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Commercial License and Other Economic Rights | 12 Months Ended
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Dec. 31, 2023
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Commercial License and Other Economic Rights | Commercial License and Other Economic Rights As of December 31, 2023 and 2022, commercial license and other economic rights consist of the following (in thousands):
|  | December 31, 2023 |  | December 31, 2022
|  | Gross |  | Adjustments(1) |  | Net |  | Gross |  | Adjustments(2) |  | Net
Elutia and CorMatrix |  | $ | 17,696 |  |  | $ | (11,882) |  |  | $ | 5,814 |  |  | $ | 17,696 |  |  | $ | (9,538) |  |  | $ | 8,158 |
Selexis and Dianomi |  | 8,602 |  |  | (7,841) |  |  | 761 |  |  | 10,602 |  |  | (8,578) |  |  | 2,024 |
Ovid |  | 30,310 |  |  | (303) |  |  | 30,007 |  |  | — |  |  | — |  |  | — |
Tolerance |  | 25,911 |  |  | (202) |  |  | 25,709 |  |  | — |  |  | — |  |  | — |
Palvella |  | 5,000 |  |  | — |  |  | 5,000 |  |  | — |  |  | — |  |  | — |
Total |  | $ | 87,519 |  |  | $ | (20,228) |  |  | $ | 67,291 |  |  | $ | 28,298 |  |  | $ | (18,116) |  |  | $ | 10,182 |
(1) Amounts represent accumulated amortization to principal of $11.2 million, credit loss adjustments of $8.1 million, and impairment of $0.9 million as of December 31, 2023. (2) Amounts represent accumulated amortization to principal of $11.6 million and credit loss adjustments of $6.5 million as of December 31, 2022. Commercial license and other economic rights represent a portfolio of future milestone and royalty payment rights acquired from Selexis, S.A. (Selexis) in April 2013 and April 2015, CorMatrix Cardiovascular, Inc. (CorMatrix) in May 2016, which was later acquired by Aziyo (Aziyo changed its corporate name to Elutia Inc. ("Elutia") in September 2023) in 2017, Dianomi Therapeutics, Inc. in January 2019, Ovid Therapeutics Inc. in October 2023, Tolerance Therapeutics, Inc. in November 2023, and Palvella Therapeutics, Inc. in December 2023. Commercial license and other economic rights acquired are accounted for as financial assets as further discussed below. 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. We recorded a $0.9 million impairment loss for Selexis commercial license rights during the year ended December 31, 2023 as a result of recently reduced programs. In May 2017, we entered into a royalty agreement with Elutia Inc. pursuant to which we will receive royalties from certain marketed products that Elutia acquired from CorMatrix. Pursuant to the agreement, we received $10.0 million in 2017 from Elutia to buydown the royalty rates on the products CorMatrix sold to Elutia. The agreement closed on May 31, 2017, in connection with the closing of the asset sale from CorMatrix to Elutia (the “CorMatrix Asset Sale”). Per the agreement, we will receive a 5% royalty on the products Elutia 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, Elutia has agreed to pay us up to $10.0 million of additional milestones tied to cumulative net sales of the products Elutia 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 Elutia 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 Elutia commercial license right as a financial asset in accordance with ASC 310. During the year ended December 31, 2023, we further considered the current and expected future economic and market conditions and recorded a $3.2 million credit loss adjustment to Elutia commercial license rights based on the assessment of current company performance and nonpayment by Elutia in recent quarters. This credit loss adjustment was recorded to General and administrative expense in our consolidated statement of operations. As of December 31, 2023, management is in process of modifying the payment terms with Elutia and has placed the loan on the non-accrual method during the year ended December 31, 2023 until we are able to reliably estimate future cash flows. We 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. The annual effective interest associated with the forecasted cash flows from the royalty agreement with Selexis as of December 31, 2023 is 2.5%. 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, 2023 and 2022 were allocated accordingly between revenue and the amortization of the commercial license rights. We had accounted for commercial license rights related to Dianomi on a non-accrual basis and had fully reserved the credit loss as of December 31, 2022. Dianomi Therapeutics, Inc. was dissolved in July 2023; therefore, we removed the related commercial license rights as of December 31, 2023. In October 2023, we made an investment of $30 million to acquire a 13% portion of the royalties and milestones owed to Ovid Therapeutics related to the potential approval and commercialization of soticlestat. We performed predominant analysis and determined that the predominant characteristics of the underlyings are the sales-based milestones and royalties since the value of the projected cash flows tied to the underlyings are highly correlated with changes in the projected cash flows from royalties and commercial milestones and not the regulatory milestones. Therefore, the Ovid contract qualifies for the royalty scope exception under ASC815, Derivatives and Hedging, and is accounted for as a financial asset in accordance with ASC 310. As soticlestat is in Phase 3 clinical trials, management has placed the investment on the non-accrual method during the year ended December 31, 2023 until we are able to reliably estimate future cash flows. In November 2023, we acquired Tolerance Therapeutics, Inc. (“Tolerance Therapeutics”) for $20 million in cash. Tolerance Therapeutics is a holding company, owned by the inventors of TZIELD (teplizumab), that is owed a royalty of less than 1% on worldwide net sales. TZIELD is marketed by Sanofi in 2023. We account for the Tolerance commercial license right as a financial asset in accordance with ASC 310. Due to the early stages of TZIELD's commercialization, management has placed the investment on the non-accrual method during the year ended December 31, 2023 until we are able to reliably estimate future cash flows. In December 2023, we announced the expansion of its strategic partnership with Palvella to accelerate Phase 3 development of QTORIN rapamycin for the treatment of Microcystic Lymphatic Malformations ("Microcystic LMs"). According to the terms of the second amendment to the development funding and royalties agreement, Palvella received an upfront payment of $5.0 million from Ligand. In return for the upfront payment, among other contractual changes, the tiered royalty payable by Palvella to Ligand was increased to between 8.0% and 9.8% based on annual aggregate worldwide net sales of QTORIN rapamycin. We are not obligated to provide additional funding to Palvella for development or commercialization of OTORIN. We determined the economic rights related to 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 Palvella. As of December 31, 2023, of the $5.0 million upfront funding related to the second amendment with Palvella, none of the funding to Palvella was expended, and we will reduce our asset as the funds are expended by Palvella in the future. Our CEO and director, Todd Davis, is a director of Palvella, who beneficially owns less than 2% of Palvella's outstanding equity. Mr. Davis recused himself from all of the board's consideration of the agreement between us and Palvella, including any financial analysis, the terms of the amendment and the vote to approve the purchase agreement and the related transactions.

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