance is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The ASU is effective for public entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Effective January 1, 2022, we will adopt ASU 2020-06. We are finalizing our analysis of certain assumptions that will be utilized at the transition and expects the effect of adopting ASU 2020-06 will result in an increase to retained earnings, a decrease to additional paid-in capital, and an increase to the convertible senior notes. We expect that interest expense recognized in future periods will be reduced as a result of accounting for the convertible debt instrument as a single liability measured at its amortized cost.
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. Sale of Vernalis R&D and Promacta License
Vernalis R&D
On October 11, 2020, we entered into an Agreement for the Sale and Purchase of the Entire Issued Share Capital of Vernalis (R&D) Limited (the “Purchase and Sale Agreement”) with HitGen UK Ltd (“Buyer”). Under the terms of the Purchase and Sale Agreement, we transferred certain intellectual property on completed collaboration licenses to Ligand UK Limited, which is a subsidiary of the Company, which we retain rights and interest to and are entitled to receive future milestones and royalties. Under the Purchase and Sale Agreement, we are also entitled to a share of the economic rights on current research collaboration contracts. In addition, Vernalis will continue to support certain existing Ligand partnerships. On December 2, 2020, we completed the sale. Pursuant to the terms of the Purchase and Sale Agreement, at the closing of the transaction, Buyer paid $26.7 million in cash, following adjustment for debt, cash and net working capital. As Vernalis R&D has the input, process and output elements defined in ASC 805, Business Combinations, we concluded the sale qualifies as a sale of business. Net assets sold, net of working capital adjustment, was $6.1 million, goodwill allocated to the selling business that was written off was $3.5 million, resulting in a $17.1 million gain from sale of Vernalis R&D recorded to income from operations.
Promacta License
On March 5, 2019, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with RPI Finance Trust (“RPI”), doing business as “Royalty Pharma”, who is not an affiliate. Under the Asset Purchase Agreement, we sold, transferred, assigned and conveyed to RPI, and RPI purchased, acquired and accepted from us, all of our rights, title and interest in and to the Purchased Assets, which include among other things the intellectual property and related know-how generated by us in connection with the license agreement (collectively, the “Purchased Assets”), dated December 29, 1994, by and between Novartis (as successor in interest to SmithKline Beecham Corporation) and Ligand, which allowed us to receive a royalty on net sales of Promacta. We concluded the sale does not qualify as a sale of a business, but as a sale of a non-financial asset. At the closing on March 6, 2019, RPI paid us $827.0 million in cash and we do not have any remaining performance obligations related to Novartis or RPI for Promacta. The carrying value of our Promacta asset as of March 6, 2019 was zero. Of the total cash proceeds from the sale, $14.2 million was recorded to revenue related to the Promacta royalty for the period between January 1, 2019 and March 6, 2019, and the remaining $812.8 million was recorded to income from operations in accordance with ASC 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets.
3. Short-term Investments: Investment in Viking
Our ownership in Viking was approximately 8.6% as of December 31, 2021, and we account for it as an investment in available-for-sale equity securities, which is measured at fair value, with changes in fair value recognized in net income. Viking is considered a related party as we maintain a seat on Viking's board of directors and we do not exert significant influence over Viking.
As of December 31, 2021, we have zero Viking warrants outstanding. As of December 31, 2021 and December 31, 2020, we recorded our common stock in Viking in “short-term investments” at fair value of $30.9 million and $32.8 million, respectively.
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At December 31, 2020, we owned warrants to purchase up to 1.5 million shares of Viking's common stock at an exercise price of $1.50 per share, and during the year ended December 31, 2021 we exercised all outstanding Viking warrants. As of December 31, 2021, we have zero Viking warrants outstanding. During the year ended December 31, 2021, we also sold 0.6 million Viking shares. We recorded the warrants in “Short-term investments” in our consolidated balance sheet at fair value of $6.3 million at December 31, 2020. See further discussion in “Note (5), Fair Value Measurement.”
4. Acquisitions
As set forth below, we completed five acquisitions from January 1, 2019 through December 31, 2021, of which three (Pfenex, Icagen and Ab Initio) were accounted for as business combinations and two (Taurus and xCella) were accounted for as asset acquisitions. For business combinations, we applied the acquisition method of accounting. Accordingly, we recorded the tangible and intangible assets acquired and liabilities assumed at their estimated fair values as of the applicable date of acquisition. Except for the Pfenex acquisition, for all other acquisitions, we did not incur any material acquisition related costs.
Pfenex Acquisition
On October 1, 2020, we acquired Pfenex, which develops next-generation and novel protein therapeutics to improve existing therapies and create new therapies for biological targets linked to critical, unmet diseases using a protein expression technology platform.
The purchase price of $465.1 million included $429.6 million cash consideration paid upon acquisition, and a contingent CVR payment of up to $77.8 million in cash based on a certain specified milestone with an estimated initial fair value of $37.0 million. The CVR will only be paid in full if the milestone is achieved by December 31, 2021. The amount of the CVR included in purchase price was reduced by $1.5 million which was determined to be post-combination expense. The fair value of the CVR liability was determined using a probability adjusted income approach. These cash flows were then discounted to present value using a discount rate based on market participants' cost of debt reflective of the Company, which was 7.1%. The liability is periodically assessed based on events and circumstances related to the underlying milestone, and any change in fair value is recorded in our consolidated statements of operations. During the year ended December 31, 2021, we wrote off the entire CVR liability of $37.6 million to other operation income, primarily due to not achieving the specific development and regulatory milestone by December 31, 2021 as defined by Pfenex CVR.
In connection with the acquisition, a portion of Pfenex's equity awards that were outstanding and unvested prior to the acquisition became fully vested per the terms of the merger agreement. The acceleration of vesting required us to allocate the fair value of the equity attributable to pre-combination service to the purchase price and the remaining amount was considered our post-combination expense. We paid $17.3 million in cash for equity compensation, which is attributable to pre-combination services and is reflected as a component of the total purchase price paid of $429.6 million. In addition, the fair value of equity compensation attributable to the post-combination service period was $8.7 million. These amounts were associated with the accelerated vesting of stock options previously granted to Pfenex employees and were fully paid in cash, which was recognized as general and administrative expenses during the fourth quarter of 2020.
We recorded $20.7 million of acquisition-related costs for legal, severance and other costs in connection with the acquisition within operating expenses in our consolidated statement of operations for 2020. 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):
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Cash | $ | 51,407 |
Restricted cash | 200 |
Accounts and unbilled receivables | 1,359 |
Property and equipment, net | 7,823 |
Right-of-use asset | 3,070 |
Other assets | 1,338 |
Intangibles acquired | 385,000 |
Goodwill(1) | 82,303 |
Accounts payable | (6,814) |
Accrued liabilities | (9,606) |
Deferred revenue | (3,908) |
Lease liabilities | (3,070) |
Other liabilities | (1,382) |
Deferred tax liabilities, net | (42,622) |
Total consideration | $ | 465,098 |

(1) Goodwill represents the excess of the purchase price over the preliminary fair value of the underlying assets acquired and liabilities assumed. Goodwill is attributable to the assembled workforce of experienced personnel at Pfenex and expected synergies. None of the goodwill is deductible for tax purposes.
The intangibles acquired and their weighted average useful life are as follows (in thousands, except useful lives):

| Approximate Fair Value | Estimated useful life (in years)
Contractual Relationships: |  |
Alvogen | $ | 114,000 |  | 12
Merck | 117,000 |  | 12
Jazz | 80,000 |  | 17
SII | 49,000 |  | 10
Arcellx | 2,000 |  | 17
Acquired Technologies | 23,000 |  | 10-19
| $ | 385,000 |  |

The fair values of the contractual relationships were based on the discounted cash flow method that estimated the present value of the potential royalties, milestones and collaboration revenue streams derived from the licensing of the related technologies over the estimated contractual relationship period. The fair values of the acquired technologies were based on the discounted cash flow method that estimated the present value of the potential royalties, milestones, collaboration and product revenue streams derived from the licensing of the related technologies over the estimated useful lives. These projected cash flows were discounted to present value using discount rate, which varies from 12% to 15%. The intangible assets acquired are being amortized on a straight-line basis over the estimated useful life.
Approximately $2.0 million of revenue and $19.3 million of loss before income taxes of Pfenex were included in the consolidated statement of operations for the year ended December 31, 2020. The following summary presents our unaudited pro forma consolidated results of operations for the years ended December 31, 2020 and December 31, 2019 as if the Pfenex acquisition had occurred on January 1, 2019, which gives effect to certain transaction accounting adjustments, including amortization of acquired intangibles and stock based compensation expense for retained Pfenex employees. The transaction accounting adjustments do not include non-recurring adjustments related to Pfenex's executive salary, board of director compensation, and salary of Pfenex employees involved in the reduction of force as part of the acquisition, estimated to be $7.1 million in 2020 and $4.8 million in 2019. The pro forma financial information is not necessarily indicative of the operating results that would have occurred had the acquisition been consummated as if the date indicated, nor is it necessarily indicative of future operating results (in thousands, except per share amounts):
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| Year Ended December 31,
(Unaudited) | 2020 | 2019
Revenue | $ | 189,203 |  | $ | 170,608 |
Net Income (loss) | $ | (60,059) |  | $ | 594,941 |
Net income (loss) per common share: |  |
Basic | $ | (3.71) |  | $ | 31.32 |
Diluted | $ | (3.71) |  | $ | 30.11 |

Taurus Acquisition
On September 9, 2020, we acquired Taurus, which discovers and develops novel antibodies from immunized cows and cow-derived libraries. These antibodies feature some of the longest CDR3s of any species, with unique genetic and structural diversity that can enable binding to challenging antigens with application in therapeutics, diagnostics and research.
The purchase price of $5.1 million included $4.6 million in cash, and a $0.5 million holdback to satisfy indemnification obligations which will be settled by September 2021. We also issued nontransferable CVRs for up to $4.5 million tied to partnered and internal research and development and for up to $25.0 million as a 25% share of post-clinical Taurus product revenues (including milestone payments) received by us. We accounted for this transaction as an asset acquisition as we concluded that substantially all of the fair value of the gross assets acquired was concentrated in the acquired core technology.
The allocation of the consideration was allocated to the acquisition date fair values of acquired assets as follows (in thousands)

Cash | $ | 47 |
Intangibles assets with finite-life - core technologies | 5,005 |
| $ | 5,052 |

The core technology is being amortized on a straight-line basis over the estimated useful life of 10 years. We account for the CVRs in accordance with ASC 450, Contingencies, when the contingency is resolved and the liability becomes payable. None of the CVRs are recognized as of the acquisition date.
xCella Acquisition
On September 8, 2020, we acquired xCella, an antibody discovery company. xCella's xPloration platform is a proprietary microcapillary platform that can screen single B cells for specificity and bioactivity and will increase Ligand’s antibody discovery throughput and efficiency.
We paid $7.1 million in cash (including a $0.5 million holdback to satisfy indemnification obligations which will be settled by September 2021), and issued earnout rights for up to $5.0 million tied to our use of the xCella technology for partnered research and development and for up to $25.75 million as a 25% share of any future milestone payments we received under a certain existing xCella partner arrangement. We evaluated this acquisition in accordance with ASC 805, Business Combinations, to discern whether the assets and operations of xCella met the definition of a business. We accounted for this transaction as an asset acquisition as we concluded that substantially all of the fair value of the gross assets acquired was concentrated in the acquired core technology.
The allocation of the consideration was allocated to the acquisition date fair values of acquired assets and assumed liabilities as follows (in thousands):

Cash and other assets | $ | 240 |
Accrued liabilities | (142) |
Deferred tax liabilities, net | (604) |
Intangibles assets with finite-life - core technology | 7,582 |
| $ | 7,076 |

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The core technology is being amortized on a straight-line basis over the estimated useful life of 15 years. We account for the earnout rights in accordance with ASC 450, Contingencies, when the contingency is resolved and the liability becomes payable. None of the earnout rights are recognized as of the acquisition date.
Icagen Acquisition
On April 1, 2020, we acquired the core assets, including its partnered programs and ion channel technology from Icagen and certain of its affiliates.
The purchase price of $19.9 million included $15.1 million cash consideration paid upon acquisition, and a CVR of up to $25.0 million of cash payments based on certain revenue milestones with an estimated fair value of $4.8 million. The fair value of the earn-out liability was determined using a probability weighted income approach incorporating the estimated future cash flows from expected future milestones. These cash flows were then discounted to present value using a discount rate based on the market participants' cost of debt reflective of the Company, which was 5.5%. The liability is periodically assessed based on events and circumstances related to the underlying milestones, and any change in fair value is recorded in our consolidated statements of operations. The carrying amount of the liability may fluctuate significantly and actual amount paid may be materially different than the carrying amount of the liability. As the acquisition is not considered significant, pro forma information has not been provided. The results of Icagen have been included in our results of operations since the date of acquisition.
The allocation of the consideration was allocated to the acquisition date fair values of acquired assets and assumed liabilities as follows (in thousands):

Property and equipment, net | $ | 1,173 |
Prepaids and other assets | 588 |
Liabilities assumed | (812) |
Deferred revenue | (3,685) |
Deferred tax assets, net | 861 |
Acquired intangibles | 12,800 |
Goodwill(1) | 9,015 |
| $ | 19,940 |

(1) Goodwill represents the excess of the purchase price over the preliminary fair value of the underlying assets acquired and liabilities assumed. Goodwill is attributable to the assembled workforce of experienced personnel at Icagen and expected synergies.
The majority of the goodwill is deductible for tax purposes. Acquired intangibles include $11.1 million of customer relationships and $1.7 million of core technology. The fair values of the customer relationships were based on a discounted cash flow analysis incorporating the estimated future cash flows from these relationships during the contractual term. These cash flows were then discounted to present value using a discount rate of 17%. The fair value of the customer relationships is being amortized on a straight-line basis over the weighted average estimated useful life of 9.6 years. The fair value of the core technology was based on the discounted cash flow method that estimated the present value of the potential royalties, milestones, and collaboration revenue streams derived from the licensing of the related technologies. These projected cash flows were discounted to present value using a discount rate of 17%. The fair value of the core technology is being amortized on a straight-line basis over the estimated useful life of 10 years. The total acquired intangibles are being amortized on a straight-line basis over the estimated useful life of 9.7 years.
Ab Initio Acquisition
On July 23, 2019, we acquired privately-held Ab Initio, an antigen-discovery company located in South San Francisco, California. Ab Initio has a patented antigen technology that is synergistic with the OmniAb® therapeutic antibody discovery platform, providing our current and potential new partners enhanced capabilities for the discovery of therapeutic antibodies against difficult-to-access cellular targets. Ab Initio has a collaboration agreement with Pfizer to discover novel therapeutic antibodies against an undisclosed target in the GPCR superfamily.
The purchase price of $12.0 million included $11.9 million cash consideration paid upon acquisition, net of cash acquired, and $0.15 million cash holdback for potential indemnification claims. As the acquisition is not considered significant, pro forma information has not been provided.
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The final purchase consideration was allocated to the acquisition date fair values of acquired assets and assumed liabilities as follows (in thousands):

Cash and other assets | $ | 28 |
Accounts payable and accrued liabilities | (83) |
Deferred tax liabilities, net | (146) |
Intangibles assets with finite-life - core technologies | 7,400 |
Goodwill(1) | 4,812 |
| $ | 12,011 |

(1) Goodwill represents the excess of the purchase price over the fair value of the underlying assets acquired and liabilities assumed. Goodwill is attributable to the assembled workforce of experienced personnel at Ab Initio and expected synergies.
None of the goodwill is deductible for tax purposes. The fair value of the core technologies was determined based on the discounted cash flow method that estimated the present value of the hypothetical royalty/ milestone streams from the licensing of the antigen-discovery technology and collaboration agreement. These projected cash flows were discounted to present value using a discount rate of 12.0%. The fair value of the core technologies is being amortized on a straight-line basis over the weighted average estimated useful life of approximately 20 years.
5. Fair Value Measurement
We measure certain financial assets and liabilities at fair value on a recurring basis. Fair value is a market-based measurement that should be determined using assumptions that market participants would use in pricing an asset or liability. We establish a three-level hierarchy to prioritize the inputs used in measuring fair value. The levels are described in the below with level 1 having the highest priority and level 3 having the lowest:
Level 1 - Observable inputs such as quoted prices in active markets
Level 2 - Inputs other than the quoted prices in active markets that are observable either directly or indirectly
Level 3 - Unobservable inputs in which there is little or no market data, which require the Company to develop its own assumptions
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The following table provides a summary of the assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2021 and 2020 (in thousands):

Fair Value Measurements at Reporting Date Using
December 31, 2021 |  |  | Quoted Prices in Active Markets for Identical Assets |  | Significant Other Observable Inputs |  | Significant Unobservable Inputs
| Total |  | (Level 1) |  | (Level 2) |  | (Level 3)
Assets: |  |  |  |  |  |  |
Short-term investments (1) | $ | 290,697 |  |  | $ | 9,735 |  |  | $ | 280,553 |  |  | $ | 409 |
Investment in Viking common stock | 30,889 |  |  | 30,889 |  |  | — |  |  | — |
Total assets | $ | 321,586 |  |  | $ | 40,624 |  |  | $ | 280,553 |  |  | $ | 409 |
Liabilities: |  |  |  |  |  |  |
Contingent liabilities - Cydex | 349 |  |  | — |  |  | — |  |  | 349 |
Contingent liabilities - Metabasis (4) | 3,358 |  |  | — |  |  | 3,358 |  |  | — |
Contingent liabilities - Icagen (5) | 7,364 |  |  | — |  |  | — |  |  | 7,364 |
Liability for amounts owed to a former licensor | 86 |  |  | 86 |  |  | — |  |  | — |
Total liabilities | $ | 11,157 |  |  | $ | 86 |  |  | $ | 3,358 |  |  | $ | 7,713 |

Fair Value Measurements at Reporting Date Using
December 31, 2020 |  |  | Quoted Prices in Active Markets for Identical Assets |  | Significant Other Observable Inputs |  | Significant Unobservable Inputs
| Total |  | (Level 1) |  | (Level 2) |  | (Level 3)
Assets: |  |  |  |  |  |  |
Short-term investments (1) | $ | 324,478 |  |  | $ | 3,438 |  |  | $ | 320,647 |  |  | $ | 393 |
Investment in Viking common stock | 32,763 |  |  | 32,763 |  |  | — |  |  | — |
Investment in Viking warrants (2) | 6,326 |  |  | 6,326 |  |  | — |  |  | — |
Total assets | $ | 363,567 |  |  | $ | 42,527 |  |  | $ | 320,647 |  |  | $ | 393 |
Liabilities: |  |  |  |  |  |  |
Contingent liabilities - Crystal (3) | $ | 800 |  |  | $ | — |  |  | $ | — |  |  | $ | 800 |
Contingent liabilities - Cydex | 508 |  |  | — |  |  | — |  |  | 508 |
Contingent liabilities - Metabasis (4) | 3,821 |  |  | — |  |  | 3,821 |  |  | — |
Contingent liabilities - Icagen (5) | 6,404 |  |  | — |  |  | — |  |  | 6,404 |
Contingent liabilities - Pfenex (6) | 37,600 |  |  | — |  |  | — |  |  | 37,600 |
Liability for amounts owed to a former licensor | 60 |  |  | 60 |  |  | — |  |  | — |
Total liabilities | $ | 49,193 |  |  | $ | 60 |  |  | $ | 3,821 |  |  | $ | 45,312 |

(1) Excluding our investment in Viking, our short-term investments in marketable debt and equity securities are classified as available-for-sale securities based on management's intentions and are at level 2 of the fair value hierarchy, as these investment securities are valued based upon quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. Short-term investments in mutual funds are valued at their net asset value (NAV) on the last day of the period. We have classified marketable securities with original maturities of greater than one year as short-term investments based upon our ability and intent to use any and all of those marketable securities to satisfy the liquidity needs of our current operations. In addition, we have investment in warrants resulting from Seelos Therapeutics Inc. milestone payments that were settled in shares during the first quarter of 2019 and are at level 3 of the fair value hierarchy, based on Black Scholes value estimated by management on the last day of the period.
(2) Investment in Viking warrants, which we received as a result of Viking’s partial repayment of the Viking note receivable and our purchase of Viking common stock and warrants in April 2016, is classified as level 1 as the fair value is determined using quoted market prices in active markets for the same securities. The change of the fair value is recorded in “gain (loss) from short-term investments” in our consolidated statement of operations. See further discussion in “Note (3), Short-term Investments: Investment in Viking.”
(3) The fair value of Crystal contingent liabilities was determined using a probability weighted income approach. Most of the contingent payments are based on development or regulatory milestones as defined in the merger agreement with Crystal. The fair value is subjective and is affected by changes in inputs to the valuation model including management’s estimates regarding the timing and probability of achievement of certain developmental and regulatory milestones. During the twelve months ended December 31, 2020, we paid $1.8 million contingent liability on development milestones to former Crystal shareholders.
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(4) In connection with our acquisition of Metabasis in January 2010, we issued Metabasis stockholders four tradable CVRs, one CVR from each of four respective series of CVR, for each Metabasis share. The CVRs entitle Metabasis stockholders to cash payments as frequently as every six months as cash is received by us from proceeds from the sale or partnering of any of the Metabasis drug development programs, among other triggering events. The liability for the CVRs is determined using quoted prices in a market that is not active for the underlying CVR. The carrying amount of the liability may fluctuate significantly based upon quoted market prices and actual amounts paid under the agreements may be materially differ than the carrying amount of the liability. Several of the Metabasis drug development programs have been outlicensed to Viking, including VK2809. VK2809 is a novel selective TR-β agonist with potential in multiple indications, including hypercholesterolemia, dyslipidemia, NASH, and X-ALD. Under the terms of the agreement with Viking, we may be entitled to up to $375.0 million of development, regulatory and commercial milestones and tiered royalties on potential future sales including a $10.0 million payment upon initiation of a Phase 3 clinical trial.
(5) The fair value of Icagen contingent liabilities was determined using a probability weighted income approach. Most of the contingent payments are based on certain revenue milestones as defined in the asset purchase agreement with Icagen. The fair value is subjective and is affected by changes in inputs to the valuation model including management’s estimates regarding the timing and probability of achievement of certain developmental and regulatory milestones. Changes in these estimates may materially affect the fair value. During the year-end December 31, 2021, we paid a $1.1 million contingent liability based on revenue milestones to Icagen.
(6) The fair value of the Pfenex contingent liability was determined using a probability adjusted income approach. These cash flows were then discounted to present value using a discount rate based on the market participants' cost of debt reflective of the Company. During the year-end December 31, 2021, we reduced the contingent liability by $37.6 million primarily due to the lower probability of achieving the specific development and regulatory milestone by December 31, 2021 as defined by the Pfenex CVR. See further detail on Pfenex CVR in Note 4, Acquisitions.
A reconciliation of the level 3 financial instruments as of December 31, 2021 is as follows (in thousands):

Liabilities |
Fair value of level 3 financial instruments as of December 31, 2020 | $ | 45,312 |
Payments to CVR holders and other contingency payments | (1,770) |
Fair value adjustments to contingent liabilities | (36,549) |
Contingent liabilities from xCella asset acquisition | 720 |
Fair value of level 3 financial instruments as of December 31, 2021 | $ | 7,713 |

Assets Measured on a Non-Recurring Basis
We apply fair value techniques on a non-recurring basis associated with valuing potential impairment losses related to our goodwill, indefinite-lived intangible assets, and long-lived assets.
We evaluate goodwill and indefinite-lived intangible assets annually for impairment and whenever circumstances occur indicating that goodwill might be impaired. We determine the fair value of our reporting unit based on a combination of inputs, including the market capitalization of Ligand, as well as Level 3 inputs such as discounted cash flows, which are not observable from the market, directly or indirectly. We determine the fair value of our indefinite-lived intangible assets using the income approach based on Level 3 inputs.
There was no impairment of our goodwill, indefinite-lived assets, or long-lived assets recorded during the twelve months ended December 31, 2021.
Fair Value of Financial Instruments
In August 2014 and May 2018, we issued the 2019 Notes and 2023 Notes, respectively. We use quoted market rates in an inactive market, which are classified as a Level 2 input, to estimate the fair value of our 2019 and 2023 Notes. The carrying value of the notes does not reflect the market rate. See “Note (7), Convertible Senior Notes” for additional information related to the fair value.
In addition, our accounts receivable, accounts payable, accrued liabilities, current deferred revenue, current operating lease liabilities, current financing lease liabilities are financial instruments and are recorded at cost in the consolidated balance sheets. The estimated fair value of these financial instruments approximates their carrying value due to their short-term nature.
6. Leases
Finance lease
In May 2020 and January 2021, we entered into an agreement and the first amendment with Hovione, our third-party manufacturer, to increase our manufacturing of Captisol, respectively. The agreements are considered to include an embedded finance lease under ASC 842, Leases, as it provides the Company the right to use the underlying equipment to exclusively
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manufacture Captisol. As of December 31, 2021, we have fully paid consideration of $69.1 million for prepaid inventory and capacity ramp-up fee. We allocated consideration in the agreements between lease and non-lease components using relative standalone prices. Since the inception of the agreements, we have allocated $50.2 million of the consideration paid to the non-lease component which is accounted for as prepaid inventory and being amortized to cost of Captisol based on the usage. As of December 31, 2021 the Hovione finance lease has no remaining lease liability and the right of use asset balance is $16.1 million. The right of use asset is to be amortized straight-line over the remaining seven year lease term.
Operating lease
We lease certain office facilities and equipment primarily under various operating leases. Our operating leases have remaining contractual terms up to ten years, some of which include options to extend the leases for up to ten years. Our lease agreements do not contain any material residual value guarantees, material restrictive covenants, or material termination options. Our operating lease costs are primarily related to facility leases for administration offices and research and development facilities.
Lease assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists. Lease assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our incremental borrowing rate generally applicable to the location of the lease asset, unless the implicit rate is readily determinable. Lease assets also include any upfront lease payments made and lease incentives. Lease terms include options to extend or terminate the lease when it is reasonably certain that those options will be exercised.
In addition to base rent, certain of our operating leases require variable payments, such as insurance and common area maintenance. These variable lease costs, other than those dependent upon an index or rate, are expensed when the obligation for those payments is incurred. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the expense for these short-term leases and for operating leases is recognized on a straight-line basis over the lease term.
The depreciable life of lease assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
During the year ended December 31, 2021, we entered into several new lease agreements including our Emeryville headquarter and animal facility expansion and a new Icagen office lease, which resulted in an increase in operating lease right of use assets of $12.7 million and lease liabilities of $13.2 million as of December 31, 2021 for the portion of the lease with a starting accounting lease commencement date during the period.
Operating and Finance Lease Assets and Liabilities (in thousands):

| December 31, 2021 |  | December 31, 2020
Assets |  |  |
Operating lease assets | $ | 16,542 |  |  | $ | 6,892 |
Finance lease assets | 16,207 |  |  | 15,842 |
Total lease assets | $ | 32,749 |  |  | $ | 22,734 |
Liabilities |  |  |
Current operating lease liabilities | $ | 2,053 |  |  | $ | 1,885 |
Current finance lease liabilities | 46 |  |  | 6,593 |
| 2,099 |  |  | 8,478 |
Long-term operating lease liabilities | 15,494 |  |  | 5,643 |
Long-term finance lease liabilities | 58 |  |  | 112 |
Total lease liabilities | $ | 17,651 |  |  | $ | 14,233 |

Maturity of Operating and Finance Lease Liabilities as of December 31, 2021 (in thousands):
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Maturity Dates |  | Operating Leases |  | Finance Leases
2022 |  | $ | 3,653 |  |  | $ | 56 |
2023 |  | 3,414 |  |  | 49 |
2024 |  | 2,716 |  |  | 4 |
2025 |  | 2,614 |  |  | — |
2026 |  | 2,670 |  |  | — |
Thereafter |  | 10,832 |  |  | — |
Total lease payments |  | 25,899 |  |  | 109 |
Less tenant improvement allowance |  | (4,327) |  |  | — |
Less imputed interest |  | (4,025) |  |  | (5) |
Present value of lease liabilities |  | $ | 17,547 |  |  | $ | 104 |

As of December 31, 2021, our operating leases have a weighted-average remaining lease term of 8.1 years and a weighted-average discount rate of 4.1%. As of December 31, 2020, our operating leases have a weighted-average remaining lease term of 4.4 years and a weighted-average discount rate of 5.7%. Cash paid for amounts included in the measurement of operating lease liabilities was $2.6 million and $2.4 million for the twelve months ended December 31, 2021 and 2020, respectively. Operating lease expense was $2.6 million (net of sublease income of $0.4 million) and $2.1 million (net of sublease income of $0.3 million) for the twelve months ended December 31, 2021 and 2020, respectively.
As of December 31, 2021, our finance leases have a weighted-average remaining lease term of 7.0 years and a weighted-average discount rate of 3.0%. As of December 31, 2020, our finance leases have a weighted-average remaining lease term of 7.9 years and a weighted-average discount rate of 3.5%. Cash paid for amounts included in the measurement of these finance lease liabilities was $9.3 million and $9.7 million for the twelve months ended December 31, 2021 and 2020, respectively. Finance lease expense was $2.3 million and 0.2 million for the twelve months ended December 31, 2021 and 2020, respectively.
7. Convertible Senior Notes
0.75% Convertible Senior Notes due 2019
In August 2014, we issued $245.0 million aggregate principal amount of 2019 Notes, resulting in net proceeds of $239.3 million. The implied estimated effective rate of the liability component of the 2019 Notes was 5.83%. The 2019 Notes are convertible into common stock at an initial conversion rate of 13.3251 shares per $1,000 principal amount of convertible notes, subject to adjustment upon certain events, which is equivalent to an initial conversion price of approximately $75.05 per share of common stock. The notes bear cash interest at a rate of 0.75% per year, payable semi-annually.
Holders of the 2019 Notes may convert the notes at any time prior to the close of business on the business day immediately preceding May 15, 2019, under any of the following circumstances:
(1) during any fiscal quarter (and only during such fiscal quarter) commencing after December 31, 2014, if,
for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on the last trading day of the immediately preceding fiscal quarter, the last reported sale price of our common stock on such trading day is greater than 130% of the conversion price on such trading day;
(2) during the five business day period immediately following any 10 consecutive trading day period, in which the trading price per $1,000 principal amount of notes was less than 98% of the product of the last reported sale price of our common stock on such trading day and the conversion rate on each such trading day; or
(3) upon the occurrence of certain specified corporate events as specified in the indenture governing the notes.
On May 22, 2018, we entered into a supplemental indenture whereby we made an irrevocable election to settle the entire 2019 Notes in cash. As such, we would have been required to deliver cash to settle the principal and any premium due upon conversion. As a result of the requirement to deliver cash to settle any premium due upon conversion, on May 22, 2018, we reclassified from equity to liability the conversion option (a derivative) fair value of $341.6 million. In accordance with ASC 815, Derivatives and Hedging, the derivative was adjusted to its fair value as of December 31, 2018 to $23.4 million with the resulting $118.7 million increase, net of payments made, reflected in other expense, net, in our consolidated statements of operations for the year ended December 31, 2018.
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In March and April 2018, we received notices for conversion of $21.8 million of principal amount of the 2019 Notes which were settled in May and June 2018. We paid the noteholders the conversion value of the notes in cash, up to the principal amount of the 2019 Notes. The excess of the conversion value over the principal amount, totaling $31.6 million, was paid in shares of common stock. In July and August 2018, we received notices for conversion of $195.9 million of principal amount of the 2019 Notes which were settled in October and November 2018. We paid the noteholders the $195.9 million principal amount and the excess of conversion value over the principal amount, totaling $439.6 million, in cash. The equity dilution and cash conversion premium payment upon conversion of the 2019 Notes was offset by the reacquisition of the shares and cash under the convertible bond hedge transactions entered into in connection with the offering of the 2019 Notes. As a result of the conversions, we recorded a $3.2 million loss on extinguishment of debt calculated as the difference between the estimated fair value of the debt and the carrying value of the 2019 Notes as of the settlement dates. To measure the fair value of the converted 2019 Notes as of the settlement dates, the applicable interest rates were estimated using Level 2 observable inputs and applied to the converted notes using the same methodology as in the issuance date valuation.
In June 2019, we received notices for conversion of $1.0 million of principal amount of the 2019 Notes, which were settled in cash upon the 2019 Notes' maturity date in August 2019. As a result, we paid the noteholders (1) the $1.0 million principal amount, and (2) the excess of conversion value over the principal portion in an amount of $0.5 million in cash.
On August 15, 2019, the 2019 Notes maturity date, we paid the noteholders the remaining $26.3 million principal amount and $11.9 million bond premium, which was classified as a derivative liability, in cash. We recorded the decrease in fair value of the derivative liability of $11.0 million in other expense, net, in our consolidated statements of operations for the twelve months ended December 31, 2019.
Convertible Bond Hedge and Warrant Transactions
In August 2014, we entered into convertible bond hedges and sold warrants covering 3,264,643 shares of our common stock to minimize the impact of potential dilution to our common stock and/or offset the cash payments we were required to make in excess of the principal amount upon conversion of the 2019 Notes.
The convertible bond hedges had an exercise price of $75.05 per share and are exercisable when and if the 2019 Notes were converted. If upon conversion of the 2019 Notes, the price of our common stock was above the exercise price of the convertible bond hedges, the counterparties would have delivered shares of common stock and/or cash with an aggregate value approximately equal to the difference between the price of common stock at the conversion date and the exercise price, multiplied by the number of shares of common stock related to the convertible bond hedge transaction being exercised. The convertible bond hedges and warrants described below were separate transactions entered into by us and were not part of the terms of the 2019 Notes. Holders of the 2019 Notes and warrants did not have any rights with respect to the convertible bond hedges.
As a result of the irrevocable cash election, conversion notices received relating to the 2019 Notes after May 22, 2018 must be fully settled in cash and amounts paid in excess of the principal amount would be offset by an equal receipt of cash under the convertible bond hedge. Upon the 2019 Notes payoff on August 15, 2019, the bond hedge was settled, with the remaining $10.2 million fair value decrease reflected in other expense, net, in our consolidated statement of operations for the twelve months ended December 31, 2019.
Concurrently with the convertible bond hedge transactions, we entered into warrant transactions whereby we sold warrants to acquire 3,264,643 shares of common stock with an exercise price of $125.08 per share, subject to certain adjustments. The warrants had expired between November 13, 2019 and April 22, 2020. The warrants have a dilutive effect to the extent the market price per share of common stock exceeds the applicable exercise price of the warrants, as measured under the terms of the warrant transactions.
0.75% Convertible Senior Notes due 2023
In May 2018, we issued $750 million aggregate principal amount of 2023 Notes, bearing cash interest at a rate of 0.75% per year, payable semi-annually. The net proceeds from the offering, after deducting the initial purchasers' discount and offering expenses, were approximately $733.1 million. The 2023 Notes will be convertible into cash, shares of common stock, or a combination of cash and shares of common stock, at our election, based on an initial conversion rate, subject to adjustment, of 4.0244 shares per $1,000 principal amount of the 2023 Notes which represents an initial conversion price of approximately $248.48 per share.
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Holders of the 2023 Notes may convert the notes at any time prior to the close of business on the business day immediately preceding November 15, 2022, under any of the following circumstances:
(1) during any fiscal quarter (and only during such fiscal quarter) commencing after September 30, 2018, if, for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on the last trading day of the immediately preceding fiscal quarter, the last reported sale price of our common stock on such trading day is greater than 130% of the conversion price on such trading day;
(2) during the five business day period immediately following any 10 consecutive trading day period, in which the trading price per $1,000 principal amount of notes was less than 98% of the product of the last reported sale price of our common stock on such trading day and the conversion rate on each such trading day; or
(3) upon the occurrence of certain specified corporate events as specified in the indenture governing the notes.
The notes will have a dilutive effect to the extent the average market price per share of common stock for a given reporting period exceeds the conversion price of $248.48. As of December 31, 2021, the “if-converted value” did not exceed the principal amount of the 2023 Notes.
In connection with the issuance of the 2023 Notes, we incurred $16.9 million of issuance costs, which primarily consisted of underwriting, legal and other professional fees. The portion of these costs allocated to the liability component totaling $13.7 million is amortized to interest expense using the effective interest method over the five year expected life of the 2023 Notes.
It is our intent and policy to settle conversions through combination settlement, which essentially 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.
During 2020, we repurchased $254.7 million in principal of the 2023 Notes for $222.8 million in cash, including accrued interest of $0.6 million. We accounted for the repurchase as a debt extinguishment, which resulted (1) a loss of $2.5 million reflected in other expense, net, in our consolidated statement of operations for the year ended December 31, 2020; (2) a $35.0 million reduction in debt discount, and (3) a $3.2 million reduction to additional paid-in-capital, net of tax, related to the reacquisition of the equity component in our condensed consolidated balance sheet as of December 31, 2020.
During 2021, we repurchased $152.0 million in principal of the 2023 Notes for $156.0 million in cash, including accrued interest of $0.3 million. We accounted for the repurchase as a debt extinguishment, which resulted in (1) a loss of $7.3 million reflected in other expense, net, in our condensed consolidated statement of operations for the year ended December 31, 2021, (2) a $13.7 million reduction in debt discount, and (3) a $10.2 million reduction to additional paid in capital, net of tax, related to the reacquisition of the equity component in our condensed consolidated balance sheet as of December 31, 2021. After the repurchases, approximately $343.3 million in principal amount of the 2023 Notes remain outstanding.
During February 2022, we repurchased $125.5 million in principal of the 2023 Notes for $123.9 million in cash, including accrued interest of $0.3 million.
Convertible Bond Hedge and Warrant Transactions
In conjunction with the 2023 Notes, in May 2018, we entered into convertible bond hedges and sold warrants covering 3,018,327 shares of our common stock to minimize the impact of potential dilution to our common stock and/or offset the cash payments we are required to make in excess of the principal amount upon conversion of the 2023 Notes. The convertible bond hedges have an exercise price of $248.48 per share and are exercisable when and if the 2023 Notes are converted. We paid $140.3 million for these convertible bond hedges. If upon conversion of the 2023 Notes, the price of our common stock is above the exercise price of the convertible bond hedges, the counterparties will deliver shares of common stock and/or cash with an aggregate value approximately equal to the difference between the price of common stock at the conversion date and the exercise price, multiplied by the number of shares of common stock related to the convertible bond hedge transaction being exercised. The convertible bond hedges and warrants described below are separate transactions entered into by us and are not part of the terms of the 2023 Notes. Holders of the 2023 Notes and warrants will not have any rights with respect to the convertible bond hedges.
Concurrently with the convertible bond hedge transactions, we entered into warrant transactions whereby we sold warrants covering 3,018,327 shares of common stock with an exercise price of $315.38 per share, subject to certain adjustments. We received $90.0 million for these warrants. The warrants have various expiration dates ranging from August 15, 2023 to
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February 6, 2024. The warrants will have a dilutive effect to the extent the market price per share of common stock exceeds the applicable exercise price of the warrants, as measured under the terms of the warrant transactions. The common stock issuable upon exercise of the warrants will be in unregistered shares, and we do not have the obligation and do not intend to file any registration statement with the SEC registering the issuance of the shares under the warrants.
In April 2020, in connection with the repurchases of $234.4 million in principal of the 2023 Notes for $203.8 million in cash, including accrued interest of $0.6 million, during the quarter ended March 31, 2020, we entered into amendments with Barclays Bank PLC, Deutsche Bank AG, London Branch, and Goldman Sachs & Co. LLC to the convertible note hedges transactions we initially entered into in connection with the issuance of the 2023 Notes. The amendments provide that the options under the convertible note hedges corresponding to such repurchased 2023 Notes will remain outstanding notwithstanding such repurchase.
In January 2021, in connection with the repurchases of approximately $20.3 million in principal of the 2023 Notes for approximately $19.1 million in cash, including accrued interest of $0.1 million, during the quarter ended December 31, 2020, we entered into amendments with Barclays Bank PLC, Deutsche Bank AG, London Branch, and Goldman Sachs & Co. LLC to the convertible note hedges transactions we initially entered into in connection with the issuance of the 2023 Notes. The amendments provide that the options under the convertible note hedges corresponding to such repurchased 2023 Notes will remain outstanding notwithstanding such repurchase.
During the year ended December 31, 2021, in connection with the repurchases of $152.0 million in principal of the 2023 Notes for $156.0 million in cash, including accrued interest of $0.3 million, we entered into Warrant Early Unwind Agreements and Bond Hedge Unwind Agreements with Barclays Bank PLC, Deutsche Bank AG, and Goldman Sachs & Co. LLC to unwind a portion of the convertible note hedges transactions we initially entered into in connection with the issuance of the 2023 Notes. We paid $18.4 million as part of the Warrant Early Unwind Agreements reducing the number of shares covered by the warrants from 3,018,327 to 2,559,254. We received $18.9 million as part of the Bond Hedge Early Unwind Agreements reducing the number of options under the convertible bond hedges to 598,021. These unwind transactions resulted in a $0.5 million net increase in additional paid-in-capital in our condensed consolidated balance sheet as of December 31, 2021.
The following table summarizes information about the equity and liability components of the 2023 Notes (in thousands).

| December 31, 2021 |  | December 31, 2020
Principal amount of 2023 Notes outstanding | $ | 343,301 |  |  | $ | 495,280 |
Unamortized discount (including unamortized debt issuance cost) | (22,584) |  |  | (52,987) |
Total long-term portion of notes payable | $ | 320,717 |  |  | $ | 442,293 |
Carrying value of equity component of 2023 Notes | $ | 20,627 |  |  | $ | 48,397 |
Fair value of convertible senior notes outstanding (Level 2) | $ | 341,801 |  |  | $ | 466,053 |

As of December 31, 2021, there were no events of default or violation of any covenants under our financing obligations.
8. Balance Sheet Account Details
Short-term Investments
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Excluding our investments in Viking, the following table summarizes the various investment categories at December 31, 2021 and 2020 (in thousands):

| Cost |  | Gross unrealized gains |  | Gross unrealized losses |  | Estimated fair value
December 31, 2021 |  |  |  |  |  |  |
Short-term investments |  |  |  |  |  |  |
Mutual Fund | $ | 152,136 |  |  | $ | — |  |  | $ | (249) |  |  | $ | 151,887 |
Bank deposits | 63,389 |  |  | 13 |  |  | (21) |  |  | 63,381 |
Commercial paper | 36,008 |  |  | 2 |  |  | (12) |  |  | 35,998 |
Corporate bonds | 29,308 |  |  | 17 |  |  | (38) |  |  | 29,287 |
Corporate equity securities | 5,807 |  |  | 402 |  |  | (2,027) |  |  | 4,182 |
U.S. government securities | 5,577 |  |  | — |  |  | (23) |  |  | 5,554 |
Warrants | — |  |  | 408 |  |  | — |  |  | 408 |
| $ | 292,225 |  |  | $ | 842 |  |  | $ | (2,370) |  |  | $ | 290,697 |
December 31, 2020 |  |  |  |  |  |  |
Short-term investments |  |  |  |  |  |  |
Mutual fund | $ | 151,512 |  |  | 386 |  |  | $ | — |  |  | $ | 151,898 |
Bank deposits | 84,120 |  |  | 35 |  |  | (1) |  |  | $ | 84,154 |
Commercial paper | 45,459 |  |  | 27 |  |  | (1) |  |  | $ | 45,485 |
Corporate bonds | 30,512 |  |  | 99 |  |  | (1) |  |  | $ | 30,610 |
Agency bonds | 4,499 |  |  | 2 |  |  | — |  |  | $ | 4,501 |
Corporate equity securities | 4,466 |  |  | 360 |  |  | (1,388) |  |  | $ | 3,438 |
Treasury bills | 3,999 |  |  | — |  |  | — |  |  | $ | 3,999 |
Warrants | — |  |  | 393 |  |  | — |  |  | $ | 393 |
| $ | 324,567 |  |  | $ | 1,302 |  |  | $ | (1,391) |  |  | $ | 324,478 |

Gain (loss) from short-term investments on our consolidated statements of operations includes both realized and unrealized gain (loss) from our short-term investments in public equity and warrant securities, and realized gain (loss) from available-for-sale debt securities.
The following table summarizes our available-for-sale debt securities by contractual maturity (in thousands):

| December 31, 2021
| Amortized Cost |  | Fair Value
Within one year | $ | 111,334 |  |  | $ | 111,315 |
After one year through five years | 24,952 |  |  | 24,909 |
After five years | — |  |  | — |
Total | $ | 136,286 |  |  | $ | 136,224 |

The following table summarizes our available-for-sale debt securities in an unrealized loss position (in thousands):
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| 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
December 31, 2021 |  |  |  |  |  |  |  |  |  |  |
Bank deposits | $ | (13) |  |  | $ | 20,008 |  |  | $ | — |  |  | $ | — |  |  | $ | (13) |  |  | $ | 20,008 |
Corporate bonds | (15) |  |  | 27,252 |  |  | (5) |  |  | 2,996 |  |  | (20) |  |  | 30,248 |
Commercial paper | (6) |  |  | 6,689 |  |  | (32) |  |  | 10,125 |  |  | (38) |  |  | 16,814 |
U.S. Government Securities | — |  |  | — |  |  | (23) |  |  | 5,553 |  |  | (23) |  |  | 5,553 |
Total | $ | (34) |  |  | $ | 53,949 |  |  | $ | (60) |  |  | $ | 18,674 |  |  | $ | (94) |  |  | $ | 72,623 |
December 31, 2020 |  |  |  |  |  |  |  |  |  |  |
Bank deposits | $ | (1) |  |  | $ | 14,013 |  |  | $ | — |  |  | $ | — |  |  | $ | (1) |  |  | $ | 14,013 |
Corporate bonds | (1) |  |  | 4,526 |  |  | — |  |  | — |  |  | (1) |  |  | 4,526 |
Commercial paper | (1) |  |  | 7,693 |  |  | — |  |  | — |  |  | (1) |  |  | 7,693 |
Total | $ | (3) |  |  | $ | 26,232 |  |  | $ | — |  |  | $ | — |  |  | $ | (3) |  |  | $ | 26,232 |

Our investment policy is capital preservation and we only invested in U.S.-dollar denominated investments. We held a total of 55 positions which were in an unrealized loss position as of December 31, 2021. 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 twelve months ended December 31, 2021.
Property and equipment are stated at cost and consists of the following (in thousands):

| December 31,
| 2021 |  | 2020
Lab and office equipment | $ | 20,183 |  |  | $ | 14,666 |
Leasehold improvements | 7,983 |  |  | 3,519 |
Computer equipment and software | 1,056 |  |  | 1056 |
| 29,222 |  |  | 19,241 |
Less accumulated depreciation and amortization | (8,711) |  |  | (4,807) |
| $ | 20,511 |  |  | $ | 14,434 |

Depreciation of equipment is computed using the straight-line method over the estimated useful lives of the assets which ranges from three to ten years. Leasehold improvements are amortized using the straight-line method over their estimated useful lives or their related lease term, whichever is shorter. Depreciation expense of $3.9 million, $1.8 million, and $1.5 million was recognized for the twelve months ended December 31, 2021, 2020, and 2019, respectively, and was included in operating expenses.
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Goodwill and identifiable intangible assets consist of the following (in thousands):

| December 31,
| 2021 |  | 2020
Indefinite-lived intangible assets |  |  |
Goodwill | $ | 181,206 |  |  | $ | 189,662 |
Definite-lived intangible assets |  |  |
Complete technology | 280,617 |  |  | 277,740 |
Less: Accumulated amortization | (78,991) |  |  | (63,600) |
Trade name | 2,642 |  |  | 2,642 |
Less: Accumulated amortization | (1,444) |  |  | (1,312) |
Customer relationships | 40,700 |  |  | 40,700 |
Less: Accumulated amortization | (18,267) |  |  | (15,597) |
Contractual relationships | 362,000 |  |  | 362,000 |
Less: Accumulated amortization | (36,217) |  |  | (7,243) |
Total goodwill and other identifiable intangible assets, net | $ | 732,246 |  |  | $ | 784,992 |

Amortization of finite-lived intangible assets is computed using the straight-line method over the estimated useful life of the asset of up to 20 years. Amortization expense of $47.2 million, $23.4 million, and $16.9 million was recognized for the years ended December 31, 2021, 2020, and 2019, respectively. Estimated amortization expense for the years ending December 31, 2022 through 2026 is $47.0 million per year. For each of the years ended December 31, 2021, 2021, and 2019, there was no material impairment of intangible assets with finite lives.
Accrued liabilities consist of the following (in thousands):

| December 31,
| 2021 |  | 2020
Compensation | $ | 6,532 |  |  | $ | 8,810 |
Professional fees | 2,046 |  |  | 977 |
Amounts owed to former licensees | 630 |  |  | 421 |
Royalties owed to third parties | 149 |  |  | 693 |
Return reserve and customer refunds | 2,420 |  |  | 687 |
Acquisition related liabilities | 1,000 |  |  | 1,500 |
Subcontractor | 1,759 |  |  | 733 |
Supplier | 848 |  |  | 604 |
Other | 2,195 |  |  | 4,105 |
| $ | 17,579 |  |  | $ | 18,530 |

Contingent liabilities:
In connection with the acquisition of Crystal in October 2017, we entered into contingent liabilities based on achievement of certain research and business milestones as well as certain revenue goal.
In connection with the acquisition of CyDex in January 2011, we issued a series of CVRs and also assumed certain contingent liabilities. We may be required to make additional payments upon achievement of certain clinical and regulatory milestones to the CyDex shareholders and former license holders.
In connection with the acquisition of Metabasis in January 2010, we entered into four CVR agreements with Metabasis shareholders. The CVRs entitle the holders to cash payments as frequently as every six months as proceeds are received by us upon the sale or licensing of any of the Metabasis drug development programs and upon the achievement of specified milestones.
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For CVRs associated with the Pfenex and Icagen acquisitions, see “Note (4), Acquisitions” for more information.
The following table summarizes roll-forward of contingent liabilities as of December 2021 and 2020 (in thousands):

| December 31, 2019 | Additional Contingent Liabilities | Payments | Fair Value Adjustment | Repurchases | December 31, 2020 |  |  | Payments | Fair Value Adjustment | Repurchases | December 31, 2021
Cydex | $ | 348 |  | $ | — |  | $ | — |  | $ | 160 |  | $ | — |  | $ | 508 |  |  |  | $ | (50) |  | $ | (108) |  | $ | — |  | $ | 350 |
Metabasis | 5,935 |  | — |  | — |  | (1,867) |  | (247) |  | 3,821 |  |  |  | — |  | (464) |  | — |  | 3,357 |
Crystal | 2,659 |  | — |  | (1,800) |  | (59) |  | — |  | 800 |  |  |  | — |  | (800) |  | — |  | — |
Icagen | — |  | 4,800 |  | (525) |  | 2,129 |  | — |  | 6,404 |  |  |  | (1,050) |  | 2,010 |  | — |  | 7,364 |
Pfenex | — |  | 37,000 |  | — |  | 600 |  | — |  | 37,600 |  |  |  | — |  | (37,600) |  | — |  | — |
xCella | — |  | — |  | — |  | — |  | — |  | — |  |  |  | (720) |  | 720 |  | — |  | — |
Total | $ | 8,942 |  | $ | 41,800 |  | $ | (2,325) |  | $ | 963 |  | $ | (247) |  | $ | 49,133 |  |  |  | $ | (1,820) |  | $ | (36,242) |  | $ | — |  | $ | 11,071 |

9. Stockholders’ Equity
Share-based Compensation Expense
The following table summarizes non-cash share-based compensation expense (in thousands):

| December 31,
| 2021 |  | 2020 |  | 2019
Share-based compensation expense as a component of: |  |  |  |  |
Research and development expenses | $ | 17,436 |  |  | $ | 13,497 |  |  | $ | 9,641 |
General and administrative expenses | 21,347 |  |  | 17,230 |  |  | 14,874 |
| $ | 38,783 |  |  | $ | 30,727 |  |  | $ | 24,515 |

Stock Plans
In December 2020, our 2002 Stock Incentive Plan was amended to increase the number of shares available for issuance by 1.1 million shares. As of December 31, 2021, there were 0.7 million shares available for future option grants or direct issuance under the Amended 2002 Plan.
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Following is a summary of our stock option plan activity and related information:

| Shares |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual Term in Years |  | Aggregate Intrinsic Value (In thousands)
Balance at January 1, 2019 | 1,736,304 |  |  | $ | 66.71 |  |  | 5.47 |  | $ | 125,858 |
Granted | 338,617 |  |  | $ | 116.69 |  |  |  |  |
Exercised | (112,011) |  |  | $ | 23.65 |  |  |  |  |
Forfeited | (6,531) |  |  | $ | 139.37 |  |  |  |  |
Balance at December 31, 2019 | 1,956,379 |  |  | $ | 77.54 |  |  | 5.45 |  | 72,002 |
Exercisable at December 31, 2019 | 1,454,726 |  |  | $ | 61.82 |  |  | 4.42 |  | 70,345 |
Options vested and expected to vest as of December 31, 2019 | 1,956,379 |  |  | $ | 77.54 |  |  | 5.45 |  | $ | 72,002 |
Granted | 806,300 |  |  | $ | 92.93 |  |  |  |  |
Exercised | (156,845) |  |  | $ | 21.26 |  |  |  |  |
Forfeited | (44,012) |  |  | $ | 91.30 |  |  |  |  |
Balance at December 31, 2020 | 2,561,822 |  |  | $ | 85.59 |  |  | 6.09 |  | 59,033 |
Exercisable at December 31, 2020 | 1,611,830 |  |  | $ | 76.05 |  |  | 4.54 |  | 53,286 |
Options vested and expected to vest as of December 31, 2020 | 2,561,822 |  |  | $ | 85.59 |  |  | 6.09 |  | $ | 59,033 |
Granted | 393,589 |  |  | $ | 159.12 |  |  |  |  |
Exercised | (619,731) |  |  | $ | 54.28 |  |  |  |  |
Forfeited | (136,082) |  |  | $ | 110.83 |  |  |  |  |
Balance at December 31, 2021 | 2,199,598 |  |  | $ | 106.00 |  |  | 6.34 |  | 113,302 |
Exercisable at December 31, 2021 | 1,391,952 |  |  | $ | 98.16 |  |  | 5.12 |  | 80,849 |
Options vested and expected to vest as of December 31, 2021 | 2,199,598 |  |  | $ | 106.00 |  |  | 6.34 |  | $ | 113,302 |

The weighted-average grant-date fair value of all stock options granted during 2021, 2020 and 2019 was $80.08, $41.39 and $48.65 per share, respectively. The total intrinsic value of all options exercised during 2021, 2020 and 2019 was approximately $77.3 million, $11.9 million and $10.4 million, respectively.
Cash received from options exercised, net of fees paid, in 2021, 2020 and 2019 was $33.0 million, $2.5 million and $2.6 million, respectively.
Following is a further breakdown of the options outstanding as of December 31, 2021:

Range of exercise prices | Options outstanding |  | Weighted average remaining life in years |  | Weighted average exercise price |  | Options exercisable |  | Weighted average exercise price
$12.53-$56.26 | 253,824 |  |  | 1.94 |  | $ | 37.55 |  |  | 239,824 |  |  | $ | 38.90 |
$67.53-$74.42 | 278,281 |  |  | 4.04 |  | $ | 72.10 |  |  | 217,587 |  |  | $ | 73.17 |
$82.90-$95.35 | 159,988 |  |  | 5.06 |  | $ | 86.11 |  |  | 132,963 |  |  | $ | 86.24 |
$95.68 | 266,263 |  |  | 8.12 |  | $ | 95.68 |  |  | 109,154 |  |  | $ | 95.68 |
$98.20-$100.38 | 294,772 |  |  | 7.33 |  | $ | 99.10 |  |  | 160,120 |  |  | $ | 99.79 |
$101.07-$117.58 | 159,204 |  |  | 7.45 |  | $ | 111.26 |  |  | 99,488 |  |  | $ | 111.18 |
$117.97 | 237,292 |  |  | 7.12 |  | $ | 117.97 |  |  | 158,958 |  |  | $ | 117.97 |
$119.08-$159.01 | 299,585 |  |  | 7.00 |  | $ | 149.40 |  |  | 205,098 |  |  | $ | 152.50 |
$159.81-$171.28 | 6,881 |  |  | 6.51 |  | $ | 166.28 |  |  | 5,828 |  |  | $ | 165.62 |
$177.50-$195.91 | 243,508 |  |  | 8.91 |  | $ | 178.62 |  |  | 62,932 |  |  | $ | 181.84 |
| 2,199,598 |  |  | 6.34 |  | $ | 106.00 |  |  | 1,391,952 |  |  | $ | 98.16 |

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The assumptions used for the specified reporting periods and the resulting estimates of weighted-average grant date fair value per share of options granted:

| Year Ended December 31,
| 2021 |  | 2020 |  | 2019 |
Risk-free interest rate | 0.4%-1.2% |  | 0.2%-1.4% |  | 1.4%-2.6% |
Expected volatility | 47%-63% |  | 47%-71% |  | 40%-49% |
Expected term | 4.7 to 6.3 years |  | 4.7 to 5.1 years |  | 4.6 to 5.9 years |

As of December 31, 2021, there was $40.7 million of total unrecognized compensation cost related to non-vested stock options. That cost is expected to be recognized over a weighted average period of 2.4 years.
Restricted Stock Activity
The following is a summary of our restricted stock activity and related information:

| Shares |  | Weighted-Average Grant Date Fair Value
Outstanding at January 1, 2019 | 132,273 |  |  | $ | 130.63 |
Granted | 118,498 |  |  | $ | 115.90 |
Vested | (102,846) |  |  | $ | 121.55 |
Forfeited | (666) |  |  | $ | 134.36 |
Outstanding at December 31, 2019 | 147,259 |  |  | $ | 125.11 |
Granted | 111,306 |  |  | $ | 89.73 |
Vested | (52,363) |  |  | $ | 121.69 |
Forfeited | — |  |  | $ | — |
Outstanding at December 31, 2020 | 206,202 |  |  | $ | 106.88 |
Granted | 167,292 |  |  | $ | 169.63 |
Vested | (98,501) |  |  | $ | 125.59 |
Forfeited | (10,850) |  |  | $ | 141.85 |
Outstanding at December 31, 2021 | 264,143 |  |  | $ | 138.21 |

As of December 31, 2021, unrecognized compensation cost related to non-vested stock awards amounted to $20.6 million. That cost is expected to be recognized over a weighted average period of 1.6 years.
Employee Stock Purchase Plan
As of December 31, 2021, 44,360 shares of our common stock are available for future issuance under the Amended Employee Stock Purchase Plan, or ESPP. The ESPP permits eligible employees to purchase up to 1,250 shares of Ligand common stock per calendar year at a discount through payroll deductions. The price at which stock is purchased under the ESPP is equal to 85% of the fair market value of the common stock on the first of a six month offering period or purchase date, whichever is lower. There were 8,448, 6,455 and 4,745 shares issued under the ESPP in 2021, 2020 and 2019, respectively.
Share Repurchases
On September 11, 2019, our Board of Directors approved a stock repurchase program authorizing the repurchase of up to $500.0 million of our common stock from time to time over the next three years. We expect to acquire shares primarily through open-market transactions and have entered into a Rule 10b5-1 trading plan, and may enter into additional Rule 10b5-1 trading plans in the future, to facilitate open-market repurchases. The timing and amount of repurchase transactions will be determined by management based on our evaluation of market conditions, share price, legal requirements and other factors. Our prior $350.0 million stock repurchase program was terminated in connection with the approval of the new stock repurchase program. Authorization to repurchase $248.8 million of our common stock remained available as of December 31, 2021.
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During the twelve months ended December 31, 2021, we did not repurchase any common stock. During the twelve months ended December 31, 2020 and 2019, we repurchased 934,079 shares for $78.0 million, and 4,122,133 shares for $448.4 million, respectively.
10. Commitment and Contingencies: Legal Proceedings
We record an estimate of a loss when the loss is considered probable and estimable. Where a liability is probable and there is a range of estimated loss and no amount in the range is more likely than any other number in the range, we record the minimum estimated liability related to the claim in accordance with ASC 450, Contingencies. As additional information becomes available, we assess the potential liability related to our pending litigation and revises our estimates. Revisions in our estimates of potential liability could materially impact our results of operations.
On April 9, 2019, CyDex, our wholly-owned subsidiary, received a Paragraph IV certification Notice Letter from Alembic Global Holdings SA (“Alembic”) stating that Alembic had submitted an ANDA to the FDA, seeking approval to manufacture, offer to sell, and sell a generic version of EVOMELA® prior to the expiration of any of the ’077 patent; the ’088 patent, the ’582 patent, or U.S. Patent No. 10,040,872 (“the ’872 patent”), and alleging that these patents, each of which relates to Captisol, are invalid, unenforceable, and/or would not be infringed by Alembic’s ANDA product. On May 23, 2019, CyDex filed a complaint against Alembic, Alembic Pharmaceuticals, Ltd., and Alembic Pharmaceuticals, Inc. in the U.S. District Court for the District of Delaware, asserting that the filing of Alembic’s ANDA constitutes infringement of each of the ’088 patent and the ’582 patent. The parties entered into a settlement agreement on June 1, 2021 and the lawsuit has been dismissed.
On September 16, 2019, CyDex received a Paragraph IV certification Notice Letter from Lupin Ltd. (“Lupin”) stating that Lupin had submitted an ANDA to the FDA, seeking approval to manufacture, offer to sell, and sell a generic version of EVOMELA® prior to the expiration of any of the ’077 patent; the ’088 patent, the ’582 patent, or the ’872 patent, and alleging that these patents, each of which relates to Captisol, are invalid, unenforceable, and/or would not be infringed by Lupin’s ANDA product. CyDex filed a complaint on October 29, 2019, alleging patent infringement against Lupin. Lupin filed an answer on December 11, 2019 and counterclaimed for declaratory judgments of invalidity and non-infringement as to all four patents and CyDex filed its answer to Lupin’s counterclaims on January 2, 2020. The parties entered into a settlement agreement on April 26, 2021 and the lawsuit has been dismissed.
On October 31, 2019, we received three civil complaints filed in the U.S. District Court for the Northern District of Ohio on behalf of several Indian tribes. The Northern District of Ohio is the Court that the Judicial Panel on Multi-District Litigation (“JPML”) has assigned more than one thousand civil cases which have been designated as a Multi-District Litigation (“MDL”) and captioned In Re: National Prescription Opiate Litigation. The allegations in these complaints focus on the activities of defendants other than the company and no individualized factual allegations have been advanced against us in any of the three complaints. We reject all claims raised in the complaints and intend to vigorously defend these matters.
On January 12, 2021, Abvivo submitted a JAMS arbitration demand naming the Company as respondent. Abvivo claimed that the Company was in violation of the assignment provision of that certain Commercial Platform License and Services Agreement (“CPLSA”), dated October 9, 2019, by and among OMT and Crystal, on the one hand, and Abvivo, on the other hand because the Company allegedly withheld its consent to a proposed assignment required for Abvivo to negotiate a discovery and development alliance with certain third parties. On January 26, 2021, we submitted a response to the demand, denying all claims and alleging counterclaims against Abvivo and Brian Lundstrom, a Company employee and the sole owner of Abvivo. We alleged that Mr. Lundstrom breached his fiduciary duty of loyalty to the Company and that Abvivo and Mr. Lundstrom fraudulently induced the Company, OMT and Crystal into certain business transactions and contracts. Abvivo and Mr. Lundstrom’s response to these counterclaims was due on February 9, 2021, but they did not submit a response. Under JAMS rules, the counterclaims were deemed denied. On February 22, 2021, Abvivo submitted documents to JAMS which indicated that it sought to dismiss its claim without prejudice. On February 25, 2021, we submitted additional counterclaims against Abvivo and Mr. Lundstrom. These counterclaims alleged that Abvivo and Mr. Lundstrom made false promises regarding the CPLSA, Abvivo’s breach of and failure to perform under the CPLSA, and Abvivo’s infringement of certain Ligand trademarks. On March 11, 2021, Abvivo and Mr. Lundstrom submitted an answer to our amended counterclaims denying all of the claims and asserting various affirmative defenses. On June 21, 2021, the parties executed a confidential settlement agreement that settled all claims in this arbitration. On June 29, 2021, the parties jointly submitted to JAMS a dismissal with prejudice of all claims by all parties in the arbitration.
CyDex and Baxter Healthcare Corp. (“Baxter”) are parties to a license agreement relating to Ligand’s Captisol technology and, more specifically, relating to Captisol-enabled Nexterone (amiodarone HCl premixed injection). Baxter contends that it has
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overpaid royalties for several years, and seeks both refunds of those overpayment and a reduced royalty going forward. CyDex contends that Baxter has not paid the royalties due to CyDex under the terms of the license agreement. On April 6, 2021, Baxter initiated an arbitration with the American Arbitration Association pursuant to the arbitration provision of the license agreement. On April 21, 2021, CyDex filed an Answering Statement and Counterdemand. On May 5, 2021, Baxter filed an Answering Statement in response to CyDex’s Counterdemand. On June 30, 2021, the parties held a Preliminary Hearing before the arbitrator. The parties have completed fact discovery and have exchanged expert witness statements; depositions of the expert witnesses will be completed by the end of March 2022. The arbitration hearing is currently scheduled for May 2022.
From time to time, we may also become subject to other legal proceedings or claims arising in the ordinary course of our business. We currently believe that none of the claims or actions pending against us is likely to have, individually or in the aggregate, a material adverse effect on our business, financial condition or results of operations. Given the unpredictability inherent in litigation, however, we cannot predict the outcome of these matters.
11. Income Taxes
The components of the income tax expense (benefit) for continuing operations are as follows (in thousands):

| Year Ended December 31,
| 2021 |  | 2020 |  | 2019
Current expense (benefit): |  |  |  |  |
Federal | $ | (1,190) |  |  | $ | 10,889 |  |  | $ | 89,471 |
State | (32) |  |  | 589 |  |  | 3,103 |
Foreign | — |  |  | 23 |  |  | (66) |
| (1,222) |  |  | 11,501 |  |  | 92,508 |
Deferred expense (benefit): |  |  |  |  |
Federal | (7,355) |  |  | (15,672) |  |  | 74,627 |
State | (1,263) |  |  | (3,382) |  |  | 202 |
| (8,618) |  |  | (19,054) |  |  | 74,829 |
Total income tax expense (benefit) | $ | (9,840) |  |  | $ | (7,553) |  |  | $ | 167,337 |

A reconciliation of income tax expense (benefit) from continuing operations to the amount computed by applying the statutory federal income tax rate to the net income (loss) from continuing operations is summarized as follows (in thousands):

| Year Ended December 31,
| 2021 |  | 2020 |  | 2019
Tax at federal statutory rate | $ | 9,932 |  |  | $ | (2,213) |  |  | $ | 167,294 |
State, net of federal benefit | (408) |  |  | (1,456) |  |  | 2,466 |
Contingent liabilities | (8,161) |  |  | (278) |  |  | 18 |
Share-based compensation | (11,919) |  |  | (362) |  |  | (819) |
FDII | (637) |  |  | (1,652) |  |  | (402) |
Research and development credits | (2,692) |  |  | (699) |  |  | (879) |
Change in uncertain tax positions | 586 |  |  | (650) |  |  | 441 |
Rate change for changes in federal, foreign or state law | (7,963) |  |  | (173) |  |  | (210) |
Provision to return adjustments | (617) |  |  | (4,803) |  |  | (184) |
Foreign tax differential on income/loss of foreign subsidiaries | (114) |  |  | (3,839) |  |  | 57 |
Change in valuation allowance | 11,410 |  |  | (121,876) |  |  | (1,193) |
Sale of Vernalis R&D | — |  |  | 127,372 |  |  | — |
Other | 743 |  |  | 3,076 |  |  | 748 |
| $ | (9,840) |  |  | $ | (7,553) |  |  | $ | 167,337 |

We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. Significant components of our deferred tax assets and liabilities as of December 31, 2021 and 2020 are shown below. We assess the positive and negative evidence to determine if sufficient future taxable income will be generated to
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use the existing deferred tax assets. Our evaluation of evidence resulted in management concluding that the majority of our deferred tax assets will be realized. However, we maintain a valuation allowance to offset certain net deferred tax assets as management believes realization of such assets are uncertain as of December 31, 2021, 2020 and 2019. The valuation allowance increased $11.4 million in 2021, decreased $116.5 million in 2020 and increased $136.9 million in 2019.
We offset all deferred tax assets and liabilities by jurisdiction, as well as any related valuation allowance, and present them on our consolidated balance sheet as a non-current deferred income tax asset or liability (as applicable). Deferred tax assets (liabilities) are comprised of the following:

| December 31,
| 2021 |  | 2020
| (in thousands)
Deferred tax assets: |  |  |
Net operating loss carryforwards | $ | 64,352 |  |  | $ | 64,147 |
Research credit carryforwards | 27,797 |  |  | 19,623 |
Stock compensation | 11,374 |  |  | 11,994 |
Other | 19,668 |  |  | 13,120 |
| 123,191 |  |  | 108,884 |
Valuation allowance for deferred tax assets | (36,283) |  |  | (24,858) |
Net deferred tax assets | $ | 86,908 |  |  | $ | 84,026 |
Deferred tax liabilities: |  |  |
Identified intangibles | (102,221) |  |  | (119,381) |
Other | (9,300) |  |  | (4,923) |
Net deferred tax liabilities | $ | (111,521) |  |  | $ | (124,304) |
Deferred income taxes, net | $ | (24,613) |  |  | $ | (40,278) |

As of December 31, 2021, we had federal net operating loss carryforwards set to expire through 2037 of $119.6 million and $176.3 million of state net operating loss carryforwards that begin to expire in 2032. We also have $9.8 million of federal research and development credit carryforwards, which expire through 2041. We have $29.7 million of California research and development credit carryforwards that have no expiration date. In addition, we have approximately $101.6 million of non-U.S. net operating loss carryovers and approximately $17.5 million of non-U.S. capital loss carryovers that have no expiration date. At December 31, 2020 we had approximately $110.1 million of non-U.S. net operating loss carryovers and approximately $17.6 million of non-U.S. capital loss carryovers. We have a full valuation allowance against these non-U.S. tax attributes. The year over year decrease in non-U.S. deferred tax assets was attributable to the sale of Vernalis in December 2020. The remaining non-U.S. deferred tax assets as of December 31, 2021 were attributable to the portion of the Vernalis business that we did not sell. We have a full valuation allowance against these non-U.S. tax attributes. See detail in “Note (2), Sale of Vernalis R&D and Promacta License.”
Pursuant to Section 382 and 383 of the Internal Revenue Code of 1986, as amended, utilization of our net operating losses and credits may be subject to annual limitations in the event of any significant future changes in its ownership structure. These annual limitations may result in the expiration of net operating losses and credits prior to utilization. The deferred tax assets as of December 31, 2021 are net of any previous limitations due to Section 382 and 383.
We account for income taxes by evaluating a probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Our remaining liabilities for uncertain tax positions are presented net of the deferred tax asset balances on the accompanying consolidated balance sheet.
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A reconciliation of the amount of unrecognized tax benefits at December 31, 2021, 2020 and 2019 is as follows (in thousands):

| December 31,
| 2021 |  | 2020 |  | 2019
Balance at beginning of year | $ | 31,871 |  |  | $ | 28,736 |  |  | $ | 30,289 |
Additions based on tax positions related to the current year | 252 |  |  | 3,911 |  |  | 543 |
Additions for tax positions of prior years | 945 |  |  | 179 |  |  | — |
Reductions for tax positions of prior years | (3,072) |  |  | (955) |  |  | (2,096) |
Balance at end of year | $ | 29,996 |  |  | $ | 31,871 |  |  | $ | 28,736 |

Included in the balance of unrecognized tax benefits at December 31, 2021 is $28.1 million of tax benefits that, if recognized would impact the effective rate. There are no positions for which it is reasonably possible that the uncertain tax benefit will significantly increase or decrease within twelve months.
We recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2021 and December 31, 2020, we recognized an immaterial amount of interest and penalties. We file income tax returns in the United States, various state jurisdictions, United Kingdom, and Canada with varying statutes of limitations. The federal statute of limitation remains open for the 2018 tax year to the present. The state income tax returns generally remain open for the 2017 tax year through the present. Net operating loss and research credit carryforwards arising prior to these years are also open to examination if and when utilized. No tax returns are currently under examination by any tax authorities. We believe our reserve for unrecognized tax benefits and contingent tax issues is adequate with respect to all open years.

Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. | Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures
We are responsible for maintaining disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports we file under the Exchange Act is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. As of the end of the period covered by this Annual Report on Form 10-K, we have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, and have concluded our disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2021.
There have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
(b) Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our
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financial statements in accordance with generally accepted accounting principles; providing reasonable assurance that receipts and expenditures are made in accordance with our management and directors; and providing reasonable assurance that
unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) as set forth in the 2013 Internal Control-Integrated Framework. Based on our evaluation under the 2013 framework in Internal Control - Integrated Framework, management concluded that our internal controls over financial reporting were effective as of December 31, 2021.
Ernst & Young LLP, an independent registered public accounting firm, has audited the Company’s consolidated financial statements included in this Annual Report on Form 10-K and has issued an attestation report, included herein, on the effectiveness of our internal control over financial reporting as of December 31, 2021.
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Report of Independent Registered Public Accounting Firm
The Stockholders and Board of Directors of Ligand Pharmaceuticals Incorporated
Opinion on Internal Control Over Financial Reporting
We have audited Ligand Pharmaceuticals Incorporated’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Ligand Pharmaceuticals Incorporated (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated February 28, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
San Diego, California
February 28, 2022

Item 9B. | Other Information

None
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Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

None
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Part III

Item 10. | Directors, Executive Officers and Corporate Governance

Code of Conduct
The Board of Directors has adopted a Code of Conduct and Ethics Policy (“Code of Conduct”) that applies to all officers, directors and employees. The Company will promptly disclose (1) the nature of any amendment to the Code of Conduct that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions and (2) the nature of any waiver, including an implicit waiver, from a provision of our Code of Conduct that is granted to one of these specified officers, the name of such person who is granted the waiver and the date of the waiver on our website in the future. The Code of Conduct can be accessed via our website (http://www.ligand.com), Corporate Overview page. You may also request a free copy by writing to: Investor Relations, Ligand Pharmaceuticals Incorporated, 5980 Horton Street, Suite 405, Emeryville, CA 94608.
The other information under Item 10 is hereby incorporated by reference to Ligand’s Definitive Proxy Statement to be filed with the SEC within 120 days of December 31, 2021.

Item 11. | Executive Compensation

Item 11 is hereby incorporated by reference to Ligand’s Definitive Proxy Statement to be filed with the SEC within 120 days of December 31, 2021.

Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 12 is hereby incorporated by reference to Ligand’s Definitive Proxy Statement to be filed with the SEC within 120 days of December 31, 2021.

Item 13. | Certain Relationships and Related Transactions, and Director Independence

Item 13 is hereby incorporated by reference to Ligand’s Definitive Proxy Statement to be filed with the SEC within 120 days of December 31, 2021.

Item 14. | Principal Accountant Fees and Services

Item 14 is hereby incorporated by reference to Ligand’s Definitive Proxy Statement to be filed with the SEC within 120 days of December 31, 2021.
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PART IV

Item 15. | Exhibits and Financial Statement Schedule

(a) The following documents are included as part of this Annual Report on Form 10-K.
(1) Financial statements

Index to Consolidated Financial Statements | 51
Report of Independent Registered Public Accounting Firm | 52
Consolidated Balance Sheets | 53
Consolidated Statements of Operations | 54
Consolidated Statements of Comprehensive Income (Loss) | 55
Consolidated Statements of Stockholders’ Equity | 57
Consolidated Statements of Cash Flows | 57
Notes to Consolidated Financial Statements | 59

(2) Schedules not included herein have been omitted because they are not applicable or the required information is in the consolidated financial statements or notes thereto.
(3) The following exhibits are filed as part of this Form 10-K and this list includes the Exhibit Index.

|  | Incorporated by Reference |
Exhibit Number | Description of Exhibit | Form | File Number | Date of Filing | Exhibit Number | Filed Herewith
2.1 | Asset Purchase Agreement, dated March 5, 2019, by and among Ligand Pharmaceuticals Incorporated and RPI Financial Trust | 8-K | 001-33093 | March 5, 2019 | 2.1 |
2.2 | Asset Purchase Agreement, dated February 11, 2020, (as amended on April 1, 2020), by and among Ligand Pharmaceuticals Incorporated, Icagen Inc., Icagen Corp., XRPro Sciences, Inc. and Caldera Discovery, Inc. | 10-Q | 001-33093 | May 8, 2020 | 2.1 |
2.3 | Agreement and Plan of Merger, dated as of August 10, 2020, by and among Pfenex Inc., Ligand Pharmaceuticals Incorporated and Pelican Acquisition Sub, Inc. | 8-K | 001-33093 | August 11, 2020 | 2.1 |
2.4 | Agreement and Plan of Merger, dated September 8, 2020, among Ligand Pharmaceuticals Incorporated, xCella Biosciences, Inc. and Eton Venture Services, Ltd. Co., as stockholders’ representative | 8-K | 001-33093 | September 10, 2020 | 10.1 |
2.5 | Agreement and Plan of Merger, dated September 9, 2020, among Ligand Pharmaceuticals Incorporated, Taurus Biosciences, LLC and the other signatories listed therein | 8-K | 001-33093 | September 10, 2020 | 10.2 |
2.6* | Agreement for the Sale and Purchase of the Entire Issued Share Capital of Vernalis (R&D) Limited, dated as of October 11, 2020, by and among Ligand Pharmaceuticals Incorporated, Vernalis Limited, HitGen UK Ltd and HitGen Inc. | 8-K | 001-33093 | October 13, 2020 | 2.1 |
3.1 | Amended and Restated Certificate of Incorporation of the Company. | S-4 | 333-58823 | July 9, 1998 | 3.1 |
3.2 | Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, dated June 14, 2000 | 10-K | 0-20720 | March 29, 2001 | 3.5 |
3.3 | Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, dated June 30, 2004 | 10-Q | 0-20720 | August 5, 2004 | 3.6 |

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3.4 | Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, dated November 17, 2010 | 8-K | 001-33093 | November 19, 2010 | 3.1 |
3.5 | Certificate of Amendment of the Amended and Restated Certification of Incorporation of the Company, dated June 19, 2018 | S-8 | 333-233130 | August 8, 2019 | 3.6 |
3.6 | Fourth Amended and Restated Bylaws of the Company | 8-K | 001-33093 | October 30, 2020 | 3.1 |
4.1 | Specimen stock certificate for shares of the common stock of the Company | 10-K | 001-33093 | March 1, 2018 | 4.1 |
4.2 | Indenture, dated as of May 22, 2018, between the Company and Wilmington Trust, National Association, as trustee, including the form of 0.75% Convertible Senior Notes due 2023 | 8-K | 001-33093 | May 22, 2018 | 4.1 |
4.3 | Description of Registered Securities | 10-K | 001-33093 | February 24, 2021 | 4.3 |
10.1# | 2002 Stock Incentive Plan (as amended and restated effective December 15, 2020) | 10-K | 001-33093 | February 24, 2021 | 10.1 |
10.2# | 2002 Employee Stock Purchase Plan (as amended and restated effective June 6, 2019) | DEF | 001-33093 | April 24, 2019 | Appendix B |
10.3# | Form of Stock Option Grant Notice and Stock Option Agreement under the Company’s 2002 Stock Incentive Plan | 10-K | 001-33093 | February 24, 2014 | 10.5 |
10.4# | Form of Stock Issuance Agreement for non-employee directors under the Company’s 2002 Stock Incentive Plan | S-1 | 333-131029 | January 13, 2006 | 10.289 |
10.5# | Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement under the Company’s 2002 Stock Incentive Plan | 10-K | 001-33093 | March 1, 2018 | 10.6 |
10.6# | Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement under the Company’s 2002 Stock Incentive Plan - Performance-Based RSU Form | 10-K | 001-33093 | March 1, 2018 | 10.7 |
10.7# | Form of Executive Officer Change in Control Severance Agreement | 8-K | 001-33093 | August 22, 2007 | 10.1 |
10.8# | Amended and Restated Severance Plan, dated December 20, 2008 | 8-K | 001-33093 | December 24, 2008 | 10.2 |
10.9# | Amended and Restated Director Compensation and Stock Ownership Policy, effective March 28, 2019 | 10-K | 001-33093 | February 27, 2020 | 10.9 |
10.10 | TR Beta Contingent Value Rights Agreement, dated January 27, 2010, among the Company, Metabasis Therapeutics, Inc., David F. Hale and Mellon Investor Services LLC | 8-K | 001-33093 | January 28, 2010 | 10.2 |
10.1 1 | General Contingent Value Rights Agreement, dated January 27, 2010, among the Company, Metabasis Therapeutics, Inc., David F. Hale and Mellon Investor Services LLC | 8-K | 001-33093 | January 28, 2010 | 10.4 |
10.1 2 | Amendment of General Contingent Value Rights Agreement, dated January 26, 2011, among the Company, Metabasis Therapeutics, Inc., David F. Hale and Mellon Investor Services LLC | 8-K | 001-33093 | January 31, 2011 | 10.1 |
10.1 3 | Amendment of General Contingent Value Rights Agreement dated May 20, 2014 among the Company, Metabasis Therapeutics, Inc., David F. Hale and Computershare Inc. | 8-K | 001-33093 | May 22, 2014 | 10.1 |
10.1 4 | Amendment of TR Beta Contingent Value Rights Agreement dated May 20, 2014 among the Company, Metabasis Therapeutics, Inc., David F. Hale and Computershare, Inc. | 8-K | 001-33093 | May 22, 2014 | 10.2 |
10.1 5† | Captisol® Supply Agreement, dated December 20, 2002, among CyDex, Inc., Hovione LLC, Hovione FarmaCiencia S.A., Hovione Pharmascience Limited and Hovione International Limited | 10-K | 001-33093 | March 3, 2011 | 10.1 |

97

10.1 6† | 1st Amendment to Captisol® Supply Agreement, dated July 29, 2005, among CyDex, Inc., Hovione LLC, Hovione FarmaCiencia S.A., Hovione Pharmascience Limited and Hovione International Limited | 10-K | 001-33093 | March 3, 2011 | 10.101 |
10.1 7 | 2nd Amendment to Captisol® Supply Agreement, dated March 1, 2007, among CyDex, Inc., Hovione LLC, Hovione FarmaCiencia S.A., Hovione Pharmascience Limited, and Hovione International Limited | 10-K | 001-33093 | March 3, 2011 | 10.102 |
10.18† | 3rd Amendment to Captisol® Supply Agreement, dated January 25, 2008, among CyDex, Inc., Hovione LLC, Hovione FarmaCiencia S.A., Hovione Pharmascience Limited, and Hovione International Limited | 10-K | 001-33093 | March 3, 2011 | 10.103 |
10.19† | 4th Amendment to Captisol® Supply Agreement, dated September 28, 2009, among CyDex Pharmaceuticals, Inc., Hovione LLC, Hovione FarmaCiencia S.A., Hovione Pharmascience Limited and Hovione International Limited | 10-K | 001-33093 | March 3, 2011 | 10.104 |
10.2 0† | License Agreement, dated September 3, 1993, between CyDex L.C. and The University of Kansas | 10-K | 001-33093 | March 3, 2011 | 10.105 |
10.2 1 | First Amendment to License Agreement, dated February 24, 1998, between CyDex, Inc. and The University of Kansas | 10-K | 001-33093 | March 3, 2011 | 10.106 |
10.2 2† | Second Amendment to License Agreement, dated August 4, 2004, between CyDex, Inc. and The University of Kansas | 10-K | 001-33093 | March 3, 2011 | 10.107 |
10.2 3† | Acknowledgement Agreement, dated February 22, 2008, between CyDex, Inc. and The University of Kansas | 10-K | 001-33093 | March 3, 2011 | 10.111 |
10.2 4† | Exclusive License Agreement, dated June 4, 1996, between Pfizer, Inc. and The University of Kansas | 10-K | 001-33093 | March 3, 2011 | 10.108 |
10.2 5† | Addendum to Nonexclusive License Agreement, dated December 11, 2001, between CyDex, Inc. and Pfizer, Inc. | 10-K | 001-33093 | March 3, 2011 | 10.11 |
10.26† | License Agreement, by and between CyDex Pharmaceuticals, Inc. and Spectrum Pharmaceuticals, Inc., dated as of March 8, 2013 | 10-Q | 001-33093 | May 8, 2013 | 10.2 |
10.27† | Supply Agreement, by and between CyDex Pharmaceuticals, Inc. and Spectrum Pharmaceuticals, Inc., dated as of March 8, 2013 | 10-Q | 001-33093 | May 8, 2013 | 10.3 |
10.28† | Royalty Stream and Milestone Payments Purchase Agreement, dated April 29, 2013, between the Company and Selexis S.A. | 10-Q | 001-33093 | August 1, 2013 | 10.2 |
10.29† | Master License Agreement dated May 21, 2014 among the Company, Metabasis Therapeutics, Inc. and Viking Therapeutics, Inc. | 10-Q | 001-33093 | August 5, 2014 | 10.2 |
10.3 0† | First Amendment to Master License Agreement dated September 6, 2014 among the Company, Metabasis Therapeutics, Inc. and Viking Therapeutics, Inc. | 10-Q | 001-33093 | October 31, 2014 | 10.9 |
10.31† | Second Amendment to Master License Agreement, dated April 8, 2015, among the Company, Metabasis Therapeutics, Inc. and Viking Therapeutics, Inc. | 10-Q | 001-33093 | August 5, 2015 | 10.1 |
10.3 2 | Letter Agreement, dated as of August 12, 2014, between Bank of America, N.A. and the Company regarding the Base Issuer Warrant Transaction | 8-K | 001-33093 | August 18, 2014 | 10.2 |
10.3 3 | Letter Agreement, dated as of August 12, 2014, between Deutsche Bank AG, London Branch and the Company regarding the Base Issuer Warrant Transaction | 8-K | 001-33093 | August 18, 2014 | 10.4 |
10.3 4 | Letter Agreement, dated as of August 14, 2014, between Bank of America, N.A. and the Company regarding the Additional Issuer Warrant Transaction | 8-K | 001-33093 | August 18, 2014 | 10.6 |

98

10.3 5 | Letter Agreement, dated as of August 14, 2014, between Deutsche Bank AG, London Branch and the Company regarding the Additional Issuer Warrant Transaction | 8-K | 001-33093 | August 18, 2014 | 10.8 |
10.36† | Development Funding and Royalties Agreement, dated December 13, 2018, by and between Ligand Pharmaceuticals Incorporated and Palvella Therapeutics, Inc. | 10-K | 001-33093 | February 28, 2019 | 10.48 |
10.37** | Sublicense Agreement between the Company, Pharmacopeia, Inc. and Retrophin LLC dated as of February 16, 2012, as amended through Amendment No. 5 to Sublicense Agreement, dated March 20, 2018. |  |  |  |  | X
10.38† | Lease, dated November 3, 2015, between the Company and 3911/3931 SVB, LLC | 8-K | 001-33093 | November 10, 2015 | 10.1 |
10.39 | Lease, dated June 8, 2021, between the Company and Emery Station Office II, LLC |  |  |  |  | X
10.4 0† | Interest Purchase Agreement, dated May 3, 2016, between the Company and CorMatrix Cardiovascular, Inc. | 8-K/A | 001-33093 | May 9, 2016 | 10.1 |
10.4 1 | Amended and Restated Interest Purchase Agreement, dated May 31, 2017, between the Company and CorMatrix Cardiovascular, Inc. | 10-Q | 001-033093 | August 9, 2017 | 10.2 |
10.4 2 | Letter Agreement, dated as of May 17, 2018, between Barclays Capital Inc. and the Company regarding the Base Convertible Note Hedge Transaction | 8-K | 001-00393 | May 22, 2018 | 10.1 |
10.4 3 | Letter Agreement, dated as of May 17, 2018, between Barclays Capital Inc. and the Company regarding the Base Issuer Warrant Transaction | 8-K | 001-00393 | May 22, 2018 | 10.2 |
10.4 4 | Letter Agreement, dated as of May 17, 2018, between Deutsche Bank AG and the Company regarding the Base Convertible Note Hedge Transaction | 8-K | 001-00393 | May 22, 2018 | 10.3 |
10.4 5 | Letter Agreement, dated as of May 17, 2018, between Deutsche Bank AG and the Company regarding the Base Issuer Warrant Transaction | 8-K | 001-00393 | May 22, 2018 | 10.4 |
10.46 | Letter Agreement, dated as of May 17, 2018, between Goldman Sachs & Co. LLC and the Company regarding the Base Convertible Note Hedge Transaction | 8-K | 001-00393 | May 22, 2018 | 10.5 |
10.47 | Letter Agreement, dated as of May 17, 2018, between Goldman Sachs & Co. LLC and the Company regarding the Base Issuer Warrant Transaction | 8-K | 001-00393 | May 22, 2018 | 10.6 |
10.48 | Letter Agreement, dated as of May 18, 2018, between Barclays Capital Inc. and the Company regarding the Additional Convertible Note Hedge Transaction | 8-K | 001-00393 | May 22, 2018 | 10.7 |
10.49 | Letter Agreement, dated as of May 18, 2018, between Barclays Capital Inc. and the Company regarding the Additional Warrant Transaction | 8-K | 001-00393 | May 22, 2018 | 10.8 |
10.5 0 | Letter Agreement, dated as of May 18, 2018, between Deutsche Bank AG and the Company regarding the Additional Convertible Note Hedge Transaction | 8-K | 001-00393 | May 22, 2018 | 10.9 |
10.5 1 | Letter Agreement, dated as of May 18, 2018, between Deutsche Bank AG and the Company regarding the Additional Warrant Transaction | 8-K | 001-00393 | May 22, 2018 | 10.10 |
10.5 2 | Letter Agreement, dated as of May 18, 2018, between Goldman Sachs & Co. LLC and the Company regarding the Additional Convertible Note Hedge Transaction | 8-K | 001-00393 | May 22, 2018 | 10.11 |

99

10.5 3 | Letter Agreement, dated as of May 18, 2018, between Goldman Sachs & Co. LLC and the Company regarding the Additional Warrant Transaction | 8-K | 001-00393 | May 22, 2018 | 10.12 |
10.54# | Form of Indemnification Agreement between the Company and each of its directors | 10-K | 001-33093 | March 1, 2018 | 10.60 |
10.55# | Form of Indemnification Agreement between the Company and each of its officers | 10-K | 001-33093 | March 1, 2018 | 10.60 |
10.5 6† | Addendum, dated May 22, 2019, by and among Ligand Pharmaceuticals Incorporated, CyDex Pharmaceuticals, Inc., and Acrotech Biopharma LLC (as successor-in-interest to Spectrum Pharmaceuticals, Inc.), to that certain License Agreement between Ligand Pharmaceuticals Incorporated and Spectrum Pharmaceuticals, Inc., dated March 8, 2013 | 10-Q | 001-33093 | August 8, 2019 | 10.1 |
10.57 | Call Option Amendment Agreement, dated April 6, 2020, between the Registrant and Barclays Bank PLC | 10-Q | 001-33093 | May 8, 2020 | 10.1 |
10.58 | Call Option Amendment Agreement, dated April 6, 2020, between the Registrant and Deutsche Bank AG, London Branch | 10-Q | 001-33093 | May 8, 2020 | 10.2 |
10.59 | Call Option Amendment Agreement, dated April 6, 2020, between the Registrant and Goldman Sachs & Co. LLC | 10-Q | 001-33093 | May 8, 2020 | 10.3 |
10.6 0 | Call Option Amendment Agreement, dated January 28, 2021, between the Registrant and Barclays Bank PLC | 10-K | 001-33093 | February 24, 2021 | 10.67 |
10.6 1 | Call Option Amendment Agreement, dated January 28, 2021, between the Registrant and Deutsche Bank AG, London Branch | 10-K | 001-33093 | February 24, 2021 | 10.68 |
10.6 2 | Call Option Amendment Agreement, dated January 28, 2021, between the Registrant and Goldman Sachs & Co. LLC | 10-K | 001-33093 | February 24, 2021 | 10.69 |
10.63 | Contingent Value Rights Agreement, dated September 9, 2020, between Ligand Pharmaceuticals Incorporated and Vaughn Smider, as Members' Representative (regarding Taurus Biosciences, LLC acquisition) (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 10, 2020) | 8-K | 001-33093 | September 10, 2020 | 10.3 |
10.64 | Commercial License Agreement, dated September 9, 2020, between Taurus Biosciences, LLC and Minotaur Therapeutics, Inc. (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 10, 2020) | 8-K | 001-33093 | September 10, 2020 | 10.4 |
10.65 | Supply agreement, dated December 22, 2015, by and between Cydex Pharmaceuticals, Inc. and Gilead Sciences, Inc. | 10-K | 001-33093 | February 24, 2021 | 10.72 |
10.66 | Amendment to Supply Agreement, dated September 21, 2020, by and between Cydex Pharmaceuticals, Inc. and Gilead Sciences, Inc., which amends that certain Supply Agreement, dated December 2, 2015, by and between Cydex Pharmaceuticals, Inc. and Gilead Sciences, Inc. | 10-Q | 001-33093 | November 6, 2020 | 10.2 |
21.1 | Subsidiaries of the Company |  |  |  |  | X
23.1 | Consent of Independent Registered Public Accounting Firm |  |  |  |  | X
31.1 | Certification by Principal Executive Officer, Pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |  |  |  |  | X

100

31.2 | Certification by Principal Financial Officer, Pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |  |  |  |  | X
32.1 | Certifications by Principal Executive Officer and Principal Financial Officer, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |  |  |  |  | X
101 | The following financial information from our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, formatted in iXBRL (inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statement of Comprehensive Income, (iv) Consolidated Statements of Stockholders' Equity, (v) Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements. |  |  |  |  | X
104 | The cover page from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021, formatted in Inline XBRL and contained in Exhibit 101. |  |  |  |  | X

† Confidential treatment has been requested for portions of this exhibit. These portions have been omitted and submitted separately to the Securities and Exchange Commission.
# Indicates management contract or compensatory plan.
* Certain schedules and annexes have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or annex will be furnished as a supplement to the U.S. Securities and Exchange Commission upon request.
** Pursuant to Item 601(b)(10) of Regulation S-K, certain confidential portions of this exhibit were omitted by means of marking such portions with an asterisk because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

Item 16. | Form 10-K Summary

None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

LIGAND PHARMACEUTICALS INCORPORATED
By: | /S/ J OHN L. H IGGINS
| John L. Higgins,
| Chief Executive Officer

Date: February 28, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
101

Signature |  | Title |  | Date
/s/ J OHN L. H IGGINS |  | Chief Executive Officer and Director (Principal Executive Officer) |  | February 28, 2022
John L. Higgins |  |
/s/ MATTHEW KORENBERG |  | Executive Vice President, Finance and Chief Financial Officer (Principal Financial and Accounting Officer) |  | February 28, 2022
Matthew Korenberg |  |
/s/ JOHN W. KOZARICH |  | Director and Chairman of the Board |  | February 28, 2022
John W. Kozarich |  |
/s/ JASON M. ARYEH |  | Director |  | February 28, 2022
Jason M. Aryeh |  |
/s/ SARAH BOYCE |  | Director |  | February 28, 2022
Sarah Boyce |  |
/s/ JENNIFER COCHRAN |  | Director |  | February 28, 2022
Jennifer Cochran |  |  |
/s/ TODD C. DAVIS |  | Director |  | February 28, 2022
Todd C. Davis |  |
/s/ NANCY R. GRAY |  | Director |  | February 28, 2022
Nancy R. Gray |  |
/s/ JOHN L. LAMATTINA |  | Director |  | February 28, 2022
John L. LaMattina |  |
/s/ SUNIL PATEL |  | Director |  | February 28, 2022
Sunil Patel |  |
/s/ STEPHEN L. SABBA |  | Director |  | February 28, 2022
Stephen L. Sabba |  |

102